Agency Reviewer Gumboc PDF

SECOND EXAM REVIEWER IN
BUSINESS ORGANIZATION
Atty. Catherine Guerzo-Barrion
Maria Katherina Lobaton Gumboc
Parties to the contract of agency

Title X. – AGENCY
1. Principal – one whom the agent represents and from
CHAPTER 1
whom he derives hos authority. He is the person
NATURE, FORM AND KINDS OF AGENCY
represented.
2. Agent – one who acts for and represents another. He is
ARTICLE 1868. By the contract of agency a person binds the person acting on a representative capacity.
himself to render some service or to do something in
representation or on behalf of another, with the consent or Note: From the time the agent acts or transacts the business for
authority of the latter. which he ahs been employed in representation of another, a third
party is added to the agency relationship. He is the with whom
Nature of relationship the business is transacted.
Agency is a fiduciary relationship which implies a power in an
agent to contract with a third person on behalf of a principal. The Essential elements of agency
relations of an agent to his principal are fiduciary in character 1. There is consent, express or implied, of the parties to
since they are based on trust and confidence. establish the relationship;
2. The object is the execution of a juridical act in relation
Characteristics of a contract of agency to third persons;
1. Consensual – it is based on the agreement of the 3. Consideration
parties which is perfected by mere consent 4. The agent acts as a representative and not for himself;
2. Principal – it can stand by itself without the need of and
another contract; it does not depend on another 5. The agent acts within the scope of his authority.
contract for its existence and validity
3. Nominate – it has its own Note: Consideration is not necessary.
4. Unilateral – if it is gratuitous, it creates obligations for
only of the parties who is the agent FIRST ELEMENT: CONSENT
5. Bilateral – if it is for compensation because it gives rise • Consent may be expressed or implied which may be
to reciprocal rights and obligations inferred from words and conduct of the parties
6. Preparatory – it is entered into as a means to an end • An agency relationship is consensual in nature
which is the creation of other transaction or contracts • It is based on the concept that the parties mutually
7. Onerous – the agent expects compensation for his agree on its creation, whether express or implied
services in the form of a commission but an agency • On the part of the principal, there must be an intention
may be supported by the liberality of the agent to appoint the agent
8. Representative – the agent acts as a representative in • On the part of the agent, there must be an intention to
behalf of the principal accept the appointment and act on it
9. Derivative – the agent derives his authority from the • Exception: Agency by estoppel where the agency is
principal established by operation of law despite lack of consent
10. Fiduciary – the agency relations is based on trust and
confidence between the agent and the principal SECOND ELEMENT: OBJECT
11. Revocable – the contract of agency may be revoked at The object of the agency must be the execution of a juridical
will either by the principal or the agent subject to the act in relation to third persons. In other words, the object must be
conditions imposed by law the agent’s performance of service in behalf of the principal.
Basis of agency THIRD ELEMENT: CONSIDERATION
The basis of contract of agency is representation. The agent GR: Agency is presumed to be for a compensation.
renders some service or does something in representation or on EXC: Unless there is proof to the contrary. Being such, the
behalf of another. liberality of the agent can be a proper cause or consideration in a
As it is a personal contract of representation based on trust contract of agency (Article 1875).
and confidence reposed by the principal on his agent, agency is
generally revocable. Capacity of parties
1. Principal – must be capacitated or have the legal
Distinguishing features of agency capacity to enter into a contract in his own right
1. Its representative character – the acts of the agent on • May either be a natural person or a juridical
behalf of the principal within the scope of his authority person such as corporations and partnerships
produce the same legal and binding effects as if they § A voluntary association of persons has no
were personally done by the principal capacity to appoint an agent because it is
2. Derivative authority – the authority of the agent derives not a legal entity and it has no legal
from the principal existence which to sue or be sued
§ A minor cannot be a principal because a
Purpose of agency minor does not have the legal capacity to
The purpose of agency is to extend the personality of the enter into a contract
principal through the facility of the agent, to render some service
• The capacity to act by the agent depends in
to do or something.
general on the capacity of the principal to do the
act himself if he were present
Legal consequences of agency
• An agent who assumes to contract in the name of
1. Notice to the agent is deemed notice to the principal
a principal without contractual capacity renders
(Air France vs. CA)
himself liable to third persons. Nevertheless, the
2. Knowledge of the agent pertains to the principal
principal may ratify the contract after he acquires inconvenient or unjust if he is not held to be an
capacity agent
• The agent is not liable where he was ignorant of o If relations exist which will constitute agency, it
the principal’s incapacity be an agency whether the parties understood
the exact nature of the relation or not
2. Agent • Presumption of existence
• Generally, anyone can be an agent o The law does not presume the existence of
• Since he assumes no personal liability and he contract of agency. For the relation to exist,
merely acts in representation, he does not have to there must be consent by both parties
possess full capacity to act for himself insofar as o The relation of agency cannot be inferred from
third persons are concerned. What is important is mere relationship or family ties unattended by
that for the principal to have the legal capacity to conditions, acts, or conduct clearly implying an
enter into contract agency
• However, as between the principal and the agent, • Intention to create relationship
the agent must have legal capacity to validly enter o On the part of the principal, there must be
into a contract of agency either an actual intention to appoint, or an
• An agent derives his authority from the principal intention naturally inferable from his words or
and any contract made by him is viewed as a actions
contract of the principal o On the part of the agent, there must be an
• However, some mental capacity is necessary as intention to accept the appointment and act on
an agent and those persons who are absolutely it
incapacitated, such as insane persons, cannot be o In the absence of such intent, there is
agents generally no agency
• As between the principal and a third person
Note: If the principal has legal capacity but the agent does not, o Agency may exist without the direct assent of
the contract entered into by the agent is voidable as to the the agent
principal. However, the principal may ratify the contract. On the o Neither is it necessary that the principal
other hand, the contract is valid as to the third person since the personally encounter the third person with
capacity of the agent is immaterial as long as the principal is whom the agent entire acts
capacitated to enter into a contract. o Precisely, the purpose of agency is to extend
the personality of the principal through the
Acts that may not be delegated to agents facility of the agent
GR: What a man may do in person, he may do through another.
EXC: Contract of agency vs. from contract of employment
1. Personal acts
• If personal performance is required by law or Contract of Agency Contract of Employment
public policy or the agreement of the parties, the Its purpose is the rendition of Its purpose is the rendition of
doing of the act by a person on behalf of another service to effect juridical services for the benefit of the
des not constitute performance by the latter relationship with a third person employer or his business
2. Criminal acts or acts not allowed by law The relationship between the The relationship between
• An attempt to delegate to another authority to do principal and the agent is capital and labor is not merely
an act which, if done by the principal would be contractual in nature contractual but impressed with
illegal, is void public interest
• There can be no agency in the perpetration of a
crime or an unlawful act Agency distinguished from lease
• An agent cannot escape a criminal punishment on
the ground that he simply acted as an agent of Agency Lease of service
another Basis Representation Employment
Power exercised The agent The lessor
Determination of existence of agency exercises performs only
• Generally, no formalities are required for the creation of discretionary power ministerial functions
an agency relationship (Article 1869) Persons involved Involves the Involves the lessor
• Designation of parties principal, agent and and the lessee
o The manner in which the parties designate the a third person with
relationship is not controlling whom the agent
o If the act done is on behalf of another is has contracted
essentially in the nature of agency, he is Matters it relates to Relates to Relates more to
deemed an agent even if he is not so-called commercial or matters of mere
o The use of the words “agency agreement” and business manual or
“agent” by the parties in a contract does not transactions mechanical
necessarily have the effect of making one an execution
agent
• Fact of existence
o The question is to be determined by the fact
that one represents and is acting for another
and not by the consideration that it will be
Agency distinguished from sale 5. As to its nature and effects

a. Ostensible or representative – one where the
Agency to sell Sale agent acts in the name and representation of
Agent receives the goods or The buyer receives the good the principal (Article 1868)
property as the goods of the as owner b. Simple or commission – one where the agent
principal acts in his own name but for the account of
The agent delivers the The buyer pays the price the principal
proceeds of the sale
The agent can return the As a general rule, the buyer Form of agency
object in case he is unable to cannot return the object sold The usual method of agency is created by contract which
sell it to a third person may be oral, written, or implied. In general, there are no formal
The agent, in dealing with the The buyer can deal with the requirements governing the appointment and acceptance of an
thing receive, is bound to act thing as he pleases, being the agent. The agent’s authority may be oral or written, public or
according to the instructions owner private writing. Agency may even be implied from words and
of his principal conduct of the parties and circumstances. But agency cannot be
inferred from mere relationship of family ties. Also, it is not
Agency distinguished from independent contractor essential that an agent be appointed directly by the principal, but
the appointment may be made through another.
Agency Independent Contractor
Represents the principal Employed by employer Presumption of Agency
GR: The law makes no presumption of agency, and it is
Acts under the control and Acts according to his own
always a fact to be proved, with the burden of proof resting upon
instructions of the principal method
the person alleging the agency to show, not only the fact of its
Principal liable for torts Employer not liable for torts
existence, but also its nature and extent.
committed by agent w/in scope committed by independent
EXC: A presumption of agency may arise where an agency
of authority contractor
may arise by operation of law or to prevent unjust enrichment.
ARTICLE 1869. Agency may be express, or implied from the Note: The best evidence on the part of the principal to show that
acts of the principal, from his silence or lack of action, or his there is an agreement to the effect that a person is his agent is
failure to repudiate the agency, knowing that another person the execution of the power of attorney, whether general or
is acting on his behalf without authority. special. On the part of the agent, the best evidence is when there
Agency may be oral, unless the law requires a specific is delivery of power of attorney to the agent and the agent
form. (1710a) receives it without any objection.
Kinds of agency ARTICLE 1870. Acceptance by the agent may also be
1. As to manner of its creation: express, or implied from his acts which carry out the
a. Express – the agent has been actually agency, or from his silence or inaction according to the
authorized by the principal, either orally or in circumstances. (n)
writing (Article 1869)
b. Implied – one which is implied from the acts
Since agency is a contract, there must be consent by both
of the principal, from his silence or lack of
parties. An agency is either express or implied, and this is true on
action, or his failure to repudiate the agency the part of the principal as well on that of the agent. It does not
knowing that another person is acting on his
depend upon express appointment and acceptance.
behalf without authority or, from the acts of
The implied acceptance of an agent may be made (1) where
the agent which carry out the agency, or from
persons are present under Article 1871 and (2) where persons
his silence or inaction according to the are absent under Article 1872.
circumstances
2. As to its character
ARTICLE 1871. Between persons who are present, the
a. Gratuitous – one where the agent receives no
acceptance of the agency may also be implied if the
compensation for his services (Article 1875)
principal delivers his power of attorney to the agent and the
b. Compensated or onerous – one where the
latter receives it without any objection. (n)
agent receives compensation for his services
3. As to extent of business covered
Acceptance between persons who are present
a. General – one which comprises all the
The agency is impliedly accepted if the agent receives a
business of the principal (Article 1876)
power of attorney from the principal himself personally without
b. Special – one which comprises one or more
any objection, both being present. The presumption of
specific transactions
acceptance may be rebutted by contrary proof.
4. As to authority conferred
a. Couched in general terms – one which is
Power of attorney
created in general terms and is deemed to
It is an instrument in writing by which one person, as
comprise only acts of administration (Article
principal, appoints another as his agent and confers upon him
1877)
the authority to perform certain specified acts or kinds of acts on
b. Couched in specific terms – one authorizing
behalf of the principal.
only the performance of a specific act or acts
Its primary purpose is to evidence the authority of the agent
(Article 1878)
to third parties within whom the agent deals and not to define the
authority of the agent as between himself and his principal.
Except as may be required by statute, a power of attorney is given. (n)

valid although no notary public intervened in its execution.
Two ways of giving notice of agency
Two kinds of power of attorney 1. By special information – the person given the power of
1. General power of attorney – refers to acts of attorney becomes a duly authorized agent with respect
administration or acts done in the ordinary or regular to the person who received the special information
course of the business of the principal 2. By public advertisement – the person given the power
2. Special power of attorney – it covers acts of strict of attorney becomes a duly authorized agent with
dominion respect to any person. It may be made in any form,
whether through the newspaper, radio, etc.
Form of power of attorney
Ideally, it must be in writing. However, it may be in any other Note: In either case, the agency is deemed to exist whether there
form such as a text message or through the Internet. In such is actually an agency or not.
case, it may be proven in court under the Electronic Evidence
Rule. The power of attorney does not also have to be notarized. Estoppel to deny agency
1. Estoppel of agent – One professing to act as agent for
Manner of revocation of agency another may be estopped to deny his agency both as
The power of attorney must be revoked in the same manner against his asserted principal and the third persons
in which it was given. interested in the transaction in which he engaged
2. Estoppel of principal
Construction of power of attorney a. As to agent – one who knows that another is
It must be construed in accordance with the language used acting as his agent and fails to repudiate his
by the parties. What is controlling is the intention of the party and acts, or accepts the benefits of them, will be
not the title given by the parties to the said instrument. estopped to deny the agency as against such
other
ARTICLE 1872. Between persons who are absent, the b. As to sub-agent – to estop the principal from
acceptance of the agency cannot be implied from the silence denying his liability to a third person, he must
of the agent, except: have known or be charged with knowledge of
(1) When the principal transmits his power of attorney the fact of the transaction and the terms of the
to the agent, who receives it without any objection; agreement between the agent and sub-agent
(2) When the principal entrusts to him by letter or c. As to third persons – one who knows that
telegram a power of attorney with respect to the another is acting as his agent or permitted
business in which he is habitually engaged as an another to appear as his agent, to the injury of
agent, and he did not reply to the letter or telegram. third persons who have dealt with the
apparent agent as such in good faith and in
Acceptance between persons who are absent the exercise of reasonable prudence
GR: If both the principal and the agent are absent, 3. Estoppel of third persons – A third person, having dealt
acceptance of the agency by the agent is not implied from his with one as an agent may be estopped to deny the
silence or inaction. Since the agent is not bound to accept the agency as against the principal, agent, or third persons
agency, he can simply ignore the offer. in interest. He will not, however, be estopped where he
has withdrawn from the contract made with the
EXC: There is implied acceptance of agency when: unauthorized agent before receiving any benefits
1. The principal transmits his power of attorney to the thereunder
agent, who receives it without any objection 4. Estoppel of the government – The government is
• The agent writes a letter acknowledging receipt neither estopped by the mistake or error on the part of
of the POA but offers no objection to the its agents. But it may be estopped through affirmative
creation of the agency acts of its officers acting within the scope of their
• But the agent’s mere failure to give a reply does authority
not mean that the agency has been accepted
unless it falls under the 2nd exception Agency by estoppel Implied Agency
2. The principal entrusts to him by letter or telegram a There is no real agency at all, There is an actual agency
power of attorney with respect to the business in but the one assuming to act as
which he is habitually engaged as an agent, and he agent has apparent or
did not reply to the letter or telegram ostensible, although not real,
authority to represent another
Note: In Article 1871, the principal transmits the POA to the Can be invoked by a third Such reliance is not necessary
agent while in Article 1872, the principal personally delivers the person who in good faith relied since the agent is a real agent
POA to the agent. on the conduct of the principal
in holding agent out as being
ARTICLE 1873. If a person specially informs another or authorized
states by public advertisement that he has given a power of An agent by estoppel is no An agent by implied
attorney to a third person, the latter thereby becomes a duly agent at all, and as against the appointment is a real agent
authorized agent, in the former case with respect to the principal, has none of the with all the rights and liabilities
person who received the special information, and in the rights of an agent except and has actual authority to act
latter case with regard to any person. where the principal’s conduct on behalf of the principal
The power shall continue to be in full force until the or representations are such
notice is rescinded in the same manner in which it was that the agent reasonably
believed that the principal where his employment is concealed from or not
intended him to act as agent assented to by both the principals
3. With knowledge of one principal – both he and the
ARTICLE 1874. When a sale of a piece of land or any interest agent are guilty of the wrong committed against the first
therein is through an agent, the authority of the latter shall employer, and the law will not enforce an executory
be in writing; otherwise, the sale shall be void. (n) contract entered into in fraud of the rights of the first
employer. The contract itself is void being against
Sale of land through an agent public policy and good morals, and both parties thereto
• GR: The agent’s authority may be oral or written being in pari delicto, the law will leave them as it finds
• EXC: A special power of attorney in writing is them
necessary in a sale of a piece of land or any interest
thereon, usufruct, mortgage, etc., through an agent. Broker
Otherwise the sale is void. One who in behalf of others, and for compensation or fee,
negotiate contracts relative to property. He is the negotiator
ARTICLE 1875. Agency is presumed to be for a between the parties, never acting in his own name, but in the
compensation, unless there is proof to the contrary. (n) name of those who employ him. He is strictly a middleman and
for some purposes, the agent of both parties.
Presumption as to compensation A broker should be entitled to a commission should be the
A contract of agency is presumed to be for a compensation. procuring cause unless there is agreement to the contrary.
Hence, the agent does not have to prove that the agency is for
compensation. Nevertheless, the prima facie presumption may ARTICLE 1876. An agency is either general or special.
be contradicted by contrary evidence. The former comprises all the business of the principal. The
latter, one or more specific transactions. (1712)
Necessity of compensation
The relation of the principal and agent can be created Agency based on scope of the business
although the agent receives no compensation. A person who 1. General agency – comprises all the business of the
agrees to act as an agent without compensation is a gratuitous principal
agent. Ordinarily, the promise of a gratuitous agent to perform is 2. Special agency – comprises one or more specific
not enforceable. He is, however, bound by his acceptance to transactions
carry out the agency. The fact that he is acting without
compensation has no effect upon his rights and duties with Classes and kinds of agents
reference to the principal and to third parties. However, the 1. According to manner in which agency is created
circumstance that the agency was for compensation or not, shall a. Express
be considered by the court in determining the extent of liability of b. Implied
an agent for fraud or for negligence. 2. With reference to their authority in fact
a. Actual
Liability of the principal to pay compensation b. Ostensible
1. Amount – the principal must pay the agent the 3. Nature and extent of authority
compensation agreed upon, or the reasonable value of a. Universal agent – one employed to do all acts
the agent’s services if no compensation was specified that the principal may personally do, and
2. Compliance by agent with his obligations – the liability which he can lawfully delegate to another the
of the principal to pay commission presupposes that power of doing. He may be viewed as an
the agent has complied with his obligation as such to unlimited general agent. A principal can only
the principal have one universal agent
3. Procuring cause of the transaction – the agent must b. General agent – one employed to transact all
prove that he was the procuring cause for the the business of his principal, or all business of
transaction. Otherwise, a broker or agent is never a particular kind or in a particular place, or in
entitled to commission for unsuccessful efforts other words, to do all acts, connected with a
particular trade, business, or employment
Procuring cause, defined c. Special or particular agent – one authorized
The term “procuring cause’’ in describing a broker’s activity, to act in one or more specific transactions, or
refers to a cause originating a series of events which, without to do one or more specific acts, or to act upon
break in their continuity, result in the accomplishment of the a particular occasion
prime objective of the employment of the broker — producing a
purchaser ready, willing and able to buy on the owner’s terms. Distinctions between a general agent and a special agent
Right of agent to compensation in double agency General Agent Special Agent

An agent acting at once for both contracting parties assumes Scope of authority Usually authorized Authorized to do
double agency. to do all acts only one or more
1. With knowledge of both principals – law disapproves of connected with the specific acts in
double agency unless the agent acted with full business or pursuance of
knowledge and free consent of both principals, or employment in particular
unless his employment was merely to bring the parties which the principal instructions or with
together. In this case, the agent may recover is engaged restrictions
compensation necessarily implied
2. Without knowledge of both principals – the agent from the act to be
cannot recover compensation from either principal done
Continuous nature Authorized to Authorized to Note: The extent of the power/s conferred upon the agent is what
of service conduct a series of conduct a single matters. If the power is couched in general terms, then only acts
authorized transactions over transaction or a of administration may be deemed granted although the
time involving a series of instrument may be captioned as “special power of attorney”. But
continuity of service transactions not where the power is specified, the agent may execute the act,
involving continuity although the instrument is denominated as a general power of
of service attorney.
Extent to which May bind his Cannot bind his
agent may bind the principal by an act principal in a Acts of administration, defined
principal within the scope of manner beyond or These are acts which do not imply the authority to alienate for
his authority outside the specific the exercise of which an express power is necessary. Yet what
although it may be acts which he is are acts of administration will always be a question of fact, rather
contrary to his authorized to than of law. But, unless the contrary appears, the authority of an
special instructions perform on behalf agent is presumed to include all the necessary and usual means
of the principal to carry out the agency into effect.
Knowledge/ In its general In its nature
disclosure of nature, continuing temporary and ARTICLE 1878. Special powers of attorney are necessary in
limitations of power and unrestricted by naturally suggests the following cases:
limitations other limitations of power (1) To make such payments as are not usually
than those which of which third considered as acts of administration;
confine the persons must (2) To effect novations which put an end to obligations
authority within the inform themselves already in existence at the time the agency was
bounds of what is constituted;
usual, proper, and (3) To compromise, to submit questions to arbitration,
necessary under to renounce the right to appeal from a judgment, to
like circumstances waive objections to the venue of an action or to
Termination of Does not terminate The duty imposed abandon a prescription already acquired;
authority by the mere upon the third party (4) To waive any obligation gratuitously;
revocation of his to inquire makes (5) To enter into any contract by which the ownership
authority without termination of the of an immovable is transmitted or acquired either
notice to the third relationship as gratuitously or for a valuable consideration;
party between the (6) To make gifts, except customary ones for charity or
principal and agent those made to employees in the business managed
effective as to such by the agent;
third party unless (7) To loan or borrow money, unless the latter act be
the agency has urgent and indispensable for the preservation of
been entrusted for the things which are under administration;
the purpose of (8) To lease any real property to another person for
contracting with more than one year;
such third party (9) To bind the principal to render some service
Construction of Statement by the General rule, the without compensation;
instructions of principal with authority of a (10) To bind the principal in a contract of partnership;
principal respect to former’s special agent must (11) To obligate the principal as a guarantor or surety;
authority would be strictly pursued. (12) To create or convey real rights over immovable
ordinarily be Persons dealing property;
regarded as with such an agent (13) To accept or repudiate an inheritance;
advisory in nature must at their peril (14) To ratify or recognize obligations contracted before
only inquire into the the agency;
nature and extent (15) Any other act of strict dominion. (n)
of his authority
Article 1878 enumerates the acts where a special power of
ARTICLE 1877. An agency couched in general terms attorney is necessary in order for the agent to execute his
comprises only acts of administration, even if the principal obligations. These acts are general acts of strict dominion or
should state that he withholds no power or that the agent ownership. In the absence of SPA, the contract is unenforceable
may execute such acts as he may consider appropriate, or subject to the principal’s ratification.
even though the agency should authorize a general and
unlimited management. (n) Special power of attorney
• The authority given must be couched in clear and
Agency couched in general terms unmistakable language
It may be a general agency or a special agency. It comprises • Article 1878 refers to the nature of the authorization,
only acts of administration, even if not its form
1. The principal should state that he withholds no power; • A power of attorney is valid although no notary public
or intervened in its execution
2. That the agent may execute such acts as he may • Article 1878 does not state that the special authority be
consider appropriate; or in writing
3. Even though the agency should authorize a general • The special power of attorney can be included in a
and unlimited management general power of attorney when it specifies therein the
act or transaction for which the special power is b. Such borrowing is usually incident to the
required performance of acts which the agent is
authorized to perform for the principal; or
Acts where is SPA is necessary c. It is impossible for the agent to
1. To make payment communicate with his principal and
• Payment is the delivery of money or the borrowing is indispensable to the
performance in any other manner of an continuance of the business or to
obligation. It is an act of ownership because it prevent a very considerable loss
involves the conveyance of ownership of money 8. To lease for more than one year
or property • The requirement of special power of attorney
• It must not be made in the ordinary course of extends to renewal or extension of lease of real
management. Otherwise, it is considered as a property to another
mere act of administration and no SPA is • Even if the agent is especially authorized, the
needed. lease is not enforceable against the principal if it
2. To effect novation is not in writing
• It is the extinction of an obligation through the • Does not refer to lease of real property from
creation of a new one which substitutes it by another person and to lease of personal
changing the object or principal conditions property
thereof, substituting a debtor, or subrogating 9. To bind the principal to render service gratuitously
another in the right of the creditor. • The agent may, by contract, bind himself to
• The obligations must already be in existence at render service without compensation. However,
the time the agency was constituted. to bind the principal to that effect, a special
3. To compromise, arbitration, etc. power is necessary
• Compromise is a contract whereby the parties, • If the service is for compensation, the power
by making reciprocal concessions, avoid a may be implied
litigation or put an end to one already 10. To bind the principal in a contract of partnership
commenced • The contract of partnership creates obligations
• Arbitration is where the parties submit their the fulfillment of which requires an act of strict
controversies to one or more arbitrators for ownership
decision 11. To obligate the principal as guarantor or surety
• These are acts of ownership since they involve • A contract of guaranty or surety cannot be
the possibility of disposing of the thing or right inferred from the use of vague or general words
subject of the compromise or arbitration • The power to create a contract of suretyship
• By prescription, one acquires ownership and cannot be inferred; it must be expressed
other real rights through the lapse of time. In the • A contract of guaranty is unenforceable unless it
same way, rights and actions are lost by is made in writing
prescription 12. To create or convey real rights over immovable
4. To waive an obligation gratuitously property
• The agent cannot waive a right belonging to the • In relation to No. 5, an agent cannot create or
principal without valuable consideration or even convey real rights like mortgage, usufruct,
for a nominal consideration. He cannot bind the easement, etc., over immovable property
principal who is the obligee unless especially belonging to his principal without special power
authorized to do so 13. To accept or repudiate inheritance
5. To convey or acquire immovable 14. To ratify obligations contracted before the agency
• Applies whether the contract is gratuitous or 15. Any other act of strict dominion
onerous • Generally, a sale or purchase of personal
• Refers only to immovable properties property is an act of strict dominion. Hence, a
6. To make gifts special power is necessary in order that the act
• An agent without special power from the shall be binding on the principal
principal cannot make gifts • But a sale or purchase made in the ordinary
• But the making of customary gifts for charity, or course of management is merely an act of
those made to employees in the business administration and, therefore, included in an
managed by the agent, are considered acts of agency couched in general terms
administration
7. To loan or borrow money ARTICLE 1879. A special power to sell excludes the power
• The power to borrow any amount of money to mortgage; and a special power to mortgage does not
which the agent deems necessary cannot be include the power to sell. (n)
interpreted as also authorizing him to use the
money as he pleases GR: The agent cannot sell or mortgage the property of the
• Authority to borrow money is rarely inferred principal without SPA. In the absence of special authority, the
unless: sale or mortgage will be unenforceable against the principal
a. The act is urgent and indispensable for because the agent “has acted beyond his powers.”
the preservation of the things which are 1. A special power to sell the principal’s property excludes
under administration the power to mortgage; and
2. A special power to mortgage the principal’s property
excludes the power to sell.
Note: Sale and mortgage are separate and distinct from each does or has. It results from what the principal indicates
other. The sale proscribed by a SPA under Article 1879 is a to the agent
voluntary and independent contract and not an auction sale 2. Express – when it is directly conferred by words
resulting from extrajudicial foreclosure of a real estate mortgage. 3. Implied – when it is incidental to the transaction or
reasonably necessary to accomplish the main purpose
Contract giving agent exclusive authority to sell of the agency, and, therefore, the principal is deemed
The appointment of a person as exclusive agent to sell to have actually intended the agent to possess
specified property is not equivalent to giving the agent an although the principal has said nothing about the
exclusive power of sale. particular aspect of the agent’s authority
In an exclusive agency to sell he principal may endeavor to 4. Apparent or Ostensible – when it is conferred by words,
sell through his own efforts unless the appointment is in a conduct or even by silence of the principal which
specified territory. On the other hand, in an exclusive agency of causes a third person reasonably to believe that a
sale, the principal may not compete with the agent. particular person, who may or may not be the
An exclusive agency will not be created by implication. An principal’s agent, has actual authority to act for the
agency contract, to have the effect of giving the agent an principal. It is another name for authority by estoppel. It
exclusive territory which the principal may not invade to make is also an implied authority but only in the sense that it
sales, must sufficiently designate the territory within which the is not expressly conferred. The principal’s liability is
agent is to have exclusive rights. limited only to third persons who, in good faith, believed
that actual authority exists
Power to revoke and the right to revoke in an exclusive 5. General – when it refers to all the business of the
agency of sale principal
The principal always has the power to revoke but not having 6. Special – when it is limited only to one or more specific
the right to do so in those cases wherein he has agreed not to transactions
exercise his power during a certain period. If in the latter case, he 7. Emergency or authority by necessity or by operation of
does exercise his power, he must respond in damages. law – when it is demanded by necessity or by virtue of
the existence of an emergency. The agency terminates
ARTICLE 1880. A special power to compromise does not when the emergency has passed
authorize submission to arbitration. (1713a)
Two fiduciary duties of the agent to the principal
Scope of special power to compromise/ to submit to 1. Duty of obedience – he assumes to be obedient to the
arbitration will of the principal. He acts under the instructions of
1. The authority of the agent to compromise includes by the principal
implication the power to do whatever things are usual 2. Duty of diligence – otherwise known as the “best
and necessary which the principal himself can do to judgment rule” under Articles 1881 and 1882
effectuate such compromise. But he is not authorized
to submit to arbitration because while the principal may When principal bound by act of agent
have confidence in the agent’s judgment, the arbitrator The principal is liable to the agent if he breaches his
designated may not possess the trust of the principal. contractual or any other duty to the agent. The requisites in order
2. The authority to submit to arbitration does not include that the principal may be bound by the act of the agent as to third
the power to compromise. The principal may not have persons and to the agent himself are:
trust in the agent’s judgment in making compromise. 1. The agent must act within the scope of his authority;
and
ARTICLE 1881. The agent must act within the scope of his 2. The agent must act in behalf of the principal
authority. He may do such acts as may be conducive to the
accomplishment of the purpose of the agency. (1714a) The principal is bound by either actual or apparent authority
of the agent. So long as the agent has actual authority, express
ARTICLE 1882. The limits of the agent's authority shall not or implied, the principal is bound by the acts of the agent on his
be considered exceeded should it have been performed in a behalf, whether or not the third person dealing with the agent
manner more advantageous to the principal than that believes that the agent has actual authority.
specified by him. (1715) Under the doctrine of apparent authority (estoppel), the
principal is liable only as to third persons who have been led
Authority, defined reasonably to believe by the conduct of the principal that such
It is the power of the agent to affect the legal relations of the actual authority exists, although none has been given.
principal by acts done in accordance with the principal’s If the principal subsequently approves or affirms the contract
manifestation of consent to him. The authority of the agent is the entered into by an agent who has no authority or has exceeded
very essence, the sine qua non, of the principal and agent his authority, an agency relationship is created by ratification,
relationship. Unless it is otherwise agreed, it includes only the and neither the principal nor the third person can set up the fact
authority to act for the benefit of the principal, and the source of that the agent had no authority or exceeded his powers pursuant
the authority is always the principal and never the agent. to Article 1901.
Kinds or types of authority When a principal not bound by the act of agent
An agent can make the principal legally responsible only 1. When he acts without or beyond the scope of his
when he is authorized by the principal to act the way he did. The authority in the former’s name; and
authority of the agent may be: 2. When he acts within the scope of his authority but in his
1. Actual – when it is actually granted, and it may be own name, except when the transaction involves things
express or implied. It is the authority that the agent belonging to the principal
Unauthorized acts of the agent in the name of the principal 2. Partially disclosed principal – if the other party knows or
is unenforceable has reason to know that the agent is or may be acting
GR: An agent acting for a principal ordinarily incurs no for a principal but is unaware of the principal’s identity.
personal liability if he acts within his authority. The liability of the third party and the principal is the
EXC: If the agent acts without authority or in excess or same as in the case of a disclosed principal, except
beyond the scope of his authority, there is no representation. that the agent is also liable to the third party, unless
Such act is unenforceable, whether or not the party with whom they agree otherwise
the agent contracted was aware of the limits of the agent’s 3. Undisclosed principal – if the party has no notice of the
power. fact that the agent is acting as such for a principal. The
a. Unless the principal ratifies the transaction before it is existence and identity of the principal are unknown to
revoked by the other contracting party or is in estoppel to the third party. If a person purports to act for a non-
deny the agent’s authority existent principal, obviously he is liable to the party with
whom he contracted
Note: The agent is not deemed to have exceeded the limits of his
authority should he perform the agency in a manner more Rules in an agency with undisclosed principal
advantageous to the principal than that indicated by him. GR: If an agent acts in his own name, the agent is personally
and directly liable to the third person with whom he had
Liability of principal/agent for acts of agent beyond his contracted.
authority The rationale behind the rule is that there is no
A. Principal representation of the principal when the agent acts in his own
GR: The principal is not bound by the acts of an agent beyond name. In effect, the contractual relation is only between the agent
his limited powers. Third persons dealing with an agent do so at and the third person.
their risk and are bound to inquire as to the scope of his powers EXC: When the contract involves things belonging to the
EXC: principal. In such case, the contract is considered as entered into
1. Where the principal’s acts have contributed to deceive between the principal and the third person.
a third person in good faith;
2. Where the limitations upon the power created by him Remedy available
could not have been known by the third person; 1. Principal – the provision is without prejudice to the
3. Where the principal has placed in the hands of the principal’s right to demand from the agent damages for
agent instruments signed by him in blank; and his failure to comply with the agency
4. Where the principal has ratified the acts of the agent 2. Third person – he has the right of action not only
against the principal but also against the agent, when
B. Agent the rights and obligations which are the subject-matter
GR: The agent who exceeds his authority is personally liable of the litigation cannot be legally and juridically
either to the principal or to the third party determined without hearing both of them pursuant to
1. Principal is liable to the third party on the ground of Section 13, Rule 3 of the Rules of Court
apparent authority, the agent’s liability is to the principal
2. Principal is not liable to the third person because no
CHAPTER 2
apparent authority is present, the agent’s liability is to
OBLIGATIONS OF THE AGENT
the third party
3. Agent personally assumes responsibility for the
particular transaction, if the principal defaults, the ARTICLE 1884. The agent is bound by his acceptance to
agent, in effect, also becomes obligated as a co- carry out the agency, and is liable for the damages which,
principal through his non-performance, the principal may suffer.
EXC: There is ratification by the principal He must also finish the business already begun on the
death of the principal, should delay entail any danger. (1718)
Note: The action must be brought against the principal because
he is the real party-in-interest and not the agent. General obligations of an agent to the principal
1. Good faith and loyalty to his trust, agent’s first duty –
ARTICLE 1883. If an agent acts in his own name, the the relationship existing between principal and agent is
principal has no right of action against the persons with a fiduciary one, demanding conditions of trust and
whom the agent has contracted; neither have such persons confidence. It is the duty of the agent to act with the
against the principal. utmost good faith and loyalty for the furtherance and
In such case the agent is the one directly bound in favor advancement of the interests of the principal
of the person with whom he has contracted, as if the a. Presumption - In the absence of proof to the
transaction were his own, except when the contract involves contrary, the presumption arises that an agent
things belonging to the principal. has performed his duty in good faith
The provisions of this article shall be understood to be b. Exceptions
without prejudice to the actions between the principal and i. Proof to the contrary
agent. (1717) ii. No showing of an agency relationship
iii. The agent is bound merely as an
Kinds of principal instrument to perform a service
1. Disclosed principal – if at the time of the transaction 2. Obedience to principal’s instruction – an agent must
contracted by the agent, the other party thereto has obey all lawful orders and instructions of the principal
known that the agent is acting for a principal and of the within the scope of the agency. If he fails to do so, he
principal’s identity. The agent discloses that he is becomes liable for any loss the principal incurs even
representing a principal and identifies the principal
though he can show that he acted in good faith or If an agent fails to perform his obligations, he is liable for the
exercised reasonableness damage which the principal may suffer pursuant to Articles 1170
3. Exercise of reasonable care – by accepting an and 1909. Having accepted the agency when he was free to
employment whose requirements he knows, without refuse it, the agent betrays the confidence reposed on him if he
stipulating otherwise, the agent impliedly undertakes does not fulfill the mandate.
that he possesses a degree of skill reasonably or The damages to which the principal is entitled are those
ordinarily competent for the performance of the service, which result from the agent’s non-performance.
and that in performing his undertaking, he will exercise
reasonable care, skill and diligence 3. Obligation to finish the business upon principal’s
death
Specific obligations of an agent to the principal
1. To carry out the agency which he has accepted; Although the death of the principal extinguishes the agency,
2. To answer for damages which through his performance the agent has an obligation to conclude the business already
the principal may suffer; begun on the death of the principal in accord with the principles
3. To finish the business already begun on the death of of equity. But the duty exists only should delay entail any danger.
the principal should delay entail any danger; The agency shall also remain in full force even after the
4. To observe the diligence of a good father of a family in death of the principal if it has been constituted in the common
the custody and preservation of the goods forwarded to interest of the latter and of the agent, or in the interest of a third
him by the owner in case he declines an agency, until person who has accepted the stipulation in his favor (Article
an agent is appointed (Article 1885); 1930).
5. To advance the necessary funds should there be a
stipulation to do so (Article 1886); ARTICLE 1885. In case a person declines an agency, he is
6. To act in accordance with the instructions of the bound to observe the diligence of a good father of a family
principal, and in default thereof, to do all that a good in the custody and preservation of the goods forwarded to
father of a family would do (Article 1887); him by the owner until the latter should appoint an agent or
7. Not to carry out the agency if its execution would take charge of the goods. (n)
manifestly result in loss or damage to the principal
(Article 1888); Obligation of person who declines an agency
8. To answer for damages if there being a conflict In the event a person declines an agency, he is still bound to
between his interests and those of the principal, he observe the diligence of a good father of a family (Article 1163) in
should prefer his own (Article 1889); the custody and preservation of the goods forwarded to him by
9. Not to loan to himself if he has been authorized to lend the owner. This rule is based on equity.
money at interest (Article 1890); The owner, however, must act as soon as practicable either
10. To render an account of his transactions and to deliver by (1) appointing an agent or (2) by taking charge of the goods.
to the principal whatever he may have received by
virtue of the agency (Article 1891); ARTICLE 1886. Should there be a stipulation that the agent
11. To distinguish goods by countermarks and designate shall advance the necessary funds, he shall be bound to do
the merchandise respectively belonging to each so except when the principal is insolvent. (n)
principal, in the case of a commission agent who
handles goods of the same kind and mark, which Obligation to advance necessary funds
belong to different owners (Article 1904); As a rule, the principal must advance to the agent, should the
12. To be responsible in certain cases for the acts of the agent so request, the sums necessary for the execution of the
substitute appointed by him (Article 1892); agency (Article 1912). The contract of agency, however, may
13. To pay interest on funds he has applied to his own use stipulate that the agent shall advance the necessary funds
(Article 1896); (Article 1159). In such case, the agent is bound to furnish such
14. To inform the principal, where an authorized sale of funds except when the principal is insolvent. The exception is
credit has been made, of such sale (Article 1906); based on the principal’s obligation to reimburse the agent.
15. To bear the risk of collection, should he receive also on Incidentally, the insolvency of the principal is a ground for
a sale, a guarantee commission (Article 1907); extinguishment of agency (Article 1912(3)).
16. To indemnify the principal for damages for his failure to
collect the credits of his principal at the time that they ARTICLE 1887. In the execution of the agency, the agent
become due (Article 1908); and shall act in accordance with the instructions of the principal.
17. To be responsible for fraud or negligence (Article 1909) In default thereof, he shall do all that a good father of a
family would do, as required by the nature of the business.
Obligations under Article 1884
Instructions of principal, defined
1. Obligation to carry out the agency Instructions are private directions which the principal may
give the agent in regard to the manner of performing his duties
A person is free to refuse to be an agent (Article 1885) but as such agent but of which a third party is ignorant. They are said
once he accepts the agency, he is bound to carry it out in to be secret if the principal intended them not to be made known
accordance with its terms in good faith (Article 1159) and to such party.
following the instructions, if any, of the principal (Article 1887). If
the agent fulfills his duty, he is not personally liable unless he Obligation to act in accordance with the principal’s
expressly binds himself (Art. 1897). instructions
1. Duty to obey reasonable and lawful instructions – it is
2. Obligation to answer for damages the fundamental duty of the agent to obey all the
reasonable and lawful instructions given to him by his
principal. But an agent does not need to follow ARTICLE 1888. An agent shall not carry out an agency if its
instructions that are outside the scope of the agency execution would manifestly result in loss or damage to the
relationship agreed upon or that may subject him to principal. (n)
unreasonable risk of injury to himself.
2. Liability for loss or damage – if the agent exceeds, When agent shall not carry out agency
violates, or fails to act upon such instructions, he will be The agent, upon acceptance of the agency, is not bound in
liable to the principal for any loss or damage resulting all cases to carry out the agency (Article 1884) in accordance
therefrom. with the instructions of the principal (Article 1887). Thus, the
3. Duty to act in good faith and with due care – in the agent must not carry out the agency if its execution would
absence of specific instructions of the principal, the manifestly result in loss or damage to the principal.
agent shall do all that a good father of a family taking The duty of the agent who is merely an extension of the
care of the business as if it were his own would do as personality of the principal is to render service for the benefit of
required by the nature of the business. If he acts in the principal and not to act to his detriment. Furthermore, an
good faith and with due care, the agent is not liable for agent must exercise due diligence in carrying out the agency.
losses due to errors or mistakes of judgment as
regards to matters with which he is vested with ARTICLE 1889. The agent shall be liable for damages if,
discretionary powers. there being a conflict between his interests and those of the
4. Exemption from liability for failure of undertaking – principal, he should prefer his own. (n)
When an agent, in executing the orders and
commissions of his principal, carries out the Obligation not to prefer his own interests
instructions he has received from his principal, and Agency being a fiduciary relation, the agent is required to
does not appear to have exceeded his authority or to observe utmost good faith and loyalty towards his principal. He
have acted with negligence, deceit, or fraud, he cannot must look after the principal’s interests as if they were his own.
be held responsible for the failure of his principal to He is prohibited from dealing in the agency matter on his own
accomplish the object of the agency. Since an agent is account and for his own behalf without the consent of his
required to exercise only ordinary care, skill, and principal, freely given with full knowledge of all the circumstances
diligence, he is not, in the absence of an agreement, an which might affect the transaction. An agent, therefore, is liable
insurer of the success of his undertaking, and does not for damages if, there being a conflict between his interests and
guarantee the principal against incidental losses. those of the principal, he should prefer his own.
5. Right to disobey principal’s instructions – The agent
may disobey the principal’s instruction where it calls for Basis of the rule
the performance of illegal acts, or where he is The underlying basis is to shut the door against temptation
privileged to do so to protect his security interest in the and keep the agent’s eye single to the rights and welfare of his
subject matter of the agency. principal. The rule is one of preventive, not remedial justice.
The principal, however, may waive the benefit of the rule so
Effect of violation of principal’s instructions far as he is concerned, if he does so with full knowledge of the
1. Liability of principal to third persons – If an act done by facts; but in the absence of such waiver, the rule is absolute.
an agent is within the apparent scope of the authority
with which he has been clothed, it matters not that it is Exception
directly contrary to the instructions of the principal. The Where the agent’s interests are superior, such as where he
principal will, nevertheless, be liable unless the third has a security interest in goods of the principal in his possession,
person with whom the agent dealt knew that he was he may protect this interest even if in so doing he disobeys the
exceeding his authority or violating his instructions. principal’s orders or injures his interest.
2. Liability of agent to principal – An agent is not required to expose himself to great physical
risks not within the contemplation of the parties, or to perform
When departure from principal’s instructions justified services when he is ill.
1. Sudden emergency – Where some unexpected
emergency or unforeseen event occurs which will admit ARTICLE 1890. If the agent has been empowered to borrow
no delay for communication with the principal, the money, he may himself be the lender at the current rate of
agent is justified in adopting the course which seems interest. If he has been authorized to lend money at interest,
best to him under the circumstances. The rule is he cannot borrow it without the consent of the principal. (n)
applicable only where the principal cannot be consulted
and where the circumstances cannot admit delay Obligation not to loan to himself
2. Ambiguous instructions – The agent will not be liable if 1. If he has been expressly empowered to borrow money,
he chooses reasonably one of two possible he may himself be the lender at the current rate of
interpretations in good faith. It is the duty of the interest for there is no danger of the principal suffering
principal to couch his instructions in clear terms. any damage since the current rate of interest would
3. Insubstantial departure – provided that the departure have to be paid in any case if the loan were obtained
from the principal’s instructions does not affect the from a third person
result. However, the principal has a right to determine 2. If the agent has been authorized to lend money at
what will he consider important interest, he cannot be the borrower without the consent
of the principal because the agent may prove to be a
bad debtor and may result to a conflict of interest
Note: The agent cannot loan or borrow money without a SPA.

ARTICLE 1891. Every agent is bound to render an account of prohibition of the principal shall be void. (1721)
his transactions and to deliver to the principal whatever he
may have received by virtue of the agency, even though it ARTICLE 1893. In the cases mentioned in Nos. 1 and 2 of the
may not be owing to the principal. preceding article, the principal may furthermore bring an
Every stipulation exempting the agent from the action against the substitute with respect to the obligations
obligation to render an account shall be void. (1720a) which the latter has contracted under the substitution.
Obligation to render accounts Sub-agent, defined

It is the duty of the agent to account for and to deliver to the A sub-agent is a person employed or appointed by an agent
principal all money and property which may have come into his as his agent, to assist him in the performance of an act for the
hands or of a sub-agent appointed by him by virtue of or as a principal which the agent has been empowered to perform.
result of the agency. This includes gifts from the third party in
connection with the agency. Power of the agent to appoint substitute or sub-agent
It is immaterial whether such money or property is the result Unless prohibited by the principal, the agent may appoint a
of the performance or violation of the agent’s duty. If it is the fruit sub-agent or substitute. The agent in this situation is a principal
or the source of the agency, the profits earned accrue and with respect to the substitute.
belong to the principal. The law allows such substitution for reasons of convenience
The duty to render accounts presupposes the duty of and practical utility.
simultaneously turning over his collections. The principal need not fear prejudice as he has a right of
action not only against the agent but also against the substitute
Secret profit with respect to the obligations which the latter has contracted
An agent who takes a secret profit from a third person, under the substitution (Article 1893). It is an exception to the
without revealing it to his principal, is guilty of breach of his general rule that contracts are binding only between the
loyalty to the principal and forfeits his right to collect the contracting parties, their assigns and heirs (Article 1311).
commission from his principal.
Even if the principal does not suffer any injury by reason of When agent responsible for the acts of the substitute
such breach of fidelity, or that he obtained better results, or that 1. When he was not given the power to appoint one
the agency is a gratuitous one, or that usage or custom allows it, 2. When he was given such power, but without
the agent is still guilty because the rule is to prevent the designating the person, and the person appointed was
possibility of any wrong, not to remedy or repair an actual notoriously incompetent or insolvent
damage.
By taking such secret profit from a third person, the agent Relation and liability
thereby assumes a position wholly inconsistent with that of being 1. Sub-agent appointed by agent on his own account –
an agent for his principal, who has a right to treat him, insofar as the principal will not be liable to third parties for the
his commission is concerned, as if no agency existed. sub-agent’s acts but the agent will be liable to the
principal or third parties if the sub-agent acts wrongfully
Stipulation exempting agent from obligation to account void 2. Sub-agent appointed by agent with authority from the
Such stipulation is contrary to public policy, as it would principal – a fiduciary relationship exists between the
encourage fraud. It is in the nature of a waiver of an action for principal and the agent, the agent and sub-agent, and
future fraud which is void (Article 1171). the principal and the sub-agent. Any act done by the
It imposes upon the agent the absolute obligation to make a substitute or sub-agent in behalf of the principal is
full disclosure or complete account to his principal of all his deemed an act of the principal. Consequently, neither
transactions and other material facts relevant to the agency the agent nor the substitute can be held personally
liable so long as they act within the scope of their
Liability of the agent for conversion authority
If the agent fails to deliver and instead converts or 3. Effect of death of principal/agent – if the authority of the
appropriates for his own use the money or property belonging to sub-agent proceeds from the principal, the death of the
the principal, the agent is liable for estafa. agent who appointed him does not affect his authority.
But where the sub-agent is a substitute for the agent
When obligation to account not applicable and acts under authority from him and to whom he is
1. If the agent or broker acted only as a middleman with accountable, the death of the agent terminates his
the task of merely bringing together the vendor and the authority
vendee, who themselves thereafter will negotiate on
the terms and conditions of the transaction Effects of substitution
2. If the agent or broker had informed the principal of the 1. Substitution prohibited – the agent exceeds the limits of
gift or bonus or profit he received from the purchaser his authority and all acts of the substitute shall be void
and his principal did not object thereto 2. Substitution not prohibited – the principal will be liable
3. Where a right of lien exists in favor of the agent to third persons for the acts of the sub-agent within the
scope of his authority, whether or not such sub-agent is
ARTICLE 1892. The agent may appoint a substitute if the known to the principal
principal has not prohibited him from doing so; but he shall 3. Substitution authorized – if agent is given the power to
be responsible for the acts of the substitute: appoint a substitute and the principal did not designate
(1) When he was not given the power to appoint one; any particular person to be appointed, the substitution
(2) When he was given such power, but without has the effect of releasing the agent from his
designating the person, and the person appointed responsibility unless the person appointed is
was notoriously incompetent or insolvent. notoriously incompetent or insolvent. But if the
All acts of the substitute appointed against the
substitute is the person designated by the principal, the Duties and liabilities of agent to third persons
consequence is the absolute exemption of the agent GR: The principal is responsible for the acts of the agent
4. Substitution not authorized but not prohibited – the law done within the scope of his authority and should bear any
recognizes the validity of the substitution if the same is damage caused to third persons. In other words, the agent who
beneficial to the principal because the agency has thus acts within his authority is not personally liable to the party with
been executed in fulfillment of its object whom he contracts.
EXC: The agent is personally liable to the third person when:
ARTICLE 1894. The responsibility of two or more agents, 1. He expressly binds himself; or
even though they have been appointed simultaneously, is 2. He exceeds the limits of his authority without giving
not solidary, if solidarity has not been expressly stipulated. such party sufficient notice of his powers
a. The contract is unenforceable against the
ARTICLE 1895. If solidarity has been agreed upon, each of principal unless he ratifies the act (Article
the agents is responsible for the non-fulfillment of agency, 1910)
and for the fault or negligence of his fellows agents, except b. The agent becomes personally liable because
in the latter case when the fellow agents acted beyond the by his wrong or omission, he deprives the
scope of their authority. (n) third person with whom he contracts of any
remedy against the principal
Joint agents c. But if the agent has sufficient notice of his
Articles 1894 and 1895 talk about joint agents. This refers to powers to third persons dealing with him and
two or more agents appointed simultaneously by one or more such persons nevertheless contract with the
principal. agent, neither the principal nor the agent is
bound
Nature of liability of two or more agents to their principal
1. If solidarity is not stipulated – in a joint obligation, each Tort cases
debtor is liable only for a proportionate part of the debt. If the tort is committed by the agent within the scope of his
If it is solidary, each debtor is liable for the entire authority both the principal and the agent are liable. Agency is
obligation (Article 1216). The presumption is that an not a defense to action against an agent based upon commission
obligation is joint (Articles 1207 and 1208). The rule in of tort, his liability being neither increased nor decreased by the
Article 1894 follows the general principle respecting fact of his agency (Article 1910).
solidarity
2. If solidarity is stipulated ARTICLE 1898. If the agent contracts in the name of the
a. Each of the agents is responsible for the non- principal, exceeding the scope of his authority, and the
fulfillment of agency; and principal does not ratify the contract, it shall be void if the
b. For the fault or negligence of his fellows party with whom the agent contracted is aware of the limits
agents of the powers granted by the principal. In this case,
i. Except when the fellow agents however, the agent is liable if he undertook to secure the
acted beyond the scope of their principal's ratification. (n)
authority
Effect where third person aware of limits of agent’s power
ARTICLE 1896. The agent owes interest on the sums he has 1. If the agent contracts in the name of the principal and
applied to his own use from the day on which he did so, and within his authority – the agent assumes no liability
on those which he still owes after the extinguishment of the 2. If the agent contracts in the name of the principal but
agency. (1724a) exceeding the scope of his authority – the transaction is
void between the agent and the third person and
Liability of agent for interest unenforceable between the agent and the principal. In
1. The agent who converted to his personal use the funds such case, the agent is personally liable to the third
of the principal is liable for interest by way of person unless he was able to secure the principal's
compensation or indemnity computed from the day of ratification.
conversion without prejudice to a criminal action that
may be brought against him Note: The agent’s liability depends whether the third person is
2. While there is no liability for interest on sums which aware of the agent’s power.
have not been converted for the agent’s own use, the When agent not liable
agent who is found to owe the principal sums after the 1. The agent is not bound nor liable for damages in case
extinguishment of the agency is liable for interest from he gave notice of his powers to the person with whom
the date the agency is extinguished he has contracted (Article 1897)
2. The third person is aware of the limits of the powers
Note: The agent is bound to deliver to the principal whatever he granted by the principal (Article 1989)
may have received by virtue of the agency (Article 1891),
demand is no longer necessary. ARTICLE 1899. If a duly authorized agent acts in accordance
with the orders of the principal, the latter cannot set up the
ARTICLE 1897. The agent who acts as such is not personally ignorance of the agent as to circumstances whereof he
liable to the party with whom he contracts, unless he himself was, or ought to have been, aware. (n)
expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his Article 1899 refers to the liability of the principal towards third
powers. (1725) persons. It is enough that the agent acts within the scope of his
authority (Article 1881) and in accordance with the instructions of
the principal (Article1887). If the principal appoints an agent who
is ignorant, the fault is his alone. Equity demands that the power of attorney or instructions shown them. Such secret orders
principal should be bound by the acts of his agent. or instructions cannot be invoked as against third parties if the
agent has apparent authority.
ARTICLE 1900. So far as third persons are concerned, an act
is deemed to have been performed within the scope of the ARTICLE 1903. The commission agent shall be responsible
agent's authority, if such act is within the terms of the power for the goods received by him in the terms and conditions
of attorney, as written, even if the agent has in fact exceeded and as described in the consignment, unless upon receiving
the limits of his authority according to an understanding them he should make a written statement of the damage and
between the principal and the agent. (n) deterioration suffered by the same. (n)
Scope of agent’s authority as to third persons Factor or commission agent

1. Agent’s authority not in writing – every person dealing One whose business is to receive and sell goods for a
with an assumed agent is put upon an inquiry and must commission and who is entrusted by the principal with the
discover upon his peril not only the fact of the agency possession of goods to be sold, and usually selling in his own
but the nature and extent of authority of the agent in name. He may act in his own name or in that of the principal. The
order to hold the principal liable. The mere commission agent must be in possession of the goods of the
representation or declaration of one that he is principal.
authorized to act on behalf of another cannot of itself
serve as proof of his authority to act as agent or of the Liability of commission agent
extent of his authority. The commission agent is responsible for any damage or
2. Agent’s authority in writing – a third person is not deterioration suffered by the good he received in the terms and
required to inquire further than the terms of the written conditions and as described in the consignment.
power of attorney. As far as he is concerned, an act of To avoid liability, the commission agent should make a
the agent within the terms of the power of attorney as written statement of the damage or deterioration if the goods
written is within the scope of the agent’s authority, even received by him do not agree with the description in the
if the agent has in fact exceeded the limits of his actual consignment.
authority according to the secret understanding
between him and the principal ARTICLE 1904. The commission agent who handles goods
of the same kind and mark, which belong to different
ARTICLE 1901. A third person cannot set up the fact that the owners, shall distinguish them by countermarks, and
agent has exceeded his powers, if the principal has ratified, designate the merchandise respectively belonging to each
or has signified his willingness to ratify the agent's acts. (n) principal. (n)
Ratification by the principal Handling of goods of the same kind and mark
GR: The principal is not bound by the contract of his agent An agent is also under a duty not to mingle his principal’s
should the agent exceed his power. The contract is property with his own or to make it appear to be his own
unenforceable against the principal. However, the principal may property. Where he violates that duty by mingling the property
ratify the contract giving it the same effect as if he had originally with his own, he becomes a debtor of the principal and liable to
authorized it. him for any losses suffered as a result of the mingling.
The ratification shall have retroactive effect. It relates back to Its purpose is to prevent any possible confusion or deception.
the time of the act or contract ratified.
ARTICLE 1905. The commission agent cannot, without the
When third person cannot set up the fact that agent express or implied consent of the principal, sell on credit.
exceeded his authority Should he do so, the principal may demand from him
1. If the principal has ratified the transaction payment in cash, but the commission agent shall be entitled
2. If the principal has signified his willingness to ratify the to any interest or benefit, which may result from such sale.
agent's acts
Sale on credit without authority by commission agent
Note: In case the principal ratifies the transaction, the third 1. A commission agent can sell on credit only with the
person can be compelled to abide by his contract. express or implied consent of the principal.
2. If such sale is made without authority, the principal is
ARTICLE 1902. A third person with whom the agent wishes given two alternatives:
to contract on behalf of the principal may require the a. He may require payment in cash
presentation of the power of attorney, or the instructions as i. Any interest or benefit from the sale
regards the agency. Private or secret orders and on credit shall belong to the agent
instructions of the principal do not prejudice third persons since the principal cannot be
who have relied upon the power of attorney or instructions allowed to enrich himself at the
shown them. (n) agent’s expense
b. He may ratify the sale on credit
Presentation of power of attorney or instructions i. The principal will have all the risks
GR: A third person deals with an agent at his peril. It is his and advantages to him
duty to require the agent to produce his power of attorney to
ascertain the scope of his authority. He may also ask for the ARTICLE 1906. Should the commission agent, with authority
instructions of the principal. Ignorance of the agent’s authority is of the principal, sell on credit, he shall so inform the
no excuse. principal, with a statement of the names of the buyers.
Nevertheless, private or secret orders and instructions of the Should he fail to do so, the sale shall be deemed to have
principal do not prejudice third persons who have relied upon the been made for cash insofar as the principal is concerned. (n)
Sale on credit with authority by commission agent The agent is also liable for torts committed willfully. As a
1. If the commission agent sell on credit with the authority general, rule, the principal is not responsible if the agent’s tort
of the principal, he must inform the principal with a was intentional rather than merely negligent.
statement of the names of the buyers However, the principal is solidarily liable if the tort was
2. If he fails to inform the principal of such sale in credit, committed by the agent while performing his duties in furtherance
the sale shall be deemed to have been made for cash of the principal’s business.
insofar as the principal is concerned
CHAPTER 3
ARTICLE 1907. Should the commission agent receive on a OBLIGATIONS OF THE PRINCIPAL
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 ARTICLE 1910. The principal must comply with all the
same terms agreed upon with the purchaser. (n) obligations which the agent may have contracted within the
scope of his authority.
Guarantee commission As for any obligation wherein the agent has exceeded
A del credere commission is one where, in consideration of his power, the principal is not bound except when he ratifies
an increased commission, the commission agent guarantees to it expressly or tacitly. (1727)
the principal the payment of debts arising through his agency.
The purpose of the guarantee commission is to compensate General obligations of the principal
the agent for the risks he will have to bear in the collection of the GR: The duties and liabilities of the principal are primarily
credit due the principal. based upon the contract and the validity of the contract between
him and the agent.
Nature of liability EXC: In the absence of express agreement, the law imposes
An agent with a del credere commission is liable to the upon the principal certain obligations to his agent.
principal if the buyer fails to pay or is incapable of paying. It is a In addition to his contractual duties, the principal is under an
contingent pecuniary liability, to make good in the event the obligation to deal fairly and in good faith with his agent who owes
buyer fails to pay the sum due. It does not extend to other the same duty to his principal. The principal may be justified in
obligations of the contract. refusing to perform his part of the contract when the agent has
already breached the contract.
ARTICLE 1908. The commission agent who does not collect
the credits of his principal at the time when they become Specific obligations of the principal (imposed by law)
due and demandable shall be liable for damages, unless he 1. To comply with all the obligations which the agent may
proves that he exercised due diligence for that purpose. (n) have contracted within the scope of his authority
(Articles 1910, 1881, 1897) and in the name of the
Obligation to collect credits principal (Articles 1868 and1883);
1. A commission agent who has made an authorized sale 2. To advance to the agent, should he request, the sums
on credit (Article 1906) must collect the credits due the necessary for the execution of the agency (Article
principal at the time they become due and demandable 1912);
2. If he fails to do so, he shall be liable for damages 3. To reimburse the agent for all advances made by him,
a. Unless he can show that the credit could not provided the agent is free from fault;
be collected notwithstanding the exercise of 4. To indemnify the agent for all the damages which the
due diligence on his part (Articles 1173 and execution of the agency may have caused the agent
1174). without fault or negligence on his part (Article 1913);
3. Where the agent is not liable, the principal’s remedy is and
to proceed against the debtor. 5. To pay the agent the compensation agreed upon, or if
no compensation was specified, the reasonable value
Note: Article 1908 does not apply where there is a guarantee of the agent’s services. (Articles 1875 and 1306)
commission under Article 1907.
Liability of the principal to third persons
ARTICLE 1909. The agent is responsible not only for fraud, GR: Where the relation of agency legally exists, the principal
but also for negligence, which shall be judged with more or will be liable to third persons:
less rigor by the courts, according to whether the agency 1. For all acts committed by the agent and obligations
was or was not for a compensation. (1726) contracted by him in the principal’s behalf in the course
and within the actual, express or implied, or apparent
Liability of agent for fraud and negligence scope of his authority, and
In the fulfillment of his obligation, the agent is responsible to 2. Should bear the damage caused to third persons.
the principal not only for fraud (Article 1171) committed by him
but also for negligence (Article 1172). Reason for liability
The circumstance that the agency is or is not gratuitous will The rationale behind the liability is that the act of the agent is
be considered by the courts in fixing the liability of the agent for the act of the principal. The agent is a mere extension of the
negligence, not fraud. Nevertheless, agency is presumed to be personality of the principal.
for compensation (Article 1875).
Liability in case of estoppel
Quasi-delict or tort The principal is bound by the act of his agent when he has
Quasi-delict or tort may be committed by act or omission. If it placed the agent in such position that persons of ordinary
causes damage to another, there being fault or negligence, the prudence are thereby led to believe and assume that the agent is
guilty party is liable for the damage done.
possessed of certain authority, and to deal with him in reliance the defect must first be removed before a
on such assumption. valid ratification can take place
However, this applies only where the principal is responsible • The third party has a right to withdraw from
for such appearance of authority. the transaction prior to ratification. The
principal will not be permitted to ratify after the
Liability of principal for mismanagement of business third party has already indicated a desire to
The fact that the agent defrauded the principal in not turning withdraw from the transaction
over the proceeds of the transactions to the latter cannot in any 2. He must have had knowledge or had reason to know of
way relieve nor exonerate him from liability to the third person material or essential facts about the transaction;
who relied on his agent’s authority. • The principal must have knowledge of the
material or relevant facts of the transaction
Liability of third persons to principal sought to be ratified
1. A third person is liable to the principal upon contracts • Ratification cannot occur if important facts are
entered into by his agent as if the contract was entered concealed from the principal
into by the principal himself. • The person who seeks to rely on a ratification
• This results from the representative nature of is bound to show that it was made under such
agency. circumstances as in law to be binding on the
• Since notice by a third party to the agent is principal, especially to see that all material
notice to the principal, the third party is not facts were made known to him
liable for damages for failure of the agent to • This does not mean that the principal can be
give notice to his principal. willfully ignorant, or purposely shut his eyes to
2. The third person is liable for tort when: means of information within his own
• The third person damages or injures property possession and control and thereby escape
or interest of the principal in the possession of the consequence of a ratification
the agent; 3. He must ratify the acts in its entirety;
• The third person colludes with the agent to • The principal cannot ratify that portion which
injure or defraud the principal; and is beneficial or advantageous to him and
• The third person induces the agent to violate repudiate that portion which is burdensome or
his contract with the principal to betray the disadvantageous
trust reposed upon him by the principal. • The principal cannot accept the benefits of a
transaction and refuse to accept the
Liability of principal for tort of agent obligations that are part of it
GR: The principal is civilly liable to third persons for torts of 4. The act must be capable of ratification; and
an agent committed at the principal’s direction or in the course • Void contracts – cannot be ratified
and within the scope of the agent’s employment. • Voidable contracts – can be ratified
Whether the tort is committed willfully or negligently has no • Unrevoked acts – the principal must ratify the
effect on the extent or degree of the principal’s liability. agent’s unauthorized contract before it is
The liability is based on the principle that he who does an act revoked, expressly or by the change in the
through another does it himself. nature of the original contract, by the third
The agent is also liable with the principal and their liability person. If the third person revoked the
shall be solidary. Hence, the third person may sue both the contract before ratification, the principal can
principal and the agent or choose whom he will hold. no longer ratify the contract
5. The act must be done in behalf of the principal.
Ratification • The rule operates to prevent a person from
It is the adoption or affirmance by a person of a prior act acquiring the right of another
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 Forms of ratification
authorized (Article 1393). 1. Express ratification – the principal simply informs the
The ratification of the principal may be implied from the agent or the third party of his intention to honor the
principal’s conduct such as his acceptance of benefits under a agent’s unauthorized dealings
contract entered in his name. 2. Implied ratification – by words or conduct that had
amounted to ratification or even by silence or inaction.
GR: The principal is not bound for any obligation wherein the The act must be inconsistent with any other hypothesis
agent has exceeded his power. than that he approved and intended to adopt what had
EXC: Unless the principal ratifies it, expressly or tacitly. been done in his name
In effect, the agent acts without authority and becomes Effects of ratification
personally liable for any damage caused to third persons. 1. By ratification, the relation of principal and agency is
Without such ratification, the principal cannot be held liable. The created. Once made, ratification is irrevocable
agent is the one personally liable. 2. Ratification relieves the agent from liability to the third
party and to his principal for acting without authority
Conditions for ratification and he may recover his compensation
1. The principal must have the capacity and power to 3. The principal assumes responsibility for the
ratify; unauthorized act but he is not liable for fraudulent
• A voidable act or transaction by reason of misrepresentations made by the agent without his
incapacity to give consent may be ratified but knowledge
4. A third person is bound by a ratification to the same must reimburse him therefor, even if the business or
extent as he would have been bound if the ratified act undertaking was not successful, provided the agent is free
had been authorized from all fault.
5. Ratification has retroactive effect. It is equivalent to The reimbursement shall include interest on the sums
initial approval or prior authority advanced, from the day on which the advance was made.
• Exceptions:
1. When it would be to defeat rights of Obligation to advance funds
third parties which already accrued The principal is under obligation to provide the means with
2. When it would be to render wrongful which to execute the agency.
an otherwise rightful act or omission In the absence of stipulation that the agent shall advance the
3. When it would allow the circumvention necessary funds (Article 1886), the principal must advance to the
of a rule of law formulated in the agent upon his request the sums necessary for the execution of
interest of public policy the agency.
4. When the third party has withdrawn If the principal fails to do so, the agent will not be liable for
from the contract damages the principal may suffer.
Note: Ratification does not need to be communicated or made Obligation to reimburse

known to the agent or the third party to be effective. In case the agent advanced the sums necessary for the
execution of the agency, whether on his own initiative or by virtue
ARTICLE 1911. Even when the agent has exceeded his of stipulation, the advances must be reimbursed by the principal
authority, the principal is solidarily liable with the agent if with interest from the day the advance was made.
the former allowed the latter to act as though he had full The obligation is not affected even if the business or
powers. (n) undertaking was not successful, provided the agent is free from
all fault.
Estoppel, defined
Estoppel is a bar which precludes a person from denying or ARTICLE 1913. The principal must also indemnify the agent
asserting anything contrary to that which has been established for all the damages which the execution of the agency may
as the truth by his own deed or representation either express or have caused the latter, without fault or negligence on his
implied. part. (1729)
Through estoppel, an admission or representation is thus
rendered conclusive upon the person making it and cannot be Obligation to indemnify the agent for damages
denied or disproved as against the person relying thereon (Article The rule is based on equity. Since the principal receives the
1431). benefits of the agency and has a right to demand damages from
the agent should the latter not perform the agency (Article 1884),
Ratification distinguished from estoppel he should answer for the damages resulting from the execution
thereof without fault or negligence on the part of the agent.
Ratification Estoppel However, the liability of the principal for damages is limited
Rests on intention. The party is Rests on prejudice. The party only to that which the execution of the agency has caused the
bound because he intended to is bound despite absence of agent. The principal has no obligation to indemnify the agent for
be bound intention because the other acts in which he is not responsible or where no agency relation
party is prejudiced exists.
Retroactive. It affects the Affects only the relevant parts
entire transaction and from the (misrepresentation or fraud) of ARTICLE 1914. The agent may retain in pledge the things
beginning the transaction and from that which are the object of the agency until the principal effects
time only the reimbursement and pays the indemnity set forth in the
Substance is confirmation of Substance is the principal’s two preceding articles. (1730)
the unauthorized act or inducement to another to act to
contract after it has been done his prejudice Right of agent to retain in pledge object of agency
or made If the principal fails to reimburse or indemnify the agent as
May be complete without the Estoppel in pais (or by required in Articles 1912 and 1913, the agent has the right to
element of estoppel conduct) may in some retain in pledge the things which are the object of the agency by
instances amount to a operation of law.
ratification However, the agent is not entitled to the excess in case the
things are sold to satisfy his claim and the proceeds thereof are
Principal and agent solidarily liable more than the amount due.
The principal is solidarily liable with the agent when he
allowed the agent to act under his name and as though he had Requisites
full powers and the third person is not ware of the limits of the 1. The funds or property against which it is asserted must
power granted to the agent (Article 1898). be in his actual or constructive possession; and
The third person with whom the agent dealt may sue either 2. He must have acquired that possession lawfully and in
the agent or the principal alone, or both. The agent should be his capacity as agent.
exempt from liability if he acted in good faith.
ARTICLE 1915. If two or more persons have appointed an
ARTICLE 1912. The principal must advance to the agent, agent for a common transaction or undertaking, they shall
should the latter so request, the sums necessary for the be solidarily liable to the agent for all the consequences of
execution of the agency. the agency. (1731)
Should the agent have advanced them, the principal
Joint principals agent;

This refers to two or more persons who have appointed an (3) When the agent incurred them with knowledge that
agent for a common transaction or undertaking. an unfavorable result would ensue, if the principal
was not aware thereof;
Requisites (4) When it was stipulated that the expenses would be
1. There are two or more principals; borne by the agent, or that the latter would be
2. The principals have all concurred in the appointment of allowed only a certain sum. (n)
the same agent; and
3. The agent is appointed for a common transaction or
CHAPTER 4
undertaking.
MODES OF EXTINGUISHMENT OF AGENCY
Liability of the principals
The liability of the principals is solidary for all the ARTICLE 1919. Agency is extinguished:
consequences of the agency. The agent may sue each principal (1) By its revocation;
for the entire amount due and not just for his proportionate share. (2) By the withdrawal of the agent;
The rule applies even when the principals made the (3) By the death, civil interdiction, insanity or
appointments in separate acts, provided that they are for the insolvency of the principal or of the agent;
same transaction. The solidarity arises from the common interest (4) By the dissolution of the firm or corporation which
of the principals and not from the act of constituting the agency. entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of
ARTICLE 1916. When two persons contract with regard to the agency;
the same thing, one of them with the agent and the other (6) By the expiration of the period for which the agency
with the principal, and the two contracts are incompatible was constituted. (1732a)
with each other, that of prior date shall be preferred, without
prejudice to the provisions of Article 1544. (n) Presumption of continuance of agency
Once it is shown that an agency relation exists, it is
ARTICLE. 1917. In the case referred to in the preceding presumed to have continued in the absence of anything to show
article, if the agent has acted in good faith, the principal its termination. The burden of proving is on the party asserting its
shall be liable in damages to the third person whose termination.
contract must be rejected. If the agent acted in bad faith, he
alone shall be responsible. (n) Modes of extinguishing agency
A. By agreement
Two persons contract separately with agent and principal 1. By the accomplishment of the object or purpose of
One person contracts with the principal while the other the agency
person contracts with the agent involving the same thing. 2. By the expiration of the period for which the agency
If the two contracts are incompatible with each other, the one was constituted
of prior date shall be preferred. This is without prejudice to the B. By the subsequent acts of the parties:
provisions of Article 1544 on double sale. 1. By the act of both parties or by mutual consent, or
2. By the unilateral act of one of them
1. Movable property sold to different vendee a. By its revocation
a. The ownership shall be transferred to the b. By the withdrawal of the agent
person who may have first taken possession C. By operation of law
thereof in good faith 1. By the death, civil interdiction, insanity or insolvency
2. If immovable property is sold to different vendee of the principal or of the agent
a. The ownership shall belong to the person 2. By the dissolution of the firm or corporation which
acquiring it who in good faith first recorded it entrusted or accepted the agency
in the Registry of Property
b. If there is no inscription, the ownership shall FIRST MODE: Revocation
pertain to the person who, in good faith was
first in the possession ARTICLE 1920. The principal may revoke the agency at will,
c. In the absence thereof, to the person who and compel the agent to return the document evidencing the
presents the oldest title, provided there is agency. Such revocation may be express or implied. (1733a)
good faith
The principal may revoke, expressly or impliedly, the agency
Liability to third person at will, at any time, at his mere option, with or without reason,
1. If the agent acted in good faith – the principal shall be since agency relationship is voluntary. This is true even though
liable in damages to the third person whose contract there was an agreement previous to the revocation that the
must be rejected agency should continue longer or that the agency cannot be
2. If the agent acted in bad faith – he alone shall be terminated.
responsible
Liability of principal for revocation
ARTICLE 1918. The principal is not liable for the expenses While the principal may have absolute power to revoke the
incurred by the agent in the following cases: agency at any time, he must respond in damages for breach of
(1) If the agent acted in contravention of the principal's contract where the termination is wrongful (bad faith) such as
instructions, unless the latter should wish to avail where the agency is constituted for a fixed period.
himself of the benefits derived from the contract; If there no fixed period, the principal is at liberty to terminate
(2) When the expenses were due to the fault of the the agency provided it is in good faith.
The basis of the liability of the principal for revoking the 1. There is incompatibility with the former agent and the
agency at will is Article 19, which provides, “Every person must, new agent;
in the exercise of his rights and in the performance of his duties, 2. There must be notice to the former agency that he is
act with justice, give everyone his due, and observe honesty and terminated as agent
good faith.”
Note: The two requisites must concur. In the absence of one, the
Return of document contract is unenforceable.
When the authority of the agent is in writing, the principal can
compel the agent to return the document evidencing the agency ARTICLE 1924. The agency is revoked if the principal
to avoid liability to innocent third persons who deal with the directly manages the business entrusted to the agent,
agent. dealing directly with third persons. (n)
Notice of revocation 1. If the desire of the principal is for him and the agent to
1. To agent – express notice to the agent that the agency manage the business – there is implied revocation but
is revoked is not always necessary. If the party to be the principal is not liable for damages
notified actually knows, or has reason to know, facts 2. If the desire of the principal is to avoid payment of the
indicating that his authority has been terminated or is agent’s commission – he is liable for damages due to
suspended, there is sufficient notice bad faith
2. To third persons – there must be actual notice.
Absence such, the principal may be held liable ARTICLE 1926. A general power of attorney is revoked by a
special one granted to another agent, as regards the special
ARTICLE 1921. If the agency has been entrusted for the matter involved in the latter. (n)
purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were not Partial revocation of general power by a special power
given notice thereof. (1734) There are two agents involve: (1) agent given a general
power and (2) agent given a special power.
ARTICLE 1922. If the agent had general powers, revocation The general power is impliedly revoked as to matters covered
of the agency does not prejudice third persons who acted in by the special power. A special power naturally prevails over a
good faith and without knowledge of the revocation. Notice general power.
of the revocation in a newspaper of general circulation is a
sufficient warning to third persons. (n) ARTICLE 1925. When two or more principals have granted a
power of attorney for a common transaction, any one of
Notice to third persons them may revoke the same without the consent of the
1. If the agency has been entrusted for the purpose of others. (n)
contracting with specified persons – the revocation
shall not prejudice them unless sufficient notice was As the appointment of an agent by two or more principals for
given to them. The notice must be personal a common transaction or undertaking makes them solidarily
2. If the agent had general powers – revocation does not liable to the agent for all the consequences of the agency (Article
prejudice third persons who acted in good faith and 1915), any one of the principals is granted under this article the
without knowledge of the revocation. Notice of the right to revoke the power of attorney without the consent of the
revocation in a newspaper of general circulation is a others. In a solidary obligation, the act of one is the act of all.
sufficient warning
ARTICLE 1927. An agency cannot be revoked if a bilateral
Note: Notice to third persons is not necessary if they already contract depends upon it, or if it is the means of fulfilling an
know of the revocation. obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and
his removal from the management is unjustifiable. (n)
ARTICLE 1923. The appointment of a new agent for the same
business or transaction revokes the previous agency from GR: The principal can revoke the agency at will.
the day on which notice thereof was given to the former
agent, without prejudice to the provisions of the two Exceptions
preceding articles. (1735a) 1. Agency coupled with interest of third persons (Article
1927)
Implied revocation 2. Agency created for mutual interest of the principal and
1. Article 1923 the agent (Article 1930)
2. Article 1924
3. Article 1926 In either case, the agency is deemed as one coupled with an
interest. The agency cannot be revoked by the sole will of the
Implied revocation of previous agency principal as long as the interest of the agent or of a third person
There is implied revocation of the previous agency when the subsists because it is not solely the rights of the principal which
principal appoints a new agent for the same business or are affected.
transaction provided there is incompatibility.
But the revocation does not become effective as between the Instances of irrevocability under Article 1927
principal and the agent until notice is given to the former agent. 1. If a bilateral contract depends upon it
2. If it is the means of fulfilling an obligation already
Requisites contracted
3. If a partner is appointed manager of a partnership in Exceptions

the contract of partnership and his removal from the 1. The agency is coupled with an interest of the principal
management is unjustifiable and the agent or in the interest of a third person
(Article 1930)
SECOND MODE: Withdrawal of the agent
ARTICLE 1930. The agency shall remain in full force and
ARTICLE 1928. The agent may withdraw from the agency by effect even after the death of the principal, if it has been
giving due notice to the principal. If the latter should suffer constituted in the common interest of the latter and of the
any damage by reason of the withdrawal, the agent must agent, or in the interest of a third person who has accepted
indemnify him therefor, unless the agent should base his the stipulation in his favor. (n)
withdrawal upon the impossibility of continuing the
performance of the agency without grave detriment to 2. The act of the agent was executed without knowledge
himself. (1736a) of the death of the principal and the third person who
contracted with the agent acted in good faith (Article
Right of agent to withdraw 1931)
The agent has the power to withdraw from the agency
relationship, subject only to the contractual obligations owing to ARTICLE 1931. Anything done by the agent, without
the principal. The agent must notify the principal to effect his knowledge of the death of the principal or of any other
withdrawal. cause which extinguishes the agency, is valid and shall be
However, the agent may be held liable if the principal suffers fully effective with respect to third persons who may have
any damage for the wrongful termination (bad faith). contracted with him in good faith. (1738)
Nevertheless, the principal has no right to compel specific
performance against the agent as it would amount to involuntary Nature of agent’s authority after death of the principal
servitude inconsistent with the principle that agency is a GR: The death of the principal extinguishes the agency.
voluntary contract. However, the agent is required to finish the business already
The mere fact that the agent violates his instructions does not begun on the death of the principal should delay entail any
amount to a renunciation, and although he may thus render danger pursuant to Article 1884.
himself liable to the principal, he does not cease to be an agent. In such case, the duty of the agent is no longer to the
deceased but to the principal’s estate.
Obligations of agent in case of withdrawal The death of the principal extinguishes the agency but third
1. If withdrawal is without just cause persons, who may have contracted with the agent in good faith,
a. The agent must notify the principal of his are protected where it is shown that the agent did not have
withdrawal knowledge of the termination of the agency because of the death
b. The agent must indemnify the principal in of the principal or of any other cause which extinguishes the
case he suffered any damage by reason of agency.
the withdrawal
2. If the withdrawal is for just cause ARTICLE 1932. If the agent dies, his heirs must notify the
a. The withdrawal is for just cause when the principal thereof, and in the meantime adopt such measures
agent should base his withdrawal upon the as the circumstances may demand in the interest of the
impossibility of continuing the performance of latter. (1739)
the agency without grave detriment to himself Duty of the agent’s heirs
b. The agent is not liable 1. The heirs must notify the principal of the agent’s death;
c. He must continue to act until the principal has and
had reasonable opportunity to take the 2. Adopt such measures as the circumstances may
necessary steps like the appointment of a demand in the interest of the principal
new agent to remedy the situation (Article
1929). The purpose of the law is to prevent Note: The law does not impose upon the heirs of the principal to
damage or prejudice to the principal. notify the agent of the principal’s death.
Art. 1929. The agent, even if he should withdraw from the Continuation agency by agent’s heirs
agency for a valid reason, must continue to act until the GR: The death of the agent extinguishes the agency.
principal has had reasonable opportunity to take the However, the rights and obligations arising from the contract are
necessary steps to meet the situation. (1737a) not transmissible to his heirs.
EXC:
THIRD MODE: Death, civil interdiction, insanity, insolvency 1. The heirs’ duty to continue the agency after the
death of the agent arises from what may be
1. Death termed as an agency by operation of law or a
presumed or tacit agency
GR: By reason of the very nature of the relationship between 2. Where the agency is one coupled with an interest
the principal and agent, agency is extinguished ipso jure upon in the subject matter of the agency
the death of either principal or agent.
With the death of the principal, the agent’s source of authority 2. Civil interdiction
is extinguished. In agency, being based on representation, there
is no one to be represented where the principal is already dead. Civil interdiction deprives the offender during the period of his
On the other hand, if the agent dies, he can no longer act in sentence of the right to manage his property and dispose of such
representation of the principal. property by any act or any conveyance inter vivos. A person
under civil interdiction cannot validly give consent.
3. Insolvency 4. Termination of agent’s authority – agency flows from a

trust relationship. Hence, it is terminated as a matter of
By insolvency, the principal loses control of the subject law with the destruction or loss of the trust
matter of the agency, the authority of the agent to act for his 5. Occurrence of a specified event – if the principal and
principal generally ceases by operation of law upon an agent have originally agreed that the agency, or some
adjudication of the principal’s insolvency. particular aspect of it, will continue until a specified
event occurs the happening of the event obviously
FOURTH MODE: Dissolution of firm or corporation terminates the agency. The event is in the nature of a
resolutory condition.
Dissolution of a firm or corporation which entrusted (as 6. Change of conditions
principal) or accepted (as agent) the agency, extinguishes its • GR: Where there is a basic change in the
juridical existence as far as the right to go on doing ordinary circumstances surrounding the transaction,
business is concerned, except for the purpose of winding up its such as change in the value of the subject
affairs. After winding up, the existence of the firm or corporation matter, which was not contemplated by the
is terminated for all purposes. parties and which would reasonably lead the
agent to believe that the principal would not
FIFTH MODE: Accomplishment of the object or purpose desire him to act, the authority of the agent is
terminated
Between the principal and the agent, the fulfillment of the • EXC:
purpose for which the agency is created ipso facto terminates the 1. If the original circumstances are
agency, even though expressed to be irrevocable. restored within a reasonable period
of time
SIXTH MODE: Expiration of the period 2. Where the agent has reasonable
doubts as to whether the principal
Where an agency, by the terms of the original agreement, is would desire him to act
created for a fixed period or is to end at a certain time, the 3. If the agent knows the principal is
expiration of such period or the arrival of that time results in the aware of the change and does not
termination of the relationship, even though the purpose for give him new instructions
which the agency was created has not been accomplished.
If no time is specified, it terminates at the end of a reasonable
period of time. Either, party can terminate the relationship at will
by giving notice to the other. The relationship is an agency at will.
Note: The enumeration under Article 1919 is not exclusive.
Other modes of extinguishing agency

1. Loss or destruction of the subject matter (Article 1231)
• Absence of agreement to the contrary, the
loss or destruction of the subject matter of the
agency terminates the agent’s authority
• Exceptions:
3. If it is possible to substitute other
material without substantial
detriment to either party or if the
destroyed subject matter was not
in fact essential to the contract
4. There was only a partial loss or
destruction of the subject matter
and the agency may continue in
existence as to other property not
affected
• The principal is liable for damages if the
termination is through his fault but not if
without his fault.
• If a third person has given money for the
subject matter, he may sue the principal to
recover the same
2. War – during the existence of a state of war, a contract
of agency is inoperative if the agent or the principal is
an enemy alien since war suspends all commercial
intercourse between the residents of two belligerent
states
3. Legal impossibility – a contract must be capable of
being carried out legally. An agency terminates if a
change in the law makes the purpose of the agency
unlawful

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SECOND EXAM REVIEWER IN

Parties to the contract of agency

Agency distinguished from sale 5. As to its nature and effects

Except as may be required by statute, a power of attorney is given. (n)

Right of agent to compensation in double agency General Agent Special Agent

Note: The agent cannot loan or borrow money without a SPA.

Obligation to render accounts Sub-agent, defined

Scope of agent’s authority as to third persons Factor or commission agent

Note: Ratification does not need to be communicated or made Obligation to reimburse

Joint principals agent;

3. If a partner is appointed manager of a partnership in Exceptions

3. Insolvency 4. Termination of agent’s authority – agency flows from a

Note: The enumeration under Article 1919 is not exclusive.

Other modes of extinguishing agency

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