AGENCY
Guardians
Chapter 1 –NATURE, FORM, AND KINDS OF AGENCY
Agency – a contract whereby a person binds himself to render
some service or to do something in representation or in behalf
of another, with the consent and authority of the latter.
Underlying Principle: to accomplish results using the
services of the others.
Purpose: to extend the personality of the principal through
the acts of the agent.
Basis: Representation
Relation: fiduciary
qui facit per alium facit per se – actual or real absence of the
principal is converted into his legal or juridical presence. He,
who acts through another, acts by himself.
Use of Agency in other senses:
1. Place of business
2. Instrumentality by which a thing is done
3. Exclusive right of person to sell
Elements of Contract of Agency:
1. Consent (express/implied)
2. Object – execution of a juridical act in relation to a
third person
3. Agent acts as representative and not for himself
4. Agent acts within the scope of his authority.
Characteristics of Agency:
1. Principal
2. Preparatory
3. Consensual
4. Nominate
5. Unilateral if gratuitous; Bilateral if for compensation
6. Onerous
7. Commutative
Parties to the Contract and their Capacity
1. Principal – one whom agent represents and from
whom he derives his authority.
 Any person, whether natural or juridical, with
legal capacity may appoint an agent for any
legal purpose.
 Principal is incapacitated – voidable
2. Agent – one who acts for and represents another
(atty., proxy, delegate, representative)
 A person capable of acting for himself and
can be an agent for another.
 Must be competent to bind himself
 Legal/full capacity not required.
 Agent is incapacitated – voidable
Acts that may/may not be delegated to agents
1. General rule – “what a man may do in person, he
may do through another.”
2. Exceptions:
a. Personal Acts
 right to vote during election
 making a will
 make statements under oath
 represent by proxy during board meetings
 right to be represented in marriage
b. Criminal acts or acts prohibited by law
 Aliens are not allowed to own private
agricultural land in the Philippines.
 Persons incapacitated by reason of relation
to property:
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1.
2. Agents
3. Public officers and employees
4. Executors and administrators
5. Judicial officers and employees
6. Other individuals disqualified by law.
How Agency relationship is created
a. by appointment – giving a person a power of atty.
b. by ratification – express/implied
c. by estoppel – when a person willfully, negligently, or
by his silence leads another to believe that a certain
person is his agent when no agency really exists.
d. by necessity – emergency makes it necessary for
one to act for another without receiving authority from
the latter.
*** Agent cannot consistently with the principles of good faith,
be allowed to create in himself an interest in opposition to that
of his principal.
*** Agent cannot serve 2 masters, unless both consent, or
unless he is a mere middleman or intermediary. (ex: real estate
broker)
*** Agent must not use or disclose secret information.
Agency distinguished from similar contracts
1. Loan – agent: given funds to advance the latter’s
business; borrower: given money for the purpose of
his own.
2. Lease of service – agency: representation, agent
exercises discretionary powers; lease of service:
employment, lessor performs only ministerial function.
3. Independent contract – agency: subject to control
and discretion of the principal; contract for a piece of
work: independent contractor exercises his
employment independently.
4. Partnership – agent: acts for his principal; partner:
acts for his co-partners and partnership , also as
principal for himself.
5. Negotiorum gestio – agent: acts acc. to the express
will of the principal; gestor: acts acc. to presumed will
of the owner by exercising the diligence of a good
father of a family.
Agency: contract; Negotiorum gestio: quasi-contract
6. Brokerage - commission agent: purchase or sale for
another of personal property which is placed in his
possession and at his disposal; broker: merely an
intermediary between the purchaser and the vendor.
7. Sale – agency to sell is different from sale. (Art. 1458)
Kinds of Agency
1) As to manner of creation: (form)
a. Express – authorization is orally or in writing.
 Oral Agreement – valid unless law requires
specific form.
 Written Agreement
** Those act that requires a special power of
attorney is unenforceable unless power of
attorney is special.
** Sale of piece of land must be in writing.
b. Implied
 Acts of the principal
 Silence of the principal
 Lack of action of the principal
 Failure of the principal to repudiate the
agency knowing that another person is
acting in behalf without authority.
 2) As to its character:
a. Gratuitous – receives no compensation
b. Compensated or Onerous – compensated
3) As to extent of business:
a. General – comprises all the business of the
principal
b. Special – comprises one or more specific
transactions
4) As to authority conferred:
a. Agency couched in general terms – comprise
only acts of administration.
Authority conferred: general power of attorney
b. Agency couched in specific terms –
authorizing only performance of specific acts.
Authority conferred: special power of attorney
5) As to its nature and effects:
a. Ostensible or Representative – agent acts in
the name and representation of the principal
b. Simple or commission – agent acts for the
account of the principal but in his own name.
Acceptance by agent – may be express or implied from his
acts which carry out agency, or from his silence or inaction
according to the circumstances.
Power of attorney – written authorization to an agent to
perform specified acts in behalf of the principal which acts,
when performed, shall have binding effect on the principal.
Cases when there is implied acceptance:
a. Between persons who are present
*** Agency is impliedly accepted if the agent receives
a power of attorney from the principal himself
personally without any objection, both being present.
However, the presumption of acceptance may be
rebutted by contrary proof.
b. Between persons who are absent
Acceptance by the agent can be implied from the
silence of the agent in the following cases:
1. When the principal transmits his power of
attorney to the agent, who receives it without any
objection.
--- requires acknowledgement of the receipt.
2. When the principal entrusts to him by letter or
telegram a power of attorney with respect to the
business in which he is habitually engaged as an
agent, and he did not reply to the letter or
telegram.
*** there is an implied acceptance if the agent writes a
letter acknowledging receipt of the power of attorney
but offers no objection to the creation of agency.
*** failure to give a reply does not mean that the
agency has been accepted unless the “power of
attorney” is with respect to the business in which he is
habitually engaged as an agent, or the acceptance
could be inferred from his acts which carry out
agency.
2 ways of giving notice of agency with diff. effects:
1) By special information - letter addressed to a
specified person(s). The person appointed will be
considered a duly authorized agent with respect to the
person who received the special information.
2) By public advertisement – this may be made by
publication in the newspapers, signs, leaflets, posters,
or billboards. The person appointed will be considered
an agent with regard to any person.
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*** in either use, the agency is deemed to exist whether
there is actually an agency or not.
Manner of revocation of agency
** The power of attorney must be revoked in the same manner
in which it was given.
** Revocation made in any manner is effective where the
person dealing with the agent has actual knowledge thereof;
otherwise, bad faith and fraud would be committed.
Sale of land through agent
** Sale of piece of land or any interest thereon, like usufruct,
mortgage, easement, etc. through an agent is void, unless the
authority of the agent is in writing.
** An agreement for the sale of real property or of an interest is
unenforceable even if there is no agent.
Status of Sale
a. Authority in private instrument – sale entered
into orally is unenforceable, while sale in private
or public instrument is valid.
b. Authority in public instrument – same
Note: In order that sale may be recorded in the Register of
Deeds, both authority of the agent and the sale must be in
public instrument.
Presumption as to compensation of agent:
** Agency, as onerous contract is presumed to be for
compensation.
Principal is duty bound to pay:
1. Amount stipulated; or
2. Fair value (reasonable value) for the work/service
performed by agent;
Unless agent has agreed to render his services
gratuitously
** The presumption however, may be contradicted by contrary
evidence such as when:
1. Terms of contract not complied with
2. Agent did not succeed in bringing the minds of the
buyer and the seller to an agreement.
** sometimes, agent’s compensation depends upon
contingency.(ex: lawyers who agree for contingency fee.)
Agents classified according to nature and extent of his
authority
1) Universal Agent – authorized to do all the acts that
principal may personally do, and which he can
lawfully delegate to another the power of doing.
2) General Agent – authorized to transact all the
business of his principal.
3) Special or Particular Agent – authorized to act in
one or more specific transactions or to act upon a
particular occasion.
Special types of agent:
1) Attorney at law – represent clients in legal matters or
proceedings.
2) Auctioneer – sell property for others to the highest
bidder at a public sale.
3) Broker – act as intermediary between two parties
such as insurance broker and real estate broker.
4) Factor – (synonymous with the commission
merchant), who receives and sell goods for
commission, being entrusted with the possession of
goods involved in the transaction.
5) Cashier in bank – represent banking institution in its
financial transactions; and
 6) Attorney-in-fact – given authority by the principal to
do a particular act not of legal character. (special
authority)
Agency couched in general terms – comprises only acts of
administration and express power is necessary to perform any
act of strict ownership, even if the principal states that
1) He withholds no power
2) The agent may execute such acts as he may consider
appropriate; or
3) He authorizes a general or unlimited management.
Acts of Administration, concept
- Those that do not imply the authority to alienate for the
exercise of which requires a special power of attorney.
- Authority of agent is presumed to include all the necessary
and usual means to carry out the agency into effect.
- ( ex: managing principal’s grocery business )
Acts that require special power of attorney
1. To make payments – not usually in the ordinary
course of business (ex: payment for the purchase
price of a piece of land)
2. To effect novations – extinguishment of an
obligation through the creation of a new one which
substitutes it by changing the object or principal
conditions, substituting the debtor, or subrogating
third person in place of the creditor.
3. To compromise, to submit questions to
arbitration, to renounce the right to appeal from
judgement, to waive objections to the venue of an
action or to abandon a prescription already
acquired.
Compromise – parties making reciprocal
concessions to avoid litigation or put an end to
one that is already commenced.
Arbitration – submit controversies to one or
more arbitrators for decision.
Prescription – acquires ownership and other
real rights through lapse of time.
4. To waive an obligation gratuitously – by
condonation or remission. The act of forgiveness of
indebtedness of a third person to the principal by
renouncing or abandoning the rights without valuable
consideration.
5. To convey or acquire immovable – ownership of an
immovable is transmitted or acquired either
gratuitously, such as by donation, or for valuable
consideration such as sale, barter, or exchange, or
dacion en pago.
6. To make gifts – a gift or donation is an act of
liberality whereby the donor disposes gratuitously of a
thing or right in favor of the donee who accepts it. An
agent cannot make gifts except customary ones to
charity or those made to employees in the business
managed by him.
7. To loan or borrow money – An agent may borrow
money for his principal, if it is urgent and
indispensable for the preservation of the things which
are under administration.
8. To lease realty for more than one year – is
unenforceable unless made in writing. If the lease of
real property is one year or less, special power is not
necessary, as the same is merely an act of
administration provided it is not registered.
9. To bind the principal to render service
gratuitously – agent may do so, but to bind the
principal to that effect requires special power of
attorney.
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10. To bind the principal in a contract of partnership –
Contract of partnership creates obligations, the
fulfillment of which requires an act of strict ownership.
Furthermore, the principal must personally have trust
and confidence in the proposed partners.
11. To obligate the principal as guarantor or surety –
In the contract of guaranty, the guarantor binds
himself to fulfill the obligation of the principal debtor in
case the latter should fail to do so. If the person binds
himself solidarily, he is a surety and the contract is
called suretyship.
12. To create or convey real rights over immovable
property – act of strict dominion.
13. To accept or repudiate an inheritance – act of strict
dominion
14. To ratify obligations contracted before agency –
Agency is a preparatory contract; hence, it is
generally prospective.
15. Any other act or strict dominion – (ex: sale of
personal property)
Special power to sell, what it excludes
Sale involves transfer of ownership, while mortgage
allows the mortgagor to retain it. A special power to sell
excludes the power to mortgage; and a special power to
mortgage does not include the power to sell.
Power to compromise does not authorize submission to
arbitration
While the principal may have confidence in the
agent’s judgement, the arbitrator may not possess the trust of
the principal.
Authority of an agent, concept
Authority is the power of the agent to affect the legal
relations of the principal by acts done in accordance with the
principal’s manifestation of consent to him.
Authority: cause ; Power: effect
** an agent with authority to do an act has also the power to
bind the principal but the power may exist without authority.
** an act within the power of the agent is deemed within the
scope of his authority even if the agent has in fact exceeded
the limits of his authority.
Kinds or Types of Authority
1. Actual – actually granted; maybe express/implied
2. Express – conferred by words
3. Implied – incidental to the transaction or reasonably
necessary to accomplish the purpose of agency.
4. Apparent or Ostensible – conferred by conduct or
silence (authority by estoppel)
5. General – refers to all business of the principal
6. Special – limited to only one or more specific
transactions.
7. Authority by necessity – deemed by virtue of
existence of emergency.
When principal bound by act of agent
** Requisites:
1. Agent must act within the scope of his
(actual/apparent) authority.
2. Agent must act in behalf of the principal.
** Ratification by principal – If agent acts without authority or
in excess or beyond the scope of his authority, such act shall
be unenforceable, unless it is ratified, expressly or impliedly, by
the principal before it is revoked by the other contracting party.
** Performance of agency more advantageous to principal
– agent is not deemed to have exceeded the limits of his
authority since he is authorized to do such acts as may be
conducive to the accomplishment of the purpose of agency.
When principal bound by acts of agent beyond his powers
**General rule: Principal is not bound by the acts of agent
beyond his limited powers, except:
1. Where his (principal’s) acts have contributed to
deceive a third person in good faith;
2. Where the limitations upon the power created by him
could not have been known by the third person.
3. Where the principal has placed in the hands of the
agent instruments signed by him in blank.
4. When the principal has ratified the acts of the agent.
** If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has
contracted; neither have such persons against the principal.
** agent is one directly bound in favor of the person with whom
he has contracted, as if the transaction were his own, except
when the contract involves things belonging to his principal.
KINDS OF PRINCIPAL
1. Disclosed principal – the other party has notice that
the agent is acting for a principal and of the principal’s
identity.
2. Partially disclosed principal – the other party has
notice that the agent is acting for the principal but has
no notice of the principal’s identity.
3. Undisclosed principal – if the other party has no
notice that the agent is acting for a principal.
Effects if agent acts within the scope of his authority and in
behalf of the principal (disclosed principal)
a) The act is valid
b) The principal alone is liable unless the agent
expressly bound himself.
Effects if one or both principles are absent
a) Agent acts within the scope of his authority but in
(agent’s) own behalf (undisclosed principal)
1) The principal has no right of action against the
person with whom the agent has contracted.
2) The person with whom the agent has contracted
has no right of action against the principal.
3) The agent is the one directly bound in favor of the
one with whom he has contracted as if the
transactions were his own.
**exception: where contract involve things belonging
to the principal, the contract is deemed entered into
between the principal and the third person. This is
necessary to protect the third person against possible
collusion between the principal and the agent.
b) Agent acts in excess of the authority of his
principal and in the principal’s behalf
** The act is unenforceable against the principal or
the person in whose name the contract was entered
into unless the latter ratifies the same.
c) Agent acts in excess of the authority of his
principal and in his own (agent’s) behalf
** The act is deemed to be that of the agent himself or
of the person acting without authority. The contract is
valid only between the agent and the third person.
Agent will be liable thereon in his personal capacity.
An agent selling something belonging to another is
valid provided he can transfer ownership at the time
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of delivery. If not, he can be held liable for breach of
warranty against eviction.
Chapter 2 – OBLIGATIONS OF THE AGENT
General obligations of agent to principal
1) Good faith and loyalty to his trust
** It is the duty of agent to act with utmost good faith
and loyalty for the furtherance and advancement of
interest of the principal. His duty demands him to look
out for the best interests of the principal as against his
own or those of the third person.
2) Obedience to principal’s instruction
** must obey all lawful orders and instructions of the
principal within the scope of authority. If he fails to do
so, he becomes liable for any loss the principal incurs
even if he acted in good faith. However, an agent is
not liable if he violates the principal’s instruction for
good reason.
3) Exercise of reasonable care
** By acceptance, he does agree that he will exercise
reasonable skill and take usual precautions as
reasonably as careful agent would under similar
circumstances. Failure to do so constitutes breach of
his duty.
Specific obligations of agent to principal
1) Carry out agency
2) Answer for damages
3) Finish business upon principal’s death
4) To take care the custody and preservation of goods in
case he declines agency, until an agent is appointed
5) To advance necessary funds
6) Act in accordance with the principal’s instructions
7) Not to carry out agency if execution would result to
loss of the principal
8) Not to prefer his own interest
9) Not to loan to himself
10) To render accounts to principal
11) To distinguish goods by countermarks and designate
merchandise respectively belonging to each principal
– commission agent
12) To be responsible for the acts of substitute
13) Pay interest on funds he has applied to his own use
14) Inform principal of authorized sale on credit
15) Bear the risk of collection, should he receive
guarantee commission
16) Indemnify the principal for damages in failure to
collect credits
17) Answer for his fraud or negligence.
Obligation to carry out agency
- Free to refuse, but once accepted, he is bound to carry out
in accordance with its terms in good faith.
- Not personally liable unless he expressly binds himself.
Obligation to answer for damages
- Any person guilty of fraud(dolo), negligence(culpa),
delay(mora) in the fulfillment of his obligation, shall be
liable for damages.
- The principal is entitled for damages in non-performance
of agent’s obligations. Hence, the principal must prove his
damages and amount thereof.
Obligation to finish business upon principal’s death
- The death of the principal extinguishes the agency.
However, the agent has an obligation to conclude the
business already begun at the time of such death, should
delay entail any danger.
Obligations of person who declines an agency
- If the person declines an agency, he is bound to observe
the diligence of good father in the custody and
preservation of the goods forwarded to him by the owner
until the latter should appoint agent.
** Obligation of the owner if the appointee declines
As soon as practicable:
1. Appoint an agent; or
2. Take charge of the goods
Obligation to advance necessary funds
General rule: Principal must advance to agent, should the latter
so request, the sums necessary for the execution of agency.
Exception: Insolvency of the principal extinguishes the agency,
and will no longer bind the agent to advance such funds even if
there was such a stipulation.
Instructions – private directions of the principal to agent but of
which a third party is ignorant. (known to be secret)
Authority – extent or the limitation of the agent’s power to
represent the principal
Obligation to act In accordance with the principal’s
instruction
1) Duty to obey reasonable and lawful instructions
2) Liability for loss or damage
** in the absence of specific instructions, the agent shall do all
the good father of the family would do as required by the
nature of the business.
Right to disobey principal’s instruction
** agent may disobey where the instruction of the principal
calls for the performance of illegal acts, or when he is
privileged to do so to protect his security interest in subject
matter of the agency.
When agent shall not carry out agency
- Agent must not carry out agency if its execution would
manifestly result in loss or damage to the principal.
He must act for the benefit of the principal and not to
his detriment.
Obligation not to prefer his own interest to those of
principal
- Agency, being a fiduciary relation, the agent has the duty
to be loyal to his principal and to always look out for the
latter’s best interests. If there, being conflict between his
interests and those of the principal, he should betray his
trust by preferring his own, he shall be liable for damages
to the principal.
- Basis of rule: (preventive) to ensure that he places rights
and welfare of the principal above his own in performing
agency.
Obligation not to loan to himself
- Generally, an agent cannot, without special power of
attorney loan or borrow money.
- If expressly empowered to borrow, he may himself be the
lender at current rate of interest.
- However, if he has been authorized to lend, he cannot be
the borrower without the consent of the principal because
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the agent may prove to be a bad debtor due to possible
conflict of interest.
Obligation to render accounts
- It is the duty of the agent to account for and to deliver to
the principal all money and property which may have
come into his hands by virtue of agency.
- If agent fails to deliver and instead converts or
appropriates for his own use the money or property
belonging to the principal, the agent is liable for estafa.
- Any stipulation exempting the agent the obligation to
render accounts of his transactions is void for being
contrary to public policy.
Subagent – person whom the agent delegates as his agent.
** unless prohibited by principal, an agent may appoint a
subagent or substitute.
** principal has the right of action not only against the agent
but also against the substitute.
EFFECTS OF SUBSTITUTION
1. Substitution prohibited. General rule: all acts of the
substitute in such a case shall be void.
2. Substitution authorized. Has the effect of releasing the
agent from his responsibility unless the person appointed
is notoriously incompetent or insolvent. But if the
substitute is designated by the principal, then there is an
absolute exemption of the agent.
3. Substitution not authorized but not prohibited. The
law recognizes the validity of substitution if the same,
beneficial to the principal. If the substitution has
occasioned damage to the principal, the agent shall be
primarily responsible for the acts of the substitute. But the
principal has also the right of action against the substitute.
Liability of two or more agent towards principal
General rule: Each agent is liable only for his own acts or
omissions. If all are at fault, their liability shall be joint.
Exception: The agent’s liability shall be solidary if the
same has been agreed upon. In this case each agent shall
be responsible for the ff:
a) For the non-fulfillment of the agency
b) For the fault or negligence of his fellow agents, except
when the latter acted beyond the scope of their
authority.
** the innocent agent has a right later on to recover from
the guilty or negligent agent
Liability of agent for interest
- The agent who converted to his personal use the funds of
the principal is liable for interest as compensation or
indemnity from the day on which he did so.
- The agent who is found to owe the principal sums after the
extinguishment of the agency is liable for interest from the
date the agency is extinguished.
- It is no longer necessary for the principal to demand since
it is clear from the provision of law that an agent is bound
to deliver whatever he may have received by virtue of
agency.
General Rule: The agent, who acts as such in the name of the
principal, is not personally liable to the party with whom he
contracts.
When agent may incur personal liability
1) When he expressly binds himself
** the agent thereby obligates himself personally and
by his own act.
 2) When he exceeds the limits of his authority without
giving the third person sufficient notice of his (agent’s) Commission Agent Broker
powers. - Maintains a relation not - Merely an intermediary
** By his wrong or omission, he deprives the third only with his principal and between the buyer and
person of any remedy against the principal. But, if the the buyer or seller but the seller and has no
agent gives sufficient notice of his power to third also with the property relation to the property.
persons, neither the principal nor the agent is bound subject matter of - Does not acquire either
by the liability. transaction which is custody or possession
placed in his possession of the thing.
Where third persons are aware of the limits of the agent’s and at his disposal. - Bring together parties to
power the transaction
** If the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the - Receives commission - Earns his pay by merely
contract, it shall be void if the party with whom the agent upon successful bringing the buyer and
contracted is aware of the powers granted by the principal. conclusion of a sale. the seller together, even
However, the agent is liable if he undertook to secure the if no sale is eventually
principal’s ratification. made.
a) If the agent promised to secure the principal’s
ratification and failed, he is personally liable
Liability of commission agent as to goods received
b) If the ratification is obtained, then the principal
- The commission agent shall be responsible for the goods
becomes liable.
received by him in the terms and conditions and as
described in consignment (quantity, quality, and physical
Effect of Ignorance of agent
conditions of goods) unless upon receiving them he
** If the principal appoints an agent who is ignorant, the fault is
should make a written statement of the damage and
his alone and he must suffer the consequences of his acts.
deterioration suffered by the same. This is to avoid liability
Justice demands that the principal should be made
on deterioration and damage of goods.
responsible.
Obligation of commission agent handling goods of the
Scope of agent’s authority as to third persons
same kind and mark
1) Where authority not in writing. Third person holds
- The commission agent who handles goods of the same
the principal liable, to make an inquiry not only as to
kind and mark, which belong to different owners, shall
the existence of the agency but also to the nature and
distinguish them by countermark, and designate the
extent of authority of the agent.
merchandise respectively belonging to each principal. The
2) Where authority in writing. Third person is not
evident purpose is to avoid any possible confusion or
required to inquire further. As far as he is concerned,
fraud. The countermarking is designated to prevent co-
an act of the agent within the terms of the power of
ownership of the goods which is generally not favored
attorney as written is within the scope of the agent’s
upon.
authority although the agent has in fact exceeded the
limits of his actual authority according to the secret
Right of the principal where sale on credit made without
understanding between him and the principal.
authority
Therefore, the principal shall be held liable. This rule
General rule: The commission agent cannot sell on credit.
is necessary to protect third person’s interest.
Exception: with the express or implied consent
When agent’s lack of authority not available as a defense
If such sale is made without authority:
** The third person cannot set up the fact that the agent
1) He may require payment in cash, in which case, any
exceeded his authority to disaffirm his contract not only after
interest or benefit from the sale shall belong to the
the principal has ratified the agent’s acts but even before such
agent.
ratification where he has signed his willingness to ratify. In
2) He may ratify the sale on credit in which case it will
such case, third person can be compelled to abide by his
have all the risks and advantages to him.
contract.
Obligation of commission agent where sale on credit
Presentation of power of attorney or instructions as
authorized
regards agency
- The commission agent who sells on credit must so inform
** As a rule, a third person deals with an agent at his peril.
the principal, with the statement of the names of the
Hence, he may require the agent to produce power of attorney
buyers.
to ascertain the scope of his authority. Third person may also
- If he fails to do so, the sale shall be deemed to have been
ask for the instructions of the principal as regards agency.
on cash basis insofar as the principal is concerned,
- There is a conclusive presumption that the sale has been
Third person not bound by principal’s private instruction
made in cash to prevent the agent from asserting that the
** He is not bound and cannot be affected by the private or
sale was on credit when in fact made in cash.
secret orders and instructions of the principal in the same way
that he cannot be prejudiced by any understanding between
Guarantee commission (del credere commission) –
the principal and the agent.
additional commission received by an agent for the purpose of
insuring to the principal not only the solvency of the debtor but
Factor (Commission Agent) – one whose business is to
also the punctual discharge of the debt.
receive and sell goods for a commission and who is entrusted
** the purpose of guarantee commission is to compensate the
by the principal with the possession of the goods to be sold. He
agent for the risks he will have to bear in the collection of the
may act in his own name or in that of the principal.
credit due the principal.
Commission Agent vs. Broker

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Obligation of the commission agent to collect credits of
principal
- A commission agent who made an authorized sale on
credit must collect the credits due the principal at the time
they become due and demandable.
- If he fails to do so, he shall be liable for damages unless
he can show that the credit could not be collected
notwithstanding the due diligence on his part.
Liability of agent for fraud and negligence
- In case of fraud, the agent is always liable for damages
since there is deliberate intention to cause damages.
- In case of negligence, there is no deliberate intention on
the part of the agent to cause damage to the principal;
hence, the agent’s liability may be mitigated by the courts
particularly if the agency was gratuitous.
Liability of agent for intentional wrong
Quasi-delict or tort may be committed by act of omission.
General rule: The principal is not responsible if the agent’s tort
was intentional rather than merely negligent.
- The reason is that intentional wrong is more likely
motivated by personal reasons than by a desire to serve
or benefit his employer.
- The principal is solidarily liable if the tort was committed by
the agent while performing his duties.
Chapter 3 – OBLIGATIONS OF THE PRINCIPAL
Obligations, in general of principal to agent
1) Complying with the terms of their employment
contract. The principal may be justified in refusing to
perform his part when the agent has already violated
the contract.
2) To deal fairly and in good faith with his agent.
Specific obligations of principal to agent
In the absence of express agreement:
1) To comply with all the obligations which the agent
may have contracted within the scope of his authority
and in the name of the principal.
2) To advance to the agent, should the latter request,
the sums necessary for the execution of agency
3) To reimburse the agent for all advances made by him
provided the agent is free from fault.
4) To indemnify the agent for all the damages which the
execution of agency may have caused the latter
without fault or negligence on his part.
5) To pay the agent the compensation agreed upon, or if
no compensation was specified, the reasonable value
of the agent’s service.
Representation – being the essence of agency, the
obligations contracted by agent are really those of the
principal. Hence, it is incumbent upon the principal to comply
with such obligations provided that the agent acted within the
scope of his authority.
Ratification – is the adoption by a person of a prior act which
did not bind him, but which was done or professed to be done
on his account thus giving effect to the acts as if originally
authorized by him.
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Ratification by the principal
** The agent who exceeds his authority is not deemed a
representative of the principal. Hence, the principal is not
bound unless he ratifies.
Acts that may/may not be ratified
1) Valid/void acts – valid: may be authorized and
ratified; void: cannot be authorized nor ratified.
2) Voidable acts – may be ratified, not inoperative but
imperfectly inoperative.
3) Unrevoked acts – must remain capable of
ratification, can be revoked by the offeror before
acceptance by the offeree.
Agency by estoppel
Estoppel – bar which precludes a person from denying or
asserting anything contrary to that which has been established
as truth by his own deed or representation either express or
implied.
** necessary for the protection of innocent third persons
** solidarity is imposed by law. This means that third person
may demand from either the principal or agent or both, the
payment of damages. Nevertheless, the agent should be
exempt if he acted in good faith.
For an agency by estoppel to exist, the following must be
established:
a) The principal manifested a representation of the
agent’s authority or knowingly allowed the agent to
assume such authority.
b) The third person in good faith relied upon such
representation.
c) Such person has changed his position to his
detriment.
Apparent authority – though not actually granted, the
principal knowingly permits the agent to exercise or holds him
out as possessing.
Authority by estoppel – principal by his culpable negligence
permits his agent to exercise powers not granted to him, even
though the principal may have no notice or knowledge of the
conduct of the agent.
Implied agency distinguished from agency by estoppel
 Implied agency – there is an actual agency. The principal
alone is liable
 Agency by estoppel – the authority of the agent is not
real but only apparent.
** whoever caused the misrepresentation shall be liable to
the third person.
Obligation to advance funds
- The principal must advance to the agent, should the latter
request, the sums necessary for the execution of agency.
- However, the agent shall advance such sums if there was
an agreement to that effect except when the principal is
insolvent.
Obligation to reimburse agent for funds advanced by the
latter
- Should the agent have advanced them, the principal shall
reimburse him, even if the business or undertaking was
not successful, provided the agent is free from all fault.
- The reimbursement shall include the interest on the sum
advanced, from the day which the advance was made.
Obligation to indemnify the agent
- The principal’s obligation to indemnify the agent for
damages sustained by the latter in the execution of the
agency is but a just and corollary to the agent’s obligation
to the principal for damages which the latter may suffer by
reason of non-performance of the agency.
- There should be no fault or negligence on the part of the
agent, for the principal to be liable for such indemnity.
- If there was such fault or negligence, the agent will not be
entitled thereto for reasons of equity.
Right of retention of agent
The agent may retain by way of legal pledge the things which
are object of the agency until the principal:
a) Reimburses him the amount he advanced in the
execution of the agency, and
b) Indemnifies him for all the damages that he sustained
in the execution of the agency.
** However, the agent is not entitled to the excess in case the
things are sold to satisfy his claims and the proceeds thereof
are more than the amount due.
When principals solidarily liable to agency
Requisites:
1) There are two (2) or more principals
2) The principals have all concurred in the appointment
of the same agent
3) The agent is appointed for a common transaction or
undertaking.
** The liability of the principals is solidary for all the
consequences of the agency, that each principal may be sued
by the agent for the entire amount due and not just for his
proportionate share. (Responsibility of agents: proportionate)
** The solidary liability does not exist if the appointment covers
distinct undertakings, or appointment was conferred at various
times by each principal, or the things or services object of the
agency are different.
Rule where two persons contract separately with agent
and principal
When two persons contract with regard to the same thing, one
with the agent, and the other with the principal, and the two
contracts are incompatible with each other, the following shall
be observed:
a) If the thing is a movable – ownership shall belong to:
1) The first possessor in good faith
2) In the absence thereof, the contract with the prior date
shall be preferred.
b) If the thing is an immovable – ownership shall belong to:
1) First registrant in good faith
2) In the absence thereof, the first possessor in good
faith
3) In the absence of both, the one who presents the
oldest title in good faith
Liability to third person of agent or principal who
contracts separately
- Depends on whether the agent acted in good faith or in
bad faith
a) Agent is liable if he acted in bad faith
b) Principal is liable if the agent acted in good faith
Liability of the Principal for the expenses incurred by the
agent
General rule: Principal is liable for the expenses incurred or
advanced by the agent in the execution of the agency since the
acts performed by the agent are actually those of the principal.
Exceptions:
1) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail of
himself the benefits derived from the contract.
** acceptance of benefits is implied ratification
2) When expenses were due to the fault of the agent
3) When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was
not aware thereof
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4) When it was stipulated that the expenses would be
borne by the agent or the latter would be allowed only
a certain sum.
Chapter 4 – MODES OF EXTINGUISHMENT OF AGENCY
Agency is extinguished:
a) By subsequent acts of the parties (by mutual consent
or by unilateral act):
1) By revocation
2) By withdrawal of the agent
b) By operation of law
3) By death, civil interdiction, insanity or insolvency of
the principal or of the agent
4) By dissolution
c) By agreement:
5) By accomplishment of the object or purpose of
agency
6) By expiration of the period for which the agency was
constituted
Continuance and capacity of principal and agent
Agency requires the existence and capacity of both
the principal and agent. Consequently, the death, civil
interdiction, insanity or insolvency of either party terminates the
agency. Any offer previously made by the principal or his agent
becomes ineffective before any acceptance is conveyed to
him.
Civil Interdiction – is a form of disqualification which deprives
the offender during the period of his sentence of the right to
manage his property and dispose such by any act or
conveyance inter vivos.
Dissolution – extinguishes its juridical existence. It is
equivalent to death, being sometimes likened to death of
natural person.
Other modes of extinguishment:
a) Change in business condition
b) Loss or destruction of the subject matter (novation)
c) Loss of qualification of the principal or the agent
d) Change of law
Revocation by the principal
Principal: revocation (power is absolute)
Agent: renunciation
Revocation – the act of the principal of terminating the agency
at will confidence and representation being the foundation of
the contract.
** While the principal has the absolute power to revoke, he
must respond in the damages in those cases wherein not
having the right to do so, he should discharge the agent.
** Principal is liable in damages occasioned by the wrongful
discharge of the agent before the expiration of the period fixed.
Kinds of Revocation
a) Express – orally or in writing
b) Implied – can be implied from the acts of the principal
Renunciation of Agency by agent
Effect: agent resigns
** If there is no contract existing between the parties, or if the
contract is for no fixed or definite period of time, it is terminable
by the agent at will.
** Even in the face of an express contract, the agent has the
power to renounce since the agency relationship is voluntary,
although under such circumstances, his breach of contract
may create a liability for wrongful termination.
Forms of Renunciation
1) Express
2) Implied
Notice of Revocation
a) If the agency has been entrusted for the purpose of
contracting with specified persons, the principal must
give timely notice of the revocation to such third
persons. Without such notice, said third persons shall
not be prejudiced
b) If agent has general powers, revocation of the agency
does not prejudice third persons who acted in good
faith and without knowledge of the revocation. Notice
of the revocation in a newspaper of general circulation
is a sufficient warning to third persons.
** Revocation is in any case binding against third persons
who had knowledge thereof.
Kinds of Implied Revocation
1) Revocation by appointment of new agent. When
new agent is appointed for the same business or
transaction, the previous agency is revoked from the
day on which notice thereof was given to the former
agent.
2) Revocation by direct management of business by
principal himself. If the principal directly manages
the business entrusted to the agent, dealing directly
with third persons.
If the purpose of the principal is just to assist the
agent, the latter’s authority is not deemed revoked.
3) Partial revocation of general power. A general
power of attorney is revoked by a special one granted
to another agent, as regards the special matter
involved in the latter.
Revocation by one of two or more principals
** 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 is so
because their liability is solidary (the act of one is the act of all).
General rule: Principal may revoke an agency at will.
Exceptions:
1) When the agency is created not only for the interest of
the principal but also for the interest of third persons;
2) When the agency is created for the mutual interest of
both the principal and the agent.
When agency irrevocable
a) If a bilateral contract depends upon agency.
b) If the agency is a means of fulfilling an obligation
already contracted.
c) If a partner is appointed manager of a partnership in
the contract of partnership and his removal from the
management is unjustifiable. (act of novation)
Right of agent to withdraw
General rule: the agent may withdraw from the agency at any
time. (applies whether agency is gratuitous or for
compensation)
1) Without just cause – The law imposes upon the
agent the duty to give notice to the principal, and if the
withdrawal is without just cause, to indemnify the
principal should the latter suffer damage by reason of
such withdrawal.
2) With just cause – If the agent withdraws from the
agency for a valid reason, as when the withdrawal is
based on the impossibility of continuing with the
agency without grave detriment to himself, or is due to
a fortuitous event, the agent cannot be held liable.
** The agent who withdraws must continue to act as such until
the principal has had reasonable opportunity to take the
necessary steps to meet the situation, even if he withdraws for
a valid reason.
When death of principal does not terminate agency
General rule: The death of the principal extinguishes the
agency.
Except:
1) If the agency has been constituted in the common
interest of the principal and the agent. (agency
coupled with interest)
2) If it has been constituted in the interest of a third
person who has accepted the stipulation in his favor.
(stipulation pour autrui)
Validity of acts of agent after death of principal
** The acts of the agent which are done without knowledge of
the death of the principal or any other cause which
extinguishes the agency are valid and shall be fully effective
with respect to third persons who may have contracted with
him in good faith.
Duty of agent’s heirs to protect interest of principal
** The death of agent extinguishes the agency.
a) To notify the principal of the agent’s death.
b) To adopt in the meantime such measures as the
circumstances may demand in the interest of the
principal.

Agency coupled with an interest

- Cannot be terminated at the sole will of the principal
although it is so revocable after the interest ceases.
- In order that an agency be irrevocable, it is essential
that the interest of agent shall be the subject matter of
the power conferred and not merely an interest in the
exercise of power because it entitles him to
compensation therefor.
- means of reimbursement or indemnity.

SALIENDRES 2018│LAW ON SALES, AGENCY AND CREDIT TRANSACTIONS│Soriano-De Leon