Agency Trust and Partnership

Atty. Dujunco

I. Nature
a. 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. (1709a)
Agency is a fiduciary relationship which implies a power in an agent to contract with a
third person on behalf of a principal.
Characteristics of a contract of agency.
The contract of agency is: (1) consensual, because it is based on the agreement of the
parties which is perfected by mere consent; (2) principal, because it can stand by itself
without need of another contract; (3) nominate, because it has its own name; (4)
unilateral, if it is gratuitous because it creates obligations for only one of the parties, i.e.,
the agent; or bilateral, if it is for compensation because it gives rise to reciprocal rights
and obligations; and (5) preparatory, because it is entered into as a means to an end, i.e.,
the creation of other transactions or contracts.
Nature. — Since agency is a contract, it is essential that the minds of the parties should
meet in making it. Article 1868 defi nes agency from the viewpoint of a contract.
(a) Manifestation of consent. — The principal must intend that the agent shall
act for him, the agent must intend to accept the authority and act on it, and
such intention of the parties must fi nd expression either in words or conduct
between them. Without such intention, there is generally no agency.
(b) Agent, by legal fi ction, becomes principal. — In acting for the principal, the
agent, by legal fi ction, becomes the principal authorized to perform all acts
which the latter would have him do. Such a relationship can only be effected
“with the consent or authority” of the principal which cannot, in any way be
compelled by law or by any court. (Orient Air Services & Hotel
Representatives vs. Court of Appeals, 197 SCRA 645 [1991].)
(c) Presence/absence of contract or consideration. — Although the agency
relationship is usually a contractual one, either express or implied, based
upon a consideration (see Art. 1875.), this is not necessarily so; that is, the
relationship may be created by operation of law (e.g., agency by estoppel,
infra.; see Arts. 1881, 1882, 1884, par. 2, 1885, 1929, 1931, 1932.), or a
person who acts for another as principal may do so gratuitously. (3 Am. Jur.
2d 419-420.) Thus, without a contract or a consideration there can be an
agency or agency powers. In the exercise of governmental functions, local
governments or municipal corporations act as agents for the sovereign state.
The legal consequences of agency may attach where one person acts for
another without authority or in excess of his authority, and the latter
subsequently ratifi es it. (see Arts. 1881-1882.)
Basis. — Agency is also a representative relation. The agent renders some service or does
something “in representation or on behalf of another.” (Art. 1868.)
(a) Personal contract of representation. — Representation constitutes the basis of agency.
As it is a personal contract of representation based on trust and confi dence reposed
by the principal on his agent, agency is generally revocable. (see Arts. 1920, 1927.)
(b) Acts of agents, by legal fi ction, acts of principal. — The acts of the agent on behalf
of the principal within the scope of his authority (Art. 1881.) produce the same legal
and binding effects as if they were personally done by the principal. The
distinguishing features of agency are its representative character and its derivative
authority. (2 C.J.S. 1026.) “He who acts through another acts himself’’ or “He who
 does a thing by an agent is considered as doing it himself.” By this legal fi ction, the
actual or real absence of the principal is converted into his legal or juridical presence.
(Rallos vs. Felix Go Chan & Sons Realty Corp., 18 SCRA 251 [1978]; see Bordador
vs. Luz, 283 SCRA 374 [1997].; Eurotech Industrial Technologies, Inc. vs. Cuizon,
521 SCRA 584 [2007].)
b. Purpose
Purpose. — The purpose of agency is to extend the personality of the principal through
the facility of the agent. (see Orient Air Service & Hotel Representatives vs. Court of
Appeals, supra.) to render some service to do or something. It enables the activity of man
which is naturally limited in its exercise by the impositions of his physiological
conditions to be legally extended by permitting him to be constructively present in many
different places and to perform diverse juridical acts and carry on many different
activities through another when physical presence is impossible or inadvisable at the
same time.

Ramon Rollos vs. Felix Go Chan & Sons Realty Corp

Facts:
Simeon Rallos, agent of principal Concepcion Rallos, sold the latters undivided share in a parcel of Land
to herein respondents pursuant to a special power of attorney after the death of the principal. Ramon
Rallos as an administrator of the instestate estate of conception rallos filed a compliant praying that the
sale be declared unenforceable.
Issue: Whether or not a sale by an agent made after the death of the principal is valid and enforceable
Held: No.
As a general rule, Art 1919 provides that the death of an agent extinguishes the relationship of agency.
However, the rule admits two (2) exemptions. Under Art. 1931 Anything done by the agent, WITHOUT
knowledge of the death of the principal or 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.
Article 1931 is inapplicable. The facts show that Simeon Rallos that at the time of the sale of the said
land, he knew of the death of the principal who is also his sister. It is not enough that the third person
acted in good faith for the sale to be valid and enforceable.
Victorias Milling Co. Inc. vs. CA and Consolidated Sugar Corporation
Facts:
St. Therese Merchandising (STM) regularly bought sugar from petitioner. One of their transaction
involved the purchace of 25,000 bags of sugar. On October 1989, STM sold to private respondent
Consolidated Sugar Corp. (CSC). CSC then wrote to VSM that they had been authorized by STM to
withdraw sugar on and in STMs behalf the refined sugar under SLDR 1214.
On October 27,1989, STM issued 16 checks amouting to 31,9000,00 in favor of VSM as payment for
50,000 bags covering SLDR 1213 and 1214. After being allowed to withdraw 2,000 bag of sugar by CSC,
petitioner refused to allow further withdrawals contending that the sugar under SLDR 1214 has already
been withdrawn by STM despite being informed by CSC through a letter that SLDR 1214 had been sold
and endorsed to CSC and considered CSC an authorized agent of STM.
Issue: Whether or not there exist a relationship of agency between CSC and STM
Held: NO.
In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form,
and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of
whether a contract is one of sale or agency depends on the intention of the parties as gathered from the
whole scope and effect of the language employed. The authorization given to CSC contained the phrase
"for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention
of the parties.No agency was meant to be established by the CSC and STM is clearly shown by CSC's
communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The use of the
words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency.
It is clear from Article 1868 that the basis of agency is representation. On the part of the principal, there
must be an actual intention to appoint or an intention naturally inferable from his words or actions; and on
the part of the agent, there must be an intention to accept the appointment and act on it, and in the absence
of such intent, there is generally no agency. One factor which most clearly distinguishes agency from
other legal concepts is control; one person - the agent - agrees to act under the control or direction of
another - the principal. Indeed, the very word "agency" has come to connote control by the principal. The
control factor, more than any other, has caused the courts to put contracts between principal and agent in a
separate category.
Tuazon vs. Heirs of Bartolome
Facts:
Leonilo and Maria Tuazon bough 8,326 cavans of rice from Batolome Ramos. 3,889 cavans valued at
1,211,919 was unpaid. Hence Spouses Tuazon issued several Traders Royal Bank checks. However, when
encashed all of them bounced due to insufficiency of funds. Ramos claimed that because Tuazon
anticipated that the they would be sued thus they executed fictitious sales of their properties.
Tuazon denied having purchased rice from Bartolome Ramos alleging that it was Magdalena Ramos who
owned and traded the merchandise and that Maria Tuazon was merely acting as an agent. They argued
that it was Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon as
payments therefor.
In good faith, the checks were received by Tuazon from Evangeline Santos and turned over to Ramos
without knowing that these were not funded.
Issue: Whether or not agency as a special affirmative defense of Tuazon meritorious
Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court,
especially when affirmed by the CA, are conclusive on the parties and this Court. Petitioners have not
given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in representation or
on behalf of another, with the latter’s consent or authority. The following are the elements of agency: (1)
the parties’ consent, express or implied, to establish the relationship; (2) the object, which is the execution
of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an agent
does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of
his or her authority.[10] As the basis of agency is representation, there must be, on the part of the
principal, an actual intention to appoint, an intention naturally inferable from the principal’s words or
actions. In the same manner, there must be an intention on the part of the agent to accept the appointment
and act upon it. Absent such mutual intent, there is generally no agency.
This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers
themselves; they were not mere agents of respondents in their rice dealership. The question of whether a
contract is one of sale or of agency depends on the intention of the parties.
The declarations of agents alone are generally insufficient to establish the fact or extent of their authority.
The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the
person alleging it. In the present case, petitioners raise the fact of agency as an affirmative defense yet fail
to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the
amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated
with the current one. If, as they claim, they were mere agents of respondents, petitioners should have
brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2
of Rule 3 of the Rules on Civil Procedure.[15] Their filing a suit against her in their own names negates
their claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.
Eurotech vs. Erwin and Edwin Cuizon
Facts:
Impact System Sales a sole proprietorship owned by Erwin bought one unit of sludge pump valued at
250k paying 50k as down payment. When the sludge pump arrived from the UK, petitioners refused to
deliver the same to respondents without their having settled their indebtedness to peitioner hence a Deed
of Assignment signed by Erwin was issued in favor of Eurotech. Eurotech was assigned an amount from
Toledo Power Corp as payment for the said pump. Petitioner found out that the Deed of Assignment
respondent collected from the TPC. Despite several demands, Impact failed to pay hence a complaint for
sum of money of money and damages was filed against both Erwin and Edwin.
Edwin alleged that he is not a real party in interest in this case since he was acting as mere agent of his
principal -- Impact System. RTC and CA affirmed Edwin's contention.
Issue: Whether or not Edwin, acting as agent, exceeded his authority when he signed the Deed of
Assignment
Held: NO.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the obligation
and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he
does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not
fall within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent or manager;
such a position presupposes a degree of confidence reposed and investiture with liberal powers for the
exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to
the business entrusted to his care and management. In the absence of an agreement to the contrary, a
managing agent may enter into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management.
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment.

c. Parties to the Contract; capacity

Parties to the contract. The two parties to the contract are the:
(1) Principal. — one whom the agent represents and from whom he derives his authority. He is
the person represented. Agency imports the contemporaneous existence of a principal,
and there is no agency unless one is acting for and in behalf of another (2-A Words and
Phrases 436.); and

(2) Agent. — one who acts for and represents another; he is the person acting in a representative
capacity. The agent has derivative authority in carrying out the principal’s business. He
may employ his own agent in which case he becomes a principal with respect to the
latter. (see Art. 1892.) If an act done by one person in behalf of another is, in its essential
nature, one of “agency,” the former is “agent” of the latter notwithstanding that he is not
so called. (2-A Words and Phrases 436.) From the time the agent acts or transacts the
business for which he has been employed in representation of another, a third party is
added to the agency relationship — the party with whom the business is transacted.
William Uy and Rodel Roxas vs. CA and NHA
Facts:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners
thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan,
Benguet to National Housing Authority (NHA) for the amount of 23,867 million to be utilized and
developed as a housing project. However, only 5 were paid for by NHA because it has received from
DENR that the remaining area is located at an active landslide area. Hence NHA cancelled the sale over
three parcels of land and offered 1.2 million to the land owners as damages.
RTC held that recission was valid and awarded damages to plaintiffs in the sum of P1.255 million, the
same amount initially offered by NHA to petitioners as damages. CA ruled that since the cancellation of
the contract is justified, there is no reason for the award of damages and that the landowners should be
pleaded as real parties in interest and not merely by the plaintiffs who while plaintiffs alleged themselves
to be seller's agents for several owners.
Petitioners claim that they lodged the complaint not in behalf of their principles but in their own name as
agents directly damaged by the termination of the contract. The damages prayed for were intended not for
the benefit of their principals but to indemnify petitioners for the losses they themselves allegedly
incurred as a result of such termination.
Issue: Whether or not Uy and Roxas may claim damages from the rescission of a contract they entered
into as agents
Held:
A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person. Petitioners are not parties to the contract of
sale between their principals and NHA. They are mere agents of the owners of the land subject of the sale.
As agents, they only render some service or do something in representation or on behalf of their
principals. [Article 1868, Civil Code.] The rendering of such service did not make them parties to the
contracts of sale executed in behalf of the latter.
It does not appear that petitioners are beneficiaries of a stipulation pour autrui under the second paragraph
of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the Deeds of Absolute Sale
"clearly and deliberately" conferring a favor to any third person. That petitioners did not obtain their
commissions or recoup their advances because of the non-performance of the contract did not entitle them
to file the action below against respondent NHA.
Section 372 (2) of the Restatement of the Law on Agency (Second) states: (2) An agent does not have
such an interest in a contract as to entitle him to maintain an action at law upon it in his own name merely
because he is entilted to a portion of the proceeds as compensation for making it or because he is liable
for its breach (2) An agent does not have such an interest in a contract as to entitle him to maintain an
action at law upon it in his own name merely because he is entitled to a portion of the proceeds as
compensation for making it or because he is liable for its breach.
The fact that an agent who makes a contract for his principal will gain or suffer loss by the performance
or nonperformance of the contract by the principal or by the other party thereto does not entitle him to
maintain an action on his own behalf against the other party for its breach. An agent entitled to receive a
commission from his principal upon the performance of a contract which he has made on his principal's
account does not, from this fact alone, have any claim against the other party for breach of the contract,
either in an action on the contract or otherwise. An agent who is not a promisee cannot maintain an action
at law against a purchaser merely because he is entitled to have his compensation or advances paid out of
the purchase price before payment to the principal.
Jocelyn B. Doles vs. Ma. Aura Tina Angeles
Facts:
Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with
Damages against Jocelyn B. Doles (petitioner),Respondent alleged that petitioner was indebted to the
former in the concept of a personal loan amounting to P405,430.00 representing the principal amount and
interest. To satisfy this loan, petitioner morgage a parcel of land and improvements thereon in favor of
respondent. However, petitioner refused to cooperate with respondent to execute necessary documents
and other fomalities for the title to be transfered in the latter's name. Petitioner claim that she is not the
debtor but rather her friends who she refers to respondent and that personal checks were sent in the nam
of Arsenio Pua who is the main financier of respondent.
RTC ruled that the sale was void for lack of cause or consideration. The CA concluded that petitioner was
the borrower and, in turn, would "re-lend" the amount borrowed from the respondent to her friends.
Hence, the Deed of Absolute Sale was supported by a valid consideration, which is the sum of money
petitioner owed respondent amounting to P405,430.00, representing both principal and interest.
The CA concluded that petitioner is the real barrower while respondent the real lender. CA cited four
instances in the record to support its holding that petitioner "re-lends" the amount borrowed from
respondent to her friends: first, the friends of petitioner never presented themselves to respondent and that
all transactions were made by and between petitioner and respondent; second; the money passed through
the bank accounts of petitioner and respondent; third, petitioner herself admitted that she was "re-lending"
the money loaned to other individuals for profit; and fourth, the documentary evidence shows that the
actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent
Issue: Whether or not the petitioner can be considered as a debtor of the respondent
Whether or not an agent who was not authorized by the principal to collect debt in his behalf could
directly collect payment from debtor
Held:
The RTC that the respondent herein admitted that she is only an agent of Arsenio Pua and that she knew
that Petitioner "re-lends" the money hence petitioner knew that the financier of respondent is Pua; and
respondent knew that the borrowers are friends of petitioner.
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed
principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends
whom she (petitioner) referred. This Court has affirmed that, under Article 1868 of the Civil Code, the
basis of agency is representation. The question of whether an agency has been created is ordinarily a
question which may be established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention. Agency may even be implied from the words and
conduct of the parties and the circumstances of the particular case. Though the fact or extent of authority
of the agents may not, as a general rule, be established from the declarations of the agents alone, if one
professes to act as agent for another, she may be estopped to deny her agency both as against the asserted
principal and the third persons interested in the transaction in which he or she is engaged.
For an agency to arise, it is not necessary that the principal personally encounter the third person with
whom the agent interacts. In the case at bar, both petitioner and respondent have undeniably disclosed to
each other that they are representing someone else, and so both of them are estopped to deny the same. It
is evident from the record that petitioner merely refers actual borrowers and then collects and disburses
the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of
her "principal financier", a certain Arsenio Pua. If their respective principals do not actually and
personally know each other, such ignorance does not affect their juridical standing as agents, especially
since the very purpose of agency is to extend the personality of the principal through the facility of the
agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to
other individuals for profit, it must be stressed that the manner in which the parties designate the
relationship is not controlling. If an act done by one person in behalf of another is in its essential nature
one of agency, the former is the agent of the latter notwithstanding he or she is not so called. The question
is to be determined by the fact that one represents and is acting for another, and if relations exist which
will constitute an agency, it will be an agency whether the parties understood the exact nature of the
relation or not. That both parties acted as mere agents is shown by the undisputed fact that the friends of
petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-
lending", then the checks should have been drawn in her name and not directly paid to Pua.
In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan
between their principals. Since the sale is predicated on that loan, then the sale is void for lack of
consideration.

d. Contract of Agency; elements

Essential elements of agency.

(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 third persons; Art. 1868
(3) The agent acts as a representative and not for himself; and
(4) The agent acts within the scope of his authority.

In addition, the parties must be competent to act as principal and agent.

Consideration is not required.

An agency relationship is consensual in nature. It is based on the concept that the parties mutually
agree on its creation. A person may express his consent by contract (Art. 1868.), orally or in
writing, by conduct (Art. 1869.), or by ratification (see Art. 1910.), or the consent may arise
by presumption or operation of law.

Manila Memorial Park Cemetery Inc. vs. Pedro Linsangan

Facts:
In 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross
Memorial Park owned by petitioner (MMPCI). The contract was for P95,000.00. Atty. Linsangan agreed
and gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer and to
complete the down payment to MMPCI. In 1985, Baluyot informed Atty. Linsangan that he would be
issued Contract No. 28660 a lot amounting to 132,250php and a new contract covering the subject lot in
the name of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured
him that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full down
payment leaving a balance of about P75,000.00.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for
reasons the latter could not explain and presented to him another proposal for the purchase of an
equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their
undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. MMPCI alleged that Contract No. 28660 was cancelled
conformably with the terms of the contract[8] because of non-payment of arrearages. MMPCI stated that
Baluyot was not an agent but an independent contractor, and as such was not authorized to represent
MMPCI. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her
authority and Atty. Linsangan knew or should have known about this considering his status as a long-
practicing lawyer.
Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact
faithfully performed his contractual obligations and complied with them in good faith for at least two
years.[27] He claims that contrary to MMPCI's position, his profession as a lawyer is immaterial to the
validity of the subject contract and the case at bar
The trial court held MMPCI and Baluyot jointly and severally liable.It found that Baluyot was an agent of
MMPCI and that the latter was estopped from denying this agency, having received and enchased the
checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was
authorized to receive only the down payment, it allowed her to continue to receive postdated checks from
Atty. Linsangan, which it in turn consistently encashed.
CA affirmed decision of trial court holding that while Baluyot's authority "may not have been expressly
conferred upon her, the same may have been derived impliedly by habit or custom, which may have been
an accepted practice in the company for a long period of time." Thus, the Court of Appeals noted,
innocent third persons such as Atty. Linsangan should not be prejudiced where the principal failed to
adopt the needed measures to prevent misrepresentation. Furthermore, if an agent misrepresents to a
purchaser and the principal accepts the benefits of such misrepresentation, he cannot at the same time
deny responsibility for such misrepresentation.
Issue: Whether or not Baluyot, acting as an agent of MMPCI acted in excess of authority granted to her
by the latter
Held: YES
Contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract procured by
Atty. Linsangan and solicited by Baluyot. Baluyot was authorized to solicit and remit to MMPCI offers to
purchase interment spaces obtained on forms provided by MMPCI. The terms of the offer to purchase,
therefore, are contained in such forms and, when signed by the buyer and an authorized officer of
MMPCI, becomes binding on both parties. The Offer to Purchase duly signed by Atty. Linsangan, and
accepted and validated by MMPCI showed a total list price of P132,250.00. Likewise, it was clearly
stated therein that "Purchaser agrees that he has read or has had read to him this agreement, that he
understands its terms and conditions, and that there are no covenants, conditions, warranties or
representations other than those contained herein."By signing the Offer to Purchase, Atty. Linsangan
signified that he understood its contents. That he and Baluyot had an agreement different from that
contained in the Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously
made outside Baluyot's authority. To repeat, Baluyot's authority was limited only to soliciting purchasers.
She had no authority to alter the terms of the written contract provided by MMPCI.
KNB Additional Discussion:
The trial and appellate courts found MMPCI liable based on ratification and estoppel. 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. Art. 1910. The principal must comply with all the obligations that the agent
may have contracted within the scope of his authority. As for any obligation wherein the agent has
exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. 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. Thus, the acts of an agent beyond the scope
of his authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only the
principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal must have
knowledge of the acts he is to ratify. Ratification in agency is the adoption or confirmation by one person
of an act performed on his behalf by another without authority. The substance of the doctrine is
confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must
have full knowledge at the time of ratification of all the material facts and circumstances relating to the
unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or
unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties between whom the question of ratification may arise.
While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no
indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the
authority to alter the standard contracts of the company. Neither is there any showing that prior to
signing Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to Atty. Linsangan.
One who claims the benefit of an estoppel on the ground that he has been misled by the representations of
another must not have been misled through his own want of reasonable care and circumspection. Even
assuming that Atty. Linsangan was misled by MMPCI's actuations, he still cannot invoke the principle of
estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had
he only been cautious and prudent, whether said agent was clothed with the authority to change the terms
of the principal's written contract. Estoppel must be intentional and unequivocal, for when misapplied, it
can easily become a most convenient and effective means of injustice. In view of the lack of sufficient
proof showing estoppel, we refuse to hold MMPCI liable on this score
As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between
MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's cemetery. The
other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount
P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the actual contract
price. To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless
the latter ratifies the same. It also bears emphasis that when the third person knows that the agent was
acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the
said third person was aware of such limits of authority, he is to blame and is not entitled to recover
damages from the agent, unless the latter undertook to secure the principal's ratification.
Orient Air Services & Hotel Representatives vs. C and American Airlines Inc.
Facts:
On 15 January 1977, American Airlines, Inc. (American Air), an air carrier offering passenger and air
cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives (Orient Air),
entered into a General Sales Agency Agreement whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air passenger transportation. On 11
May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to
promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US
$254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement In its Answer with counterclaim dated 9 July 1981,
defendant Orient Air denied the material allegations of the complaint with respect to plaintiff's
entitlement to alleged unremitted amounts, contending that after application thereof to the commissions
due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions.
CFI judgment rendered in favor of defendant and against plaintiff dismissing the complaint and holding
the termination made by the latter as affecting the GSA agreement illegal and improper and order the
plaintiff to reinstate defendant as its general sales agent for passenger transportation in the Philippines in
accordance with said GSA agreement.
Issue: Whether or not the CFI and CA’s ruling, in so far as the reinstatement of Orient as American Air’s
agent valid
Held: NO
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "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."
In an agent-principal relationship, the personality of the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which
the latter would have him do. Such a relationship can only be effected with the consent of the principal,
which must not, in any way, be compelled by law or by any court. The Agreement itself between the
parties states that "either party may terminate the Agreement without cause by giving the other 30 days'
notice by letter, telegram or cable."