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Finals Reviewer AGENCY 2 Sem; 2003


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

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Agent v. Independent Contractor Art. 1870. Acceptance by the agent may also be
Agent Independent Contractor express, or implied from his acts which carry out
Represents the principal. Employed by employer. the agency, or from his silence or inaction
Acts under the control and Acts according to his own according to the circumstances.
instructions of the principal method.
Principal liable for torts Employer not liable for Form of Acceptance by Agent:
committed by agent w/in torts committed by Acceptance may be express or implied; express when it
scope of authority. independent contractor. is oral or written; implied when it can be inferred from the
acts of the agent which carry out the agency, or from his
Art. 1869. Agency must be express, or implied silence or inaction accdg to the circumstances.
from the acts of the principal, from his silence or
Art. 1871. Between persons who are present,
lack of action, or his failure to repudiate the
the acceptance of the agency may also be
agency, knowing that another person is acting on
his behalf without authority. implied if the principal delivers his power of
Agency may be oral, unless the law requires attorney to the agent and the latter receives it
a specific form. without any objection.

Classifications of Agency: as to Between 2 persons who are present, when it


acceptance deemed implied?
1.) Manner of Creation:
When the agent receives a power of atty from
a.) Express: actually authorized, either
orally or in writing. the principal himself personally without objection.
b.) Implied: implied from acts of principal,
Is this presumption conclusive?
from his silence or lack of action or his
failure to repudiate the agency NO, it can be rebutted by contrary proof.
knowing that another person is acting
Power of attorney: An instrument in writing by which one
on his behalf w/o authority.
2.) Character: person, as principal, appoints another as his agent and
a.) Gratuitous: agent receives no confers upon him the authority to perform certain
compensation for his services. specified acts or kinds of acts on behalf of the principal.
b.) Onerous: agent does receive Its primary purpose is to evidence the authority of the
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compensation. agent to 3 parties w/ whom the agent deals.
3.) Extent of business covered:
a.) General: comprises all the business of Construction
the principal. A power of atty is strictly construed and strictly
b.) Special: comprises one or more specific pursued. The instrument will be held to grant only those
transactions. powers which are specified, and the agent may neither
4.) Authority conferred: go beyond nor deviate from the power of atty. The only
a.) Couched in general terms: deemed to exception is when strict construction will destroy the
comprise only acts of administration. b.) very purpose of the power.
Couched in specific terms: authorizes
only the performance of a specific act/s. Meaning of present
5.) Nature and effects: Not limited to face-to-face encounters. 2 persons
a.) Representative: agent acts in name and conversing on the phone are also considered as both
representation of principal. present.
b.) Simple/Commission: agent acts in his
own name but for the account of the Art. 1872. Between persons who are absent,
principal. the acceptance of the agency cannot be implied
from the silence of the agent, except:
Can agency be presumed? 1.) When the principal transmits his power
Generally NO because the relationship between the of attorney to the agent, who receives it
principal and agent must exist as a fact. The only without any objection;
exceptions to this rule are when agency arises by 2.) When the principal entrusts to him by
operation of law or agency is presumed to prevent letter or telegram a power of attorney
unjust enrichment. with respect to the business in which he
is habitually engaged as an agent, and he
Form: Generally, NO formal requirements. Agents did not reply to the letter or telegram.
authority may be oral or written, it may be in public or
private writings. The only exception is when the law 2 Ways of Giving Notice of Agency
requires a specific form (e.g. sale of real property or any 1.) By special information; or
interest therein by an agent.) 2.) By public advertisement.

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Effects: its agents. But it may be estopped through


1.) Special information: the person appointed as affirmative acts of its officers acting within the
agent is considered such with respect to the scope of their authority.
person to whom it was given.
2.) Public advertisement: Agent is considered such Art. 1874. When a sale of a piece of land or any
with regard to any person. interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale
Revocation An agency is revoked in the same manner shall be void.
as it was given.
General rule: Special information needs A letter is sufficient [Jimenez v. Rabot].
special information of revocation.
rd
Except: if you can prove that the 3 person read Art. 1875. Agency is presumed to be for
the notice in the newspaper. a compensation, unless there is proof to the
contrary.
Art. 1873. If a person specially informs another
or states by public advertisement that he has Broker: One who in behalf of others, and for
given a power of attorney to a third person, the compensation or fee, negotiate contracts relative to
latter thereby becomes a duly authorized agent, property. He is the negotiator between the parties,
in the former case with respect to the person who never acting in his own name, but in the name of those
received the special information, and in the latter who employ him. He is strictly a middleman and for
case with regard to any person. some purposes, the agent of both parties.
The power shall continue to be in full force
until the notice is rescinded in the same manner in When is a broker entitled to compensation?
which it was given. A broker is entitled to commission whenever he rings
to his principal a party who is able and willing to take
Agency by Estoppel: There is really no agency at all, but the property, and enter into a valid contract upon the
the alleged agent seemed to have apparent or terms named by the principal, although the particulars
ostensible, although no real authority to represent may be arranged and the matter negotiated and
another. completed between the principal and the purchaser
1.) Estoppel of Agent One professing to act as directly. A broker is never entitled to commission for
agent for another may be estopped to deny his unsuccessful efforts.
agency both as against his asserted principal
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and the 3 persons interested in the Does the law allow double agency?
transaction in which he is engaged. Such agency is disapproved by law for being against
2.) Estoppel of Principal
public policy and sound morality. The exception is where
a.) As to Agent One who knows that
the agent acted with full knowledge and free consent of
another is acting as his agent and fails
the principals.
to repudiate his acts, or accept the
benefits of them, will be estopped to In case the agent assumes a double agency, what is his
deny the agency as against such other. right to compensation?
b.) As to sub-agent To estop the principal 1.) If with knowledge of both principals recovery
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from denying his liability to a 3 can be had from both.
person, he must have known or be 2.) If without knowledge of both agent can
charged with knowledge of the fact of recover from neither.
the transmission and the terms of the
agreement between the agent and sub- 3.) If with knowledge of only one as to the
agent. principal who knew of that fact and as to the
rd agent, they are in pari delicto and the courts
c.) As to 3 persons One who knows that
another is acting as his agent or shall leave them as they were, the contract
permitted another to appear as his between them being void as against public polisy
rd and good morals.
agent, to the injury of 3 persons who
have dealt with the apparent agent as
such in good faith and in the exercise of Art. 1876. An agency is either general
reasonable prudence, is estopped to or special.
deny the agency. The former comprises all the business of the
rd rd
3.) Estoppel of 3 Persons A 3 person, having principal. The latter, one or more specific
dealt with one as an agent may be estopped to
deny the agency as against the principal, transactions.
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agent or 3 persons in interest.
4.) Estoppel of the govt The govt is neither Classification of Agents:
1.) Universal agent: One employed to do all acts that
estopped by the mistake or error on the part of
the principal may personally do, and which

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the principal can lawfully delegate to another Art. 1877. An agency couched in general terms
the power of doing. comprises only acts of administration, even if the
2.) General agent: One employed to transact all the principal should state that he withholds no power
business of his principal, or all business of a or that the agent may execute such acts as he may
particular kind or in a particular place, or in consider appropriate, or even though the agency
other words, to do all acts connected with a should authorize a general or unlimited
particular trade, business, or employment. management.
3.) Special/Particular agent: One authorized to act
in one or more specific transactions, or to do Examples of acts of mere administration:
one or more specific acts, or to act upon a 1.) To sue for collection of debts;
particular occasion. e.g.: 2.) To employ workers or servants and employees
a.) Atty at law: One whose business is to needed for the conduct of business;
represent clients in legal proceedings. b.) 3.) To engage counsel to preserve the ownership
Auctioneer: One whose business is to sell and possession of the principals property;
property for others to the highest 4.) To lease real property to another person for 1
bidder at a public sale. year or less, provided the lease is not
c.) Broker: One whose business is to act as registered;
intermediary between 2 other parties. 5.) To make customary gifts for charity or to
d.) Factor: One whose business is to receive employees in the business managed by
and sell goods for a commission, being the agent
entrusted with the possession of the 6.) To borrow money if it be urgent and
goods involved in the transaction. indispensable for the preservation of the things
under administration.
Attorney-in-fact: One who is given authority by his
principal to do a particular act not of a legal character. How are contracts of agency construed?
In strict legal sense: An agent having a special authority Contracts of agency as well as general powers of
created by deed. attorney must be interpreted in accordance with the
language used by the parties. The real intention of the
General Agent v. Special Agent [SNETI] parties is primarily determined from the language used
As to General agent Special agent and gathered from the whole instrument. In case of
Scope of All acts connected Only one or more doubt, resort must be had to the situation,
w/ the business in specific acts in surroundings and relations of the parties. The intention
authority of the parties must be sustained rather than defeated.
which he is pursuance of So if the contract be open to 2 constructions, one of
engaged. particular which would uphold the intention while the other would
instructions or w/ overthrow it, the former is to be chosen.
restrictions
necessarily implied MEMORIZE THIS: [PNC-WIGLLS-PG-CARS]
from the act to be Art. 1878. Special powers of attorney
done. are necessary in the following cases:
Nature of Series a Single transaction 1.) To make such payments as are not
transactions or a series of usually considered as acts of
service administration;
authorized involving a transactions not 2.) To effect novations which put an end to
continuity of involving continuity obligations already in existence at the
service. of service. time the agency was constituted;
Extent to By an act within Cannot in a manner 3.) To compromise, to submit questions to
the scope of his beyond or outside renounce the right to
which agent arbitration, to
may bind authority although the specific acts w/c appeal from a judgment, to waive
principal it may be contrary he is authorized to objections to the venue of an action or to
to his special perform. abandon a prescription already acquired;
instructions. 4.) To waive any obligation gratuitously;
Termination Apparent authority Termination 5.) To enter into any contract by which the
rd ownership of an immovable is
of authority does not terminate effective as to 3
by mere revocation party unless agency transmitted or acquired either
of authority w/o was for purpose of gratuitously or for a valuable
rd
notice to 3 contracting w/ that consideration;
rd 6.) To make gifts, except customary ones for
parties. 3 party.
Construction Merely advisory. Strictly construed. charity or those made to employees in
of Limits the authority the business managed by the agent;
instructions of agent.
of principal

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Finals Reviewer AGENCY 2 Sem; 2003
7.) To loan or borrow money, unless the 5.) Fix the terms of the sale unless there be set
latter act be urgent and indispensable for conditions stipulated by the principal;
the preservation of the things which are 6.) Sell only for cash;
under administration; 7.) Receive the price unless he was authorized only
8.) To lease any real property to another to solicit orders.
person for more than one year;
9.) To bind the principal to render some The ff are not included in a Power to
service without compensation; Mortgage The power to:
10.) To bind the principal in a contract of 1.) Sell;
partnership; nd
2.) Execute a 2 mortgage;
11.) To obligate the principal as a guarantor 3.) Mortgage for the agents personal benefit or for
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or surety; the benefit of any 3 person, unless the
12.) To create or convey real rights over contrary has been clearly indicated.
immovable property;
13.) To accept or repudiate an inheritance; Does the principal have the power to revoke a contract
14.) To ratify or recognize obligations giving an agent exclusive authority to sell?
contracted before the agency; YES. But he may not have the right to use such power
15.) Any other act of strict dominion. if he has agreed not to exercise such power during a
certain period. In case he fails to comply with this
Scope of General Authority to Purchase obligation-not-to-do, he will be liable for damages.
Where an agents power to purchase is general and
unrestricted, he has implied authority to do whatever is Art. 1880. A special power to compromise
usual and necessary in the exercise of such power. He does not authorize submission to arbitration.
may:
1.) Determine the usual and necessary details of the Rationale:
contract, A principal may authorize his agent to compromise
2.) agree upon the price, because of absolute confidence in the latters judgment
3.) modify or rescind the contract of purchase, and discretion to protect the formers rights and obtain for
4.) accept delivery for his principal, him the best bargain in the transaction. If the transaction
5.) give directions for the delivery of the property would be left in the hands of an arbitrator, said arbitrator
purchased, and may not enjoy the trust of the principal.
6.) may borrow money to pay for the care and
preservation of the property purchased. What happens if the agent is specifically authorized
But he has no special power to to submit to arbitration?
rd Then the arbitration award binds the principal,
1.) Settle a contest between the principal and a 3
person regarding the ownership of goods provided, of course, that the agent acted within
purchased, or the scope of his authority.
2.) Agree to an account stated, or
3.) Do anything not usual or necessary to the Art. 1881. The agent must act within the scope
exercise of such authority. of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of
Scope of Special Authority to Purchase the agency.
Where the agency is a special one, or is restricted to
purchases upon certain terms and conditions, the agent Authority: The power of the agent to affect the legal
has no authority to relations of the principal by acts done in accordance
1.) Purchase upon different terms and conditions with the principals manifestation of consent to him. The
from those authorized, or authority of the agent is the very essence sine qua
2.) Modify or rescind a contract of purchase made non of the principal and agent relationship. This
by the principal. authority, unless it is otherwise agreed, includes only
the authority to act for the benefit of the principal, and
Art. 1879. A special power to sell excludes the source of the authority is the principal and never the
the power to mortgage; and a special power to agent.
mortgage does not include the power to sell.
Kinds of Authority:
The ff are included in a Power to Sell: 1.) Actual: when it is actually granted, and it may
The power to: be express or implied. It results from what the
1.) Find a purchaser or to sell directly; principal indicates to the agent.
2.) Deliver the property; 2.) Express: when it is directly conferred by words.
3.) Make the usual representation and warranty; 3.) Implied: when it is incidental to the transaction
4.) Execute the necessary transfer documents; or reasonably necessary to accomplish the
purpose of the agency, and therefore, the

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a. principal is deemed to have actually with whom the agent contracted; neither
intended the agent to possess. have such persons against the principal.
4.) Apparent or Ostensible: when it is conferred by In such case the agent is the one directly bound
words, conduct or even by the silence of the in favor of the person with whom he has
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principal which causes a 3 person reasonably to contracted, as if the transaction were his own,
believe that a particular person, who may or may except when the contract involves things
not be the principals agent, has actual authority belonging to the principal.
to act for the principal. Ostensible authority is The provisions of this article shall be
another name for authority by estoppel. understood to be without prejudice to the
5.) General: when it refers to all the business of the actions between the principal and agent.
principal.
6.) Special: when it is limited only to one or more Kinds of Principals:
specific transactions. 1.) Disclosed: if at the time of the transaction
7.) By necessity or by operation of law: when it is contracted by the agent, the other party thereto
b. demanded by virtue of the existence of has known that the agent is acting for a principal
an emergency; it terminates when the and has known the principals identity.
emergency has passed. 2.) Partially disclosed: if the other party knows or
has reason to know that the agent is or may be
Requisites for Principal to be Bound by Act of Agent: acting for a principal but is unaware of the
principals identity. The partially disclosed
1.) The agent must act in behalf of the principal; rd
principal may enforce against the 3 person the
2.) The agent must act within the scope of his
contract of the agent like any disclosed
authority. rd
principal. Similarly, the 3 person has a right of
action against the principal.
When is a principal not bound by the act of his agent? 3.) Undisclosed: if the party has no notice of the
When the agent acts without or beyond the scope of fact that the agent is acting as such for a
his authority; or when the agent acts within the scope of principal.
his authority but in his own name except when the
transaction involves things belonging to the principal. General Rule in 1883: If the agent is authorized to act
on behalf of the principal but instead acts in his own
Authority? Whose behalf? Status of K name, the agent is the one directly liable to the person
With authority Principals Valid with whom he had contracted as if the transaction were
With authority Own Depends. [1883] his own.
Without Principals Unenforceable
Without Own Valid Exception: If the contract involves something belonging
to the principal.
Who to sue?
In case the agent acts in the name of the principal Remedy of the Principal if this situation arises:
and within his scope of authority, you must name the He can demand from the agent damages for his
principal as the defendant. failure to comply with the agency.

Note: The authority to look for buyers does not rd


Remedy of the 3 person with whom the agent
carry with it the authority to sell. contracted in case the oblig is not complied with:
If the case falls under the general rule, he can sue
Art. 1882. The limits of the agents authority the agent. But when the contract involves things
shall not be considered exceeded should it have belonging to the principal, he can sue the principal. But
been performed in a manner more advantageous to if it cannot be determined w/o litigation who is liable,
the principal than that specified by him. he can sue both.

What happens if the agent exceeds his authority but he


performs the agency in a manner more advantageous to
the principal?
It will e as if he did not exceed the limits of his
authority since he must do such acts as may be
conducive to the accomplishment of the purpose of the
agency.

Test: Would the principal enter into this transaction?

Art. 1883. If an agent acts in his own name, the


principal has no right of action against the persons
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Finals Reviewer AGENCY 2 Sem; 2003
He must act as soon as possible by appointing an
Chapter 2. Obligations of the Agent agent or by taking charge of the goods.

Art. 1884. The agent is bound by his


acceptance to carry out the agency and is liable
for the damages which, through his non-
performance, the principal may suffer.

He must also finish the business already


begun on the death of the principal, should delay
entail any danger.

General Obligations of an Agent to his Principal:


1.) To act with the utmost good faith and loyalty for
the furtherance and advancement of the
interests of the principal.
2.) To obey the principals instructions.
3.) To exercise reasonable care.

Specific Obligations:
1.) To carry out the agency he has accepted.
2.) To answer for damages which through his non-
performance the principal may suffer.
3.) To finish the business already begun on the
death of the principal should delay entail danger.
4.) To observe the diligence of a good father or a
family in the custody and preservation of the
goods forwarded to him by the owner in case he
declines an agency, until an agent is appointed.
5.) To advance the necessary funds should there be
a stipulation to do so.
6.) To act in accordance with the instructions of the
principal, and in default thereof, to do all that a
good father of a family would do.
7.) Not to carry out the agency if its execution
would manifestly result in loss or damage to the
principal.
8.) To answer for damages if there be a conflict
between his interests and those of the principal,
he should prefer his own.
9.) Not to loan to himself if he has been authorized
to lend money at interest.
10.) Not to render an account of his transactions
and to deliver to the principal whatever he may
have received by virtue of the agency.
11.) To be responsible in certain cases for the act of
the substitute appointed by him.
12.) To pay interest on funds he has applied to his
own use.

Art. 1885. In case a person declines an agency,


he is bound to observe the diligence of a good father
of a family in the custody and preservation of the
goods forwarded to him by the owner until the latter
should appoint an agent. The owner shall as soon as
practicable either appoint an agent or take charge of
the goods.

What is the rule if a person declines agency?


In the event a person declines an agency, he is
bound to observe the diligence of a good father of a
family in the custody and preservation of the goods
forwarded to him by the owner.

Duty of Owner in case an Agency is Declined:


only a private rule of
Art. 1886. Should there be a stipulation that guidance to the agent.
the agent shall advance the necessary funds, he Relates to the subject with Refers to the manner or
shall be bound to do so except when the which the agent is mode of his action with
principal is insolvent. empowered to deal or the respect to matters which in
kinds of business or their substance are within
In a contract of agency, may the parties stipulate that transactions upon which he the scope of permitted
the agent shall advance the necessary funds? YES. is powered to act. action.
Limitations of authority are Without significance as
What is the oblig then of the operative as against those against those dealing with
agent? He is bound to furnish who have or are charged the agent with neither
such funds. with knowledge of them. knowledge nor notice of
Except: When the principal is insolvent. This them.
exception is based on the principals obligation to Contemplated to be made Not expected to be made
reimburse the agent. rd
known to the 3 person known to those w/ whom
dealing w/ the agent. the agent deals.
Art. 1887. In the execution of the agency,
Instructions pertain to the principal and agent
the agent shall act in accordance with the rd
instructions of the principal. Authority pertain to the agent and 3 persons.
In default thereof, he shall do all that a
Exceptions to the rule that the agent must not
good father of a family would do, as required
depart from the instructions of the principal: [SAI]
by the nature of the business. A departure may be justified by:
1.) A sudden emergency;
Instructions: Private directions which the principal
2.) If the instructions are ambiguous; or
may give the agent in regard to the manner of
3.) If the departure is so insubstantial that it does
performing his duties as such agent.
not affect the result and the principal suffers no
Authority v. Instructions damage thereby.
Authority Instructions When the Agent has a right to disobey the principals
Sum total of powers Direct the manner of
instructions:
committed or permitted to transacting the authorized
the agent by the principal. business and contemplates

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1.) When the instruction calls for the performance of Every stipulation exempting the agent from the
illegal acts; or obligation to render an account shall be void.
2.) Where he is privileged to do so to protect his
security/interest in the subject matter of the Rationale: Contrary to public policy as it would
agency. encourage fraud. It is in the nature of a waiver of an
action for future fraud w/c is void.
Art. 1888. An agent shall not carry out an
agency if its execution would manifestly result in If the agent fails to deliver and instead converts or
loss or damage to the principal. appropriates for his own use the money or property
belonging to his principal, with what can he be charged?
Rationale: The duty of the agent who is merely an ESTAFA.
extension of the personality of the principal is to render
service for the benefit of the principal and not to act to Art. 1892. The agent may appoint a substitute if
his detriment. Furthermore, the agent must exercise due the principal has not prohibited him from doing
diligence in carrying out the agency. so; but he shall be responsible for the acts of the
substitute:
Art. 1889. The agent shall be liable for damages 1.) When he was not given the power to
if, its execution would manifestly result in loss or appoint one;
damage to the principal. 2.) When he was given such power, but
without designating the person, and the
Note: This provision applies to both onerous and person appointed was notoriously
gratuitous transactions. The law does not distinguish incompetent or insolvent.
so neither should we. All acts of the substitute appointed against the
prohibition of the principal shall be void.
Rationale: An agent occupies a fiduciary position and
therefore is bound to exercise loyalty, obedience, and Sub-agent: A person to whom the agent delegates, as
diligence with respect to the interest of the principal. his agent, the performance of an act for the principal
which the agent has been empowered to perform
If the agent follows the principals instructions yet his acts through his representative.
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still result in damage to 3 persons, who is liable?
General rule: The agent is NOT liable. Relation among the principal, agent and sub-agent
Except: if before acting that way, it is obvious that In reality, the sub-agent is a stranger to the principal
the act will result to damage, then the agent is liable. who originally gave life to the agency. But if the agent is
authorized to appoint a sub-agent, the relation of
Art. 1890. If the agent has been empowered to principal and agent exists between the principal and the
borrow money, he may himself be the lender at sub-agent. That is, the sub-agent may be the agent of
the current rate of interest. If he has been the principal if he is in actual control of the business and
authorized to lend money at interest, he cannot the principal knows of his appointment or knows that
borrow it without the consent of the principal. his appointment is necessary. Consequently, any act
done by the sub-agent in behalf of the principal is
Rationale: The agent can lend money to the principal deemed an act of the principal; so neither agent nor
using the agents own funds at the current rate of sub-agent may be held personally liable as long as they
interest and NOT at a higher interest rate because the act within the scope of their authority.
agent is supposed to act for the principals benefit.
If the agent is authorized to lend the principals When can an agent appoint a sub-agent?
rd
money, with interest, to 3 persons, the agent cant be So long as theres no prohibition. However, he shall
the borrower without the consent of the principal be responsible for all the sub-agents acts.
because the agent may not be a good borrower or he
may be insolvent or he may not be a good risk. There is 4 Instances where a Sub-agent is appointed and the
a danger here that the interest of the principal would Effects of each:
be jeopardized. Instance Effect
This would also seem to be the case if the agent No prohibition Agent responsible for all
is authorized to lend money w/o interest because of the acts of sub-agent.
the same reason. Prohibition Sub-agents acts are VOID
as to the principal.
Art. 1891. Every agent is bound to render an
Authority to appoint but Agent liable for acts of
account of his transactions and to deliver to the
not designated by principal sub-agent if the sub-agent
principal whatever he may have received by
is notoriously incompetent
virtue of the agency, even though it may not be
or insolvent.
owing to the principal.
Authority to appoint and Agent is released from any
designated by principal liability from the acts of

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Finals Reviewer AGENCY 2 Sem; 2003

the sub-agent. Reason for general rule: Because an agent who acts as
such within the scope of his authority represents the
principal so that his contract is really the principals.
Art. 1893. In the cases mentioned in Nos. 1
and 2 of the preceding article, the principal may Exceptions:
furthermore bring an action against the substitute 1.) When the agent binds himself; or
with respect to the obligations which the latter 2.) When he exceeds the limits of his authority
has contracted under the substitution. without giving the third party sufficient notice
of his powers.
When can the principal sue the substitute?
Under the premises given in the previous provision, Reasons for exceptions:
the principal can sue both the agent and the substitute. 1.) When the agent expressly binds himself, he
thereby obligates himself personally and by his
Art. 1894. The responsibility of two or more own act.
agents, even though they have been appointed 2.) When the agent exceeds his authority, he really
simultaneously, is not solidary, if solidarity has not acts without authority and therefore, the
contract is unenforceable against the principal.
been expressly stipulated.
The agent becomes personally liable because y
rd
If solidarity is not stipulated, what is the liability to 2 or his wrong or omission, he deprives the 3
more agents? JOINT. party with whom he contracts of any remedy
Each is liable only for proportionate part of debt. against the principal.

Art. 1898. If the agent contracts in the name of


Art. 1895. If solidarity has been agreed upon,
the principal, exceeding the scope of his authority,
each of the agents is responsible for the non-
and the principal does not ratify the contract, it
fulfillment of the agency, and for the fault or
shall be void if the party with whom the agent
negligence of his fellow agents, except in the
contracted is aware of the limits of the powers
latter case when the fellow agents acted beyond
granted by the principal. In this case, however,
the scope of their authority.
the agent is liable if he undertook to secure the
What happens if solidarity has been agreed upon? principals ratification.
Then each of the agents becomes solidarily liable for:
Art. 1899. If a duly authorized agent acts in
1.) The non-fulfillment of the agency; or
accordance with the orders of the principal, the
2.) The fault or negligence of the fellow agent
latter cannot set up the ignorance of the agent as
provided the latter acted within the scope of
to circumstances whereof he himself was, or ought
his authority.
But the innocent agent has a right later on to recover to have been aware.
from the guilty or negligent agent.
This article refers to the liability of the
rd
What happens if the fellow agent acted beyond principal towards 3 persons.
the scope of his authority?
What happens if the principal appoints an agent who
Then the innocent agent cannot be liable at all to
is ignorant?
the principal even if solidarity had been agreed upon.
Then the fault is the principals alone. Equity
Art. 1896. The agent owes interest on the demands that the principal should be bound by the
sums he has applied to his own use from the day acts of the agent if the latter acts within the scope of
on which he did so, and on those which he still his authority and in accordance with the instructions of
the former.
owes after the extinguishment of the agency.
Art. 1900. So far as third persons are
Art. 1897. The agent who acts as such is not
concerned, an act is deemed to have been
personally liable to the party with whom he
performed within the scope of the agents
contracts, unless he expressly binds himself or
authority, is such act is within the terms of the
exceeds the limits of his authority without giving
power of attorney, as written, even if the
such party sufficient notice of his powers.
agent has in fact exceeded the limits of his
rd authority according to an understanding
pal Agent 3 Party (wrong party to complain if
the principal doesnt complain between the principal and the agent.
of the agents acts)
Requisite for article to apply:
General rule: an agent who acts as such is not Authority to agent must be in writing.
personally liable to the party with whom he contracts.
Scope of agents authority includes:

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Not only the actual authorization conferred upon the i.) Vary the terms of an express
agent by the principal, but also that which has
apparently or impliedly been delegated to him. authorization;
ii.) Dispense with a legal requirement
rd
To hold the principal liable, a 3 person dealing with an enacted for the principals
agent must: benefit;
Discover upon his peril not only the fact of agency iii.) Change a rule of law or dispense
but the nature and extent of authority of the agent. He with a formality required by law;
is put on inquiry. He must also act with ordinary iv.) Vary an essential quality of the
prudence and reasonable diligence. agency relationship.
b.) General rule: principal must have notice
Fundamental principles when inquiring whether authority of the alleged custom, before the agents
exists: acts, in accordance therewith, may bind
1.) The law indulges in no bare presumptions that the principal. Exceptions:
an agency exists, it must be proved and i.) Where the principal and the agent
presumed from facts; reside in the same community,
2.) The agent cannot establish his own authority, the usage is definite and well-
either by his representations or by assuming to known, and the agent has no
exercise it; notice that he is to act to the
3.) An authority cannot be established by mere contrary;
rumor or general reputation; ii.) Where the agent is authorized to
4.) A general authority is not an unlimited one; and deal in a particular place or
5.) Every authority must find its ultimate source in in a particular market
some act or omission of the principal. exchange.
4.) By necessity the existence of an emergency or
In case the fact of agency or the extent of the authority other unusual conditions may operate to invest
of the agent is controverted, the burden of proof is on: in an agent authority to meet the emergency,
rd
The 3 person to establish the fact of agency or provided:
the extent of authority of the agent. a.) Emergency really exists;
b.) Agent is unable to
rd
Does the 3 person have to inquire further if the communicate w/ the principal;
power of attorney is written? c.) Agents enlarged authority is
No. He is not required to inquire further than exercised for the principals
the terms of the written power of attorney. protection; and
d.) The means adopted are
If there is a secret mutual understanding between the reasonable under the
principal and the agent, and such is not expressed in
rd circumstances.
the written power of attorney, does the 3 person have 5.) By certain doctrines
to inquire?
No. As far as he is concerned, an act of the agent a.) Apparent authority
within the terms of the power of attorney as written, is b.) Liability by estoppel;
within the scope of the agents apparent authority c.) Ratification.
notwithstanding that the agent may have exceeded the 6.) By the ejusdem generis rule such that where
limits of his actual authority according to a secret in an instrument of any kind, an enumeration of
understanding between him and the principal. In such a specific matters is followed by a general phrase
case, the principal is estopped from claiming that the is held to be limited in scope by the specific
agent exceeded his authority. matters.

Ways by which the agents authority may be broadened Responsibility of principal when agent acts w/
or restricted: [Im-UNDEr] improper motives:
1.) By implication agents authority extends not General rule: Motive of agent in entering into a K
rd
only to express requests, but also to those acts w/ a 3 person is immaterial.
Exceptions:
and transactions incidental thereto. It embraces rd
all the necessary and appropriate means to 1.) Where the 3 person knew that the agent was
acting for his benefit, in w/c case, the
accomplish the desired end. rd
principal is not liable to the 3 person; and
2.) By usage and custom 2.) Where the owner is seeking recovery of personal
a.) An agents authority may not be property of w/c he has been unlawfully deprived.
enlarged through usage and custom in
the following cases: Where it is sought
to

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Principals responsibility for an agents attorney to ascertain the scope of his authority. He may also
misrepresentation: ask for the instructions of the principal.

rd
1.) Within the scope of the agents authority Do secret orders or private instructions prejudice 3
Principal is subject to liability for lass caused persons?
rd
to another by the 3 persons reliance upon a No, he cannot be prejudiced by any secret
understanding between the principal and the agent.
deceitful representation of an agent in the rd
course of his employment if: Such secret orders cannot be invoked as against 3
parties if the agent had apparent authority.
a.) Representation is authorized; Art.
for
upon 1903.
the
conditions
statement The
goods
and
receiving
of commission
as
the received
described
them
damage hebyagent
andin the shall
him
should be suffered
inmake
the responsible
terms
consignment,
deterioration and
unless
a written
by
the same.
b.) Within the implied authority of the agent
to make for the principal; or Commission agent: One whose business is to receive
c.) Apparently authorized. and sell goods for a commission and who is entrusted by
2.) Beyond the scope of the agents authority the principal with the possession of goods to be sold,
General rule: Principal is not bound. Exception: and usually selling in his own name.
when the principal takes advantage of a K made
under the false misrepresentation of his agent. Ordinary agent v. Commission agent:
Ordinary agent Commission agent
3.) For the agents own benefit Principal is liable Acts for and behalf of his May act in his own name
(motive of agent immaterial). principal. or in that of his principal.
Need not have possession Must be in possession.
Art. 1901. A third person cannot set up the fact of the goods of his
that the agent has exceeded his powers, if the principal.
principal has ratified, or has signified his Commission agent v.
willingness to ratify the agents acts. broker:
Commission agent Broker
Effect of ratification by the principal: Has a relation to principal, No relation w/ the thing
Ratification of a contract gives it the same effect as if buyers or sellers, and the w/c he purchases or sells.
the principal had originally authorized it. property itself. Merely a go-between.
Who must ratify the contract?
Liability of commission agent as to goods received:
Only the principal. But there must be knowledge on
If the commission agent received goods consigned to
the part of the principal of the things he is going to
him, he is responsible for any damage or deterioration
ratify.
suffered by the same in the terms and conditions and
rd as described in the consignment.
When can the 3 person repudiate the contract?
Before actual ratification by the principal, or before
Presumption established in this article:
the principal has signified his willingness to ratify the
Damage in the merchandise were suffered while in
agents acts.
the possession and custody of the agent.
Effect of the principal receiving the benefits of the
What the commission agent must do to avoid liability:
transaction:
He is deemed to have ratified it. A principal may not Make a written statement of the damage and
accept the benefits of a transaction and at the same deterioration if the goods received by him do not agree
time repudiate its burdens. w/ the description in the consignment.

Agent v. Depositary:
Art. 1902. A third person with whom the agent
wishes to contract on behalf of the principal may Agent Depositary
require the presentation of the power of attorney, Cannot commingle goods Can commingle goods of
or the instructions as regards the agency. Private of the same kind. the same kind.
or secret orders and instructions of the principal
do not prejudice third persons who have relied Art. 1904. The commission agent who handles
upon the power of attorney or instructions shown goods of the same kind and mark, which belong
them. to different owners, shall distinguish them by
countermarks, and designate the merchandise
rd
Duty of a 3 person who deals w/ an agent: respectively belonging to each principal.
rd
3 person deals w/ an agent at his peril. He is bound to
Purpose of this provision:
inquire as to the extent of the agents authority, and this is
especially true where the act of the agent is of an unusual Prevent any possible confusion or deception.
nature. Ignorance of the agents authority is no excuse. It is
his duty to require the agent to produce his power of Art. 1904 gives the general rule. Exceptions:
1.) By custom;
2.) Collecting banks.
Helen C. Arevalo 11 Section II-D
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Art. 1905. The commission agent cannot, On the contrary, the principal may sue the buyers in his
without the express or implied consent of the own name. In such a case, the agent amounts to no
principal, sell on credit. Should he do so, the more than a guaranty. Liability is a contingent pecuniary
principal may demand from him payment in liability.
cash, but the commission agent shall be entitled
to any interest or benefit, which may result from Can the agent with a guarantee commission put up
such sale. the defense of insolvency of the debtor?
No. an agent receiving a guarantee commission
rd
Rule given in this article: cannot put up the defense that the debtor-3 person
Commission agent can sell on credit only with possesses no property since this is precisely the risk
the express or implied consent of the principal. the commission agent assumes.

Right of the principal in case the commission agent sold Art. 1908. The commission agent who does not
goods on credit without authority: [CR] collect the credits of his principal at the time
2 alternatives: when they become due and demandable shall be
1.) He may require payment in cash, in w/c case, liable for damages, unless he proves that he
any interest or benefit from the sale on credit exercised due diligence for that purpose.
shall belong to the agent since the principal
cannot be allowed to enrich himself at the Obligation of the commission agent under this article:
agents expense; or The commission agent who has made an authorized
2.) He may r atify the sale on credit, in w/c case it sale on credit must collect the credits due the principal
at the time they become due and demandable. If he fails
will have all the risks and advantages to him.
to do so, he shall be liable for damages unless he can
Art. 1906. Should the commission agent, with show that the credit could not be collected
authority of the principal, sell on credit, he shall notwithstanding the exercise of due diligence on his
so inform the principal, with a statement of the part. In such a case, the principals remedy is to proceed
names of the buyers. Should he fail to do so, the against the debtor.
sale shall be deemed to have been made for cash
Does this article apply to a case where there is
insofar as the principal is concerned.
a guarantee commission?
Obligation of the commission agent where a sale No, because the agent already assumed the risks of
on credit was authorized: collection by accepting the guarantee commission.
An authorized sale on credit shall be deemed to have
Art. 1909. The agent is responsible not only
been on a cash basis insofar as the principal is
for fraud, but also for negligence, which shall be
concerned if the agent fails to inform the principal of
judged with more or less rigor by the courts,
such sale on credit with a statement of the names of the
buyers. according to whether the agency was or was not
for a compensation.
Reason for this article: Prevent the agent from stating
Is the agent liable for fraud? Yes, in all cases.
that the same was on credit when in fact it was made
for cash.
For negligence? Yes, but this shall be adjudged with
Art. 1907. Should the commission agent receive rigor by the courts.
on a sale, in addition to the ordinary commission,
another called a guarantee commission, he shall bear Why does the court have to take into consideration
the risk of collection and shall pay the principal the whether the agency was gratuitous or for compensation?
proceeds of the sale on the same terms agreed upon
In order to fix the liability of the agent for
with the purchaser. negligence only (not fraud).

Guarantee commission: One where, in consideration of


an increased commission, the commission agent
guarantees to the principal the payment of debts arising Chapter 3. Obligations of the Principal
through his agency.

Purpose of guarantee commission: To compensate the Art. 1910. The principal must comply with
agent for the risks he will have to bear in the collection all the obligations which the agent may have
of the credit due to the principal. contracted within the scope of his authority.
As for any obligation wherein the agent has
Nature of liability of guarantee commission agent: exceeded his power, the principal is not bound
Liable to principal if the buyer fails to pay or is except when he ratifies it expressly or tacitly.
incapable of paying. But he is not primarily the debtor.

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Where can the specific obligations and duties of ratification is subsequent but it is equivalent to prior
the principal to the agent be found? authority.
Usually in the contract creating the agency.
Conditions to ratification: [ICK-PEC]
Principal obligations of the principal to the agent in the 1.) Intent to ratify;
absence of such agreement: 2.) Principal must have capacity & power to ratify;
1.) To comply with all the obligations which the 3.) He must have had knowledge of material facts;
agent may have contracted in his name and 4.) The act must be done in behalf of the principal;
within the scope of his authority; 5.) Principal must ratify acts in its entirety;
2.) To advance should the agent so request sums 6.) The act must be capable of ratification.
necessary for the execution of the agency;
3.) To reimburse the agent for all advances made Effects of ratification with respect to the agent:
rd
by him provided the agent is free from fault; 1.) Relieves the agent from liability to the 3 party
4.) To indemnify the agent for all the damages to the unauthorized transaction; and
which the execution of the agency may have 2.) To his principal for acting without authority; and
caused the latter without fault or negligence 3.) He may recover compensation due for
on his part; and performing the act which has been ratified.
5.) To pay the agent the compensation agreed upon
or the reasonable value of the latters services. Effects of ratification with respect to the principal:
1.) He assumes responsibility for the unauthorized
rd
Liability of the principle to 3 persons: act, as fully as if the agent had acted under
Where the relation of agency legally exists, the original authority; but
principal will be liable to 3
rd
persons for all acts 2.) He is not liable for acts outside the authority
committed by the agent in his behalf in the course and approved by his ratification.
within the actual or apparent scope of his authority, and rd
this is not altered y the fact that the agent may also be Effects of ratification with respect to 3 persons:
liable, nor by the fact that some of the acts are to the rd
1.) 3 person is bound by ratification to the same
principals advantage while others are to his extent as he would have been bound if the
st
disadvantage. ratified act had been authorized in the 1
instance; and
Liability of the principal for mismanagement of the 2.) He cannot raise the question of the agents
business by the agent: authority to do the ratified act.
Mismanagement of the business of the principal by
the agent does not relieve said principal from the Must ratification be communicated to the agent or to
rd
rd
responsibility that he had contracted to 3 persons. But the 3 party?
where the agents acts bind the principal, the latter may No. To be effective, ratification need not be
rd
seek recourse against the agent. communicated or made known to the agent or the 3
party. The act or conduct of the principal rather than his
communication is the key. But before ratification, the
Liability of principal for a tort committed by the agent: rd
rd 3 party is free to revoke the unauthorized contract.
The principal is civilly liable to 3 persons for torts of
an agent committed at the principals direction or I the Art. 1911. Even when the agent has exceeded
course and within the scope of the agents employment. his authority, the principal is solidarily liable with
The principal cannot escape liability whether the tort is the agent if the former allowed the latter to act
committed willfully or negligently so long as the tort is as though he had full powers.
committed by the agent while performing his duties in
furtherance of the principals business. Nor is it a Estoppel: precludes a person from denying or asserting
defense that the act which caused the tort was unknown
anything contrary to that which has been established
to him or even that it was in disobedience to his
instructions. as the truth by his own deed or representation, either
express or implied.
nd
Meaning of ratification in 2 paragraph:
Ratification v. Estoppel
Ratification is the adoption or affirmance by a person
of a prior act which did not bind him, but which was Ratification Estoppel
done or professed to be done on his account, thus giving Rests on intention Rests on prejudice
effect to the act as if originally authorized. The doctrine Affects the entire Affects only relevant parts
applies to the ratification of the act of an agent in excess transaction from the of the transaction.
of his authority of the act of one who purports to be an beginning
agent but who is really not. It may be implied from the Substance is confirmation Substance is the principals
acceptance of benefits by the principal under a contract of a unauthorized act or inducement to another to
entered in his name. The authority created by conduct after it has been act to his prejudice.
done.

Helen C. Arevalo 13 Section II-D


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In case the agent sells the goods for more than his
Apparent authority v. Authority by estoppel claim, is he entitled to the excess? No.
Apparent authority Authority by estoppel
That which though not Arises in cases where the What is the nature of the agents right of lien? Specific
actually granted, the principal, by his or particular. It is not general in the sense
principal knowingly negligence, permits his that it gives the agent a right to retain the goods
permits the agent to agent to exercise powers for claims disconnected with the agency.
exercise or holds him out not granted to him, even
as possessing. though the principal may Art. 1915. If two or more persons have
have no notice or appointed an agent for a common transaction or
knowledge of the conduct undertaking, they shall be solidarily liable to the
of the agent. agent for all the consequences of the agency.

Requisites for application of this article:


Basis of article 1911: 2
[2C ] 1.) There are 2 or more principals;
Principle of estoppel. Necessary for the protection
rd 2.) The principals have all concurred in the
of innocent 3 persons. Instance when solidarity is appointment of the same agent;
imposed by law.
3.) The agent is appointed for a common
Art. 1912. The principal must advance to the transaction or undertaking.
agent, should the latter so request, the sums
necessary for the execution of the agency. Why is solidarity the rule?
Should the agent have advanced them, the Because of the common transaction. Thus, even if
principal must reimburse him therefor, even if the the agent was appointed separately, the rule should
business or undertaking was not successful, apply in the interest of justice.
provided the agent is free from all fault.
The reimbursement shall include interest on the Art. 1916. When two persons contract with
sums advanced, from the day on which the regard to the same thing, one of them with the
advance was made. agent and the other with the principal, and the
two contracts are incompatible with each other,
Should the principal reimburse the agent for advances that of prior date shall be preferred, without
made by the latter even if the agency was unsuccessful? prejudice to the provisions of Article 1544.
It depends. Yes, if the agent is free from fault. No, if
the agent was with fault. May 2 persons contract with regard to the same thing,
one with the agent and the other with the principal?
Is a broker always entitled to a commission? Yes.
A broker is entitled to a commission if the sale is
effected, but not if there is no perfected transaction. If this situation arises, which of the contracts will be
preferred?
Art. 1913. The principal must also indemnify the If the contracts are compatible, they will both be
agent for all the damages which the executive of given effect. If they are incompatible, then the
the agency may have caused the latter, without contract of prior date shall be preferred.
fault or negligence on his part.
Art. 1544: If the same thing should have been sold to
different vendees, the ownership shall be transferred to
Basis for the above rule: Equity. Since the principal st
receives the benefits of the agency, and has a right to the person who may have 1 taken possession thereof
in good faith if it should e movable property. Should it
demand damages from the agent should the latter not be immovable property, the ownership shall belong to
perform the agency, he should answer for the damages st
the person acquiring it who in good faith 1 recorded it
resulting from the execution thereof without fault or in the Registry of Property. Should there be no
negligence on the part of the agent. inscription, the ownership shall pertain to the person
st
who in good faith was 1 in possession; and in the
Art. 1914. The agent may retain in pledge the absence thereof, to the person who presents the oldest
tings which are the object of the agency until the title, provided there is good faith.
principal effects the reimbursement and pays the
indemnity set forth in the two preceding articles. Art. 1917. In the case referred to in the
preceding article, if the agent has acted in good
What happens when the principal fails to reimburse or faith, the principal shall be liable in damages to
indemnify the agent for expenses set forth in arts. 1912 the third person whose contract must be
and 1913? rejected. If the agent acted in bad faith, he alone
The agent has the right to retain in pledge the things shall be responsible.
which are the object of the agency.

Helen C. Arevalo 14 Section II-D


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Is the principal always liable for damages caused by 2.) By the withdrawal of the agent;
rd
a 3 person or is it the agent who is liable? 3.) By the death, civil interdiction, insanity or
Whether the principal or the agent will be the one insolvency of the principal or of the agent;
rd
liable for damages to the 3 person who has been 4.) By the dissolution of the firm or corporation which
prejudiced depends on whether the agent acted in bad entrusted or accepted the agency;
faith or not. If the agent acted in good faith and within 5.) By the accomplishment of the object or
the scope of his authority, the principal incurs liability. If purpose of the agency;
the agent acted in bad faith, he alone shall be 6.) By the expiration of the period for
responsible to such person. which the agency was constituted.
What is the extent of liability covered under this article? Meaning of Presumption of continuance of agency:
Damages. When once shown to have existed, an agency
relation will be presumed to have continued in the
What is good faith referred to in this article? absence of anything to show its termination.
Good faith here means that the agent had no
rd
knowledge that the principal is dealing with a 3 person. Who has the burden of proving the
revocation/termination of agency?
Note: If the contract is one of sale, article 1544 The burden of proving a revocation or other
governs and not arts. 1916 and 1917.
termination of agency is on the party asserting it.
Art. 1918. The principal is not liable for the
Note: Even if the reason for extinguishing the agency
expenses incurred by the agent in the
is not true, the agent cant insist on reinstatement. The
following cases: [F*CKS]
agent can only demand damages.
1.) If the agent acted in contravention of the
principals instructions, unless the latter
Modes of extinguishing an agency, generally: [ASO]
should wish to avail himself of the benefits
1.) Agreement;
derived from the contract;
2.) Subsequent acts of the parties which may be
2.) When the expenses were due to the fault
either:
of the agent;
a.) By the act of both parties or by mutual
3.) When the agent incurred them with knowledge
consent;
that an unfavorable result would ensue, if the
b.) By the unilateral act of one of them.
principal was not aware thereof;
3.) By operation of law.
4.) When it was stipulated that the expenses
would be borne by the agent, or that the
Modes of extinguishment, specifically: [WR-DEAD]
latter would be allowed only a certain sum.
1.) Withdrawal of the agent;
2.) Revocation;
Instances wherein the principal is not liable for expenses
3.) Death, civil interdiction, insanity or insolvency of
incurred by the agent?
the principal or of the agent;
In the instances enumerated under this article.
4.) Expiration of the period for which the agency
was constituted;
Reasons why the principal is not liable for the agents
5.) Accomplishment of the object or purpose of the
expenses: Under
agency; and
1.) To punish the agent, but when the principal has
6.) Dissolution of the firm/corp which entrusted or
availed of the benefits, he is deemed to have
accepted the agency;
impliedly ratified the agents acts.
2.) Kasi, kasalanan niya, eh.
Necessary characteristics of the parties for
3.) The agent is guilty of bad faith and lack of
the continuance of the agency: [PCS]
diligence;
1.) Present;
4.) An express stipulation which is not contrary to
2.) Capacitated;
law, morals, good customs, public order or
3.) Solvent.
public policy is binding between the parties.
Why is presence necessary?
Because the general rule in art 1919 is that death of
any of the parties extinguishes agency. However in the
Chapter 4. Modes of Extinguishment case where you have several principals and/or several
of Agency agents, whether the death of one principal or of one agent
terminates the agency would depend on the intention of
the parties. Generally the death of one of several
Art. 1919. Agency is extinguished: [WR-DEAD] principals does not revoke the agents authority nor does
1.) By its revocation; the death of one of several agents put an end to the
agency. The intention of the parties controls.

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What happens if the subject matter of the agency is
lost or destroyed?
Why is capacity necessary? In the absence of any agreement by the parties to
For instance, in the case of civil interdiction, it the contrary, the loss or destruction of the subject
deprives the offender during the period of his sentence matter of the agency terminates the agents authority to
of the right to manage his property and dispose of such deal with reference to it.
property by any act or any conveyance inter vivos. A
person under civil interdiction hence, cannot validly give Exceptions:
consent. Same is true for insane people. 1.) If it is possible to substitute other material for
that which was destroyed without substantial
Why is solvency necessary? detriment to either party, or
As by an act of insolvency, the principal loses control 2.) If the destroyed subject matter was not in fact
of the subject matter of the agency, the authority of the essential to the contract; and
agent to act for his principal ceases by operation of law 3.) A partial loss or destruction.
upon an adjudication of the principals insolvency. On
the other hand, the insolvency of the agent will Are the modes of extinguishments of agency exclusive?
ordinarily put an end to the agency, at least if it is in any No. Art. 1919 gives only those causes of extinction
way connected with the agents business which has which are particular to agency. But the list is not
caused his failure. exclusive. The general rule actually is, an agency may
be extinguished by the modes of extinguishments of
General rule as to death of the principal or agent: obligations in general whenever they are applicable,
By reason of the very nature of the relationship like loss of the thing and novation (see art. 1231).
between the principal and the agent (which is fiduciary
argh!), agency is distinguished ipso jure upon the Does war extinguish agency?
death of the principal. During the existence of war, a contract of agency is
inoperative if the agent or the principal is an enemy
Exceptions: alien. But since it is generally conceded that war
1.) If the agency is coupled with an interest; suspends all commercial intercourse between the
2.) If the act of the agent was executed without the residents of 2 belligerent states, the general rule is
knowledge of the death of the principal and the
rd that agency is terminated, as a matter of law, upon the
3 person who contracted w/ the agent acted break of war.
in good faith.
Does legal impossibility terminate agency?
Why does dissolution of a firm or corp extinguish the
Implied in every contract is the understanding that it
agency?
shall be capable of being carried out legally at the time
Dissolution of a corp extinguishes its juridical
called for by the contract. An agency then terminates if
existence.
a change in the law makes the purpose of the agency
unlawful.
What happens when the object or the purpose of the
agency is accomplished?
What happens if the principals authority terminates?
As between the parties, the principal and the agent,
A position which flows from a trust relationship
the fulfillment of the purpose for which the agency was
whether directly or indirectly, terminates as a matter of
created ipso facto terminates the agency.
law with the destruction of the trust. Consequently, a
sub-agents authority terminates with the termination of
What happens when the term for which the agency was
the principals authority.
supposed to continue expires?
When an agency is created for a fixed period, the
In case of loss of the subject matter, does the principal
expiration of such period ends the agency, even though
incur any liability?
the purpose for which the agency was created has not
It depends. If the loss was brought about by the
been accomplished.
principal as in the case where the principal sells the
subject matter to another party notwithstanding that an
What happens if no time is specified?
agency had been constituted in reference to it, then he
The agency terminates at the end of a reasonable
may be liable for damages for his wrongful terminating
period of time.
act. But if the subject matter is lost without the fault of
the principal, no liability is assumed by him.
Can the period be implied? Yes, from
1.) The terms of the agreement; Will a change of conditions affect the agency?
2.) Purpose of the agency; and General rule: When there is a basic change in the
3.) The circumstances of the parties.
circumstances surrounding the transaction not
contemplated by the parties which would reasonably
lead the agent to believe that the principal would not
desire him to act, authority of agent is terminated.

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Exceptions: be forced to retain another as his agent


1.) If the original circumstances are restored within against his will.
a reasonable period of time, the agents
authority may be revived. In case a principal does revoke an agency, is there any
2.) Where the agent has reasonable doubts as to way by which the agent can hold him liable for
whether the principal would desire him to act, damages? Yes. For instance,
his authority will not be terminated if he acts 1.) If the agency was constituted for a fixed period,
reasonably. (But when in doubt, agent could the principal shall be liable in damages
contract principal for instructions if possible). occasioned by the wrongful discharge of the
3.) Where the principal and agent are in close daily agent before the expiration of the period fixed.
contact, the agents authority to act will not 2.) If the agent can prove that the principal acted in
terminate upon a change of circumstances if the bad faith by revoking the agency in order to
agent knows the principal is aware of the change avoid payment of commission about to be
and does not give him new instructions. earned, the principal can be held liable for
damages.
Confidential information
It is difficult to determine whether information is Reason for requiring agent to return the document
confidential or not, because while the relation of evidencing the agency: To prevent the agent from
making use of the power of attorney and thus avoid
principal and agent is confidential, not all knowledge rd
acquired by the agent is of a confidential nature. Some liability to 3 persons who may subsequently deal
clearly is of so general a nature that equity ought not with the agent on the faith of the instrument.
attempt to restrict its subsequent use.
Kinds of Revocation:
Usually, what a court does is to determine 2 things:
1.) Express; or
1.) Whether the knowledge or information is indeed
2.) Implied, e.g.:
confidential, and
a.) When the principal appoints a new agent
2.) Whether its subsequent use ought to be
for the same business or transaction, or b.)
prevented.
When the principal directly manages the
business entrusted to the agent.
Principle behind enjoining an agent from using
confidential information:
Is notice of revocation to the agent necessary? Yes.
There is in the contract of service subsisting between
A revocation without notice to the agent will not render
the principal and the agent an implied contract on the
part of the agent that he will not, after the service is invalid an act done in pursuance of the authority.
terminated, use information which he has gained while
Is express notice of revocation to the agent necessary?
the service has been subsisting to the detriment of his
As between the principal and the agent, express
former employer.
notice to the agent that the agency is revoked is not
Art. 1920. The principal may revoke the always necessary. If the party to be notified actually
agency at will, and compel the agent to return the knows, or has reason to know, facts indicating that his
document evidencing the agency. Such revocation authority has been terminated or suspended, there is
sufficient notice.
may be express or implied.
rd
May an agency be terminated by a subsequent act of the Is notice of revocation to 3 persons necessary? Yes.
principal? Yes, when he does so, its called revocation. rd
What kind of notice should you give 3 persons?

May an agency be terminated by a subsequent act of the 1.) As to former customers, actual notice must e
given to them because they always assume the
agent? Yes, its called withdrawal or renunciation.
continuance of the agency relationship.
Does it matter if the agency is gratuitous or with 2.) As to other persons, notice by publication is
compensation when we speak of revocation by the enough.
principal? No, art 1920 makes no distinction.
May the agent renounce the agency at will?
Reasons: Yes, but subject to the contractual obligations owing
1.) Since the authority of the agent emanates from the the principal.
principal, if the principal wishes to terminate the
Reason: The essence of the principal -agent relationship is
agency the law must enable him to do so.
the consent and willingness of the agent to act for the
2.) Confidence being the cardinal basis of the
principal. The law cannot compel the parties to continue an
relation, it stands to reason that it should
cease when such confidence disappears. agency if they do not want to do so. (The principal cannot
3.) The principal-agent relationship is consensual even sue for affirmative specific performance because that
and personal in nature. No one can nor should would lead to involuntary servitude!)

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rd
to 3 person informed of know, as long as there is
Form of renunciation: the appointment. publication in a newspaper
It is not always necessary for the agent to of general circulation.
renounce the agency expressly. He can do so
impliedly, as for example General rule: Special information needs special
1.) Where he has conducted himself in a manner information of revocation.
incompatible with his duties as agent; or
rd
2.) When he abandons the object of his agency and Except: If you can prove that the 3 person read
acts for himself in committing a fraud upon his the notice in the newspaper.
principal; or
3.) When he files a complaint against the principal and Art. 1923. The appointment of a new agent for
adopts an antagonistic attitude towards him. the same business or transaction revokes the
previous agency from the day on which notice
Does a violation of the instructions of the principal thereof was given to the former agent, without
amount to a renunciation? prejudice to the provisions of the two preceding
No. Mere fact that agent violates his instructions articles.
does not amount to renunciation, and although he may
thus render himself liable to the principal, he does not What does this article mean?
cease to become an agent. 1.) There is implied revocation of the previous
agency when the principal appoints a new
Art. 1921. If the agency has been entrusted for agent for the same business or transaction if
the purpose of contracting with specified there is incompatibility. But the revocation does
not become effective as between the principal
persons, its revocation shall not prejudice the
and the agent unless it is in some way
latter if they were not given notice thereof. communicated to the latter. Again, the rights of
rd
rd 3 persons who acted in good faith and without
What is the effect of revocation in relation to 3 knowledge of the revocation will not be
persons if the agent was authorized to contract with
prejudiced thereby.
specified persons?
If the agency is created for the purpose of 2.) There is no implied revocation where the
contracting with specified persons, its revocation will not appointment of another agent is not
rd incompatible with the continuation of like
prejudice such 3 persons until notice thereof is given st st
rd authority in the 1 agent, or if the 1 agent is
them. The reason for this is obvious. Since 3 persons
have been made to believe by the principal that the not given notice of the appointment of the new
agent is authorized to deal with them, they have a right agent.
to presume that the representation continues to exist in
the absence of notification by the principal. But of Art. 1924. The agency is revoked if the
rd
course, notice is not required if the 3 persons already principal directly manages the business entrusted
know of the revocation. to the agent, dealing directly with third persons.

Art. 1922. If the agent had general powers, What does the above article provide?
revocation of the agency does not prejudice third It provides for another case of implied revocation.
persons who acted in good faith and without
knowledge of the revocation. Notice of the Effect of direct management of the business by
revocation in a newspaper of general circulation the principal himself:
is a sufficient warning to third persons. Generally, it revokes the agency because there would
no longer be any basis for the representation previously
rd
Effect of revocation in relation to 3 persons if the agent conferred.
was authorized to contract with the public in general: Exception: when the only desire of the principal
rd
In case the agent has general powers, innocent 3 in doing so is for him and the agent to manage the
parties dealing with the agent will not e prejudiced by business together.
the revocation before they had knowledge thereof. In
this case, however, the fact that the revocation was Art. 1925. When two or more principals have
advertised in a newspaper of general circulation would be granted a power of attorney for a common
rd
sufficient to 3 persons for publication constitutes notice transaction, any one of them may revoke the
rd
upon everybody and this is true whether or not such 3 same without the consent of the others.
persons have read the newspaper concerned.
Rationale: Since the appointment of an agent by 2 or
Notice required in art. 1921 v. that in art. 1922:
more principals for a common transaction or undertaking
Art. 1921 Art. 1922
makes them solidarily liable to the agent for all
Must be personal. May be personal.
rd consequences of the agency, then each one of the
Revocation must be known Even if 3 person doesnt principals should be granted the right to revoke the

Helen C. Arevalo 18 Section II-D


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Finals Reviewer AGENCY 2 Sem; 2003

power of attorney even without the consent of the to deal with the thing in order to make the
others. Remember that in a solidary obligation, the act assignment, pledge or lien effectual.
of one is the act of all.
If the contract of agency stipulates that such will be
Art. 1926. A general power of attorney is irrevocable, is such terminology controlling in all cases?
revoked by a special one granted to another agent, No. Whether an interest will make an agency
as regards the special matter involved in the irrevocable exists in a particular case is to be
latter. determined from the entire agreement between the
parties and from the facts and circumstances. The
How many agents are involved in this article? terminology is not controlling. Even if an agency is
2, one to whom a general power is previously made in terms irrevocable, the fact will not prevent its
granted. Another to whom a special power is revocation by the principal when the agency is not in
given. (Note that this can also apply if a special fact coupled with an interest.
power is subsequently given to the same agent.)
If an agency is coupled with an interest, does this
Effect of the issuance of a special power as regards the mean that the principal can never ever revoke it?
general power: No. You can still revoke in extreme situations, e.g.:
The general power is impliedly revoked as to matters 1.) Irrevocability can never be used as a shield for
covered by the special power because a special power the perpetration of acts in ad faith, breach of
naturally prevails over a general power. confidence or betrayal of trust. The law will
never permit the agent to commit frauds
Art. 1927. An agency cannot be revoked if a against the principal.
bilateral contract depends upon it, or if it is the 2.) When the interest is already terminated.
means of fulfilling an obligation already
contracted, or if a partner is appointed manager of Why is it said that agencies coupled with interest are
a partnership in the contract of partnership and not true agents?
his removal from the management is unjustifiable. Because persons with proprietary interests in the
subject matter of their agency are not true agents at
General rule: Principal may revoke an agency at will all. One of the hallmarks of the agency relation is the
since the essence of agency is the agents duty of control of the principal over the acts of the agent and
obedience to the principal. over the subject matter of the agency. An agency
coupled with an interest removes that control.
Exceptions: [BF=Partner]
1.) When a bilateral contract depends on the Art. 1928. The agent may withdraw from the
agency; agency by giving due notice to the principal. If
2.) When the agency is the means of fulfilling an the latter suffer any damage by reason of the
obligation already contracted; withdrawal, the agent must indemnify him
3.) When a partner is appointed as manager of a therefor, unless the agent should base his
partnership in the contract of partnership and withdrawal upon the impossibility of continuing
his removal from the management is the performance of the agency without grave
unjustifiable. detriment to himself.

Can an agency, coupled with an interest, be terminated Does the agent have a right to renounce or withdraw
by the sole will of the principal? No. from the agency at any time?
Yes. Even without the consent of the principal. But, in
Requisite for agency to be irrevocable for being coupled the latter case, he may be subject to liability for breach
with a interest: of contract or for tort.
Interest of the agent must be in the subject matter of
the power conferred and not merely an interest in the Basis: Constitutional prohibition against involuntary
exercise of the power. servitude.

Instances of an agency coupled with an interest: Obligation of agent if he withdraws from agency without
1.) When the agent has parted with value or just cause:
incurred liability at the principals request, and 1.) Notify principal (even if w/ just cause); and
he is looking to the exercise of the power as the 2.) Indemnify the principal should the latter suffer any
means of reimbursement or indemnity. damage by reason of such withdrawal.
2.) When the interest in the thing concerning which
the power is to be exercised arises from an Reason for indemnity: To answer for losses and
assignment, pledge or lien created by the damages occasioned by the non-fulfillment of his
principal with the agent being given the power obligation as agent.

Helen C. Arevalo 19 Section II-D


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Is the agent liable for indemnity if the withdrawal was same way that revocation of the agency does not
rd
for just cause? No. Agent cannot be held liable if the prejudice 3 persons who have dealt with the agent in
rd
agent withdraws for a valid reason as when: good faith without notice of revocation, such 3 persons
1.) The withdrawal is based on the impossibility of are also protected where it is not shown that the agent
continuing the agency without grave detriment had knowledge of the termination of the agency because
to himself; or of the death of the principal or any other like cause
which extinguishes the agency.
2.) Fortuitous event.
Does this article only require the agent to be in good
What happens when the agent sues the principal? rd
Equivalent to withdrawal of the agent. faith? No, both agent and 3 person must be.
Art. 1932. If the agent dies, his heirs must
Art. 1929. The agent, even if he should
notify the principal thereof, and in the meantime
withdraw from the agency for a valid reason, must
adopt such measures as the circumstances may
continue to act until the principal has had
demand in the interest of the latter.
reasonable opportunity to take the necessary
steps to meet the situation. In case of death of agent, what must the heirs do?
1.) Notify the principal to enable the latter
Obligation of agent after withdrawal: reasonable opportunity to take such steps as
Even when withdrawal is for a valid reason, he must may be necessary to meet the situation; and
continue to act until the principal has had reasonable 2.) Adopt such measures as the circumstances may
opportunity to take the necessary steps like the
demand in the interest of the principal.
appointment of a new agent to remedy the situation
caused by the withdrawal. This is to prevent damage or Can the heirs continue the agency?
prejudice to the principal. General rule: No, since an agency calls for
personal services on the part of the agent.
Art. 1930. The agency shall remain in full force
Exceptions:
and effect even after the death of the principal, if
1.) Agency by operation of law, or a presumed or
it has been constituted in the common interest of tacit agency;
the latter and of the agent, or in the interest of a 2.) Agency is coupled with an interest in the subject
third person who has accepted the stipulation in
matter of the agency.
his favor.

If the agent dies, his heirs should tell the principal.


However, if the principal dies, the principals heirs GOOD LUCK!
have no obligation to tell the agent.
This is for that small syndicate of people who
General rule: Agency is terminated instantly by the name themselves after a labor case!
death of the principal.
I basically just typed up the reviewer minus the cases
and problems. I dont think the problems are all that
Rationale: Agency, being based on representation, there
important, theyre Atty. Quimson problems not Enriles. Our
is no one to e represented where the principal is already case outline differs from theirs a bit too. Besides, were all
dead. set with case digests na, we just have to find them!

Exceptions: Thanx to that other group of people who name


1.) If the agency has been constituted in the themselves after an imaginary perfect place. Sorry, I
common interest of the principal and the agent; plagiarized your reviewer guys, but I wouldnt have had to if
and you didnt stamp your huge seal right smack center of every
2.) If the agency has been constituted in the page!
rd
interest of a 3 person who has accepted
the stipulation in his favor.

Art. 1931. Anything done by the agent, without


knowledge of the death of the principal or of any
other cause which extinguishes the agency, is
valid and shall be fully effective with respect to
third persons who may have contracted with him
in good faith.

What does this article provide?


It provides that the death of the principal or any
other like cause, extinguishes the agency. But in the

Helen C. Arevalo 20 Section II-

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