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AGENCY
F I S C A L D C L A C U ATA

WHAT IS AGENCY?

§ By the Contract of Agency a person binds himself to render some service or to do

something in representation or on behalf of another, with the consent or authority of the
latter. (Art. 1868)

§ Agency is presumed to be for compensation, unless there is proof to the contrary. (Art.
1875)

§ Basis: REPRESENTATION. The acts of the agent on behalf of the principal within the scope of
his authority produce the same legal and binding effects as if they were personally done by
the principal.

§ Purpose: To extend the personality of the principal through the facility of the agent.

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CHARACTERISTICS OF A CONTRACT OF AGENCY

1. CONSENSUAL – It is perfected by mere consent (Art. 1869,, 1870)

2. NOMINATE – It has its own name / designation under the law.

3. PREPARATORY – It is entered into as a means to enter into other contracts.

4. PRINCIPAL – It does not depend on another contract for its existence and validity.

5. UNILATERA/BILATERAL

§ UNILATERAL – if the contract is gratuitous or it creates obligations for only one party.

§ BILATERAL – If the contract is for compensation or gives rise to reciprocal rights and
obligations.

ESSENTIAL ELEMENTS OF A CONTRACT OF AGENCY

1. CONSENT of the parties to establish the relationship;

2. OBJECT or SUBJECT MAT TER of the contract is the execution of a judicial act
in relation to third persons;

3. Agent acts as a REPRESENTATIVE and not for himself; and

4. Agent acts WITHIN THE SCOPE OF HIS AUTHORITY.

A Contract of agency is CONTRACTUAL IN NATURE, hence, there must be

CONSENT, OBJECT and CAUSE. Exception to this rule: When the agency is created
by operation of law.

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ACTS THAT CANNOT BE DONE THROUGH AN AGENT

§ PERSONAL ACTS

§ Ex: Making of a will, exercise of right of suffrage, statements required to be

made under oath, contracting a marriage, etc.

§ CRIMINAL ACTS OR ACTS NOT ALLOWED BY LAW

§ Ex: Ownership of private agricultural ands by aliens through an agent;

persons prohibited to acquire property by reason of position or relation to
the person cannot do the same through an agent; participation in the
commission of a crime - a person cannot escape punishment by merely
asserting that he acted only as a mere agent.

PARTIES TO THE CONTRACT OF AGENCY

1. PRINCIPAL
a) He may be a natural or juridical person;
b) He must be capacitated;
§ G e n . Ru l e : I f a p e r s o n i s c a p a c i t a t e d t o a c t f o r
himself or his own right, he can act through an
agent.
§ T h e a g e n t i s n o t l i a b l e w h e r e h e wa s i g n o ra n t o f
t h e p r i n c i p a l ʼs i n c a p a c i ty.

2. AGENT
a) Insofar as third persons are concerned, t is enough
that the principal is capacitated;
b) Insofar as his obligations to his principal are
concerned, the agent must be able to bind himself
c) As an agent, some mental capacity is necessary,
therefore, those who are absolutely incapacitated
cannot be agents.

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N AT U R E O F R ELAT IO N SH IP B ET W EEN PR IN C IPA L A N D AG EN T

FIDUCIARY – It is based on trust and confidence.

§ Agent is estopped from asserting interest adverse to his principal.

§ Agent must not act as an adverse party;

§ Agent must not act for an adverse party;

§ Agent must not use or disclose secret information (Art. 1889)

§ Agent must give notice of material acts. (Art. 1889)

GEN. RULE: KNOWLEDGE OF THE AGENT = KNOWLEDGE OF

THE PRINCIPAL

§ As a rule, knowledge of the agent is imputed to the principal even

though the agent never communicated it to his. Principal.

EXCEPTIONS:

1. Where the interests of the agent are adverse to those of the principal;

2. Agent acts in bad faith or where the person claiming the benefit of the
rule colludes with the agent to defraud the principal (Art. 1898)

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AGENCY VS. GUARDIANSHIP

AGENCY GUARDIANSHIP
Agent represents a capacitated A guardian represents an
person incapacitated person.
Agent is appointed by the principal Guardian is appointed by the court
and can be removed by the latter. and stands in loco parentis.
Agent is subject to the directions Guardian is not subject to the
of the principal. directions f the ward but must act
for the benefit of the latter.
Agent can make the principal Guardian has no power to impose
personally liable. personal liability on the ward.

AGENCY TO SELL vs. SALE

AGENCY TO SELL SALE

Agent receives the goods as the Buyer receives the goods as
principalʼs goods. owner.
Agent delivers the proceeds of the Buyer pays the price.
sale.
Agent can return the object in case Buyer, as a general rule, cannot
he is unable to sell the same to return the object sold.
third persons
Agent in dealing with the thing Buyer can deal with the thing as
received is bound to act according he pleases, being the owner
to the instructions of the principal. thereof.

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AGENCY vs. INDEPENDENT CONTRACTOR

AGENCY INDEPENDENT CONTRACTOR

Represents his principal. Employed by the employer.
Acts under the principalʼs control Acts according to his own method.
and instruction.
Principal is liable for torts Employer must not be liable for
committed by the agent within the torts committed by the
scope of his authority independent contractor.

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AGENCY vs. PARTNERSHIP

AGENCY PARTNERSHIP
An agent must submit to the A co-partner is not subject to co-
principalʼs right to control. partnerʼs right to control, unless
there is an agreement to that
effect.
The agent assumes no personal The partner binds not only the firm
liability where he acts within the members but himself as well.
scope of his authority. (Art. 1897)
The agent takes his agreed share The profits belong to all the
of profits not as owner but as an partners as common proprietors in
agreed measure of compensation agreed proportions.
for his services.

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TYPES OF AGENCY – ACCDG. TO MANNER OF CREATION

§ EXPRESS AGENCY
§ Agent has been actually authorized by the principal, wither orally or
in writing. (Art. 1869)

§ IMPLIED AGENCY
§ Agency is implied from the acts of the principal, from his silence, or
lack of action, or his failure to repudiate the agency knowing that
another person is acting on his behalf without authority, or from the
acts of the agent which carry out the agency. (Art. 1869)

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IMPLIED ACCEPTANCE BETWEEN PERSONS WHO ARE

PRESENT AND THOSE WHO ARE ABSENT

§ As between persons who are present, the acceptance of the agency may
be implied if the principal delivers his power of attorney to the agent and
the latter receives it without any objection (Art. 1871)

§ Meanwhile, as to those who are absent, the acceptance of the agency

cannot be implied from the silence of the agent, except when the
principal delivers his power of attorney in which he is habitually engaged
as an agent, and he did not reply to the letter or telegram (Art. 1872)

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POWER OF ATTORNEY

§ It refers to an instrument in writing by which one person, as principal,

appoints another as his agent and confers upon him the authority to
perform certain specified acts or kinds of acts on behalf of the principal.

§ The primary purpose of this instrument is to evidence agentʼs authority

to third persons with whom the agents deals for the principal.

§ GEN RULE: A Power of Attorney is strictly construed to grant only those

specified powers.

§ EXCEPTION: When strict compliance will destroy the very purpose of the
power.

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WAYS OF GIVING NOTICE OF AGENCY AND ITS EFFECT

§ BY SPECIAL INFORMATION – the person appointed as agent is

considered as such with respect to the person to whom it was given.
(Art. 1873)

§ BY PUBLIC ADVERTISMENT – the agent is considered as such with

regard to any person. (Art. 1873)

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AGENCY BY ESTOPPEL

§ There is really no agency at all, but the alleged agent seemed to have apparent
or ostensible, although not real, authority to represent another.

§ If a person specially informs another or states by public advertisement that he

has given a power of attorney to a third person, the latter thereby becomes a
duly authorized agent, in the former case with respect to the person who
received the special information, and in the latter case with regard to any
person. (Art. 1873);

§ Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full
powers.

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AGENCY BY ESTOPPEL

REQUISITES

1. The principal manifested a representation of the agentʼs authority or knowingly

allowed the agent to assume such authority;

2. The third person, in good faith, relied upon such representation; and

3. Relying upon such representation, such third person has changed his position
to his detriment.

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BASIS AGENCY BY ESTOPPEL IMPLIED AGENCY

Existence of actual No agency at all There is an actual agency
agency
Reliance by 3 rd Can be involved only by a 3 rd Such reliance is not needed, since
persons person who in good faith relied on the agent is a real agent.
the conduct of the principal in
holding the agent out as being
authorized.
Nature of authority An agent by estoppel has none of An agent implied appointment has
the rights of an agent, except all the rights and liabilities of an
where the principalʼs conduct are agent, i.e. has actual authority to
such that the agent reasonably act on behalf of the principal.
believed that the principal intended
him to act as an agent.

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GENERAL AGENT vs. SPECIAL AGENT

§ An agency couched in general terms comprises only acts of administration, even of the
principal should state that he withholds no power or that the agent may execute such acts as
he may consider appropriate, or even though the agency should authorize a general and
unlimited management. (Art. 1877)

§ An agency couched in general terms covers only mere acts of administration if:
1. The principal should state that he withholds no power;

2. The agent may execute such acts as he may consider appropriate; and

3. The agency should authorize a general and unlimited management. (Art. 1877)

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GENERAL AGENT vs. SPECIAL AGENT

AGENCY COUCHED IN GENERAL TERMS/ GENERAL AGENT

§ Contracts of agency, as well as general powers of attorney, must be interpreted in

accordance with the language used by the par ties.

§ The real intention of the par ties is primarily determined from the language used
and gathered from the whole instrument;

§ In case of doubt, resor t must be had to the situation, surroundings and relations of
the par ties. The intention of the par ties must be sustained rather than
defeated.

§ If the contract is open to two (2) constructions, one of which would uphold the
intention while the other would over throw it, the former is to be chosen.

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GENERAL AGENT vs. SPECIAL AGENT

§ SPECIAL AGENT

§ ATTORNEY-IN-FACT
§ An agent whose authority is strictly limited by the instrument appointing him, though he
may do things not mentioned in his appointment necessary to the performance of the
duties specifically required of him by the power of attorney appointing him, such
authority necessarily being implied.

§ His authority is provided in a special power of attorney or letter of attorney.

§ He is not necessarily a lawyer.

§ A Special Power of Attorney must express the powers of the agent in clear and unmistakable
language for the principal to confer the right upon an agent.

§ The special power of attorney can be included in the general power when it specifies therein
the act or transaction for which the special power is required.

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BASIS GENERAL AGENT SPECIAL AGENT

Scope of
GENERAL All acts connected
AGENT with the business
vs. SPECIAL AGENT or Specific acts in pursuance of particular
authority employment in which he is engaged instructions or with restrictions
(Art. 1876) necessarily implied from the act to be
done (Art. 1876)
Nature of Involves continuity of service No continuity of service
service
authorized
Extent to which May bind his principal by an act within Cannot bind his principal in a manner
agent may bind the scope of his authority although it beyond or outside the specific acts
the principal may be contrary to the latterʼs special which he is authorized to perform.
instructions.
Termination of Apparent authority does not terminate Duly imposed upon the third party to
Authority by the mere revocation of his authority inquire makes termination of the
without notice to the third party. relationship as between the principal
and agent effective as to such third
party unless the agency has been
entrusted for the purpose of
contracting with such third party.
Construction of Merely advisory in nature Strictly construed as they limit the
principalʼs agentʼs authority.
instructions

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CASES WHERE SPECIAL POWER OF ATTORNEY IS REQUIRED

1. To make such Payments as are not usually considered as acts of administration;

2. TO Effect novations which put an end to obligations already in existence at the time the
agency was constituted;

3. To Compromise, to submit questions to arbitration, to renounce the right to appeal from a

judgment, to waive objections to the venue of an action or to abandon a prescription
already acquired;

4. To Waive any obligation gratuitously;

5. To Enter into any contract by which the ownership of an immovable is transmitted or

acquired either gratuitously or for a valuable consideration;

6. To Make gifts, except customary ones for charity or those made to employees in the
business managed by the agent;

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CASES WHERE SPECIAL POWER OF ATTORNEY IS REQUIRED

7. To Loan or borrow money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration;

8. To Lease any real property to another person for more than one year;

9. To Bind the principal to render some service without compensation;

10.To Bind the principal in a contract of partnership;

11.To obligate the principal as a guarantor or surety;

12.To Create or convey real rights over immovable property;

13.To Accept or repudiate an inheritance;

14.To Ratify or recognize obligations contracted before the agency;

15.Any Other act of strict dominion. (Art. 1878)

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POWERS NOT INCLUDED IN THE POWER TO MORTGAGE

1. To sell (Art. 1879)

2. To execute a second mortgage

3. To mortgage for the agentʼs or any 3 rd personsʼ benefit, unless clearly

indicated.

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POWERS NOT INCLUDED IN THE POWER TO COMPROMISE

1. A principal may authorize his agent to compromise because of absolute

confidence in the latterʼs judgment and discretion to protect the
formerʼs rights and obtain for him the best bargain in the transaction;

2. If the transaction would be left in the hands of an arbitrator, said

arbitrator may not enjoy the trust of the principal;

3. The agent must act within the scope of his authority. He may do such
acts as may be conducive to the accomplishment of the purpose of the
agency. (Art. 1881)

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HOW AGENCY IS REVOKED

1. Principal may revoke the agency (express or implied) at will and compel agent to return the
document evidencing the agency (Ar t. 1920);

2. Agency has been entrusted for purpose of contracting with specif ied persons – revocation
will not prejudice specif ied persons if they were not notif ied. (Ar t. 1921);

3. If the agent had general powers – revocation does not prejudice third persons who acted in
good faith and without knowledge of the revocation. Notice of revocation in a newspaper of
general circulation is a suf f icient warning (Ar t. 1922);

4. The appointment of a new agent for the same business or transaction revokes the previous
agency from the day on which notice was given to the former agent. (Ar t. 1923);

5. Agency is revoked if principal directly manages the business entrusted to the agent, dealing
directly with third persons. (Ar t. 1924);

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HOW AGENCY IS REVOKED

6. When two or more principals have granted a power of attorney for a common
transaction, any one of them may revoke the same without the consent of the
others. (Art. 1925);

7. A general power of attorney is revoked by a special one granted to another agent,

as regards the special matter involved in the latter. (Art. 1926);

8. Revocation may be done in the same manner as it was constituted. However,

constitution by Special Information may be revoked by notice in a newspaper of
general circulation, provided it can be proven that 3 rd persons in question read the
revocation. (Art. 1922)

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INSTANCES CREATING AN AGENCY BY OPERATION OF LAW

1. The agent must finish the business already begun on the death of the principal, should delay
entail any danger (Art. 1884 par. 2);

2. In case a person declines an agency, he is bound to observe the diligence of a good father of a
family in the custody and preservation of the goods forwarded to him by the owner until the
latter should appoint an agent. (Art. 1885);

3. The agent, even if he should withdraw from the agency for a valid reason, must continue to act
until the principal has had reasonable opportunity to take the necessary steps to meet the
situation (Art. 1929);

4. Anything done by the agent without knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith (Art. 1931);

5. If the agent dies, the heirs must notify the principal thereof, and in the meantime adopt such
measures as the circumstances may demand in the interest of the latter (Art. 1932).

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OBLIGATIONS
OF THE AGENT

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GENERAL OBLIGATIONS OF THE AGENT TO THE PRINCIPAL

1. Act with utmost Good faith and loyalty for the fur therance of principalʼs interests;

2. Obey principalʼs instructions;

3. Exercise reasonable care

- If the agent accepts the agency, he is bound by his acceptance to carr y out the agency
and is liable for the damages which, through his non-per formance, the principal may
suf fer. He must also f inish the business already begun on the death of the principal,
should delay entail any danger. (Ar t. 1884)

- If the agent declines the agency, he is bound to obser ve the diligence of a good father
of a family in the custody and preser vation of the goods for warded to him by the owner
until the latter should appoint an agent. The owner shall as soon as practicable either
appoint an agent or take charge of the goods (Ar t. 1885)

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SPECIFIC OBLIGATIONS OF THE AGENT

1. Carry out the agency (Art. 1884);

2. Answer for damages through his non-performance the principal may suffer;

3. Finish the business already begun on the death of the principal should delay
entail any danger (exception to the rule that death extinguishes agency) (Art.
1884);

4. Observe the diligence of a good father of a family in the custody and

preservation of the goods forwarded to him by the owner in case he declines
an agency, until an agent is appointed (Art. 1885);

5. Advance necessary funds if there be a stipulation to do so (except when the

principal is insolvent):

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SPECIFIC OBLIGATIONS OF THE AGENT

6. Act in accordance with the instructions of the principal, and in default thereof,
to do all that a good father of a family would do (Art. 1887);

a) Thereʼs a sudden emergency;

b) If the instructions are ambiguous;

c) If the departure is so insubstantial that it does not affect the result and the
principal suffers no damage thereby.

7. Not to carry out the agency if it would manifestly result in loss or damage to
the principal (Art. 1888)

8. Answer for damages if there being a conflict between his and his principalʼs
interests, he prefers his own (Art. 1889).

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SPECIFIC OBLIGATIONS OF THE AGENT

9. Not to loan to himself if he has been authorized to loan money at interest (Art.
1890);

10.Render an account of his transactions and deliver to the principal whatever he

may have received by virtue of the agency (if agent fails to deliver and instead
converts or appropriates for his own use the money or property belonging to
his principal, he may be charged with ESTAFA) (Art. 1891);

11.Be responsible in certain cases for the act of the substitute appointed by him
(Art. 1892);

12.Pay interest on funds he has applied to his own use (Art. 1896)

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AUTHORITY vs. PRINCIPALʼS INSTRUCTIONS

AUTHORITY INSTRUCTIONS
Sum total of the powers committed to the Contemplates only a private rule of guidance
agent by the principal. to the agent; independent and distinct in
character.
Relates to the subject/business with which Refers to the manner or mode of agentʼs
the agent is empowered to deal/act. action
Limitations of authority are operative as Without significance as against those with
against those who have/charged with neither knowledge nor notice of them.
knowledge of them.
Contemplated to be made known to third Not expected to be made known to those
persons dealing with the agent with whom the agent deals
Mismanagement of the business by the agent Principal still responsible for the acts
contracted by the agent with respect to 3 rd
persons; Principal, however, may seek
recourse from the agent.

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When Agent has a right to disobey the Principalʼs instructions

1. When the instruction calls for the performance of illegal acts

2. Where he is privileged to do so to protect his security in the subject

matter of the agency.

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EFFECTS OF AGENTʼS ACTS TO PRINCIPAL LIABILITY

ACTS OF AGENT LIABILITY OF PRINCIPAL

Mismanagement of the business by the Principal still responsible for the acts
agent contracted by the agent with respect to
3 rd persons; Principal, however, may seek
recourse from the agent.
Tort committed by the agent Principal civilly liable so long as the tort is
committed by the agent while performing
his duties in furtherance of the principalʼs
business.
Agent in good faith but prejudices 3 rd Principal is liable for damages
parties
Agent in bad faith and prejudices 3 rd Only the agent is liable for damages
persons

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WHEN OBLIGATION TO ACCOUT IS NOT APPLICABLE

1. If the agent acted only as a middleman with the task of merely bringing
together the vendor and the vendees;

2. If the agent had informed the principal of the gif t /bonus /profit he received
from the purchaser and his principal did not object;

3. Where a right of lien exists in favor of the agent.

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WHEN AGENT MAY INCUR PERSONAL LIABILITY

§ When the agent expressly binds himself (Art. 1897)

§ When the agent exceeds his authority (Art. 1897, 1898)

§ When an agent by his act prevents performance on the part of the principal;

§ When a person acts as an agent without authority or without a principal;

§ A person who purports to act as agent of an incapacitated principal.

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APPOINTMENT OF SUB-AGENT

§ If the principal has not prohibited the agent from appointing a substitute, he will be liable to 3 r d
persons for the acts of the sub-agent within the scope of his authority;

§ If there is a prohibition but nevertheless the agent appoints a sub-agent, all sub-agentʼs acts are
void as to the principal;

§ If there is authority to appoint and sub-agent is not designated by the principal, the agent will be
liable for all the acts of the sub-agent if the sub-agent is notoriously incompetent or
insolvent;

§ If there is authority to appoint and sub-agent is designated by the principal, the agent is
released from any liability from the acts of the sub-agent;

§ If the appointment of a sub-agent is not authorized but not prohibited, it shall be valid if it is
beneficial to the principal. But, should the principal incur damage due to such appointment, the
agent shall be primarily responsible for the acts of the sub-agent. (Art. 1892)

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RESPONSIBILITY OF 2 OR MORE AGENTS APPOINTED

SIMULTANEOUSLY

§ GEN. RULE: Joint liability

§ EXCEPTION: When solidary liability has been expressly stipulated. In which

case, each agents becomes solidarily liable for:

1. Non-fulfillment of the agency; and

2. Fault or negligence of his fellow agents. (Art. 1894)

§ EXCEPTION TO TH EXCEPTION: When one of the other agent /s acts beyond the
scope of his authority – innocent agent /s is /are not liable (Art. 1895)

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DOCTRINE OF AGENCY BY NECESSITY

§ An agency can never be created by necessity; what is actually created is

additional authority in an agent appointed and authorized before the
emergency arose.
§ Requisites:

1. The agentʼs enlarged authority is exercised for the principalʼs

protection;
2. The agent is unable to communicate with the principal;

3. The means adopted are reasonable under the circumstances;

4. The emergency really exists.

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WHEN AGENT ACTS BEYOND THE SCOPE OF HIS

AUTHORITY

§ If the agent exceeds his authority, such act of the agent shall be VOID unless
the principal ratifies it. If the 3 rd person was aware of the limits of the agentʼs
power, he cannot insist on the validity of the act which was done beyond said
limits.

§ Before actual ratification by the principal, or before the principal has signified
his willingness to ratify the agentʼs acts, the 3 rd person may repudiate the
contract.

§ If the principal received the benefits of the transaction, he is deemed to have

ratified it. A principal may not accept the benefits of a transaction and at the
same time repudiate its burdens.

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CONDITIONS FOR RATIFICATION

1. The principal must have capacity and power to ratify;

2. He must have had knowledge of material facts;

3. He must ratify the acts in its entirety;

4. The act must be capable of ratification;

5. The act must be done in behalf of the principal;

6. To be effective, ratification need not be communicated or made known to the

agent or the third party. The act or conduct of the principal rather than his
communication is the key. But before ratification, the third party is free to
revoke the unauthorized contract.

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EFFECS OF RATIFICATION

§ WITH RESPECT TO AGENT – relieves the agent from liability to the third party for the
unauthorized transaction, and to his principal for acting without authority; Agent may
recover compensation.

§ WITH RESPECT TO THE PRINCIPAL – assumes responsibility for the unauthorized act,
as if the agent had acted under original authority but not liable for acts outside the
authority approved by his ratification.

§ WITH RESPECT TO 3 RD PERSONS – bound by ratification to the same extent as id the

ratified act had been authorized; He cannot raise the question of the agentʼs authority
to do the ratified act.

NOTE: If the agent acted beyond the scope of his authority or without authority, he is
responsible not only for fraud, but also for negligence, which shall be judged with more
or less rigor by the courts, according to whether the agency was or was not for
compensation (Art. 1909)

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SUMMARY OF ACTS OF THE AGENT AND ITS EFFECT

ACTS OF THE AGENT EFFECT EXCEPTION

In behalf of the principal and Binds the principal Agent is liable if:
within the scope of authority Agent is not personally liable 1. Expressly makes himself
(Art. 1881) liable;
2. Exceeds the limits of his
authority without giving
the parties sufficient
notice of his powers.
Without or beyond the scope Contract is unenforceable as Binding on the principal
of authority against the principal but when:
binds the agent to the third 1. Ratified; or
person (Art. 1317, 1403 & 2. The principal allowed the
1898) agent to act as though he
had full powers.

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SUMMARY OF ACTS OF THE AGENT AND ITS EFFECT

ACTS OF THE AGENT EFFECT EXCEPTION

Within the scope of authority Not binding on the principal. When the transaction involves things
but in the agentʼs name Principal has no cause of belonging to the principal:
action against 3 rd parties and - Remedy of the principal: he may
vice versa file an action for damages for
agentʼs failure to comply with the
agency;
- Remedy of the 3 rd person:
- 1. If the case falls under the
general rule, he can sue the
agent;
- 2. But when the contract involves
things belonging to the principal,
he can sue the principal.
- 3. But if it cannot be determined
without litigation who is liable, he
can sue both.

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ACTS OF THE AGENT EFFECT EXCEPTION

Within the scope of the written Insofar as 3 rd persons are concerned, not n/a
power of attorney but the agent required to inquire further than the terms
has actually exceeded his of the written power, agent acted within
authority according to an scope of his authority;
understanding between him and Principal is estopped.
the principal
With improper motives Motive is immaterial, as long as the act is
If the 3 rd person
within the scope of his authority, it is valid.
knew agent was
acting for his own
If authorized – principal is liable benefit, principal is
not liable to 3 rd
If beyond the scope of the agentʼs persons; Owner is
authority seeking recovery of
GEN. RULE: Principal is not liable personal property of
EXCEPTION: Principal takes advantage of a which he has been
contract or receives benefits made under unlawfully deprived.
false representation of his agent.

If for the agentʼs own benefit (Authorized)

– principal still liable, agentʼs motive is
immaterial.

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COMMISSION AGENT

COMMISSION AGENT ORDINARY

§ One whose business is AGENT
to receive and sell May act in his own name or in Acts for and in behalf of the
that of the principal his principal
goods for a commission
Must be in possession of the Need not have possession of
and who is entrusted thing he disposes the principalʼs goods.
by the principal with
the possession of goods COMMISSION AGENT BROKER
to be sold, and usually Engaged in the purchase and No custody or possession of
sale for a principal of personal the thing he disposes merely a
selling in his own property which has to be go-between, an intermediary
name. placed in his possession and between the seller and the
disposal buyer
Has a relation with the Maintains no relation with the
principal, buyer or seller, and thing which he purchases or
property which is the object of sells
the transaction.
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OBLIGATIONS OF A COMMISSION AGENT

1. Responsible for the goods received by him, as described in the consignment, unless upon
receiving them he should make a written statement of the damage and deterioration suffered by
the same (Art. 1903);

2. If the goods are of the same kind and mark but belonging to different owners, make a distinction
by counter marks and designate the merchandise respectively belonging to each principal (Art.
1904);

3. He cannot, without consent of the principal, sell on credit; should he do so, the principal m ay
demand payment in cash, but the commission agent entitled to any interest /benefit which may
result from such sale (Art. 1905);

4. If the agent receives guarantee commission (a del credere agent), he shall bear the risk of
collection and shall pay the principal the proceeds of the sale on the same terms agreed upon
with the purchaser. The agent shall be liable for damages if he does not collect the credits of his
principal at the time, when they become due and demandable, unless he proves, that he
exercised due diligence for that purpose. (Art. 1907).

51

OBLIGATIONS
OF THE
PRINCIPAL

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OBLIGATIONS OF THE PRINCIPAL

1. Comply with all the obligations that the agent contracted in representation of
the principal (Art. 1910);

2. Advance sums necessary for the execution of the agency, when agent so
requests; He is liable for reimbursement regardless of the undertakingʼs success
whenever agent had advanced and has no fault, including interest (Art. 1912);

3. Reimburse the agent for all advances made by him provided the agent is free
from fault (Art. 1912);

4. Indemnify the agent for all the damages which the execution of the agency may
have caused the latter without fault or negligence on his part (Art. 1913);

5. Pay the agent the compensation agreed upon or the reasonable value of the
latter ʼs services (Art. 1875).

53

LIABILITY OF 3 RD PERSONS TO THE PRINCIPAL

§ IN CONTRACT à a 3 rd person is liable to the principal upon contracts entered

into by the agent, as if the contract has been entered into by the principal.
(Art. 1897)

§ IN TORT à the 3 rd personʼs tort liability to the principal, insofar as the agent is
involved in the tort, arises in 3 situations:

1. Where the 3 rd person damages or injures property or interest of the

principal in the possession of the agent;

2. Where the 3 rd person colludes with the agent to injure /defraud the
principal;
3. Where the 3 rd person induces the agent to violate his contract with the
principal to betray the trust reposed upon him by the principal.

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WHERE THERE ARE 2 OR MORE PRINCIPALS

§ Where there are two or more principals, their obligation is SOLIDARY if the
following requisites are present:

1. There are 2 or more principals;

2. The principals have all concurred in the appointment of the same agent;
and
3. The agent is appointed for a common transaction or undertaking (Art.
1915)

§ NOTE: This rule applies even when the appointments were made by the
principals in separate acts, provided that they are for the same transaction. The
solidarity arises from the common interest of the principals and not from the
act of constituting the agency.

55

WHERE THERE ARE 2 OR MORE PEOPLE CONTRACT

SEPARATELY WITH THE AGENT AND THE PRINCIPAL

§ Two or more persons may contract separately with the agent and the
principal with regard to the same thing. If the two contracts are
incompatible with each other, the one of prior date shall be
preferred. This subject, however, to the rules on Double Sales under
Art. 1544 of the Civil Code. (Art. 1916)

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AGENTʼS RIGHT OF RETENTION

1. SPECIFIC à only for those goods connected with the agency; and

2. Until the principal effects the reimbursement and pays indemnity (Art.
1914)

57

PRINCIPALʼS LIABILITIES FOR EXPENSES

§ GEN. RULE: Principal is liable for the expenses incurred by the agent.

§ EXCEPTIONS:

1. If the agent acted in contravention of the principalʼs instructions, unless

the latter should wish to avail himself of the benefits derived from the
contract.

2. When the expenses were due to the Fault of the agent.

3. When. The agent incurred them with knowledge that an unfavorable result
would ensue if the principal was not aware thereof.

4. When it was stipulated that the expenses would be borne by the agent, or
that the latter would be allowed only a certain sum. (Art. 1918)

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WHO CAN BE ESTOPPED TO DENY THE AGENCY?

§ ESTOPPEL BY AGENT – one professing to act as agent is estopped to deny his agency both as
against his asserted principal and the third persons interested in the transaction in which he is
engaged.

§ ESTOPPEL BY THE PRINCIPAL

1. As to Agent – one knowing another is acting as his agent and fails to repudiate his acts, or
accept the benefits of them, will be estopped to deny the agency as against such other.

2. As to Sub-agent – for the principal to be estopped from denying his liability to a third
person, he must have known or be charged with knowledge of the transaction and the terms
of the agreement between the agent and sub-agent.

3. As to Third person – one who knows that another is acting as his agent or permitted
another to appear as his agent, to the injury of third persons who have dealt with the
apparent agent as such in good faith and in the exercise of reasonable prudence, is estopped
to deny the agency.

59

WHO CAN BE ESTOPPED TO DENY THE AGENCY?

§ ESTOPPEL OF THIRD PERSONS – a third person, having dealt with one as an

agent may be estopped to deny the agency as against the principal, agent or
3 rd persons in interest.

§ ESTOPPEL OF THE GOVERNMENT – government neither estopped by the

mistake /error of its agents; It may be estopped through affirmative ats of its
officers acting within the scope of their authority.

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DOCTRINE OF APPARENT AUTHORITY

§ A principal may be held liable under the Doctrine of Apparent

Authority when the principalʼs liability arises from:

a) His manifestations of the existence of the agency which need

not be expressed, but may be general and implied, or acts of
the agent which suggest the existence of a principal-agent
relationship which are known to the principal and which the
principal does not deny; and

b) The reliance of third persons upon the conduct of the principal

or agent.

61

APPARENT AUTHORITY vs. AUTHORITY BY ESTOPPEL

APPARENT AUTHORITY AUTHORITY BY ESTOPPEL

Though not actually granted, Where the principal, by his
principal knowingly permits/holds negligence, permits his agent to
out the agent as possessing the exercise powers not granted to
necessary powers to act in a him, even though the principal
certain way. may have no notice or knowledge
of the conduct of the agent.

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IMPLIED REVOCATION OF GENERAL POWER OF ATTORNEY

§ The general power is impliedly revoked as to matters covered by the

special power because a special power naturally prevails over a general
power (Art. 1926)

63

PRINCIPALʼʼS LIABILITY FOR DAMAGES DESPITE REVOCATION

§ If the agency was constituted for a fixed period, the principal shall be
liable for damages occasioned by the wrongful discharge of the agent
before the expiration of the period fixed.

§ Even if there was no time fixed for the continuance of the agency, but
the agent can prove that. The principal acted in bad faith by revoking
the agency in order to avoid the payment of commission about to be
earned, the principal can be held liable for damages.

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NECESSITY OF NOTICE OF REVOCATION

§ AS TO THE AGENT – express notice always necessar y; there is suf f icient notice if the par ty
to be notif ied actually knows, or has reason to know, a fact indicating that his authority has
been terminated or suspended; Revocation without notice to the agent will not render
invalid an act done in pursuance of the authority.

§ AS TO 3 R D PERSONS – express notice necessar y.

§ AS TO FORMER CUSTOMERS – actual notice must be given to them because they always
assume the continuance of the agency relationship.

§ AS TO OTHER PERSONS – notice by publication is enough (Ar t. 1922)

NOTE: Act of agent is deemed valid insofar as third par ties acting in good faith and
without knowledge of revocation (Ar t. 1922)

65

MODES OF
EXTINGUISHMENT

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HOW AGENCY IS EXTINGUISHED

1. By the EXPIRATION OF THE PERIOD for which the agency was constituted;

2. By the DEATH, CIVIL INTERDICTION, INSANITY or INSOLVENCY of the

principal or of the agent;

3. By the WITHDRAWAL OF THE AGENT;

4. By the ACCOMPLISHMENT of the object or purpose of the agency;

5. By its REVOCATION;

6. By the DISSOLUTION of the firm or corporation which entrusted or accepted

the agency (Art. 1919)

67

HOW AGENCY IS EXTINGUISHED

OTHER MODES:

a) Mutual withdrawal from the relationship by the principal and agent;

b) By the happening of a supervening event that makes illegal or impossible the

objective or purpose for which the agency was constituted, like the destruction of
the subject matter which is the object of the agency

NOTE: This list is NOT Exclusive. Agency may be extinguished by the modes of
extinguishment of obligations in general (Ex. Loss of the thing due and novation).
Agency is terminated also upon the outbreak of war, as a matter of law.

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MODES OF EXTINGUISHING AN AGENCY MAY BE

CLASSIFIED AS FOLLOWS:

§ AGREEMENT

§ SUBSEQUENT ACTS OF THE PARTIES which may either be:

§ By the act of both parties or by mutual consent

§ By the unilateral act of one of them

§ OPERATION OF LAW

NOTE: Even if the reason for extinguishing the agency is not true, the
agent cannot insist on reinstatement. The agent can only demand
damages.

69

PRESUMPTION OF CONTINUANCE OF AGENCY

§ When once shown to have existed, an agency relation will be presumed

to have continued, in the absence of anything to show its termination.

§ Parties must be:

1. Present;
2. Capacitated; and

3. Solvent.

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WHAT IF THE SUBJECT MATTER OF THE AGENCY IS LOST

OR DESTROYED

GEN. RULE: In the absence of any agreement by the parties to the contrary, the
loss or destruction of the subject matter of the agency terminates the agentʼs
authority to deal with reference to it.

EXCEPTIONS:

1. If it is possible to substitute other material for that which was destroyed

without substantial detriment to either party;

2. If the destroyed subject matter was not in fact essential to the contract;

3. A partial loss or destruction.

71

EXTNGUISHMENT BY DEATH

EXCEPTIONS TO EXTINGUISHMENT BY DEATH:

1. If the agency is coupled with an interest;

2. If the act of the agent was executed without the knowledge of the death of the
principal and the third person who contracted with the agent acted in good
faith.

3. To avoid damage;

4. If it has been constituted in the common interest of the principal and of the
agent, or in the interest of a third person who has accepted the stipulation in
his favor.

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EXTNGUISHMENT BY DEATH

CAN THE HEIRS CONTINUE THE AGENCY?

GEN RULE: Agency calls for personal services on the part of the agent, hence, it
is not transmissible.

EXCEPTIONS:

1. Agency by operation of law, or a presumed or tacit agency

2. Agency is coupled with an interest in the subject matter of the agency. (Ex:
Power of sale in mortgage)

73

CHANGE OF CIRCUMSTANCE

§ GEN. RULE: When there is a basic change in the circumstances surrounding the
transaction, which was not contemplated by the parties and which would reasonably
lead the agent to believe that the principal would not desire him to act, the authority of
the agent is terminated.

§ EXCEPTIONS:
§ If the original circumstances are restored within a reasonable period of time, the
agentʼs authority may be revived.
§ Where the agent has reasonable doubts as to whether the principal would desire
him to act, his authority will not be terminated if he acts reasonably
§ Where the principal and agent are in close daily contact, the agentʼs authority to act
will not terminate upon a change of circumstances if the agent knows the principal
is aware of the change and does not give him new instructions.

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REVOCATION vs. RENUNCIATION

§ REVOCATION à termination of the agency by the subsequent act of the

principal.

§ RENUNCIATION/WITHDRAWAL à Termination of the agency by the

subsequent act of the agent

75

§ GEN. RULE: An agency may be revoked by the principal at will (Art. 1920)

§ EXCEPTION: Agent coupled with interest

1. When a bilateral contract depends upon the agency.

2. When the agency us the means of fulfilling an obligation already contracted.

3. When a partner is appointed as manager of a partnership in the contract of

partnership and his removal from the management is unjustifiable. (Art. 1927)

§ EXCEPTION TO THE EXCEPTION: When the agent acts to defraud the principal –
IMPLIED REVOCATION OF AGENCY
1. Principal appoints a new agent for the same business or transaction (only if there
is incompatibility); effective as between the principal and the agent only if
communicated to the agent; does not prejudice rights of third persons acting in
good faith without knowledge of the revocation (Art. 1923)
2. Principal directly manages the business entrusted to the agent, or deals directly
with 3 rd persons (Art. 1924)

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IMPLIED RENUNCIATION

1. If the agent conducted himself in a manner incompatible with his duties;

2. If the agent abandons the object of the agency and acts for himself in committing a fraud
upon his principal;

3. If the agent f iles a complaint against the principal and adopts an antagonistic attitude
towards him:

a) With just cause à give due notice

b) Without just cause à liable for damages if the principal suf fer damages thereby unless
the agent should base his withdrawal upon the impossibility of continuing the
per formance of the agency without grave detriment to himself (Ar t. 1928)

NOTE: The mere fact that the agent violates his instructions does not amount to renunciation,
and although he may thus render himself liable to the principal, he does not cease to become
an agent.

77

THANK YOU!

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