Agency KAMM | 2018

AGENCY, TRUST & PARTNERSHIP

CASE: Principal asked Agent if he knows someone who wants to buy a car.
AGENCY There was no response from A. However, Agent begins to look for buyers.
-a person rendering service to another person AGENT found one and transacts the same using his name as the seller. Will
P be bound by such sale?
E.g. SPA & Regular Authorizations Answer: It depends. Consider the actuations of the parties such as an
implied authorization where Principal did not object or if there is a
TRUST subsequent ratification. However, Agent must always act within its scope
-a person is in possession of a property of another person of authority and instructions of the Principal.

1. Equitable Title - Paper only Note: CONTROL is an important aspect of a contract of agency.
2. Legal Title - Really owns the property
CHARACTERISTICS OF AGENCY
E.g. TRUST FUND (ni Jeric)
-The parents will set a fund that can only be opened by the child on a 1. Nominate – the contract is perfected through mere consent of
certain age the parties
-The fund is administered or handles by another person 2. Principal – because it can stand on its own
-The trustee can use the property but for the benefit of the 3. Consensual – both parties must agree, whether implied or
beneficiary, such as when the trustee makes revenue or fruits, such express
shall be owned by the beneficiary 4. Unilateral & Primarily Onerous – because the bulk of the
obligation falls under the agent
Q: What is Implied Trust? 5. Bilateral – because the principal will pay the expense made by
A: Transactions made to appear that you are the owner but in reality it is the agent
another person’s 6. Fiduciary – it is based on trust and confidence
7. Revocable – anyone can revoke the contract
PARTNERSHIP
-putting up a business but not capable of putting up a corporation CONSEQUENCES
-when one cannot do it on his own
-a person looks for other people who can contribute capital and/or Agent is still considered as a Stranger
services
Q: A was authorized to sell the property of Principal to T on an installment
basis. However, T defaulted. Is A authorized to file a suit?
A: No. Because he is only authorized to sell. Once the purpose of the
AGENCY contract of agency is fulfilled, the contract ceases.

DEFINITION
Article 1868
By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or
authority of the latter.
There is a person who binds himself to act in behalf of another person.
He will only act for and in behalf of the principal as long there is the
consent or authority of the principal
NOTE:
 There must be another contract to authorize A to file a suit
against T. In case A wants to appeal in behalf of P, there would
be another authorization for A to appeal in behalf of P.
 General Authorizations allows only acts of administration and
NOT acts of Dominion (such as to file a suit and/or sell a land)
Art. 1877. An agency couched in general terms comprises only acts of administration,
even if the principal should state that he withholds no power or that the agent may
execute such acts as he may consider appropriate, or even though the agency should
authorize a general and unlimited management.

Employer-Employee- not an agency, one of the important characteristics Art. 1880. A special power to compromise does not authorize submission to
of an agency is control. An agent acts without the control of the Principal arbitration.

There is also a juridical act involved in an agency General Rule:

Art 1317: A person is prohibited from entering a contract in the name of another
person without the authority of another person--- effect of the contract: unenforceable
contract
Effect of contract of agency: An agent is given the power to contract with
3rd persons in behalf of the partner.
Employee, Independent Contractor, Service --- Does not bind the
Employer, Servant ---No agency to talk about
Knowledge of the Agent is considered knowledge of the Principal
Exceptions:
(1) If the Agent’s interest is adverse to those of the principal
(2) Where the Agent’s duty is not to disclose the information
because the information is confidential (E.g. defraud)
MEMBERS OF THE BOARD
-members of the board cannot be represented by a proxy/agent because
of the nature and characteristics of their acts
-the acts of the board may greatly affect and risk the company

DOCTRINE OF REPRESENTATION CRIMINAL ACTS are illegal or void in a contract of Agency. Thus, both the
-the act of the agent within the scope of authority shall have the same legal Agent and Principal will be liable.
effect and consequences as if the principal is the one performing it
THOSE WHO ARE NOT ALLOWED TO FORM A CONTRACT OF
Q: Is it important to expressly say “I authorize you”? AGENCY
A: It depends.

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Article 1491
The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been intrusted
to them; this provision shall apply to judges and government experts who,
in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in which they
may take part by virtue of their profession.
(6) Any others specially disqualified by law.
ELEMENTS
I. Two (2) Essential elements:
(1) Consent
(2) Object
*Compensation is presumed
II. Additional Elements
(3) The Agent must act as a representative
(4) The Agent must act within the scope of its authority
*Otherwise, it will be voidable
NOTE: Article 1883-1898
Art. 1883. If an agent acts in his own name, the principal has no right of action against
the persons with whom the agent has contracted; neither have such persons against
the principal.
In such case the agent is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal.
The provisions of this article shall be understood to be without prejudice to the actions
between the principal and agent. (1717)
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. (1718)
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 or take charge of the goods. (n)
Art. 1886. Should there be a stipulation that the agent shall advance the necessary
funds, he shall be bound to do so except when the principal is insolvent. (n)
Art. 1887. In the execution of the agency, the agent shall act in accordance with the
instructions of the principal.
In default thereof, he shall do all that a good father of a family would do, as required by
the nature of the business. (1719)
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Art. 1888. An agent shall not carry out an agency if its execution would manifestly
result in loss or damage to the principal. (n)
Art. 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own. (n)
Art. 1890. If the agent has been empowered to borrow money, he may himself be the
lender at the current rate of interest. If he has been authorized to lend money at interest,
he cannot borrow it without the consent of the principal. (n)
Art. 1891. Every agent is bound to render an account of his transactions and to deliver
to the principal whatever he may have received by virtue of the agency, even though it
may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall
be void. (1720a)
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the person
appointed was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall be void.
(1721)
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal
may furthermore bring an action against the substitute with respect to the obligations
which the latter has contracted under the substitution. (1722a)
Art. 1894. The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated.
(1723)
Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the
non-fulfillment of agency, and for the fault or negligence of his fellows agents, except in
the latter case when the fellow agents acted beyond the scope of their authority. (n)
Art. 1896. The agent owes interest on the sums he has applied to his own use from the
day on which he did so, and on those which he still owes after the extinguishment of the
agency. (1724a)
Art. 1897. The agent who acts as such is not personally liable to the party with whom
he contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers. (1725)
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to secure the
principal's ratification. (n)
NOTE: There must always be AUTHORIZATION & ACCEPTANCE
CAPACITY
Q: Is it necessary that both Partners (Agent & Principal) are both
capacitated?
A: Only the Principal must possess the capacity to contract.
★ QUIZ!
General Rule: Capacity of the Agent does not affect the Contract of
Agency.
Q: What about the contract between the Agent and the third person?
A: Merely VOIDABLE.
Q: What about the contract between the third person to the next?
A: VALID
Agency KAMM | 2018

1. General -agency comprises all the business of the

General Rule: Both Agent + Principal must be capacitated in order that principal
the contract of agency be valid 2. Special -agency comprises one or more specific
transactions
1st contract: Principal + Agent D. As to authority conferred
2nd contract: Agent + 3rd person 1. Couched in general terms -agency is created in general
terms and is deemed to comprise only acts in the name
What are the effects when: and representation of the principal
2. Simple or Commission -agent acts in his own name but
Q: Either or both is/are incapacitated? for the account of the principal
A: Contract of Agency is merely VOIDABLE
Art. 1869. Agency may be express, or implied from the acts of the principal, from his
Q: If A is incapacitated, Principal is capacitated silence or lack of action, or his failure to repudiate the agency, knowing that another
A: The 2nd contract is VALID since the A is merely a representative person is acting on his behalf without authority.

Q: If Principal is incapacitated and A is capacitated Agency may be oral, unless the law requires a specific form.
A: The contract is merely VOIDABLE
Art. 1870. Acceptance by the agent may also be express, or implied from his acts which
 When the minor attains the age of capacity, the fault ceases carry out the agency, or from his silence or inaction according to the circumstances.

Q: If both are incapacitated Article 1871 Between persons who are present, the acceptance of the agency may also
A: The contract is VOID be implied if the principal delivers his power of attorney to the agent and the latter
receives it without any objection
MODES OF EXTINGUISHMENT OF AGENCY
Article 1872. Between persons who are absent, the acceptance of the agency cannot
be implied from the silence of the agent, except:
Article 1919
(1) When the principal transmits his power of attorney to the agent, who receives
Agency is extinguished: it without any objection;
(1) By its revocation; (2) When the principal entrusts to him by letter or telegram a power of attorney
(2) By the withdrawal of the agent; with respect to the business in which he is habitually engaged as an agent, and he
(3) By the death, civil interdiction, insanity or insolvency of the principal or of did not reply to the letter or telegram.
the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted
the agency; When they are absent
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted. General Rule: Absent – No implied consent
(1732a) Exceptions:
1. Without objection and
If during the course of the contract, one or both of them becomes 2. When an SPA was sent by letter/telegram
incapacitated, the contract is EXTINGUISHED/VOID.
Case: Principal emailed to his Real Estate Broker an authorization to take
However, if the 2nd contract is made before the incapacity, the 2nd contract care of his properties in the Philippines. The REB received the letter
is still VALID. however, there is no response from the REB. Hence, Principal can consider
that as implied consent.
If the 2nd contract is made during the incapacity of either A or P, Principal
can directly transact with the 3rd person. Q: However, if his property was not taken care of. Can the Principal sue his
friend, the REB?
Article 1875. A: No, because there was no acceptance from REB. Thus, it is not safe to
Agency is presumed to be for a compensation, unless there is proof to the contrary. assure acceptance.

CLASSIFICATIONS OF AGENCY IMPLIED

A. As to manner of creation AGENCY BY ESTOPPEL (Article 1873 & 1911)

1. Express -agent has been actually authorized by the
principal, either orally or in writing Article 1873
2. Implied -agency is implied from the acts of the principal, If a person specially informs another or states by public advertisement that he has given
from his silence or lack of action or his failure to repudiate a power of attorney to a third person, the latter thereby becomes a duly authorized
the agency knowing that another person is acting on his agent, in the former case with respect to the person who received the special
information, and in the latter case with regard to any person.
behalf without authority, or from the acts of the agent
The power shall continue to be in full force until the notice is rescinded in the same
which carry out the agency, or from his silence or inaction manner in which it was given.
according to the circumstances
B. As to character General Rule: Principal gives authority to A and when the latter receives
1. Gratuitous -agent receives no compensation for his such, there is already a contract of agency.
services
2. Onerous -agent receives compensation for his services
C. As to extent of business of the principal

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An agency is either general or special

SIASAT v. 139 SCRA 238

There is another classification aside from General and Particular. There is the
Universal classification which encompasses all, which the Principal not only
authorizes business transactions but personal transactions as well. It authorizes
everything pertaining to the business transactions.
CASE: When the Principal goes to the 3rd person and told him that A has
the possession of his car. However, A was not directly informed about the
contract of agency. The agent can still directly deal with the 3rd person and
the contract is valid.
SPECIAL or PARTICULAR
-particular acts
-you limit the acts of the Agent to a specific purpose
Q: Can a Special Act be encompassed to a general one?
A: No.
General Rule: In a contract of agency, the Prinicpal only authorizes
general acts of administration. (E.g basically look after the land)

Q: What if the Principal decides not to sell his car anymore, who should he Thus, to authorize the agent for acts of dominion, an SPA is needed.
inform?
A: The 3rd person. GENERAL vs. SPECIFIC

Q: Why not the agent? Art. 1876. An agency is either general or special.
A: Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers. The former comprises all the business of the principal. The latter, one or more specific
This kind of conversation will make it appear that the Agent is fully transactions
authorized to make any transaction in representation of the personality of
the Principal: General: Lahat pwede mong gawin however, it is strictly construe acts of
A: “Yes I am the agent” “For your car” administration
P: “Okay bahala ka na” Specific: Yun lang pwede mong gawin.
-Acts of Dominion
-Extra Ordinary
283 SCRA 374 -Very Specific.
-The Obligation of 3rd Parties is to ASK the authorization from the Agent because
you are dealing with risks.
-The minimum requirement is due diligence. He must demand WRITTEN OBLIGATIONS of 3rd PERSONS
AUTHORITY from the Principal because it might turn out that the agent may
not be authorized because if the contract o VOID you cannot run after the Q: How do you tell if there is good faith on the part of the 3rd person?
Principal. A: If they rely on a Power of Attorney & entered into a contract.
-Therefore, you should protect yourself.
Q: What if wala? Like Oral Contract?
A: Look personally for the Principal if you can and ask if there is an
However, this can still be questioned because even if it is couched in authority from him.
general terms, it is understood that the agent is ONLY authorized to do
acts of administrations and not acts of dominion. What is a Power of Attorney?
-an instrument in writing by which the Principal appoints another as its

ELEMENTS NAGIAT v. CA 421 SCRA 592

1. Manifest representation of authority/knowingly allowed..
2. Third person is in good faith and relied on the representation
3. Relying on the representation
If it is the agent who professed, he is estopped from denying against the
Principal and the 3rd person. Therefore, he can be liable against the
Principal and the 3rd person.
If the Agent presents to the whole world that he is the agent and later on
the principal stated that he authorized the agent but not to sell, and still
the 3rd person buys, the Principal can prove that A acted outside his
authority.
However, if the Principal is the one acting that A is his agent and receives
benefit, he is estopped from denying such. Therefore, he is liable for the
contract.
The 3rd person should always manifest good faith.
ANOTHER CLASSIFICATION
Article 1876
One who clothes another with apparent authority as his agent, and holds him out
to the public as such, cannot be permitted to deny the authority of such person to
act as his agent, to the prejudice of innocent third parties dealing with such person
in good faith, and in the honest belief that he is what he appears to be.
Agent and conforms upon him acts on his behalf
-it is the “Paper” that executes
Q: How should it be construed?
A: STRICTLY. Kung anong nakasulat sa contract, the agent cannot go
beyond. Again, if general, construe it as if only Acts of Administrations are
allowed.
Article 1878
Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in existence at the
time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to
appeal from a judgment, to waive objections to the venue of an action or to
abandon a prescription already acquired;
(4) To waive any obligation gratuitously;

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(5) To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those made to employees
in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable
for the preservation of the things which are under administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)
-specific transactions that must be encompassed by an SPA
-the SPA clearly specifies one’s act
Q: Should it be NOTARIZED?
A: NO, because it is a contract between the Principal and the Agent.
Therefore, as to both of them, the contract is VALID.
VELOSO v. CA 260 SCRA 593
Documents acknowledged before a notary public have the evidentiary weight
with respect to their due execution. The questioned power of attorney and deed
of sale, were notarized and therefore, presumed to be valid and duly executed.
Q: It the SPA necessarily in WRITING?
A: No.
Home Insurance Co. v. USA 21 SCRA 863
The SPA need not be in Writing. However, it must be established by sufficient
evidence.
Note: However, a purchase of land should always be in an SPA!
Art. 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
There must only be 14 enumerations on Article 1878 because the 15th is
“others”. Among the 15 enumerations, walang “personal property”.
The PURPOSE is to safeguard yourself, pwede kang mag execute ng SPA.
Article 1878(1)
To make such payments as are not usually considered as acts of administration
-An SPA is needed when the act is not in the ordinary course of
business.
CASE: If the business is Buy & Sell of cars. Under A1878, an SPA is
needed if there should be a purchase of land for the business.
Q: Is there a need for Real Estate Broker to secure an SPA?
A: No, because it is part of the ordinary course of business. So, in a
food business, you need an SPA. Because selling of land is not part of
the ordinary course of business.
Article 1878(2)
To effect novations which put an end to obligations already in existence at the
time the agency was constituted
-extinguishment of the obligation by creation of a new one/contract
Novation -is the act of: replacing an obligation to perform with
another obligation; or, adding an obligation to perform; or,
replacing a party to an agreement with a new party
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-in order to allow an Agent to transact when you novate the old one,
create an SPA
Article 1878(3)
To compromise, to submit questions to arbitration, to renounce the right to
appeal from a judgment, to waive objections to the venue of an action or to
abandon a prescription already acquired
-if you want to compromise, arbitrate, etc... you need an SPA
-it includes confession of judgment
Article 1878(4)
To waive any obligation gratuitously
De Leon: For these specific acts, you must enumerate such acts or
what particular acts you want your agent to do
VillanuevA: if you are authorized to compromise, you don’t need to
write/put the power to renounce, appeal, or waive because it is already
IMPLIED
However, the problem is, when you only authorize an “compromise”
and the action taken was different, you cannot take actions different
from what is authorized to you
Q: Why is it prohibited to waive an obligation?
A: Because the 3rd person will no longer pay the obligation, thus it
will prejudice the Principal.
Case: Loan of 100k. Principal said that he allows A to collect from X.
However, when X said “Pwede bang kwits na lang?”, the agent agreed.
The court said that the Agent is now allowed to do this because it is
beyond its scope of authority. Hence, an SPA is required.
Q: What if the Agent still condones?
A: Then the Principal can run after the Agent.
Q: Even if there is no SPA, can he waive because there is still
consideration?
Case: Loan 100k. “Pwedeng 50 ka na lang?”
A: The Agent cannot waive such, it would be the same as waiving the
whole obligation.
Q: Is there an exception?
A: Yes, if the power is within the scope of authority given to him.
(E.g. Usual course of business)
Article 1878(5)
To convey or acquire immovable (other than land)
(a) Acquisition/Purchase
(b) Transfer/Sale
While 1878 says sale and purchase, specifically, 1874 prohibits
“SALE” only.
Article 1878 (Unenforceable)
It is only unenforceable because a piece of land is more valuable
Agency
EXCEPTION: Ordinary Course of Business
NOTE: On a Sale of Land , Article 1874 will always apply
CONTRACT OF EXCLUSIVE AGENCY
A contract authorizing only one agent to act or sell for that Principal.
It is the only one who is authorized to look for buyers for this person.
A contract of Exclusive Agency is IRREVOCABLE. Thus, if the
contract provides that the agency is for a period of one year, such
contract is irrevocable for such period.
Q: Is the Principal precluded to look for buyers on his own?
A: No. The purpose is to represent or to help the Principal. Thus, the
Principal can still do the acts for himself. “Hindi porket may contract
ka, hindi mo na kayang gumalaw para sa sarili mo” *awe*
Q: The Principal authorized the Agent to sell. A sold to X. However, P
sold to Y (a different person), the following day. Who owns the
property?
A: It depends. The person who first to possess (personal) or to
register (real). Because the Principal will always be bound to the acts
of the Agent. Therefore, in this case, if the property is a real property,
and X first registers it, X owns the property.
Art. 1916. When two persons contract with regard to the same thing, one of
them with the agent and the other with the principal, and the two contracts are
incompatible with each other, that of prior date shall be preferred, without
prejudice to the provisions of Article 1544.
Art. 1917. In the case referred to in the preceding article, if the agent has acted
in good faith, the principal shall be liable in damages to the third person whose
contract must be rejected. If the agent acted in bad faith, he alone shall be
responsible.
Q: Is it valid if the written authorization is through
EMAIL/ELECTRONIC/DIGITAL?
A: Yes. “Because 19-kups pa ang Civil Code” –Judge Cualing, 2018
Article 1878(6)
To make gifts
An SPA is necessary because the Principal has its own free will to give
something gratuitously
EXCEPTION: Customarily for Charity. However, you cannot just
choose anything to give. It must be the customary item or property.
Q: What if there is no SPA?
A: The act is unenforceable, governed by the Law on Donation not
under the laws on the Contract of Agency.
Article 1878(7)
To loan or borrow money
Q: Why does it become an act of Dominion?
A: Because if the agent is authorized to lend, it will deprive the
Principal of possible income (e.g. low interest) and if the agent is
authorized to borrow, the Principal will bound by an obligation and
a liability.
Q: What if the agent still lends?
A: The act is unenforceable.
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Case: P authorizes A to lend 100k with 10% interest rate. However,
PAHUD v. Court of Appeals
The authority to sell where the authority is given verbally is VALID despite the
provisions under Article 1874.
General Rule: The authority of an agent to execute a contract of sale of real estate
must be conferred in writing and must give him specific authority, either to
conduct the general business of the principal or to execute a binding contract
containing terms and conditions which are in the contract he did execute. A
special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for
a valuable consideration. The express mandate required by law to enable an
appointee of an agency in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent to sell real estate, a
power of attorney must so express the powers of the agent in clear and
unmistakable language.
A agreed with X to lower the interest rate down to 5%. The contract
will be unenforceable and the Principal has the right to demand for
the deficiency from A.
Q: Can A become the borrower himself?
A: No, unless there is a consent from the Principal, in other words, if
the Principal allows A to be the borrower.
Q: If A is authorized to borrow 100k with 5% interest rate. Can he
become the lender? And what if he enforced a higher interest rate of
10%?
A: The contract is unenforceable.
Q: What happens to the interest?
A: The interest rate will only be 5%, because that is the authorized
interest rate.
Therefore:
(a) If A is authorized to Lend: He can borrow with consent.
(b) If A is authorized to Borrow: (i) A can be liable for damages in
some cases and (ii) A can become the lender at the legal rate or
at the authorized interest rate.
Article 1878(8)
To lease realty for more than one (1) year
Q: What is a year?
A: Civil Code: 365 Days.
Q: What if the lease is for a personal property?
A: It depends. Acts of Admin if it is in the Ordinary Course of business.
Otherwise, an SPA is needed under Article 1878(15)
Article 1878(9)
To bind the principal to render service gratuitously
Q: If there is no SPA, and X asked the agent to contract a service for
the Principal for 1 million (with compensation). Can the Principal be
bound by the act of the agent?
A: No, you still need an SPA. Because, if P cannot perform such
obligation, he will be prejudiced.
Article 1878(10)
To bind the principal in a contract of partnership
Because you bind or donate money, property and skills for the
business for the intent to distribute profits. Moreover, there has to be
Agency
a FIDUCIARY RELATIONSHIP to enter into a contract of partnership.
In such case, you will bind yourself with a person you may not
TRUST.
Therefore, the Principal can continue or remove himself from such.
Caveat: The next few kwas might be sketchy, gamin syak ag recit awan pay old
testament. Apay ngay apo?!
Article 1878(11)
To obligate the Principal as Guarantor or Surety
Because the power to create a contract of suretyship or guaranty
cannot be inferred, it must be expressed. Thus, the need of an SPA.
Q: Otherwise, what is the effect without an SPA?
A: It is unenforceable.
Article 1878(12)
To create or convey real rights over immovable property belonging to
his principal without special power
This is different with Article 1878(5). Because Article 1878(12) talks
about real rights such as mortgage/usufruct/etc. Thus, if there is a
contract of loan, there is a need for another contract.
Article 1878(13)
To accept or repudiate an inheritance
Because you cannot presume or assume that the Principal will
accept the inheritance. Hence, a need for an SPA.
Article 1878(14)
To ratify obligations contracted before the agency
Because there might be defects in the previous contracts which
would prejudice the Principal and/or the Agent if it will
subsequently bind them. Thus, without an SPA, such contracts will
be unenforceable.
Article 1878(15)
Any other act of strict dominion
AUTHORITY
The right of the agent to bind the principal to legal relations through the
performance of acts pursuant to the acts consented by the Principal
The right of an agent to effect the legal relations of the principal by the
performance of acts in accordance with the principal’s manifestation of
consent to him.
This is when an authorization is given to an agent; this is the start of the
legal relations between the principal and agent where agent must
perform acts in accordance to the will of the principal.
Kinds of Authority:
Express – when it is directly conferred by words, either orally or in
writing
Implied – when it is incidental to the transaction or reasonably necessary
to accomplish the main purpose of the agency
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Apparent or Ostensible – when it is conferred by words, conduct or even
by silence of the principal which causes a third person reasonably to
believe that a particular person, who may or may not be the principal’s
agent has actual authority to act for the principal. Another name for
authority by estoppels
General – when it refers to all business of the principal
Special – when it is limited only to one or more specific transactions
Emergency or authority by necessity or by operation of law - an
authority which is demanded by necessity or by virtue of the existence of
an emergency or unexpected situation that requires prompt action by the
agent and the principal cannot be reached in sufficient time for advice or
instruction.
Case: A principal directed an agent to keep the Principal’s property inside
the building and to not bring it out. Then, nagkasunog. However, there is
no way for the agent to contact the principal on what to do with the
property. This is an emergency case where the Agent without contacting
the Principal may bring out the property, as opposed to the instructions
given to him.
Otherwise, it will defeat the very purpose of the instructions given to the
Agent.
SUMMARY OF THE EFFECTS OF THE ACTS OF THE AGENT BASED
FROM THE FUNDAMENTAL PRINCIPLES: (I just kopya datuy nga kwa
from the Old Testament)
1. If the agent acts with authority and in behalf of the principal,
therefore the acts are valid and the principal is bound and the agent
is not personally liable UNLESS he binds himself to be solidarily liable
with the principal.
If he acts within the scope of his authority and in representation of
his principal, therefore if there are liabilities arising from
transactions entered by an agent the principal will be the one who
will be solely liable and the agent will not have responsibility UNLESS
he binds himself.
2. if the agent acts within the authority but in behalf of himself or for
himself
For example he was favoring himself or he favors his interest over
that of the principal or he will act or transact the business in his favor
or interest; the transaction will benefit him not the principal
Effect under article 1883 the acts or contracts entered into are
generally not binding on the principal therefore the agent and the
third persons are the only parties liable in the transaction except if
the thing belongs to the principal
3. If the agent acts without authority but in behalf of the principal or for
the benefit of the principal
While the acts are unenforceable, it may be ratified by the principal
therefore; once it was ratified it will already be binding on the
principal.
Agency
4. If the agent is acting outside or without authority and in his own
behalf, but the act here is valid whether or not the subject matter
belongs to the principal
Provided however that at the time of the delivery of the goods that
was the subject of the transaction, the agent can transfer legally the
ownership of the thing however, since it is to the prejudice of the
principal, the principal can still run after the agent for damages.
What happens if the agent does not have possession of the goods at
the time of delivery therefore, he will not only be liable to the
principal but also to the third persons for damages that will be
incurred.
MAIN OBLIGATIONS OF THE AGENT
1. Refusal
On the part of the Agent: Take care of the Property for a
reasonable time
On the part of the Principal: To look for another agent or to get
the property from the Agent himself. Otherwise, the Agent shall
deposit the property to the courts.
2. Accept
a. Diligence - once an agent accepts the appointment he is
obliged to comply with the duty of diligence and care
b. Loyalty - The contract of agency is FIDUCIARY in
character therefore; there must be trust and confidence
not only on the side of the agent but also in the side of the
principal.
Article 1881
The agent must act within the scope of his authority. He may do such acts as may
be conducive to the accomplishment of the purpose of the agency.
Article 1882
The limits of the agent's authority shall not be considered exceeded should it have
been performed in a manner more advantageous to the principal than that
specified by him.
The Agent must remember that all of his doing must be for the
benefit of the Principal
Article 1888
An agent shall not carry out an agency if its execution would manifestly result in
loss or damage to the principal.
Article 1887
In the execution of the agency, the agent shall act in accordance with the
instructions of the principal.
In default thereof, he shall do all that a good father of a family would
do, as required by the nature of the business.
INSTRUCTIONS
Instructions are private directions which the principal may give the
agent in regard to the manner of performing his duties as such agent but
of which a third party is ignorant. They are said to be secret if the principal
intended them not to be made known to such party.
Case: Principal instructed (not through an SPA) his agent to sell a car.
Another instruction was to make it a “rush” sale.
Q: Can the Agent sell in installments?
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A: No, because the authority given is instructed.
Q: What if the Agent still sold the car in installment basis. Will the Principal
be bound by such transaction?
A: It depends. If the 3rd person is in Good Faith then the Principal is bound,
otherwise, if he knows that there is a “special” instruction.
Q: What is considered acting within the scope of authority?
A: All REASONABLE and LAWFUL acts even if it is capricious or unwise.
Because the Agent is not allowed to think.
Q: What if the Agent invests in a Stock Market, even if the interest is better,
on the principle that is it of the advantage of the Principal, however he is
not authorized to do so. What shall be the effect?
A: A’s acts will be considered acting beyond its authority.
ACTS OF DILIGENCE
There can be departure from the instructions of the Principal if there is
already (1) loss, (2) emergency, (3) something you cannot call, (4)
ambiguous instructions, (5) or such unsubstantial departure from the
instructions will not have any effect on the results (if wala namang
magbabago sa resulta)
DUTY OF LOYALTY
Q: How do you show Loyalty?
A: In case there is conflict with the interest of the Agent and Principal. You
must put the interest of the Principal first.
Otherwise, he will be liable for damages and the transaction with the 3rd
person is VALID.
Case: The Principal instructed the Agent to sell his property in cash.
However, the Agent sold it on installment and the interest shall accrue to
the Agent.
Q: Can the Principal run after the interest?
A: Yes, if there is no notification. Including damages because, there is
breach of duty of Loyalty.
These are called “SECRET PROFITS”. Secret Profits are given freely and
directly to the Agent by the Vendee, as a form of price or bonus.
General Rule: The Agent has the duty to give the Profit to the Principal.
Exceptions:
1. When the Agent notifies in advance and the Principal did not
object.
2. When the Agent acts as the middleman/broker. Because the
Principal only states that the Agent shall look for buyers and the
Principal transacts.
3. When the Agent has an interest or lien on the transaction. That
sometimes when the Agent may use his money (which he is not
supposed to do), he can say that the extra profit is a Lien.
CLAW BACK DOCTRINE
The Doctrine came from the “Corporation Law or Code” that is applied to
the Law on Agency.
If the Agent acts behind the Principal and gets to fulfill the transaction, the
Principal has the right to demand return the property from the Agent.
Agency
Article 1883
If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted; neither have such persons against
the principal.
In such case the agent is the one directly bound in favor of the person with whom
he has contracted, as if the transaction were his own, except when the contract
involves things belonging to the principal.
The provisions of this article shall be understood to be without prejudice to the
actions between the principal and agent.
Q: How do you determine if the Agent is acting with Loyalty?
A: The Agent must act within the scope of its authority. Otherwise, the
transactions will be unenforceable, subject to Ratification. But if he says
that he doesn’t want to continue, the 3rd person and the Principal cannot
run from each other.
Article 1491, 1890 and 1878 provides for the manifestations of the
performance of the duty of Loyalty.
Article 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;
(2) Agents, the property whose administration or sale may have been entrusted
to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution,
the administration of which has been intrusted to them; this provision shall apply
to judges and government experts who, in any manner whatsoever, take part in
the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts,
and other officers and employees connected with the administration of justice,
the property and rights in litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.
(6) Any others specially disqualified by law.
Article 1890. If the agent has been empowered to borrow money, he may himself be
the lender at the current rate of interest. If he has been authorized to lend money at
interest, he cannot borrow it without the consent of the principal.
Article 1891
Every agent is bound to render an account of his transactions and to deliver to
the principal whatever he may have received by virtue of the agency, even though
it may not be owing to the principal.
Obligation to render an account.
Not only with the respect to the profits, but all kinds of transactions.
Everything must be known to the principal.
General Rule: Kasi lahat ng kita (profits), it belongs to the Principal.
Any profits derived from the transaction, the benefits will be given to
the Principal.
Exception: Allowed Secret Profits. However, if the Principal does not
allow secret profits, hindi talaga pwede.
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SINGCUCO SUNG YANG
The Agent was transacting to buy a property for the Principal. Later on, he finds
one but said to his wife “Ikaw na lang bumili sa property”. The Principal came to
know that his Agent went behind his back. Thus, the Principal was able demand
from the Agent to give the transaction to him instead because the interest of the
Agent was put first.
If however, the Agent who puts his interest first had suffer some loss, the Duty of
Loyalty shall not be followed. (e.g. The agent was sick and he cannot do the
instructions immediately)
Article 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.
Q: In what instances that the Agent can continue despite of the death
of the Principal?
A: If it should entail any danger.
Case: The agent binds himself in a transaction concerning the
construction of the building with a 3rd person. Despite the death of
the Principal, the transaction can continue. Because for example, the
construction of a building if discontinued, it entails a danger.
Article 1886
Should there be a stipulation that the agent shall advance the necessary funds, he
shall be bound to do so except when the principal is insolvent.
Q: Can an Agent use his own funds?
A: Will only come in when there is an agreement at the start of the
Contract of Agency.
Rule: The Agent is not obliged to bring out money. All expenses must
come from the Principal because the Agent must protect his own
interest.
If the Agent is paid by the borrower and he hasn’t returned the
money to the Principal, subsequently he used it, the money will start
to earn some interest. The Agent has the Duty to Return the Money
to the Principal. Otherwise, he is liable to pay any interest and
damage that it may incur.
SUBSTITUTE AGENCY
Article 1892
The agent may appoint a substitute if the principal has not prohibited him from
doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person,
and the person appointed was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall
be void.
Article 1893
In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may
furthermore bring an action against the substitute with respect to the obligations
which the latter has contracted under the substitution.
Q: Can an Agent appoint a sub-agent?
Agency
A: Yes, if there is no specific prohibition under the contract of Agency.
Hence, if the Principal only says ‘I authorize you’, the Agent may appoint a
Sub-Agent.
Q: Is it automatic that the all the acts of the Sub-Agent will be for the
Principal?
A: Yes, if it is within the scope of its authority given by the Principal.
Rule:
1. If there is an express agreement to appoint a “specific” agent,
the effect is that all the transactions by that agent are VALID.
2. If there is no specific authorization or designation, the
transactions are VALID as long as it is within its scope of
authority and as long as it is for the benefit of the Principal.
However, if the Sub-agent is notoriously incompetent, the Agent
will be primarily liable of the transaction or the Subagent will
be primarily liable and the Agent as subsidiary liable.
Thus, if the Agent is authorized to appoint, he must see to it that
the Subagent is also competent.
3. If there is no prohibition and in the event that the Subagent acts
outside the scope of its authority:
a. The Principal will be bound if he is benefitted through
Ratification
b. However, if the Subagent had some violations, the
Principal can hold both the Subagent and the Agent liable
c. Lastly, if the Subagent did not violate anything but there
are some problem with the transaction, the Agent will be
liable and the 3rd person can ran after the Agent only (not
the Subagent because there was no violation on his part)
The Subagent will be considered as a Stranger as between
the Principal and the Agent.
Therefore, in any case, the Agent will always be liable.
4. When there was already a prohibition that the Agent cannot
appoint
If the Agent still appoints despite the prohibition, the Agent will
be liable to the Principal and will be personally liable to the 3rd
person.
Moreover, the contract with the 3rd person will be considered
VOID.
Q: In all four (4) instances, what if the Agent dies? Will the transactions be
terminated?
A: Yes, except when the Subagent’s authority comes directly from the
Principal, the death of the Agent does not terminate the transaction.
NEGLIGENCE/FRAUD
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged with more or less rigor by the courts, according to whether the agency
was or was not for a compensation.
Q: Is there an instance when the Agent will not be liable for Fraud?
A: No, the Agent will always be liable for Fraud, because he puts his
interest first over the interest of the Principal.
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Q: How about Negligence on the part of the Agent?
A: It depends.
If it is Grave Negligence, the Agent is always liable.
If it is Simple Negligence, it depends if the contract is gratuitous or
onerous.
If gratuitious, the liability is mitigated.
If onerous, it depends on the amount of damages incurred.
However, if he acted within the scope of its authority, the Agent
may be excused from liability.
MULTIPLE AGENCY
Where the Principal appoints two or more agents.
General Rule: The liability of the Agent is joint in nature. Hence, the agent,
in case of any liability or damages, will only be liable proportionately.
Example: If P appoints A, B & C as his agents. Thereafter, squatters
entered the property. What is the liability of A, B & C in case P run
after A, B & C? All of them will be liable proportionately.
Exception: If there is a specific provision of solidary liability.
General Rule: For Solidary/Joint Liability the agents need not to get the
consent of other agents.
Exception: If the Principal already specifies that the act of one is the act of
all.
Article 1895. If solidarity has been agreed upon, each of the agents is responsible for
the non-fulfillment of agency, and for the fault or negligence of his fellows agents, except
in the latter case when the fellow agents acted beyond the scope of their authority.
General Rule: No Stipulation = Joint. Thus, if there is a stipulation for
Solidary Liability, the non-fulfillment or the fault or negligence of one will
make the other agent/s liable.
Exception: If that faulty agent acted outside the scope of their authority.
Art. 1915. If two or more persons have appointed an agent for a common transaction
or undertaking, they shall be solidarily liable to the agent for all the consequences of the
agency.
COMMISSION AGENT
Regular Agent v. Commission Agent
Regular = Need not take possession of the goods.
Commission = Possession of the goods has the obligation to take custody
Regular = Makes it appear that the Principal is the seller.
Commission = He makes it appear that he (the commission agent) sells
these products.
OBLIGATIONS OF THE COMMISSION AGENT
1. To take custody of the Goods owned by the Principal
-when a commission agent receives the goods assigned to him
he is responsible for damage or deterioration suffered by the
same as described in the consignment.
The commission agent must check if the actual goods received
and the one described in the consignment are the same.
Agency
If he received damaged goods during his possession, he will be
liable for damages that will be caused to these products.
To avoid liability, the commission agent should make a written
statement of the damage or deterioration if the goods received
by him do not agree with the description in the consignment.
Art. 1903. The commission agent shall be responsible for the goods
received by him in the terms and conditions and as described in the
consignment, unless upon receiving them he should make a written
statement of the damage and deterioration suffered by the same.
2. Not to comingle similar goods belonging to different
principals.
Art. 1904. The commission agent who handles goods of the same kind and
mark, which belong to different owners, shall distinguish them by
countermarks, and designate the merchandise respectively belonging to
each principal.
He must not comingle the property of the principal and his
property
3. Cannot sell on credit without the authorization of the
Principal
Art. 1905. The commission agent cannot, without the express or implied
consent of the principal, sell on credit. Should he do so, the principal may
demand from him payment in cash, but the commission agent shall be
entitled to any interest or benefit, which may result from such sale.
A commission agent can sell on credit only with the express or
implied consent of the principal. If such sale is made without
authority, the principal is given two alternatives:
a. He may require payment in cash, in which case, any
interest or benefit from the sale on credit shall belong to
the agent since the principal cannot be allowed to enrich
himself at the agent’s expense; or e.g the Commission
agent (CA) may sell the cellphone of the Principal for
P15K, P18K on credit the P3K shall be given to the CA
b. He may ratify the sale on credit but he will have all the
risks and advantages to him.
Q: What if the Commission Agent still sells on Credit?
A: The Principal may demand from him the payment in cash,
but the Commission Agent shall be entitled to any interest or
benefit.
CASE: If the Principal ratifies/honor the credit, the benefits and
risks will transfer to the Principal. But he must honor the terms
of the Sale. Thus, if the 3rd person becomes insolvent, then the
Principal bears the risk.
4. To inform the principal of all pre-authorized sale on credit
Art. 1906. Should the commission agent, with authority of the principal,
sell on credit, he shall so inform the principal, with a statement of the names
of the buyers. Should he fail to do so, the sale shall be deemed to have been
made for cash insofar as the principal is concerned.
The Commission Agent shall only sell on cash basis, if he sells
on credit, he must inform the P by giving all the names of the
buyer.
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If A does not give the names to P, it is presumed that the sale is
on cash.
As far the buyer is concerned, he shall only pay when the credit
becomes due and demandable.
5. To collect credits of the principal
Art. 1908. The commission agent who does not collect the credits of his
principal at the time when they become due and demandable shall be
liable for damages, unless he proves that he exercised due diligence for that
purpose.
A commission agent who has 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
exercise of due diligence on his part.
6. He shall bear the risk of collection under del credence
commission set up
GUARANTEE COMMISSIONS
(del credence commission)
Article 1907. Should the commission agent receive on a sale, in addition to the
ordinary commission, another called a guarantee commission, he shall bear the risk of
collection and shall pay the principal the proceeds of the sale on the same terms agreed
upon with the purchaser.
Difference of 1907 & 1908
The difference is on its collection.
In del credence, if there is a 10% commission and he sold the goods, there
is an addition commission, for example 10%, thus, the total commission
shall be 20%. BUT there is a RISK, because he already guarantees the
payment. So, when the 3rd person did not pay, the Principal can run after
the Agent.
In commission agent, the Principal can only run after the Damages.
Q: What if the Principal went directly to the 3rd person?
A: The del credence becomes a Guarantor of the 3rd person.
Take note of the Application of Article 1900 and 1902 in which the 3rd
person must always be in Good Faith and the requirement of a Power of
Attorney.
Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal and the agent.
Art. 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as
regards the agency. Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney or instructions
shown them.
OBLIGATIONS OF THE PRINCIPAL
Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
Agency
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
Main Obligation is to be bound by the contract of Agency.
Specific Obligation is to comply with all the obligations which the agent
acted within the scope of its authority unless there is RATIFICATION.
WHAT IS RATIFICATION?
Ratification is the adoption or affirmance by a person of a prior act which
did not bind him, but which was done or professed to be done on his
account thus giving effect to the acts as if originally authorized.
REQUISITES:
1) The principal must have the capacity and power to ratify;
2) He must have a knowledge or had reason to know of material or
essential facts about the transaction;
3) He must ratify the acts in its entirety;
 He cannot just choose and change his mind
4) He act must be capable of ratification; and
 Only valid acts can be ratified, thus void acts like tortious acts
cannot be ratified
5) The act must be done in behalf of the principal.
 Thus, if A is acting for himself, such act cannot be ratified.
AGENCY BY ESTOPPEL
How is it created?
Article 1873. If a person specially informs another or states by public advertisement
that he has given a power of attorney to a third person, the latter thereby becomes a
duly authorized agent, in the former case with respect to the person who received the
special information, and in the latter case with regard to any person.
The power shall continue to be in full force until the notice is rescinded in the same
manner in which it was given.
Article 1875 talks about the Presumption of the existence of a
Compensation for a Reasonable Value?
Article 1875. Agency is presumed to be for a compensation, unless there is proof to the
contrary.
Q: What is Reasonable Value or what is the basis?
A: Performance of the Obligation in the presumption of completion of
duty.
Q: When can he advance the Agent’s money?
A: When there is a stipulation that the Agent may use the money. Thus, if
there is no stipulation, the Principal must always give the money.
However, if naubusan siya, apply Article 1912, which shall include interest.
Article 1912. The principal must advance to the agent, should the latter so request, the
sums necessary for the execution of the agency.
Should the agent have advanced them, the principal must reimburse him therefor, even
if the business or undertaking was not successful, provided the agent is free from all
fault.
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The reimbursement shall include interest on the sums advanced, from the day on which
the advance was made.
However, take also into account Article 1918 when the Principal is not
liable for the expenses.
Article 1918. The principal is not liable for the expenses incurred by the agent in the
following cases:
PEREZ v. PNB
The argument that foreclosure by the Bank under its power of sale is barred upon
death of the debtor, because agency is extinguished by the death of the principal,
under Article 1732 of the Civil Code of 1889 and Article 1919 of the Civil Code of
the Philippines, neglects to take into account that the power to foreclose is not an
ordinary agency that contemplates exclusively the representation of the principal
by the agent but is primarily an authority conferred upon the mortgagee for the
latter's own protection. It is, in fact, an ancillary stipulation supported by the same
causa or consideration for the mortgage and forms an essential and inseparable
part of that bilateral agreement. As can be seen in the preceding quotations from
Pasno vs. Ravina, 54 Phil. 382, both the majority and the dissenting opinions
conceded that the power to foreclose extrajudicially survived the death of the
mortgagor, even under the law prior to the Civil Code of the Philippines now in
force.
(1) If the agent acted in contravention of the principal's instructions, unless the
latter should wish to avail himself of the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with knowledge that an unfavorable result
would ensue, if the principal was not aware thereof;
(4) When it was stipulated that the expenses would be borne by the agent, or that
the latter would be allowed only a certain sum.
Q: What and how to indemnify the Agent for all the damages?
A: Article 1913.
Art. 1913. The principal must also indemnify the agent for all the damages which the
execution of the agency may have caused the latter, without fault or negligence on his
part.
Q: If the Principal can no longer pay the Agent, what shall the Agent do?
A: The Agent can have a lien on the property or goods. He can go to court
for Public Auction.
Art. 1914. The agent may retain in pledge the things which are the object of the agency
until the principal effects the reimbursement and pays the indemnity set forth in the two
preceding articles.
If there are Multiple Principals and only one agent, the Principals’
Liability is Solidary. Provided that there is only one transaction that the
Agent and Multiple Principals has executed.
MODE OF EXTINGUISHMENT
Article 1919 [EDWARD]. Agency is extinguished:
(1) By its Revocation;
(2) By the Withdrawal of the agent;
(3) By the Death, civil interdiction, insanity or insolvency of the principal or of
the agent;
(4) By the Dissolution of the firm or corporation which entrusted or accepted
the agency;
(5) By the Accomplishment of the object or purpose of the agency;
(6) By the Expiration of the period for which the agency was constituted.
DEATH
Q: What is the effect of the Death (either the Agent or the Principal) in a
contract of Agency?
A: Extinguishment of the Contract of Agency. (Article 1919)
Agency KAMM | 2018

Exception: If the Principal will consider the Agents as a group.

1. Death of the Principal
Article 1930. The agency shall remain in full force and effect even after the death
of the principal, if it has been constituted in the common interest of the latter and
of the agent, or in the interest of a third person who has accepted the stipulation
in his favor.
Exemptions:
a. If the agency has been constituted in the common interest of
both Agent and Principal
b. If the Agency has been constituted in the interest of a 3rd person
who has accepted the stipulation in his favor
Take Note: INTEREST must be on the subject matter of the transaction
entered with the 3rd person.
Effect of KNOWLEDGE OF THE DEATH of the Principal
Article 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be fully
effective with respect to third persons who may have contracted with him in good faith.
Q: Will the Principal be bound by the transaction entered into by the Agent
even after his death?
A: Depends on when the Agent attains the knowledge. Thus, the material
fact is if the 3rd person and the Agent is in Good Faith.
Q: Even if the Liability is Solidary?
A: Yes, since that is the essence of a Solidary Liability.
Of course, if all died, automatically it will extinguish the contract of Agency.
If one or some Agents only, the contract may continue because there are
still some Agents who can perform the Obligation.
Q: Why even on Solidary Liability?
A: Because despite the solidary liability, for all acts of the Agent, everybody
will be liable, even for unaccomplished obligation and even for the fault of
one.
Exception: If one of the Agents acted outside its scope of authority.
PASNO v. RAVINA (1930)
The power of sale given in a mortgage is a power coupled with an interest which
survives the death of the grantor.
The main obligation to mortgage includes sale of the property.
Thus, may interest pa rin sila sa sale.
However, under the NCC, Art. 1879 states that a special power to sell excludes the
power to mortgage; and a special power to mortgage does not include the power to
sell.
WITHDRAWAL of the Agent

Art. 1928. The agent may withdraw from the agency by giving due notice to the
2. Death of the Agent
principal. If the latter should suffer any damage by reason of the withdrawal, the agent
must indemnify him therefor, unless the agent should base his withdrawal upon the
NOTIFICATION TO THE LEGAL HEIRS by the AGENT impossibility of continuing the performance of the agency without grave detriment to
Article 1932. If the agent dies, his heirs must notify the principal thereof, and in the himself.
meantime adopt such measures as the circumstances may demand in the interest of the
latter. Art. 1929. The agent, even if he should withdraw from the agency for a valid reason,
must continue to act until the principal has had reasonable opportunity to take the
Q: When the Agent dies, can the Heirs continue the contract of Agency? necessary steps to meet the situation.
A: Yes, to protect the interest of the Agent.
Art. 1930. The agency shall remain in full force and effect even after the death of the
OBLIGATION OF THE HEIRS principal, if it has been constituted in the common interest of the latter and of the agent,
or in the interest of a third person who has accepted the stipulation in his favor.
1. To notify the Principal about the Death of the Agent
2. To take possession of the Property for safeguarding diliegently Withdrawal must be for valid reason. Otherwise, it will be tantamount to
(Good Father of a Family) breach of contract and the Agent may be liable to the Principal.
3. If the Heirs are not capable of taking possession or in
safeguarding the property, they should surrender the Property Valid or Reasonable Ground speaks of (1) necessity of the revocation and
to the Court after taking possession due (2) notice.

Q: Is the surrender immediately or automatically? Unreasonable Ground speaks of situations when such withdrawal will
A: No. prejudice the Principal. Thus, the Agent will be liable.

The Heir shall take care of the property only until the Principal finds Q: If it is for Valid Ground/s, can the Principal run after the Agent?
another Agent or the Principal will take possession of the Property. A: No, EXCEPT if the Principal will incur damages because of the
Otherwise, surrender the property it to the Court. withdrawal.

CIVIL INTERDICTION, INSANITY, INSOLVENCY of either the Agent or
Principal
Q: Why does it extinguish the Contract of Agency?
A: With respect to the Principal, there’s no one to represent. With repect
to the Agent, it will extinguish the contract if the incapacity emerged
during the course of the contract of Agency.
Q: What about the Death, Civil Interdiction, Insanity and Insolvency of one
or more agents in case there is Multiple Agents?
General Rule: It will extinguish the Contract of Agency.
General Rule: The Agent may withdraw ANYTIME because the contract of
agency is a personal obligation. You cannot impose something to someone
if he already refused.
Exception: If such withdrawal will prejudice the Principal.
Thus, the OBLIGATIONS of the Agent to validly withdraw are:
1. To notify the Principal of his intent to withdraw; and
2. To take care of the property until the Principal finds another
Agent or until the Principal takes possession. Otherwise, bring
the property to Court (Article 1929).
REVOCATION of the Principal

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Agency KAMM | 2018

CONTRACT OF EXCLUSIVE AGENCY

Art. 1920. The principal may revoke the agency at will, and compel the agent to return
the document evidencing the agency. Such revocation may be express or implied. CHARACTER: Irrevocable

Revocation can be (1) implied or (2) express.
How is Express Revocation made?
1. When the Principal directly notifies the Agent that he no longer
wants to continue;
2. By publication; and
3. When the Principal notifies the 3rd person (Estoppel)
Art. 1921. If the agency has been entrusted for the purpose of contracting with specified
persons, its revocation shall not prejudice the latter if they were not given notice thereof.
Art. 1922. If the agent had general powers, revocation of the agency does not prejudice
third persons who acted 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.
Q: When the Principal finds other clients, can the Agent run after the
Principal?
A: Yes, because of the nature of the contract, there would be a breach of
contract.
What are irrevocable agencies (Article 1927)?
1. If a bilateral contract depends upon it;
2. If it is the means of fulfilling an obligation already contracted; or
3. If a partner is appointed manager of a partnership in the
contract of partnership and his removal from the management
is unjustifiable.
However, this is NOT an Exclusive List. These are the only instances when
the Principal is made liable.

Q: What happens if there are two or more Principals and one revokes the Art. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if
contract? it is the means of fulfilling an obligation already contracted, or if a partner is
A: Article 1925. appointed manager of a partnership in the contract of partnership and his removal
from the management is unjustifiable.
Art. 1925. When two or more principals have granted a power of attorney for a
common transaction, any one of them may revoke the same without the consent of the
others. Take Note: Obligations of the Agent to keep information under the
contract, confidential or not, is another manifestation of the Duty of
How is implied revocation done? Loyalty
1. When the Principal himself takes the responsibility to act on the
obligation which he delegated to his Agent;
2. When the Principal issues a General Power of Attorney and
issues a Special Power of Attorney to another (new) Agent; and
3. When the Principal assigns another (new) Agent to act on such.

Q: Can the Principal revoke ANYTIME?

A: YES, because of the fiduciary nature of the agency.
Q: Will the Principal be liable for breach of contract and damages?
A: No, EXCEPT when the revocation is wrongful.
Q: When is it considered wrongful?
A: When such revocation is done in bad faith, if it is an irrevocable
contract or if the revocation is done before the expiration of the period
under the contract.

IMPLIED REVOCATION by Appointment of a new agent

Art. 1923. The appointment of a new agent for the same business or transaction
revokes the previous agency from the day on which notice thereof was given to the
former agent, without prejudice to the provisions of the two preceding articles.

There is implied revocation if the obligations of both the old and new
agents are so incompatible. Such that the appointment of the new agent
will supercede/overpower the old agent.

Q: What if the old Agent insist or ayaw niya?

A: “Wala na siyang magagawa pa”

IMPLIED REVOCATION when the Principal directly manages the the

business
Art. 1924. The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.

IMPLIED REVOCATION when an SPA is issued over a GPA

Art. 1926. A general power of attorney is revoked by a special one granted to another
agent, as regards the special matter involved in the latter.

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Agency
VILLALUZ v. LBP
In 1996, Villaluz owned a backyard business in Davao with orchids and
waling-waling. He needed 600-650k so he used the Property for
Collateral.
Villaliz granted an SPA to Agbisit to:
1. Negotiate for sale, mortgage and other forms of disposition; and
2. Sign documents or other papers.
There are no other conditions.
Abisit executed another SPA to Milflores Cooperative for the purpose of
obtaining a loan from Land Bank of the Philippines, herein respondent.
Milflores executed a REM in favor of LBP for 3M. The proceeds of 900k
was given to Agbisit.
However, Milflores failed to pay for the loan, Thus, BLP foreclosed the
property of Villaluz.
Villaluz came to know that their property are being foreclosed and the
auction sale was won by BLP.
Hence, Villaluz filed a case before the RTC.
RTC: Yes, the delegation is valid because the SPA executed to Milflores has
no prohibition on a Subagency.
CA: I concur.
ISSUE:
Can Agbisit contract another agency to Milflores?
RULING:
Supreme Court mentioned Article 1892 and 1893 of the Civil Code.
Art. 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall
be void.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the
principal may furthermore bring an action against the substitute with respect to
the obligations which the latter has contracted under the substitution.
There is a presumption that an Agent can appoint a substitute agent. The
Subagent assumes the obligation of the Agency.
In order to make that presumption inoperative, it is encumbent for the
Principal to prohibit the Agent to appoint a Subagent.
The Agent has also the responsibility for the subagent and the subagent
must not be notoriously incompetent.
Thus, the only time that the Agent will be solely responsible for the
substitute/subagent are:
(1) When he was not given the power to appoint one;
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KAMM | 2018
(2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent or
insolvent.
VILORIA v. CONTINENTAL AIRLINES
Fernando Viloria bought 2 round trip tickets on board Continental Airlines
for $400 each from a travel agency called “Holiday Travel” and was
attended to by Margaret Mager.
Mager told them that there were no available seats at Amtrak, a passenger
train, hence the airline tickets.
Fernando requested Mager to reschedule their flights to an earlier date.
But Mager told them that flights were already fully booked and offer an
alternative via Frontier Air for a higher rate of $500+ each. Since it was
more expensive, Fernando asked for a refund instead.
Mager, however denied because she claimed that the tickets were non-
refundable and she can only offer rebooking within 1 year.
Having second thoughts, Fernando himself went to a train station and saw
Amtrak. He inquired for available seats and he was told that there are
plenty of available seats and he can travel any time. He booked.
Fernando confronted Mager, telling her that she misled them in buying the
tickets by misrepsentation. Mager insisted that it was non-refundable.
Hence, a case was filed.
The RTC decided that they are entitled to a refund in view of Mager’s
misrepresentation.
Citing Article 1868 and 1869, it held that Mager is Continental’s Agent,
hence it is bound by her misrepresentation.
The CA revered the ruling and ruled that there was no Principal-Agent
relationship and a Contract of Sale exists instead.
SUPREME COURT:
A principal-agent relationship exists between Continental and Holiday
Travel.
Accordingly, all the Elements of Agency exist.
The essential elements of agency are:
(1) There is consent, express or implied of the parties to
establish the relationship;
(2) The object is the execution of a juridical act in
relation to a third person;
(3) The agent acts as a representative and not for
himself, and
(4) The agent acts within the scope of his authority.
The first and second elements are present as Continental does not deny
that it concluded an agreement with Holiday Travel, whereby Holiday
Travel would enter into contracts of carriage with third persons on
Continental’s behalf.
The third element is also present as it is undisputed that Holiday Travel
merely acted in a representative capacity and it is Continental and not
Agency KAMM | 2018

Holiday Travel who is bound by the contracts of carriage entered into by

Holiday Travel on its behalf.
The fourth element is also present considering that Continental has not
made any allegation that Holiday Travel exceeded the authority that was
granted to it.
In fact, Continental consistently maintains the validity of the contracts of
carriage that Holiday Travel executed with Spouses Viloria and that Mager
was not guilty of any fraudulent misrepresentation.
That Continental admits the authority of Holiday Travel to enter into
contracts of carriage on its behalf is easily discernible from its February
24, 1998 and March 24, 1998 letters, where it impliedly recognized the
validity of the contracts entered into by Holiday Travel with Spouses
Viloria.
When Fernando informed Continental that it was Holiday Travel who
issued to them the subject tickets, Continental did not deny that Holiday
Travel is its authorized agent.
Thus, CA also erred that it is a contract of sale.
RTC applied Article 1900 and 1911 that CIV could be allowed to disclaim.
As well as Ca stated that it cannot be permitted to deny liability specially
to 3rd persons relying on Quinain.
Supreme Court however stated that Agents must act within its scope of
authority.
Article 1878(11) states that:
Special powers of attorney are necessary in the following cases:
(11) To obligate the principal as a guarantor or surety;
CBIC would be liable as long as it can be seen that Quinain was only acting
within its scope of authority as stated in the SPA, or if CBIC ratifies the
same.
However, in the case at bar, under the SPA, CBIC specifically limits the acts
of Quinain to only transact with DPWH and similar agencies, and only to
the extent of P500k.
Moreover, CBIC did not ratify because CBIC did not know anything about
the issuance of the bond.

Lastly, 3rd persons must prove that he relied on the authority and
COUNTRY BANKERS v. KEPPEL CEBU SHIPYARD & UNIMARINE representation of the Agent, and its reason for its acts.

In 1992, Unimarine contracted Keppel Cebu for dry docking and ship
repair works on its vessel, the M/V Pacific Fortune for ₱4,486,052.00 in
installment basis. It went down to ₱3,850,000.00 after negotiations.
Unimarine, through its President, secured from Country Bankers (CBIC),
through its Agent Quinain, a surety bond for ₱3,000,000.00.
Unimarine, the 3rd person in this case, failed to prove such, this should’ve
been its obligation.
Here, the President of Unimarine did not even ask the authority of Quinain
or he could have asked the CBIC for Quinain’s authority.

Unimarine obtained another surety bond from Plaridel for ₱1,620,000.00.

Unimarine failed to pay to Cebu Shipyard on its 1st installment month.

Thus, Cebu Shipyard demanded to CBIC because they are the surety of
Unimarine. However, they denied the demand.

Before the RTC, CBIC answered that there was no cause of action because
the surety bond issued by its Agent, Quinain, was issued outside of its
scope of authority and that Quinain was only authorized to issue 500k to
DPWH.

CICB contends that Cebu Ship should have doubted the authority of
Quinain and that on the face of the bond it happened that the Quinain was
only authorized to issue bonds to DPWH. However, authorization was
covered by Documentary Stamp Tax.

Moreover, it contends that its obligation is extinguished when Cebu Ship

novated the contract.

The RTC and CA both granted the petition because Quinain acted in its
apparent scope of authority to issue a surety bond.

CA only modified Quinain’s liability that he should be solidarily liable with

CBIC.

RULING

The Supreme Court reversed everything. It ruled in favor of CBIC.

The Court explained the principle of Extent of Authority.

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