I. DEFINITION AND OBJECTIVE OF A CONTRACT OF AGENCY a.

Definition Article 1868 of the Civil Code defines the contract of agency as one whe reby "a person binds himself to render some service or to do something in repres entation or on behalf of another, with the consent or authority of the latter."[ 1] b. Purpose or Objective of Agency In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007 ), the Court held -In a contract of agency, a person binds himself to render some service o r to do something in representation or on behalf of another with the latter's co nsent. The underlying principle of the contract of agency is to accomplish resul ts by using the services of others - to do a great variety of things like sellin g, buying, manufacturing, and transporting. Its purpose is to extend the persona lity of the principal or the party for whom another acts and from whom he or she derives the authority to act. (at p.592) The purpose of every contract of agency is the ability, by legal fictio n, to extend the personality of the principal through the facility of the agent; but the same can only be effected with the consent of the principal. Orient Air Service & Hotel Representatives v. Court of Appeals, 197 SCRA 645 (1991). In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that "It bears stressing that in an agent-principal relationship, the personalit y of the principal is extended through the facility of the agent. In so doing, t he agent, by legal fiction, becomes the principal, authorized to perform all act s which the latter would have him do. Such a relationship can only be effected w ith the consent of the principal, which must not, in any way, be compelled by la w or by any court."[2] (at p.223) When the agency is established, and the agent acts for the principal, h e is insofar as the world is concerned essentially the principal acting in the p articular contract or transaction on hand. Consequently, the acts of the agent o n behalf of the principal within the scope of the authority have the same legal effect and consequence as though the principal had been the one so acting in the given situation. Some of the legal consequences that flow from the doctrine of representation in the contract of agency are that - Notice to the agent is notice to the principal. Air France v. Court of Appeals, 126 SCRA 448 (1983). When an agent purchases the property in bad faith, the principal should also be deemed a purchaser in bad faith. Caram, Jr. v. Laureta, 103 SCRA 7 (1981). A suit against an agent cannot, without compelling reasons, be considered a suit against the principal PNB v. Ritratto Groups, Inc., 362 SCRA 216 (2001). c. Parties to a Contract of Agency The parties to a contract of agency are the PRINCIPAL (the person repre sented) and the AGENT (the person who acts for and in representation of another) . Although Article 1868 defines agency in terms of being a contract, it should a lso be considered that upon the perfection of the contract of agency, it creates between the principal and an agent an on-going legal relationship that imposes personal obligations on both parties. The other terms used for the position of agent are "attorney-in-fact", "proxy", "delegate" or "representative." (1) Capacity of the Parties The principal must have capacity to contract (Arts. 1327 and 1329), and may either be a natural or juridical person (Art. 1919[4]). There is legal literature that holds that since the agent assumes no pe rsonal liability, he does not have to possess full capacity to act insofar as th ird persons are concerned.[3] Since a contract of agency is first and foremost a contract in itself, the parties (both principal and agent) have to be capacitat ed for a valid agency contract to arise. If one of the parties has no legal capa city to contract, then the contract of agency is not void, but merely voidable,

which means that it is valid until annulled. Thus, a voidable agency will produce legal consequences, when it is pur sued to enter into juridical relations with third parties. If the principal is t he one who has no legal capacity to contract, and his agent enters into a contra ctual relationship in his name with a third party, the resulting contract is voi dable and subject to annulment. On the other hand, if the principal has legal ca pacity, and it is the agent that has no legal capacity to contract, the underlyi ng agency relationship is voidable, and when the incapacitated agent enters into a contract with a third party, the resulting contract would be valid, not voida ble, for the agents incapacity is irrelevant, for the contract has been entered i nto for and in behalf of the principal, who has full legal capacity. The foregoing discussions would all make sense to support the fact that as a general proposition the lack of legal capacity of the agent does not affec t the constitution of the agency relationship. And yet, it is clear under Articl e 1919(3) that if during the term of the agency, the principal or agent is place d under civil interdiction, or becomes insane or insolvent, the agency is ipso j ure extinguished. It is therefore only logical to conclude that if the loss of l egal capacity of the agent extinguishes the agency, then necessarily any of thos e same lack of legal capacity on either or both the principal and agent would no t bring about a contract of agency. d. Elements of the Contract of Agency Like any other contract, agency contains the essential elements of cons ent, object or subject matter and cause or consideration. In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), the Court held that the following are the essential elements of the contract of agency: (a) Consent, express or implied, of the parties to establish the relationship; (b) Object, is the execution of a juridical act in relation to third parties; (c) The agent acts as a representative and not for himself; and (d) The agent acts within the scope of his authority.[4] (1) Consent Consent of both principal and agent is necessary to create an agency. T he principal must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and the intention of the parties must fi nd expression either in words or conduct between them. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006). The basis for agency is representation. On the part of the principal, t here must be an actual intention to appoint or an intention naturally inferable from his words or actions; and on the part of the agent, there must be an intent ion to accept the appointment and act on it, and in the absence of such intent, there is generally no agency. Dominion Insurance Corp. v. Court of Appeals, 426 SCRA 620 (2002). (2) Object or Subject Matter Object of an agency contract is service, which particularly is undertak ing of the agent to enter into juridical acts with third persons on behalf of th e principal. (3) Consideration Cause or Consideration in agency is the commission that the principal wo uld pay the agent. Under Article 1875, agency is presumed to be for a compensati on, unless there is proof to the contrary. In other words, liberality may be the proper cause or consideration for an agency contract only when it is so express ly agreed upon. In Aguna v. Larena, 57 Phil 630 (1932), although the agent had rendered service to the principal covering collection of rentals from the various tenant s of the principal, and in spite of the agreement that principal would pay for t he agent's service, nevertheless, the principal allowed the agent to occupy one of his parcels of land and to build his house thereon. Consequently, the Court h eld that the service rendered by the agent was deemed to be gratuitous, apart fr

om the occupation of some of the house of the deceased by the plaintiff and his family, "for if it were true that the agent and the deceased principal had an un derstanding to the effect that the agent was to receive compensation aside from the use and occupation of the houses of the deceased, it cannot be explained how the agent could have rendered services as he did for eight years without receiv ing and claiming any compensation from the deceased." (at p. 632) (4) Entitlement of Agent to Commission Anchored on Rendering of Service The compensation that the principal agrees to pay to the agent is part of the terms of the contract of agency upon which their minds meet. Therefore, t he extent and manner by which the agent would be entitled to receive compensatio n or commission is based on the terms of the contract. Sometimes, the terms are not that clear, and decisions have had to deal with the issue of when an agent h as merited the right to receive the compensation stipulated. The doctrine that m ay be derived from the various decisions on the matter are anchored on the natur e of the contract of agency as a species of contracts of services in general; an d that consequently, an agent should be entitled to receive compensation when it has been established that it was through his efforts or service that the object of the agency was achieved. Thus, in Inland Realty v. Court of Appeals, 273 SCRA 70 (1997), the Cou rt held that "Although the ultimate buyer was introduced by the agent to the pri ncipal during the term of the agency, nevertheless, the lapse of the period of m ore than one (1) year and five (5) months between the expiration of petitioners' authority to sell and the consummation of the sale, cannot authorize compelling the principal to pay the stipulated brokers fee, since the agent was not longer entitled thereto. The Court takes into strong consideration that utter lack of e vidence of the agent showing any further involvement in the negotiations between principal and buyer during that period and in the subsequent processing of the documents pertinent to said sale." (at p. 79) In contrast, in Manotok Bros. Inc. v. Court of Appeals, 221 SCRA 224 (1 993), the Court held that although the sale of the object of the agency to sell was perfected three days after the expiration of the agency period, the agent wa s still be entitled to receive the commission stipulated based on the doctrine h eld in Prats v. Court of Appeals, 81 SCRA 360 (1978), that when the agent was th e efficient procuring cause in bringing about the sale that the agent was entit led to compensation. In essence, the Court ruled that when there is a close, pro ximate and causal connection between the agent's efforts and labor and the princ ipal's sale of his property, the agent is entitled to a commission. e. Essential Characteristics of Agency (1) Nominate and Principal Not only is the contract of agency specifically named as such under the Civil Code, it is a principal contract because it can stand on its own without need of another contract to validate it. The real value of the contract of agency being a "nominate and principa l" contract is that it has been so set apart by law and provided with its own se t of rules and legal consequences, that any other arrangement that essentially f alls within its terms shall be considered as an agency arrangement and shall be governed by the Law on Agency, notwithstanding any intention of the parties to t he contrary. After all, a contract is what the law says it is, and not what the parties call it. In Doles v. Angeles, 492 SCRA 607 (2006), it was held that if an act do ne by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is not so called --it will be an agency whether the parties understood the exact nature of the re lation or not. (2) Consensual The contract of agency is perfected by mere consent. Under Article 1869 , an agency may be expressed or implied from the act of the principal, from his silence or lack of action, or failure to repudiate the agency; agency may be ora l, unless the law requires a specific form.[5]

(3) Unilateral and Primarily Onerous Ordinarily, an agency is onerous in nature, where the agency expects co mpensation for his services in the form of say commissions. However, Article 187 5 recognizes that an agency may be supported by pure liberality, and thus would be gratuitous, but the burden of proof would be to show that the agency was cons tituted gratuitously. When it is gratuitous, the contract of agency is unilateral contract be cause it only creates an obligation on the part of the agent. But even when it i s supported by a valuable consideration (i.e., compensated or onerous agency), i t would still be characterized as a unilateral contract, because it is only the fulfillment of the primary obligations of the agent to render some service upon which the subordinate obligation of the principal to pay the compensation agreed upon arises. When an agent accepts the agency position without compensation, he assu mes the same responsibility to carry out the agency and therefore incurs the sam e liability when he fails to fulfill his obligations to the principal. However, under Article 1909, the circumstance that the agency was for compensation or not shall be considered by the courts in determining the extent of the liability of the agent for fraud or negligence. (4) Preparatory and Representative There is no doubt that agency is a species of the broad grouping of wha t we call the "service contracts", which includes employment contract, managemen t contract and contract-for-a piece of work. There are also special service cont racts which include the rendering of professional service (e.g., doctors and law yers), and consultancy work. But it is the characteristic of "representation" th at is the most distinguishing characteristic of agency when compared with other service contracts, in that the main purpose is to allow the agent to enter into contracts with third parties which would bind the principal. A contract of agency does not exist for its own purpose; it is a prepar atory contract entered into for other purpose that deal with the public. In Amon Trading Corp. v. Court of Appeals, 477 SCRA 552 (2005), the Cou rt decreed that "In a bevy of cases as the avuncular case of Victorias Milling C o., Inc. v. Court Appeals, 333 SCRA 663 (2000) the Supreme Court decreed from Ar ticle 1868 that the basis of agency is representation," and that consequently on e of the strongest feature of a true contract of agency is that of "control"--th at the agent is under the control and instruction of the principal. Thus, in Vic torias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000), it was ruled -It is clear from Article 1868 that the basis of agency is representation .[6] On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions; and on the part o f the agent, there must be an intention to accept the appointment and act on it, and in the absence of such intent, there is generally no agency. One factor whi ch most clearly distinguishes agency from other legal concepts is control; one p erson - the agent - agrees to act under the control or direction of another - th e principal. Indeed, the very word "agency" has come to connote control by the p rincipal.[7] The control factor, more than any other, has caused the courts to p ut contracts between principal and agent in a separate category. . . . x x x In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC w as not subject to STM's control. The question of whether a contract is one of sa le or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed. That the authorization given to CSC c ontained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties. That no agency wa s meant to be established by the CSC and STM is clearly shown by CSC's communica tion to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The u se of the words "sold and endorsed" means that STM and CSC intended a contract o f sale, and not an agency. Hence, on this score, no error was committed by the r

espondent appellate court when it held that CSC was not STM's agent and could in dependently sue petitioner. (at pp. 676-677) In Doles v. Angeles, 492 SCRA 607 (2006), it was held that for an agency to arise, it is not necessary that the principal personally encounter the third person with whom the agent interacts precisely, the purpose of agency is to exte nd the personality of the principal through the facility of the agent. In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007 ), the Court held -It is said that the basis of agency is representation, that is, the agen t acts for and on behalf of the principal on matters within the scope of his aut hority and said acts have the same legal effect as if they were personally execu ted by the principal. By this legal fiction, the actual or real absence of the p rincipal is converted into his legal or juridical presence qui facit per alium fa cit per se. (at p.593) Earlier, in Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1 978), the Court held that "Agency is basically personal, representative, and der ivative in nature. The authority of the agent to act emanates from the powers gr anted to him by his principal; his act is the act of the principal if done withi n the scope of the authority. Qui facit per alium facit per se. 'He who acts thr ough another acts himself.'" (at p. 259) (4) Fiduciary and Revocable A contract of agency creates a legal relationship of representation by the agent on behalf of the principal, and consequently, it is fiduciary in natur e. One of the legal consequences of the fiduciary nature of the contract of agen cy is that it is essentially revocable in nature: neither the principal nor the agent can be legally made to remain in the relationship when they choose to have it terminated. Severino v. Severino, 44 Phil. 343 (1923), held that the relations of an agent to his principal are fiduciary in character because they are based on tru st and confidence, which must flow from the essential nature a contract of agenc y that makes the agent the representative of the principal. Consequently: (a) As regards property forming the subject matter of the agency, the agent is estopped from asserting or acquiring a title adverse to that of the principal. (Art. 1435); (b) In a conflict-of-interest situation, the agent cannot choose a course that favors himself to the detriment of the principal; he must choose to the best advantage of the principal. Thomas v. Pineda, 89 Phil. 312 (1951); Palma v. Cristobal, 77 Phil. 712 (1946); and (c) The agent cannot acquire for himself the property of the principal which has been given to his management for sale or disposition (Art. 1491[2]); unless there is an express consent on the part of the principal (Cui v. Cui, 100 Phil. 913 (1957); or when the agent purchases after the agency is terminated (Valera v. Velasco, 51 Phil. 695 (1928). A contract of agency is generally revocable as it is a personal contrac t of representation based on trust and confidence reposed by the principal on hi s agent. As the power of the agent to act depends on the will and license of the principal he represents, the power of the agent ceases when the will or permiss ion is withdrawn by the principal. Thus, generally, the agency may be revoked by the principal at will. Republic v. Evangelista, 466 SCRA 544 (2005). In Orient Air Services v. Court of Appeals, 197 SCRA 645 (1991), it was held that the decision of the lower court ordering the principal airline compan y to "reinstate defendant as its general sales agent for passenger transportatio n in the Philippines in accordance with said GSA Agreement," is unlawful since c ourts have no authority to compel the principal to reinstate a contract of agenc y it has terminated with the agent: "Such would be violative of the principles a nd essence of agency, defined by law as a contract whereby 'a person binds himse lf to render some service or to do something in representation or on behalf of a

nother, WITH THE CONSENT OR AUTHORITY OF THE LATTER.' In an agent-principal rela tionship, the personality of the principal is extended through the facility of t he agent. In so doing, the agent, by legal fiction, becomes the principal, autho rized to perform all acts which the latter would have him do. Such a relationshi p can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The Agreement itself between the part ies states that either party may terminate the Agreement without cause by giving the other 30 days notice by letter, telegram or cable.'"[8] (at p. 656) (1) Principles Flowing from Agency Characteristics of "Preparatory and Representative" The following principles flow from the application of the essential cha racteristics of an agency being "preparatory and representative" contract, thus: (a) The contract entered into with third persons pertains to the principal and not to the agent; the agent is a stranger to said contract although he physically was the one who entered into it in a representative capacity; the agent has neither rights or obligations from the resulting contract; the agent has no legal standing to sue upon said contract (b) The liabilities incurred shall pertain to the principal and not the agent; (c) Generally, all acts that the principal can do in person, he may do through an agent, except those which under public policy are strictly personal to the person of the principal. (d) 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. (Art. 1897) (e) Notice to the agent should always be construed as notice binding on the principal, even when in fact the principal never became aware thereof. Air France v. Court of Appeals, 126 SCRA 448 (1983) (f) Knowledge of the agent is equivalent to knowledge of the principal. EXCEPT: (1) where the agent's interests are adverse to those of the principal; (2) where the agent's duty is not to disclose the information, as where he is informed by way of confidential information; and (3) where the person claiming the benefit of the rule colludes with the agent to defraud the principal (De Leon & De Leon, at p. 367,citing TELLER, at p.150) Thus, in Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007), the Court held -Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same pr ovision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligati on and the second is when he exceeds his authority. In the last instance, the ag ent can be held liable if he does not give the third party sufficient notice of his powers. (at p. 593) In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court held that the right of inspection given to a stockholder under the law can be exercised ei ther by himself or by any proper representative or attorney in fact, and either with or without the attendance of the stockholder. This is in conformity with th e general rule that what a man may do in person he may do through another.

g. Distinguished from Other Similar Contracts (1) From Employment Contract Unlike agency relationship which is essentially contractual in natured, under Article 1700 of the Civil Code, "[t]he relationship between capital and l abor are not merely contractual. They are so impressed with public interest that labor contracts must yield to the common good. Therefore, such contracts are su bject to the special laws on labor unions, collective bargaining, strikes and lo ckouts, closed shop, wages, working conditions, hours of labor and similar subje cts." More specifically, the purpose of an employer-employee relationship is for the employee to render service for the direct benefit of the employer or of the business of the employer; while agency relationship is entered into to enter in to juridical relationship on behalf of the principal with third parties. In Dela Cruz v. Northern Theatrical Enterprises, 95 Phil 739 (1954), th e Court held that the relationship between the corporation which owns and operat es a theatre, and the individual it hires as a security guard to maintain the pe ace and order at the entrance of the theatre is not that of principal and agent, because the principle of representation was in no way involved. The security gu ard was not employed to represent the defendant corporation in its dealings with third parties; he was a mere employee hired to perform a certain specific duty or task, that of acting as special guard and staying at the main entrance of the movie house to stop gate crashers and to maintain peace and order within the pr emises. (2) From Contract for a Piece-of-Work Under Article 1713 of the Civil Code, "[b]y the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either e mploy only his labor or skill, or also furnish the material." Under a contract f or a piece of work, the contractor is not an agent of the "principal", and the c ontractor has no authority to represent the principal in entering into juridical acts with third parties. Where the contract entered into is one where the individual undertook a nd agreed to build for the other party a costly edifice, the underlying contract is one for a contract for a piece of work, and not a principal and agency relat ion. Consequently, the contract is authorized to do the work according to his ow n method and without being subject to the clients control, except as to the resul t of the work; he could purchase his materials and supplies from whom he pleased and at such prices as he desired to pay. And the mere fact that it was stipulat ed in the contract that the client could take possession of the work site upon t he happening of specified contingencies did not make the relation into that of a n agency. Consequently, when the client did take over the unfinished works, he d id not assume any direct liability to the suppliers of the contractor. Fressel v . Mariano Uy Chaco Sons & Co., 34 Phil. 122 (1915). (3) From a Management Agreement In both agency and lease of services, one of the parties binds himself to render some service to the other party. Agency, however, is distinguished fro m lease of work or services in that the basis of agency is representation, while in the lease of work or services the basis is employment. The lessor of service s does not represent his employer, while the agent represents his principal. x x x . There is another obvious distinction between agency and lease of services. Agency is a preparatory contract, as agency "does not stop with the agency becau se the purpose is to enter into other contracts." The most characteristic featur e of an agency relationship is the agents power to bring about business relations between his principal and third persons. "The agent is destine to execute jurid ical acts (creation, modification or extinction of relations with third parties) . Lease of services contemplate only material (non-juridical) acts.[9]" Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 26 SCRA 540, 546-547 (1968). Where the principal and paramount undertaking of the "manager" under a Management Contract was the operation and development of the mine and the operat ion of the mill, and all other undertakings mentioned in the contract are necess ary or incidental to the principal undertaking--these other undertakings being d

ependent upon the work on the development of the mine and the operation of the m ill. In the performance of this principal undertaking the manager was not in any way executing juridical acts for the principal, destined to create, modify or e xtinguish business relations between the principal and third person. In other wo rds, in performing its principal undertaking the manager was not acting as an ag ent of the principal, in the sense that the term agent is interpreted under the law of agency, but as one who was performing material acts for an employer, for a compensation. Consequently, the management contract not being an agency cannot be revoked at will and was binding to its full contracted period. Nielson & Co. , Inc. v. Lepanto Consolidated Mining Co., 26 SCRA 540, 546-547 (1968). Taking into consideration the facts that the operator owed his position to the company and the latter could remove him or terminate his services at wil l; that the service station belonged to the company and bore its tradename and t he operator sold only the products of the company; that the equipment used by th e operator belonged to the company and were just loaned to the operator and the company took charge of their repair and maintenance; that an employee of the com pany supervised the operator and conducted periodic inspection of the company's gasoline and service station; that the price of the products sold by the operato r was fixed by the company and not by the operator; and that he was a mere agent , the finding of the Court of Appeals that the operator was an agent of the comp any and not an independent contractor should not be disturbed. Shell Co. v. Fire mens Insurance of Newark, 100 Phil. 757 (1957). (4) Agency to Sell or to Purchase from Contract of Sale Under Article 1466 of the Civil Code, "[i]n construing a contract conta ining provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be consi dered." Jurisprudence has indicated what the "essential clauses" that should ind icate whether it is one of sale or agency to sell/purchase, refers to stipulatio ns in the contract which places obligation son the part of the purported "agent" having to do with what should be a sellers obligation to transfer ownership and deliver possession of the subject matter, or the buyers obligation on the payment of the price. In Quiroga v. Parsons, 38 Phil. 501 (1918), although the parties design ated the arrangement as an agency agreement, the Court found the arrangement to be one of sale since the essential clause provided that "[p]ayment was to be mad e at the end of sixty days, or before, at the [principal's] request, or in cash, if the [agent] so preferred, and in these last two cases an additional discount was to be allowed for prompt payment." These conditions to the Court were "prec isely the essential features of a contract of purchase and sale" because there w as the obligation on the part of the purported principal to supply the beds, and , on the part of the purported agent, to pay their price, thus: These features exclude the legal conception of an agency or order to se ll whereby the mandatory or agent received the thing to sell it, and does not pa y its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he retur ns it. By virtue of the contract between the plaintiff and the defendant, the la tter, on receiving the beds, was necessarily obliged to pay their price within t he term fixed, without any other consideration and regardless as to whether he h ad or had not sold the beds. (at p. 505) As a consequence, the "revocation" sought to be made by the principal o n the purported agency arrangement was denied by the Court, the relationship bei ng one of sale, and the power to rescind is available only when the purported pr incipal is able to show substantial breach on the part of the purported agent. When the terms of the agreement compels the purported agent to pay for the products received from the purported principal within the stipulated period, even when there has been no sale thereof to the public, the underlying relation ship is not one of contract of agency to sell, but one of actual sale. A real ag ent does not assume personal responsibility for the payment of the price of the object of the agency; his obligation is merely to turn-over to the principal the

proceeds of the sale once he receives them from the buyer. Consequently, since the underlying agreement is not an agency agreement, it cannot be revoked except for cause. Quiroga v. Parsons, 38 Phil 502 (1918). In Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company, 72 Phil. 402 ( 1941), which covered a purported agency contract to purchase, the Court looked i nto the provisions of their contract, and found that the letters between the par ties clearly stipulated for fixed prices on the equipment ordered, which "admitt ed no other interpretation than that the [principal] agreed to purchase from the [agent] the equipment in question at the prices indicated which are fixed and d eterminate." (at p. 407). The Court held that "whatever unforeseen events might have taken place unfavorable to the [agent], such as change in prices, mistake i n their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the [prin cipal] might still legally hold the [agent] to the prices fixed." (at p. 407). C onsequently, the demand by the purported principal of all discounts and benefits obtained by the purported agent from the American suppliers under the theory th at all benefits received by the agent under the transactions were to be accounte d for the benefit of the principal was denied by the court, the underlying relat ionship being essentially a contract of purchase. When under the terms of the agreement, the purported agent becomes resp onsible for any changes in the acquisition cost of the object he has been author ized to purchase from a supplier in the United States, the underlying agreement is not an contract of agency to buy, since an agent does not bear any risk relat ing to the subject matter or the price. Being truly a contract of sale, any prof its realized by the purported agent from discounts received from the American su pplier, pertain to it with no obligation to account for it, much less to turn it over, to the purported principal. Gonzalo Puyat v. Arco, 72 Phil. 402 (1941). R eiterated in Far Eastern Export & Import Co., v. Lim Tech Suan, 97 Phil. 171 (19 55). In Ker & Co., Ltd. v. Lingad, 38 SCRA 524 (1971), covering a contract o f distributorship, it was specifically stipulated in the contract that "all good s on consignment shall remain the property of the Company until sold by the Dist ributor to the purchaser or purchasers, but all sales made by the Distributor sh all be in his name;" and that the Company "at its own expense, was to keep the c onsigned stock fully insured against loss or damage by fire or as a result of fi re, the policy of such insurance to be payable to it in the event of loss." It w as further stipulated that the contract "does not constitute the Distributor the agent or legal representative of the Company for any purpose whatsoever. Distri butor is not granted any right or authority to assume or to create any obligatio n or responsibility, express or implied in behalf of or in the name of the Compa ny, or to bind the Company in any manner or thing whatsoever." In spite of such stipulations, the Court did find the relationship to be one of agency, because i t did not transfe4r ownership of the merchandise to the purported distributor, e ven though it was supposed to enter into sales agreements in the Philippines in its own name, thus: The transfer of title or agreement to transfer it for a price paid or pr omised is the essence of sale. If such transfer puts the transferee in the attit ude or position of an owner and makes him liable to the transferor as a debtor f or the agreed price, and not merely as an agent who must account for the proceed s of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the pr incipal, who remains the owner and has the right to control the sale, fix the pr ice, and terms, demand and receive the proceeds less the agent's commission upon sales made. (at p. 530) In Victoria Milling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000), the Court held that an authorization given to the buyer of goods to obtain them from the bailee "for and in behalf" of the bailor-seller does not necessarily e stablish an agency, since the intention of the parties was for the buyer to take possession and ownership over the goods with the decisive language in the autho rization being "sold and endorsed."

As a general rule, an agency to sell on commission basis does not belon g to any of the contracts covered by Articles 1357 and 1358 requiring them to be in a particular form, and not one enumerated under the Statutes of Frauds in Ar ticle 1403. Hence, unlike a sale contract which must comply with the Statute of Frauds for enforceability, a contract of agency to sell is valid and enforceable in whatever form it may be entered into. Lim v. Court of Appeals, 254 SCRA 170 (1996). Related Cases: Chua Ngo v. Universal Trading Co., Inc., 87 Phil. 331 (1950). Far Eastern Export & Import Co. v. Lim Tech Suan, 97 Phil. 171 (1955). Pearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil. 789 (1957). National Rice and Corn Corp. v. Court of Appeals, 91 SCRA 437 (1979). (5) From Broker A broker is best defined in Schmid and Oberly, Inc. v. RJL Martinez, 16 6 SCRA 493 (1988), where the Court held that a broker is "one who is engaged, fo r others, on a commission, negotiating contracts relative to property with the c ustody of which he has no concern; the negotiator between other parties, never a cting in his own name but in the name of those who employed him. . . . a broker is one whose occupation is to bring the parties together, in matters of trade, c ommerce or navigation." (at p. 501) Strictly speaking, a broker is one who is engaged for others on a commi ssion to negotiate between other parties, never acting in his own name but in th e name of those who employed him. Reyes v. Rural Bank of San Miguel, 424 SCRA 13 5 (2004). He has no relation with the thing he has been retained to buy or to se ll; he is merely an intermediary between the purchaser and the vendor. He acquir es neither the custody nor the possession of the thing he sells. His only office is to bring together the parties to the transaction. Pacific Commercial Co. v. Yatco, 63 Phil. 398 (1936). A broker may at the same time be an agent. When he acts in his behalf i n dealing with the public, even when he handles things pertaining to the princip al, he is a mere broker. On the other hand, if he is duly authorized to act in t he name of the principal, there is no doubt that the broker is also an agent. Th us, in Abacus Securities Corp. v. Ampil, 483 SCRA 315 (2006), it was held that s ince in that case the brokerage relationship was necessary a contract for the em ployment of an agent, principles of contract law also govern the broker-principa l relationship. In the same manner, in Domingo v. Domingo, 42 SCRA 131 (1971), the Cour t held that the duties and liabilities of a broker to his employer are essential ly those which an agent owes to his principal. In such a situation, the decisive legal provisions [to determine whether a broker has violated his duty or obliga tion] are found in Articles 1891 and 1909 of the New Civil Code, whereby every a gent is bound to render an account of his transactions and to deliver to the pri ncipal whatever he may have received by virtue of the agency, even though it may not be owning to the principal; and that an agent is responsible not only for f raud, but also for negligence.[10] On the other hand, the Court also held in Dom ingo that "[t]he duty embodied in Article 1891 of the New Civil Code will not ap ply if the agent or broker acted only as a middleman with the task of merely bri nging together the vendor and vendee, who themselves thereafter will negotiate o n the terms and conditions of the transaction." (at p. 140) Broker Has No Authority To Enter into Contract in the Name of the Princ ipal. - In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), it was held that a real estate broker is one who negotiates the sale of real properties. His bus iness, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal b y signing a contract of sale. Indeed, an authority to find a purchaser of real p roperty does not include an authority to sell. Incapacity to Purchase Property of the Principal. - In Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it was held that the ban of paragraph 2 of [Ar ticle 1491] when renders an agent legally incapable of buying the properties of his principal connotes the idea of trust and "confidence; and so where the relat

ionship does not involve considerations of good faith and integrity the prohibit ion should not and does not apply. To come under the prohibition, the agent must be in a fiduciary relation with his principal." The Court held that a broker do es not come within the meaning of Article 1492, because he is nothing more than a go-between or middleman between the defendant and the purchaser, bringing them together to make the contract themselves. There is no confidence to be betrayed , since a broker is not authorized to make a binding contract for the purported principal; he is not sell the property, but only to look for a buyer and the own er is to make the sale; he was not to fix the price of the sale because the pric e had to be already fixed in his commission; he is not to make the terms of paym ent because these, too, would be clearly specified in his commission. In fine, a broker is left no power or discretion whatsoever, which he could abuse to his a dvantage and to the owners prejudice. Entitlement to Commission Stipulated. - In quite a number of its decisio n, the determination of whether one is an agent or a broker has been the determi ning factor of whether he would be entitled to the commission stipulated in the contract. Thus, in Tan v. Gullas, 393 SCRA 334 (2002), it was held that a broker is one who is engaged, for others, on a commission, negotiating contracts relati ve to property with the custody of which he has no concern; the negotiator betwe en the other parties, never acting in his own name but in the name of those who employed him. His occupation is to bring the parties together, in matter of trad e, commerce or navigation. An agent receives a commission upon the successful co nclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made. In Phil. Health-care Providers (Maxicare) v. Estrada, 542 SCRA 616 (200 8), the Court held that the term "procuring cause" in describing a brokers activi ty, refers to a cause originating a series of events which, without break in the ir continuity, result in the accomplishment of the prime objective of the employ ment of the broker--producing a purchaser ready, willing and able to buy on the owners terms. To be regarded as the "procuring cause" of a sale as to be entitled to a commission, a brokers efforts must have been the foundation on which the ne gotiations resulting in a sale began. From decisions of the Supreme Court, it seems that the arrangement on e ntitlement to commission determines whether the relationship is one of broker or agency. Thus, in Hahn v. Court of Appeals, 266 SCRA 537 (1997), the Court held that "Contrary to the appellate court's conclusion, this arrangement shows an ag ency. An agent receives a commission upon the successful conclusion of a sale. O n the other hand, a broker earns his pay merely by bringing the buyer and the se ller together, even if no sale is eventually made." (at p. 549) But truly, since both a brokerage arrangement and an agency agreement a re inherently contractual relations, the entitlement of a broker or agent to the compensation or commission stipulated would have to depend upon the contractual clause covering the same. In other words, it may well be stipulated in a true b rokerage arrangement that the broker would be entitled to a commission only when a sale is eventually made. In the same manner, the agency contract may well sti pulate that the agent shall be entitled to earn commission by merely bringing th e buyer and the seller together, even when the actual sale of the person referre d to by the agent happens long after the agency relationship has terminated. To illustrate, in Guardex v. NLRC, 191 SCRA 487 (1990), the Court held that when the terms of the agency arrangement is to the effect that entitlement to the commission was contingent on the purchase by a customer of a fire truck, the implicit condition being that the agent would earn the commission if he was instrumental in bringing the sale about. Since the agent had nothing to do with the sale of the fire truck, and is not therefore entitled to any commission at a ll. ________________________________________ [1]See Chemphil Export v. Court of Appeals, 251 SCRA 217 (1995); Shoppers Paradis

e Realty v. Roque, 419 SCRA 93 (2004); Dominion Insurance Corp. v. Court of Appe als, 426 SCRA 620, 626 (2002); Republic v. Evangelista, 466 SCRA 544 (2005); Lit onjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Eurotech Industrial Technologi es, Inc. v. Cuizon, 521 SCRA 584 (2007). [2]Citing Orient Air Services and Hotel Representatives v. Court of Appeals, 274 Phil. 927, 939 (1991). [3]DE LEON AND DE LEON, COMMENT AND CASES ON PARTNERSHIP AGENCY AND TRUSTS, 2005 ed., at p. 356; hereinafter referred to as DE LEONS. [4]Reiterated in Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007). [5]See also Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006). [6]Citing Bordador v. Luz, 283 SCRA 374, 382 (1997). [7]ROSCOE T. STEFFEN, AGENCY- PARTNERSHIP IN A NUTSHELL (1977) 30-31. [8]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006). [9]Quoting from Reyes and Puno, An Outline of Philippine Civil Law, Vol. V, p. 277 . [10]Citing 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs. Coates, 67 ALR 2d 943; Haymes vs. Rogers, 17 ALR 2d 896; Moore vs. Turner, 32 ALR 2d 713. II. FORM REQUIRED FOR CONTRACTS OF AGENCY a. How Agency May Be Constituted Article 1869 emphasizes the consensual nature of the contract of agency : "Agency may be express, or implied from the acts of the principal, from his si lence or lack of action, or his failure to repudiate the agency, knowing that an other person is acting on his behalf without authority. Agency may be oral, unle ss the law requires a specific form." In Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001), it was held that an a gency may be express but it may also be implied from the acts of the principal, from his silence, or lack of action or his failure to repudiate the agency knowi ng that another person is acting on his behalf without authority. Likewise, acce ptance by the agent may also be express, although it may also be implied from hi s acts which carry out the agency, or from his silence or inaction according to the circumstances. Thus, when a law firm allows the employee of its client to oc casionally receive its mail, and not having formally objected to the receipt by said employee of a court process, or taken any steps to put a stop to it, means that an agency relationship has been established, to which receipt by said emplo yee is legally deemed to be receipt by the law firm. Lim v. Court of Appeals, 254 SCRA 170 (1996), the Court held that there are some provisions of law which require certain formalities for particular cont ract: the first is when the form is required for the validity of the contract; t he second is when it is required to make the contract effective as against third parties such as those mentioned in Article 1357 and 1358; and the third is when the form is required for the purpose of proving the existence of the contract, such as those provide in the Statute of Frauds in Article 1403. Since a contract of agency to sell pieces of jewelry on commission does not fall onto any of the three categories, it is valid and enforceable in whatever form it may be entere d into. (1) From the Side of the Principal On the side of the principal, an agency is impliedly constituted from h is acts formally adopting it, or from his silence or inaction, or particularly f rom his failure to repudiate the agency knowing someone is acting in his name. ( Art. 1869) (2) From the Side of the Agent On the side of the agent, his acceptance of the agency may be expressed , or implied from his acts which carry out the agency, or from his silence or in action according to the circumstances. (Art. 1870) Under Article 1871, when the constitution of the agency is made with bo th principal and agent being physically present (i.e., "Between persons who are present"), the acceptance of the agency may be implied if the principal delivers

his power of attorney to the agent and the latter receives it without objection . On the other hand, under Article 1872, when the constitution of the age ncy is made with the principal and agent not being physically present in one pla ce (i.e., "Between persons who are absent"), then there can be no implied accept ance of the agency from the silence or inaction of the agent, except in two inst ances: (a) When the principal transmit his power of attorney to the agent (i.e., it is in writing), who receives it without any objection; or (b) When the principal entrusts to the agent 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. The languages used in Articles 1871 and 1872 indicates that the "power of attorney" must constitute a written instruments, because in both cases the ar ticles refer to situations where "the principal delivers his power of attorney t o the agent," and when "the principal transmits his power of attorney to the age nt," which requires that it must be in writing. Consequently, when the other pro visions of the Law on Agency refers to "general power of attorney" and "special power of attorney," it must mean that the conform to the rudimentary requirement that they be in writing. (3) From the Side of Third Parties/Public Under Article 1873, when the principal informs another person that he ha s given a power of attorney to a third person (the agent), the latter thereby be comes a duly authorized agent with respect to the person who received the specia l information. On the other hand, when the principal states by public advertisement th at he has given a power of attorney to a third person (the agent), the latter th ereby becomes a duly authorized agent with regard to any person. It is specifically provided in said article that "[t]he power [of the a gent] shall continue to be in full force until the notice is rescinded in the sa me manner in which it was given." Thus, under Article 1921, if the agency has been entrusted for the purp ose of contracting with specific persons, the revocation of the agency shall not prejudice the latter if they were not given notice thereof. Under Article 1922, if the agent had been granted general powers, the revocation of the agency will not prejudice third persons who acted in good faith and without knowledge of th e revocation; however, notice of the revocation in a newspaper of general circul ation constitutes sufficient notice to bind third persons. In Rallos v. Yangco, 20 Phil 269 (1911), a long-standing client, acting in good faith and without knowledge, having sent goods to sell on commission to the former agent of the defendant, can recover of the defendant, when no previo us notice of the termination of agency was given said client. Having advertised the fact that Collantes was his agent and having given special notice to the pla intiff of that fact, and having given them a special invitation to deal with suc h agent, it was the duty of the defendant on the termination of the relationship of principal and agent to give due and timely notice thereof to the plaintiffs. Failing to do so, he is responsible to them for whatever goods may have been in good faith and without negligence sent to the agent without knowledge, actual o r constructive, of the termination of such relationship. In Conde v. Court of Appeals, 119 SCRA 245 (1982), the Court held that when the right of redemption by sellers-a-retro is exercised by their son-in-law who was given no express authority to do so, and the buyer-a-retro accepted the exercise and done nothing for the next ten years to clear their title of the an notated right of repurchase on their title, and possession had been given to the sellers a retro during the same period, then "an implied agency must be held to have been created from their silence or lack of action, or their failure to rep udiate the agency." (4) Agency Not Presumed to Exist

Although an agency contract is consensual in nature and generally requi res no formality, the Court has stressed that an agency arrangement is never pre sumed. Lopez v. Tan Tioco, 8 Phil. 693 (1907); except in those cases where an ag ency arises by express provision of law. Compania Maritima v. Limson, 141 SCRA 4 07 (1986). In People v. Yabut, 76 SCRA 624 (1977), it was held that although the pe rfection of a contract of agency may take an implied form, the existence of an a gency relationship is never presumed. The relationship of principal and agent ca nnot be inferred from mere family relationship; for the relation to exist, there must be consent by both parties. The law makes no presumption of agency; it mus t exist as a fact.[1] In Harry E. Keeler Elec . Co. v. Rodriguez, 44 Phil. 19 (1922), the Cou rt ruled that a third person must act with ordinary prudence and reasonable dili gence to ascertain whether the agent is acting and dealing with him within the s cope of his powers. Obviously, if he knows or has good reason to believe that th e agent is exceeding his authority, he cannot claim protection. So, if the chara cter assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks is of such an unusual or improbable character, as w ould suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real state of the case but should withal r efuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs. In Bordador v. Luz, 283 SCRA 374 (1997), the Court held that "The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of Deganos or authorized him to act on her behalf, much less with re spect to the particular transactions involved. Petitioners' attempt to foist lia bility on respondent spouses through the supposed agency relation with Deganos i s groundless and ill-advised. Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at least six occa sions as evidenced by six receipts, several pieces of jewelry of substantial val ue without requiring a written authorization from his alleged principal. A perso n dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent." (at p. 382) In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court held that a co-owner does not become an agent of the other co-owners, and therefore, any e xercise of an option to buy a piece of land transacted with one co-owner does no t bind the other co-owners of the land. The basis for agency is representation a nd a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. Since there was no showing that the other coowners consented to the act of one co-owner nor authorized her to act on their b ehalf with regard to her transaction with purported buyer. The most prudent thin g the purported buyer should have done was to ascertain the extent of the author ity said co-owner; being negligent in this regard, the purported buyer cannot se ek relief on the basis of a supposed agency. b. Agency by Estoppel Under Article 1911, even when the agent has exceeded his authority (i.e ., he acts without authority from the principal), the principal shall be solidar ily with the agent if he allowed the agent to act as though he had full powers. When the owner of a hotel business allows a person to use the title "ma naging agent" and during his prolonged absences allows such person to take charg e of the business, performing the duties usually entrusted to managing agent, th en such owner is bound by the act of such person. "One who clothes another appar ent authority as his agent, and holds him out to the public as such, can not be permitted to deny the authority of such person to act as his agent, to the preju dice of innocent third parties dealing with such person in good faith and in the following pre-assumptions or deductions, which the law expressly directs to be made from particular facts, are deemed conclusive." The hotel owner is bound by the contracts entered into by said managing agent that are within the scope of a uthority pertinent to such position, including the purchasing such reasonable qu antities of supplies as might from time to time be necessary in carrying on the

business of hotel bar. Macke v. Camps, 7 Phil 522 (1907). In Naguiat v. Court of Appeals, 412 SCRA 592 (2003), the Court applied the provisions of Article 1873 of the Civil Code to rule that if by the interact ion between a purported principal and a purported agent in the presence of a thi rd person, the latter was given the impression of the existence of a principal-a gency relation, and the purported principal did nothing to correct the third per son's impression, an "agency by estoppel is deemed to have been constituted, and the rule is clear: one who clothes another with apparent authority as his agent , and holds him out to the public as such, cannot be permitted to deny the autho rity of such person to act as his agent, to the prejudice of innocent third part ies dealing with such person in good faith, and in the honest belief that he is what he appears to be. In Litonjua, Jr. v. Eternit Corporation, 490 SCRA 204 (2006), the Court held that for an agency by estoppel to exist, the following must be established : (1) the principal manifested a representation of the agent's authority or know ingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, su ch third person has changed his position to his detriment. An agency by estoppel , which is similar to the doctrine of apparent authority, requires proof of reli ance upon the representations, and that, in turn, needs proof that the represent ations predated the action taken in reliance. ________________________________________ [1]Reiterated in Lim v. Court of Appeals, 251 SCRA 408 (1995). III. KINDS OF AGENCY a. Based on the Business or Transactions Encompassed Under Article 1876, an agency is termed to be a "general agency" when i t encompasses all of the business of the principal. The better term for such an agency would be a "universal agency." A power of attorney which provides that "This is to formalize our agree ment for you to represent United Flag Industry to deal with any entity or organi zation, private or government, in connection with the marketing of our products-flags and all its accessories. For your services, you will be entitled to a com mission of 30%;" authorizes the agent to enter into contract of sale over the pr oducts covered and for which he would be entitled to receive commissions stipula ted. "A general agent usually has authority either expressly conferred in genera l terms or in effect made general by the usages, customs or nature of the busine ss which he is authorized to transact." Siasat v. Intermediate Appellate Court, 139 SCRA 238 (1985). On the other hand, it is a "special agency" when it covers only one or more specific transactions. The better term for such an agency is "particular ag ency." Such classifications are more academic than practical, since outside of guardianship proceedings, hardly anybody in the modern world empowers an agent to cover every business aspect owned by the principal. Beside such a classificat ion is not really useful because a "general or universal agency" can by law only cover general powers of attorney covering merely acts of administration; and ca nnot, without express or detailed description, cover special powers of attorney, covering particular acts of strict ownership. Therefore, a general agency is be tter achieved by other contractual forms such as a contract of employment. The right of an agent to indorse a commercial paper is never presumed t o exists; it must be clearly granted by the principal. A salesman with authority to collect money belonging to the principal does not have implied authority to indorse the checks received in payment. Any person taking checks payable to a co rporation through the endorsement of an agent, does so at his peril and must abi de by the consequences if the agent who indorses the same is without authority.

Insular Drug Co. v. PNB, 58 Phil 684 (1933). Robinson Fleming v. Cruz, 94 Phil 42 (1926) b. Whether or Not It Covers Litigation Matters Under not specifically treated in the Civil Code, we should distinguish between a form of agency called "attorney-at-law," from that of "attorney-in-fa ct." An attorney-at law, necessarily means the appointment of an agent to re present the principal on legal matters, particularly on matters pertaining to li tigation or court matters. Not every attorney-client relationship is a contract of agency where the essential objective if representation, such as when an attor ney is retained to draw-up legal documents. But when it comes to litigation, the retaining of an attorney is truly in representation of the client-principal bef ore the court, such that the acts of the attorney and for and in behalf of the c lient, and that notice to the attorney and service of judicial process to the at torney, is equivalent to service to the client principal. Under existing rules a nd jurisprudence, such an agent would be practicing law and would have to be a l icensed lawyer. The relationship is one that is fiduciary and professional, and is governed by separate rules, including the legal professional code and the rul es promulgated by the Supreme Court covering the practice of law. Consequently, the term "attorney-in-fact" is intended to describe all a gents appointed by a principal to act on matters that have nothing to do with le gal matters and do not constitute a practice of law on the part of the agent. Th is is the classification that covers the contract of agency governed by the Civi l Code. It should be noted however that, even in the case of an attorney-at-law , representing a client in a court case, there are certain powers which are not inherent in the position of an attorney-at-law to legally bind the client, such as the power to compromise, to arbitrate, etc. Whether an attorney-at-law has po wer to bind the client principal in such matters are governed by the rules of th e Civil Code on special agency or special powers of attorney. c. Whether It Covers Acts of Administration or Acts of Dominion It is in the realm of "attorney-in-fact" that we would more appropriate ly use the classifications of "general power of attorney" and "special power of attorney" to describe the authority and power of the agent. Simply stated, a general power of attorney covers only acts of administ ration, or expressed in commercial terms, it only covers power to pursue the ord inary or regular course of business. Whereas, a special power of attorney covers acts of dominion or strict ownership. The general rule is that unless so expres sly stated, an agency covers only the powers to execute acts of administration. Distinction between general power of attorney and special power of atto rney shall be covered in the immediately succeeding chapter on the Powers and Ob ligations of the Agent. In Macke vs. Camps, 7 Phill. 553 (1907), the Court held: "It seems easy to answer that acts of administration are those which do not imply the authorit y to alienate for the exercise of which an express power is necessary. Yet what are acts of administration will always be a question of fact, rather than of law , because there can be no doubt that sound management will sometimes require the performance of an act of ownership. (12 Manresa 468) But, unless the contrary a ppears, the authority of an agent is presumed to include all the necessary and u sual means to carry out the agency into effect." (at p. 555) IV. AUTHORITY & POWER, DUTIES & OBLIGATIONS, OF THE AGENT 1. GENERAL OBLIGATION OF AGENT WHO ACCEPTS THE AGENCY Under Article 1884, when an agent accepts the appointment of the principal, then he is legally bound to carry out the terms of the agency; otherwise, he is liab le for damages suffered by the principal by reason of his non-feasance or non-pe rformance. Article 1884 expresses in the realm of Agency the contract law principles of con

sensuality, mutuality and obligatory force expressed in Articles 1159 and 1315 o f the Civil Code, which provide that Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith, and that Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipul ated but also to all the consequences which, according to their nature, may be i n keeping with good faith, usage and law. Likewise, Article 1356 of the Civil Cod e provides that Contracts shall be obligatory, in whatever form they may have bee n entered into, provided all the essential requisites for their validity are pre sent. Finally, Article 1308 provides that the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Despite the obligatory nature of every contract of agency, note that Article 188 4 emphasizes the point that when an agent refuses to comply with the obligations he accepted for himself, the remedy of the principal is to sue him for damages, since an action for specific performance is not available for personal obligati ons to do or not to do. The liability of an agent for damages when he fails to c arry out his obligations is consistent with the terms of Article 1170 of the Civ il Code which provides that Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene t he tenor thereof, are liable for damages. This same principle is expressed in Art icle 1909 of the Law on Agency, which provides that [t]he agent is responsible no t only for fraud, but also for negligence, which shall be adjudged with more or less rigor by the courts, according to whether the agency was or was not for a c ompensation. Finally, although a contract of agency is terminated ipso jure upon the death of the principal, nonetheless, Article 1884 provides expressly that the agent must finish the business already begun upon death of principal should delay entail a ny danger. This provision emphasizes the characteristic of agency to be merely a preparatory contract; that it is constituted not for its own sake, by primarily to be the basis by which the agent may enter into juridical acts on behalf of t he principal with respect to third parties. Consequently, even if strictly speak ing the agency relation is terminated upon the death of the principal, the estab lished but unfinished contracts and transactions then pending must be fulfilled by the agent on behalf of the decedent, when continuation of representation is n ecessary. (1) Measure of Damage for an Agents Non-Performance of Obligation In BA Finance v. Court of Appeals, 201 SCRA 157 (1991), under the deed of chatte l mortgage, the finance company was constituted as attorney-in-fact for the mort gagors with full power and authority to file, follow-up, prosecute, compromise o r settle insurance claims; to sign execute and deliver the corresponding papers, receipts and documents to the insurance company as may be necessary to prove th e claim, and to collect from the latter the proceeds of insurance to the extent of its interests, in the event that the mortgaged car suffers any loss or damage , the grant of power constituted the finance company as the agent of the mortgag ors. When the mortgaged motor vehicle figured in an accident that would have all owed recovery on the insurance claim for total loss, and the mortgagors had inst ructed the finance company to make such claim, but instead it opted to have the motor vehicle repaired and forego the total loss claim, the Court decreed that t he failure and refusal of the finance company to seek total loss claims on the v ehicle mortgaged against the insurance company, constituted negligence and not o utright refusal to comply with the instructions of the principals, and liable fo r damages. The Court held that under Article 1884 of the Civil Code, the finance company was bound by its acceptance to carry out the agency, and is liable for damages which, through its non-performance, the principals-mortgagors may suffer . Consequently, by reason of the loss suffered by the principals, the Court held that the finance company could no longer collect on the unpaid balance of the p romissory note secured by the chattel mortgage. When the holder of an exclusive and irrevocable power of attorney to make collec tions, failed to collect the sums due to the principal and thereby allowed the a llotted funds to be exhausted by other creditors, such agent has failed to act w

ith the care of a good father of a family required under Article 1887 and became personally liable for the damages which the principal may suffer through his no n-performance. PNB v. Manila Surety, 14 SCRA 776 (1965). Barton v. Leyte Asphalt, 46 Phil 938 (1924) Heredia v. Salina, 10 Phil 157 (1908) 2. OBLIGATION OF AGENT WHO DECLINES AGENCY Under Article 1885, if a person declines an agency, he is bound to observe the di ligence of a good father of a family in the custody and preservation of the good s forwarded to him by the owner until the latter should appoint an agent. The art icle mandates the owner in such case to as soon as practicable either appoint an agent or take charge of the goods. We should compare the obligations of a person who declines an agency, from one w ho withdraws from an agency he previously accepted. Under Article 1929, even if an agent withdraws from the agency for a valid reason, he must continue to act un til the principal has had reasonable opportunity to take the necessary steps to meet the situation. 3. GENERAL RULE ON AGENTS POWER AND AUTHORITY: Agent Must Act Within the Scope of His Authority Under Article 1881, the agent must act within the scope of his authority, which es sentially means that since the agent acts in representation of the principal, he must enter into juridical relations on behalf of the principal and representing the will of the principal, and not his own will. The general rule embodies the two fiduciary duties of the agent to the principal: duty of obedience and the du ty of diligence. a. Duty of Obedience (1) As Between the Principal and the Agent That the agent must act within the scope of his authority means that that every ag ent assumes by his acceptance of the agency to be obedient to the will of the pr incipal, which is best expressed under Article 1887 when it provides that [i]n th e execution of the agency, the agent shall act in accordance with the instructio ns of the principal. There is no doubt that when an agent complies with the instr uctions of his principal, he is acting within the scope of his authority. As held in Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000), one factor that most clearly distinguishes an agency from other legal concepts, including sale, is control: one personthe agent agrees to act under the control or d irection of another the principal. It is clear therefore, that when an agent acts in accordance with the principals instruction, he is acting within the scope of his authority. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007), held that under Article 1882 of the Civil Code the limits of an agents authority shall not be considered exceede d should it have been performed in a manner advantageous to the principal than t hat specified by him. Tan Tiong v. SEC, 69 Phil 425 (1940), held that the agent is not deemed to have exceeded his authority should he perform the agency in a manager more advantageo us to the principal than that indicated by the principal. Thus, when the agent s ells the car of the principal for more than the amount indicated by the principa l, then he has not his authority because a higher price is more advantageous to the principal. Nonetheless, agency relation is entered into mainly for business or commercial v entures, and it is not expected that the principal can cover ever contingencies with specific instructions, or that every act of the agent must be based on deta iled instructions of the principal. Indeed, the agent is expected to use his bus iness discretion as that of the principal would or could if personally present. Therefore, we should consider the principals instructions as the limit of an agen ts power; and that in the absence of limiting instructions, it is expected that t he agent uses his best judgment to stay within the scope of the principals author ity granted to him This principle is best expressed under Article 1881, which provides that the age nt any do such acts as may be conducive to the accomplishment of the purpose of t he agency. Likewise, Article 1882 provides that [t]he limits of the agents authorit

y shall not be considered exceed should it have been performed in a manner more advantageous to the principal than that specified by him. In other words, an agen t not only has express powers, but also implied powers emanating from the expres s powers granted to him; as well as incidental powers necessary in order to achi eve the purpose for which the agency was constituted. (2) As To Third Parties The terms of Article 1887 which effectively states that when an agent acts contr ary to the instructions of his principal, he is deemed to have acted without or in excess of authority, is rule that governs the relationship between the princi pal and agent. Under Article 1911, even when the agent has exceeded his authorit y, the principal remains solidarily liable with the agent if the principal allow ed the agent to act as though he had full powers. Under Article 1900, insofar as third persons are concerned, an act is deemed to h ave been performed within the scope of the agents authority, if such act is withi n 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 p rincipal and agent. In other words, as to third parties acting in good faith, the written instructions of the principal are the binding powers of the agent, and cannot be overcome by non-written instructions of the principal not made known t o them. Thus, Article 1902 provides that a third person with whom the agent wishes to co ntract on behalf of the principal may require the presentation of the power of a ttorney, or the instructions as regards the agency. In addition, private or secr et orders and instructions of the principal do not prejudice third persons who h ave relied upon the power of attorney or instruction shown them. Bank of P.I. v. De Coster, 47 Phil. 594 (1925), thus held that the powers and du ties of an agent are confined and limited to those which are specified and defin ed in his written power of attorney, which limitation is a notice to, and is bin ding upon, the person dealing with such agent. Finally, under Article 1901, a third person cannot set-up the fact that the agen t has exceeded his powers, if the principal has ratified, or has signified his w illingness to ratify the agents acts. NONETHELESS: Every person dealing with an assumed agent is put upon an inquiry and must disco ver upon his peril, if he would hold the principal liable, not only the fact of the agency but the nature and extent of the authority of the agent. Velso v. La Urbana, 58 Phil. 681 (1933); Strong v. Gutierrez Repide, 6 Phil. 680 (19060; Dee n v. Pacific Commercial Co., 42 Phil. 738 (1922); Toyota Shaw, Inc. v. Court of Appeals, 244 SCRA 320 (1995). If a third person does not make an inquiry into the authority of an assumed agen t, he is chargeable with knowledge of the agents authority, and his ignorance of that authority will not be an excuse. Bacaltos Coal Mines v. Court of Appeals, 2 45 SCRA 460 (1995). The fact that one is dealing with an agent, whether the agency be general or spe cial, should be a danger signal. The mere representation or declaration of one t hat he is authorized to act on behalf of another cannot of itself serve as proof of his authority to act as agent or of the extent of his authority as agent. Yu Eng Cho v. Pan American World Airways, Inc., 328 SCRA 717 (2000). The authority or extent of authority of an agent cannot be established by his ow n representations out of court but upon the basis of the manifestations of the p rincipal himself. In case the fact of agency or the extent of the authority of t he agent is controverted, the burden of proof is upon the third person to establ ish it. BA Finance Corp. v. Court of Appeals, 211 SCRA 112 (1992); Velasco v. La Urbana, 58 Phil. 681 (1933); Bacaltos Coal Mines v. Court of Appeals, 245 SCRA 460 (1995); Safic Alcan & Cie v. Imperial Vegetable Oild co., Inc., 355 SCRA 559 (2001). b. Duty of Diligence (1) As Between the Principal and the Agent Under Article 1887, it is the obligation of every agent who accepts the agency t o act in accordance with the instructions of the principal, and in default there

of, to do all that a good father of a family would do as required by the nature of the business. In the same manner, Article 1909 provides expressly that the ag ent is responsible not only for fraud, but also for negligence. In essence, the duty of diligence requires of the agent to act on behalf of the principal exerci sing the due diligence of a good father of a family; and he is in breach of such fiduciary duty when he acts in fraud or in negligence, even when he pursues the business of the principal. The articles confirm the truism that in the pursuit of the agency, it is expected that the agent would have to act based on his own assessment of what is necessary under the situation when it is not covered by an express instruction from the principal. As a matter of guideline of what is within his power, Article 1888 provides that the agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal. Notice that the article covers only acts tha t would manifestly lead to losses; in other words, the agent cannot be a guarantor that the principal would suffer no loss or damage in the pursuit of the agency; human nature as it is, the sustaining of losses due to human error is part of t he risk of every owner or principal, even when he himself carries on the busines s. The obligation of the agent is to avoid losses which are clearly avoidable fr om the exercise of due diligence of a good father of a family. When an agent violates his duty of loyalty, he becomes personally liable to the principal for the damages caused to the principal by reason of his fraud or negl igence. It should be emphasized however, that when the agent acts in accordance with the instructions of the principal, the agent cannot be deemed to have acted in frau d against the principal or to have acted negligently, even when damage was cause d to the principal. Thus Article 1899 provides that If a duly authorized agent ac ts in accordance with the orders of the principal, the [principal] cannot set up the ignorance of the agent as to circumstances whereof he himself was, or ought to have been, aware. (2) As to Third Parties Since an agent acts in representation of his principal, when he acts within the scope of his authority, but does so with negligence that causes damage to third persons, the principal is liable to such injured parties to the damages caused b y the agent, as though he himself had directly caused the damages. When an agent acts with fraud or negligence but pursuant to the instructions of the principal, would the agent then be personally liable to the third parties in jured thereby? In other words, does the agent also become personally liable to t hird parties injured by his fraudulent or negligent acts? c. Effects on the Agent of Contracts Entered into Within the Scope of His Author ity All contracts and transactions entered into by the agent on behalf of the princi pal with the scope of his authority are binding on the principal, and the agent does not stand to either be liable, or to have gained any right on his own accor d, thereunder. Bay View Hotel v. Ker & Co., 116 SCRA 327 (1982), held that the acts and declara tion of the agent within the scope of his authority and during its existence are considered and treated as those of principal. British Airways v. Court of Appeals, 285 SCRA 450 (1998), held that when one air line company (British Airways) subcontracts a leg of the international trip of i ts passenger to another airline company (PAL), the contract of air transportatio n was exclusively between passenger and BA, with PAL merely acting as its agent on the Manila to Hong Kong leg of the journey. The well-settled rule is that an agent is also responsible for any negligence in the performance of its function and is liable for damages which the principal may suffer by reason of the agents negligent act. When an agent, in executing the orders and commissions of his principal, carries out the instructions he has received from his principal, and does not appear to have exceeded his authority or to have acted with negligence, deceit, or fraud, he cannot be held responsible for the failure of his principal to accomplish th e object of the agency. Gutierrez Hermanos v. Oria Hermanos, 30 Phil. 491 (1915)

; G. Puyat & Sons, Inc. v. Arco Amusement Company, 72 Phil. 402 (1941). It is a general rule in the law agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport t o be made, signed and sealed in the name of the principal, otherwise, it will bi nd the agent only. Gozun v. Mercado 511 SCRA 305 (2006). An action brought in the name of the agent and not in the name of the principal who is the real party in interest, must be dismissed not upon the merits, but up on the ground that it has not been properly instituted. Esperanza and Bullo v. C atindig, 27 Phil. 397 (1914). When the agent has acted within the scope of his authority, the action on the co ntract must be brought against the principal and not against the agent. Ang v. F ulton Fire Insurance Co., 2 SCRA 945 (1961). Related Cases: Cason v. Richards, 5 Phil 611 (1906) PNB v. Manila Surety, 14 SCRA 776 (1965) Nepomuceno v. Heredia, 7 Phil 563 (1907) Phil. Bank of Commerce v. Aruego, 102 SCRA 530 (1981) NFA v. IAC, 184 SCRA 166 (1990) Maritime Agencies & Securities, Inc. v. Court of appeals, 187 SCRA 346 (1990). d. Effects of Acts Done by Agent Without or in Excess of His Authority The general rule is set under Article 1317 of the Civil Code that No one may cont ract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of ano ther by one who has no authority or legal representation, or who has acted beyon d his powers, shall be unenforceable, unless it is ratified, expressly or implie dly, by the person on whose behalf it has been executed, before it is revoked by the other party. The rules under Article 1317 are supported under Article 1403, which includes am ong those classified an unenforceable contracts, (1) Those entered into in the name of another person by one who has been given no authority or legal representatio n, or who has acted beyond his power. Specifically, under the Law on Agency, Article 1898 provides that [i]f the agent contracts in the name of the principal, exceeding the scope of his authority, an d 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 p rincipal. In this case, however, the agent is liable if he undertook to secure t he principals ratification. the following consequences shall flow: (a) it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal; (b) In such case, the agent would be liable personally to such third party, if h e undertook to secure the principals ratification; This principle is reiterated in the second paragraph of Article 1910 which provi des that As for any obligation wherein the agent has exceeded his power, the prin cipal is not bound except when he ratifies it expressly or tacitly. On the other hand, if the party which whom the agent contract is unaware of the limits of the powers granted by the principal, the contract is unenforceable und er Article 1403(1). Under Article 1900, the written power of attorney given by the principal governs the contracts entered into with third parties, regardless of any private limita tion of powers agreed upon between the principal and the agent. The liability of an agent who exceeds the scope of his authority depends upon wh ether the third person was aware of the limits of the agents power. The agent is not bound nor liable for damages in case he gave notice of his power to the pers on with whom he has contracted, nor in case such person is aware of the limits o f the agents powers. The resulting contract would be void even as between the age nt and the third person, and consequently not legally binding as between them. H owever, if the agent promised or undertook to secure the principals ratification and failed, he is personally liable. If the ratification is obtained, then the p rincipal becomes liable. Cervantes v. Court of Appeals, 304 SCRA 25 (1999); Safi c Alcan v. Imperial Vegetable, 355 SCRA 559 (2001); DBP v. Court of Appeals, 231

SCRA 370 (1994). Related Cases: Borja v. Sulyap, 399 SCRA 601 (2003). National Power v. NAMARCO, 117 SCRA 789 (1982) PNB v. Agudelo, 58 Phil 655 (1933) Zayco v. Serra, 49 Phil 985 (1925) PNB v. Welsh Fairchild, 44 Phil 780 (1923) e. Consequences When Agent Acts in His Own Name Under Article 1883, if an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; and neither h ave such persons a right or cause of action against the principal. It a well-est ablished doctrine that when an agent, do acting within the scope of his authorit y, enters into the covered contract in his own name, then the contract is bindin g only against the agent, and the principal is not bound, nor does he have legal standing to enforce it; this is because the contract is deemed to have been ent ered between the third party and the agent as his own principal.[1] In Marimperio Compania Naviera, S.A. v. Court of Appeals, 156 SCRA 368 (1987), t he Court held that under Article 1883 of the Civil Code, if an agent acts in his own name, the principal has no right of action against the persons with whom th e agent has 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 ha s contracted, as if the transaction were his own, except when the contract invol ves things belonging to the principal. Since the principals have caused their ag ent to enter into a charter party in his own name and without disclosing that he acts for any principal, then such principals have no standing to sue upon any i ssue or cause of action arising from said charter party. (1) Exception: When the Property Involved in the Contract Belongs to the Princip al Exception is when the properties of the principal are involved, in which case th e principal is bound. Gold Star Mining Co., Inc. v. Lim-Jimena, 25 SCRA 597 (196 8); and is a rule necessary for the protection of third persons against possible collusion between the agent and the principal. PNB v. Agudelo y Gonzaga, 58 Phi l. 635 (1933). Thus, the fact that money used by the agent belonged to the principal is covered by the exception. Sy-Juco v. Sy-Juco, 40 Phil 634 (1920). (2) Remedy of the Principal Is to Recover Damages from the Agent Article 1883 makes it clear that the foregoing rules are without prejudice to ac tions between principal and agent. The rule in this jurisdiction is that where the merchandise is purchased from an agent with undisclosed principal and without knowledge on the part of the purch aser that the vendor is merely an agent, the purchaser take titles to the mercha ndise and the principal cannot an actions against him for the recovery of the me rchandise or even for damages, but can only proceed against the agent. Aivad v. Filma Mercantile Co., 49 Phil. 816 (1926). Although according to article 1883, when the agent acts in his own name he is no t personally liable to the person with whom he enters into a contract when thing s belonging to the principal are the subject thereof; yet such third person has a right of action not only against the principal but also against the agent, whe n the rights and obligations which are the subject matter of the litigation cann ot be legally and juridically determined without hearing both of them. Beaumont v. Prieto, 41 Phil. 670 (1921). National Food Authority v. Intermediate Appellate Court, 184 SCRA 166 (1990) ________________________________________ [1]Herranz & Garriz v. Ker & Co., 8 Phil. 162 (1907); Lim Tiu v. Ruiz, 15 Phil 3 67 (1910); Smith Bell v. Sotelo Matti, 44 Phil 874 (1922); Behn Meyer & Co. v. B anco Espaol-Filipino, 51 Phil. 253 (1927); Lim Tek Goan v. Azores, 70 Phil. 363 (1 940); Ortega v. Bauang Farmers Cooperative Marketing Assn., 106 Phil. 867 (1959) .

V. RULES OF WHAT POWERS MAY BE VALIDLY EXERCISED BY THE AGENY a. General Rule on Power of Administration In the absence of the grant of special power of attorney to the agent, he is dee med to have been extended only a general power of attorney by the principal, and his powers can only cover acts of administration. Thus, under Article 1877, eve ry agency couched in general terms can only be construed as granting to the agen t the power to execute acts of administration, even if the principal: (a) States that he withholds no power from the agent; (b) States that the agent may execute acts he considers appropriate; or (c) Authorizes general and unlimited management Acts of administration has the same commercial and legal significance as to act i n the ordinary course of business. For example, the right to sue for the collecti on of debt owing to the principal is deemed not an incident of strict ownership which must be conferred in express terms. German & Co. v. Donaldson, Sim & Co., 1 Phil. 63 (1901). An attorney-in-fact empowered to pay the debts of the principal and to employ le gal counsel to defend the principals interest, has certainly the implied power to pay on behalf of the principal the attorneys fees charged by the lawyer. Municip al Council of Iloilo v. Evangelista, 55 Phil 290 (1930). An agent granted under a power of attorney the authority to deal with property w hich the principal might or could have done if personally present, is deemed aut horized to engage the services of a lawyer to preserve the ownership and possess of the properties of the principal. An officer who has control and management of the corporations business, or a spec ific part thereof, is deemed to have power to employ such agents and employees a s are usual and necessary in the conduct of the corporations business, except onl y where such authority is expressly vested in the Board of Directors. Yu Chuck v . Kong Li Po, 46 Phil 608 (1924). Government of PI v. Wagner, 54 Phil 132 (1929). Whether what is granted is an authority to merely administer (general power of a ttorney), or to do an act of strict ownership (special power of attorney), is no t determined from the title given to the instrument, but nature on the nature of the power given under the operative provisions of such instrument. But whether what is granted to the agent is a general power of attorney or a spe cial power of attorney, the rule of strict construction still prevails. Thus: Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds which do not sufficiently include property or su bject under which the agent is to deal. The act done must be legally identical w ith that authorized to be done. Woodchild Holdiings, Inc. v. Roxas Electric & Co nstruction Co., Inc., 436 SCRA 235 (2004). The declaration of the agent alone are generally insufficient to establish the fa ct or extent of her authority. The settled rule is that persons dealing with an assumed agent are bound at their peril, and if they would hold the principal lia ble to ascertain not only the fact of agency but also the nature and extent of a uthority, and in case either is controverted, the burden of proof is upon them t o prove it. Litonjua v. Fernandez, 427 SCRA 478 (2004), citing Yu Eng Cho v. Pan American World Airways, Inc., 328 SCRA 717 (2000). Even when a special power of attorney is granted by the principal to his agent, i t is still the general rule that a power of attorney must be strictly construed; the instrument will be held to grant only those powers that are specified, and the agent may neither go beyond nor deviate from the power of attorney. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007). (1) Forms Required of Powers of Attorney Although agency is a consensual contract and may thus be constituted by mere mee ting of minds, it seems that when the law requires the agency to be in the form of a power of attorney, it means that ideally (but not necessarily) it must be in writing. When the agency is not in writing, then it does not necessarily mean th at the contract of agency is void, but that failure to comply with the form requ

ired would have serious legal consequences. Thus, under Article 1874 of the Civil Code, an agency to sell a piece of land or an interest therein must be in writing, otherwise, the resulting contract of sa le would be void. Under Article 1878, a special power of attorney is necessary to confer power in the agency that would constitute acts of ownership, ideally the agency contract must be in writing. When therefore a special power of attorney, or the confermen t of powers to the agent to execute acts of strict ownership on behalf of the pr incipal, is done orally, the agency relationship may be valid as between the pri ncipal and agent, but that third parties who deal with him must require written evidence of his power to execute acts of strict ownership, otherwise, they are b ound to enter into the contract at their own risk. In Home Insurance Co. v. United States Lines Co., 21 SCRA 863 (1967), the Court held that Article 1878 does not state that the special power of attorney be in w riting; be that as it may, the same must be duly established by evidence other t han the self-serving assertion of the party claiming that such authority was ver bally given him. In Home Insurance Co., in spite of counsels assurance that he ha d verbal authority to enter into compromise for purpose of pre-trial proceedings , the Rules of Court require for attorneys to compromise the litigation of their clients a special authority (then Section 23, Rule 138, Rules of Court). And whil e the same does not state that the special authority be in writing, the court ha s every reason to expect that, if not in writing, the same be duly established b y evidence other than the self-serving assertion of counsel himself that such au thority was verbally given him. . . For authority to compromise cannot lightly b e presumed. And if, with good reason, the judge is not satisfied that said autho rity exists, as in this case, dismissal of the suit for non-appearance of plaint iff in pre-trial is sanctioned by the Rules. Although, there is no requirement that the power of attorney to be valid and bin ding must be notarized or in a public instrument. Barretto v. Tuason, 59 Phil. 8 45 (1934). However, a notarized power of attorney carries the evidentiary weight conferred upon it with respect to its due execution. Veloso v. Court of Appeals , 260 SCRA 593 (1996). (2) Construction Rules on Powers of Attorney That a power of attorney be in writing seems to be more critical to the constitu tion of a special power of attorney, than to a general power of attorney. In bot h types of agencies, because of the absence of a written evidence, the burden of proof to show that there is indeed a contract of agency is on the part of the p erson who purports to act for and in behalf of a principal, and even then third parties are directed to ensure the nature and extent of the agents power. But if what was constituted was a general power of attorney, it covers merely acts of a dministration, and therefore third parties would be less wary that the contract or transaction they entered into is not within the powers of the agent. On the o ther hand, when what was constituted was an oral special power of attorney, then lacking the written evidence of what particular power of ownership has been gra nted to the agent, the third party may only reasonably presume that the agent is granted only powers of administration. Therefore, outside of Article 1874 which renders the sale of a piece of land voi d if the power of attorney is not in writing, every contract entered into by the agent on behalf of the principal covering acts of ownership made pursuant to a verbal special power of attorney would not be void, but rather unenforceable, fo r the principal has every authority to pursue the resulting contract, and the th ird-party would be estopped from refusing to comply with a contract he willingly entered into absent the written authority of the agent. b. Cases Where Special Powers of Attorney Are Necessary Article 1878 enumerates fourteen instances which are described as acts of strict dominion, and which cannot be deemed to be within the power of the agent unless e xpressly granted (i.e., except under a special power of attorney), and the fifte enth case enumerated actually covers the general rule: A duly appointed agent ha s no power to exercise on behalf of the principal any act of strict dominion unl ess it is under a special power of attorney.

What makes an agency a special power of attorney? It is not the name or title gi ven in the deed issued by the principal that determines whether the agent can ex ercise acts of strict dominion for and in behalf of the principal. (1) To Make Payments as Are Not Usually Considered as Acts of Administration Payments made in the ordinary course of business constitute merely acts of admin istration, since they then go into mere acts of management. Under Article 1877, an agency couched in general terms comprises acts of administration which would include general and unlimited management. All other forms of payment for and in behalf of the principal would constitute a cts of strict dominion, which are not deemed within the power of even a duly app ointed agent, unless granted specially or under a special power of attorney. In Dominion Insurance v. Court of Appeals, 376 SCRA 329 (2002), although a Specia l Power of Attorney was issued by the insurance company to its agency manager, it s wordings showed that it sought only to establish an agency that comprises all the business of the principal with the designated locality, but couched in gener al terms, and consequently was limited only to acts of administration. The Court held that a general power permits the agent to do all acts for which the law do es not require a special power. Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney (i.e., really a general power of atto rney) did not require a special power of attorney, and could only cover acts of administration. In Dominion Insurance, it was held that the payment of claims by the area manage r of an insurance company did not constitute an act of administration, and that since the settlement of claims was not included among the acts enumerated in the Special Power of Attorney issued by the insurance company, nor is of a characte r similar to the acts enumerated therein, then a special power of attorney was r equired before such area manager could settle the insurance claims of the insure d. Consequently, the amounts paid by the area manager to settle such claims were not allowed to be reimbursed from the principal insurance company. (2) To Effect Novation Which Put an End to Obligations Already in Existence at t he Time the Agency Was Constituted The power of an agent to novate obligations already in existence at the time the agency was constituted, which must be covered by a special power of attorney, wou ld imply that if the obligation was created only during the agency relationship, the power to create such obligation granted to the agent brings with it the imp lied power to novate it. What happens if the agent is clearly empowered under a special power of attorney to incur an obligation in behalf of the principal, and in the process of doing so, the agent novates an pre-existing obligation? (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 Aba ndon a Prescription Already Acquired Under Article 1880, a special power to compromise does not authorize submission to arbitration. It may also be deduced that a special power to submit to arbitra tion cannot be construed to grant to the agent the power to compromise. Under Article 2028, compromise is a contract whereby the parties, by making reci procal concessions, avoid a litigation or put an end to one already commenced. Section 3(d) of the Alternative Dispute Resolution Act of 2004 (R.A. No. 9285), a rbitration is defined as a voluntary dispute resolution process in which one or mo re arbitrators, appointed in accordance with the agreement of the parties, or ru les promulgated pursuant to this Act, resolve a dispute by rendering an award. Under Article 1880, the power to compromise excludes the power to submit to arbi tration. It would also be reasonable to conclude that the power to submit to arb itration does not carry with it the power to compromise. With such special exclu sion rule under Article 1880 as to the powers to compromise and arbitrate, would that mean all other powers covered under the paragraph numbered 3 of Article 18 68 are not mutually exclusive? In order words, the grant of the special power to compromise would mean that the implied power of the agent to renounce the right to appeal from a judgment of a lower court, if that be essential in arriving at a compromise resolution before the appellate court. Same thing could be said of

the special power to waive objections to the venue of an action, or to waive a prescription already acquired, vis- -vis the special power to compromise. When the attorney-in-fact has been authorized in writing to institute any action in court to eject all person found in a specified parcel of land and for this pu rpose, to appear at the pre-trial and enter into any stipulation of facts and/or compromise agreement but only insofar as this was protective of the rights and interests of the principal in the property, the same does not constitute authorit y to enter into a compromise agreement that provides for the sale of the propert y to the defendant in the case thus filed. The judgment based on compromise ente red into by the attorney who has not shown specific authority to do so was decla red void. Cosmic Lumber v. Court of Appeals, 265 SCRA 168 (1996). Nonetheless, i n Dungo v. Lopena, 6 SCRA 1007 (1962), the court characterized a compromise ente red into by the lawyer without the special power of attorney of client not to be void but merely unenforceable. Confession of judgments stands on the same footing as a compromise, and may not be entered into by counsel except with the knowledge and consent of the client, or upon his special empowerment. Acener v. Sison, 8 SCRA 711 (1963). (4) To Waive Any Obligation Gratuitously To waive any obligation gratuitously is the inelegant version of the legal term con donation or remission of the debt which under Article 1270 is essentially gratuito us, and requires the acceptance by the obligor. It may be made expressly or impl iedly. In other words, an agent cannot outside of a special power of attorney, co ndone or remit the obligations owing to the principal; and if he does so, the ac t is unenforceable. It does not mean however, that every agent of the principal would have the power to waive the principals obligation for valuable consideration outside of authori ty to do so; what it means is that when within the scope of authority of the age nts authority he may do so as an implied or incidental power; whereas, the power to waive an obligation owed to the principal gratuitously can only arise as an e xpress power, but not implied or incidental power of an agent. In other words, t he equivalent of the term to waive any obligation onerously, would be equivalent t o payment or performance of the obligation, which by its essence is an act advan tageous to the principal, and when done without express authority is still withi n the scope of the agents authority. Another way of approaching the issue, is that if under paragraph numbered 1 of A rticle 1878, every agent has the implied power to make payments that in the ordi nary course of business, then moreso can an agent collect payments on obligation s owing to the principal, which by their nature are also acts of administration or management. (5) To Enter into Any Contract by Which the Ownership of an Immovable Is Transmi tted or Acquired Either Gratuitously or for a Valuable Consideration Paragraph numbered 5 of Article 1878 covers only immovable property, as distingu ished from movable property. It does not mean that every agent has the implied p ower to transmit or acquire ownership over movable property on behalf of the pri ncipal; what the paragraph intends to convey is that there can never be an impli ed power on the part of the agent to transmit or acquire ownership over immovabl e property, whether by onerous or gratuitous title; if such power shall be deeme d to exist is must be expressly granted. Paragraph numbered 5 of Article 1878 creates the general rule of special power of attorney when it comes to immovable property; and generally renders the resultin g contracts merely unenforceable. When it comes to a particular type of immovabl e property, namely land or any interest therein, Article 1874 applies specifical ly, i.e., not only must the power be granted under a special power of attorney ( i.e., expressly given), it must be in writing, otherwise, the resulting contract of sale is void. Obviously, in the purchase of a piece of land or any interest therein through an agent, Article 1874 does not apply, and would be covered by A rticle 1878. Likewise, donations of immovables through an agent are covered enti rely under paragraph 5 of Article 1878. Finally, it is clear from a comparison of the provisions of Article 1874 and 187 8[5], that the power granted to an agent to purchase a piece of land or any inte

rest therein must be in the form of special power of attorney, the same need not be in writing in order to be valid. Rodriguez v. Court of Appeals, 29 SCRA 419 (1969). In Pineda v. Court of Appeals, 376 SCRA 222 (2002), it was held that whe n a house and lot was sold by an agent who had no authority from the registered owner to do so, the resulting sale is void: The Civil Code provides that in a sale of a parcel of land or any interest there in is made through an agent, a special power of attorney is essential. [Article 1878] This authority must be in writing, otherwise the sale shall be void. [Arti cle 1874] x x x A special power of attorney is necessary to enter into any contr act by which the ownership of an immovable is transmitted or acquired for a valu able consideration. Without an authority in writing . . . any sale . . . is void. (a t p. 228) There is no documentary evidence on record that the owners of a large tract of l and specifically authorized the broker to sell their property to another. Articl e 1878 of the New Civil Code provides that a special power of attorney is necess ary to enter into any contract by which the ownership of an immovable is transmi tted or acquired either gratuitously or for a valuable consideration [Article 18 78(5)], to create or convey real rights over immovable property [Article 1878(12 )], or for any other act of strict dominion [Article 1878(150]. Any sale or real property by one purporting to be an agent of the registered owner without any a uthority therefor in writing from said owner is null and void.[1] Litonjua v. Fe rnandez, 427 SCRA 478 (2004). Under Article 1879, [a] special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell. (5-A) Sale of a Piece of Land Article 1874 of the Civil Code provides that When a sale of a piece of land or an y interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Note that the article does not declar e the agency to be void, but the resulting contract of sale effected by the agen t. Is the agency itself void? The De Leons have opined that the status of such a sale effected through an agen t whose special power of attorney is not in writing, is not really void, but mer ely voidable since the sale can be ratified by the principal (see Arts. 1901, 191 0, par. 2) such as by availing himself of the benefits derived from the contract . (at p. 416). Indeed, in Gutierrez Hermanos v. Orense, 28 Phil 572 (1914), the Court held that although the seller had not previously authorized a person to sell his parcel o f land, but when such person subsequently approved the action of the purported a gent, this produced the effect of ratification converting the relationship into an express agency. However, the ruling in Guitierrez Hermanos cannot be relied u pon to support the conclusion that a sale of a piece of land through an agent wi thout a written authority would merely be unenforceable in spite of the clear la nguage of Article 1874 since the decision was rendered under the terms of the ol d Civil Code, and Article 1874 is an entirely new provision in the New Civil Cod e. Likewise, apart from the deed of sale effected by the agent in Gutierrez Herm anos, the registered owner subsequently thereto affirmed the sale under public d ocumentation. The procedure is also possible under Article 1874, which means tha t if the agent enters into a sale of a piece of land without written authority, indeed the sale would be void; but that if the principal subsequently, enters di rectly again with the same buyer into a formal deed of sale, then the second tra nsactions would be valid for it is no longer covered under Article 1874. The rule therefore is best expressed in Raet v. Court of Appeals, 295 SCRA 677 ( 1998), where the Court held that Article 1874 of the Civil Code requires for the validity of a sale involving land that the agent should have an authorization i n writing; otherwise any sale concluded on the land is void;[2] and that in Rodr iguez v. Court of Appeals, 29 SCRA 419 (1969), which held that Article 1874 refe rs to sales made by an agent for a principal and not the sales made by the owner personally to another, whether that other be acting personally or through a rep resentative. Is it clear therefore that Art. 1874 does not cover directly an age ncy to purchase a piece of land or an interest therein.

Nonetheless, only recently in Escueta v. Lim, 512 SCRA 411 (2007), the Court aff irmed the ruling in Gutierrez Hermanos. Escueta involved the sale is parcels of land effected by the sub-agent appointed by the attorney-in-fact of the owner, w ho claims that that the sub-agent was not given any special power of attorney to sell the parcels of land. The Court held: Even assuming that [the sub-agent] has no authority to sell the subject properties, the contract she executed in favor of the respondents is not void, but simply unenforceable, under the second para graph of Article 1317 of the Civil Code which reads . . . a contract entered int o in the name of another by one who has no authority or legal representation, or who acted beyond his powers, shall be unenforceable, unless it is ratified, exp ressly or impliedly, by the persons on whose behalf it has been executed, before it is revoked by the other contracting party. (at p. 424). A letter containing the specific authority to sell is sufficient and complies wi th Article 1874. Jimenez v. Rabot, 38 Phil. 387 (1918). Thus, In City Lite Realt y Inc. v. Court of Appeals, 325 SCRA 385 (2000), the written letter issued by a landowner read: We will appreciate Metro Drugs assistance in referring to us buyer s for property. Please proceed to hold preliminary negotiations with interested buyers and endorse formal offers to us for our final evaluation and appraisal. Th e Court held that the language of the letter did not constitute written authorit y to sell the land, and the appointed individual was only designated as a contac t person or a broker with no authority to conclude a sale of the property. Any s ale on the parcel of land concluded by such an appointee would be void, and the sale could not produce any legal effect as to transfer the subject property from its lawful owner. In Lian v. Puno, 31 Phil. 259 (1915), the Court held that for the principal to con fer the right upon an agent to sell real estate, a power of attorney must so exp ress the powers of the agent in clear and unmistakable language; and when there is any reasonable doubt that the language so used conveys such power, no such co nstruction shall be given the document. Thus, in that decision, a power of attor ney providing that I hereby confer sufficient power x x x upon A, in order that i n my name and representation he may administer the interest I possess within thi s Municipality of Tarlac, purchase, sell, collect and pay, etc. was held sufficie nt to cover the sale by the agent of land of the principal in Tarlac. In Strong v. Gutierrez Repide, 6 Phil. 680 (1906), the Court clarified that The express mandate required by Article 1874 to enable an appointee of an agency cou ched in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. The power of at torney need not contain a specific description of the land to be sold, such that giving the agent the power to sell any or all tracts, lots, or parcels of land be longing to the principal is adequate. In Katigbak v. Tai Hing Co., 52 Phil. 622 (1928), it was held that the authority to sell any kind of realty that might belong to the principal was held to include also such as the principal might afterwards have during the time it was in forc e. In P. Amico and J. Amigo v. S. Teves, 96 Phil. 252 (1954), the Court held that w here the power of attorney says that the agent can enter into any contract conce rning a land, or can sell the land under any term or condition and covenant he m ay think fit, he is certainly granted power to deal with the land, and sell it, in the same manner and with the same breadth and latitude as the principal could . Although the document executed by the owner of the land was denominated as a Gene ral Power of Attorney, it was with respect to the authority given to sell the lan d a special power of attorney, for it properly described the title of the land a nd the clear power to sell it. Thus there was no need to execute a separate and special power of attorney for the agent to effect the sale of the land in the na me of the principal. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required. Veloso v. Court of Appeals, 260 SCRA 593 (1996). Finally, it should be noted that in Bico Savings & Loan Assn. v. Court of Appeal s, 171 SCRA 630 (1989), the Court held that the sale proscribed under Article 18

79 refers to a voluntary sale effected through the agent; it does not cover the public sale that happens as part of the foreclosure on the mortgage duly constit uted. Related Cases: PNB v. Court of Appeals, 94 SCRA 357 (1979) Kuenzle and Streiff v. Collector of Customs, 31 Phil 646 (1915) Dela Pena v. Hidalgo, 16 Phil 450 (1910) Rio y Olabbarrieta v. Yutec, 49 Phil 276 (1926) (5-B) Agent Cannot Validly Purchase Property of Principal Under Article 1491(2) of the Civil Code, unless so expressly authorized, an agen t cannot purchase the property of his principal; and if he does so, the sale wou ld be void. It means therefore that even when the agent has been granted a speci al power of attorney to sell a piece of land or any interest in it, such power d oes not include by implication the power to sell to himself under the clear prov isions of Article 1491(2) of the Civil Code, unless there was such prior authori zation given by the principal. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007), recognized that the prohibition against agents purchasing property in their hands for sale or management is cle arly, not absolute; when so authorized by the principal, the agent is not disqua lified from purchasing the property he holds under a contract of agency to sell. (6) To Make Gifts A gift or a donation is defined under Article 725 of the Civil Code as an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. Under paragraph 6 of Article 1878, for an agent to have the power to make gifts or donations on behalf of the principal would require the same to be in the form of a special power of attorney, except: (a) Customary ones for charity (b) Those made to employees in the business managed by the agent When a gift or donation is made by an agent on behalf of the principal which is not covered by a special power of attorney, it does not become void for failure to comply with these requirement in Agency Law (because such deficiency merely r enders the contract unenforceable), but rather it is void or not depending on wh ether it complies with the formalities required under the Law on Donation, for e very act of donation constituted a solemn contract. The net effect of compliance with the formalities required by the Law on Donation would be to make the resul ting gift or donation unenforceable, when it does not comply with the special po wer of attorney requirement. (7) To Loan or Borrow Money Under paragraph 7 of Article 1878, the power of an agent to either loan or borro w money, is an act of strict ownership, and requires the same to be in the form of a special power of attorney. The exception would be when the act be urgent and indispensable for the preservation of the things which are under administration .[3] The paragraph has been construed to cover only the borrowing of money under mutuum, and does not include purchasing of goods on credit on behalf of the prin cipal. De Villa v. Fabricante, 105 Phil. 672 (1959). Since the authority to borrow money is rarely inferred, in Rural Bank of Calooca n, Inc. v. Court of Appeals, 104 SCRA 151 (1981), the Court ruled that a credito r should require the execution of a power of attorney in order that one may be u nderstood to have granted another the authority to borrow on behalf of the forme r. What happens when there is no power of attorney given? In Gozun v. Mercado 511 S CRA 305 (2006), the Court held that a special power of attorney is necessary for an agent to borrow money, unless it be urgent and indispensable for the preserv ation of the things which are under administration; and that such contract enter ed into in the name of another person by one who has been given no authority or legal representation or who has acted beyond his powers are classified as unauth orized contracts and are unenforceable, unless they are ratified. The special authority to borrow money for the principal is not to be implied fro m the special power of attorney to mortgage real estate. PNB v. Sta. Maria, 29 S

CRA 303 (1969); and the power to borrow money granted to the agent cannot be dee med to include the power to spend the amount thus borrowed as he pleases. Hodges v. Salas, 63 Phil. 567 (1936). On the other hand, under Article 1890, if the agent has been empowered to borrow money, then he is not disqualified from being himself the lender at the current rate of interest. On the other hand, the article also provides, that if the age nt has been empowered to lend money at interest, he cannot borrow it without the consent of the principal. In Rural Bank of Caloocan v. Court of Appeals, 104 SCRA 151 (1981), the Court he ld that although it is principle is that a person whose acts holding another per son to be his agent and would lead a third person to believe such purported agen t was authorized to speak and bind him, cannot now be permitted to deny the auth ority of the purported agent; but this is only true when the purported agent was clothed with apparent authority. In this case, where the authority of the purpo rted agent was only to follow up of the principals loan application with the bank , it cannot be presumed that he was also granted authority to borrow on behalf o f the principal, especially when the principal herself went to the bank to sign the promissory note for the loan obtained from the bank. If the principals act ha d been understood by the bank to be a grant of an authority to the agent to borr ow on behalf of the principal, the bank should have required a special power of attorney covering such power to borrow. Related Case: De Villa v. Fabricante, 105 Phil 672 (1959) PNB v. Tan Ong Sze, 53 Phil. 451 (1929) Rodriguez v. Pamintuan, 37 Phil 876 (1918) PNB v. Sta. Maria, 29 SCRA 203 (1969) (8) To Lease Real Property for More Than One Year It seems clear from paragraph numbered 8 of Article 1878, the lease of real prop erty for more than one year is an act of strict ownership; whereas, the act of e ntering into a contract of lease for one year or less, would be considered an ac t of administration, and may be in the form of general power of attorney. The paragraph does not cover leases of personal property, which then would lead to the conclusion that any power given to the agent to lease personal property, for whatever period, would constitute merely a general power of attorney; and ma y be implied from the express powers given. In this connection, it should be noted that under Article 1403(2) of the Civil C ode, an agreement for the leasing of real property for a period longer than one year is unenforceable unless made in writing. Therefore, even when the agency po ssess a special power of attorney to lease real property, when the lease itself for more than a year is not in writing, the resulting contract would still be un enforceable. In a contract of agency, the agent acts in representation or in behalf of anothe r with the consent of the latter. Article 1878 of the Civil Code expresses that a special power of attorney is necessary to lease any real property to another p erson for more than one year. The lease of real property for more than one year is considered not merely an act of administration but an act of strict dominion or of ownership. A special power of attorney is thus necessary for its execution through an agent. Shoppers Paradise Realty v. Roque, 419 SCRA 93 (2004). What is the legal status of a contract entered into by an agent on behalf of the principal where the law requires that he should be armed with a special power o f attorney, and yet he had no such special power? In Vda. De Chua v. IAC, 229 SC RA 99 (1994), where the issue before the Supreme Court was the affirmance by the Court of Appeals of the decision of the trial court, ordering their ejectment fr om the premises in question and the demolition of the improvements introduced th ereon, the lessees relied on the contract of lease entered into by on behalf of t he principal-lessor, by her attorney in fact who was not armed to lease the prem ises for more than one year. However, the facts showed that the lessees stayed i n the premises during the term of the lease, and which was impliedly renewed thr ough tacita reconduccion. The Court expressly agreed with the Court of Appeals r esolution declaring the contract of lease (Exh C) void on the ground that the agent w

as not armed with a special power of attorney to enter into a lease contract for a period of more than one year, thus: We agree with the Court of Appeals. The lease contract (Exh. "C"), the linchpin of petitioners' cause of action, inv olves the lease of real property for a period of more than one year. The contrac t was entered into by the agent of the lessor and not the lessor herself. In suc h a case, the law requires that the agent be armed with a special power of attor ney to lease the premises. x x x. It is true that respondent Herrera allowed petitioners to occupy the leased prem ises after the expiration of the lease contract (Exh. "C") and under Article 167 0 of the Civil Code of the Philippines, a tacit renewal of the lease (tacita rec onduccion) is deemed to have taken place. However, as held in Bernardo M. Dizon v. Ambrosio Magsaysay, 57 SCRA 250 (1974), a tacit renewal is limited only to th e terms of the contract which are germane to the lessee's right of continued enj oyment of the property and does not extend to alien matters, like the option to buy the leased premises. (at p. 106) (9) To Bind the Principal to Render Some Service Without Compensation Although the agent may bind himself to the contract of agency without compensati on, (Article 1875), in order to bind the principal to enter into service without compensation would be unenforceable without a special power of attorney. The im plication of paragraph number 9 of Article 1878 is that to bind the principal to render service for compensation would be deemed a mere act of administration, a nd constituted in a mere general power of attorney, or more specifically, to be an implied power of every agent. I disagree, any contract of service to be entered into on behalf of the principa l should properly be considered an act of strict ownership, for it impinges on o bliging the principal to render a personal obligation, which if he refuses makes him liable for damages. Why should contracts of service, even when for compensa tion, be deemed to be within implied powers of the agent to bind the principal? (10) To Bind the Principal in a Contract of Partnership Every agreement by the agent on behalf of the principal which has the effect of obliging the principal to contribute money or industry to a common fund with the intention of deriving profits therefrom would be unenforceable without a specia l power of attorney having been previously given to the agent, for it in effect makes the principal a partner in a partnership. (Art. 1767). (11) To Obligate the Principal as a Guarantor or Surety Under Article 2047 of the Civil Code, by the contract of guaranty, the guarantor binds himself to fulfill the obligation of the principal debtor in case the lat ter should fail to do so; and if the person binds himself solidarily with the pr incipal debtor, he becomes a surety under a contract of suretyship. Therefore, under paragraph numbered 11 of Article 1878, no contract of guaranty or surety is enforceable against the principal when it has been entered into by an agent who possesses no special power of attorney to do so It has been held that a contract of guaranty or surety cannot be inferred from u s of vague or general words of commitment. Thus, the authority given by the corp oration to its agent to approve a loan up to P350,000 without any security requi rement does not include the authority to issue guarantees for any amount. BA Fin ance Corp. v. Court of Appeals, 211 SCRA 112 (1992). Thus: A power of attorney to sell or lease the property of the principal with the provi sion that empowers the agent to perform and execute all and every lawful and reas onable act as fully and effectively as I might or could do if personally present , cannot be construed to include the power to enter into a contract of guaranty t o bind the principal. Director of Public Works v. Sing Juco, 53 Phil. 205 (1929) . A power of attorney to loan money does not include the implied power to make the principle a surety for the payment of the debt a third person. Bank of P.I. v. C oster, 47 Phil. 594 (1925). It should be recalled that under Article 1403[2][b] of the Civil Code, a contrac t of guaranty is unenforceable unless it is made in writing. Consequently, even when the agent has the requisite special power of attorney to enter into a contr

act of guaranty in behalf of the principal, the result contract would be unenfor ceable if not reduced in writing. (12) To Create or Convey Real Rights Over Immovable Under paragraph numbered 12 of Article 1878, an agent cannot, in the name of the principal, create or convey real rights over immovable property without being p ossessed of a special power of attorney; otherwise, the resulting contract would be unforceable against the principal. The paragraph intends to cover dealings on immovable property outside of the sal e of a piece of land or any interest therein covered specifically under Article 1874, and contracts of purchase of a piece of land, and contracts of donations o f every type of immovable property. Real rights over immovable property would cover such contracts as mortgages, usufr uct, easement, etc. It obviously covers the entering into a lease contract over an immovable with a period exceeding one year (separately covered under paragrap h numbered 8 of Article 1878). When it comes to a mortgage, the Court has expressed the doctrine that a person can become liable on a real estate mortgage which he never executed either in pe rson or by attorney-in-fact. Philippine sugar Estates Dev. Co. v. Poizat, 48 Phi l. 536 (1926). Rural Bank of Bombon, Inc. v. Court of Appeals, 212 SCRA 25 (1992 ). Under Article 1879, the power to sell excludes the power to mortgage; and that t he power to mortgage excludes the power sell. This supports the proposition that each of the powers enumerated under Article 1878, are named acts of strict domin ion, and cannot be implied powers; and that one form of named special power canno t give the presumption that it includes under any form of construction or interp retation another named special power. Rodriguez v. Pamintuan and De Jesus, 37 Ph il. 876 (1918). The power to mortgage does not carry the implied power to represent the principa l in litigation. Valmonte v. Court of Appeals, 252 SCRA 92 (1996). In Rural Bank of Bombon v. Court of Appeals, 212 SCRA 25 (1992), although the ag ent was given a special power of attorney to mortgage the property of the princi pal, nonetheless, when he signed the Deed of Real Estate Mortgage in his name al one as mortgagor, without any indication that he was signing for and in behalf o f the property owner, the mortgage is void, and the agent bound himself as the o nly debtor of under the loan obtained from the bank. In Philippine Sugar Estates Dev. Co., v. Poizat, 48 Phil. 536 (1925), the Court held that it is a general rule in the law of agency that, in order to bind the p rincipal by a mortgage on real property executed by an agent, it must upon its f ace purpose to be made, signed and sealed in the name of the principal, otherwis e, it will bind the agent only. It is not enough merely that the agent was in fa ct authorized to make the mortgage, if he has not acted in the name of the princ ipal. Neither is it ordinarily sufficient that in the mortgage the agent describ ed himself as acting by virtue of the power of attorney, if in fact the agent ha s acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it shall be the act o f the principal, yet, unless in fact it is executed by the agent for and on beha lf of his principal, it is not valid as to the principal. (13) To Accept or Repudiate an Inheritance Under Article 1044 of the Civil Code, any person having the free disposal of his property may accept or repudiate an inheritance, which obviously under paragraph 13 of Article 1878 constitute acts of strict dominion. While there is no doubt t hat repudiation of an inheritance is an act that goes against the interest of th e principal and would require the grant of a special power of attorney if it is to be done through an agent, the acceptance of inheritance has another basis upo n which it cannot be an implied power of his agent: the acceptance of an inherit ance involves an act of gratitude on the part of the heir, and therefore cannot be presumed to be a burden that the principal is presume to accept as a matter of course.. (14) To Ratify or Recognize Obligations Contracted Before the Agency

Ratify is a legal term that involves the acceptance of a contract, which is either voidable or unenforceable, and has the effect cleansing such contract of its le gal defects that retroacts to the date of its perfection. Under Articles 1392 an d 1396, [r]atification extinguishes the action to annul a voidable contract, and cl easenses the contract from all its defects from the moment it was constituted. Wh en it comes to unenforceable contracts, under Article 1404, those contracts that are governed by the Statutes of Frauds are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of ben efits under them. Paragraph numbered 14 of Article 1878 clearly recognizes that the act of ratifyi ng or cleansing a defect contract that therefore could validly be enforced again st the principal is an act of strict ownership, and cannot be effected by the ag ent without special power of attorney. Recognition of an obligation refers to acknowledging what was a natural obligation which was not therefore the subject of civil enforcement; it has the effect of making a former natural obligation be transformed into a civil obligation that c an be enforced against the estate of the principal. Recognition is an act of str ict ownership which can be performed by an agent on behalf of the principal who possesses a special power of attorney. Director v. Sing Juco, 53 Phil 205 (1929) Villa v. Garcia Bosque, 49 Phil 126 (1926) Bank of PI v. De Coster, 47 Phil 594 (1925) Aznar v. Morris, 3 Phil 636 (1904) Germann v. Donaldson, 1 Phil 63 (1901) (15) Any Other Act of Strict Dominion Generally, the sale or purchase of even personal properties should be treated as acts of strict dominion and would require a special power of attorney to be exe cuted by the agent in behalf of the principal. But under Article 1877, a sale or purchase made in the ordinary course of management is merely an act of administ ration and, therefore, included in agency couched in general terms. The clear im plication under paragraph numbered 15 is that those that may be constituted as a cts of strict ownership, but not so specifically named in the first fourteen par agraphs, would always need a special power of attorney to be executed in behalf of the principal by the agent, BUT not having so named, it is possible that such acts of strict ownership may, depending on circumstances prevailing in each cas e, would be acts of administration, and may be governed by a general power of at torney, or may be implied or incidental from express powers or from the nature o f the business covered by the agency arrangement. In Garcia v. De Manzano, 39 Phil 577 (1919), one of the issue to be resolved was whether a power of attorney that granted the son the following powers: To enable him to buy or sell, absolutely or under pacto de retro, any of the rural or urb an estates that I now own and may acquire in the future, at such price as he may deem most advantageous, which he shall collect in cash or by installments and u nder such conditions as he may consider proper, and he shall set forth the encum brances on the properties and their origin. I bind myself to warrant and defend, in accordance with law, the titles to such properties; and if the properties al ienated by this agreement should be redeemed, he is empowered to redeem them by paying the price that may have been fixed, and, for this purpose, shall execute the proper instrument, would grant him authority to sell the half-interest that t he principal had in a boat. The court held in the affirmative, ruling as follows -The power-of-attorney authorizes the sale of real property, the buying of real p roperty and mortgaging the same, the borrowing of money and in fact is general a nd complete. The power does not expressly state that the agent may sell the boat, but a power so full and complete and authorizing the sale of real property, must necessaril y carry with it the right to sell a half interest in a small boat. The record fu rther shows the sale was necessary in order to get money or a credit without whi ch it would be impossible to continue the business which was being conducted in the name of Narciso L. Manzano and for his benefit. (at p. 585)

De Manzano is authority to show that although the power to sell immovables must be contained in a special power of attorney, and therefore always constitutes an act of strict ownership, the sale or encumbrance of movables may constitute eit her acts of administration or acts of strict ownership, depending on the prevail ing circumstances. Thus, in De Manzano, the grant of the express power to manage the entire business affairs of the principal, was deemed to include the power t o sell co-ownership interest in movable property, especially when the sale was n ecessary to conduct the business of the principal. ________________________________________ [1]Citing City-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385 (2000); Raet v. Court of Appeals, 295 SCRA 677 (1998). [2]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006). [3]See Gozun v. Mercado 511 SCRA 305 (2006); Yasuma v. Heirs of Cecilio S. De Vi lla, 499 SCRA 466 (2006). VI. SPECIFIC OBLIGATION RULES FOR AGENTS a. Obligation of Agent to Advance Funds There is no common-law duty or obligation on the part of the agent to advance hi s own funds in behalf of the principal; for indeed, one of the distinguishing ch aracteristic of every agency is that the agent does not personally become liable for the contracts and transactions pursued in behalf of the principal. Under Article 1886 of the Civil Code, the only time that an agent is legally bou nd to advance personal funds in the pursuit of the agency is when such obligatio n has been expressly agreed upon in the creation of the contract of agency. But even in such a case, the agent may refuse to advance any personal funds when the principal is insolvent. Indeed, under Article 1919(3), insolvency of the princi pal extinguishes the agency. b. Agents Duty of Loyalty (1) Duty of Loyalty in General Article 1899 sets-out what in corporate parlance is known as the duty of loyalty of an agent: The agent shall be liable for damages if, there being a conflict be tween his interest and those of the principal, he should prefer his own. Agency r elation is essentially fiduciary in character, which requires of the agent to ob serve utmost good faith and loyalty to the principal. When a agent violates his duty of loyalty, and in a conflict-of-interests situat ion, he prefers his own interest to the detriment of the principal, Article 1899 does not declare the contract or transaction he entered into to be void, but me rely makes the agent liable for the damages suffered by the principal. In Corpor ate Law, when a director or officer violates his duty of loyalty to the corporat ion, he is bound to disgorge to the corporation all the profits and earnings he obtain from his breach of duty, even when he used his own capital or funds for t he contract or transaction (Sections 31 and 34, Corporation Code). Would the mea sure of damages due to the principal be the same when an agent violates his duty of loyalty? Double agency (where the same agent serves the two contracting principals is fro wned upon by law, and will be allowed only when known to both parties. Domingo v . Domingo, 42 SCRA 131 (1971). (2) When Agent Enters into a Contract in His Own Name on a Matter that Falls Wit h the Scope of the Agency Article 1883 provides that [i]f an agent acts in his own name, the principal has no right of action against the person with whom the agent has contracted; neithe r have such persons against the principal. In such a case it is provided that it is the agent who is the one directly bound in favor of the person with whom he ha s contracted, as if the transaction were his own, except when the contract invol ves things belonging to the principal. If the matters entered into by the agent in his own name are matters that are wi thin the scope of his authority or those pertaining to matters that should perta

in to the business of the principal, there would be no doubt that the agent has breach his fiduciary duty of loyalty, by having preferred his own interests to t hat of the principals. Whether the agent has used his own funds or property, or t hose of the principals, he would still be in breach of this fiduciary duty, and u nder Article 1891, he is bound to render an account of his transactions and to de liver to the principal whatever he may have received by virtue of the agency, ev en though it may not be owing to the principal. In either case, therefore, the pr incipal has the right to demand that the agent should turn-over to him whatever contract, property or business has been acquired by the agent in breach of his d uty of loyalty. In Miguel v. Court of Appeals, 29 SCRA 760 (1969), the Court held that a fiducia ry relation arises where one man assumes to act as agent for another and the oth er reposes confidence in him, although there is no written contract or no contra ct at all. If the agent violates his duty as fiduciary, a constructive trust ari ses. It is immaterial that there was no antecedent fiduciary relation and that i t arose contemporaneously with the particular transaction.[1] If the agent had used the funds belonging to the principal, under Article 1896 h e owes interest on the sums he has applied to his own use from the day on which h e did so, and on those which he still owes after the extinguishment of the agenc y. The provisions of this article presumes that the property or business acquired by the agent for his own in violation of his fiduciary duty is one that the pri ncipal is not demanding to be delivered to him. This is clear from Article 1918 which provides that [t]he principal is not liable for the expenses incurred by th e agent . . . [i]f the agent acted in contravention of the principals instruction s, unless the latter should wish to avail himself of the benefits derived from t he contract. In other words, if the contract or business acquired by the agent in breach of his duty of loyalty is demanded by the principal to be turned over to him, then the use of the principals sum to acquire such business would be deemed to have been ratified, and the agent is not personally liable for the interests due on said amount. In addition, Article 1455 of the Civil Code (on implied trusts), provides that [w ]hen any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made t o him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. (3) Particular Rules on Conflict of Interests Situations The following are specific rules covering violation of the duty of loyalty of th e agent: (a) Purchase of Principals Property Article 1491(2) of the Civil Code provides for any conflict-of-interest situation when it provides that an agent is prohibited from buying property entrusted to him for administration or management, without the principals consent. Even when an agent is authorized to sell the property, an d he sells it to himself for valuable consideration but without the consent of t he principal, the sale would be void. (b) When Agent Empowered to Borrow or Lend Money Article 1890 provides that when t he agent is empowered to borrow or lend money by the principal, then: (i) If empowered to borrow money, he may be the lender at current interest; and (ii) If empowered to lend money at interest, he cannot borrow without principals consent. (c) Obligation To Tuhbrn-Over to the Principal Whatever Received by Virtue of th e Agency Under Article 1890, every agent is bound to deliver to the principal what ever he may have received by virtue of the agency, even though it may not be owi ng to the principal, and even when given to him for his benefit. What happens when the agent violates his obligations under Article 1890? In the case where the agent was the lender to the principal and charged interest higher than the current rate, the difference would have to be returned to the principa l. If the agent borrows for himself without the principals the money which the pr incipal has authorized him to lend out, he would not only be liable for the curr ent interest that the principal would have earned had it been lent out to a thir d party, he would also be liable for damages that the principal may have suffere

d. Related Cases: Aboitiz v. De Silva, 45 Phil 883 (1924) Sing Juco v. Sunyantong Lorente, 43 Phil 589 (1922) Severino v. Severino, 44 Phil 343 (1923) Hodges v. Salas, 63 Phil 567 (1936) c. Obligation of Agent to Render Account Under 1891 of the Civil Code, Every agent is bound to render an account of his tr ansactions and to deliver to the principal whatever he may have received by virt ue of the agency, even though it may not be owing to the principal. Every stipul ation exempting the agent from the obligation to render an account shall be void . The well-established rule is that an agent cannot retain as his commission any p art of the proceeds that belong to the principal.[2] As a necessary consequence o f such breach of trust, defendant-appellee Gregorio Domingo must forfeit his rig ht to the commission and must return the part of the commission he received from his principal. Domingo v. Doming, 42 SCRA 131 (1971). The reason why an agent has to turn-over to the principal everything he receives by virtue of the agency is that when he acts, he does so merely as a representa tive of the principal, and whatever he receives is as though it was the principa l who receives it. He has no standing therefore to retain for himself any amount or item received in pursuit of the agency. The obligation of the agent to account for everything to the principal lies at t he core of his fiduciary obligations that any stipulation exempting the agent fr om the obligation to render an accounting is declared void under Article 1891. Domingo v. Domingo, 42 SCRA 131 (1971), held that Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an age nt condemning as void any stipulation exempting the agent from the duty and liab ility imposed on him in paragraph one thereof. It equates the taking of secret pr ofit by the agent as to be a fraud committed against the principal. It held that Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, t he vendor, is guilty of a breach of his loyalty to the principal and forfeits hi s right to collect the commission from his principal, even if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of any wrong, not to r emedy or repair an actual damage. 3 By taking such profit or bonus or gift or pr opina from the vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent for his principal, who has a right to treat him, ins ofar as his Commission is concerned, as if no agency had existed. The fact that the principal may have been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to blame for su ch a result by reason of his treachery or perfidy. (at pp. 137-138) Domingo v. Domingo, 42 SCRA 131 (1971), cites American jurisprudence that apply the doctrine under Article 1891, thus The American jurisprudence on this score is well-nigh unanimous. "Where a principal has paid an agent or broker a commission while ignorant of th e fact that the latter has been unfaithful, the principal may recover back the c ommission paid, since an agent or broker who has been unfaithful is not entitled to any compensation. xxx xxx xxx "In discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 33l, 94 NE 260 , 34 LRA (NS) 1046, said: 'It is well settled that the agent is bound to exercis e the utmost good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded on the hi

ghest and truest principles of morality." Parker vs. McKenna (1874) LR 10 Ch (En g) 96, 118.. If the agent does not conduct himself with entire fidelity towards his principal, but is guilty of taking a secret profit or commission in regard t he matter in which he is employed, he loses his right to compensation on the gro und that he has taken a position wholly inconsistent with that of agent for his employer, and which gives his employer, upon discovering it, the right to treat him so far as compensation, at least, is concerned as if no agency had existed. This may operate to give to the principal the benefit of valuable services rende red by the agent, but the agent has only himself to blame for that result.' x x x "The intent with which the agent took a secret profit has been held immaterial w here the agent has in fact entered into a relationship inconsistent with his age ncy, since the law condemns the corrupting tendency of the inconsistent relation ship. Little vs. Phipps (1911) 94 NE 260." "As a general rule, it is a breach of good faith and loyalty to his principal fo r an agent, while the agency exists, so to deal with the subject matter thereof, or with information acquired during the course of the agency, as to make a prof it out of it for himself in excess of his lawful compensation: and if he does so he may be held as a trustee and may be compelled to account to his principal fo r all profits, advantages, rights, or privileges acquired, by him in such dealin gs, whether in performance or in violation of his duties, and be required to tra nsfer them to his principal upon being reimbursed for his expenditures for the s ame, unless the principal has consented to or ratified the transaction knowing t hat benefit or profit would accrue, or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to change his condition that he c annot be put in status quo. The application of this rule is not affected by the fact that the principal did not suffer any injury by reason of the agent's deali ngs, or that he in fact obtained better results; nor is it affected by the fact that there is a usage or custom to the contrary, or that the agency is a gratuit ous one." (at p. 139) However, Domingo also held that the duty embodied in Article 1891 to account wil l not apply if the agent or broker had informed the principal of the gift or bonu s or profit he received from the purchaser and his principal did not object ther eto. (at p. *) The Court also held in Domingo that Paragraph 2 of Article 1891 (waiver of duty to account is void) is designed to stress the highest loyalty that is required o f an agent. Article 1891 (and Art. 1909) imposed upon the agent the absolute obl igation to make a full disclosure or complete account to his principal of all hi s transactions and other material facts relevant to the agency, so much so that the law does not countenance any stipulation exempting the agent form such oblig ation and condemns as void such stipulation. The duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest just ice. An agent, unlike a servant or messenger, has both the physical and juridical pos session of the goods received in agency, or the proceeds thereof, which take the place of the goods after their sale by the agent. His duty to turn over the pro ceeds of the agency depends upon his discharge as well as the result of the acco unting between him and the principal, and he may not set up his right of possess ion as against that of the principal until the agency is terminated. Guzman v. C ourt of Appeals, 99 Phil. 703 (1956). It is immaterial whether such money or property is the result of the performance or violation of the agents duty, if it be the fruit of the agency, it must be ac counted for and turned over to the principal. If his duty is strictly performed, the resulting profit accrues to the principal as the legitimate consequence of the relation; if profit accrues from his violation of duty while executing the a gency, that likewise belongs to the principal, not only because the principal ha s to assume the responsibility of the transaction, but also because the agent ca nnot be permitted to derive advantage from his own default. Dumaguin v. Reynolds , 92 Phil. 66 (1952).

Therefore, when the agent enters into a contract that should pertain to the prin cipal, but in his own name, it would be a violation of his duty of loyalty to th e principal, and as between the principal and the agent, the latter must account to the principal for all profits earned from the transaction. It matters now how fair the conduct of the agent may have been in a particular c ase, nor that the principal would have been no better of if the agent had strict ly pursued his power, nor that the principal was not, in fact, injured by the in tervention of the agent for his own profit. The result in both cases is the same ; the profits shall still pertain to the principal. Ojinaga v. Estate of Perez, 9 Phil. 185 (1907). (1) When the Duty to Account Does Not Apply Under Article 1914, the agent may retain in pledge the things which are the obje ct of the agency until the principal effects the reimbursement and pays the inde mnity provided in Article 1912 and 1913. g. Liability of Agent for Interest Under Article 1896, the agent would owe interest to the principal on the followi ng items: (a) On sums the agent applied to his own use from the time he used them; and (b) On sums owing the principal which remain outstanding at the time of extingui shment of the agency, interest to run from the time of such extinguishment. The Supreme Court has recognized the two distinct cases covered under Article 18 96.[3] The Supreme Court recognized in Borja v. De Borja, 58 Phil 811 (1933), that ther e is no interest due on sums owed by the agent to the principal which have not b een the result of agents conversion to his own use, such agent would be liable fo r interests to run from the date the agency is extinguished until he pays such s ums. h. Agent Liable for Fraud and Negligence Article 1909 provides that [t]he agent is responsible not only for fraud, but als o for negligence, which shall be judged with more or less rigor by the courts, a ccording to whether the agency was or was not for a compensation. Domingo v. Domingo, 42 SCRA 131 (1971), held that the provisions of Article 1909 demand the utmost good faith, fidelity, honesty, candor and fairness on the par t of the agent, the real estate broker in this case, to his principal, the vendo r. The law imposes upon the agent the absolute obligation to make a full disclos ure or complete account to his principal of all his transactions and other mater ial facts relevant to the agency, so much so that the law as amended does not co untenance any stipulation exempting the agent from such an obligation and consid ers such an exemption as void. The duty of an agent is likened to that of a trus tee. This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest. (at p. 137) The provisions of Article 1909 are merely an implementation of the duty of dilig ence expressed in Article 1887 which provides that in the execution of the agenc y, the agent shall act in accordance with the instructions of the principal, and in default of instructions, the agent shall do all that a good father of a famil y would do, as required by the nature of the business; and Article 1888, which pr ovides that an agent shall not carry out an agency if its execution would manifes tly result in loss or damage to the principal. It must be noted that an agent cannot be held personally liable by the principal for damages caused where, as provided under Article 1899, the agent acts in acco rdance with the orders of the principal, the principal cannot set-up the ignoran ce of the agent as to circumstances whereof he himself was, or ought to have bee n, aware. This refers to the liability incurred by the principal as to third part ies: having appointed an ignoramus for an agent, who acts in accordance with the principals instruction (does not use good judgment), the principal cannot avoid his obligations arising from the contract. Article 1909 is also the legal basis by which an agent becomes personally liable to third parties who are injured by his act of fraud or negligence. Related Cases: Strong v. Guiterrez Repide, 41 Phil 947 (1909)

British Airways v. Court of Appeals, 285 SCRA 450 (1998) Metrobank v. Court of Appeals, 194 SCRA 169 (1991) International Films (China) v. Lyric Film, 63 Phil 778 (1936) Austria v. Court of Appeals, 39 SCRA 527 (1971) Cadwallader v. Smith Bell, 7 Phil 461 (1907) ________________________________________ [1]at p. 777, citing Scott on Trusts, 3rd ed., Vol. V, p. 2544, citing Harrop v. Cole,, 85 N.J. Eq. 32, 95 A. 378, affd 86 N.J. Ea. 250, 98 A. 1085. [2]U.S. v. Reyes, 36 Phil. 791 (1917); U.S. v. Kiene, 7 Phil. 736 (1907); Ojinag a v. Estate of Perez, 9 Phil. 185 (1907); In re Bamberger, 49 Phil. 962 (1972); Duhart Freres y Compania v. Macia, 54 Phil. 513 (1930). [3]Ojinaga v. Estate of Perez, 9 Phil. 185 (1907); Mendezona v. Vda. De Goitia, 54 Phil 557 (1930); A.L. Ammen Transportation Co. v. De Margallo, 54 Phil. 570 ( 1930). VII. POWER OF AGENT TO APPOINT A SUBSTITUTE Article 1892 sets the default rule that [t]he agent may appoint a substitute if t he principal has not prohibited him from doing so. In Escueta v. Lim, 512 SCRA 411 (2007), the father who had given her daughter a special power of attorney to sell real properties, could not seek the declaratio n of nullity of the sale effected by the substitute agent appoint by the daughte r: Applying [Article 1892 of the Civil Code] to the special power of attorney exe cuted by [the father] in favor of his daughter . . ., it is clear that she is no t prohibited from appointing a substitute. By authorizing [the sub-agent] to sel l the subject properties, [the daughter] merely acted within the limits of the a uthority given by her father, but she will have to be responsible for the acts of t he sub-agent, among which is precisely the sale of the subject properties in favo r of respondents. (at pp. 423-424) a. Effects When Agent Appoints a Substitute: (1) When the sub-agent has been appointed pursuant to the instructions of the pr incipal: (i) Clearly the sub-agent is really an agent of the principal as well. Any act done by the agent or the substitute in behalf of the principal is deemed the act of the principal; (2) When he has not been prohibited by the principal, and the agent appoints a s ubstitute, he is responsible for acts of substitute: (i) he was not given power to appoint one (ii) he was given such power without designating the person and substitute is no toriously incompetent or insolvent. In either case, the principal may furthermore bring an action against the substi tute with respect to the obligations which the latter has contracted under the s ubstitution. (Art. 1893) (3) When the agent appoints a substitute against the principals prohibition: (i) All acts of substitute as against the principal are void. (Art. 1892) (ii) It is clear that it would be the agent who becomes personally liable for th e contracts entered into by the substitute The implication from the language used in Article 1893, that the principal would have no cause of action against the substitute. The legal maxim potestas delegate non delegare potest; a power once delegated ca nnot be re-delegated, while applied primarily in political law to the exercise o f legislative power, is a principle of agency for another, a re-delegation of the ag ency would be detrimental to the principal as the second agent has no privity of contract with the former. Baltazar v. Ombudsman 510 SCRA 74 (2006). If the appointment of a sub-agent which was neither prohibited or authorized, ha s occasioned the incurring of damages by the principal, the agent shall be prima rily responsible for the acts of the substitute, in accordance with the provisio ns of Article 1892(1). Serona v. Court of Appeals, 392 SCRA 35 (2002).

A sub-agent appointed to collect the deferred installments from the sale of prop erty made by an attorney-in-fact has no authority to enter into a new contract w ith the transferee by modifying the terms of the sale and releasing the solidary sureties in the original contract. Villa v. Garcia Gosque, 49 Phil. 126 (1920). Related Cases: Del Rosario v. La Badenia, 33 Phil 316 (1916). Lopez v. Seva, 69 Phil 311 (1940) (Spanish). Marquez v. Varela, 92 Phil. 373 (1952). 6. RULE ON LIABILITY WHEN TWO OR MORE AGENTS APPOINTED BY THE SAME PRINCIPAL Article 1894 provides for the rule of responsibility (liability) of two or more agents serving the same principal, even when they have been appointed simultaneo usly: (a) Joint, when nothing is stipulated; and (b) Solidary, only when so stip ulated. Under Article 1895, when solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment of the agency, and for the fault or negligen ce of his fellow agents, except in the latter case when the fellow agents acted beyond the scope of their authority. Compare the rule in Article in 1894 with the general rule of solidary liability under Article 1915: when the agent is serving two or more principals, the liabil ity of the principals is solidary. In Municipal Council of Iloilo v. Evangelista, 55 Phil 290 (1930), the Court set the general rule: when a person appoints two agents independently, the consent of one will not be required to validate the acts of the other, unless that appea rs positively to have been the principals intention. 7. RULES OF AGENTS LIABILITY TO THIRD PARTIES a. When the Agent Acts Within the Scope of His Authority: (1) General Rule: Article 1897 expressly provides that [t]he agent who acts as such is not personal ly liable to the party with whom he contracts; and this is supplemented by Articl e 1910, which provides that [t]he principal must comply with all the obligations which the agent may have contracted within the scope of his authority. Article 1897 of the Civil Code reinforces the familiar doctrine that an agent, w ho acts as such, is not personally liable to the party with whom he contracts. E urotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007). In Uy v. Court of Appeals, 314 SCRA 69 (1999), agents who have been authorized t o sell parcels of land cannot claim personal damages in the nature of unrealized commission by reason of the act of the buyer is refusing to proceed with the sa le: Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the owners of the land subject of the sale. As agents, they only render some service or do something in representation or on be half of their principals. [Article 1868, Civil Code.] The rendering of such serv ice did not make them parties to the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in an action upon that contract must, generally, either be parties to said contract .[1] (2) Exceptions: In the following cases, an agent, even when acting as such within the scope of h is authority, may become personally liable on the contracts or transactions ente red into, when: (a) The agent expressly makes himself personally liable for the contracts of his principal. (Art. 1897); or (b) The agent acts with fraud or negligence (Art. 1909). A person dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the extent of his powers; such per son must not act negligently but must use reasonable diligence and prudence to a scertain whether the agent acts within the scope of his authority. The settled r ule is that, persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agen cy but also the nature and extent of authority, and in case either is controvert

ed, the burden of proof is upon them to prove it. Litonjua v. Fernandez, 427 SCR A 478 (2004). Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006). A person acting as a mere representative of another acquires no rights whatsoeve r, nor does he incur any liabilities arising from the said contract between his principal and another party. Angeles v. Philippine National Railways (PNR), 500 SCRA 444 (2006). Chua v. Total Office Products and Services (Topros), Inc., 471 SCRA 500 (2005); Tan v. Engineering Services, 498 SCRA 93 (2006); Chong v. Court of Appeals, 527 SCRA 144 (2007). The essence of agency being the representation of another, it is evident that th e obligations contracted are for and on behalf of the principal a consequence of thi s representation is the liability of the principal for the acts of his agent per formed within the limits of his authority that is equivalent to the performance by the principal himself who should answer therefor. Tan v. Engineering Services , 498 SCRA 93 (2006). Since, as a rule, the agency, as a contract, is binding only between the contrad icting parties, then only the parties, as well as the third person who transacts with the parties themselves, may question the validity of the agency or the vio lation of the terms and conditions found therein. Villegas v. Lingan, 526 SCRA 6 3 (2007). One who signs a receipt as a witness with the word agent typed below his signature , but never received the alleged amount or anything on account of the subject tr ansaction, is not personally liable. Caoile v. Court of Appeals, 226 SCRA 658 (1 993). An agent becomes personally liable when by his wrong or omission, he deprives th e third person with whom he contracts of any remedy against the principal. The t hird person would be defrauded if he would not be allowed to recover from the ag ent. National Power Corp. v. National Merchandising Corp., 117 SCRA 789 (1982). b. When the Agent Acts Without or in Excess of Authority (1) General Rule: Under Article 1897, an agent who acts without or in excess of his authority beco mes personally liable to third parties even when he enters into said contracts o r transactions in the name of the principal, without giving such third parties s ufficient notice of his powers. This is supplemented under Article 1910 which pr ovides that [a]s for any obligation wherein the agent has exceeded his power, the principal is not bound. (2) Exceptions: In the following cases, even though the agent acts without or in excess of his a uthority, he would not be personally liable for the contracts or transactions he entered into in the name of the principal: (a) When the principal ratifies the contract or transactions (Arts. 1898 and 191 0); (b) As to third parties who relied upon the terms of the power of attorney as wr itten, even if in fact the agent had exceeded the limits of his authority accord ing to an understanding between the principal and the agent (Arts. 1900 and 1903 ); Under Article 1901, a third person cannot set up the fact that the agent has exce eded his powers, if the principal has ratified, or has signified his willingness to ratify the agents act. Under Article 1902, every third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney o r the instructions as regards the agency. Consequently, private or secret orders and instructions of the principal do not prejudice third persons who have relie d upon the power of attorney or instructions shown them. (3) Consequence on Contracts Entered Into Without or In Excess of Authority: General Rule: The contract would be unenforceable (Arts. 137 and 1403[1]). Exceptions: (i) Valid if the principal shall ratify the contract; (ii) Void if the party with whom the agent contracted is aware of the limits of th e powers granted by the principal; BUT the agent is personally liable, if he und ertook to secure the principals ratification. (Art. 1898).

The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or omission on his part either i n misrepresenting, or in affirming, or concealing the authority under which he a ssumes to act. Inasmuch as the non-disclosure of the limits of the agency carrie s with it the implication that a deception was perpetuated on the unsuspecting c lient, the provisions of Articles 19, 20 and 21 of the Civil Code come into play . DBP v. Court of Appeals, 231 SCRA 370 (1994). The Rule that a contract entered into by one who has acted beyond his powers sha ll be unenforceable refers to the unenforceability of the contract against the p rincipal, and does not apply where the action is against the agent himself for c ontracting in excess of the limits of his authority. National Power Corp. v. Nat ional Merchandising Corp., 117 SCRA 789 (1982). When agent exceeds his authority, the matter can be raised only by the principal , and when not so raised, recovery can be made by the third party only against t he principal. Article 1897 does not hold that in case of excess of authority, bo th the agent and the principal are liable to the other contracting party. Phil. Products co. v. Primateria Pour Le Commerce Exterieur: Primaterial [Phil.], Inc. , 15 SCRA 301 (1965). To reiterate, the first part of Article 1897 declares that the principal is liab le in cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the situations when the agent himself becomes liable to a thi rd party when he expressly binds himself or he exceeds the limits of his authori ty without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of authority by the agent, like what petition er claims exists here, the law does not say that a third person can recover from both the principal and the agent. Eurotech Industrial Technologies, Inc. v. Cui zon, 521 SCRA 584 (2007) We likewise take note of the fact that in this case, petitioner is seeking to re cover both from respondents ERWIN, the principal, and EDWIN, the agent. It is we ll to state here that Article 1897 of the New Civil Code upon which petitioner a nchors its claim against respondent EDWIN does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party. Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007) The scope and extent of the function of an adjustment and settlement agent, does not include personal liability. His functions are merely to settle and adjust c laims in behalf of his principal. If those claims are disapproved by the princip al, the agent does not assume any personal liability. The recourse of the insure d is to press chis claim against the principal. Salonga v. Warner Barnes, 88 Phi l 125 (1951); E. Macias and Co. v. Warner Barnes, 43 Phil 155 (1922). When the agent expressly bind himself, he thereby obligates himself personally b y his own act, but that does not relieve the principal from his obligation to pa y the debt incurred for his benefit. Tuason v. Orozco, 5 Phil 596 (1906). An agent is not personally liable to the party with whom he contracts unless he expressly binds himself or he exceeds the limits of his authority without giving such party sufficient notice of his powers. Zialcita-Yuseco v. Simmons, 97 Phil . 487 (1955); Banque Generale Belge v. Walter, Bull & Co., Inc., 84 Phil. 164 (1 949); Salmon & Pacific Commercial Co. v. Tan Cueco, 36 Phil. 556 (1917). Related Cases: Yu Eng Cho v. PANAM, 328 SCRA 717 (2000) Bacaltos Coal Mines v. Court of Appeals, 245 SCRA 460 (1995) Toyota Shaw, inc. v. Court of Appeals, 244 SCRA 320 (1995) Eugenio v. Court of Appeals, 239 SCRA 207 (1994) BA Finance v. Court of Appeals, 201 SCRA 157 (1991) BA Finance v. Court of Appeals, 211 SCRA 112 (1992) Smith Bell v. Court of Appeals, 267 SCRA 530 (1997) DBP v. Court of Appeals, 231 SCRA 370 (1994) Pineda v. Court of Appeals, 226 SCRA 754 (1993) Benguet v. BCI Employees, 23 SCRA 465 (1968) Bank of PI v. De Coster, 47 Phil 594 (1925)

(4) Third Person Cannot Set-up Facts of Agents Exceeding Authority Under Article 1901, a third person cannot set up the fact that the agent has exc eeded his powers, if the principal has ratified, or has signified his willingnes s to ratify the agents acts. The settled rule is that, persons dealing with an assumed agent are bound at the ir peril, and if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it.46 In this case, t he petitioners failed to discharge their burden; hence, petitioners are not enti tled to damages. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).[2] Related Cases: Commissioner v. San Diego, 31 SCRA 617 (1970) Bacaltos Coal Mines v. Court of Appeals, 245 SCRA 460 (1995) Toyota Shaw v. Court of Appeals, 244 SCRA 320 (1995) PNB v. Tan Ong Sze, 53 Phil 451 (1929) 8. INSTANCES WHEN THIRD PARTY LIABLE TO THE AGENT HIMSELF In the following cases, a third party would be directly liable to the agent hims elf even on contracts entered into pursuant to the agency arrangement, thus: (a) Where the agent contracts in his own name, on a matter that it within the sc ope of the agency (Art. 1883); (b) Where the agent possesses a beneficial interest in the subject matter of the agency, such as a factor selling under a del credere commission (Art. 1907); (c) Where a third party commits a tort against the agent. 9. OBLIGATIONS OF COMMISSION AGENTS a. Nature of Factor or Commission Agent A commission agent is one whose business it is to receive and sell goods for a c ommission, and who is entrusted by the principal with the possession of the good s to be sold, and usually selling in his own name. An ordinary agent need not ha ve possession of the goods of his principal, while the commission agent must be in possession. (DE LEON, at p. 544). b. Specific Obligations of a Commission Agent (1) Take Custody of Goods A commission agent by being such is responsible for the goods received by him in the terms and conditions and as described in the consig nment, unless upon receiving them he should make a written statement of the dama ge and deterioration suffered by the same. (Art. 1903); (2) Not to Commingle Similar Goods Belong to Different Principal under Article 190 4, a commission agent who handles goods of the same kind and mark, which belong to different owners, shall distinguish them by countermarks, and designate the m erchandise respectively belong to each principal. In other words, the default ru le is that commission agent cannot commingle goods of the same kind belonging to different principals. Distinguish this default rule in the case of a contract of deposit, which under Article 1976, the depositary is allowed to commingle grain or other articles of similar nature and quality (Contract of Deposit) Depositary may commingle grain or other articles of similar nature and quality, and the result would be pro-rata ownership among the owners thereof. (3) Cannot Sell on Credit without Principals Authorization If he sells on credit, t he principal may still demand from his payment in cash, but the agent shall be e ntitled to any interest or benefit which may result from such sale. (Art. 1905); (4) To Inform the Principal of Every Pre-Authorized Sale on Credit Under Article 1 906, should the agent sell on credit with the authority of the principal, then t he agent shall so inform the principal with a statement of the4 names of the buy ers. If he fails to do so, the sale shall be deemed to have been made for cash i nsofar as the principal is concerned. (5) Shall Bear the Risk of Collection under Del Credere Commission Set-up Under Ar ticle 1908, should the commission agent receive on a sale, in addition to the or dinary commission, another called a guarantee commission, then: (i) He shall bea r the risk of collection; and (ii) He shall pay the principal the proceeds of sa le on same terms agreed with purchaser (6) To Collect Credits of the Principal Under Article 1908, a 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 exercise du e diligence for that purpose. (7) Shall Be Responsible for His Fraud and Negligence Under Article 1909, the agen t is responsible to the principal for the damages suffered for his fraud and his negligence, which shall be judged with more or less rigor by the courts accordi ng to whether the agency was or was not for a compensation. The failure of the sub-agent who has custody of the film to insure against loss by fire, where there was no instruction received from the principal to so insure or that the insurance of the film was not a part of the obligation imposed upon an agent by law, does not constitute either negligence or fraud. International Films v. Lyric Film Exchange, 63 Phil. 778 (1936). Where the client order the broker to sell the shares giving a floor or minimum p rice, and the broker did sell at the minimum price indicated even though the pre vailing ranging prices were much higher that they, the broker is liable for the difference suffered by the principal because the broker failed to exercise the p rudence and tact of a good father of a family which the law required of him. Tan Tiong Teck v. SEC, 69 Phil. 425 (1940). Where the manager of the bank released the proceeds of an unauthorized loan to u nqualified borrower, the bank may recover both against the borrower and its mana ger, and the suit cannot be considered as the principal-bank ratifying the unaut horized act of its agent-manager, but is merely seeking to diminish as much as p ossible the loss to itself. PNB v. Bagamasbad and Ferrer, 89 Phil. 365 (1951). In Green Valley v. IAC, 133 SCRA 697 (1984), where the purported agent refused t o be held liable for merchandise received from the principle on the ground that it was a mere agent to sell and the ultimate buyers of the products should be th e one made liable for the purchase price, (whereas the purported principal insis ted that it was a sale arrangement), the Court ruled that whether the contract b etween the parties be one of sale or agency to sell, there is no doubt that the purported agent would be personally liable for the price of the merchandise sold . Being a commission agent under its authority, then pursuant to Article 1905, i t should not have sold the merchandise on credit. Under Article 1905, the commis sion agent cannot, without the express or implied consent of the principal, sell on credit; and should he do so, the principal may demand from him payment in ca sh. ________________________________________ [1]Citing Marimperio Compania Naviera, S.A. v. Court of Appeals, 156 SCRA 368 (1 987). [2]Citing Litonjua v. Fernandez, 427 SCRA 478 (2004); BA Finance Corp. v. Court of Appeals, 211 SCRA 112 (1992). VIII. OBLIGATIONS OF THE PRINCIPAL 1. BINDING EFFECT OF THE TERMS OF THE CONTRACT OF AGENCY Indeed, since a contract of agency is merely a preparatory contract, it is well within the legal capacity of both parties to enter into any stipulation, obligation and undertaking by which they can tailor-fit the relationship to bes t achieve the purpose of the agency. Like any other contract governed by the pri nciples of mutuality and obligatory force, the principal is bound by the terms a greed upon under the contract of agency. Apart from the contractual obligations voluntarily assumed by the princi pal under the terms of the particular contract of agency entered into, the follo wing are the common-law duties and obligations of the principal by the very fact that he has constituted another person, the agent, to represent him in pursuing juridical acts and contracts, in his name. 2. PRINCIPAL IS BOUND BY THE CONTRACTS MADE BY THE AGENT IN HIS BEHALF The central principle in agency law is that all contracts and transactio ns 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 the m directly. This tenet is repeatedly expressed in various provisions of the Law on Agency. Article 1897 provides that the agent who acts as such is not personally liable to the party with whom he contracts when acting within the scope of his a uthority. Article 1910 provides that the principal must comply with all the obliga tions which the agent may have contracted within the scope of his authority. a. Principal Not Bound by Contracts Made by the Agent Without or Outside the Sco pe of His Authority The collolary rule would then be that "for any obligation wherein the a gent has exceed his power," or acts done by the agent outside of the scope of hi s authority, even when entered into in the name of the principal, would not bind the principal, and would thus not be void, but merely unenforceable (Art. 1403) . In the following cases, though, even acts done by the agent in the name of the principal, outside of the scope of his authority, would bind the principal, thu s: (a) When the principal ratifies such contract, expressly or tacitly (Art . 1910); (b) When the principal has allowed the purported agent to act as though he had full powers (Art. 1911); and (c) When the principal has revoked the agency, but the third party have acted in good faith without notice of such revocation. Under Article 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. This is termed as agency by estoppel. It is also referred to as the doctrine of apparent authority in Corporate Law. When a bank, by its acts and failure to act, has clearly clothed its ma nager with apparent authority to sell an acquired asset in the normal course of business, it is legally obliged to confirm the transaction by issuing a board re solution to enable the buyers to register the property in their names. It has a duty to perform necessary and lawful acts to enable the other parties to enjoy a ll benefits of the contract which it had authorized. Rural Bank of Milaor v. Oc femia, 325 SCRA 99 (2000). How does Ocfemia ruling jive with the other rulings of the Supreme Cour t that hold that even in the case of a corporation, the sale through its agent o f a piece of land requires that the authority of the corporate officer to sell o n behalf of the corporation must be in writing, otherwise the resulting transact ion is void pursuant to Article 1874? The Ocfemia ruling shows that the use of t he term "void" under Article 1874, is relative, in that it is void only insofar as the principal is concerned; and that any attempt to enforce the purchase by a third party is void when the principal refuses to accept the sale of a piece of land effected by an agent in his name without written power of attorney. In oth er words, if the principal, after the fact of sale, accepts the contract, does n ot oppose the validity of the sale, or in other words, ratifies the sale, it wou ld then be valid and binding on the principal. In Ocfemia, when an action was brought by the buyer against the bank to enforce the sale, it failed to contest the genuineness and due execution of the deed of absolute sale executed by its general manager. The Court held -Respondents based their action before the trial court on the Deed of Sal e, the substance of which was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S. Tena as the representative of the ba nk. Petitioner, however, failed to specifically deny under oath the allegations in that contract. In fact, it filed no answer at all, for which reason it was de clared in default. x x x. In failing to file its answer specifically denying under oath the Deed o f Sale, the bank admitted the due execution of the said contract. Such admission means that it acknowledged that Tena was authorized to sign the Deed of Sale on its behalf.13 [Imperial Textile Mills, Inc. v. C.A., 183 SCRA 1, March 22, 1990 .] Thus, defenses that are inconsistent with the due execution and the genuinene

ss of the written instrument are cut off by an admission implied from a failure to make a verified specific denial. x x x. In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in dispute and paid th e real estate taxes due thereon. If the bank management believed that it had tit le to the property, it should have taken some measures to prevent the infringeme nt or invasion of its title thereto and possession thereof. Likewise, Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable to innocent thi rd persons where representation is made in the course of its normal business by an agent like Manager Tena, even though such agent is abusing her authority.14 [ First Philippine International Bank v. CA, infra, note 17.] Clearly, persons dea ling with her could not be blamed for believing that she was authorized to trans act business for and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v. Kalaw:15 [20 SCRA 987, 1005, August 14, 1967, per Sanchez, J.] "Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the gener al manager may bind the company without formal authorization of the board of dir ectors. In varying language, existence of such authority is established, by proo f of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. So also, "'x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised.' "'x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his au thority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business.'" Notwithstanding the putative authority of the manager to bind the bank i n the Deed of Sale, petitioner has failed to file an answer to the Petition belo w within the reglementary period, let alone present evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Nino, went to the b ank to ask for the board resolution, she was merely told to bring the receipts. The bank failed to categorically declare that Tena had no authority. As to the merits of the case, it is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the pu blic as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person i n good faith and in the honest belief that he is what he appears to be (Mack, et al. v. Camps, 7 Phil. 553 [1907]; Philippine National Bank v. Court of Appeals, 94 SCRA 357 [1979]). From the facts and the evidence on record, there is no dou bt that this rule obtains. The petition must therefore fail. (at pp. 107-109) When a third party admits in her written correspondence that he had con tracted with the principal through an duly authorized agent, and then sues both the principal and the agent on an alleged breach of that contract, and in fact l ater on dismisses the suit insofar as the principal is concerned, there can be n o cause of action against the agent. Since it is the principal who should be ans werable for the obligation arising from the agency, it is obvious that if a thir d person waives his claims against the principal, he cannot assert them against the agent. Bedia v. White, 204 SCRA 273 (1991). The basis of agency is representation; The question of whether an agenc y has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or circumstantial evidence; Though that fact or extent of authority of the agents may not, as a general rules, be estab lished from the declarations of the agents alone, if one professes to act as age nt for another, she may be estopped to deny her agency both as against the asser

ted principal and the third persons interested in the transaction in which he or he is engaged. Doles v. Angeles, 492 SCRA 607 (2006). The fact that the agent defrauded the principal in not turning over the proceeds of the transactions to the latter cannot in any way relieve or exonera te such principal from liability to the third persons who relied on his agents au thority. 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 resu lting loss. Cuison v. Court of Appeals, 227 SCRA 391 (1993). Under the general rules and principles of law, the mismanagement of the business of a party by his agents does not relieve said party from the responsi bility that he had contracted with third persons. Commercial Bank & Trust Co. v. Republic Armored Car Services Corp., 8 SCRA 425 (1963). When the principal issued the checks in full payment of the taxes due, but his agents had misapplied the check proceeds, the principal would still be l iable, because when a contract of agency exists, the agents acts bind his princip al, without prejudice to the latter seeking recourse against the agent in an app ropriate civil or criminal action. Dy Peh v. Collector of Internal Revenue, 28 S CRA 216 (1969). A registered owner who places in the hands of another an executed docum ent of transfer of the registered land effectively represents to a third party t hat he holder of such document is authorized to deal with the property. Blondeau v. Nano,. 61 Phil. 625 (1935); Domingo v. Robles, 453 SCRA 812 (2005). Related Cases: Pleasantville Dev. v. Court of Appeals, 253 SCRA 10 (1996) Limketkai Sons v Court of Appeals, 250 SCRA 523 (1995) Air France v. Court of Appeals, 126 SCRA 448 (1983) PNB v. Court of Appeals, 94 SCRA 357 (1979) PNB v. Bagamaspad, 89 Phil. 365 (1951) Manila Remnants v. Court of Appeals, 191 SCRA 622 (1990) Versoza v. Lim, 45 Phil 416 (1923) Lopez v. Alvendia, 120 Phil 142 (1964) Wise and Co. v. Tanglao, 63 Phil 372 (1936) Katigbak v. Tai Hing Co., 52 Phil 622 (1928) Robinson, Fleming and Co. v. Cruz, 49 Phil 42 (1926) Gonzales v. Haberer, 47 Phil 380 (1925) Barton v. Leyte Asphalt, 46 Phi; 938 (1924) Nantes v. Madriguera, 42 Phil 389 (1921) Lim Chai Seng v. Trinidad, 41 Phil 544 (1921) 3. LIABILITY OF THE PRINCIPAL FOR THE TORTS OF THE AGENT The general rule is that the principal is liable to injured third parti es for the torts committed by the agent at the principals director or in the cour se and within the scope of the agents authority. It also goes without saying, tha t since the act of negligence was that of the agent, he also becomes civilly lia ble to the injured parties, even when he acts in representation of the principal . 4. OBLIGATIONS OF THE PRINCIPAL TO THE AGENT a. Obligation to Advance Sums Requested for Execution of Agency Under Article 1912, the principal must advance to the agent, should the latter so request, the sums necessary for the execution of the agency. Should t he agent have advanced them, the principal must reimburse the agent therefor, ev en if the business or undertaking was not successful, provided the agent is free from fault. The reimbursement shall include interest on the sums advanced, from the day on which the advance was made. We should compare this to the provisions in Article 1886 where the agent is bound to advance the sums necessary to carry out the agency, but only when h e so consents or is stipulated in the agreement. Versoza v. Lim, 45 Phil 416 (1923) b. When Principal Not Liable for Agents Expenses Under Article 1918, the principal is not liable for the expenses incurr

ed by the agent in the following cases: (1) if the agent acted in contravention of the principals instructions, u nless the latter should wish to avail himself of the benefits derived from the c ontract; (2) When the expenses were due to the fault of the agent; (3) When the agent incurred them with knowledge that an unfavorable resu lt would ensue, if the principal was not aware thereof; or (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. When the authority of the area manager to settling the claims is furthe r limited by the written standard authority to pay, which states that the paymen t shall come from his revolving fund or collection, the settlement beyond such f und was a clear deviation from the instructions of the principal. Consequently, the expenses incurred by the area manager in the settlement of the claims of the insured may not be reimbursed from the insurance company pursuant to the clear provision of Article 1918(1) of the Civil Code. However, while the law on agency prohibits the area manager from obtain ing reimbursement, his right to recover may still be justified under the general law on obligations and contracts, particularly Article 1236 of the Civil Code o n payment by a third party of the obligation of the debtor, allows recovery only insofar as the payment has been beneficial to the debtor. Thus, to the extent tha t the obligation of the insurance company has been extinguished, the area manage r may demand for reimbursement from his principal. To rule otherwise would resul t in unjust enrichment of petitioner. Dominion Insurance v. Court of Appeals, 37 6 SCRA 239 (2002). c. Principal Liable to Indemnify Agent for the Damages Sustained Under Article 1913, the principal must indemnify the agent for all the damages which the execution of the agency may have caused the agent, without fau lt or negligence on agents part. Article 1913 is the counter-balance to the provision in Article 1884 th at makes the agent liable for damages sustained by the principal for agents refus al to perform his obligations under the agency. Albaladejo y Cia v. PRC, 45 Phil 556 (1923). (1) Right of Agent to Retain Object of Agency in Pledge for Advances and Damages Under Article 1914, the agent is granted the power to retain in pledge the things which are the object of the agency until the principal effects the re imbursement and pays the indemnity covering advances made and damages sustained. This is an exception to the duty of the agent, expressed in Article 1891, to de liver to the principal everything he received even if not due to the principal. d. Obligation of Principal to Pay Agents Compensation In an onerous or compensated agency, the obligation of the principal to pay the agent shall be in accordance with the terms agreed upon when the agency was constituted. If no particular formula has been agreed upon on the agents com pensation, then the following rules should apply: (i) the principal shall pay the agents commission only on the legal basis that the agent has complied with his obligations with the principal; and (ii) the principal shall be liable to the agent for the reasonable value of the agents services. A broker is entitled to the usual commission whenever he brings to his principal a party who is able and willing to take the property and enter into a valid contract upon the terms then named by the principal, although the particul ars may be arranged and the matter negotiated and consummated between the princi pal and the purchaser directly. It would be the height of injustice to permit th e principal then to withdraw the authority as against an express provision of th e contract, and reap the benefits of the agents labors, without being liable to h im for his commission. Macondray & Co. v. Sellner, 33 Phil. 370 (1916). Related Cases: Infante v. Cunanan, 93 Phil. 693 (1953). Lim v. Saban, 447 SCRA 232 (2004). Fiege & Brown v. Smith, Bell & Co., 43 Phil. 118 (1922).

Ramos v. Court of Appeals, 63 SCRA 331 (1975). J.M. Tuazon & Co. v. Collector of Internal Revenue, 108 Phil. 700 (1960). Inland Realty Investment Service, Inc. v. Court of Appeals, 273 SCRA 70 (1997). Daon v. Brimo & Co., 42 Phil. 133 (1921). Reyes v. Mosqueda, 99 Phil. 241 (1956). Collector of Internal Revenue v. Tan Eng Hong, 18 SCRA 531 (1966). 5. OBLIGATION OF TWO OR MORE PRINCIPALS TO AGENT APPOINTED FOR COMMON TRANSACTIO NS Under Article 1915, if two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agen t for all the consequences of the agency. Even if the principals do not actually and personally know each other, such ignorance does not affect their juridical standing of the agent. Doles v. A ngeles, 492 SCRA 607 (2006). De Castro v. Court of Appeals, 384 SCRA 607 (2002) 6. RIGHTS OF PERSONS WHEN FACED WITH CONFLICTING CONTRACTS Under Article 1916, when two persons contract with regard to the same t hing, one of them with the agent and the other with the principal, and the two c ontracts are incompatible with each other, that of prior date shall be preferred , without prejudice to the provisions of Article 1544 on the rules on double sal es. Article 1917 provides that in such a case, if the agent had acted in go od faith, the principal shall be liable in damages to the third person whose con tract must be rejected. On the other hand, if the agent acted in bad faith, he a lone shall be responsible. IX. EXTINGUISHMENT OF AGENCY 1. HOW AND WHEN AGENCY EXTINGUISHED Article 1919 of the Civil Code enumerates the modes by which an agency c ontract is extinguished, thus: a. By revocation b. By the withdrawal of the agent c. By death, civil interdiction, insanity or insolvency of either the principal or agent d. By the dissolution of the juridical entity which entrusted or accepted the ag ency e. By the accomplishment of the object or purpose of the agency f. By the expiration of the period for which the agency was constituted Other modes of extinguishment of an agency would be mutual withdrawal, by supervening event that makes illegal or impossible the objective or purpose f or which the agency is constituted, like the destruction of the subject matter w hich is the object of the agency. 2. REVOCATION OF THE AGENCY The law recognizes the power to revoke an agency relation by principal, in keeping with the truism that an agency is a highly personal relationship and one built upon trust and confidence. Unlike the remedy of rescission which requ ires the existence of substantial breach of contract, revocation is literally at the will of the principal. But the near absolute power of the principal to revoke the agency shoul d not be confused with the thought that there can be no breach of contract commi tted by a principal who revokes the agency which was constituted as "irrevocable " for a definite term or period. In such a case, the agreement as to the term of the agency would not make the principal lose his power to revoke, and when he d oes so revoke the agency is terminated, but he would be liable to the agent for the damages caused, including to the compensation due him when the revocation wa s done in bad faith, i.e., to avoid the payment of the commission earned by the agent.

a. Express Revocation Under Article 1920, the principal may revoke the agency at will, expres s or implied, and thereby compel the agent to return the document evidencing the agency. This would ensure that the document, i.e., power of attorney, would not fall into the hands of third parties who then act in good faith in entering int o a contract in the name of the principal, believing there is still existing the agency relation. If the agent fails or refuses to return the power of attorney, it is in cumbent upon the principal to give proper notice to the members of the public wh o may be affected by the revocation. Under Article 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. Under Arti cle 1922, if the agent had general powers (i.e., not directed towards specific p ersons), notice of the revocation in a newspaper of general circulation is a suf ficient warning to third persons. Under Article 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. This rule is consistent with the rule under Article 1 915 that the obligation of two or more principals to a common agent is solidary, and consequently, the power to revoke the agency can be made by the will of onl y one of the principals. b. Implied Revocation The following have been enumerated as to constitute implied revocation, thus: (1) Appointment of New Agent for Same Business Under Article 1923, the appointment of a new agent for the same busines s or transaction revokes the previous agency from the day on which notice thereo f was given to the former agent. The effect of revocation is without prejudice t o the rights of third parties who were not aware of or notified of such situatio n. The critical time when the agency is revoked is "from the day on which notice thereof was given to the former agent." Thus, in Garcia v. De Manzano, 39 Phil 577 (1919), where the father first gave a power of attorney over the busin ess to his son, and subsequently to the mother, the Court held that without evid ence showing that the son was informed of the issuance of the power of attorney to the mother, the transaction effected by the son pursuant to his power of atto rney, was valid and binding, thus -There is no proof in the record that the first agent, the son, knew of the power-of-attorney to his mother. It was necessary under the law for the defendants, in order to establis h their counterclaim, to prove that the son had notice of the second power-of-at torney. They have not done so, and it must be considered that Angel L. Manzano w as acting under a valid power-of-attorney from his father which had not been leg ally revoked on the date of the sale of the half interest in the steamer to the plaintiffs son, which half interest was legally inherited by the plaintiffs. (at p. 584) (2) When Principal Directly Manages Business Under Article 1924, the agency is revoked when the principal directly m anages the business entrusted to the agent, dealing directly with third persons. The provision does not state when the act of revocation takes place, and it can be presumed therefore that the moment the principal directly manages the busine ss by dealing directly with third persons, the agency is revoked. But that would only mean that the revocation of the agency is only with respect to the third p ersons with whom the principal deals directly; as to third parties who have prev iously known of the power of attorney of the agent and who have not dealt with t he principal, the agency cannot be considered revoked. It is also apparent that unless the agent is aware or given notice that the principal has directly manage d the business which is covered by his power of attorney, then insofar as the ag ent is concerned there is as yet no revocation of his powers. It must be made clear that the continued involvement of the principal i

n the management of the business or the property which is the object of a power of attorney given to an agent does not necessarily mean there is intent to revok e. For indeed, agency arrangements are not meant to curtail the power of the pri ncipal to execute acts of ownership and administration, but as a matter of busin ess sense, to allow the principal, by legal fiction, to extend his personality t hrough the facility of the agent (Orient Air Service & Hotel Representatives v. Court of Appeals, 197 SCRA 645 [1991]). In other words, the direct management of the business by the principal and directly dealing with third parties shall be deemed to produce the effect of revocation when such acts would be inconsistent with the terms of the power of attorney previously given to the agent. Such principle is best illustrated in CMS Logging v. Court of Appeals, 211 SCRA 374 (1992), where the principal appointed the agent "as his sole and ex clusive export sales agent with full authority . . .to sell and export under a f irm sales contract . . . all logs produced by [the principal] for a period of fi ve (5) years commencing upon the execution of the agreement x x x [and for which the agent] shall receive five (5%) per cent commission of the gross sales of lo gs of [the principal] based on F.O.B. invoice value which commission shall be de ducted from the proceeds of any and/or all moneys received by [agent] for and in behalf and for the account of [the principal]." During the five year-period, th e principal sold logs directly to Japanese firms, and for which the agent now se eks to recover the commission to which he was entitled to under the exclusive ag ency arrangement. In denying any right on the part of the agent to receive commi ssion from the principals direct sales of logs to its Japanese customers, the Cou rt held -However, We find merit in [principals] contention that the appellate cou rt erred in holding that [the agent] was entitled to its commission from the sal es made by [the principal] to Japanese firms. The principal may revoke a contract of agency at will, and such revocat ion may be express, or implied, and may be availed of even if the period fixed i n the contract of agency as not yet expired. As the principal has this absolute right to revoke the agency, the agent can not object thereto; neither may he cla im damages arising from such revocation, unless it is shown that such was done i n order to evade the payment of agent's commission. (at pp. 381-382) CMS Logging confirms the legal position that the indication of a period in the contract of agency does not mean that the contract was contractually dee med irrevocable within the period granted, and to the effect revocation within t he period would amount to breach of contract for which the principal may be held liable for damages. In addition, the ruling also confirms the position that the grant to a person of an "exclusive agency" position does not mean that the agen cy is irrevocable within the period provided in the contract of agency, but that merely it means that the principal would not appoint another agent to handle th e business covered. In Guardez v. NLRC, 191 SCRA 487 (1990), where the principal had author ized the purported agent to "follow up" principals previous offer to sell a firet ruck to a company, the Court held that when the agent dropped out of the scene a nd it was the principal that directly negotiated with the company to saw the con summation of the sale, no commission was due to the agent because "such agency w ould have been deemed revoked upon the resumption of direct negotiations between " the principal and the company. In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 107 Phil 824 (1960), the Court ruled that the act of a contractor, who, after execu ting powers of attorney in favor of another empowering the latter to collect wha tever amounts may be due to him from the Government, and thereafter demanded and collected from the Government the money the collection of which he entrusted to his attorney-in-fact, constituted revocation of the agency in favor of the atto rney-in-fact. The rulings in the above-discussed cases indicate that the issue of "im plied revocation" arising when the principal directly manages the business or pr operty covered by a power of attorney really go into the issue of entitlement of the agent to the commission or remuneration agreed upon under the contract of a

gency. In other words, it seems that jurisprudence indicates that agency being a contract of service, the agent must earn through his service or efforts the com mission or remuneration agreed upon with the principal; such that if it is the p rincipal himself, through his own efforts, who is able to effect the transaction contemplated by the agency arrangement, then the agent would not be entitled to receive any commission. (3) Special Power of Attorney Revokes a General Power of Attorney Under Article 1926, "A general power of attorney is revoked by a specia l one granted to another agent, as regards the special matter involved in the" g eneral power of attorney. It is unfortunate that Article 1926 fuses two distinct situations into one statutory rule. For example, the implication from the language of Article 1926 is that "a special power of attorney granted to one person is not revoked by a general p ower of attorney subsequently granted in favor of another person as to the speci al matter involved in the special power of attorney;" for indeed the proposition if illogical. The use of the terms "general power of attorney" and "special pow er of attorney" is completely misleading in Article 1926, for the rule is proper ly embodied in Article 1923, in that "the appointment of a new agent for the sam e business or transaction revokes the previous agency from the day on which noti ce thereof was given to the former agent." Again, if we look at the language of Article 1926, it would mean that " a general power of attorney is not revoked by a special one granted to the same agent." The falsity of such an implication is best shown in the decision in Dy B uncio and Co. v. Ong Guan Can, 60 Phil 696 (1934). In that decision, the son executed on behalf of the father, the deed co vering the sale of a rice-mill and camarin, in favor of buyers who relied upon a 1928 power of attorney attached to the deed, but which turned out was "not a ge neral power of attorney but a limited one and [did] not give the express power t o alienate the properties in question." When the creditors of the principal soug ht to have the sale declared void, the buyers claimed that the defect in the sons authority to sell on behalf of the father was cured by an earlier 1920 "general power of attorney given to the same agent [son]" by the father. The Court nonet heless declared the sale void on the ground that "The making and accepting of a new power of attorney, whether it enlarges or decreases the power of the agent u nder a prior power of attorney, must be held to supplant and revoke the latter w hen the two are inconsistent. If the new appointment with limited powers does no t revoke the general power of attorney, the execution of the second power of att orney would be a mere futile gesture." If the purpose of the principal in dealing directly with the purchaser and himself effecting the sale of the principals property is to avoid payment of his agents commission, the implied revocation is deemed made in bad faith and can not be sanctioned without according to the agent the commission which is due him . Infante v. Cunanan, 93 Phil 693 (1953). Where no time for the continuance of the agency is fixed by the terms, the principal is at liberty to terminate it at will subject only to the requirem ents of good faith. Daon v. Brimo, 42 Phil 133 (1921). Related Cases: Valenzuala v. Court of Appeals, 191 SCRA 1 (1990) Florentino v. Sandiganbayan, 202 SCRA 309 (1993). Dialosa v. Court of Appeals, 130 SCRA 350 (1984) Manila Trading v. Manila Trading Laborers Assn., 83 Phil 297 (1949) Valera v. Velasco, 51 Phil 695 (1928) Barretto v. Santa Marina, 26 Phil 440 (1913) c. Effects of Revocation on Third Parties (1) When It Affects Dealings with Specified Third Parties Under Article 1921, if the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latt er if they were not given notice thereof. It seems clear, when compared with the situation in Article 1873, that notice by public advertisement would not consti tute sufficient notice to bind such specified third parties.

In Rallos v . Yangco, 20 Phil 269 (1911), the former principal refused to be personally liable for any account handled by his agent (Collantes) for tr ansactions that occurred after the principal had terminated the agency relations , even to a long-standing customer who had done business with the principal thro ugh the agent who was specially endorsed. In affirming the liability of the prin cipal, the Court held -It appears, however, that prior to the sending of said tobacco the defe ndant had severed his relations with Collantes and that the latter was no longer acting as his factor. This fact was not known to the plaintiffs; and it is conceded in the ca se that no notice of any kind was given by the defendant to the plaintiffs of th e termination of the relations between the defendant and his agent. The defendan t refused to pay the said sum upon demand of the plaintiffs, placing such refusa l upon the ground that at the time the said tobacco was received and sold by Col lantes he was acting personally and not as agent of the defendant. This action w as brought to recover said sum. As is seen, the only question for our decision is whether or not the pl aintiffs, acting in good faith and without knowledge, having sent produce to sel l on commission to the former agent of the defendant, can recover of the defenda nt under the circumstances above set forth. We are of the opinion that the defen dant is liable. Having advertised the fact that Collantes was his agent and havi ng given special notice to the plaintiffs of that fact, and having given them a special invitation to deal with such agent, it was the duty of the defendant on the termination of the relationship of principal and agent to give due and timel y notice thereof to the plaintiffs. Failing to do so, he is responsible to them for whatever goods may have been in good faith and without negligence sent to th e agent without knowledge, actual or constructive, of the termination of such re lationship. (at pp. 272-273) Lustan v. Court of Appeals, 266 SCRA 663 (1997), held that when the spec ial power of attorney duly authorized the agent to represent and act on behalf o f the principal, the power granted thereto can be relied upon by third parties f or whom specifically the authority was issued, thus: As far as third persons are concerned, an act is deemed to have been pe rformed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the lim its of his authority according to the understanding between the principal and th e agent. The Special Power of Attorney particularly provides that the same is go od not only for the principal loan but also for subsequent commercial, industria l, agricultural loan or credit accommodation that the attorney-in-fact may obtai n and until the power of attorney is revoked in a public instrument and a copy o f which is furnished to PNB. 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 (Article 1911, Civil Code). The mortgage dir ectly and immediately subjects the property upon which it is imposed. The proper ty of third persons which has been expressly mortgaged to guarantee an obligatio n to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpo se of paying the amount of the debt for which it is liable. However, petitioner has an unquestionable right to demand proportional indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her proper ty in case the same is sold to satisfy the unpaid debts." (at p. 676) Lustan holds that where the special power of attorney provides that the same is good not only for the principal loan but also for subsequent commercial, individual, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument an d a copy of which is furnished to the bank, in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of the principal, the bank cannot be prejudice. (2) When Revocation of General Powers of Agency Under Article 1922, if the agent had general powers, revocation of the

agency does not prejudice third persons who acted in good faith and without know ledge of the revocation. Notice of the revocation in a newspaper of general circ ulation is a sufficient warning to third persons. In a case covering a power of attorney to deal with the general public, the fact that the revocation was advertised in a newspaper of general circulati on would be sufficient warning to third persons. Rammani v. Court of Appeals, 19 6 SCRA 731 (1991). By the opening of branch office with the appointment of its branch mana ger and honoring several surety bonds issued in its behalf, the insurance compan y induced the public to believe that its branch manager had authority to issue s uch bonds. As a consequence, the insurance company was estopped from pleading, p articularly against a regular customer thereof, that the branch manager had no a uthority. Central Surety & Insurance Co. v. C.N. Hodges, 38 SCRA 159 (1971). While Article 1358 of the Civil Code requires that the contracts involv ing real property must appear in a proper document, a revocation of a special po wer of attorney to mortgage a parcel of land, embodied in a private writing, is valid and binding between the parties, such requirement of Article 1358 being on ly for the convenience of the parties and to make the contract effective as agai nst third persons. PNB v. Intermediate Appellate Court, 189 SCRA 680 (1990). Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911). d. CASES OF IRREVOCABLE AGENCIES Under Article 1927, an agency cannot be revoked when: a bilateral contract depends upon it; it is the means of fulfilling an obligation already contract; a partner is appointed manager of a partnership in the contract of partnership an d the removal from management is unjustifiable. However, an exception to the revocability of a contract of agency i s when it is coupled with interest, i.e., if a bilateral contract depends upon t he agency. The reason for its irrevocability is because the agency becomes part of another obligation or agreement. It is not solely the rights of the principal but also that of the agent and third persons which are affected. Hence, the law provides that in such cases, the agency cannot be revoked at the sole will of t he principal. Republic v. Evangelista, 466 SCRA 544 (2005) In Sevilla v. Court of Appeals, 160 SCRA 171 (1968), the Court found that when t he petitioner, Lina Sevilla, agreed to man the respondent, Tourist World Service , Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in represent ation or on behalf of another." The Court then held -. . . In the case at bar, Sevilla solicited airline fares, but she did s o for and on behalf of her principal, Tourist World Service, Inc. As compensatio n, she received 4% of the proceeds in the concept of commissions. And as we said , Sevilla herself, based on her letter of November 28, 1961, presumed her princi pal's authority as owner of the business undertaking. We are convinced, consider ing the circumstances and from the respondent Court's recital of facts, that the parties had contemplated a principal-agent relationship, rather than a joint ma nagement or a partnership. But unlike simple grants of a power of attorney, the agency that we here by declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for the mutual interest of the agent and the principal. 19 It appea rs that Lina Sevilla is a bona fide travel agent herself, and as such, she had a cquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liab le for the payment of rentals. She continued the business, using her own name, a fter Tourist World had stopped further operations. Her interest, obviously, is n ot limited to the commissions she earned as a result of her business transaction s, but one that extends to the very subject matter of the power of management de legated to her. It is an agency that, as we said, cannot be revoked at the pleas ure of the principal. Accordingly, the revocation complained of should entitle t he petitioner, Lina Sevilla, to damages.

x x x. This conduct on the part of Tourist World Service, Inc. betrays a sinist er effort to punish Sevilla for what it had perceived to be disloyalty on her pa rt. It is offensive, in any event, to elementary norms of justice and fair play. We rule, therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be senten ced to pay damages. Under the Civil Code, moral damages may be awarded for "brea ches of contract where the defendant acted . . . in bad faith." (at p. 184) Related Cases: National Sugar Trading v. PNB, 396 SCRA 528 (2003) Bacaling v. Muya, 380 SCRA 714 (2002) Perez v. PNB, 17 SCRA 833 (1966) Coleongco v. Claparols, 10 SCRA 577 (1964) Del Rosario v. Abad, 104 Phil 648 (1958) 3. WITHDRAWAL OF THE AGENT FROM THE AGENCY Under Article 1928, the agent may withdrawal from the agency by giving due notice to the principal. If the principal should suffer any damage by reason of the withdrawal, the agent must indemnify him therefore, unless the agent sho uld base his withdrawal upon the impossibility of continuing the performance of the agency without grave detriment to himself. Under Article 1929, even when the agent should withdraw for a valid rea son, must continue to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation. Related Cases: Valera v. Velasco, 51 Phil 695 (1928) Dela Pena v. Hidalgo, 16 Phil 450 (1910) 4. DEATH, INCAPACITY OR INSOLVENCY OF THE PRINCIPAL Since agency is both a fiduciary and representative relationship, the d eath of the principal automatically extinguishes the contract, for certainly eve n if the agent is willing to go on, he has nobody to represent and bind in jurid ical relations. Thus, Rallos v. Felix Go Chan & sons Realty Corp., 81 SCRA 251 ( 1978), the Court held -By reason of the very nature of the relationship between principal and agent, agency is extinguished by the death of the principal or the agent. This i s the law in this jurisdiction. Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in the juridical basis of agency which is re presentation. There being an integration of the personality of the principal int o that of the agent it is not possible for the representation to continue to exi st once the death of either is establish. Pothier agrees with Manresa that by re ason of the nature of agency, death is a necessary cause for its extinction. Lau rent says that the juridical tie between the principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of the princi pal to notify the agent of the fact of death of the former. The same rule prevails at common law the death of the principal effects instantaneous and absolute revocation of the authority of the agent unless the power be coupled with an interest. 10 This is the prevalent rule in American Jur isprudence where it is well-settled that a power without an interest conferred u pon an agent is dissolved by the principal's death, and any attempted execution of the power afterwards is not binding on the heirs or representatives of the de ceased. (at p. 260) The death of a client divests his lawyer of authority to represent him as counsel. A dead client has no personality and cannot be represented by an att orney. Lavina v. Court of Appeals, 171 SCRA 691 (1988). Related Cases: Terrado v. Court of Appeals, 131 SCRA 373 (1984) Hermosa v. Longara, 93 Phil 977 (1953) Danon v. Brimo, 42 Phil 133 (1921) Barretto v. Santa Marina, 26 Phil 440 (1913) Dela Pena v. Hidalgo, 16 Phil 450 (1910)

a. When the Agency Continues Despite Death of Principal Under Article 1930, the agency shall remain in full force and effect ev en after the death of the principal, if it has been constituted in the common in terest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. Earlier on in Pasno v. Ravina, 54 Phil 378 (1930), the Court recognized that "the power of sale given in a mortgage is a power coupled with an interest which survives the death of the grantor." An example of such a situation, is when a power of attorney is constitu ted in a contract of real estate mortgage pursuant to the requirement of Act No. 3135, which would empower the mortgagee upon the default of the mortgagor to pa yment the principal obligation, to effect the sale of the mortgage property thro ugh extrajudicial foreclosure. It has been held that the power of sale in the de ed of real estate mortgag4e is not revoked by the death of the principal-mortgag or, on the ground that it is an ancillary stipulation supported by the same caus e or consideration that supports the mortgage and forms an essential inseparable part of that bilateral agreement. The power of attorney therefore survives the death of the mortgagor, and allows the mortgagee to effect the foreclosure of th e real estate mortgage even after the death of the principal-mortgagor. Perez v. PNB, 17 SCRA 833 (1966); Del Rosario v. Abad and Abad, 104 Phil. 648 (1958). b. Effect of Acts Done by Agent Without Knowledge of Principals Death Under Article 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 co ntracted with him in good faith. It is obvious, that third parties who deal with the agent in bad faith (i.e., knowing that the principal is dead) would not be protected, and the contract would be void, not just unenforceable, for lack of t he essential element of consent. In Buason v. Panuyas, 105 Phil 795 (1959), the Court applied the provis ions of Article 1931 in upholding the validity of the sale of the land effected by the agent only after the death of the principal, when no evidence was adduced to show that at the time of sale both the agent and the buyers were unaware of the death of the principal. (Reiterated in Herrera v. Uy Kim Guan, 1 SCRA 406 [1 961]). In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), t he Court emphasized that lack of knowledge of the death of the principal must ex ist at the time of contract with both the agent and the third parties for the pr ovision of Article 1931 to apply, thus -Article 1931 is the applicable law. Under this provision, an act done b y the agent after the death of his principal is valid and effective only under t wo conditions, viz: (1) that the agent acted without knowledge of the death of t he principal, and (2) that the third person who contracted with the agent himsel f acted in good faith. Good faith here means that the third son was not aware of the death of the principal at the time he contracted with said agent. These two requisites must concur: the absence of one will render the act of the agent inv alid unenforceable. In the instant case, it cannot be questioned that the agent, Simeon Ral los, knew of the death of his principal at the time he sold the latter's share i n Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by Simeon Rallos before the trial court. That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo and of respondent appellate court when the latter st ated that Simeon Rallos "must have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters Concepcion an d Gerundia Rallos without informing appellant (the realty corporation) of the de ath of the former." On the basis of the established knowledge of Simeon Rallos concerning t he death of his principal, Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge o n the part of the agent of the death of his principal; it is not enough that the

third person acted in good faith. (at p. 262) The Court further held in Rallos Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which was duly registered on the o riginal certificate of title recorded in the Register of Deeds of the Province o f Cebu, that no notice of the death was ever annotated on said certificate of ti tle by the heirs of the principal and accordingly they must suffer the consequen ces of such omission. To support such argument reference is made to a portion in Manresa's Com mentaries which We quote: "If the agency has been granted for the purpose of contracting with cert ain persons, the revocation must be made known to them. But if the agency is gen eral in nature, without reference to particular person with whom the agent is to contract, it is sufficient that the principal exercise due diligence to make th e revocation of the agency publicly known. "In case of a general power which does not specify the persons to whom r epresentation should be made, it is the general opinion that all acts executed w ith third persons who contracted in good faith, without knowledge of the revocat ion, are valid. In such case, the principal may exercise his right against the a gent, who, knowing of the revocation, continued to assume a personality which he no longer had." (Manresa, Vol. 11, pp. 561 and 575; pp. 15-16, rollo) The above discourse, however, treats of revocation by an act of the prin cipal as a mode of terminating an agency which is to be distinguished from revoc ation by operation of law such as death of the principal which obtains in this c ase. On page six of this Opinion We stressed that by reason of the very nature o f the relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power o f attorney to be effective must be communicated to the parties concerned, yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will." With death, the principal's will ceases or is terminated; the source of authority is extinguished. The Civil Code does not impose a duty on the heirs to notify the agent o f the death of the principal. What the Code provides in Article 1932 is that, if the agent dies, his heirs must notify the principal thereof, and in the meantim e adopt such measures as the circumstances may demand in the interest of the lat ter. Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the property in the Office of the Register of De eds, is not fatal to the cause of the estate of the principal. (at p. 264) 5. DEATH, INCAPACITY OR INSOLVENCY OF THE AGENT Article 1919(3) provides that the death, civil interdiction, insanity o r insolvency of the agent extinguishes at he agency. In Terrado v. Court of Appe als, 131 SCRA 371 (1984), the Court held that contract of agency establishes a purely personal relationship between the principal and the agent, such that the agency is extinguished by the death of the agent, and his rights and obligations arising from the contract of agency are not transmittable to his heirs. However, under Article 1932, if the agent dies during the term of the a gency, his heirs must notify the principal thereof, and in the meantime must ado pt such measures as the circumstances may demand in the interest of the principa l. The provision establishes a rare situation where an obligation is imposed by law upon persons who are not parties to a contractual relationship, and that in fact of one that has already been extinguished by the death of the agent. a. In case of Multiple Agents Generally, without showing an intention to the contrary, in case of an agency where there are several agents constituted for the same business or prope rty, the death of one or more, but not all of them would not extinguish the agen cy, with respect to those who remain living. The same rule would apply in case o f civil interdiction, insanity or insolvency of any but not all of the common ag ents.

On the other hand, when it is clear at the constitution of the agency t hat the common agents were intended to be considered as having capacity as a gro up and not individually (such as by the use of the term and in defining their powe rs), then the death, legal incapacity, or insolvency of one would legally termin ate the agency. 6. DISSOLUTION OF A CORPORATION The dissolution of a corporation extinguishes its juridical personality for every purpose that seeks to pursue "new business" (Alhambra Cigar v. SEC, 2 4 SCRA 269 [1968]) or that of "a going concern" (PNB v. Court of First Instance of Rizal, Pasig, Br. XXI, 209 SCRA 294 [1992]). Consequently, upon the dissoluti on of a corporation, its Board of Directors and corporate officers lose every le gal right to enter into an contract or transaction to pursue new business or don e in the ordinary course of business, and any of such contract entered into woul d be void, even as against third parties who act in good faith, for at the point of dissolution, existing creditors of the corporations must be protected under the trust fund doctrine. However, the corporation after dissolution, and within three years ther efrom continues to have juridical personality for only for purposes of liquidati on. Consequently, the Board of Directors and corporate officers continue to have agency powers to represent the corporation for any and all purpose that seek th e liquidation of its assets and the payment of all its liabilities. 7. OBLIGATIONS OF THE AGENT EVEN WHEN THE AGENCY IS EXTINGUISHED The fiduciary nature of the contract of agency requires that even when the agency relation is terminated, the agent is bound to keep confidential such matters and information which he learned in the course of the agency when the na ture of such matter or information is confidential, such as business secrets. Just as the principal cannot legally revoke an agency in order to evade the payment of compensation due to the agent, then in the same manner an agent cannot legally terminate an agency in order to take advantage of the principals c ondition or to profit by information resulting from his agency, for such would b e in breach of his duty of loyalty.