AGENCY

Chapter 1. Nature, Form and Kinds of Agency

Art. 1868. By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or
authority of the latter.

Agency: A relationship which implies a power in an agent to contract with a 3 rd person

on behalf of a principal.

Kind of Contract: It is a preparatory contract. It is a contract entered not for its own end
but to be able to enter into other contracts.

Characteristics:
1.) Consensual: perfected by mere consent;
2.) Nominate: it has its own name;
3.) Principal: does not depend on another contract for its existence and validity;
4.) Preparatory: entered into as a means to an end;
5.) Unilateral/Bilateral:
a.) Unilateral: if contract is gratuitous, it creates obligations for only one of the
parties, i.e. agent.
b.) Bilateral: if for compensation, it gives rise to reciprocal rights and obligs.

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 the principal personally did them.

Distinguishing Features:
1.) Representative character; and
2.) Derivative authority.

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

Parties:
1.) Principal; and
2.) Agent.

Who can be principal?

The principal may be a natural person or a juridical person. He must be capacitated.
The rule is if a person is capacitated to act for himself or in his own right, he can act
through an agent.

Must the agent have capacity?

Insofar as 3rd persons are concerned, it is enough that the principal is capacitated; but
insofar as his obligations to his principal are concerned, the agent must be able to bind
himself.

Essential Elements of Agency:

1.) Consent, express or implied;
2.) Object of the contract is the execution of a juridical act in relation to 3rd persons;
3.) The agent acts as a representative and not for himself;
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 4.) The agent acts within the scope of his authority.

Acts that cannot be done through an agent:

1.) Personal acts: if personal performance is reqd by law or public policy or
agreement;
2.) Criminal or illegal acts: attempt to delegate another authority to do an act which, if
done by the principal would be illegal, is void.

Nature of Relation between Principal and Agent:

Fiduciary, based on trust and confidence.

Agency v. Lease of Work or Service Agency Lease of Work/Service

Basis is representation. Basis is employment
Agent exercises discretionary powers. Lessor only performs ministerial
functions.
3 persons are involved: principal, agent & Only 2 persons involved: lessor and
3rd person. lessee
Commercial or business transactions. Matters of mere manual or mechanical
execution.

Agency to Sell v. Sale Agency to sell Sale

Agent receives the goods as the goods of the Buyer receives the goods as owner.
principal.
Agent delivers proceeds of the sale. Buyer pays the price.
Agent can return object in case he is unable Generally, buyer cannot return the object
to sell to a 3rd person. sold.
Agent in dealing with the thing received is Buyer can deal with the thing as he
bound to act accdg to the instructions of his pleases, being the owner.
principal

Agent v. Independent Contractor Agent Independent Contractor

Represents the principal. Employed by employer.
Acts under the control and instructions of Acts according to his own method.
the principal
Principal liable for torts committed by agent Employer not liable for torts committed
w/in scope of authority. by independent contractor.

Art. 1869. Agency must be express, or 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.

Agency may be oral, unless the law requires a specific form.

Classifications of Agency: as to…

1.) Manner of Creation:
a.) Express: actually authorized, either orally or in writing.

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 b.) Implied: implied from acts of principal, from his silence or lack of action or
his failure to repudiate the agency knowing that another person is acting
on his behalf w/o authority.
2.) Character:
a.) Gratuitous: agent receives no compensation for his services.
b.) Onerous: agent does receive compensation.
3.) Extent of business covered:
a.) General: comprises all the business of the principal.
b.) Special: comprises one or more specific transactions.
4.) Authority conferred:
a.) Couched in general terms: deemed to comprise only acts of administration.
b.) Couched in specific terms: authorizes only the performance of a specific
act/s.
5.) Nature and effects:
a.) Representative: agent acts in name and representation of principal.
b.) Simple/Commission: agent acts in his own name but for the account of the
principal.

Can agency be presumed?

General Rule: NO because the relationship between the principal and agent must exist
as a fact. Exceptions: when agency arises by operation of law or agency is presumed to
prevent unjust enrichment.

Form: Generally, NO formal requirements. Agent’s authority may be oral or written, it

may be in public or private writings. The only exception is when the law requires a
specific form (e.g. sale of real property or any interest therein by an agent.)

Art. 1870. Acceptance by the agent may also be express, or implied from his acts
which carry out the agency, or from his silence or inaction according to the
circumstances.

Form of Acceptance by Agent:

Acceptance may be express or implied; express when it is oral or written; implied

when it can be inferred from the acts of the agent which carry out the agency, or
from his silence or inaction accdg to the circumstances.

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

Between 2 persons who are present, when it acceptance deemed implied?

When the agent receives a power of atty from the principal himself personally
without objection.

Is this presumption conclusive?

NO, it can be rebutted by contrary proof.

Power of attorney:

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
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 kinds of acts on behalf of the principal. Its primary purpose is to evidence the
authority of the agent to 3rd parties w/ whom the agent deals.

Construction
A power of atty is strictly construed and strictly pursued. The instrument will be
held to grant only those powers which are specified, and the agent may neither
go beyond nor deviate from the power of atty. The only exception is when strict
construction will destroy the very purpose of the power.

Meaning of “present”
Not limited to face-to-face encounters. 2 persons conversing on the phone are
also considered as both “present”.

Art. 1872. Between persons who are absent, the acceptance of the agency cannot be
implied from the silence of the agent, except:

1.) When the principal transmits his power of attorney to the agent, who receives it
without any objection;

2.) When the principal entrusts to him by letter or telegram a power of attorney
with respect to the business in which he is habitually engaged as an agent,
and he did not reply to the letter or telegram.

2 Ways of Giving Notice of Agency

1.) By special information; or

2.) By public advertisement.

Effects:
1.) Special information: the person appointed as agent is considered such with
respect to the person to whom it was given.
2.) Public advertisement: Agent is considered such with regard to any person.

Revocation – An agency is revoked in the same manner as it was given.

General rule: Special information needs special information of revocation.
Except: if you can prove that the 3rd person read the notice in the newspaper.

Art. 1873. If a person specially informs another or states by public advertisement that
he has given a power of attorney to a third person, the latter thereby becomes a duly
authorized agent, in the former case with respect to the person who received the
special information, and in the latter case with regard to any person.

The power shall continue to be in full force until the notice is rescinded in the
same manner in which it was given.

Agency by Estoppel

There is really no agency at all, but the alleged agent seemed to have apparent or
ostensible, although no real authority to represent another.

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 1.) Estoppel of Agent – One professing to act as agent for another may be estopped to
deny his agency both as against his asserted principal and the 3 rd persons
interested in the transaction in which he is engaged.

2.) Estoppel of Principal –

a.) As to Agent – One who knows that 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.

b.) As to sub-agent – To estop the principal from denying his liability to a 3 rd

person, he must have known or be charged with knowledge of the fact of
the transmission and the terms of the agreement between the agent and
sub-agent.

c.) As to 3rd persons – One who knows that another is acting as his agent or
permitted another to appear as his agent, to the injury of 3 rd 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.

3.) Estoppel of 3rd Persons – A 3rd 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.

4.) Estoppel of the govt – The govt is neither estopped by the mistake or error on the
part of its agents. But it may be estopped through affirmative acts of its officers
acting within the scope of their authority.

Art. 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.

A letter is sufficient [Jimenez v. Rabot].

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

Broker: One who in behalf of others, and for compensation or fee, negotiate
contracts relative to property. He is the negotiator between the parties, never
acting in his own name, but in the name of those who employ him. He is strictly
a middleman and for some purposes, the agent of both parties.

When is a broker entitled to compensation?

A broker is entitled to commission whenever he rings to his principal a party

who is able and willing to take the property, and enter into a valid contract upon
the terms named by the principal, although the particulars may be arranged and
the matter negotiated and completed between the principal and the purchaser
directly. A broker is never entitled to commission for unsuccessful efforts.

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Does the law allow double agency?

Such agency is disapproved by law for being against public policy and sound
morality. The exception is where the agent acted with full knowledge and free
consent of the principals.

In case the agent assumes a double agency, what is his right to compensation?
1.) If with knowledge of both principals – recovery can be had from both.
2.) If without knowledge of both – agent can recover from neither.

3.) If with knowledge of only one – as to the principal who knew of that fact and as
to the agent, they are in pari delicto and the courts shall leave them as they were,
the contract between them being void as against public polisy and good morals.

Art. 1876. An agency is either general or special. The former comprises all the
business of the principal. The latter, one or more specific transactions.

Classification of Agents:
1.) Universal agent: One employed to do all acts that the principal may personally do,
and which the principal can lawfully delegate to another the power of doing.

2.) General agent: One employed to transact all the business of his principal, or all
business of a particular kind or in a particular place, or in other words, to do all
acts connected with a particular trade, business, or employment.

3.) Special/Particular agent: One authorized to act in one or more specific transactions,
or to do one or more specific acts, or to act upon a particular occasion. e.g.:

a.) Atty at law: One whose business is to represent clients in legal proceedings.

b.) Auctioneer: One whose business is to sell property for others to the highest
bidder at a public sale.

c.) Broker: One whose business is to act as intermediary between 2 other

parties.

d.) Factor: One whose business is to receive and sell goods for a commission,
being entrusted with the possession of the goods involved in the
transaction.

Attorney-in-fact:

One who is given authority by his principal to do a particular act not of a legal character. In strict
legal sense: An agent having a special authority created by deed.

As to… General agent Special agent

Scope of authority All acts connected w/ the Only one or more specific
business in which he is acts in pursuance of
particular instructions or w/

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 engaged. restrictions necessarily
implied from the act to be
done.

Nature of service Series a transactions involving Single transaction or a series

authorized a continuity of service. of transactions not involving
continuity of service.

Extent to which agent By an act within the scope of Cannot in a manner beyond
may bind principal his authority although it may or outside the specific acts
be contrary to his special w/c he is authorized to
instructions. perform.

Termination of Apparent authority does not Termination effective as to

authority terminate by mere revocation 3rd party unless agency was
of authority w/o notice to 3rd for purpose of contracting
parties. w/ that 3rd party.

Construction of Merely advisory. Strictly construed. Limits the

instructions of authority of agent.
principal

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

Examples of acts of mere administration:

1.) To sue for collection of debts;

2.) To employ workers or servants and employees needed for the conduct of
business;

3.) To engage counsel to preserve the ownership and possession of the principal’s
property;

4.) To lease real property to another person for 1 year or less, provided the lease is
not registered;

5.) To make customary gifts for charity or to employees in the business managed by
the agent

6.) To borrow money if it be urgent and indispensable for the preservation of the
things under administration.

How are contracts of agency construed?

Contracts of agency as well as general powers of attorney must be interpreted in
accordance with the language used by the parties. The real intention of the
parties is primarily determined from the language used and gathered from the

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 whole instrument. In case of doubt, resort must be had to the situation,
surroundings and relations of the parties. The intention of the parties must be
sustained rather than defeated. So if the contract be open to 2 constructions, one
of which would uphold the intention while the other would overthrow it, the
former is to be chosen.

Art. 1878. Special powers of attorney are necessary in the following cases:

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

2.) To effect novations which put an end to obligations already in existence at the
time the agency was constituted;

3.) To compromise, to submit questions to arbitration, to renounce the right to

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

4.) To waive any obligation gratuitously;

5.) To enter into any contract by which the ownership of an immovable is

transmitted or acquired either gratuitously or for a valuable consideration;

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

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

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

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

10.) To bind the principal in a contract of partnership;

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

12.) To create or convey real rights over immovable property;

13.) To accept or repudiate an inheritance;

14.) To ratify or recognize obligations contracted before the agency;

15.) Any other act of strict dominion.

Scope of General Authority to Purchase

Where an agent’s power to purchase is general and unrestricted, he has implied

authority to do whatever is usual and necessary in the exercise of such power. He
may:

1.) Determine the usual and necessary details of the contract,

2.) agree upon the price,

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 3.) modify or rescind the contract of purchase,

4.) accept delivery for his principal,

5.) give directions for the delivery of the property purchased, and

6.) may borrow money to pay for the care and preservation of the property
purchased.

But he has no special power to

1.) Settle a contest between the principal and a 3rd person regarding the ownership of
goods purchased, or

2.) Agree to an account stated, or

3.) Do anything not usual or necessary to the exercise of such authority.

Scope of Special Authority to Purchase

Where the agency is a special one, or is restricted to purchases upon certain terms
and conditions, the agent has no authority to:

1.) Purchase upon different terms and conditions from those authorized, or

2.) Modify or rescind a contract of purchase made by the principal.

Art. 1879. A special power to sell excludes the power to mortgage; and a special
power to mortgage does not include the power to sell.

The ff are included in a Power to Sell:

The power to:
1.) Find a purchaser or to sell directly;

2.) Deliver the property;

3.) Make the usual representation and warranty;

4.) Execute the necessary transfer documents;

5.) Fix the terms of the sale unless there be set conditions stipulated by the principal;

6.) Sell only for cash;

7.) Receive the price unless he was authorized only to solicit orders.

The ff are not included in a Power to Mortgage

The power to:

1.) Sell;
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 2.) Execute a 2nd mortgage;

3.) Mortgage for the agent’s personal benefit or for the benefit of any 3 rd person,
unless the contrary has been clearly indicated.

Does the principal have the power to revoke a contract giving an agent exclusive
authority to sell?
YES. But he may not have the right to use such power if he has agreed not to
exercise such power during a certain period. In case he fails to comply with this
obligation-not-to-do, he will be liable for damages.

Art. 1880. A special power to compromise does not authorize submission to

arbitration.

Rationale:
A principal may authorize his agent to compromise because of absolute
confidence in the latter’s judgment and discretion to protect the former’s rights
and obtain for him the best bargain in the transaction. If the transaction would be
left in the hands of an arbitrator, said arbitrator may not enjoy the trust of the
principal.

What happens if the agent is specifically authorized to submit to arbitration?

Then the arbitration award binds the principal, provided, of course, that the
agent acted within the scope of his authority.

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

Authority:

The power of the agent to affect the legal relations of the principal by acts done
in accordance with the principal’s manifestation of consent to him. The authority
of the agent is the very essence – sine qua non – of the principal and agent
relationship. This authority, unless it is otherwise agreed, includes only the
authority to act for the benefit of the principal, and the source of the authority is
the principal and never the agent.

Kinds of Authority:
1.) Actual: when it is actually granted, and it may be express or implied. It results
from what the principal indicates to the agent.

2.) Express: when it is directly conferred by words.

3.) Implied: when it is incidental to the transaction or reasonably necessary to

accomplish the purpose of the agency, and therefore, the principal is deemed to
have actually intended the agent to possess.

4.) Apparent or Ostensible: when it is conferred by words, conduct or even by the

silence of the principal which causes a 3 rd person reasonably to believe that a
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 particular person, who may or may not be the principal’s agent, has actual
authority to act for the principal. Ostensible authority is another name for
authority by estoppel.

5.) General: when it refers to all the business of the principal.

6.) Special: when it is limited only to one or more specific transactions.

7.) By necessity or by operation of law: when it is demanded by virtue of the existence

of an emergency; it terminates when the emergency has passed.

Requisites for Principal to be Bound by Act of Agent:

1.) The agent must act in behalf of the principal;

2.) The agent must act within the scope of his authority.

When is a principal not bound by the act of his agent?

When the agent acts without or beyond the scope of his authority; or when the agent
acts within the scope of his authority but in his own name except when the
transaction involves things belonging to the principal.

Authority? Whose behalf? Status of K

With authority Principal’s Valid
With authority Own Depends. [1883]
Without Principal’s Unenforceable
Without Own Valid

Who to sue?
In case the agent acts in the name of the principal and within his scope of
authority, you must name the principal as the defendant.

Note: The authority to look for buyers does not carry with it the authority to sell.

Art. 1882. The limits of the agent’s authority shall not be considered exceeded should
it have been performed in a manner more advantageous to the principal than that
specified by him.

What happens if the agent exceeds his authority but he performs the agency in a
manner more advantageous to the principal?
It will be as if he did not exceed the limits of his authority since he must do such
acts as may be conducive to the accomplishment of the purpose of the agency.
Test: Would the principal enter into this transaction?

Art. 1883. If an agent acts in his own name, the principal has no right of action against
the persons with whom the agent contracted; neither have such persons against the
principal.

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In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involves
things belonging to the principal.

The provisions of this article shall be understood to be without prejudice to the

actions between the principal and agent.

Kinds of Principals:
1.) Disclosed: if at the time of the transaction contracted by the agent, the other party
thereto has known that the agent is acting for a principal and has known the
principal’s identity.

2.) Partially disclosed: if the other party knows or has reason to know that the agent is
or may be acting for a principal but is unaware of the principal’s identity. The
partially disclosed principal may enforce against the 3 rd person the contract of the
agent like any disclosed principal. Similarly, the 3 rd person has a right of action
against the principal.

3.) Undisclosed: if the party has no notice of the fact that the agent is acting as such
for a principal.

General Rule in 1883: If the agent is authorized to act on behalf of the principal but
instead acts in his own name, the agent is the one directly liable to the person with
whom he had contracted as if the transaction were his own.

Exception: If the contract involves something belonging to the principal.

Remedy of the Principal if this situation arises:

He can demand from the agent damages for his failure to comply with the
agency.

Remedy of the 3rd person with whom the agent contracted in case the oblig is not
complied with:

If the case falls under the general rule, he can sue the agent. But when the
contract involves things belonging to the principal, he can sue the principal. But
if it cannot be determined w/o litigation who is liable, he can sue both.

Chapter 2. Obligations of the Agent

Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable
for the damages which, through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should
delay entail any danger.

General Obligations of an Agent to his Principal:

1.) To act with the utmost good faith and loyalty for the furtherance and
advancement of the interests of the principal.

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 2.) To obey the principal’s instructions.

3.) To exercise reasonable care.

Specific Obligations:
1.) To carry out the agency he has accepted.

2.) To answer for damages which through his non-performance the principal may
suffer.

3.) To finish the business already begun on the death of the principal should delay
entail danger.

4.) To observe the diligence of a good father or 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.

5.) To advance the necessary funds should there be a stipulation to do so.

6.) To 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.

7.) Not to carry out the agency if its execution would manifestly result in loss or
damage to the principal.

8.) To answer for damages if there be a conflict between his interests and those of the
principal, he should prefer his own.

9.) Not to loan to himself if he has been authorized to lend money at interest.

10.) Not to render an account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency.

11.) To be responsible in certain cases for the act of the substitute appointed by him.

12.) To pay interest on funds he has applied to his own use.

Art. 1885. In case a person declines an agency, he is bound to observe the diligence of
a good father of a family in the custody and preservation of the goods forwarded to
him by the owner until the latter should appoint an agent. The owner shall as soon as
practicable either appoint an agent or take charge of the goods.

What is the rule if a person declines agency?

In the event 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.

Duty of Owner in case an Agency is Declined:

He must act as soon as possible by appointing an agent or by taking charge of the
goods. Art. 1886. Should there be a stipulation that the agent shall advance the
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 necessary funds, he shall be bound to do so except when the principal is
insolvent.

In a contract of agency, may the parties stipulate that the agent shall advance the
necessary funds? YES.

What is the oblig then of the agent?

He is bound to furnish such funds.
Except: When the principal is insolvent. This exception is based on the principal’s
obligation to reimburse the agent.

Art. 1887. In the execution of the agency, the agent shall act in accordance with the
instructions of the principal.

In default thereof, he shall do all that a good father of a family would do, as required
by the nature of the business.

Instructions:

Private directions which the principal may give the agent in regard to the manner of performing
his duties as such agent.

Authority v. Instructions Authority Instructions

Sum total of powers committed or Direct the manner of transacting the
permitted to the agent by the principal. authorized business and contemplates only a
private rule of guidance to the agent.
Relates to the subject with which the Refers to the manner or mode of his action
agent is empowered to deal or the kinds with respect to matters which in their
of business or transactions upon which substance are within the scope of permitted
he is powered to act. action.
Limitations of authority are operative as Without significance as against those dealing
against those who have or are charged with the agent with neither knowledge nor
with knowledge of them. notice of them.
Contemplated to be made known to the Not expected to be made known to those w/
3rd person dealing w/ the agent. whom the agent deals.

Instructions 

pertain to the principal and agent

Authority

pertain to the agent and 3rd persons.

Exceptions to the rule that the agent must not depart from the instructions of the
principal: [SAI]
A departure may be justified by:
1.) A sudden emergency;

2.) If the instructions are ambiguous; or

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

When the Agent has a right to disobey the principal’s instructions:

1.) When the instruction calls for the performance of illegal acts; or
2.) Where he is privileged to do so to protect his security/interest in the subject
matter of the agency.

Art. 1888. An agent shall not carry out an agency if its execution would manifestly
result in loss or damage to the principal.

Rationale: The duty of the agent who is merely an extension of the personality of
the principal is to render service for the benefit of the principal and not to act to
his detriment. Furthermore, the agent must exercise due diligence in carrying out
the agency.

Art. 1889. The agent shall be liable for damages if, its execution would manifestly
result in loss or damage to the principal.

Note: This provision applies to both onerous and gratuitous transactions. The law does
not distinguish so neither should we.

Rationale: An agent occupies a fiduciary position and therefore is bound to

exercise loyalty, obedience, and diligence with respect to the interest of the
principal.

If the agent follows the principal’s instructions yet his acts still result in damage to
3rd persons, who is liable?

General rule: The agent is NOT liable.

Except: if before acting that way, it is obvious that the act will result to damage, then the
agent is liable.

Art. 1890. If the agent has been empowered to borrow money, he may himself be the
lender at the current rate of interest. If he has been authorized to lend money at
interest, he cannot borrow it without the consent of the principal.

Rationale: The agent can lend money to the principal using the agent’s own
funds at the current rate of interest and NOT at a higher interest rate because the
agent is supposed to act for the principal’s benefit.

If the agent is authorized to lend the principal’s money, with interest, to 3 rd

persons, the agent can’t be the borrower without the consent of the principal
because the agent may not be a good borrower or he may be insolvent or he may
not be a good risk. There is a danger here that the interest of the principal would
be jeopardized.

This would also seem to be the case if the agent is authorized to lend money w/o
interest because of the same reason.

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Art. 1891. Every agent is bound to render an account of his transactions and to deliver
to the principal whatever he may have received by virtue of the agency, even though
it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall
be void.

Rationale: Contrary to public policy as it would encourage fraud. It is in the

nature of a waiver of an action for future fraud w/c is void.

If the agent fails to deliver and instead converts or appropriates for his own use the
money or property belonging to his principal, with what can he be charged?
ESTAFA.

Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:

1.) When he was not given the power to appoint one;

2.) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall
be void.

Sub-agent:

A person to whom the agent delegates, as his agent, the performance of an act for
the principal which the agent has been empowered to perform through his
representative.

Relation among the principal, agent and sub-agent

In reality, the sub-agent is a stranger to the principal who originally gave life to
the agency. But if the agent is authorized to appoint a sub-agent, the relation of
principal and agent exists between the principal and the sub-agent. That is, the
sub-agent may be the agent of the principal if he is in actual control of the
business and the principal knows of his appointment or knows that his
appointment is necessary. Consequently, any act done by the sub-agent in behalf
of the principal is deemed an act of the principal; so neither agent nor sub-agent
may be held personally liable as long as they act within the scope of their
authority.

When can an agent appoint a sub-agent?

So long as there’s no prohibition. However, he shall be responsible for all the
sub-agent’s acts.
4 Instances where a Sub-agent is appointed and the Effects of each:

Instance Effect
No prohibition Agent responsible for all the acts

16 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 of sub-agent.
Prohibition Sub-agent’s acts are VOID as to
the principal.
Authority to appoint but not designated by Agent liable for acts of sub-agent
principal if the sub-agent is notoriously
incompetent or insolvent.
Authority to appoint and designated by Agent is released from any
principal liability from the acts of the sub-
agent.

Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the
principal may furthermore bring an action against the substitute with respect to the
obligations which the latter has contracted under the substitution.

When can the principal sue the substitute?

Under the premises given in the previous provision, the principal can sue both
the agent and the substitute.

Art. 1894. The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been expressly
stipulated.

If solidarity is not stipulated, what is the liability to 2 or more agents? JOINT. Each is
liable only for proportionate part of debt.

Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the
non-fulfillment of the agency, and for the fault or negligence of his fellow agents,
except in the latter case when the fellow agents acted beyond the scope of their
authority.
What happens if solidarity has been agreed upon?

Then each of the agents becomes solidarily liable for:

1.) The non-fulfillment of the agency; or

2.) The fault or negligence of the fellow agent provided the latter acted within the
scope of his authority.

But the innocent agent has a right later on to recover from the guilty or negligent
agent.

What happens if the fellow agent acted beyond the scope of his authority?
Then the innocent agent cannot be liable at all to the principal even if solidarity
had been agreed upon.

Art. 1896. The agent owes interest on the sums he has applied to his own use from the
day on which he did so, and on those which he still owes after the extinguishment of
the agency.

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Art. 1897. The agent who acts as such is not personally liable to the party with whom
he contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers.

General rule: “an agent who acts as such is not personally liable to the party with
whom he contracts.”

Reason for general rule: Because an agent who acts as such within the scope of
his authority represents the principal so that his contract is really the principal’s.

Exceptions:

1.) When the agent binds himself; or

2.) When he exceeds the limits of his authority without giving the third party
sufficient notice of his powers.

Reasons for exceptions:

1.) When the agent expressly binds himself, he thereby obligates himself personally
and by his own act.

2.) When the agent exceeds his authority, he really acts without authority and
therefore, the contract is unenforceable against the principal. The agent becomes
personally liable because y his wrong or omission, he deprives the 3 rd party with
whom he contracts of any remedy against the principal.

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of
his authority, and the principal does not ratify the contract, it shall be void if the
party with whom the agent contracted is aware of the limits of the powers granted by
the principal. In this case, however, the agent is liable if he undertook to secure the
principal’s ratification.

Art. 1899. If a duly authorized agent acts in accordance with the orders of the
principal, the latter cannot set up the ignorance of the agent as to circumstances
whereof he himself was, or ought to have been aware.

This article refers to the liability of the principal towards 3rd persons.

What happens if the principal appoints an agent who is ignorant?

Then the fault is the principal’s alone. Equity demands that the principal should
be bound by the acts of the agent if the latter acts within the scope of his
authority and in accordance with the instructions of the former.

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent’s authority, is such act is within the terms of
the power of attorney, as written, even if the agent has in fact exceeded the limits of
his authority according to an understanding between the principal and the agent.

Requisite for article to apply:

18 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
 Authority to agent must be in writing.

“Scope of agent’s authority” includes:

Not only the actual authorization conferred upon the agent by the principal, but
also that which has apparently or impliedly been delegated to him.

To hold the principal liable, a 3rd person dealing with an agent must:

Discover upon his peril not only the fact of agency but the nature and extent of
authority of the agent. He is put on inquiry. He must also act with ordinary
prudence and reasonable diligence.

Fundamental principles when inquiring whether authority exists:

1.) The law indulges in no bare presumptions that an agency exists, it must be
proved and presumed from facts;
2.) The agent cannot establish his own authority, either by his representations or by
assuming to exercise it;

3.) An authority cannot be established by mere rumor or general reputation;

4.) A general authority is not an unlimited one; and

5.) Every authority must find its ultimate source in some act or omission of the
principal.

In case the fact of agency or the extent of the authority of the agent is controverted,
the burden of proof is on:

The 3rd person to establish the fact of agency or the extent of authority of the
agent.

Does the 3rd person have to inquire further if the power of attorney is written?

No. He is not required to inquire further than the terms of the written power of
attorney.

If there is a secret mutual understanding between the principal and the agent, and
such is not expressed in the written power of attorney, does the 3 rd person have to
inquire?

No. As far as he is concerned, an act of the agent within the terms of the power of
attorney as written, is within the scope of the agent’s apparent authority
notwithstanding that the agent may have exceeded the limits of his actual
authority according to a secret understanding between him and the principal. In
such a case, the principal is estopped from claiming that the agent exceeded his
authority.

Ways by which the agent’s authority may be broadened or restricted:

1.) By implication – agent’s authority extends not only to express requests, but also to
those acts and transactions incidental thereto. It embraces all the necessary and
appropriate means to accomplish the desired end.
19 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
 2.) By usage and custom –

a.) An agent’s authority may not be enlarged through usage and custom in
the following cases: Where it is sought to…
i.) Vary the terms of an express authorization;

ii.) Dispense with a legal requirement enacted for the principal’s benefit;

iii.) Change a rule of law or dispense with a formality required by law;

iv.) Vary an essential quality of the agency relationship.

b.) General rule: principal must have notice of the alleged custom, before the
agent’s acts, in accordance therewith, may bind the principal. Exceptions:

i.) Where the principal and the agent reside in the same community, the
usage is definite and well-known, and the agent has no notice that he
is to act to the contrary;

ii.) Where the agent is authorized to deal in a particular place or in a

particular market exchange.

4.) By necessity – the existence of an emergency or other unusual conditions may

operate to invest in an agent authority to meet the emergency, provided:

a.) Emergency really exists;

b.) Agent is unable to communicate w/ the principal;

c.) Agent’s enlarged authority is exercised for the principal’s

protection; and

d.) The means adopted are reasonable under the circumstances.

5.) By certain doctrines –

a.) Apparent authority

b.) Liability by estoppel;

c.) Ratification.

6.) By the ejusdem generis rule – such that where in an instrument of any kind, an
enumeration of specific matters is followed by a general phrase is held to be
limited in scope by the specific matters.

Responsibility of principal when agent acts w/ improper motives:

General rule: Motive of agent in entering into a K w/ a 3rd person is immaterial.

Exceptions:

1.) Where the 3rd person knew that the agent was acting for his benefit, in w/c case,
the principal is not liable to the 3rd person; and
20 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
 2.) Where the owner is seeking recovery of personal property of w/c he has been
unlawfully deprived.

Principal’s responsibility for an agent’s misrepresentation:

1.) Within the scope of the agent’s authority – Principal is subject to liability for lass
caused to another by the 3 rd persons reliance upon a deceitful representation of
an agent in the course of his employment if:

a.) Representation is authorized;

b.) Within the implied authority of the agent to make for the principal; or

c.) Apparently authorized.

2.) Beyond the scope of the agent’s authority – General rule: Principal is not bound.
Exception: when the principal takes advantage of a K made under the false
misrepresentation of his agent.

3.) For the agent’s own benefit – Principal is liable (motive of agent immaterial).

Ordinary agent Commission agent

Acts for and behalf of his principal.
May act in his own name or in that of his
principal.
Need not have possession of the Must be in possession.
goods of his principal.

Commission agent Broker

Has a relation to principal, buyers or No relation w/ the thing w/c he
sellers, and the property itself. purchases or sells. Merely a go-between.

Liability of commission agent as to goods received:

If the commission agent received goods consigned to him, he is responsible for
any damage or deterioration suffered by the same in the terms and conditions
and as described in the consignment.

Presumption established in this article:

Damage in the merchandise were suffered while in the possession and custody
of the agent.

What the commission agent must do to avoid liability:

Make a written statement of the damage and deterioration if the goods received by him do not
agree w/ the description in the consignment.

Agent v. Depositary: Agent Depositary

Cannot commingle goods of the same Can commingle goods of the same kind.
21 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
 kind.

Art. 1904. The commission agent who handles goods of the same kind and mark,
which belong to different owners, shall distinguish them by countermarks, and
designate the merchandise respectively belonging to each principal.

Purpose of this provision:

Prevent any possible confusion or deception.

Art. 1904 gives the general rule. Exceptions:

1.) By custom;

2.) Collecting banks.

Art. 1905. The commission agent cannot, without the express or implied consent of
the principal, sell on credit. Should he do so, the principal may demand from him
payment in cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale.

Rule given in this article:

Commission agent can sell on credit only with the express or implied consent of
the principal.

Right of the principal in case the commission agent sold goods on credit without
authority: [CR]
2 alternatives:
1.) He may require payment in cash, in w/c case, any interest or benefit from the
sale on credit shall belong to the agent since the principal cannot be allowed to
enrich himself at the agent’s expense; or

2.) He may ratify the sale on credit, in w/c case it will have all the risks and
advantages to him.

Art. 1906. Should the commission agent, with authority of the principal, sell on
credit, he shall so inform the principal, with a statement of the names of the buyers.
Should he fail to do so, the sale shall be deemed to have been made for cash insofar
as the principal is concerned.

Obligation of the commission agent where a sale on credit was authorized:

An authorized sale on credit shall be deemed to have been on a cash basis insofar
as the principal is concerned if the agent fails to inform the principal of such sale
on credit with a statement of the names of the buyers.

Reason for this article: Prevent the agent from stating that the same was on credit
when in fact it was made for cash.
Art. 1907. Should the commission agent receive on a sale, in addition to the ordinary
commission, another called a guarantee commission, he shall bear the risk of
22 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
collection and shall pay the principal the proceeds of the sale on the same terms
agreed upon with the purchaser.

Guarantee commission:

One where, in consideration of an increased commission, the commission agent

guarantees to the principal the payment of debts arising through his agency.

Purpose of guarantee commission:

To compensate the agent for the risks he will have to bear in the collection of the
credit due to the principal.

Nature of liability of guarantee commission agent:

Liable to principal if the buyer fails to pay or is incapable of paying. But he is not
primarily the debtor. On the contrary, the principal may sue the buyers in his
own name. In such a case, the agent amounts to no more than a guaranty.
Liability is a contingent pecuniary liability.

Can the agent with a guarantee commission put up the defense of insolvency of the
debtor?

No. an agent receiving a guarantee commission cannot put up the defense that
the debtor-3rd person possesses no property since this is precisely the risk the
commission agent assumes.

Art. 1908. The commission agent who does not collect the credits of his principal at
the time when they become due and demandable shall be liable for damages, unless
he proves that he exercised due diligence for that purpose.

Obligation of the commission agent under this article:

The commission agent who has made an authorized sale on credit must collect
the credits due the principal at the time they become due and demandable. If he
fails to do so, he shall be liable for damages unless he can show that the credit
could not be collected notwithstanding the exercise of due diligence on his part.
In such a case, the principal’s remedy is to proceed against the debtor.

Does this article apply to a case where there is a guarantee commission?

No, because the agent already assumed the risks of collection by accepting the
guarantee commission.

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.

Is the agent liable for fraud? Yes, in all cases.

For negligence? Yes, but this shall be adjudged with rigor by the courts.

Why does the court have to take into consideration whether the agency was
gratuitous or for compensation?

23 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 In order to fix the liability of the agent for negligence only (not fraud).

Chapter 3. Obligations of the Principal

Art. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal
is not bound except when he ratifies it expressly or tacitly.

Where can the specific obligations and duties of the principal to the agent be found?
Usually in the contract creating the agency.

Principal obligations of the principal to the agent in the absence of such agreement:
1.) To comply with all the obligations which the agent may have contracted in his
name and within the scope of his authority;

2.) To advance should the agent so request sums necessary for the execution of the
agency;

3.) To reimburse the agent for all advances made by him provided the agent is free
from fault;

4.) To indemnify the agent for all the damages which the execution of the agency
may have caused the latter without fault or negligence on his part; and

5.) To pay the agent the compensation agreed upon or the reasonable value of the
latter’s services.

Liability of the principle to 3rd persons:

Where the relation of agency legally exists, the principal will be liable to 3 rd
persons for all acts committed by the agent in his behalf in the course and within
the actual or apparent scope of his authority, and this is not altered y the fact that
the agent may also be liable, nor by the fact that some of the acts are to the
principal’s advantage while others are to his disadvantage.

Liability of the principal for mismanagement of the business by the agent:

Mismanagement of the business of the principal by the agent does not relieve
said principal from the responsibility that he had contracted to 3 rd persons. But
where the agent’s acts bind the principal, the latter may seek recourse against the
agent.

Liability of principal for a tort committed by the agent:

The principal is civilly liable to 3 rd persons for torts of an agent committed at the
principal’s direction or I the course and within the scope of the agent’s
employment. The principal cannot escape liability whether the tort is committed
24 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
 willfully or negligently so long as the tort is committed by the agent while
performing his duties in furtherance of the principal’s business. Nor is it a
defense that the act which caused the tort was unknown to him or even that it
was in disobedience to his instructions.

Meaning of ratification in 2nd paragraph:

Ratification is the adoption or affirmance by a person of a prior act which did not
bind him, but which was done or professed to be done on his account, thus
giving effect to the act as if originally authorized. The doctrine applies to the
ratification of the act of an agent in excess of his authority of the act of one who
purports to be an agent but who is really not. It may be implied from the
acceptance of benefits by the principal under a contract entered in his name. The
authority created by ratification is subsequent but it is equivalent to prior
authority.

Conditions to ratification: [ICK-PEC]

1.) Intent to ratify;

2.) Principal must have capacity & power to ratify;

3.) He must have had knowledge of material facts;

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

5.) Principal must ratify acts in its entirety;

6.) The act must be capable of ratification.

Effects of ratification with respect to the agent:

1.) Relieves the agent from liability to the 3 rd party to the unauthorized transaction;
and

2.) To his principal for acting without authority; and

3.) He may recover compensation due for performing the act which has been
ratified.

Effects of ratification with respect to the principal:

1.) He assumes responsibility for the unauthorized act, as fully as if the agent had
acted under original authority; but
2.) He is not liable for acts outside the authority approved by his ratification.

Effects of ratification with respect to 3rd persons:

1.) 3rd person is bound by ratification to the same extent as he would have been
bound if the ratified act had been authorized in the 1st instance; and

2.) He cannot raise the question of the agent’s authority to do the ratified act.

25 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

Must ratification be communicated to the agent or to the 3rd party?
No. To be effective, ratification need not be communicated or made known to the
agent or the 3rd party. The act or conduct of the principal rather than his
communication is the key. But before ratification, the 3 rd party is free to revoke
the unauthorized contract.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full
powers.

Estoppel:

precludes a person from denying or asserting anything contrary to that which has been
established as the truth by his own deed or representation, either express or implied.

Ratification v. Estoppel Ratification Estoppel

Rests on intention Rests on prejudice
Affects the entire transaction from the Affects only relevant parts of the
beginning transaction.
Substance is confirmation of a Substance is the principal’s
unauthorized act or conduct after it has inducement to another to act to his
been done. prejudice.

Basis of article 1911:

Principle of estoppel. Necessary for the protection of innocent 3 rd persons.
Instance when solidarity is imposed by law.

Art. 1912. The principal must advance to the agent, should the latter so request,
the sums necessary for the execution of the agency.

Should the agent have advanced them, the principal must reimburse him
therefor, even if the business or undertaking was not successful, provided the
agent is free from all fault.
The reimbursement shall include interest on the sums advanced, from the day
on which the advance was made.

Should the principal reimburse the agent for advances made by the latter even if the
agency was unsuccessful?
It depends. Yes, if the agent is free from fault. No, if the agent was with fault.

Is a broker always entitled to a commission?

A broker is entitled to a commission if the sale is effected, but not if there is no

perfected transaction.

Art. 1913. The principal must also indemnify the agent for all the damages which the
executive of the agency may have caused the latter, without fault or negligence on his
part.

26 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 Basis for the above rule: Equity. Since the principal receives the benefits of the
agency, and has a right to demand damages from the agent should the latter not
perform the agency, he should answer for the damages resulting from the
execution thereof without fault or negligence on the part of the agent.

Art. 1914. The agent may retain in pledge the tings which are the object of the agency
until the principal effects the reimbursement and pays the indemnity set forth in the
two preceding articles.

What happens when the principal fails to reimburse or indemnify the agent for
expenses set forth in arts. 1912 and 1913?
The agent has the right to retain in pledge the things which are the object of the
agency.

In case the agent sells the goods for more than his claim, is he entitled to the excess?
No.

What is the nature of the agent’s right of lien?

Specific or particular. It is not general in the sense that it gives the agent a right to
retain the goods for claims disconnected with the agency.

Art. 1915. If two or more persons have appointed an agent for a common transaction
or undertaking, they shall be solidarily liable to the agent for all the consequences of
the agency.

Requisites for application of this article: [2C2]

1.) There are 2 or more principals;

2.) The principals have all concurred in the appointment of the same agent;

3.) The agent is appointed for a common transaction or undertaking.

Why is solidarity the rule?

Because of the common transaction. Thus, even if the agent was appointed
separately, the rule should apply in the interest of justice.
Art. 1916. When two persons contract with regard to the same thing, one of them with
the agent and the other with the principal, and the two contracts are incompatible
with each other, that of prior date shall be preferred, without prejudice to the
provisions of Article 1544.

May 2 persons contract with regard to the same thing, one with the agent and the
other with the principal?
Yes.
If this situation arises, which of the contracts will be preferred?
If the contracts are compatible, they will both be given effect. If they are
incompatible, then the contract of prior date shall be preferred.

27 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 Art. 1544: If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have 1 st taken possession
thereof in good faith if it should be movable property. Should it be immovable
property, the ownership shall belong to the person acquiring it who in good faith
1st recorded it in the Registry of Property. Should there be no inscription, the
ownership shall pertain to the person who in good faith was 1 st in possession;
and in the absence thereof, to the person who presents the oldest title, provided
there is good faith.
Art. 1917. In the case referred to in the preceding article, if the agent has acted in good
faith, the principal shall be liable in damages to the third person whose contract must
be rejected. If the agent acted in bad faith, he alone shall be responsible.

Is the principal always liable for damages caused by a 3 rd person or is it the agent
who is liable?

Whether the principal or the agent will be the one liable for damages to the 3 rd
person who has been prejudiced depends on whether the agent acted in bad faith
or not. If the agent acted in good faith and within the scope of his authority, the
principal incurs liability. If the agent acted in bad faith, he alone shall be
responsible to such person.

What is the extent of liability covered under this article? Damages.

What is good faith referred to in this article?

Good faith here means that the agent had no knowledge that the principal is
dealing with a 3rd person.

Note: If the contract is one of sale, article 1544 governs and not arts. 1916 and 1917.

Art. 1918. The principal is not liable for the expenses incurred by the agent in the
following cases:

1.) If the agent acted in contravention of the principal’s instructions, unless the latter
should wish to avail himself of the benefits derived from the contract;

2.) When the expenses were due to the fault of the agent;

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

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

Chapter 4. Modes of Extinguishment of Agency

Art. 1919. Agency is extinguished:

28 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 1.) By its revocation;

2.) By the withdrawal of the agent;

3.) By the death, civil interdiction, insanity or insolvency of the principal or of the
agent;

4.) By the dissolution of the firm or corporation which entrusted or accepted the
agency;

5.) By the accomplishment of the object or purpose of the agency;

6.) By the expiration of the period for which the agency was constituted.

Meaning of 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.

Who has the burden of proving the revocation/termination of agency?

The burden of proving a revocation or other termination of agency is on the
party asserting it.

Modes of extinguishing an agency, generally: [ASO]

1.) Agreement;

2.) Subsequent acts of the parties which may be either:

a.) By the act of both parties or by mutual consent;

b.) By the unilateral act of one of them.

3.) By operation of law.

Modes of extinguishment, specifically: [WR-DEAD]

1.) Withdrawal of the agent;

2.) Revocation;

3.) Death, civil interdiction, insanity or insolvency of the principal or of the agent;

4.) Expiration of the period for which the agency was constituted;

5.) Accomplishment of the object or purpose of the agency; and

6.) Dissolution of the firm/corp which entrusted or accepted the agency;

Necessary characteristics of the parties for the continuance of the agency: [PCS]
1.) Present;

29 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 2.) Capacitated;

3.) Solvent.

Why is presence necessary?

Because the general rule in art 1919 is that death of any of the parties
extinguishes agency. However in the case where you have several principals
and/or several agents, whether the death of one principal or of one agent
terminates the agency would depend on the intention of the parties. Generally
the death of one of several principals does not revoke the agent’s authority nor
does the death of one of several agents put an end to the agency. The intention of
the parties controls.

Why is capacity necessary?

For instance, in the case of civil interdiction, it deprives the offender during the
period of his sentence of the right to manage his property and dispose of such
property by any act or any conveyance inter vivos. A person under civil
interdiction hence, cannot validly give consent. Same is true for insane people.
Why is solvency necessary?
As by an act of insolvency, the principal loses control of the subject matter of the
agency, the authority of the agent to act for his principal ceases by operation of
law upon an adjudication of the principal’s insolvency. On the other hand, the
insolvency of the agent will ordinarily put an end to the agency, at least if it is in
any way connected with the agent’s business which has caused his failure.
General rule as to death of the principal or agent:
By reason of the very nature of the relationship between the principal and the
agent (which is fiduciary) agency is distinguished ipso jure upon the death of the
principal.

Exceptions:
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 3rd person who contracted w/ the agent acted in good faith.

Why does dissolution of a firm or corp extinguish the agency?

Dissolution of a corp extinguishes its juridical existence.

What happens when the object or the purpose of the agency is accomplished?
As between the parties, the principal and the agent, the fulfillment of the
purpose for which the agency was created ipso facto terminates the agency.

What happens when the term for which the agency was supposed to continue
expires?

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 When an agency is created for a fixed period, the expiration of such period ends
the agency, even though the purpose for which the agency was created has not
been accomplished.

What happens if no time is specified?

The agency terminates at the end of a reasonable period of time.

Can the period be implied? Yes, from…

1.) The terms of the agreement;

2.) Purpose of the agency; and

3.) The circumstances of the parties.

What happens if the subject matter of the agency is lost or destroyed?

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 agent’s 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, or
2.) If the destroyed subject matter was not in fact essential to the contract; and

3.) A partial loss or destruction.

Are the modes of extinguishments of agency exclusive?

No. Art. 1919 gives only those causes of extinction which are particular to
agency. But the list is not exclusive. The general rule actually is, an agency may
be extinguished by the modes of extinguishments of obligations in general
whenever they are applicable, like loss of the thing and novation (see art. 1231).

Does war extinguish agency?

During the existence of war, a contract of agency is inoperative if the agent or the
principal is an enemy alien. But since it is generally conceded that war suspends
all commercial intercourse between the residents of 2 belligerent states, the
general rule is that agency is terminated, as a matter of law, upon the break of
war.

Does legal impossibility terminate agency?

Implied in every contract is the understanding that it shall be capable of being
carried out legally at the time called for by the contract. An agency then
terminates if a change in the law makes the purpose of the agency unlawful.

What happens if the principal’s authority terminates?

A position which flows from a trust relationship whether directly or indirectly,
terminates as a matter of law with the destruction of the trust. Consequently, a
sub-agent’s authority terminates with the termination of the principal’s
authority.

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In case of loss of the subject matter, does the principal incur any liability?
It depends. If the loss was brought about by the principal as in the case where the
principal sells the subject matter to another party notwithstanding that an agency
had been constituted in reference to it, then he may be liable for damages for his
wrongful terminating act. But if the subject matter is lost without the fault of the
principal, no liability is assumed by him.

Will a change of conditions affect the agency?

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

1.) If the original circumstances are restored within a reasonable period of time, the
agent’s authority may be revived.

2.) 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. (But when
in doubt, agent could contract principal for instructions if possible).

3.) Where the principal and agent are in close daily contact, the agent’s 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.

Confidential information
It is difficult to determine whether information is confidential or not, because
while the relation of principal and agent is confidential, not all knowledge
acquired by the agent is of a confidential nature. Some clearly is of so general a
nature that equity ought not attempt to restrict its subsequent use.

Usually, what a court does is to determine 2 things:

1.) Whether the knowledge or information is indeed confidential, and

2.) Whether its subsequent use ought to be prevented.

Principle behind enjoining an agent from using confidential information:

There is in the contract of service subsisting between the principal and the agent an
implied contract on the part of the agent that he will not, after the service is
terminated, use information which he has gained while the service has been
subsisting to the detriment of his former employer.

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

May an agency be terminated by a subsequent act of the principal? Yes, when he does
so, it’s called revocation.
32 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
May an agency be terminated by a subsequent act of the agent? Yes, it’s called
withdrawal or renunciation.

Does it matter if the agency is gratuitous or with compensation when we speak of

revocation by the principal? No, art 1920 makes no distinction.

Reasons:
1.) Since the authority of the agent emanates from the principal, if the principal
wishes to terminate the agency the law must enable him to do so.

2.) Confidence being the cardinal basis of the relation, it stands to reason that it
should cease when such confidence disappears.

3.) The principal-agent relationship is consensual and personal in nature. No one can
nor should be forced to retain another as his agent against his will.

In case a principal does revoke an agency, is there any way by which the agent can
hold him liable for damages? Yes. For instance:
1.) If the agency was constituted for a fixed period, the principal shall be liable in
damages occasioned by the wrongful discharge of the agent before the expiration
of the period fixed.
2.) If the agent can prove that the principal acted in bad faith by revoking the agency
in order to avoid payment of commission about to be earned, the principal can be
held liable for damages.

Reason for requiring agent to return the document evidencing the agency: To prevent
the agent from making use of the power of attorney and thus avoid liability to 3 rd
persons who may subsequently deal with the agent on the faith of the instrument.
Kinds of Revocation:
1.) Express; or
2.) Implied, e.g.:
a.) When the principal appoints a new agent for the same business or
transaction, or
b.) When the principal directly manages the business entrusted to the agent.

Is notice of revocation to the agent necessary? Yes.

A revocation without notice to the agent will not render invalid an act done in
pursuance of the authority.
Is express notice of revocation to the agent necessary?
As between the principal and the agent, express notice to the agent that the
agency is revoked is not always necessary. If the party to be notified actually
knows, or has reason to know, facts indicating that his authority has been
terminated or suspended, there is sufficient notice.

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Is notice of revocation to 3rd persons necessary? Yes.
What kind of notice should you give 3rd persons?
1.) As to former customers, actual notice must e given to them because they always
assume the continuance of the agency relationship.
2.) As to other persons, notice by publication is enough.

May the agent renounce the agency at will?

Yes, but subject to the contractual obligations owing the principal.
Reason: The essence of the principal-agent relationship is the consent and
willingness of the agent to act for the principal. The law cannot compel the
parties to continue an agency if they do not want to do so. (The principal cannot
even sue for affirmative specific performance because that would lead to
involuntary servitude!)

Form of renunciation:
It is not always necessary for the agent to renounce the agency expressly. He can do
so impliedly.

Does a violation of the instructions of the principal amount to a renunciation?

No. Mere fact that 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.
Art. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons, its revocation shall not prejudice the latter if they were not given
notice thereof.

What is the effect of revocation in relation to 3 rd persons if the agent was authorized
to contract with specified persons?

If the agency is created for the purpose of contracting with specified persons, its
revocation will not prejudice such 3 rd persons until notice thereof is given them.
The reason for this is obvious. Since 3rd persons have been made to believe by the
principal that the agent is authorized to deal with them, they have a right to
presume that the representation continues to exist in the absence of notification
by the principal. But of course, notice is not required if the 3 rd persons already
know of the revocation.

Art. 1922. If the agent had general powers, revocation of the agency does not
prejudice third persons who acted in good faith and without knowledge of the
revocation. Notice of the revocation in a newspaper of general circulation is a
sufficient warning to third persons.

Effect of revocation in relation to 3 rd persons if the agent was authorized to contract

with the public in general:

34 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 In case the agent has general powers, innocent 3 rd parties dealing with the agent
will not e prejudiced by the revocation before they had knowledge thereof. In
this case, however, the fact that the revocation was advertised in a newspaper of
general circulation would be sufficient to 3 rd persons for publication constitutes
notice upon everybody and this is true whether or not such 3 rd persons have read
the newspaper concerned.

Notice required in Art. 1921 Art. 1922

Must be personal. May be personal.
Revocation must be known to 3 rd Even if 3rd person doesn’t know, as long
person informed of the appointment. as there is publication in a newspaper of
general circulation.

General rule: Special information needs special information of revocation.

Except: If you can prove that the 3rd person read the notice in the newspaper.

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

What does this article mean?

1.) There is implied revocation of the previous agency when the principal appoints a
new agent for the same business or transaction if there is incompatibility. But the
revocation does not become effective as between the principal and the agent
unless it is in some way communicated to the latter. Again, the rights of 3 rd
persons who acted in good faith and without knowledge of the revocation will
not be prejudiced thereby.

2.) There is no implied revocation where the appointment of another agent is not
incompatible with the continuation of like authority in the 1 st agent, or if the 1st
agent is not given notice of the appointment of the new agent.

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

What does the above article provide?

It provides for another case of implied revocation.

Effect of direct management of the business by the principal himself:

Generally, it revokes the agency because there would no longer be any basis for
the representation previously conferred.

Exception: when the only desire of the principal in doing so is for him and the
agent to manage the business together.
35 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
Art. 1925. When two or more principals have granted a power of attorney for a
common transaction, any one of them may revoke the same without the consent of
the others.

Rationale: Since the appointment of an agent by 2 or more principals for a

common transaction or undertaking makes them solidarily liable to the agent for
all consequences of the agency, then each one of the principals should be granted
the right to revoke the power of attorney even without the consent of the others.
Remember that in a solidary obligation, the act of one is the act of all.

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

How many agents are involved in this article?

2, one to whom a general power is previously granted. Another to whom a

special power is given. (Note that this can also apply if a special power is
subsequently given to the same agent.)

Effect of the issuance of a special power as regards the general power:

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. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it
is the means of fulfilling an 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.

General rule: Principal may revoke an agency at will since the essence of agency is the
agent’s duty of obedience to the principal.

Exceptions:
1.) When a bilateral contract depends on the agency;

2.) When the agency is 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.

Can an agency, coupled with an interest, be terminated by the sole will of the
principal? No.

Requisite for agency to be irrevocable for being coupled with an interest:

Interest of the agent must be in the subject matter of the power conferred and not
merely an interest in the exercise of the power.

Instances of an agency coupled with an interest:

36 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 1.) When the agent has parted with value or incurred liability at the principal’s
request, and he is looking to the exercise of the power as the means of
reimbursement or indemnity.
2.) When the interest in the thing concerning which the power is to be exercised
arises from an assignment, pledge or lien created by the principal with the agent
being given the power to deal with the thing in order to make the assignment,
pledge or lien effectual.

If the contract of agency stipulates that such will be irrevocable, is such terminology
controlling in all cases?
No. Whether an interest will make an agency irrevocable exists in a particular
case is to be determined from the entire agreement between the parties and from
the facts and circumstances. The terminology is not controlling. Even if an
agency is made in terms irrevocable, the fact will not prevent its revocation by
the principal when the agency is not in fact coupled with an interest.

If an agency is coupled with an interest, does this mean that the principal can never
ever revoke it?
No. You can still revoke in extreme situations, e.g.:

1.) Irrevocability can never be used as a shield for the perpetration of acts in ad faith,
breach of confidence or betrayal of trust. The law will never permit the agent to
commit frauds against the principal.

2.) When the interest is already terminated.

Why is it said that agencies coupled with interest are not true agents?
Because persons with proprietary interests in the subject matter of their agency
are not true agents at all. One of the hallmarks of the agency relation is the
control of the principal over the acts of the agent and over the subject matter of
the agency. An agency coupled with an interest removes that control.

Art. 1928. The agent may withdraw from the agency by giving due notice to the
principal. If the latter suffer any damage by reason of the withdrawal, the agent must
indemnify him therefor, unless the agent should base his withdrawal upon the
impossibility of continuing the performance of the agency without grave detriment
to himself.

Does the agent have a right to renounce or withdraw from the agency at any time?
Yes. Even without the consent of the principal. But, in the latter case, he may be
subject to liability for breach of contract or for tort.

Basis: Constitutional prohibition against involuntary servitude.

Obligation of agent if he withdraws from agency without just cause:

1.) Notify principal (even if w/ just cause); and

37 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm

 2.) Indemnify the principal should the latter suffer any damage by reason of such
withdrawal.

Reason for indemnity: To answer for losses and damages occasioned by the non-
fulfillment of his obligation as agent.

Is the agent liable for indemnity if the withdrawal was for just cause? No. Agent
cannot be held liable if the agent withdraws for a valid reason as when:

1.) The withdrawal is based on the impossibility of continuing the agency without
grave detriment to himself; or

2.) Fortuitous event.

What happens when the agent sues the principal?

Equivalent to withdrawal of the agent.

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

Obligation of agent after withdrawal:

Even when withdrawal is for a valid reason, he must continue to act until the
principal has had reasonable opportunity to take the necessary steps like the
appointment of a new agent to remedy the situation caused by the withdrawal.
This is to prevent damage or prejudice to the principal.
Art. 1930. The agency shall remain in full force and effect even after the death of the
principal, if it has been constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has accepted the stipulation in his
favor.

If the agent dies, his heirs should tell the principal. However, if the principal dies, the principal’s
heirs have no obligation to tell the agent.

General rule: Agency is terminated instantly by the death of the principal.

Rationale: Agency, being based on representation, there is no one to e

represented where the principal is already dead.

Exceptions:
1.) If the agency has been constituted in the common interest of the principal and the
agent; and

2.) If the agency has been constituted in the interest of a 3 rd person who has accepted
the stipulation in his favor.

Art. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be
fully effective with respect to third persons who may have contracted with him in
good faith.
38 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm
What does this article provide?
It provides that the death of the principal or any other like cause, extinguishes
the agency. But in the same way that revocation of the agency does not prejudice
3rd persons who have dealt with the agent in good faith without notice of
revocation, such 3rd persons are also protected where it is not shown that the
agent had knowledge of the termination of the agency because of the death of the
principal or any other like cause which extinguishes the agency.

Does this article only require the agent to be in good faith? No, both agent and 3rd
person must be.

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

In case of death of agent, what must the heirs do?

1.) Notify the principal to enable the latter reasonable opportunity to take such steps
as may be necessary to meet the situation; and
2.) Adopt such measures as the circumstances may demand in the interest of the
principal.

Can the heirs continue the agency?

General rule: No, since an agency calls for personal services on the part of the agent.
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.

39 |LAW 104 (2ND SEM-2016-2017) 12:00pm-3:00pm