LAW ON AGENCY

employer and employee, of master and servant and of

I. INTRODUCTION
employer and independent contractor.
A. Definition
Agency is a relationship which implies a power in an
Art. 1868 By the contract of agency a person binds himself to render
sometoservice
or to
do something
in representation
agent
contract
with
third person
on behalf of or
a
on behalf of another, with the consent or authority of the latter.
principal. It is this power to effect the principals
contractual
relations
with
third
persons
that
DEFINITION OF AGENCY IN THE CIVIL CODE
differentiates the agent from the employee, the servant
and the from
independent
Agency
Art. 1869. Agency may be express, or implied from the acts of the principal,
his silence contractor.
or lack of action,
or hisproperly
failure
relatesauthority.
to commercial or business transactions.
to repudiate the agency, knowing that another person is acting on hisspeaking
behalf without
Agency may be oral, unless the law requires a specific form.
Being a contract, it is essential that the minds of the
Art. 1870. Acceptance by the agent may also be express, or implied
from his
actsmeet
whichincarry
out it.
theLike
agency,
from his
parties
should
making
otherorcontracts,
silence or inaction according to the circumstances.
agency requires consent, object and cause (Art. 1305)
Art. 1876. An agency is either general or special.
Art. 1305. A contract is a meeting of minds between two persons w
The former comprises all the business of the principal. The latter,
one or more
specific
give something
or to
rendertransactions.
some service.
Art. 1878.Special powers of attorney are necessary in the following
Art.cases:
1318.xxThere is no contract unless the following requisites concur

Art. 1878 agency as a type of contract

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;

Art. 1869 manner the agency relationship is

(3) Cause of the obligation which is established.
established, manner by which authorization or

Consent is crucial, although some agency relationships

acceptance is made
may arise by operation of law, meaning without the

Art. 1870, 1876 manner by which the agency as the

parties consent. The principal must intend that the
business itself is handled by the agent
agent shall act for him, the agent must intend to accept

Agency used in its broadest meaning is both a contract

the authority and act on it, and the intention of the
and a representative relation. Agency, despite being
parties must find expression either in words or conduct
defined as a contract in Art. 1868, should also be
between them. Without such intention, there is
considered as creating between the principal and an
generally no agency. (Consent of the principal is
agent an on-going legal relationship which imposes
essential.)
personal obligations on the parties.

The object of an agency is the agent s performance of

acts in representation of the principal. This is the
a. Legal relationship
juridical basis of agency. (Rallos v. Felix Go Chan)

Connection in law between the principal and the agent

The cause of an agency is compensation. A person may

Legal relationship between the agent and the principal

also request appointment as an agent to protect his own
founded on contract or created by law (Mechem)
interests.

Fiduciary relationship between the principal and the

HOWEVER, although the agency relationship is usually a

agent, where the agent is subject to the principals
contractual one, either express or implied, based upon a
control (Restatement of Agency)
consideration, this is not necessarily so; that is the

Fiduciary relationship by which a party confides to

relationship may be created by OPERATION OF LAW (ie.
another the management of some business to be
agency by estoppel) or a person who acts for another as
transacted in the former s name, and by which the other
principal may do so gratuitously. Thus, without cause or
assumes to do the business and render an account of it
consideration, there can be an agency or agency
(American Jurisprudence)
powers.

Relationship whereby one party authorizes another to

Ie. In the exercise of governmental functions, local

act for an in his behalf in transactions with third persons
governments or municipal corporations act as agents for
(Rallos v. Felix Go Chan)
the sovereign state. The legal consequences of agency

Fiduciary relationship analogous to that of a trust, where

may attach where one person acts for another without
the agent is estopped from acquiring or asserting a title
authority or in excess of his authority and the latter
adverse to that of the principal (Severino v. Severino)
subsequently ratifies it.

Ex. A law is passed that for purposes of medical

malpractice, an agency relationship exists between
GOVERNING LAW
hospitals and doctors. Is the law valid? YES
it
Previously, a distinction existed between agency and
establishes a legal relationship for specific purpose
commercial agency under the Code of Commerce. However,
b. Contract

NCC 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.

Compare with CC Art. 1709. By the contract of agency,

one person binds himself to render some service, or to
do something for the account or at the request of
another.
o
Less precise than Article 1868 in that Article
1709 can admit of other relations (e.g.
independent contractor) apart from agency
Art. 1868 defines the CONTRACT of agency. It defines
agency from the viewpoint of a contract. The definition
is broad enough to include all situations in which one
person is employed to render service for another,
excludes however from its concept of the relationship of

this distinction has been abolished under the New Civil

Code. At present, all agencies are governed by the Civil
Code.
TERMS USED IN OTHER SENSES
Agency is sometimes used in a sense other than to denote
the relationship of principal and agent.
(1) May be used to denote the PLACE at which the
business is transacted. When used in the sense of
place of business, the relationship of P and A is not
necessarily implied.
(2) May be used in the sense of INSTRUMENTATLIY by
which a thing is done
(3) May be used to refer to the EXCLUSIVE RIGHT of a
person to sell a product of another in a specific
territory
CHARACTERISTICS OF A CONTRACT OF AGENCY

CONSENSUAL: perfected by mere consent

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 1

PRINCIPAL: can stand by itself without need of another

contract
NOMINATE: has its own name
UNILATERAL, if gratuitous: creates obligations for only
one of the parties, i.e. agent; or BILATERAL, if for
compensation: gives rise to reciprocal rights and
obligations
PREPARATORY: entered into as a means to an end, ie.
the creation of other transactions or contracts

BASIS OF AGENCY

Agency is also a representative relation. The agent

renders some service or does something in
representation or on behalf of another.
REPRESENTATION
constitutes
the
basis
of
agency .

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. Authority of the agent to act emanates from
the powers granted to him by his principal. The
distinguishing features of agency are its personal,
representative and its derivative character. Qui facit per
alium facit per se. He who acts through another, acts
himself. (Rallos v Felix Go Chan)

Thus, a person may make an offer to enter into a

contract through an agent and such offer is accepted
from the time acceptance is communicated to the agent
who is deemed authorized to receive the acceptance
(Art. 1322)
PURPOSE OF AGENCY

The purpose of the agency is to extend the personality

of the principal through the facility of the agent. It
enables the activity of man which is naturally limited in
its exercise by the impositions of his physiological
conditions to be legally extended by permitting him to
be constructively present in many different places and
to perform diverse juridical acts and carry on many
different activities through another when physical
presence is impossible or inadvisable at the same time

With the expansion of commercial transactions and the

consequent
increase
in
business
organizations
conducted mainly through the combined efforts of
individuals acting in a representative capacity, the
subject of agency has grown in importance.

The purpose of agency is to allow a person to act on

behalf of another. Agency is primarily a commercial
relationship, although it can be used even for noncommercial purposes. It expands the capacity of
persons to engage in commercial transactions.

a. Accomplishment of more tasks

The underlying principle of the contract of agency is to
accomplish results by using the services of others.
(Eurotech v. Cuison)
The principal can accomplish more compared to a
situation where he has to do everything himself.
b. Multiple and simultaneous areas of activity
A principal can be in multiple places doing simultaneous
activities at the same time through his agents, thereby
accomplishing more tasks in less time.
Establishing an agency is better than hiring workers
because of the agents power to enter into contracts on
behalf of his principal, allowing the agent to accomplish
more than what an ordinary worker can do.
c. Improved performance

Agency allows the principal to be represented by

someone who may be more adept at the skills required
by his business or by someone who has an established
network or reputation.
By allowing the principal to focus on what he does best
or delegating to others what he is not good at, agency
improves the performance of a business.
d. Multiple businesses
Agency allows the principal to handle several businesses
at the same time. Agency relationship expands the
capacity of persons to engage in commercial
transactions.

CASE: Orient Air Services & Hotel Representatives v.

CA (1991)
SUMMARY: American Air and Orient Air entered into a
General Sales Agency Agreement whereby the former
authorized the latter to act as its exclusive general sales
agent within the Philippines for the sale of air passenger
transportation. American Air by itself collected the proceeds
of tickets sold originally by Orient Air and terminated the
Agreement with Orient Air for having allegedly reneged on
its obligations under the Agreement by failing to promptly
remit the net profits of sales for several months. Orient Air
denied American Airs entitlement to alleged unremitted
amounts, contending that after application of the
commissions due under the Agreement, American Air in fact
still owed Orient Air a balance in unpaid overriding
commissions. TC ruled in favor of Orient Air which CA
affirmed. Both CFI and IAC ordered American Air to reinstate
Orient Air as its general sales agent for passenger
transportation in the Philippines.
HELD: TC erred in ordering American Air to reinstate Orient
Air as its agent. It in effect, compels American Air to extend
its personality to Orient Air. Such would be violative of the
principles and essence of agency.
DOCTRINE: Agency, defined by law as a contract whereby
"a person binds himself to render some service or to do
something in representation or on behalf of another, WITH
THE CONSENT OR AUTHORITY OF THE LATTER. In an agentprincipal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the
agent, by legal fiction, becomes the principal, authorized to
perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law
or by any court.
PARTIES

There are 2 parties to the contract

PRINCIPAL (mandante): One whom the agent represents

and derives his authority; he is the person
represented. Agency imports the contemporaneous
existence of a principal, and there is no agency unless
one is acting for and in behalf of another

AGENT (mandatario): One who acts for and represents

another; he is the person acting in representative
capacity. The agent may employ his own agent in
which case he becomes a principal with respect to the
latter. If an act done by one person in behalf of another
is, in its essential nature, one of agency, the former is
agent of the latter notwithstanding that he is not so
called
o
From the time the agent acts or transacts the
business for which he has been employed in
representation of another, a third party is added
to the agency relationship the party with
whom the business is transacted.

Other terms used: attorney-in-fact, proxy, delegate,

representative
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 2

as they are incapable of understanding the task to be

performed.

In an ordinary case, a person of sound mind not

otherwise incapacitated may act as agent for another
since his agreements bind only the principal. But in
some instances, additional qualifications must exist, the
lack of which may void the relationship which the
alleged agent assumed. (ie. attorney to represent a
principal in legal matters)

Insofar as his obligations to his principal are concerned,

CAPACITY OF THE PARTIES (relate this with element of
the agent must be competent to bind himself. The
consent)
extent to which an agent is a FIDUCIARY and is subject
Art. 1327. The following cannot give consent to a contract: (1) Unemancipated
minors;
(2) Insane
or demented
persons,
to duties and
liabilities
to his principal
depends
uponand
his
deaf-mutes who do not know how to write.
capacity.
Art. 1329. The incapacity declared in Article 1327 is subject to the
determined
by law,
andCONFIDENCE
is understood which
to be
modifications
The relationship
of TRUST
and
without prejudice to special disqualifications established in the laws. constitutes
one
of
the
3
FUNDAMENTAL
NOTES:
CHARACTERISTICS of the agency relationship results in
1) PRINCIPAL: Any person who is capacitated to act in his
the disqualification of agents to act for the principal
own right may be a principal
when it is their duty to act inconsistently toward

For the validity of the contract of agency, it is required

another.
that the principal must have capacity to contract.
3) EFFECT OF LACK OF CAPACITY (as adverted in Villanueva)

The principal may be either a natural person or an

If one of the parties has no legal capacity to contract,

artificial one. Thus legal entities such as corporations
then the contract of agency is not VOID but merely
and partnerships can be principals or agents. This is
VOIDABLE by reason of vitiation of consent.
expressly recognized by Art. 1919(4) w/c provides as

A voidable contract of agency will produce legal

one of the grounds for extinguishment of the agency
consequences, when it is pursued to enter into juridical
the dissolution of the firm/corporationxxx.
relations with third parties.

On the other hand, a voluntary association of persons

IF PRINCIPAL w/OUT LEGAL CAPACITY and agent enters

which is not a legal entity has no legal existence and
into a contractual relationship in the principals name
cannot sue or be sued; hence it has no capacity to
with a third party, the resulting contract is VOIDABLE
appoint an agent
and subject to annulment.

Also, during the existence of a state of war, an enemy

IF PRINCIPAL HAS LEGAL CAPACITY and AGENT has NO

alien may not appoint an agent to act in the belligerent
LEGAL CAPACITY, the underlying agency relationship
territory with which his nation is at war
is VOIDABLE; and when the incapacitated agent enters

Inasmuch as one who acts through an agent in law does

into a contract with a third party, the resulting
the act himself, the capacity to act by an agent depends
contract would be VALID, not voidable, for the agents
in general on the capacity to act of the principal to do
incapacity is irrelevant, the contract having been
the act himself if he were present.
entered into, for and in behalf of the principal, who has
full legal capacity.

It is a general rule that that an agent who assumes to

Such discussion supports the general proposition that

contract in the name of a principal without contractual
capacity renders himself liable to third persons. The acts
the lack of legal capacity of the agent does not affect
of an agent done for an incompetent principal may be
the constitution of the agency relationship.
ratified by the latter after he acquires capacity. The

HOWEVER: Art. 1919 (3) on extinguishment of agency,

agent is not liable where he was ignorant of the
provides that if during the term of the agency, the P/A is
principals incapacity.
placed under civil interdiction, or becomes insane or

Ex. Agent makes a contract on behalf of P w/out

insolvent, the agency is ipso jure extinguished. Thus, if
knowledge that P was a minor. P thereafter disaffirmed
loss of legal capacity of agent extinguishes the agency,
the contract. Agent is not liable to the other party to the
then any of those cause that have the effect of
contract. Agent warrants that he is acting within the
removing legal capacity on either or both the P & A at
scope of his authority, but being a mere mouthpiece of
the time of perfection would not bring about a contract
his principal, he does not warrant the full contractual
of agency.
capacity of his principal.

How to explain the incongruity regarding legal

Ex. Agent redeemed the share pro indiviso in a parcel of

capacities of parties in a contract of agency:
land upon SPA given by children of the owner and claims
o
As
to
creating
and
extinguishing
the
ownership over said share. Agent does not have the
CONTRACTUAL RELATIONSHIP BET. P & A: The
right to portion he claims as share. The children had no
provisions of law take into consideration purely
authority to execute said SPA since their father is still
intramural matters pertaining to the parties
alive. (Santos v Buenconsejo)
under the principle ofrelativity. Since agency is
2) AGENT: Since agent assumes no personal liability, he does
essentially a personal relationship based on the
not have to possess FULL CAPACITY to act insofar as third
purpose of representation, then when either the
persons are concerned. Even one under legal disability,
principal or agent dies or becomes legally
whose contracts, therefore, are not binding upon him, may
incapacitated, then the agency relation should
nevertheless act as an agent and bind his principal.
ipso jure CEASE.
(apparently De Leon is the authority cited for this)
o
BUT as to CONTRACT w/ 3rd PARTIES: It is

Where one knowingly and without dissent permits

emphasized that the contract of agency is
another to act as his agent, the capacity of the latter will
merely a preparatory contract, where the main
be conclusively presumed.
purpose is to effect, through the agent,
contracts and other juridical relationships of the

However some mental capacity is necessary as an

principal with third parties. The public policy is
agent, and therefore, persons who are absolutely
that third parties who act in good faith with an
incapacitated, such as insane persons, cannot be agents

NOTE: No one may contract in the name of another

without being authorized by the latter, or unless he has
by law a right to represent him. A contract entered into
in the name of another by one who has no authority or
the legal representation or who has acted beyond his
powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it
has been executed, before it is revoked by the other
contracting party ~NCC 1403 (1) (Rallos v Go Chan)

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 3

agent have a right to expect that their contracts

would be valid and binding on the principal. SO
even when by legal cause, an agency
relationship has terminated, say with principals
insanity, if the agent and a 3 rd party enter into
contract unaware of the situation, then the
various provisions on the Law on Agency would
affirm the validity of the contract.
NATURE OF RELATIONS BETWEEN PRINCIPAL AND
AGENT
1) Relations fiduciary in character

Relations are based on trust and confidence on a degree

which varies considerably from situation to situation.
The agreement to act on behalf of the principal causes
the agent to be a fiduciary, a person having a duty,
created by his undertaking, to act primarily for the
benefit of another, the principal, in matters connected
with his undertaking.
2) Agent estopped from asserting interest
adverse to his principal

In regard to property forming the subject matter of the

agency, the agent is estopped from asserting or
acquiring a title adverse to that of the principal.

However, the agent does not, by accepting the agency,

lose any prior claim which he himself may have to the
property with which he deals, nor is he estopped to
assert that money or property in his hands was not
received by him as agent for the principal, or that the
principal parted with his interest in the property
subsequent to the delivery to him as agent, or that the
property has been taken from the principal by
paramount title, or that he has been lawfully required to
account for another, or that the title is in another to
whom he would be liable if he should surrender the
property to the principal.
3) Agent must not act AS an adverse party

In matters touching the agency, agents cannot act so as

to bind their principals, where they have an adverse
interest in themselves.

The rule is founded upon the plain and obvious

consideration, that the principal bargains, in the
employment, for the exercise of the disinterested skill,
diligence and zeal of the agent, for his own exclusive
benefit.

Even if impartiality could possibly be presumed on the

part of an agent, where his own interest were
concerned, that is not what the principal bargains for;
and in many cases, it is the very last thing which would
advance his interests.
o
An agent cannot acquire by purchase the
property, whose administration of sale has been
entrusted to him unless the consent of the
principal has been given. The agents incapacity
rests on the fact that A & P form one juridical
person. Ban connotes the idea of trust and
confidence.
o
If principal authorizes agent to sell goods, the
agent must not sell to himself. His duty (to get
the highest price) conflicts with his interest (to
buy as cheaply as possible).
4) Agent must not act FOR an adverse party

An agent cannot serve 2 masters. In such a case, agent

assumes a conflicting interest. He becomes responsible
for loss sustained and cannot recover compensation.
Either party may repudiate the transaction involved

BASIS: Reasons of public policy and applies to all dual

agency relationships notwithstanding that the agent
acts in good faith or that the principal objecting incurs
no harm therefrom.

NOT APPLICABLE TO:

a) Cases where principal has full knowledge of the facts and
consents

A principal with knowledge of double agency cannot

complain of agents breach of faith.

If second principal (third party) knows, first principal

may recover damages from the third party and the
agent irrespective of proof of actual fraud.
b) No conflicting interest as when agent is a mere
middleman or intermediary (ie. broker) with no independent
initiative.
c) One is an agent of one party for a certain purpose while
an agent of an adverse party for an entirely different
purpose
5) Agent must not use or disclose secret
information

Requirements of good faith and loyalty demand of the

agent the duty not to use or divulge confidential
information obtained in the course of his agency for his
own benefit to the principals injury and expense.

After the agency is terminated, the agent is no longer

under a duty to abstain from competition and may then
use general information as to business methods and
processes and names of customers remembered (if not
acquired in violation of his duty as agent), but he must
still not injuriously use or disclose unique or confidential
information entrusted to him only for the principals use
or acquired by him in violation of his duty.
6) Agent must give notice of material facts

Principles of good faith and loyalty to the principals

interests also require that an agent make known to his
principal every and all MATERIAL FACTS, of which the
agent has cognizance, which concern the transaction
and subject matter of the agency.

On failure to do so, the agent may be held liable for

damages for any loss suffered or injury incurred as a
result of such breach.
CASE: Thomas v. Pineda
SUMMARY: In order to prevent his business Silver Dollar
Cafe from falling into enemy hands during the war, Thomas
made a fictitious sale of the same in favor of the manager,
Pineda. After the war, Pineda claims that he has already
acquired the trade name of the business as he has
registered the same in his name.
DOCTRINE: The relations of an agent to his principal are
fiduciary and it is an elementary and very old rule that in
regard to property forming the subject matter of the agency,
he is estopped from acquiring or asserting a title adverse to
that of principal. His position is analogous to that of a
trustee and he cannot consistently, with the principles of
good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. A
receiver, trustee, attorney, agent or any other person
occupying fiduciary relations respecting property or persons
utterly disabled from acquiring for his own benefit the
property committed to his custody for management. This
rule is entirely independent of the fact whether any fraud
has intervened. No fraud in fact need be shown, and no
excuse will be heard from any such inquiry that the rule
takes so general form. The rule stands on the moral
obligation to refrain from placing one's self in position which
ordinarily excite conflicts between self-interest at the
expense of one's integrity and duty to another, by making it
possible to profit by yielding to temptation
CASE: Palma v. Cristobal
Summary: Land was registered in the name of Palma and
his wife. Upon the death of the wife it was registered solely
under his name. Palma sought to eject Cristobal from the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 4

premises. Cristobal is an heir of a co-owner of the property.

Cristobal argues that the registration was with an
understanding between the co-owners, by reason of the
confidence they had in Palma and his wife.
Doctrine: Palma is a mere trustee. He did not acquire
ownership by prescription. Palma held the property and
secured its registration in his name in a fiduciary capacity.
His pretension of building his right to claim ownership by
prescription upon his own breach of a trust cannot be
countenanced by any court, being subversive of generally
accepted ethical principles.
DOCTRINE: Act of the agent is in fiduciary capacity, and it
is elementary that a trustee cannot acquire by prescription
the ownership of the property entrusted to him. The position
of a trustee is of representative nature. His position is the
position of a cestui que trust. It is logical that all benefits
derived by the possession and acts of the agent, as such
agent, should accrue to the benefit of his principal.

Severino vs. Severino: "The relations of an agent to his

principal are fiduciary and it is an elementary and very
old rule that in regard to property forming the subjectmatter of the agency, he is estopped from acquiring or
asserting a title adverse to that of the principal. His
position is analogous to that of a trustee and he cannot
consistently, with the principles of good faith, be
allowed to create in himself an interest in opposition to
that of his principal or cestuique trust."

Barretto vs. Tuason: The registration of the property in

the name of the trustees in possession thereof, must be
deemed to have been effected for the benefit of the
cestuique trust.

Palet vs. Tejedor: Whether or not there is bad faith or

fraud in obtaining a decree with respect to a registered
property, the same does not belong to the person in
whose favor it was issued, and the real owners be
entitled to recover the ownership of the property so long
as the same has not been transferred to a third person
who has acquired it in good faith and for a valuable
consideration.
RELATIONSHIP OF THIRD PARTY WITH PRINCIPAL AND
AGENT

Since an agents contract is not his own but his

principals, a third partys liability on such contract is to
the principal and not to the agent, and liability to such
third party is enforceable against the principal, not the
agent.

Where an agency exists, the relationship of the third

party with whom the agent has contracted, to the
principal, is the same as that in a contract in which
there is no agent.
o
Normally, the agent has neither rights nor
liabilities as against the third party. He cannot
sue or be sued on the contract. Since a contract
may be violated only by the parties thereto as
against each other, the real party-in-interest,
either as plaintiff or defendant in an action upon
that contract must, generally, be a party to said
contract
o
The fact that the agent did not obtain his
commissions or recoup his advances because of
the non-performance of the contract does not
entitle him to file an action against the buyer
where he does not appear as a beneficiary of a
stipulation pour autrui under Art. 1311
o
An agent, in his own behalf, may however bring
an action founded on a contract made for his
principal as an assignee of such contract. The
rule requiring every action to be prosecuted in
the name of the real party-in-interest recognizes
the assignment of rights of action and also

recognizes that when one has a right assigned

to him, he is then the real party-in-interest and
may maintain an action upon such claim or
right.
DETERMINATION OF EXISTENCE OF AGENCY

The question of whether an agency has been created is

ordinarily a question which may be established in the
same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one
of INTENTION.
(1) Designation by the parties
CASE: Albaladejo y Cia v. Phil. Refining Co.
SUMMARY: Albaladejo and Visayan entered into a MOA in
w/c the latter, as manufacturer of coconut oil, would buy all
the copra purchased by Albaladejo in Albay. Albaladejo filed
an action to recover sum of money for its maintenance of its
agency on the basis of Visayans representation that it would
reopen which did not materialize. It also invoked Article
1729 claiming that the MOA is a contract of agency and thus
Visayan as principal has to indemnify the agent for damages
incurred in carrying out the agency. SC: Not an agency as
Albaladejo buys for its own account and the sale to Visayan
is a second sale. Art. 1729 not applicable.
DOCTRINE: An agent buys not on its own account but on
the account of its principal. The use of the term agent in
the one clause of the contract cannot dominate the real
nature of the agreement as revealed in other clauses, no
less than in the caption of the agreement itself.

(2) Fact of existence

"Where the relation of agency is dependent upon the
acts of the parties, the law makes no presumption of
agency, and it is always a fact to be proved, with the
burden of proof resting upon the persons alleging the
agency, to show not only the fact of its existence, but
also its nature and extent. (Victorias Milling v CA)
(3) Presumption of existence
The relation of agency cannot be inferred from mere
relationship or family ties unattended by conditions,
acts, or conduct clearly implying an agency. For the
relation to exist, there must be consent by both parties,
i.e. the principal consents that the other party, the
agent, shall act on his behalf and the agent consents so
to act.
The law makes no presumption thereof. It must exist as
a fact.
(4) Intention to create relationship
On the part of the principal, there must be either an
actual intention to appoint, or an intention naturally
inferable from his words or actions.
On the part of the agent, there must be an intention to
accept the appointment and act on it, and in the
absence of such intent, there is generally no agency.
(5) As between the principal and a third person
As between them, agency may exist without the direct
assent of the agent. Thus, by directing a third person to
deal with another as agent, the principal necessarily
authorizes the agent to act for him.

ELEMENTS OF AGENCY
Article 1868s 2 elements:
(1) A person must bind himself to render some service or to
do something in representation or on behalf of another; and,
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 5

(2) With the consent of the other person.

NOTES:Prof. Sanchez said that the elements can be
summed up into two: Consent of A& P and Representation;
seems she thinks this is more proper and this also in accord
with Prof. Casis intimation in his book p. 22

Rallos, sold the latter's undivided share in a parcel of land

pursuant to a power of attorney which the principal had
executed in his favor. The administrator of the estate of
went to court to have the sale declared unenforceable and
to recover the disposed share. The trial court granted the
relief prayed for, and nullified the sale with respect to the
pro indiviso share of Concepcion is concerned, but upon
appeal, the CA upheld the validity of the sale and the
complaint.
HELD: Reversed CA ruling and reinstated that of the trial
court. The agency was extinguished by operation of law by
the death of the principal and this case does not fall under
the exceptions.
DOCTRINE: This case established the 4 essential elements
of agency as seen above.

Jurisprudences 4 essential elements of agency:

(1) There is consent, express or implied, of the parties to
establish the relationship;
(2) The object is the execution of a juridical act in relation to
a third person;
(3) The agent acts as a representative and not for himself;
(4) The agent acts within the scope of his authority. (Rallos v
Felix Go Chan)
NOTES:Prof. Casis says that SC seemed to primarily rely on
Art. 1868 & 1881 as seen in Rallos v Go Chan footnote #5.
The 1st, 3rd, 4th elements can be derived from these articles
CASE: Eurotech Industrial Technologies, Inc. v. Cuizon
although Art. 1869 & 1870 should be added as basis of the
SUMMARY:
Eurotech is engaged in the business of
fact that consent may be express or implied.
importation and distribution of various European industrial
has as some
one ofservice
its customers
Impact
Systems
Art.1868. By the contract of the agency of a person blindsequipment.
himself toIt render
or to do
something
in
Sales which
a sole proprietorship owned by ERWIN Cuizon.
representation or on behalf of another, with the consent of the authority
of theislatter.
Eurotech He
soldmay
to Impact
Systems
various
products allegedly
Art. 1881. The agent must act within the scope of his authority.
do acts
as may
be conductive
to the
amounting to P91,338. ISS sought to buy from Eurotech, 1
accomplishment of the purpose of the agency.
unitprincipal,
of sludge
pump
valued or
atlack
P250k.
Whenorthe
Art. 1869. Agency may be express, or implied from the acts of the
from
his silence
of action,
his sludge
failure
arrived
from UK,
Eurotech refused to deliver the same
to repudiate the agency, knowing that another person is acting onpump
his behalf
without
authority.
to 1870
ISS without their having fully settled their indebtedness
Agency may be oral, unless the law requires a specific form. Art.
toEurotech.
EDWIN
Cuizon
and Alberto de Jesus,
implied from his acts which carry out the agency, or from his silence
or inactionThus,
according
to the
circumstances.
general manager of Eurotech, executed a Deed of
NOTES:Villanueva notes that the element not included in
Assignment of receivables in favor of Eurotech. ISS, despite
the Rallos enumeration is the cause or consideration of
the existence of the Deed of Assignment, proceeded to
every contract of agency. He mentions that the last 2
collect from Toledo, the amount in the receivables. Eurotech
elements included in the Rallos enumeration should not be
made several demands upon ISS to pay their obligations but
understood to be essential elements for the perfection and
was unable to get full payment. Thus, Eurotech instituted a
validity of the contract of agency for indeed they are
complaint for sum of money against EDWIN and ERWIN
matters that do not go into perfection but rather into the
Cuizon. Edwin, as defense, alleged that he is not a real party
performance stage of agency relationship. He adds
in interest in this case since he is a mere agent of his
Consideration or Commission as an element to the contract
principal, ISS in his transaction with Eurotech and the latter
of agency (this will be discussed under the Rights of the
was very much aware of this fact.
Agent).
DOCTRINE: Reiterates the elements in Rallos v Go Chan.

The non-existence of the 2 purported essential elements

See this case in other topics.
does not affect the validity of the existing agency
relationship but rather the enforceability of the contracts
CASE: Philex Mining Corp. v. CIR
entered into by the agent on behalf of the principal.
SUMMARY: Philex entered into an agreement with Baguio
o
Under Art. 1883: If agent act sin his own name,
Gold Mining Corp. for the former to manage the latters
principal has no right of action against person
mining claim know as the Sto. Mine. The parties agreement
with whom agent has contracted
was denominated as Power of Attorney w/c provide that
o
Under Art. 1898: Agent exceeds scope of his
Baguio Gold would contribute P11M under its owners
authority, and principal does not ratify the
account plus any of its income that is left in the project, in
contract, it shall be void as to the principal. (V
addition to its actual mining claim while Philex contribution
submits that it is merely unenforceable but law
would consist of its expertise in the management and
says void)
operation of mines, as well as the managers account which

The last 2 elements are meant to emphasize that the

is comprised of P11M in funds and property. In the course
relationship of agency is set-up essentially to comply
the project, Philex made advances of cash and property.
with the basic axiom in CC that no one may contract in
Unfortunately, the mine suffered continuing losses over the
the name of another without being authorized by the
years, which resulted in Philex withdrawal as manager of
latter. A contract entered into in the name of another by
the mine. The parties executed a Compromise Dation in
one who has no authority or legal representation shall
Payment, wherein the debt of Baguio amounted to
be unenforceable, unless it is ratified, expressly or
P112,136,000. Philex deducted said amount from its gross
impliedly, by the person on whose behalf it has been
income in its annual ITR as loss on the settlement of
executed.
receivables from Baguio Gold against reserves and

ALSO, Control: One factor which most clearly

allowances. BIR did not allow deduction since it did not
distinguishes agency from other legal concepts is
consist of a valid and subsisting debt considering that, under
control; one person - the agent - agrees to act under the
the management contract, Philex was to be paid 50% of the
control or direction of another - the principal. The very
projects net profit. Philex claims that it entered a contract of
word "agency" has come to connote control by the
agency evidenced by the power of attorney executed by
principal. The control factor, more than any other, has
them and the advances made by Philex is in the nature of a
caused the courts to put contracts between principal
loan and thus can be deducted from its gross income. CTA
and agent in a separate category. (Victorias Milling v CA)
rejected the claim and held that it is a partnership rather
CASE: Rallos v. Felix Go Chan & Sons Realty Corp.
SUMMARY: This is a case of an attorney-in-fact, Simeon
Rallos, who after of his death of his principal, Concepcion

than an agency. CA affirmed CTA.

HELD: The lower courts did not err in treating petitioners
advances as investments in a partnership known as the Sto.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 6

Nino mines.
The advances were not debts. The
relationship was that of a partnership. Moreover, in an
agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a
third party that depends upon it or the mutual interest of
both principal and agent. In this case the non-revocation or
non-withdrawal under the PA applies to the advances made
by the petitioner who is the agent and not the principal
under the contract. Thus, it cannot be inferred from the
stipulation that it is an agency.
DOCTRINE: The essence of an agency, even one coupled
with interest, is the agents ability to represent his principal
and bring about business relations between the latter and
third persons. Where representation for and in behalf of the
principal is merely incidental or necessary for the proper
discharge of ones paramount undertaking under a contract,
the latter may not necessarily be a contract of agency, but
some other agreement depending on the ultimate
undertaking of the parties

1. Consent to Establish the Relationship

A person may express his consent by contract (Art.
1868), by conduct (Art. 1869), or by ratification (Art.
1910), or the consent may arise by presumption or
operation of law. In certain situations, the law presumes
that person has authority to act for another. Ie. In law,
partners are considered agents of the partnership and of
each other.
The essential element of consent is manifest from the
principle embodied in Art. 1317 that No person may be
represented by another without his will; and that no
person can be compelled against his will to represent
another.
Agency, defined by law as a contract whereby "a person
binds himself to render some service or to do something
in representation or on behalf of another, WITH THE
CONSENT OR AUTHORITY OF THE LATTER. An agentprincipal relationship can only be effected with the
consent of the principal, which must not, in any way, be
compelled by law or by any court. (Orient Air v CA)
o
Note: While courts cannot compel parties to
enter into a contract of agency, the Civil Code
provides for agency relationships created by
operation of law.
There is no agency if there is no showing that the
principal consented to the acts of the alleged agent or
authorized latter to act on her behalf, much less with
respect to the particular transactions involved.
(Bordador v Luz)
The fact that an agent corporation is 100% owned by
the principal corporation does not automatically
create an agency relationship. For an agency to exist, it
is essential that the principal consent that the other
party, the agent, shall act on its behalf, and the agent
consents so as to act. (Apex Mining Co. v. Southeast
Mindanao Gold Corp.)
There must be an actual intention to appoint an agent
on the part of the principal, and an intention to accept
the appointment on the part of the agent. Absent such
mutual intent, there is generally no agency. (Tuazon v.
Heirs of Ramos)

CASE: Victorias Milling Co., Inc. v. Court of Appeals

SUMMARY: VMC issued SLDR 1214M to STM which covers
25k bags of sugar. STM sold its rights under SLDR 1214M to
CSC. CSC wrote to VMC and attached letter of authority from
STM to withdraw sugar covered by SLDR 1214M expressly
providing that it authorizes CSC to withdraw for and in our
behalf the refined sugar covered by SLDR 1214. STM paid
VMC P31.9M covering SLDR 1214 and also 1213 for 50k
bags. When CSC surrendered SLDR to VMC, it was allowed to

withdraw sugar but only up to 2k as allegedly the bags of

sugar corresponding to STMs checks has already been
withdrawn by STM. CSC then filed complaint for specific
performance. VMC argues that the dealings between it and
STM were part of a series of transactions involving only one
account or one general contract of sale and CSC, as STMs
agent, could withdraw bags of sugar only against cleared
checks of STM. It mentioned terms in letter of authority to
prove that CSC is STMs agent. SC: CSC was a buyer of the
SLDFR form, and not an agent of STM. It was not subject to
STM's control. VMC failed to sufficiently establish the
existence of an agency relation between CSC and STM. The
use of the words "sold and endorsed" means that STM and
CSC intended a contract of sale, and not an agency. There
was no intention to enter into a contract of agency between
STM and VMC, as such, there was no agency between them.
The question of whether a contract is one of sale or agency
depends on the intention of the parties.
DOCTRINE:It is clear from Article 1868 that the basis of
agency is representation. On the part of the PRINCIPAL,
there must be an actual intention to appoint or an intention
naturally inferable from his words or actions; and on the part
of the AGENT, there must be an intention to accept the
appointment and act on it, and in the absence of such
intent, there is generally no agency.
NOTE:Villanueva advances the idea that perhaps the only
exception to this rule is the principle of agency by
estoppel; however, even then it is by the separate acts of
the purported principal and purported agent, by which they
are brought into the relationship insofar as third parties
acting in good faith are concerned.
CASE: Chemphil Export v. CA
SUMMARY: AntonioGarcia was bound to reimburse
Consortium and SBTC by virtue of an Indemnity Agreement
and Surety Agreement respectively, which he issued in favor
of Chemark. He filed in court declaratory reliefs seeking
judicial declaration as to these agreements validity as they
were allegedly made without consideration. However, the
court did not rule in his favor and instead issued writs of
preliminary attachment and notice of garnishment on his
properties in favor of SBTC, on July 2, 1985, and in favor of
Consortium, on July 19, 1985, including the disputed shares.
Meanwhile, on July 15, 88, Garcia, under a Deed of Sale,
transferred to Ferro Chemicals, Inc. the disputed shares and
other properties for P79,207,331.28. It was agreed upon that
part of the purchase price shall be paid by FCI directly to
SBTC for whatever judgment credits that may be adjudged
in the latter's favor. FCI subsequently transferred the shares
to Petitioner CEIC. On July 18, 1989, Consortium filed a
motion for execution which was granted by TC after Garcia
failed to comply with the terms of a Compromise Agreement.
The disputed shares w/c were previously garnished on 19
July 1985 were levied upon. Consortium filed a motion to
order the corporate secretary of CIP to enter in its stock and
transfer books the sheriff's certificate of sale and to issue
new certificates of stock in the name of the banks concerned
which was granted by the Court. However, CEIC filed a
motion to intervene in the consortium case seeking to recall
the order on grounds that it is the rightful owner of the
disputed shares. It argues that when FCI, CEIC's
predecessor-in-interest, paid SBTC the due obligations of
Garcia to the said bank, FCI, and later CEIC, was subrogated
to the rights of SBTC, particularly to latter's attachment lien
over the disputed shares.SBTC's attachment lien is superior
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 7

as it was obtained on 2 July 1985, ahead of the consortium's

purported attachment on 19 July 1985. More importantly,
said CEIC lien was duly recorded in the stock and transfer
books of Chemphil.
HELD: CEIC is not legally subrogated under Art. 1302(2).
Although the Deed of Sale between FCI stipulated that FCI
shall pay directly to SBTC the amount determined by SC
which FCI did, FCIs payment was in effect paying with
Garcia's money, no longer with its own, because said
amount was part of the purchase price which
FCI owed Garcia in payment for the sale of the disputed
shares by the latter to the former. It is as if Garcia himself
paid his own debt to SBTC but through a third party FCI.
FCI merely acted as a conduit or merely an agent as defined
in Art. 1868 of the Civil Code: 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. Since CEIC was not
subrogated to SBTC's right as attaching creditor, which right
in turn, had already terminated after Garcia paid his debt to
SBTC, it cannot, therefore, be categorized as an attaching
creditor and therefore cannot be rightful owner of the
shares.

CASE: Shoppers Paradise Realty v. Roque

SUMMARY: Shoppers entered into a 25-year lease
agreement over a land in QC with Dr. Roque however this
was not annotated in the TCT due to Dr. Roques death.
Disagreements bet. Shoppers and Efren Roque resulted in
the latters filing of a case to annul the contract and the
MOA. SC: Contract of Lease and MOA were not valid. Dr.
Roque already donated the land to Efren prior to the
agreement. This was known by Shoppers at the time it
entered into the agreement. However, Dr. Roque was not an
authorized agent and as such, he could not have validly
entered into the lease agreement.
DOCTRINE: In a contract of agency, the agent acts in
representation or in behalf of another with the consent of
the latter. A special power of attorney is necessary to lease
any real property to another person for more than one year.
(CC 1878) The lease of real property for more than one year
is considered not merely an act of administration but an act
of strict dominion or of ownership. A special power of
attorney is thus necessary for its execution through an
agent.
CASE: Nielson & Co. Inc. v. Lepanto Consolidated
Mining Co.
HELD: While the contract provided that Nielson would be
the purchasing agent of Lepanto, it could not purchase
without approval of Lepanto it cannot bind Lepanto without
first securing its approval; it was an intermediary, not an
agent in this aspect. The phrase in the contract to the effect
that both parties recognize that the agreement was made
possible because of faith and confidence of the officials of
each company did not make the relation that of agent and
principal because the phrase only implies the circumstance
that brought about the execution of the management
contract
DOCTRINE: Art. 1868 of the New Civil Code defined the
contract of agency in more explicit terms: 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.

Problem:
On Monday, P told A he ll appoint him as agent on
Wednesday. A hasn t accepted yet. On Tuesday, P told A he
changed his mind. On Wednesday, A went to the RTC to
compel P to issue him an SPA. RTC granted A s petition. Is
RTC correct? NO. Cite Orient Air v. CA cannot be compelled
by law or any court
Problem:
Company A owns 100% of Company B. Company A owns
100% of Company B s stock. All members of Company B s
Board of Directors are under Company A s control. All profits
go to Company A. Is Company B an agent of Company A?
NO. Cite Apex Mining v. Southeast Mindanao must show
that subsidiary is a duly authorized agent
Problem:
A and B never intended to enter into an agency relationship.
A merely wanted to hire B as worker. But B, with As consent,
performed acts usually performed by agents. Is B an agent
of A? NO. Cite Tuazon v. Heirs of Ramos, Victorias Milling v.
CA intent must be proven
2. Object is the Execution of a Juridical Act in
Relation to a Third Person

CASIS: The basis of agency is representation. If an

agent is not given the power to represent the
"principal, then there is really no contract of agency. If
a person is called an agent but is called upon to perform
acts, which are not in representation of the alleged
principal, then he is not an agent nor is a contract of
agency established.

VILLANUEVA: The object or subject matter of every

contract of agency is SERVICE which particularly is the
legal undertaking of the agent to enter into juridical acts
with 3rd persons on behalf of the principal.

Therefore the obligation created by the perfection of the

contract of agency is essentially an unilateral personal
obligation to do.

Object of every contract of agency is the execution of a

juridical act in relation to a third person. (Rallos v Go
Chan)

2,3,4 elements cited in Rallos can be summarized into

the objective of every contract of agency to be that of
service; ie. the obligation of the agent to enter into a
juridical act with third parties on behalf of the principal
and within the scope of his authority.

In a contract of agency, a person binds himself to render

some service or to do something in representation or on
behalf of another with the latters consent. The
underlying principle of the contract of agency is to
accomplish results by using the services of others.
(Eurotech v Cuizon)
CASE: Dela Cruz v. Northern Theatrical Enterprises
SUMMARY: De La Cruz, a security guard of Northern
Theatrical, shot and killed Martin, a moviegoer, who tried to
crash the main entrance of the theatre. Martin allegedly
attacked Dela Cruz with a bolo so the latter shot him. He
was charged with homicide but was later acquitted. He
sought reimbursement from Northern Theatrical for his
expenses incurred from hiring a lawyer, arguing that he was
an agent.
HELD: Dela Cruz is not an agent but a mere employee.
Northern is not legally obligated to reimburse him. The
principle of representation is clearly absent. De La Cruz was
not employed to represent Northern Theatrical in its dealings
with third persons. He did not execute any juridical act on
behalf of the alleged principal.

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 8

DOCTRINE: Relationship between the parties was not that

of principal and agent because the principle of
representation was in no way involved.
NOTE: Prof. Casis says that this case should not be
interpreted to mean that an employee could not be an
agent. For as long as an employee has the power to
represent his employer and enter into binding transactions,
he is both an employee and an agent.
3. Agent Acts as Representative and Not for
Himself

The agent has an obligation to represent his principals

interest and not his own.

Sir Casis argues: That the agent actually represents the

principal should not be an element for the establishment
of the contract of agency because it is a consequence of
the contract. After all, an agency contract can be
established without the agent acting as agent. All that is
necessary is a meeting of the minds between the
parties.

If a principal appoints an agent and the agent accepts,

the subsequent act of the agent acting for himself under
circumstances of conflict of interest does not invalidate
the original contract but constitutes a breach thereof.
As regards to property

GENERAL RULE: Art. 1491 provides that an agent cannot

acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another,
the property whose administration or sale may have
been entrusted to them, unless the consent of the
principal has been given. Sale is voidable.

EXCEPTIONS: (1) If the principal consents; (2) An agent

can buy for himself the property after the termination of
the agency (Valera v Velasco); (3) purchases property
different from those he has been commissioned to sell
CASE: Santos v. Buenconsejo
SUMMARY: Lot 1917 is owned in common by Buenconsejo
(1/2) and Lorenzo & Santiago Bon (1/2). Buenconsejos rights
over his portion of the land were executed in connection w/
a decision by JDDR court and were eventually sold to Ziga.
These rights over Buenconsejos share pro indiviso on the
parcel of land were allegedly redeemed by Santos thru the
authority of a SPA executed in his favor by Buenconsejos
children. Santos asks the court to grant him his share to Lot
1917-A and cancel Buenconsejos OCT over the title. HELD:
He has no authority to cause such cancellation since he has
no property right which could have possibly vested in his
own name when the SPA granted to him by Buenconsejos
children was an authority to act on their behalf. Besides, the
SPA has no effect as Buenconsejos children has no authority
to execute it when Buenconsejo is still alive.
DOCTRINE: The contract of agency by virtue of SPA
authorizes another (agent/mandatario), to act for and IN HIS
behalf (principals) on transactions with 3rd persons. It does
not authorize the agent to act for his own interests.

CASE: CIR v. Cadwaller Pacific Pacific Company

Summary:Being disputed is the CTA decision setting aside
the Commissioner of Internal Revenues assessment that
Cadwaller Pacific owed P3,651 covering fixed and
percentage taxes as commercial broker. SC held that

Cadwaller is neither a commercial broker or merchant and

not subject to sec. 194 of the Tax Code because it does not
act as a middleman rather it is a seller.
Doctrine: A "commission merchant" as he is generally
known is a commercial agent to whom the possession of
personalty is entrusted by or for the owner, to be sold, for a
compensation, in pursuance of the agent's usual trade or
business, with title to goods remaining in principal as
distinguished from person who purchases merchandise with
his own capital, takes title in his own name, and sells for his
own account at whatever price he may deem advisable.
CASE: Valera v. Velasco
Summary: Velasco was appointed by Valera as attorney in
fact and authorized to manage the latters property
consisting as a usufruct. Valera owed Velasco money
prompting the latter to file an action against him. Question
is, did such act of suing the principal extinguish the agency?
SC says it does. Why is this pertinent? Because the agent
purchased the principals right of redemption, which is not
allowed if he were still the agent. However, since he is not
an agent anymore, his subsequent purchase of the right of
redemption over the usufruct is valid.
Doctrine: the conclusion is reached that the disagreements
between an agent and his principal with respect to the
agency, and the filing of a civil action by the former against
the latter for the collection of the balance in favor of the
agent, resulting from a liquidation of the agency accounts,
are facts showing a rupture of relations, and the complaint is
equivalent to an express renunciation of the agency, and is
more expressive than if the agent had merely said, "I
renounce the agency."
Problem:
Peter owns a second1hand car dealership. Olivia, Peter s
agent, meets customers and executes deeds of sale. Olivia
sold Walter a lemon. Walter confronted Peter. Is Peter liable?
YES. Cite Doles v. Angeles (infra, page 47) the principal
doesnt have to encounter the third person to be liable.

4. Agent Acts Within the Scope of Authority

Sir Casis argues: Again, that the agent acts within the
scope of authority is a consequence of the agency
relationship and not a condition for its existence since it
is possible for an agency relationship to exist even
without this element ie. implied agency.
Only goes into the validity of the act and not necessarily
the existence of the agency relationship.
In requiring this to create an agency relationship, it
would entitle a determination of whether an agency
relationship exists on a per transaction basis.

ACTS THAT MAY BE DELEGATED TO AGENTS

GENERAL RULE: Anything based on the principle,

What a man may do in person, he may do thru
another.

EXCEPTION
o
Personal acts: If personal performance is
required by law or public policy or agreement of
the parties, the doing of the act by a person on
behalf of another does not constitute
performance by the latter. Ie. right to vote,
making of will, statements required to be made
under oath, those acts specifically appointed to
agent in person cannot be delegated to subagent
o
Criminal Acts not allowed by law: Acts are
VOID. No agency in the perpetration of a crime
or an unlawful act. The law of agency governing
civil cases has no application to criminal cases.
When a person participates in the commission
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 9

of a crime, he cannot escape punishment on the

ground that he simply acted as an agent of
another party. Ie. Purchase of land by aliens
thru Filipino agent, persons prohibited from
acquiring property under their control
EFFECT OF AGENCY: INTEGRATION AND EXTENSION

Integration personality of the principal is merged

with that of the agent

Extension personality of the principal is merged with

that of the principal

1. Authority to Act
Qui facit per alium facit per se (he who does a thing by
an agent is considered as doing it himself)
The agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would
have him do. (Orient Air Services v. CA)
By this legal fiction, the actual absence of the principal
is converted into his legal or juridical presence.
(Eurotech v. Cuison)
A principal becomes liable for obligations contracted by
the agent provided that the act is within the authority of
the agent. (Prudential Bank v.CA)

2. Agent Not Real-Party-In-Interest

Since the agent is a mere extension of the personality of
the principal, he is not a party to the contract with the
third person. The liability of the third party is to the
principal and not to the agent. (See Obligations of the
principal, infra, page 33)

This rule does not apply in criminal cases. (Ong v. CA) If

the agent is being sued in a criminal action, this cannot
be used as a defense. Otherwise, the agent can commit
any crime and not be held liable for it.
Problem:
Mozzie got Neal as his agent. Neal won over Adler s trust to
get his bank info. Adler sued Neal for estafa. Neal claimed
he was not liable as he was only Mozzies agent. Is Neal
correct? NO! cite Ong v.CA the law of agency does not
apply to criminal cases

3. Notice to Agent is Notice to Principal

GENERAL RULE: Knowledge of the agent is knowledge
of the principal.
o
This is known as the theory of imputed
knowledge.
o
However, the rule does not apply conversely.
Notice to the principal is not notice to the
agent. (Sunace Int l. v. CA)
Exception to the rule (CASIS):
o
Where the conduct and dealings of the agent
are such as to raise a clear presumption that he
will not communicate to the principal the facts
in controversy (Cosmic Lumber v. CA)

This is because if the agent were

committing fraud, it would be contrary
to common sense to presume that he
would communicate the facts to the
principal.

When an agent is engaged in the

perpetration of a fraud upon his
principal for his own exclusive benefit,
he is not really acting for the principal
but is really acting for himself.
o
Any notice to the agent, which if known by the
principal may create liability on the agent,
cannot be considered as notice to the principal.
3 EXCEPTIONS (De Leon):

o
o
o

Where the agents interests are adverse to

those of the principal
Where the agents duty is not to disclose the
information, as where he is informed by way of
confidential information
Where the person claiming the benefit of the
rule colludes with the agent to defraud the
principal

CASE: Air France v. CA

SUMMARY: Gana asked the Company Secretary Teresita to
assist him in extending the validity of his tickets but failed.
Although the Ganas encountered no problem in the first leg
of their trip (Manila/Osaka), it had problems as to the other
trips since it ticket already expired. They filed a case for
damages for breach of contract of carriage. SC: Air France
was not in breach of its contract because Teresita was duly
informed that said tickets could not be extended unless
differentials were paid.
DOCTRINE: Notice to agents is notice to the principals.(A
simple request for assistance made by one which was
accepted by another may be enough under circumstances to
constitute an agency relationship.)
Problem:
Patrick got Kimball as agent to sell his Belladonna tea.
Patrick found out that the tea had hallucinogenic properties
but didn t tell Kimball. Customer sued Kimball because of
hallucinogenic properties. Is Kimball liable? NO - cite Sunace
Int l. v. CA notice to the principal is not notice to the agent
4. Bad Faith of the Agent is Bad Faith of the
Principal
Caram v. Laureta:Facts: Mata conveyed a tract of land in
favor of Laureta. The sale was not registered but Mata
delivered the peaceful and lawful possession of the
premises, as well as the documents. The same land was
later sold by Mata to Caram, through the latter s agents
Irespe and Aportadera. This sale was registered. Laureta
sued to nullify the sale. Held: The sale to Caram is null and
void. Irespe and Aportadera purchased the property in bad
faith, knowing of the first sale to Laureta. Caram, as
principal, should be deemed to be in bad faith as well.
CASE: Shell Co. v. Firemens Insurance of Newark
SUMMARY: Sison brought his car to Shell and Gasoline
Service Station for washing greasing, and spraying. Said car
was insured against loss or damage by Firemen's Insurance
and New Jersey Insurance. The car fell from the hydraulic lift
resulting in damages. SISON brought the matter to the
insurers, which paid for the the cars repair. Subsequently,
SISON assigned his right to recover damages to Firemen's
and New Jersey. The complaint for recovery of sum of money
was dismissed by CFI. CA however, adjudged Shell to be
liable because of the act of the gas station's operator. This
operator was found to be Shell's agent. SC found Shell liable
because of the negligent act of its agent.
DOCTRINE: As the act of the agent or his employees acting
within the scope of his authority is the act of the principal,
the breach of the undertaking by the agent is one for which
the principal is answerable.
B. ESSENTIAL CHARACTERISTICS AND REQUIREMENT
OF A CONTRACT OF AGENCY
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 | SANCHEZ | by Hipolito, Paras and Ugalino| 10

Article 1868 defines the contract of agency. Broad

definition which includes all situations in which one person is
employed to render service; it, however, excludes the ff.
relationships:
a. Employer-Employee (1700)
b. Master and Servant (1680)
c. Employer and Independent Contractor (1713)

Note: The relation of attorney and client is, in many

respects, one of agency and the ordinary rules of agency
apply to such relation.

Note: The consequence of one entering into a contract on

behalf on another without the latters consent or authority,
is to render the contract unenforceable as mandated
under Article 1403 (1) of the Code.

Form of Acceptance by Agent

Since agency is a contract, there must be consent by both
parties. An agency is either express or implied, and this is
true on the part of the principal, as well as that of the agent.
It does not depend upon express appointment and
acceptance.

1869. Agency may 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.
Form of Agency
The usual method is by contract: may be oral, written or
implied.
(1) GR: There are NO formal requirements governing
the appointment of an agent. The authority may be
ORAL or WRITTEN, in PUBLIC or PRIVATE writing.
Art. 1874 is one instance when the law requires a
specific form for the agency.
(2) Agency
may
be
implied
from
words/conduct/circumstances but NOT from mere
relationship or family ties.
Ex:
RATIFICATION: Jamie sold goods belonging to Therese
without Thereses consent. With knowledge of the facts,
Therese, however, received the proceeds of the sale and
even gave Jamie his commission.
IMPLIED AGENCY: Kats property was being administered
by Marty. Later, John took charge of the administration
through Martys designation. Kat did not oppose the
designation nor did she appoint a new agent. She remained
silent for 10 years, allowing John to take charge of the
property.
Note: The principal (Kat) must know that another
person is acting on his(her) behalf without authority for an
agency to be implied.
Presumption of Agency
GR: Agency is NOT presumed. It is always a fact to be
proved, the burden of proof resting upon the person alleging
the agency.
EXC: When agency may arise by operation of law or to
prevent unjust enrichment.
Authority of Attorney to Appear on Behalf of Client
An attorney is presumed to be properly authorized to
represent any cause in which he appears, and no written
power of attorney is required to authorize him to appear in
Court.
Scope: An act performed by counsel within the scope of a
general or implied authority is regarded as an act of the
client. Thus, the mistake/negligence of counsel binds the
client. EXC:
a. Where reckless or gross negligence of counsel
deprives the client of due process of law
b. When its application will result in outright
deprivation of the clients liberty or property
c. Where the interests of justice so require

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.

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.
Art. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of every
partner, including the execution in the partnership name
of any instrument, for apparently carrying on in the usual
way the business of the partnership of which he is a
member binds the partnership, unless the partner so
acting has in fact no authority to act for the partnership in
the particular matter, and the person with whom he is
dealing has knowledge of the fact that he has no such
authority.
An act of a partner which is not apparently for the
carrying on of business of the partnership in the usual
way does not bind the partnership unless authorized by
the other partners.
Except when authorized by the other partners or unless
they have abandoned the business, one or more but less
than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or
on the assignee's promise to pay the debts of the
partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to
carry on the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership
claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on
authority shall bind the partnership to persons having
knowledge of the restriction.
Essential Characteristics of Agency
Aside from being a nominate, principal and consensual
contract, Rallos v. Felix Go Chan characterizes a contract
of agency as being personal, representative and
derivative in nature.
1. NOMINATE AND PRINCIPAL
Not only is it specifically named under the NCC, it is a
principal contract because it can stand on its own and
without need of another contract to validate it.
The real value of the contract of agency being a nominate
and principal contract is that it has been so set apart by law
and provided with its own set of rules and legal
consequences, that any other arrangement that essentially
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 11

falls within its terms shall be considered as an agency

arrangement and shall be governed by the Law on Agency,
notwithstanding the intention of the parties to the contrary.
After all, a contract is what the law says it is, and not
what the parties call it.
2. CONSENSUAL
See: 1869 and 1870 of the NCC. A contract of agency is a
consensual contract and no form/solemnity is required in
order to make it valid, binding and enforceable.
3. UNILATERAL AND PRIMARILY ONEROUS
Ordinarily, an agency is onerous in nature, where the agent
expects compensation for his services in the form of
commissions. HOWEVER! 1875 recognizes that an agency
may be supported by pure liberality, but the burden of proof
would be to show that the agency was constituted
gratuitously.
When gratuitous: Undoubtedly unilateral because it only
creates an obligation on the part of the agent.
When supported by consideration: STILL UNILATERAL
because it is only the fulfillment of the primary obligations of
the agent to render some service upon which the
subordinate obligation of the principal to pay the
compensation agreed upon arises.
4. PERSONAL, REPRESENTATIVE AND DERIVATIVE
See 1897. There is no doubt that agency is a species of the
broad grouping of what we call service contracts (ex:
employment contract, management contract or contract for
a piece of work). But it is the characteristic of
representation that is the most distinguishing mark of
agency when compared with other service contracts, in that
the main purpose is to allow the agent to enter into
contracts with third parties on behalf of, and which would be
binding on, the principal. (Note: See doctrine in Victorias
Milling)
Principles Flowing from an Agency being Personal,
Representative and Derivative
a. The contract entered into with third persons
pertains to the principal and not to the agent; the
agent is a stranger to said contract, although he
physically was the one who entered into it in a
representative capacity.
b. Generally, all acts that the principal can do in
person, he may do through an agent, except those
which under public policy are strictly personal to the
person of the principal.
c. A suit against an agent in his personal capacity,
cannot, without compelling reasons, be considered a
suit against the principal.
d. Notice to the agent should always be construed as
notice binding on the principal, even when in fact
the principal never became aware thereof.
e. Knowledge of the agent is equivalent to knowledge
of the principal.
EXCEPT WHERE:
a. Agents interests are adverse to those of the
principal.
b. Agents duty is not to disclose the information, as
where he is informed by way of confidential
information.
c. The person claiming the benefit of the rule colludes
with the agent to defraud the principal.
5. FIDUCIARY AND REVOCABLE
Severino v Severino held that the relations of an agent to
his principal are fiduciary in character because they are
based on trust and confidence which must flow from the

essential nature of a contract of agency that makes the

agent the representative of the principal. Consequently:
a. As regards property forming the subject matter of
the agency, the agent is estopped from asserting or
acquiring a title adverse to that of the principal.
b. In a conflict of interest situation, the agent cannot
choose a course that favors himself to the detriment
of the principal; he must choose to the best
advantage of the principal.
c. The agent cannot purchase for him/herself the
property of the principal which has been given to
her management for sale or disposition.
UNLESS:
a. There is an express consent from the principal.
b. If the agent purchases after the termination of
the agency.
6. PREPARATORY AND PROGRESSIVE
A contract of agency does not exist for its own purpose; it is
a preparatory contract entered into for other purposes that
deal with the public in a particular manner: for the agent to
enter into juridical acts with the public in the name of the
principal.
Another way to put it: An agency contract is merely a tool or
medium resorted to achieve a greater objective of being
able to enter into juridical relations on behalf of the
principal. Then, considerations that seek to protect the
interests of third parties dealing in good faith with an agent
must, in case of conflict, prevail over principles pertaining to
the intramural relationship between principal and agent.
CASE: Cui v. Cui(1964)
SUMMARY: Jesus and Antonio are the legitimate children of
Don Mariano Cui and Doa Antonia Perales who died
intestate in 1939. Jesus alleged that during the marriage of
Don Mariano and Dona Antonia, their parents acquired
certain properties in the City of Cebu, namely, Lots Nos.
2312, 2313 and 2319. Upon the death of their mother, the
properties were placed under the administration of their
dad. While the latter was 84 years of age, Antonio by means
of deceit, secured the transfer to themselves the said lots
without any pecuniary consideration; that in the deed of sale
executed on March 8, 1946, Rosario Cui appeared as one of
the vendees, but on learning of this fact she subsequently
renounced her rights under the sale and returned her
portion to Don Mariano Cui by executing a deed of resale in
his favor on October 11, 1946; that defendants, fraudulently
and with the desire of enriching themselves unjustly at the
expense of their father, Don Mariano Cui, and of their
brothers and co-heirs, secured a loan of P130,000 from the
Rehabilitation properties, and with the loan thus obtained,
defendants constructed thereon an apartment building of
strong materials consisting of 14 doors, valued at
approximately P130,000 and another building on the same
parcels of land, which buildings were leased to some
Chinese commercial firms a monthly rental of P7,600, which
defendants have collected and will continue to collect to the
prejudice of the plaintiffs; alleged that the sale should be
invalidated so far as the portion of the property sold to
Antonio Cui is concerned, for the reason that when that sale
was effected, Antonio was then acting as the agent or
administrator of the properties of Don Mariano Cui.Jesus lays
stress on the power of attorney Exhibit L which was
executed by Don Mariano in favor of Antonio Cui on March
2,1946, wherein the former has constituted the latter as his
"true and lawful attorney" to perform in his name and that of
the intestate heirs of Doa Antonia Perales.
DOCTRINE: VALID SALE. While under article 1459 of the
old Civil Code an agent or administrator is disqualified from
purchasing property in his hands for sale or management,
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 12

and, in this case, the property in question was sold to

Antonio Cui while he was already the agent or administrator
of the properties of Don Mariano Cui, SC believe that this
question cannot now be raised or invoked.Under the
provisions of article 1491, section 2, of the new Civil Code,
an agent may now buy property placed in his hands for sale
or administration (as opposed to the old CC), provided that
the principal gives his consent thereto. While the new Code
came into effect only on August 30, 1950, since this is a
right that is declared for the first time, the same may be
given retroactive effect if no vested or acquired right is
impaired (Article 2253, new Civil Code). During the lifetime
Don Mariano, particularly on March 8, 1946, the herein
appellants could not claim any vested or acquired right in
these properties, for, as heirs, the most they had was a mere
expectancy. We may, therefore, invoke now this practical
and liberal provision of our new Civil Code even if the sale
had taken place before its effectivity.
CASE: Litonjua, Jr. v. Eternit Corp. (2006)
SUMMARY: EC, a corporation, owned 90% of the stocks of
Belgian corporation ESAC. During the Marcos regime, ESAC
became concerned about the political situation of the
Philippines so it instructed EC to dispose of 8 parcels of land.
EC sought the services of a broker Marquez who found the
buyers Litonjua. Negotiations were made via telex, from the
Marquezs offer to the buyers to the buyer and sellers
counter-proposal. The buyers eventually accepted the
counter-proposal so the broker communicated this
acceptance to an officer of EC who informed an officer of
ESAC. The buyers deposited the purchase price in a bank
and drafted an escrow agreement. However, when the
political scene in the Philippines improved, ESAC decided to
cancel the sale. Because of this, the Litonjuas demanded
payment of damages. ESAC refused, hence, the suit by the
Litonjuas. The primary issue in this case is the authority of
the broker, the officer of EC and the officer of ESAC to bind
the owner of the property, ESAC. If they didnt have
authority, then the Litonjuas have to bear their own
damages because of their negligent reliance on the
representation of the officers. If it is proven that they acted
with authority, ESAC will be liable for its cancellation of the
sale. The SC ruled that said people did not have the
authority to bind ESAC, absent any written authority or
resolution by its ESACs Board of directors through which,
the corporation acts.
DOCTRINE: While a corporation may appoint agents to
negotiate for the sale of its real properties, the final say will
have to be with the board of directors authorized by a board
resolution. An unauthorized act of an officer of the
corporation is not binding on it unless the latter ratifies the
same expressly or impliedly by its board of directors. Any
sale of real property of a corporation by a purported agent
without written authority from the corporation is null and
void. The declarations of the agent alone are generally
insufficient to establish the fact or extent of his/her
authority. By the contract of agency, a person binds himself
to render some service or to do something in representation
on behalf of another, with the consent or authority of the
latter. Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent
shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must
find expression either in words or conduct between them.

An agency may be expressed or implied from the

act 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. Acceptance by the agent may be
expressed, or implied from his acts which carry out
the agency, or from his silence or inaction according

to the circumstances. Agency may be oral unless

the law requires a specific form. However, to create
or convey real rights over immovable property, a
special power of attorney is necessary.

Thus, when a sale of a piece of land or any portion

thereof is through an agent, the authority of the
latter shall be in writing, otherwise, the sale shall be
void.

In an agent-principal relationship, the personality of

the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all
acts which the latter would have him do. Such a
relationship can only be effected with the consent of
the principal, which must not, in any way, be
compelled by law or by any court.

A person dealing with a known agent is not

authorized, under any circumstances, blindly to
trust the agents; statements as to the extent of his
powers; such person must not act negligently but
must use reasonable diligence and prudence to
ascertain whether the agent acts within the scope of
his authority. The settled rule is that, persons
dealing with an assumed agent are bound at their
peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to
prove it.
Villanueva: It bears stressing that in an agent-principal
relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which
must not, in any way, be compelled by law or by any court.
CASE: Dominion Insurance Corp. v. Court of
Appeals(2002)
SUMMARY: Guevarra instituted a civil case for the recovery
of a sum of money against Dominion Insurance. He sought
to recover sums he had advanced in his capacity as
manager. Dominion denied any liability to Guevarra. RTC
ruled that Dominion was to pay Guevarra. CA affirmed. SC
also ruled that Dominion should pay Guevarra, but not under
the law on agency, but the law on obligations and contracts.
This is because Guevarra deviated from the instructions of
Dominion under which he would have had authority to
settler the latters claims, i.e. to pay through the revolving
fund. Nevertheless, recovery may be made under Art. 1236.
DOCTRINE: When a special power of attorney is required for
the agent to do a certain act, the agent, in the performance
of such act, must comply with the specifications embodied in
the special power of attorney giving him authority to do
such. For example, here, a special power of attorney was
needed for Guevarra to settle the claims of Dominions
clients. And for this purpose, there was a memorandum.
However, the memorandum stated that Guevarra was to
settle the claims using the money in a revolving fund.
Guevarra did not comply with this, so e expenses Guevarra
incurred in the settlement of the claims of the insured may
not be reimbursed from Dominion, at least under the law of
agency.
CASE: Aguna v. Larena (1932)
SUMMARY: Aguna rendered services to deceased
Larena in connection with the latters houses
compensation. He was, however, allowed to occupy
of Mariano without paying rent. Mariano died. He

Mariano
without
a house
brought

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 13

this action against the administrator of Marianos estate to

recover P9,600 for the value of his services. The SC did not
award him the said amount.
DOCTRINE: If it were true that Aguna and Mariano had an
understanding that Aguna was to receive compensation
aside from the use and occupation of the houses of the
deceased, it cannot be explained how the plaintiff could
have rendered services as he did for eight years without
receiving and claiming any compensation from the
deceased.

CASE: Inland Realty v. Court of Appeals (1997)

SUMMARY: Araneta authorized Inland as its broker in the
sale of 9800 shares of stock of Architect Bldg for P1500 per
share. Inland informed Araneta of Standfords offer to buy
the shares of stocks for P1000. Araneta asked Inland to
negotiate for a better price but the agency expired without
the sale being consummated. The sale was consummated 1
year and 5 months after the expiration of the agency for
P13.5M (more than P1000/share). Now, Inland is claiming
from Araneta its commission. Araneta refused on the ground
that Inland abandoned the transaction immediately after its
agency expired and that it has no participation in the
haggling, the consummation of the sale and preparation of
documents. TC ruled in favor of Araneta. CA took notice of
the lapse of time from expiration of agency to
consummation of sale thus ruling for Araneta. SC affirmed
CA ruling.
DOCTRINE: When the acts of the broker were not the
efficient procuring cause in bringing about the sale, he is not
entitled to the commission.
The period from the expiration of the agency to the
consummation of the sale (which is in this case 1 year and 5
months) may be viewed as an evidence of the lack of the
agents involvement in the negotiation between the buyer
and the seller.

CASE: Manotok Bros. Inc. v. Court of Appeals (1993)

SUMMARY: Saligumba brokered a sale for Manotok Brothers
with the City of Manila. The ordinance for the appropriation
of funds for the sale was approved by the city after several
extensions of Saligumbas authority, but the mayor was able
to sign the documents 3 days after the expiry of the same.
Manotok refused to pay Saligumbas commission.
DOCTRINE: Saligumbas case was within the exception. He
was entitled to his commission since there was a causal
connection between his efforts and the consummation of the
sale. The characterization of an agent as the procuring
cause should not be based on whether the sale is
consummated within the period of authority of the agent.
Time period may be taken into account; however, if the
agency contract specifically stipulated that the deed of sale
be executed within an agreed time period.
CASE: Prats v. Court of Appeals (1978)

SUMMARY: This is a petition for certiorari to review the

decision of CA, dismissing Prats case for recovery of sum of
money. Doronilla wishes to sell property to SSS but failed to
consummate such sale. Prats was then given an exclusive
option and authority in writing to negotiate the sale of
Doronilla's Montalban lot. However, the sale to SSS was
finalized and consummated only after the expiration of the
exclusive option. Doronilla was ordered in the RTC to pay
Prats P1.380M based on an alleged exclusive option and
authority to negotiate the sale of Doronillas property. CA
reversed. SC said that there was no evidence that shows
that Prats was the efficient procuring cause in bringing about
the sale, hence he is not entitled to the commission which
was awarded by the RTC. However, he was awarded an
amount in the interest of equity.
DOCTRINE: The principal has the obligation to pay
commissions to his agent, subject to the limitations of the
stipulations in the agency. Based on equity, however, in this
case, it is but proper to give compensation to the efforts of
the agent which helped further the principals interest.
CASE: Doles v. Angeles (2006)
Summary: Angeles supposedly loaned 405k to Doles. Doles
sold property as payment, but refused to execute the
documents. Doles contends that it is her friends who loaned
amounts through Angeles who acted as agent for the
financier, Pua; and that when her friends did not pay,
Angeles threatened to file cases against her, forcing her to
execute the deed of sale.SC Held that Angeles admitted she
knew that the borrowers are the friends of Doles. In view of
the two agency relationships, petitioner and respondent are
not privy to the contract of loan between their principals.
Since the sale is predicated on that loan, then the sale
is void for lack of consideration.
Doctrine:In response to the legal argument that there could
not have been an agency relationship because the principal
never confirmed personally to the third parties the
establishment of the agency, the SC held: For an agency
to arise, it is not necessary that the principal
personally encounter the third person with whom the
agent interacts. The law in fact contemplates, and to a
great degree, impersonal dealings where the principal need
not personally know or meet the third person with whom her
agent transacts: precisely, the purpose of agency is to
extend the personality of the principal through the facility of
the agent.
Villanueva: If an act done by one person in behalf of
another is in its essential nature one of agency, the former is
the agent of the latter notwithstanding the fact that he or
she is not so calledit will be an agency whether the parties
understood the exact nature of the relation or not.

CASE: Milling Co., Inc. v. Court of Appeals (2000)

SUMMARY: VMC issued SLDR 1214M to STM which covers
25k bags of sugar. STM sold its rights under SLDR 1214M to
CSC. CSC wrote to VMC and attached letter of authority from
STM to withdraw sugar covered by SLDR 1214M expressly
providing that it authorizes CSC to withdraw for and in our
behalf the refined sugar covered by SLDR 1214. STM paid
VMC P31.9M covering SLDR 1214 and also 1213 for 50k
bags. When CSC surrendered SLDR to VMC, it was allowed to
withdraw sugar but only up to 2k as allegedly the bags of
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 14

sugar corresponding to STMs checks has already been

withdrawn by STM. CSC then filed complaint for specific
performance. VMC argues that the dealings between it and
STM were part of a series of transactions involving only one
account or one general contract of sale and CSC, as STMs
agent, could withdraw bags of sugar only against cleared
checks of STM. To prove that CSC is STMs agent, it
mentioned the letter of authority w/c authorized CSC to
withdraw for and in our (STMs) behalf the sugar..SC: CSC
was a buyer of the SLDFR form, and not an agent of STM. It
was not subject to STM's control. VMC failed to sufficiently
establish the existence of an agency relation between CSC
and STM. The use of the words "sold and endorsed" means
that STM and CSC intended a contract of sale, and not an
agency.
DOCTRINE: It is clear from Article 1868 that the basis of
agency is representation. On the part of the PRINCIPAL,
there must be an actual intention to appoint or an intention
naturally inferable from his words or actions; and on the part
of the AGENT, there must be an intention to accept the
appointment and act on it, and in the absence of such
intent, there is generally no agency. One factor which most
clearly distinguishes agency from other legal concepts is
control; one person - the agent - agrees to act under the
control or direction of another - the principal. The very word
"agency" has come to connote control by the principal. The
control factor, more than any other, has caused the courts to
put contracts between principal and agent in a separate
category. "Where the relation of agency is dependent upon
the acts of the parties, the law makes no presumption of
agency, and it is always a fact to be proved, with the burden
of proof resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its nature
and extent.
CASE: Republic v. Evangelista(2005)
SUMMARY: Calimlim representing the AFP entered into a
MOA with Reyes granting Reyes to hunt for treasure in a land
in Bulacan. Calimlim employed 80 military personnel to
guard the area and intimidate the other occupants, including
Legaspi, owner of one of the lands. Legaspi (P) then
appointed his nephew (A) to deal w treasure hunting
activities on his land and file charges against those who may
enter without Ps authority. A was to get 40% of the treasure
they found. A then hired a lawyer and his attys fees were to
be 30% of Ps share in the treasure found.
HELD: Court found that this was an agency coupled with
interest since A and his lawyers contract depended on P and
As contract. Therefore, the agency could not be revoked at
the sole will of P.
Sir Casis: It does not appear that the interest of the second
contract (between A and his attorney) is an interest apart
from compensation. The agents interest must be in the
subject matter of the power conferred and not merely an
interest in the exercise of the power because it entitles him
to compensation.
Villanueva, on the fiduciary/revocable character of
agency: Generally, the agency may be revoked by the
principal at will, since it is a personal contract of
representation based on trust and confidence reposed by
the principal on his agent. As the power of the agent to act
depends on the will and license of the principal he
represents, the power of the agent ceases when the
will/permission is withdrawn by the principal.
CASE: Aguna v. Larena (1932, supra)
CASE: Philpotts v. Phil. Mfg. Co.
SUMMARY: Due to PMC refusal to allow Philpotts himself
seeks to examine the records of PMC, Philpotts filed a

petition to compel respondents to place the records at the

disposal of Philpotts or his duly authorized agent or atty.
DOCTRINE: The right to examination into corporate affairs
which is conceded to the stockholder by Section 51 of the
Corporation Law may be exercised either by the stockholder
in person or by any duly authorized representative
Villanueva: As a general rule, what a person may do
personally, he may do through another. The statutory
definition of the contract of agency under 1868 is given from
the viewpoint of the agent who binds himself to enter into
juridical acts in the name of the principal, and thereby
emphasizes the characteristic of the contract as that of
being unilateral.
Also: The right of inspection given to a stockholder under
the law can be exercised either by himself or by any other
representative or attorney in fact, and either with our
without the attendance of the stockholder. This is in
conformity with the general rule that what a man may do in
person, he may do through another. (Personal,
Representative and Derivative)
C. CONTRACT OF
OTHER CONTRCTS

AGENCY

DISTINGUISHED

FROM

1. BROKERAGE
DEFINITION (Brokerage/Broker)

a commercial term for a person or entity engaged as a

middleman to bring parties together in matters
pertaining to trade, commerce or navigation

main job: to bring parties together to bargain

may negotiate in behalf of both parties the perfection of

a contract but the actual perfection must still be done
by the parties represented

not a legal extension of the persons of the parties he is

negotiating since he has no legal power to enter into
juridical acts in the name of the party he represents

Difference from agent:

o
not given the power to enter into the contract
or commerce in behalf of the parties
o
no fiduciary obligations to either or both parties,
since they are expected to use their own
judgment in deciding whether or not to bind
themselves into a contract

generally classified in accordance w/ the type of

property w/c they are authorized to sell or the types of
contracts they are auhorized to make (i.e. insurance
brokers, real estate brokers, etc.)

may also be appointed w/ powers to enter into juridical

acts on behalf of the principal, in w/c case he is truly an
agent (broker amay be at the same time an agent ->
pero agent talaga siya. LABO)
2 Kinds of Broker
(1) Those authorized simply to secure customers for their
principals, the resulting contract being made by the principal
parties
(2) Those authorized to effect contracts
Commission Agent (then known as Commission
Merchant) v. Commercial Broker (Pacific Commercial Co.
v. Yatco)
Commercial Broker

does not execute acts in behalf of the principal

unlike the commission merchant, has no relation w/ the

thing he sells or buy

merely an intermediary between the purchaser and the

vendor
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 15

acquires neither the possession nor the custody of the

things sold

his only office is to bring together the parties to the

transaction
Commercial Merchant (Commission agent)

engaged in the purchase or sale for another of personal

property w/c, for this purpose, is placed in his
possession or at his disposal

maintains a relation not only w/ his principal, but also w/

the property w/c is the subject matter of the transaction

Unless so otherwise indicates, the term meant to cover

a commercial broker

The notion of commission merchant is still maintained in

the New Civil Code in Articles 1902 to 1909 on the
duties and responsibilities of a commission agent
Liability of Broker/Agent (Schmid)

Whether the intermediary was acting as a commission

merchant/ agent or a pure commercial broker, the
genral principal is neither of them would be liable
personally for breach of warranty of the principal-seller.

A commission agent who acts in the name of the

principal and within the scope of his authority is
protected by the principle in Agency Law that he does
not therefor become liable for the contracts he entered
into in the name of the principal.

A commercial broker, who merely intermediates

between the seller and the buyer and for whom he has
not executed any juridical act, is a complete stranger to
the resulting contract of sale and certainly cannot be
held liable thereon for lack of privity.
Duties and Responsibilities of the Agent and the
Broker to their Clients
Broker

does not owe fiduciary duties to his clients, although like

any ordinary professional or businessman, he is
supposed to act w/ due diligence in carrying out the
affairs of his clients.

no duty to account

if his negligence causes damage to a client, his liability

is based on a tort or quasi-delict, rather than that arising
from the breach of the duty of diligence
Agent (or broker who has assumed the role of an
agent: has fiduciary duties)

has duties of diligence and loyalty to the clients cause

or interest

prohibited from taking secret profits on the transaction,

and is bound to account to the client all sums received
on the transactions even those w/c were given to him by
the other party (for his own account as broker)

Domingo v. Domingo (broker accepted the role of an

agent and thereby bound himself to the latters fiduciary
duties)
o
The duties and liabilities of a broker to his
employees are essentially those w/c an agent
owes to his principal
o
The decisive legal provisions [on the duty to
account and to deliver whatever he may have
received and the obligation arising from fraud
and negligence] are found in Art. 1891 and Art
1909
o
Art. 1891 and 1909 demand the utmost good
faith, fidelity, honesty, candor and fairness on
the part of the agent [the real estate broker in
this case] to his principal [the vendor]
o
The law imposes upon the agent the absolute
obligation to make a full disclosure or complete
account to his principal of all his transactions

and other material facts relevant to the agency,

so much so that the law as amended does not
countenance any stipulation exempting the
agent from such an obligation and considers
such an exemption as void.
o
The duty of an agent is likened to that of a
trustee.
Capacity to Purchase the Property of the Principal
Broker
o
no prohibition
Agent
o
legally incapacitated to buy the property of the
principal
o
Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either
in person or through the mediation of another: (2)
Agents, the property whose administration or sale
may have been entrusted to them, unless the
consent of the principal has been given;
Entitlement to Commission

The very terms broker or brokering are

commercial terms where the essence of the activity
or occupation undertaken is to earn a commission

(Reyes v. Rural Bank of San Miguel) Brokering

clearly indicates the performance of certain acts
for monetary consideration or compensation w/c it
concluded
from
the
various definitions
of
brokering and broker

(Abacus Securities Corp. v. Ampil) Since a brokerage

relationship is essentially a contract for the
employment of an agent, principles of contract of
law also govern the broker-principal relationship.

Whether the relationship is a pure brokermiddleman one, or a broker-agency, the right of the
broker to the commission promised by the client
principal is primarily governed by the terms and
conditions agreed upon them at the time of the
perfection of the contract

In the absence of clear provisions in the contract of

brokerage, the efficient agent or the procuring
cause of sale doctrine applies (See Danon v
Antonion A. Brimo & Co.) (In other words, unless
otherwise stipulated by the parties, a broker
earns his commission only when through his
services there is eventually a contract that is
perfected and consummated)

There is only one form of service for which the

broker is entitled to his agreed commission (unless
otherwise stipulated of course): that his service
procured the buyer and which eventually resulted
into a perfected and consummated contract of sale.

Where the services and efforts expended by the

broker were of such sufficient amount that they
would have brought about the sale, but the principal
terminated his services in bad faith (to frustrate the
ability of the broker to receive the commission to
w/c his efforts would have led to its realization) with
every intention to proceed with the sale to the
person procured by the broker, then the latter would
still be entitled to his compensation under the
principle of efficient or procuring cause

(Macondray & Co. v. Sellner) A broker is entitled to

the usual commission whenever he brings to his
principal a party who is able and willing to take the
property and enter into a valid contract upon the
terms then named by the principal, although the
particulars may be arranged and the matter
negotiated and consummated between the principal
and the purchaser directly. It would be the height of
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 16

injustice to permit the principal to withdraw the

authority as against an express provision of the
contract, and reap the benefits of the agents
labors, without being liable to him for his
commission
(Reyes v. Mosqueda (paraphrased)) In order to earn
the brokers commission, it is not sufficient to find a
prospective buyer but to find one who will actually
buy the property on the terms and conditions
imposed by the owner
(Ramos v. CA) A broker is not entitled to any
commission until he has successfully done the job
given by him. A broker is never entitled to
commission for unsuccessful efforts
(Prats v. CA) In equity, however, the court notes that
the broker had diligently taken steps to bring back
together Doronilla and SSS (Seller and Buyer),
under the circumstances, the court grants in equity
P100K by way of compensation for his efforts and
assistance in the transaction, w/c however was
finalized and consummated after the expiration of
his exclusive authority
o
Real lesson accdg to Villanueva: As a rule
the services for w/c the broker or agent can
claim compensation for as the basis for the
application of the efficient procuring
cause doctrine was those rendered when
the brokerage or agency relationship
existed; and that after the termination of
the period of the contractual relationship
there is no basis by which to be paid for
services that were not contracted for.
(Medrano v. CA: Efficient procuring cause was
equated to the doctrine of proximate cause)
o
Procuring cause is meant to be the
proximate cause. The term procuring
cause, in describing the cause originating
a series of events which, w/o breaking in
their continuity result in accomplishment of
prime objective of employment of the
broker producing a purchaser ready,
willing and able to buy real estate on the
owners terms. A broker will be regarded as
the procuring cause of a sale so as to be
entitled to the commission, if his efforts are
the foundation on w/c the negotiations
resulting in a sale are begun. The broker
must be the efficient agent or the procuring
cause of the sale. The means employed by
him and his efforts must result in the sale.
He must find the purchaser, and the sale
must proceed from his efforts acting as
broker.
o
When there is a close, proximate and causal
connection between the brokers efforts and
the principals sale of his property, the
broker is entitled to a commission
The efficient or procuring cause doctrine cannot
overcome express stipulations in the agreement
providing when exactly the broker is entitled to
have earned his commission

Rules on Compensation for Brokers applies also to

Commission Agents

Since both a pure brokerage and commercial

agency arrangement have service as their very
subject matter, there is nothing in the applicability
of the efficient or procuring cause doctrine in a
given situation determinative of whether it is a
broker-middleman or a broker-agency situation

(Manotok v. CA)Rules on entitlement to commission

were basically the same whether the contract is one
for brokerage or agency
o
The established principle is that a broker or
agent is not entitled to any commission
until he has successfully done the job given
him

Broker of a Sale distinguished from Broker Himself

Purchasing
-basically if you import or buy stuff yourself, di ka broker (di
naman to impt)
CASE: Behn, Meyer and Co., Ltd. v. Nolting and
Garcia, 1916
SUMMARY: BMC is a wholesale liquor dealer, manufactured
tobacco dealer, merchant, exporter and importer. Collector
of Internal Revenue demanded that BMC obtain a license as
a real estate broker and pay P580 (1906 to 1912; tax and
penalty as real estate broker). BMC paid w/ protest. Under a
general merchants license, BMC alleged that it had been
engaged in the business of buying and selling copra, hemp
and other merchandise (aside from the liquor and tobacco
business). What it does: BMC advances money for future
delivery of copra and hemp, and takes as security for the
future delivery of such copra and hemp so contracted for, a
mortgage upon the land upon which said copra or hemp was
produced, and charges a discount on the future deliveries of
said copra or hemp, which was in compensation for the
money advanced. [Defn of real estate broker: Sec 144(2) of
Act No. 1189 (Internal Revenue Law): Every person, firm, or
company whose business it is for themselves or others to
negotiate purchases or sales of lands, buildings, or interests
therein, or to negotiate loans secured by lands, buildings, or
interest therein, or to rent real estate for others or to collect
rents thereon, shall be regarded as a real-estate broker]. SC:
NOT REAL ESTATE BROKER. Tax was collected illegally and
should be repaid. The business was to purchase and sell
agricultural products, and that the tasking of said mortgages
was a mere incident of their principal business. The plaintiff
was acting for itself. Whatever was done with reference to
the taking of the mortgages was done as an incident of its
own business.
DOCTRINE:
Henderson v. The State; Blacks Law Dictionary: "A
"real-estate broker" has been variously defined. A broker is
generally defined as one who is engaged, for others, on a
commission, negotiating contracts relative to property with
the custody of which he has no concern; the negotiator
between other parties, never acting in his own name, but in
the name of those who employed him; he is strictly a
middleman and for some purposes the agent of both parties.
Mechem on Agency, sec 13; Wharton on Agency, sec
659: A broker is one whose occupation it is to bring parties
together to bargain, or to bargain for them, in matters of
trade, commerce or navigation.
Judge Storey, in his work on Agency, Sec. 28: defines a
broker as an agent employed to make bargains and
contracts between other persons, in matters of trade,
commerce or navigation, for a compensation commonly
called brokerage.
Bouviers Law Dictionary: A real-estate broker negotiates
the purchase or sale of real property. He may also procure
loans on mortgage security, collect rents, and attend to the
letting and leasing of houses and lands.
A broker works for another.
Art. 1209, CC: By the contract of brokerage a person binds
himself to render some service or to do something in behalf
of or at the request of another person. (Art. 1209, Civil
Code.)
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 17

Territory v. Harris: a mans business, or the business of a

corporation, is that which busies or occupies his time,
attention, or labor, as his principal concern or occupation.
Many persons make an occasional loan of money, secured
by a mortgage, in the course of their business. That fact,
however, will not constitute such a person a real-estate
broker.
CASE: Schmid and Oberly, Inc. v. RJL Martinez
SUMMARY: RJL bought 3 Nagata generators from Schmid
which Schmidt got from its stock. RJL then bought 12
generators from Nagata Co with Schmidt facilitating the
order and receiving commission. Payment for the generators
were made to Nagata and the 12 were delivered directly to
RJL. All 15 generators broke. Schmidt replaced the 3. Nagata
had 3 more shipped to Japan for repair. The rest were not
repaired. RJL now seeks rescission of the contract and refund
from Scmidt SC: Schmidt cannot be liable for the 12
generators as it was merely an indentor, not the vendor, and
thus cannot be liable for implied warranty for hidden
defects. RJL admitted that the generators were purchased
"through indent order. Acts of SCHMID after it was informed
of the defect in the generators were indicative of its
awareness that it was the vendor and acknowledgment of its
liability as such vendor. (made available its technicians, its
shop and its testing equipment and facilitated shipment to
Japan, did not replace any of the 12 generators, but merely
rendered assistance.) NAGATA undertook the repair of the 9
other defective generators, with Schmid supplying the
replacement parts free of charge. However, as an indentor,
it can be made liable for warranties it voluntarily made. The
records (invoice) do not show any such warranty from
defect. Even assuming there was an oral warranty, the
nature and terms cannot be ascertained and whether or not
a breach exists cannot be determined.
DOCTRINE: There is no statutory definition of "indent" in
this jurisdiction. However, the Rules and Regulations to
Implement Presidential Decree No. 1789 (Omnibus
Investments Code) lumps "indentors" together with
"commercial brokers" and "commission merchants. An
indentor is a middlemen in the same class as commercial
brokers and commission merchants.
A broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; (the
negotiator between other parties, never acting in his own
name, but in the name of those who employed him a
broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation ->
CHECK IF IN ORIGINAL)
A commission merchant is one engaged in the purchase or
sale for another of personal property placed at his
possession or disposal
Webster defines an indent as "a purchase order for goods
especially when sent from a foreign country."
There are three parties to an indent transaction, namely, the
buyer, the indentor, and the supplier who is usually a nonresident manufacturer residing in the country where the
goods are to be bought
No indentor will just fold its hands when a client complains
about the goods it has bought upon the indentor's
mediation.
The chief features of a commercial broker and a commercial
merchant is that in effecting a sale, they are merely
intermediaries or middlemen, and act in a certain sense as
the agent of both parties to the transaction.
Webster defines an indent as a purchase order for goods
especially when sent from a foreign country.
An indentor may therefore be best described as one who, for
compensation, acts as a middleman in bringing about a

purchase and sale of goods between a foreign supplier and a

local purchaser.
NOTE: Schmid, w/c is under the New Civil Code, reiterates
the definition of a broker in Behn, Meyer (w/c was under the
old civil code)
CASE: Reyes v. Rural Bank of San Miguel
SUMMARY: Reyes and Domo-ong were charged for
unprofessionalism (RA 6713) for allowing RBSMIs financial
condition to be a subject of a case study at BSP, and for
Reyes brokering for the sale of RBSMI. Reyes urged Soriano
to consider selling the bank and introduced him to Villacorta
and Castillo through telephone. SC: It was another dept
which conducted the seminar (and also there was no
concrete evidence on their alleged role in the disclosure of
info). Hence, they are not liable for acts of subalterns.
Highranking officers cannot be expected to monitor the
activities of their subalterns. Reyes did not conduct himself
in an unprofessional manner in doing the acts imputed to
him.
Reyes did not act as a broker. All that Reyes did was to
introduce RBSMIs President to the President of TA Bank and
EIB. There was not even a hint that he was motivated by
monetary consideration or swayed by any personal interest
in doing what he did. Talks never got past the exploratory
stage because the two wanted a buy-in while he was for a
total sell-out.
If he was personally invovled, he would at
least have an inkling of the plans of Villacorta and Castillo so
as not to waste his time. To effectively implement the policy
of the BSP to promote mergers and consolidations by
providing incentives to banks that would undergo such
corporate combinations, it was necessary that the banks be
advised and assisted by a person knowledgeable about the
transactions like Reyes.
DOCTRINE:
Case law defines a broker as one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own
name but in the name of those who employed him. . . . a
broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation.
Bouviers Law Dictionary, brokerage refers to the
trade or occupation of a broker; the commissions paid to a
broker for his services, while brokers are those who are
engaged for others on the negotiation of contracts relative
to property, with the custody of which they have no
concern.
Brokering clearly indicates the performance of certain acts
for monetary consideration or compensation.
CASE: Araneta, Inc. v. Del Paterno
SUMMARY: Gregorio Araneta Inc filed an action to compel
Paz Tuason to deliver to it, a clear title to the lots in the Deed
of Absolute Sale free from all liens and encumbrances, and a
deed of cancellation of the mortgage.Paz Tuason argues that
the Deed is not valid as it is in violation of Art. 1459 which
provides that an agent cannot buy property under his
management. She avers that Jose Araneta, Araneta Incs
President is her agent; that Gregorio Araneta Inc. and Jose
Araneta are identical invoking the principle of equity to
disregard the fiction of corporate entity; and thus, Gregorio
Araneta Inc. cannot validly purchase her property. SC:
JoseAraneta is not Tuasons agent but is a broker. Deed of
Sale valid. Jose Araneta was not an agent within the
meaning of article 1459. He was to be nothing more than a
go-between or middleman between the defendant and the
purchaser, bringing them together to make the contract
themselves. There was no confidence to be betrayed. He
was not authorized to make a binding contract for the
defendant. He was not to sell and he did not sell the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 18

defendant's property. He was to look for a buyer and the

owner herself was to make, and did make, the sale. He was
not to fix the price of the sale because the price had been
already fixed in his commission. He was not to make the
terms of payment because these, too, were clearly specified
in his commission. Jose Araneta was left no power or
discretion whatsoever, which he could abuse to his
advantage and to the owner's prejudice.
DOCTRINE:[A broker] is nothing more than a go-between
or middleman between the defendant and the purchaser,
bringing them together to make the contract themselves.
There was no confidence to be betrayed [since the broker]
was not authorized to make a binding contract for the
[purported principal]. He was not to sell and he did not sell
the property. He was to look for a buyer and the owner
herself was to make, and did make, the sale. He was not to
fix the price of the sale because the price had been already
fixed in his commission. He was not to make the terms of
payment because these, too, were clearly specified in his
commission. In fine, [the broker] was left no power or
discretion whatsoever, which he could abuse to his
advantage and to the owner's prejudice.
Agency is defined in article 1709 in broad terms, and we
have not come across any commentary or decision dealing
directly with the precise meaning of agency as employed in
article 1459.
Manresa:
Agent
is
one
who
accepts
another's
representation to perform in his name certain acts of more
or less transcendency.
Scaevola: The agent's incapacity to buy his principal's
property rests in the fact that the agent and the principal
form one juridicial person. In this connection, the fear that
greed might get the better of the sentiments of loyalty and
disinterestedness which should animate an administrator or
agent, is the reason underlying various classes of incapacity
enumerated in article 1459.
American Courts: The law does not trust human nature to
resist the temptations likely to arise of antogonism between
the interest of the seller and the buyer.
The ban of par. 2 of Art. 1459 (in the old civil code of the
counterpart of Art. 1491(2) of the NCC w/c renders an agent
legally incapable of buying the properties of the principal
connotes the idea of trust and confidence; and so where the
relationship does not involve considerations of good faith
and integrity the prohibition should not and does not apply.
To come under the prohibition, the agent must be in a
fiduciary with his principal.
NOTE: The agents incapacity to buy his principals property
rests in the fact that the agent and the principal form one
juridical person
CASE: Tan v. Gullas
SUMMARY: The spouses Gullas executed a (non-exclusive)
SPA authorizing Tan, a licensed real estate broker, and his
associates Tecson and Saldana, to negotiate for the sale of
their land in Cebu. Tan et al introduced the spouses to the
Sisters of Mary of Banneaux, Inc. who were the eventual
buyers of the property. When Tan et al went to the spouses
to claim their commission, the spouses denied the same
saying that another group of agents was responsible for the
sale of the land to the Sisters. Tan et. al. filed a complaint for
the recovery of their brokers fee. SC ruled in favor of the
brokers (Tan et al). They are entitled to their commission.
Tan et al, as brokers, were authorized by the spouses to
negotiate for the sale of their land within a period of 1
month from June 29, 1992. The authority given to Tan et al
was non-exclusive, which meant that private respondents
were not precluded from granting the same authority to
other agents with respect to the sale of the same property.
In fact, the spouses authorized another agent in the person
of Mr. Bobby Pacana to sell the same property. There was

nothing illegal or amiss in this arrangement, per se,

considering the non-exclusivity of petitioners authority to
sell. The problem arose when it eventually turned out that
these agents were entertaining one and the same buyer, the
Sisters of Mary. The argument of the sps that Pacana was
the one entitled to the stipulated 3% commission is
untenable, considering that It was the Tan et. al who were
responsible for the introduction of the representatives of the
Sisters of Mary to private respondent Eduardo Gullas. At the
very least, they set the sale in motion. They were not able to
participate in its consummation only because they were
prevented from doing so by the acts of the spouses. Tan et
al, as brokers, should be entitled to the commission whether
or not the sale of the property subject matter of the contract
was concluded through their efforts.
DOCTRINE:
Schmid and Oberly v. RJL Martinez Fishing Corp: a
broker as one who is engaged, for others, on a
commission, negotiating contracts relative to property with
the custody of which he has no concern; the negotiator
between other parties, never acting in his own name but in
the name of those who employed him. x x x a broker is one
whose occupation is to bring the parties together, in matters
of trade, commerce or navigation.
Alfred Hahn v. CA and BMW: An agent receives a
commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the
buyer and the seller together, even if no sale is eventually
made.
CASE: Phil. Health-Care Providers (Maxicare) v.
Estrada
SUMMARY: Maxicare authorized Estrada to sell its health
care program (as a general agent). Estrada made
representations to Meralco. But when Meralco decided to
subscribe to the health care program, Maxicare directly
negotiated with Meralco and left Estrada out of the
discussion. Meralco eventually subscribed to the program.
SC: Estrada is entitled to commission as broker who set the
sale in motion. Estradas efforts consisted in being the first
to offer the Maxicare plan to Meralco, using her connections
with some of Meralco Executives, inviting said executives to
dinner meetings, making submissions and representations
regarding the health plan, sending follow-up letters, etc.
These efforts were recognized by Meralco as shown by the
certification issued by its Manpower Planning and Research
Staff Head Sapitula. Estradas efforts were instrumental in
introducing the Meralco account to Maxicare in regard to the
latters Maxicare health insurance plans. Estrada was the
efficient "intervening cause" in bringing about the service
agreement with Meralco. Had not Estrada introduced
Maxicare Plans to her bosom friends, Messrs. Lopez and
Guingona of Meralco, PHPI would still be an anonymity. At
the very least, Estrada penetrated the Meralco market,
initially closed to Maxicare, and laid the groundwork for a
business relationship. The only reason Estrada was not able
to participate in the collection and remittance of premium
dues to Maxicare was because she was prevented from
doing so by the acts of Maxicare, its officers, and employees.
Estrada was instrumental in the sale of the Maxicare health
plans to Meralco. Without her intervention, no sale could
have been consummated.
DOCTRINE:
Tan v. Gullas (Broker v. Agent): One who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between the other parties, never acting in his
own name but in the name of those who employed him. A
broker is one whose occupation is to bring the parties
together, in matter of trade, commerce or navigation.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 19

An agent receives a commission upon the successful

conclusion of a sale. On the other hand, a broker earns his
pay merely by bringing the buyer and the seller together,
even if no sale is eventually made.
The term "procuring cause" in describing a brokers activity,
refers to a cause originating a series of events which,
without break in their continuity, result in the
accomplishment of the prime objective of the employment
of the brokerproducing a purchaser ready, willing and able
to buy on the owners terms. To be regarded as the
"procuring cause" of a sale as to be entitled to a
commission, a brokers efforts must have been the
foundation on which the negotiations resulting in a sale
began.
A broker is the procuring cause of the sale if his act sets in
motion a series of events which produced a buyer willing
and able to buy on the sellers terms. In such a case, he will
be entitled to commission.
CASE: Abacus Security Corp. v. Ampil(Sorry, pero di ko
to magets kaya nilagay ko lahat. I tried PROMISE)
SUMMARY: Abacus is a broker and dealer of securities of
listed companies at the Phil. Stock. Exchange Center. Ampil
opened a cash or regular account with Abacus for the
purpose of buying and selling securities as evidenced by the
Account Application Form.
Ampil actively traded his account, and as a result, he
accumulated an P6.6M outstanding obligation in favor of
Abacus.
Due to Ampils failure to settle his account, the latter failed
to do so, Abacus sold Ampils securities. But there remained
P3.3M unsettled obligation w/c he still failed to pay. Ampil
claims that it was Induced to trade in a stock security with
Abacus because the latter allowed offset settlements
wherein he is not obliged to pay the purchase price. Rather,
it waits for the customer to sell. And if there is a loss, Abacus
only requires the payment of the deficiency (i.e., the
difference between the higher buying price and the lower
selling price). In addition, it charges a commission for
brokering the sale. However, if the customer sells and there
is a profit, Abacus deducts the purchase price and delivers
only the surplus after charging its commission. All his
trades with Abacus were not paid in full in cash at anytime
after purchase or within the T+4 [4 days subsequent to
trading] and none of these trades was cancelled by Abacus.
Neither did Abacus apply with either the Philippine Stock
Exchange or the SEC for an extension of time for the
payment or settlement of his cash purchases. This was not
brought to his attention by his broker and so with the
requirement of collaterals in margin account. Thus, his trade
under an offset transaction with Abacus is unlimited subject
only to the discretion of the broker. Had Abacus followed the
provision under par. 8 of Exh. A-1 which stipulated the
liquidation within the T+3 [3 days subsequent to trading],
his net deficit would only be P1,601,369.59. Ampil however
affirmed that this is not in accordance with RSA Rule 25-1
par. C, which mandates that if you do not pay for the first
order, you cannot subsequently make any further order
without depositing the cash price in full. So, if RSA Rule 25-1,
par. C, was applied, he was limited only to the first
transaction. That Abacus did not comply with the T+4
mandated in cash transaction. When Ampil failed to comply
with the T+3, [Abacus] did not require him to put up a
deposit before it executed its subsequent orders. [Abacus]
did not likewise apply for extension of the T+4 rule. SC: Pari
delicto rule is applicable
Section 23(b)the alleged violation of Abacus which
provides the basis for Ampils defensemakes it unlawful for
a broker to extend or maintain credit on any securities other
than in conformity with the rules and regulations issued by
SEC.

RSA Sections 23 and 25 and RSA Rule 25-1, otherwise

known as the "mandatory close-out rule," clearly vest upon
Abacus the obligation, not just the right, to cancel or
otherwise liquidate a customers order, if payment is not
received within three days from the date of purchase.
The word "shall" as opposed to the word "may," is
imperative and operates to impose a duty, which may be
legally enforced. For transactions subsequent to an unpaid
order, the broker should require its customer to deposit
funds into the account sufficient to cover each purchase
transaction prior to its execution. These duties are imposed
upon the broker to ensure faithful compliance with the
margin requirements of the law, which forbids a broker from
extending undue credit to a customer.
Trading on credit (or "margin trading") allows investors to
buy more securities than their cash position would normally
allow. Investors pay only a portion of the purchase price of
the securities; their broker advances for them the balance of
the purchase price and keeps the securities as collateral for
the advance or loan. Brokers take these securities/stocks to
their bank and borrow the "balance" on it, since they have to
pay in full for the traded stock. Hence, increasing margins
i.e., decreasing the amounts which brokers may lend for the
speculative purchase and carrying of stocks is the most
direct and effective method of discouraging an abnormal
attraction of funds into the stock market and achieving a
more balanced use of such resources. The primary concern
is the efficacy of security credit controls in preventing
speculative excesses that produce dangerously large and
rapid securities price rises and accelerated declines in the
prices of given securities issued and in the general price
level of securities. Losses to a given investor resulting from
price declines in thinly margined securities are not of serious
significance from a regulatory point of view. When forced
sales occur and put pressures on securities prices, however,
they may cause other forced sales and the resultant
snowballing effect may in turn have a general adverse effect
upon the entire market."
The nature of the stock brokerage business enables brokers,
not the clients, to verify, at any time, the status of the
clients account. Brokers, therefore, are in the superior
position to prevent the unlawful extension of credit. Because
of this awareness, the law imposes upon them the primary
obligation to enforce the margin requirements.
SC: Ampil Liable for the First,But Not for the Subsequent
Trades
These margin requirements are applicable only to
transactions entered into by the present parties subsequent
to the initial trades of April 10 and 11, 1997. Abacus can still
collect from Ampil to the extent of the difference between
the latters outstanding obligation as of April 11, 1997 less
the proceeds from the mandatory sell out of the shares
pursuant to the RSA Rules. Abacuss right to collect is
justified under the general law on obligations and contracts.
Article 1236 (2) of the CC, provides: "Whoever pays for
another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the
will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
Since a brokerage relationship is essentially a contract for
the employment of an agent, principles of contract law also
govern the broker-principal relationship.
The right to collect cannot be denied to Abacus as the initial
transactions were entered pursuant to the instructions of
Ampil. The obligation of Ampil for stock transactions made
and entered into on April 10 and 11, 1997 remains
outstanding. These transactions were valid and the
obligations incurred by Ampil concerning his stock purchases
on these dates subsist. At that time, there was no violation
of the RSA yet. Abacuss fault arose only when it failed to:
(1) liquidate the transactions on the fourth day following the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 20

stock purchases, or on April 14 and 15, 1997; and (2)

complete its liquidation no later than ten days thereafter,
applying the proceeds thereof as payment for Ampils
outstanding obligation.
Since the buyer was not able to pay for the transactions that
took place on April 10 and 11, that is at T+4, the broker was
duty-bound to advance the payment to the settlement banks
without prejudice to the right of the broker to collect later
from the client.
In securities trading, the brokers are essentially the
counterparties to the stock transactions at the Exchange.
Since the principals of the broker are generally undisclosed,
the broker is personally liable for the contracts thus made.
Hence, Abacus had to advance the payments for Ampils
trades. Brokers have a right to be reimbursed for sums
advanced by them with the express or implied authorization
of the principal, in this case, Ampil.
Not to require Ampil to pay for his April 10/11 trades would
put a premium on his circumvention of the laws and would
enable him to enrich himself unjustly at the expense of
Abacus.
Abacus obviously failed to enforce the terms and conditions
of its Agreement with Ampil, specifically par. 8, purportedly
acting on the plea of Ampil to give him time to raise funds.
These stipulations, in relation to par. 4, constituted faithful
compliance with the RSA. By failing to ensure Ampils
payment of his first purchase transaction within the period
prescribed by law, thereby allowing him to make subsequent
purchases, Abacus effectively converted Ampils cash
account into a credit account. However, extension or
maintenance of credits on nonmargin transactions, are
specifically prohibited under Section 23(b). Thus, Abacus
was remiss in its duty and cannot be said to have come to
court with "clean hands" insofar as it intended to collect on
transactions subsequent to the initial trades of April 10 and
11, 1997.
(Note: In Pari Delicto Rule also applies on subsequent trades,
hence Abacus cannot claim against Ampil and Ampil
deserves no legal or equitable relief)
DOCTRINE: Since a brokerage relationship is essentially a
contract for the employment of an agent, principles of
contract law also govern the broker-principal relationship.
2. Loan (Art. 1933)
Art. 1933. By the contract of loan, one of the parties
delivers to another, either something not consumable so
that the latter may use the same for a certain time and
return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon
the condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply
called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay
interest.
In commodatum the bailor retains the ownership of the
thing loaned, while in simple loan, ownership passes to
the borrower.
The relation between the parties depends on the terms of
the contract between them.
LOAN
Money
advanced
to
another
is
expressly
regarded as money lent
One borrows money to
conduct a
business in
which the lender has no
interest or concern in the
manner of its conduct

AGENCY

The financing of operations

to be carried on by another
for the mutual advantage
of both, w/o any obligation
of such other to return the

A borrower is given money

for the purposes of his own
and he must generally
return it whether or not his
own business is successful
After
the
checks
are
collected and converted
into cash, the creditor and
debtor
relationship
is
created
between
the
depositor and the bank

money advanced
An agent is given funds by
the principal for latters
business

Where the checks are

deposited w/ a collector
bank, the nature of the
relationship at that stage is
one of agency, that is the
bank is to collect from the
drawees of the checks the
corresponding proceeds
Where one deposits money w/ a bank w/ instructions to
apply it in satisfaction of he debt of a third person, the
conventional debtor and creditor relationship between
the bank and the depositor is created, coupled w/ an
agency on the part of the bank to pay the debt, w/c is
revocable at the will of the depositor
CASE: Doles v. Angeles
SUMMARY: Angeles supposedly loaned 405k to Doles.
Doles sold her property as payment, but refused to execute
the documents. Doles contends that it is her friends who
loaned amounts through Angeles who acted as agent for her
financier, Pua; When her friends did not pay, Angeles
threatened to file cases against her, forcing her to execute
the deed of sale. Angeles filed a complaint for Specific
Performance w/ Damages against Doles. SC: Angeles is
estopped to deny that she herself acted as agent of Pua, her
disclosed principal. She is also estopped to deny that Doles
acted as agent for her friends.
Angeles admitted she knew that the borrowers are the
friends of Doles. Doles knew that the financier of Angeles is
Pua; and Angeles knew that the borrowers are friends of
Doles. It is sufficient that Doles disclosed that she was acting
in behalf of her principals. If it is true that Doles was "relending", then the checks should have been drawn in her
name and not directly paid to Pua. In view of the two agency
relationships, Doles and Angeles are not privy to the
contract of loan between their principals. Since the sale is
predicated on that loan, then the sale is void for lack of
consideration.
DOCTRINE:
The question of whether an agency has been created is
ordinarily a question which may be established in the same
way as any other fact, either by direct or circumstantial
evidence.
The question is ultimately one of intention.
Agency may even be implied from the words and conduct of
the parties and the circumstances
Though the fact or extent of authority of the agents may
not, as a general rule, be established from the declarations
of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as
against the asserted principal and the third persons
interested in the transaction in which he or she is engaged.
For an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent
interacts.
The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally
know or meet the third person with whom her agent
transacts: precisely, the purpose of agency is to extend the
personality of the principal through the facility of the agent.
If their respective principals do not actually and personally
know each other, such ignorance does not affect their
juridical standing as agents.

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 21

The fact that the parties may not be aware of the nuances of
an agency relationship does not prevent the establishment
of such relationship between them.
It is sufficient that the parties understand that one of them is
acting in representation of the other and they consented to
this arrangement.
The manner in which the parties designate the relationship
is not controlling.
If an act done by one person in behalf of another is in its
essential nature one of agency, the former is the agent of
the latter notwithstanding he or she is not so called.
The question is to be determined by the fact that one
represents and is acting for another, and if relations exist
which will constitute an agency, it will be an agency whether
the parties understood the exact nature of the relation or
not.
3. Independent Contract (Article 1713)
Art. 1713. By the contract for a piece of work the
contractor binds himself to execute a piece of work
for the employer, in consideration of a certain price
or compensation. The contractor may either
employ only his labor or skill, or also furnish the
material.
Contract for a piece of work

contractor is not an agent of the principal (client)

and the contractor has no authority to represent the
principal in entering into juridical acts w/ third
parties.

Essence: Services rendered must give rise to the

manufacture of production of the object agreed
upon

Although the description of the subject matter to be

manufactured or produced is agreed upon by the
parties in a contract for a piece of work, there is no
element of control

since the contractor cannot be dictated upon by the

client on how to go about accomplishing the
objective of the contract (In the case of Shell v.
Firemens Ins: control is limited to the result of the
work)
Newman v. Sears

As a general rule, the employer is not liable for the

torts or injury inflicted by the independent
contractor upon third persons or by the employees
of such contractor

The employer is not relieved from liability if the

injury is caused by his negligence or the result of his
interference in the work of the independent
contractor (in this case, the contractor is not
independent)

There are cases w/c hold the employer liable where

the work contracted is intrinsically dangerous or a
nuisance.
(De Leon citing 2 C.J.S. 1029)

One may be an independent contractor and, at the

same time for certain purposes, be an agent of the
employer.

An independent contractor becomes an agent by his

employer agreeing to be responsible for obligations
incurred by him in the completion of his
undertaking, but payment of the workmen by an
owner or employer does not necessarily transform
an independent contractor into an agent
CASE: Fressel v. Mariano Uy Chaco Sons & Co.
SUMMARY: Mariano entered into a contract with Merritt,
whereby latter undertook to build for Mariano a costly
edifice. Fressel delivered materials to Merritt but has yet to

be paid despite demand. Fressel filed an action against

Mariano alleging Meritt was its agent. SC: Fresells
allegations demonstrate that Merritt was an independent
contractor (not of a principal and an agent) and that the
materials were purchased by him as such contractor without
the intervention of the Mariano. The fact that Mariano
entered into a contract with one E. Merritt, where by the
Merritt undertook and agreed with the Mariano to build for
the Mariano a costly edifice shows that Merritt was
authorized to do the work according to his own method and
without being subject to the defendant's control, except as
to the result of the work. He could purchase his materials
and supplies from whom he pleased and at such prices as he
desired to pay. The mere fact that Merritt & Mariano had
stipulated in their building contract that the latter could,
"upon certain contingencies," take possession of the
uncompleted building and all materials on the ground, did
not change Merritt from an independent contractor to an
agent. When the client did take over the unfinished works,
he did not assume any direct liability to the suppliers of the
contractors.
DOCTRINE:
An independent contractor is one who is authorized to do
the work according to his own method and without being
subject to the employer's control, except as to the result of
the work.
In the absence of a statute creating what is known as
mechanics' liens, the owner of a building is not liable for the
value of materials purchased by an independent contractor
either as such owner or as the assignee of the contractor.
4. Partnership (Art. 1767)
Art. 1767. By the contract of partnership two or more
persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership for the
exercise of a profession.
Partnership

A contract of (mutual) agency

Each partner is regarded as an agent of his copartners when he is acting and as principal of his
co-partners when they are acting
PARTNERSHIP
A partner acts not only for
his co-partners and the
partnership but also as
principal of himself (GRABE
DI GENDER SENSITIVE! :)))
A partners power to bind
his co-partners is not
subject to the co-partners
right to control, unless
there is an agreement to
that effect
A partner binds not only
the firm members but
himself as well
(CC 1822 provides that, as
to wrongful acts of partners
done in the ordinary course
of
business
the
partnership
is
liable
therefor to the same extent
as the partner so acting or
so omitting to act)
If, when earned, the profits
belong to all the parties as
common
proprietors
in

AGENCY
Agent only
principal

acts

for

his

An agent must submit to

the principals right to
control the agents conduct
in regard to the subject of
the agency
Agent assumes no personal
liability where he acts w/in
the scope of his authority.

If the alleged owner or

partner (well, agent talaga
siya) takes his agreed

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 22

agreed proportions.

share of profits, not as

owner but as an agreed
measure of compensation
for his services or the like,
the relation is one of
agency.
(CC 1769 (4) provides that
the receipt by a person of
the share of the profits of a
business is not prima facie
evidence that he is a
partner in the business if
such profits were received
as
wages
of
an
employee)
The agent or partner can bind the principal or his copartner only by such contracts as are entered into within
the scope of his authority
Both import the idea of fiduciary relationship
5. Sale (Art. 1458)
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Also impt provision:
Art. 1466. In construing a contract containing provisions
characteristic of both the contract of sale and of the contract
of agency to sell, the essential clauses of the whole
instrument shall be considered.

Jurisprudence has indicated that the essential

clauses that should indicate whether it is one of
sale or agency to sell/purchase, refers to
stipulations in the contract which places obligations
on the part of the purported agent having to do
with what should be the sellers obligation to
transfer ownership and deliver possession of the
subject matter, of the buyers obligation on the
payment of the price.

SALE
Transfer of title to a thing
from one to another
Buyer receives goods as
owner
Buyer pays the price
Gen Rule: buyer cannot
return the object sold
Buyer can deal w/ the thing
as he pleases, as owner
No commission

AGENCY (TO SELL)

Appointment of one to act
for another
Agent receives goods as
goods of the principal
Agent
delivers
the
proceeds of the sale
Agent can return the object
in case he is unable to sell
the same to a third person
Agent, in dealing w/ the
thing received, is bound to
act
accdg.
to
the
instructions of his principal
(GR)
Agent
receives
commission for successful
sale

CASE: Quiroga v. Parsons

SUMMARY: Quiroga and Parsons entered into a contract for
the exclusive sale of Quiroga beds in the visayan islands.
Quiroga alleged that Parsons had committed violations
which although were not stipulated in the contracts, are
implied in a contract of commercial agency SC: The contract
is not one for agency but one for purchase and sale. The
essential part of the contract was that there was the
obligation on the part of the Quiroga to supply the beds,
and, on the part of the Parsons, to pay their price in the
manner stipulated. The price agreed upon was the one

determined by the plaintiff for the sale of these beds in

Manila, with a discount of from 20 to 25 per cent, according
to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an
additional discount was to be allowed for prompt payment.
These are precisely the essential features of a contract of
purchase and sale. It was not one of agency where agent
would not pay the price, but instead forward the proceeds of
the sale. CAB not one made on the basis of a commission on
sales, as the Quiroga claims, for these contracts (agency
and sale) are incompatible with each other. None of the
clauses in the contract necessarily conveys the idea of an
agency The obligations allegedly breached were not
imposed upon the Parsons, either by agreement or by law.
The words commission on sales used in clause (A) of article
1 mean nothing else, as stated in the contract itself, than a
mere discount on the invoice price. The word agency, also
used in articles 2 and 3, only expresses that the Parsons was
the only one that could sell the Quiroga's beds in the
Visayan Islands. The remaining clauses not incompatible
with the contract of purchase and sale. Commissions merely
constituted a discount on the invoice price as sales were to
be considered as a result of the advertisement by the
defendant
DOCTRINE:
In order to classify a contract, due regard must be given to
its essential clauses.
A contract is what the law defines it to be, and not what it is
called by the contracting parties.
The legal conception of an agency or order to sell is that
whereby the mandatory or agent received the thing to sell it,
and does not pay its price, but delivers to the principal the
price he obtains from the sale of the thing to a third person,
and if he does not succeed in selling it, he returns it.
NOTE: (from Villanueva) A true agent does not assume
personal responsibility for the payment of the price of the
object of the agency; his obligation is merely to turn over to
the principal the proceeds of the sale once he receives them
from the buyer
CASE: Far Eastern v Lim Teck Suan
SUMMARY: Far Eastern offered to sell textile to Lim Teck
Suan as embodied in a Buyers Order in which payment is
to be made through a letter of credit in favor of Far Easterns
principal, Frenkel Intl Corp. However, the textile delivered
was of inferior quality. Upon Far Easterns suggestion, the
textile was stored in a warehouse and eventually sold but
still not enough to cover Lim Teck Suans expenses. Suan
thus filed a complaint for damages against Far Eastern, who,
as defense, claimed that it was a mere broker. SC:
Transaction was one of sale and Far Eastern as seller, is
liable to Lim Teck Suan. The agreement bet. The parties
speaks of the items (merchandise) therein involved as
SOLD, and the sale was even confirmed by Far Eastern.
Far Eastern, as agent, dealt directly with the local merchant,
Lim Teck Suan, without expressly indicating or revealing its
principal, Frenkel. No privity of contract between the buyers
and the suppliers Frenkel. No commission or monetary
consideration was paid or agreed to be paid by the buyers to
Far Eastern. This is proof that there was no agency or
brokerage. The profit of Far Eastern was undoubtedly the
difference between the price listed to the buyers and the net
or special price quoted to the sellers, by the suppliers. Also,
Far Eastern being an agent of the Frenkel could not have
acted as an agent or broker for Suan.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 23

DOCTRINE:
It cannot be an agent as no commission or monetary
consideration was paid or agreed to be paid by the buyers to
alleged agent. There was also no privity of contract
between the principal and alleged buyer.
Where a foreign company has an agent here selling its
goods and merchandise, that same agent could not very
well act as agent for local buyers, because the interests of
his foreign principal and those of the buyer would be in
direct conflict. He could not serve two masters at the same
time. (Gonzalo Puyat& Sons Incorporated vs. Arco
Amusement)

CASE: Pearl Island Commercial Corp. v. Lim Tan Tong

SUMMARY: Pearl Island was engaged in the manufacture of
floor wax under the name Bee Wax. It entered into a
contract with Tong who was designated as the sole
distributor of the said article in Samar, Leyte, Cebu, Bohol,
and Negros Oriental, and all the provinces in Mindanao.
Under the same contract, Tong was going to buy the floor
wax for resale in the said territories. Manila Surety & Fidelity
Co., Inc. filed the necessary surety bond under the contract
to cover all shipments of floor wax that are damaged or
unmerchantable. Pearl Island shipped 299 cases of Bee Wax
to Tong, valued at P7,107. Tong was able to pay only P770.
Pearl Island sued Tong and Manila Surety. The lower court
held the surety liable. The surety appealed, saying that it
filed the bond on theory that the contract was one of
agency. Thus, it filed the bond to guarantee the faithful
performance of Tong as agent; that since it turned out that
the contract was one of purchase and sale, Manila Surety
then never undertook to guaranty the faithful performance
of Tong as a purchaser. The SC said: However, a careful
examination of the said contract shows that appellant is
only partly right, for the reason that the terms of the said
contract, while providing for sale of Bee Wax from the
plaintiff to Tong and purchase of the same by Tong from the
plaintiff, also designates Tong as the sole distributor of the
article within a certain
territory.
While the contract provided for the sale of the items, it also
said that Tong was sole distributor; SC seemed to have put
more weight on the sole distributor aspect
DOCTRINE:
The designation of the contract does not matter
NOTES: (Villanueva) The SC was unsure of its footing when
it tried to characterize a contract of sale between the
manufacturer and distributor, as still being w/in the contract
of agency. Accdg to Villanueva, this is not sound since as
early as in Quiroga, v. Parson, the Court had already ruled
that appointing one as agent or distributor, such
appointee assumes the responsibilities of a buyes of the
goods, does not make one a relationship of agency, but that
of sale
-The suit was not between the buyer and seller, but by the
seller against the surety of the buyer who had secured the
shipment of the wax to the buyer, and the true
characterization of the contract between the buyer and
seller was not the essential criteria by which to fix the
liability of the surety
CASE: Lim v. Court of Appeals
SUMMARY: Lim received 2 pieces of jewelry (ring +
bracelet) from Suarez, as evidence by a receipt, for her to
sell on commission basis. She returned the bracelet but not

the ring. Despite demands, she claims that she returned

both items. Suarez filed a complaint for Estafa. SC: Lim and
Suarez entered into a contract of agency to sell on
commission basis, as evidenced by a recieipt. . Lims
signature indeed appears on the upper portion of the receipt
immediately below the description of the items taken. The
moment she affixed her signature thereon, Lim became
bound by all the terms stipulated in the receipt. She is not
authorized to return the ring to Nadera. She is liable for it.
She is therefore liable for Estafa (bec. of her failure to return
the said jewelry to Suarez)
DOCTRINE:There are some provisions of the law which
require certain formalities for particular contracts. The first is
when the form is required for the validity of the contract; the
second is when it is required to make the contract effective
as against third parties such as those mentioned in Articles
1357 and 1358; and the third is when the form is required
for the purpose of proving the existence of the contract,
such as those provided in the Statute of Frauds in Article
1403.
A contract of agency to sell on commission basis does not
belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.
(On the other hand, a sale contract must comply with the
statute of frauds for enforceability)
CASE: Victorias Milling Co., Inc. v. Court Appeals
SUMMARY: St. Therese Merchandising bought sugar from
VMC. Subsequently, STM sold to Consolidated Sugar Corp its
rights in the sugar deal worth P14M. When CSC tried to
retrieve the bags of sugar, only 2000 of the 25000 was
given. VMC claimed that CSC acted as agent of STM who had
fully retrieved all sacks of sugar and had an unpaid balance.
SC held that CSC was not an agent of STM but was a valid
buyer and thus entitled to the sugar. VMC failed to
sufficiently establish the existence of an agency relation
between CSC and STM. The fact alone that STM had
authorized withdrawal of sugar by CSC "for and in our
(STM's) behalf" should not be eyed as pointing to the
existence of an agency relation. CSC was a buyer of the
SLDFR form, and not an agent of STM. CSC was not subject
to STM's control. Ultimately, what is decisive is the intention
of the parties.
DOCTRINE:
It is clear from Article 1868 that the basis of agency is
representation.
On the part of the principal, there must be an actual
intention to appoint or an intention naturally inferable from
his words or actions; and on the part of the agent, there
must be an intention to accept the appointment and act on
it, and in the absence of such intent, there is generally no
agency.
One factor which most clearly distinguishes agency from
other legal concepts is control; one person - the agent agrees to act under the control or direction of another - the
principal.
The very word "agency" has come to connote control by the
principal.
The control factor, more than any other, has caused the
courts to put contracts between principal and agent in a
separate category.
Where the relation of agency is dependent upon the acts of
the parties, the law makes no presumption of agency, and it
is always a fact to be proved, with the burden of proof
resting upon the persons alleging the agency, to show not
only the fact of its existence, but also its nature and extent
The question of whether a contract is one of sale or agency
depends on the intention of the parties as gathered from the
whole scope and effect of the language employed.
NOTE: An authorization given to another containing the
phrase for and in our behalf does not necessarily establish
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 24

an agency, as ultimately what is decisive is the intention of

the parties.

CASE: National Rice and Corn Corp. v. Court of

Appeals
SUMMARY: A formal contract was entered into between
DAMERCO and NARIC where they agrees that DAMERCO
agreed to act as an agent of NARIC in exporting such corn
and rice and in importing collateral goods in exchange that
will be imported on a back to back letter of credit or nodollar remittance basis, and to buy from NARIC the said
collateral goods. Although the corns and grains were duly
exported, the Govt had issued rules banning the barter of
goods from abroad. NARIC instituted against DAMERCO and
Fieldmen's Ins. Co. Inc. an action for recovery of a sum of
money (of the price of the export grains) SC: Insofar as the
exporting of the grains was concerned, DAMERCO acted
merely as agent of NARIC for w/c it cannot be held liable for
the shortfall considering that it had acted w/in the scope of
its authority. The fact of DAMERCOs agency in exporting the
collateral goods is admitted in the counter-statement of
facts of the NARIC in its appellee's brief filed with the CA. It
is also a fact that because of the change of administration in
the government, barter transactions were suspended.
The other half of the agreement whereby DAMERCO bound
itself as the purchaser of the collateral goods to be
imported from the proceeds of the sale of the corn and rice,
was a valid and binding contract of sale, but for w/c
DAMERCO could not be made a purchase price, because
NARIC itself was no longer in a position to import any of such
goods into the country, by reason of force majeure. After
DAMERCO had spent huge sums incident to carrying out the
purpose of the contract, the importation of the remaining
collateral goods worth $480K could not be effected due to
the suspension by the govt under a new administration of
barter transactions, NARIC ought to make the necessary
representations w/ the govt to enable representations w/
the govt to enable DAMERCO to import the said remaining
collateral goods. The contract has reciprocal stipulations w/c
must be given force and effect.
NOTE w/ DOCTRINE: (Villanueva) Although DAMERCO had
assumed also the position of being a buyer of goods from
NARIC, the SC was able to segregate his role as merely an
agent of NARIC insofar as the export of grains is concerned,
and apply the doctrine that an agent does not assume any
personal obligation w/ respect to the subject of the agency
nor of the proceeds hereof, his obligation being merely to
turn over the proceed to the principal whenever he receives
them.
The case also demonstrated the progressive nature of
every contract of agency, in that it presents a pliable legal
relationship which may be adopted into other relationships
such as a contract of sale, to be able to achieve commercial
ends.

6. Bailment

The delivery of property from one person to another

in trust for a specific purpose w/ a contract, express
or implied, that the trust shall be faithfully executed
and the property returned or duly accounted for
when the special purpose is accomplished or kept
until the bailor reclaims it.
contemplates the transfer of possession to a
recipient, called the bailee, who is not subservient
to the will of the bailor, except, in the usual case, in
so far as the bailee is obliged to pay for the use of
the object entrusted to his possession
While a bailment is frequently incident to the
relation of principal and agent (i.e. where property is
entrusted to another w/ authority to sell), ordinarily
in cases of bailment, the relation of principal and
agent does not exist as the bailor has no control
over the bailee beyond what is given him in the
contract, and is not responsible to others for his act.
o
A bailee over whose actions the bailor has
no control is not an agent, even though he
acts for the benefit of the bailor
o
A bailee acting on behalf of himself and
whose interests are antagonistic to those of
his bailor cannot be the agent of the bailor
The bailee is possessed of no power to bind the
bailor in personal liability and he owes neither
loyalty nor obedience to the bailor
A bailee, however, may be constituted an agent as
to third parties, where, for example, he is vested w/
ostensible authority to sell or to make binding
contracts w/ respect to the subject matter of the
bailment

7. Judicial Administration
Judicial administrator
appointed by the court
not
only
the
representatives of the court
but also of the heirs and
creditors of the estate
before entering into his
duties, is required to file a
bond
The acts of a judicial
administrator is subject to
specific provisions of law
and orders of appointing
court

Agent
only answerable
principal

to

his

No bond required

The protection w/c the law

gives the principal, in
limiting the powers and
rights of an agent, stems
from the fact that control
by the principal can only be
through agreements
*Note: The provisions of law on agency should not apply to a
judicial administration
II. KINDS AND FORM OF AGENCY
KINDS OF AGENCY
A. AS TO MANNER OF ITS CREATION
NOTES: (See Establishing an Agency-A.)

Refers to the manner by which agency is established

How the principal authorizes the agent or how the agent

accepts the appointment

EXPRESS: One where the agent has been actually

authorized by the principal either ORALLY or in WRITING

IMPLIED: One which 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, or from his
silence or inaction according to the circumstances
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 25

Enumeration in Art. 1869 and Art. 1870 is NOT

exclusive.
o
Ratification may produce the effect of an
express or implied agency.
AGENCY BY ESTOPPEL
o

Construction
principal

of

instructions

of

Statement of the principal w

the formers authority woul
B. AS TO ITS CHARACTER
regarded as advisory in nat
Art. 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary. (n)
NOTES:

GRATUITOUS one where the agent receives no

This also distinguishes the different classes and kinds of

compensation for his services, OR
agents

COMPENSATED or ONEROUS one where the agent

o
UNIVERSAL AGENT: one employed to do all acts
receives compensation for his services
that the principal may personally do, and which
he can lawfully delegate to another the power
C. AS TO EXTENT OF BUSINESS COVERED
Art. 1876. An agency is either general or special. The former comprises all of
thedoing
business of the principal. The latter, one or
o
GENERAL
AGENT: one employed to transact all
more specific transactions. (1712)
the business of the principal or all the business
NOTES:
of a particular kind or in a particular place, or in
a. GENERAL AGENCY: one which comprises all the
other words to do all acts, connected with a
business of the principal
particular trade business or employment

All the business of the principal - 2 interpretations:

o
SPECIAL or PARTICULAR AGENT: one authorized
o
General agent manages all of his principals
to act in one or more specific instructions, or to
several businesses
do one or more specific acts, or to act upon a
o
General agent manages the entirety of a
particular occasion
particular business of the principal

What is determinative of the general agency is

D. AS TO AUTHORITY CONFERRED
continuity of service rather than extent of responsibility
Art. 1877. An agency couched in general terms comprises only acts
(American Jurisprudence)
he withholds no power or that the agent may execute such acts as h

It is not necessary to say that the power granted to the

should authorize a general and unlimited management. (n)
agent covers all the business of the principal. It is
NOTES: (See also Establishing an Agency-B)
sufficient that the listed authorized transactions
Whether a power of attorney is general or special really
apparently cover all that is required to run the business
depends on the nature of the business which it is
of the principal.(Dominion Insurance v. CA)
directed
o
Ex. Power to sell ordinarily, acts of Strict
b. SPECIAL AGENCY: one which comprises one or more
ownership -> Special Power BUT if designated
specific transaction
to manage store/sell goods in the ordinary

Refers to scope of agents authority

course of business -> GPA

Comprises one or more specific transactions

Agent handles specific aspects of principals business

a. AGENCY COUCHED IN GENERAL TERMS: General
Power of Attorney
c. COMPARISON

One which is created in general terms and is deemed to

CRITERIA
GENERAL AGENCY
comprise only acts of administration
Scope of Authority
Usually authorized to Refers
do all
acts
to the
type of authority granted to the agent
connected
with
the
business
or agency relationship exists, then in the

As long as the
employment in which he is engaged
absence of the grant of a special power of attorney to
the agent, he is deemed to have been extended only a
GENERAL POWER OF ATTORNEY by the principal who
Continuous
Nature
of
service Authorized to conduct only
a series
of
grants authority
to perform acts of administration
authorized
transactions involving a even
continuity
of
if the principal:
service; he is in continuous employment
o
States that he withholds no power from the
agent
Extent to which agent may bind May bind his principal by an oact States
within that the agent may execute acts he
principal
the scope of his authority although it may
considers appropriate
be contrary to his special instructions
o
Authorizes general and unlimited management

Acts of administration: If the nature of the business

the agent to perform certain acts repeatedly
Continuing and unrestrictedrequires
by limitations
and
without
other than those which confine theneed of express authorization from the
for each transaction, then the act is arguably
authority w/n the bounds ofprincipal
what is usual,
an
act
of
administration.
proper
and
necessary
under
like
o
In commercial terms: Power to pursue the
circumstances
ordinary or regular course of business
o principal
If the act, transaction or contract is a matter
If there are other limitations, the
that from the nature of the business is expected
must disclose them
occur and for which action is expected
Termination of authority
Does not terminate by the tomere
revocation of his authority without without
notice much changing the course of the
business, then it is a mere act of administration.
to the third party
o
On the other hand, if the act, transaction or
contract in contemplation is something that is
not expected to happen or decided upon in the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 26

day-to-day affairs, then it would constitute an

act of ownership or strict dominion, one which is
extraordinary, not in the ordinary course of
business.
o
Acts of administration do not imply the
authority to alienate for the exercise of which
an express power is necessary. Yet what are
acts of administration will always be a question
of fact rather than of law, because there can be
no doubt that sound management will
sometimes require the performance of an act of
ownership.
o
UNLESS the contrary appears, authority of
agent is PRESUMED to include all the necessary
and USUAL means to carry out the agency into
effect in the name of the principal in the
ordinary course of business. (Macke v Camps)
CONSTRUCTION:
o
Contracts of agency as well as general powers
of attorney must be interpreted in accordance
with the language used by the parties
o
The real intention of the parties is primarily to
be determined from the language used and
gathered from the whole instrument
o
In case of doubt, resort must be had to the
situation, surroundings and relations of the
parties
o
The intention of the parties must be sustained
rather than be defeated. So, if the contract be
open to 2 constructions, one of which would
uphold while the other would overthrow it, the
former is to be chosen
o
The acts of the parties in carrying out the
contract will be presumed to have been done in
good faith and in conformity with and not
contrary to the intent of the contract.
EXAMPLES:
o
Person employed to sell goods in a retail store
can sell w/out SPA because selling itself is an
act of administration
o
Right to sue for collection of debts owing to the
principal
o
An agent to manage, supervise, or oversee the
business or property of his principal has powers
co-extensive in scope with the business
instructed to him, that is to say, implied
authority to do in that business or with the
property whatever is usually and customarily
done in business or property of the same kind in
the same locality.
o
Authority to sell includes authority to make
customary warranties and representation

CASE: Macke v. Camps (1907)

SUMMARY: Flores, who appeared to be the agent of Camps
for the Washington Caf, ordered goods from Macke and Co.
The balance remained unpaid. Defendant alleges Flores is
not his agent. However, in a written contract executed by
the by defendant with the former owner of the Washington
Cafe, Flores appeared as witness, defendant signed as
sublessee and at the foot of such inventory was the word
received followed by the name "Ricardo Flores," with the
words "managing agent.
HELD: Given the contracts, the title of managing agent,
and the fact that Flores appeared to be in-charge of the
business when defendant was at the province is sufficient to
sustain a finding that Flores was the agent with authority to
bind the defendant, his principal, for the payment of the
goods mentioned in the complaint. That Flores, as managing
agent had authority to buy such reasonable quantities of
supplies necessary in carrying on the business may fairly be

presumed from the nature of the business, especially in view

of the fact that his principal appears to have left him in
charge during more or less prolonged periods of absence;
DOCTRINE: Unless the contrary appears, the authority of an
agent must be presumed to include all the necessary and
usual means of carrying his agency into effect.
b. AGENCY COUCHED IN SPECIAL TERMS: Special
Power of Attorney
One authorizing only the performance of a specific act
or acts (usually acts of dominion or strict ownership)
Acts of dominion or strict ownership: Represents as
situation that is described as extraordinary conditions or
those pursued not in the ordinary course of business

It is not the name of a document, but a description of

the nature of the power granted to the agent, which
determines whether it is a general power of attorney or
a special power of attorney. (Veloso v CA, Estate of
Olaguer v Ongjoco)

What matters is the specificity of the authority granted

and not the name given to the instrument issued in
favor of the agent.

A special power of attorney refers to the nature of the

authorization and not to its form. It may be either oral or
written. The only vital thing is that it is express. If the
special power of attorney is not written, it must be duly
established by evidence. (Lim Pin v. Liao Tan)

It need not be notarized except where it is executed in a

foreign country, it must be certified in accordance with
Rules of Court.
CASE: Veloso v. CA(1996)
SUMMARY: Veloso owns a parcel of land registered under
his name. He later found out that his property was sold by
his wife through a general power of attorney and his title
was subsequently cancelled in favor of buyer Escario. He
questioned the general power of attorney as his signature
therein was forged and he gave no authority to sell,
supported by the testimony of the lawyer who denies
notarizing the documents.
HELD: There was no need to execute a special power of
attorney and that respondent was an innocent purchaser for
value. Even granting there was forgery, title subsequently
issued will not be revoked. An examination of the records
showed that the assailed power of attorney was valid and
regular on its face. It was notarized and thus carries the
evidentiary weight conferred upon it with respect to its due
execution. While it is true that it was denominated as a
general power of attorney, a perusal thereof revealed that it
stated an authority to sell by the terms 2. To buy or sell,
hire or lease, mortgage or otherwise hypothecate lands,
tenements and hereditaments or other forms of real
property. Thus,there was no need to execute a separate
and special power of attorney since the general power of
attorney had expressly authorized the agent or attorney in
fact the power to sell the subject property
DOCTRINE: A special power of attorney can be included in
the general power when it is specified therein the act or
transaction for which the special power is required.
Whether the instrument be denominated as general power
of attorney or special power of attorney, what matters is
the extent of the power or powers contemplated upon the
agent or attorney in fact. If the power is couched in general
terms, then such power cannot go beyond acts of
administration. However, where the power to sell is specific,
it not being merely implied, much less couched in general
terms, there cannot be any doubt that the attorney in fact
may execute a valid sale. An instrument may be captioned
as special power of attorney but if the powers granted are
couched in general terms without mentioning any specific
power to sell or mortgage or to do other specific acts of
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 27

strict dominion, then in that case only acts of administration

may be deemed conferred.
CASE: Estate of Lino Olaguer v Ongjoco (2008)
SUMMARY: When Lino died, his wife Olivia and a certain
Eduardo became the administrators of his estate. Upon
order of the Probate court, the administrators were given
authority to sell some of the properties to pay obligations of
the estate. One of these properties is Lot No. 76 which was
sold to Pastor Bacani but was resold to Olivia and Eduardo
the following day for 12,000, in the proportion of 6/13 and
7/13 respectively. Jose, Olivias second husband, had Olivia
execute a SPA authorizing him to sell or encumber the
properties with respect to Olivias 6/13 share on Lot No. 76.
He caused the subdivision of Lot. 76. He later sold Lot. 76BG to his son Virgilio for only 3,000. Lot 76-B&C later became
Lot.1 and Lot. 2 and were sold to Ongjoco allegedly pursuant
to a general power of attorney. He later caused Virgilio to
execute a power of attorney authorizing him to sell or
encumber the 6/13 share. He then sold the remaining lots,
Lot 76-D to 76-G to Ongjoco. Petitioners argue that Ongjoco
cannot have been an innocent purchaser of value. Ongjoco,
on the other hand, avers that Jose was duly authorized by a
written power of attorney when the properties were sold to
him (Ongjoco).
HELD: Olaguer was an innocent purchaser for value with
regard to Lots Nos. 76-D, 76-E, 76-F and 76-G since it was
entirely proper for him to rely on the duly notarized written
power of attorney executed in favor of Jose. Ongjoco was
able to present a general power of attorney that was
executed by Virgilio Olaguer. Ongjoco had every right to rely
on the power of attorney in entering into the contracts of
sale of Lots Nos. 76-D to 76-G with Jose A. Olaguer. While the
law requires a special power of attorney, the general power
of attorney was sufficient in this case, as Jose A. Olaguer was
expressly empowered to sell any of Virgilios properties; and
to sign, execute, acknowledge and deliver any agreement
therefor. On its face, the written power of attorney contained
the signature of Virgilio Olaguer and was duly notarized. As
such, the same is considered a public document and it has in
its favor the presumption of authenticity and due execution,
which can only be contradicted by clear and convincing
evidence. (Domingo v. Robles)
DOCTRINE: Even if a document is designated as a general
power of attorney, the requirement of a special power of
attorney is met if there is a clear mandate from the principal
specifically authorizing the performance of the act (BravoGuerrero v. Bravo). The special power of attorney can be
included in the general power when the act or transaction
for which the special power is required is specified therein.
(Veloso v. CA)
Problem:
Ducky, a singer, appointed Palmer as his agent. Palmer
booked Ducky for a charity concert. Later, Ducky refused to
sing, claimed that Palmer was not authorized to book him for
the event because he did not give him an SPA. Is Ducky
correct? NO cite Lim Pin v. LiaoTan SPA doesnt have to be
written, can be oral as long as express

i.
Construction
GENERAL RULE: Strictly construed and strictly pursued
o
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 attorney.
o
The act done must be legally identical with that
authorized to be done.
o
Where the mode of exercising a power is
prescribed in the instrument in which it is

created, there must be a strict compliance

therewith in every substantial particular
o
Construe based on the NATURE OF THE POWER
given under the operative provisions of such
instrument not from the title.
QUALIFICATION
o
Not absolute and should not be applied to the
extent of destroying the very purpose of the
power
o
If the language will permit, a construction which
will carry out, instead of defeat, the purpose of
the appointment.
o
Even if there are repugnant clauses in a power
of attorney, they should be reconciled, if
possible, so as to give effect to the instrument
in keeping with its general intent or
predominant purpose.
o
Instrument should always be deemed to give
such powers as are essential or usual in
effectuating the express powers.

CASE: Olaguer v. Purugannan (2007)

SUMMARY: Eduardo Olaguer was a stockholder of
Businessday Corporation. He was also in active opposition
against the Marcos dictatorship. According to him,
anticipating the possibility that he will be arrested and
detained by the Marcos military, he had an unwritten
agreement with respondent Locsin etc that the latter would
support his family in case he is arrested. He also executed
an SPA appointing them as attorneys-in-fact to sell or
transfer his shares. He claims that this authority was limited
to the ffg conditions: (1) in the event of the petitioners
absence and incapacity; and (2) for the limited purpose of
applying the proceeds of the sale to the satisfaction of
petitioners subsisting obligations with the companies
adverted to in the SPA. He claims that the terms absence
and incapacity should be strictly construed. He claims that
since these conditions were not fulfilled, Locsin exceeded his
authority in selling the shares (The shares were bought by
Locsin himself.) The SC ruled in Locsins favor.
HELD:
1) Olaguer: Arrest and subsequent detention are not
among the instances covered by the terms "absence or
incapacity," as provided under the SPA he executed in favor
of Locsin.

SC: Construction must give effect to the power.

Limiting the definitions of "absence" to that provided

under Art. 381 and of "incapacity" under Art. 38 negates
the effect of the power of attorney by creating absurd, if
not impossible, legal situations.

Art. 381 provides the necessarily stringent standards

that would justify the appointment of a representative
by a judge. Among the standards the said article
enumerates is that no agent has been appointed to
administer the property.In the present case, Olaguer
himself had already authorized agents to do
specific acts of administration and thus, no longer
necessitated the appointment of one by the court.

Limiting the construction of "incapacity" to "minority,

insanity, imbecility, the state of being a deaf-mute,
prodigality and civil interdiction," as provided under Ar.
38, would render the SPA ineffective.

Art. 1919(3) of the Civil Code provides that the death,

civil interdiction, insanity or insolvency of the principal
or of the agent extinguishes the agency. It would be
equally incongruous, if not outright impossible, for the
petitioner to require himself to qualify as a minor, an
imbecile, a deaf-mute, or a prodigal before the SPA
becomes operative. In such cases, not only would he be
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 28

prevented from appointing an agent, he himself would

be unable to administer his property.
Proper: Defining the terms "absence" and "incapacity"
by their everyday usage makes for a reasonable
construction, that is, "the state of not being present"
and the "inability to act," given the context that the SPA
authorizes the agents to attend stockholders meetings
and vote in behalf of Olaguer, to sell the shares of stock,
and other related acts. This construction covers the
situation wherein petitioner was arrested and detained.

2) Olaguer: Shares may only be sold for the sole purpose of

applying the proceeds of the sale to the satisfaction of
Olaguers subsisting obligations to the company

SC:Olaguer had not submitted evidence

that he was in debt with Businessday at the time he had
executed the SPA. Nor could he have considered
incurring any debts since he admitted that, at the time
of its execution, he was concerned about his possible
arrest, death and disappearance.

The
language
of
the
SPA
clearly
enumerates, as among those acts that the agents were
authorized to do, the act of applying the proceeds of the
sale of the shares to any obligations Olaguer might have
against the Businessday group of companies.

This interpretation is supported by the use

of the word "and" in enumerating the authorized acts,
instead of phrases such as "only for," "for the purpose
of," "in order to" or any similar terms to indicate that the
Olaguer intended that the SPA be used only for a limited
purpose, that of paying any liabilities with the
Businessday group of companies. (i.e. it was not the sole
purpose)
DOCTRINE:

GENERAL RULE: A power of attorney must

be strictly construed; the instrument will be held to
grant only those powers that are specified, and the
agent may neither go beyond nor deviate from the
power of attorney.

QUALIFICATION: The rule is not absolute

and should not be applied to the extent of destroying
the very purpose of the power. If the language will
permit, the construction that should be adopted is that
which will carry out instead of defeat the purpose of the
appointment. Clauses in a power of attorney that are
repugnant to each other should be reconciled so as to
give effect to the instrument in accordance with its
general intent or predominant purpose.

Furthermore, the instrument should always

be deemed to give such powers as essential or usual in
effectuating the express powers.

The construction, which will carry out the

purpose, is that which should be applied.
c. COMPARISON
AGENCY COUCHED IN GENERAL TERMS
Only grants authority to perform acts of administration
d. CLARIFYING THE TERMS

An agency is either general or special and cannot be

both.

An agent is either a general or special agent but never

both.

Either the agent is manager of all or some of the

business of the principal, but not both.

BUT, it is possible for a single instrument or power of

attorney to embody both general & special powers of
attorney.

An agency can be both a general agency and an agency

couched in general terms. Also, a special agency may
have a special power of attorney. An agency couched in
general terms may be a special agency when it involves
only one or more specific transactions.
Instrument -> the document itself conferring the
authority
Siasat v IAC not good jurisprudence; shows how this can
be confusing
GENERAL/SPECIAL AGENCY
Extent of business covered
Refer to scope of transactions covered by the agency
Mutually exclusive terms, cannot exist together

A
A
Re
M
no

E. AS TO ITS NATURE AND EFFECTS

Art. 1868. By the contract of agency a person binds himself to rend
on behalf of another, with the consent or authority of the latter. (1709
NOTES:

OSTENSIBLE or REPRESENTATIVE one where the agent

acts in the name and representation of the principal

SIMPLE or COMMISSION one where the agent acts in

his own name but for the account of the principal
ESTABLISHING THE AGENCY
A.
AGENCY
RELATIONSHIP:
HOW
CONSTITUTED(Express, Implied, By Estoppel, Ratification,
By Law)
I. EXPRESS AGENCY
Art. 1869. Agency may be express xxx
Art. 1870. Acceptance by the agent may also be express xxx
NOTES:

Created by the express act of the principal authorizing

the agent to act on his behalf and by the express act of
the agent accepting such authority.

This is the usual manner by which an agency is

established.
FORM OF EXPRESS AGENCY

GENERAL RULE: No formal requirements governing the

appointment of an agent. May be written or oral, in
public or private, may be express or implied.

EXCEPTIONS: When law requires certain formalities for

particular contracts
o
When the form is required for the validity of the
contract (Art. 1874)
o
When it is required to make the contract
effective against third persons (Art. 1357, Art.
1358)
o
When it is required for the purpose of proving
the existence of a contract (Art. 1403/Statute of
Frauds)

i. ORAL
Art. 1869.xxx Agency may be oral, unless the law requires a specific
ii. WRITTEN
Art. 1874. When a sale of a piece of land or any interest therein is
writing; otherwise, the sale shall be void. (n)
NOTES: (See establishing an agency)
In writing

It should be sufficient that the authority in writing reflect

the identity of the agent, a proper description of the
land and terms of the sale, if any.

Such instrument would be a special power of attorney

even if the appointment of the agent was originally
merely oral.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 29

In the absence of statute, no form or method of

execution is required for a valid power of attorney; it
may be in any form clearly showing on its face the
agents authority.(Angelesv.PNR)
a. Application
Art.1874 applies to a contract of sale entered into
through an agent. If the agent is merely negotiating for
his principal, he need not have authority in writing,
provided it is the principal himself who executed the
contract.
A sale is only through an agent if the agent is the
signatory to a contract on behalf of the principal.
Art.1874 uses the term land (as opposed to
immovable or real property) and should be limited
to such objects.
The article also applies to the sale of any interest on a
piece of land (e.g.,usufruct, mortgage).
Art. 1874 seemingly also applies to contracts to sell,
which are preparatory to contracts of sale. (illustrated in
Oesmer v. Paraiso Development)
Art.1874 admits of no exceptions.
b. Effect
The sale of land without written authority is void.
It cannot be subject to ratification.
NOTE: Sir Casis argues that sale would be not be valid if
theres no written authority even if theres implied
agency/agency by estoppel. Even assuming that an
implied agency or agency by estoppel was created, the
contract would still be void because a written authority
to sell is expressly required by Art.1874.

Problem:

P tells A, in view of a third party, that hes authorizing

him to sell a parcel of land.

If A executes deed of sale with the third party, is the

sale valid? NO cite Art.1874authority must be in writing

What if instead of land, its a building? YES cite

Art.1874 mentions land specifically

What if instead of selling, agent is authorized to buy a

parcel of land?

De Leon argues that 1874 is applicable only when

selling land, but Sir Casis argues that it applies to both
buying and selling. (Perhaps Sales provisions can be
cited here. ed.)

c. Form in case of corporations

Contracts or acts of a corporation must be made either
by the board of directors or by a corporate agent duly
authorized by the board. (AF Realty v. Dieselman)
A corporation may act only through its board of directors
or, when authorized either by its by-laws or by its board
resolution, through its officers or agents in the normal
course of business. (Litonjua v. Eternit)
Property of the corporation may not be sold without
express authority from the board of directors. Absent
such valid delegation/authorization, the declarations of
an individual director relating to the affairs of the
corporation, but not in the course of, or connected with,
the performance of authorized duties of such director,
are not binding on the corporation. (Litonjua v. Eternit)
An agent must be authorized by a board resolution
unless the Corporations by-laws allows an officer or
member of the board to authorize her without one.

II. IMPLIED AGENCY

Implied from:

acts of the principal,

from principals silence or lack of action, or

principals failure to repudiate the agency, knowing that
another person is acting on his behalf without authority
from agents acts which carry out the agency, or from
agents silence or inaction according to the
circumstances
if the principal delivers his power of attorney to the
agent and the latter receives it without any objection

i. IMPLIED FROM ACTS OF PRINCIPAL

Art. 1869. Agency may be xx implied from the acts of the princ
repudiate the agency, knowing that another person is acting on his b
NOTES:
Requisites of an implied agency under Art. 1869:
1. The alleged principal should have been aware of the acts
of the alleged agent
2. The alleged principal has had reasonable opportunity
under the circumstances to repudiate the acts of the alleged
agent
3. A third party has transacted with the alleged agent
without being made aware of the alleged agent s lack of
authority
4. There were no facts or circumstances that should have
raised any suspicion on the part of the third person that the
agent was not authorized
Problem:
Gibbs found out that Palmer was representing himself as
Gibbs agent and selling Gibbs products. Gibbs did nothing
about it for one week.
Is there an implied agency?
How about one day? Is there an implied agency?
What if after three days he tells Palmer to stop what he was
doing but doesnt inform third persons? Implied agency?
Problem:
Mikes light bulb business
Mikes business is selling light bulbs. Casiano starts selling
Mike s light bulbs without his knowledge and consent.
Casiano sells Justin 100 light bulbs. On the fourth day,
Casiano also 100 light bulbs to Elvin.
Is there an implied agency?
Note: These problems illustrate the difficulty in the time
frame (reasonable opportunity) given to the principal to
repudiate the alleged agents acts.

ii. IMPLIED FROM ACTS OF AGENT

Art. 1870.Acceptance by the agent may also be xxx implied from hi
inaction according to the circumstances. (n)
NOTES:
Silence or Inaction

Agency is established if the agent does not inform the

principal of his rejection of the agency:
1. Within a reasonable amount of time under the
circumstances
2. Prior to the principal suffering damage as a result of
the delay on the part of the agent in informing the principal
of such rejection

Villanueva (and it seems as if De Leon does too) critics

this Article as implying that there is such a thing as
implied acceptance of the appointment on the part of
the agency when every act of the agent in pursuance of
the agency is never implied but always express,
because the requirement is that he must enter into a
contract in the name of the principal. Thus whenever
any agent enters into a contract in pursuance of an
agency, his acceptance of his designation as agent is
never implied nor presumed, for precisely he enters into
such contract clearly in the name of the principal.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 30

He adds that it seems hard to imagine a

contract of agency constituted by mere silence
or inaction since contract of agency is
essentially a preparatory contract and thus by
his silence, the agent is interpreted as not
accepting the appointment.
Villanueva likes 1871 and 1872 better and
deems this article as mere surplusage.

Problem:

Kate asked Rick to be her agent. Rick gave no response,

but started acting as such.

Is there an implied agency? YES! cite Art. 1870 Ricks

acts carry out the agency
Problem:

Sam asked Maddy to be her agent. Maddy did not

respond for one week.

Is there an implied agency?

What if only one day had lapsed? One hour?

Note: Again, these problems illustrate the difficulty with
regard to the time frame (reasonable amount of time). Sir
Casis suggests that certain jobs need immediate action,
while others, not so much.

Other than the 2 exceptions, there can be no implied

acceptance from the silence or inaction of the part of
the purported agent. (Thus contrary to Art. 1870 Villanueva)
Considers a written instrument w/c may include e-mail
or electronic document

Problem:
Philip sends email to Alfred appointing him as agent. Alfred
reads it but doesn t respond.
Is there an implied agency?
Is an email transmitted?
What is the time frame for the recipient to make an
objection?
Problem:
Pancho and Alma were chatting on FB during class. Pancho
says: If you help me sell my car I will give you a
commission. Alma replies: :)
If Alma was a used car salesperson, is there an implied
agency?
What would persons who are absent contemplate? Would
this include those who are physically present but cant
communicate freely, as in this problem?

III. AGENCY BY ESTOPPEL

a. Based on Statute
Art. 1871. Between persons who are present, the acceptance of the agency may also be implied if the principal delivers his
Art. 1873. If a person specially informs another or states by public a
power of attorney to the agent and the latter receives it without any objection. (n)
third person, the latter thereby becomes a duly authorized agent, in t
NOTES:
the special information, and in the latter case with regard to any perso

This is the most ideal form evidencing the perfection of

The power shall continue to be in full force until the
the agency, when both parties are present.
given. (n)

Between persons who are present

NOTES:
o
Principal delivers his power of attorney to the
Agency by estoppel
agent and

One who clothes another with apparent authority as his

o
Latter received it without any objection
agent and holds him out to the public as such, cannot be

Delivers his power of attorney :Agent must be

permitted to deny the authority of such person in good
aware of the contents of the document . Mere physical
faith and in the honest belief that he is what he appears
receipt of the document without specific knowledge as
to be.
to its contents should not be sufficient to bind him

a real agency relationship does not exist; however, one

is established with respect to a third person who relied
Problem:
on the representations of the alleged principal or agent,
Peter goes to Andrew s house, hands him an envelope
as the case may be.
containing the special power of attorney. Andrew says

This does not apply in cases where the existence of an

Thanks. Is there an implied agency?
agency relationship is undisputed.
NO! The person has to know that he s receiving an SPA.

This article applies when the alleged principal is the one

who specially informs another person, or states by
Art. 1872. Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the agent,
public advertisement, that someone is his agent
except:

If it is the other way around, meaning it is the alleged

(1) When the principal transmits his power of attorney to the agent, who receives it without any objection;
who specially
informs
person
states
(2) When the principal entrusts to him by letter or telegram a poweragent
of attorney
with respect
to another
the business
in or
which
he by
is
public
advertisement
that
someone
is
his
principal:
habitually engaged as an agent, and he did not reply to the letter or telegram. (n)
o
If the alleged principal finds out and does
NOTES:
nothing, there can be an implied agency (Art.

General rule: Between persons who are absent, there

1869)
is no implied acceptance of agency from the silence or
o
If the alleged principal is completely unaware,
inaction of the agency
the third person has no recourse against him.

Except: Implied acceptance of agency

The principal must be aware of all relevant facts
o
(1) When the principal transmits his power of
for there to be ratification. (See Obligations of
attorney to the agent (ie. it is in writing or some
the principal, infra, page 33)
other form), who receives it without any

Estoppel to deny agency

objection;
o
Estoppel of agent one professing to act as
o
(2) When the principal entrusts to him by letter
agent may be estopped to deny agency both
or telegram a power of attorney with respect to
against the asserted principal and third persons
the business in which he is habitually engaged
o
Estoppel of principal
as an agent, and he did not reply to the letter or

As to agent If he knows that another

telegram.
is acting as his agent and fails to

Entrusts by letter or telegram: Implied agency

repudiate his acts or accepts the
arises only when the power of attorney pertains to a
benefits of them
business that the agent is habitually engaged in. This is

As to sub-agent to estop him, he must

not a requirement in the case of a transmittal.
have known or be charged with the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 31

knowledge of the fact of transaction

and terms of agreement between the
agent and sub-agent

As to third persons 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
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 third persons in interest. He
will not, however, be estopped where he has
withdrawn from the contract made with the
unauthorized agent before receiving any
benefits thereunder.

Two scenarios contemplated in Art. 1873:

1. Specially informs another
o
agency is established by estoppel with respect
to the person who received the special
information
2. States by public advertisement
o
agency is established by estoppel with respect
to any person
Manner of Revocation
The power of attorney must be revoked in the same
manner in which it was given. (par. 2)

If the agency has been entrusted for the purpose of

contracting with specified persons, its revocation shall
not prejudice the latter if they were not given notice
thereof. (Art. 1921)

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. (Art.
1922)

Revocation made in any manner is effective where the

person dealing with the agent has actual knowledge
thereof; otherwise, bad faith and fraud would be
committed.
b. Based on Jurisprudence
Requisites for the existence of an agency by estoppel
(Litonjua v. Eternit):
1. The principal manifested a representation of the agents
authority or knowingly allowed the agent to assume such
authority.
2. The third person, in good faith, relied upon such
representation.
3. Relying upon such representation, such third person has
changed his position to his detriment.
Requisites to hold a hospital vicariously liable under
the doctrine of apparent authority ( Nogales v. Capitol
Medical):
1. The hospital, or its agent, acted in a manner that would
lead a reasonable person to conclude that the individual who
was alleged to be negligent was an employee or agent of
the hospital
2. Where the acts of the agent created the appearance of
authority, the plaintiff must also prove that the hospital had
knowledge of and acquiesced in them

3. The plaintiff acted in reliance upon the conduct of the

hospital or its agent, consistent with ordinary care and
prudence
Factors to determine liability of an independentcontractor physician (Nogales v. Capitol Medical):
1. Manifestation

The hospital acted in a manner which would lead a

reasonable person to conclude that the individual who
was alleged to be negligent was an employee or agent
of the hospital.
2. Reliance

The plaintiff acted in reliance upon the conduct of the

hospital or its agent, consistent with ordinary care and
prudence.
Problem:
Is there an agency by estoppel if Peter posts on Alfreds FB
wall that he is appointing him as agent
but Alfred doesnt comment?
and Alfred likes the post?
Assuming an agency by estoppel is created, Alfred is an
agent with respect to whom?
How can Peter rescind the agency? Delete the post or
another post?
Note: This problem illustrates the difficulty in applying the
provision to modern-day technology.
Problem:
Angie specially informs Tim that Perla is her principal.
Is there agency by estoppel?
NO.
1873 applies only to principal informing others
regarding the agency, not the other way around.
CASE: Macke v. Camps (1907), supra
SUMMARY: Flores, who appeared to be the agent of Camps
for the Washington Caf, ordered goods from Macke and Co.
The balance remained unpaid. Defendant alleges Flores is
not his agent. However, in a written contract executed by
the by defendant with the former owner of the Washington
Cafe, Flores appeared as witness, defendant signed as
sublessee and at the foot of such inventory was the word
received followed by the name "Ricardo Flores," with the
words "managing agent.
HELD: Given the contracts, the title of managing agent,
and the fact that Flores appeared to be in-charge of the
business when defendant was at the province is sufficient to
sustain a finding that Flores was the agent with authority to
bind the defendant, his principal, for the payment of the
goods mentioned in the complaint. That Flores, as managing
agent had authority to buy such reasonable quantities of
supplies necessary in carrying on the business may fairly be
presumed from the nature of the business, especially in view
of the fact that his principal appears to have left him in
charge during more or less prolonged periods of absence;
DOCTRINE: One who clothes another apparent authority as
his agent, and holds him out to the public as such, cannot be
permitted to deny the authority of such person to act as his
agent, to the prejudice of innocent third parties dealing with
such person in good faith. "Whenever a party has, by his
own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true,
and to act upon such belief, he cannot, in any litigation
arising out such declaration, act, or omission, be permitted
to falsify it.

IV. RATIFICATION BY THE PRINCIPAL

Art. 1910.xxx As for any obligation wherein the agent has exceede
ratifies it expressly or tacitly.

See notes for ratification in Obligations of the principal

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 32

never appointed or that such agent acted beyond the

V. AGENCY BY OPERATION OF LAW
scope of his authority.
Art. 1884. par. 2 The agent xx must also finish the business already
begun
on the
death of
should

The
issues
relating
to the
theprincipal,
extent of
the delay
powerentail
and
any danger.
authority of the agent, and the nature of the evidence
Art. 1885. In case a person declines an agency, he is bound to observe
the
a good
fatherarise
of aonly
family
in the
required
todiligence
prove theofsame,
should
when
the
custody and preservation of the goods forwarded to him by the owner
until the principal
latter should
appoint
agentbyorthe
take
charge
purported
denied
beingan
bound
contracts
of the goods.
entered into by the agent with third parties.
Art. 1929. The agent, even if he should withdraw from the agency
a valideven
reason,
must
to act
untilwithout
the principal
for
Indeed,
if in
factcontinue
the agent
acted
or in
has had reasonable opportunity to take the necessary steps to meet the
situation.
excess
of authority, or there is no reasonable way to
Art. 1929. The agent, even if he should withdraw from the agency for
a valid
continue
act until
the principal
prove
thereason,
extentmust
of his
powerto and
authority,
if the
has had reasonable opportunity to take the necessary steps to meet the
situation.
principal
accepts or ratifies the contract, then there is
Art. 1932. If the agent dies, his heirs must notify the principal thereof,
and to be resolved. Every unenforceable contract is
no issue
circumstances may demand in the interest of the latter.
subject to ratification.

Every agent is deemed granted with authority to bind

B. EXTENT OF POWER CONFERRED TO AGENT AFTER
the principal for acts of administration.
AGENCY RELATIONSHIP IS ESTABLISHED

In absence of a written evidence, the burden of proof to

While the preceding section discussed the rules on how

show that there is indeed a contract of agency and the
a contract of agency is constituted (ie. perfected into a
extent of the power and authority of the agent is on the
valid and binding relationship), this section will discuss
part of the person who purports to act for and in behalf
the rules that govern the extent of the power granted to
of the principal, and even then third parties are directed
the agent once the agency is established.
to ensure the nature and extent of the agents power.

This is on the premise that even when an agent has

When what was constituted was a GPA, third parties are

been duly appointed by the principal, such agent must
less wary that the contract or transaction they entered
still act within the scope of his authority in order to
into is not within the powers of the agent, especially
make the resulting juridical acts entered into in the
when it is one which is in the ordinary course of
name of the principal, valid and binding on the latter.
business.

This is consistent with the duty of obedience owed by

On the other hand, when what was constituted was an

the agent to the principal.
oral special power of attorney, then lacking the written
evidence of what particular power of ownership has
I. General Principles on Contracts Entered into by
been granted to the agent, the third party may only
agents
reasonably presume that the agent is granted powers of

Since a contract of agency is preparatory and

administration.
representative contract, then it gives rise to a host of
juridical acts or contracts that are entered into in
III. Special Power of Attorney
representation of one or both parties to the contract
NOTES:
(when both parties are represented by agents).
i.
In General

The rules pertaining to such contracts also delve on the

GENERAL RULE: Art. 1878 provides that a duly

sufficiency or insufficiency of authority of the
appointed agent has no power to exercise on behalf of
representative or that such representative acted beyond
the principal any act of strict dominion UNLESS it is
the scope of his authority.
under a special power of attorney; ideally, the agency

The issues fall within those types of contracts that are

contract must be SPECIFIC.
unenforceable rather than void, as provided in Art.
o
IF NOT: The power or authority of the agent is
1317 and 1403 of NCC.
deemed only to cover acts of administration.
Art. 1317. No one may contract in the name of another without
authorized
byparticular
the latter,
or unless
has bybylaw
a
being
FORM:
That no
formality
is he
required
law,
right to represent him.
rules or regulation, then the principal may appoint his
A contract entered into in the name of another by one who hasagent
no authority
or legal
representation,
orconvenience
who has acted
in any form
which
might suit his
or
beyond his powers, shall be unenforceable, unless it is ratified, expressly
or the
impliedly,
the person
whose
behalf itofhas
that of
agent by
applies
only toon
the
constitution
an
been executed, before it is revoked by the other contracting party.
agency relationship or the formal designation of the
Art. 1403. The following contracts are unenforceable, unless they areprincipal
ratified:of the agent. (Villanueva)
(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who
has acted beyond his powers;
ii. Effect of absence of specific authorization
NOTES (Villanueva):

Art.1878 does not provide for the effect of the lack of

A careful consideration of the formal requirement

specific authorization in the cases enumerated.
pertaining to contracts of agency and issues relating to

However, they have been held by the SC to be

the powers of agents to enter into contracts in the name
unenforceable. (Dugo v. Lopena, Vicente v. Geraldez)
of the principal go into the issues of enforceability and

However, when the contract involves the sale of land, it

not into issues of nullity.
is void, pursuant to Art.1874. (Cosmic Lumber v. CA)

FROM THE POINT OF VIEW OF THE PRINCIPAL: A contract

All other powers not included in the instrument are

that has been entered in his name by another without
deemed to be excluded. The SPA is strictly construed.
consent or outside the scope of authority is non-existent
(Mercado v. Allied Bank)
or void (and the law uses such term when referring to
o
This is because of the disinclination of courts to
the principal)
expand the authority granted in the SPA. (PNB

FROM THE POINT OF VIEW OF THE COURT: That contract

v. Sta. Maria)
is not void but actually unenforceable.

Although the Civil Code expressly requires a SPA to bind

another person in a compromise agreement, it is neither
II. General Powers of Attorney
accurate nor correct to conclude that its absence

Issues of formality are premised on the fact that the

renders the compromise agreement void. The
purported principal in the contracts that have been
compromise agreement is merely unenforceable,
entered into in his name alleges that the agent was
governed by Art.1403(1) (Dungo v Lopena).
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 33

In Rivera v CA, compromise agreement was also

held to be void for lack of specific authorization.
Thus, the authority of an agent to execute a contract for
the sale of real estate must be conferred in writing and
must give him specific authority. A special power of
attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration.
o

(3) SPA With Respect to Principals Causes of Action

(Compromise, Arbitration, etc.)
Art. 1878. Special powers of attorney are necessary in the follow
arbitration, to renounce the right to appeal from a judgment, to waiv
prescription already acquired;
Cf. Art. 1880. A special power to compromise does not authorize sub

Refers to the ff. matters of litigation which cannot be

entered into or exercised by the agent in the name of
the principal unless covered by SPA:
iii. Effect of specific authorization
o
Compromise: Contract whereby the parties by

The powers and duties conferred by the instrument are

making reciprocal concessions, avoid a litigation
or put an end to one already commenced
limited to those which are explicitly stated therein. All
o
Submit Questions to Arbitration: A voluntary
other powers are excluded. (BPI v. De Coster)
dispute resolution process in which one or more

An instrument called a general power of attorney may

arbitrators, appointed in accordance with the
be sufficient to authorize an agent to sell real property,
agreement of the parties, or rules promulgated
provided that such authority is specified in the
pursuant to this act, resolve a dispute by
instrument. (Bravo T Guerrero v. Bravo)
rendering an award
o
To Renounce the Right to Appeal from a
iv. Transactions Covered
Art. 1878. Special powers of attorney are necessary in the following cases: judgment
o
To Waive Obligations to the Venue of an Action
(1) To make such payments as are not usually considered as acts of administration;
o at To
Prescription
Already Acquired
(2) To effect novations which put an end to obligations already in existence
theAbandon
time theaagency
was constituted;
(3) To compromise, to submit questions to arbitration, to renounce
right1880
to appeal
from athat
judgment,
to waive
to
theArt.
provides
the power
to objections
compromise
the venue of an action or to abandon a prescription already acquired; excludes the power to submit to arbitration; this is
(4) To waive any obligation gratuitously;
applicable vice versa.
(5) To enter into any contract by which the ownership of an immovable
is transmitted
acquired
either
gratuitously
or for
a

Does
it mean allorother
powers
under
this # are
not
valuable consideration;
mutually exclusive? YES, the grant of the special power
(6) To make gifts, except customary ones for charity or those made toto
employees
in the
business
managed
the agent;
compromise
would
mean
that thebyimplied
power of
(7) To loan or borrow money, unless the latter act be urgent and indispensable
for renounce
the preservation
of the
things which
the agent to
the right
to appeal
from are
the
under administration;
judgment of a lower court, if that be essential in arriving
(8) To lease any real property to another person for more than one year;
at a compromise resolution before the appellate court.
(9) To bind the principal to render some service without compensation;
Same thing could be said of the special power to waive
(10) To bind the principal in a contract of partnership;
objections to the venue of an action, or to waive a
(11) To obligate the principal as a guarantor or surety;
prescription already acquired, vis a vis the special power
(12) To create or convey real rights over immovable property;
to compromise.
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
CASE: Rivero v. CA (2005)
(15) Any other act of strict dominion. (n)
SUMMARY:Benedick filed a complaint against the Dy Chiao
NOTES:
siblings for his compulsory recognition as the illegitimate

The agent must be specifically authorized to perform

son of Benito Sr and for administration of partition of latters
any of these transactions (i.e. authority must be
estate. Mary Jane, allegedly in behalf of herself and of her
couched in specific terms).
siblings who are of unsound mind, and Benedick executed a

What matters is the specificity of the authority granted

compromise agreement. Mary Jane was allegedly authorized
by her brothers thru an SPA, notarized and certified by an
and not the name given to the instrument issued in
Atty. Simando and purportedly signed by the Dy Chiao
favor of the agent. (Veloso v CA)
brothers to represent them in negotiations, in signing
agreements and necessary proceedings for the settlement of
(1) To Make Payments as Are not Usually Considered as
estate. However, Dy Chiao brothers, represented by their
Acts of Administration
uncle,
assailed the compromise agreement since they did
Art. 1878. Special powers of attorney are necessary in the following
cases:
authorize their sister Mary Jane to execute any
(1) To make such payments as are not usually considered as acts not
of administration;
compromise agreement.

Ex. Payment of insurance claims

HELD: RTC decision based on the compromise agreement is
null and void for extrinsic fraud and lack of jurisdiction. Mary
(2) To Effect Novation Which Put an End to Obligations
Jane had no authority to execute the compromise agreement
Already in Existence at the Time the agency was
for and in behalf of her brothers. First, no compromise upon
constituted
the civilcases:
status of persons shall be valid. More importantly in
Art. 1878. Special powers of attorney are necessary in the following
this topic, SPA on record shows that Dy Chiao brothers did
obligations already in existence at the time the agency was constituted;
not authorize their sister to recognize Benedick as the
illegitimate son of their father. They could not have agreed

If the obligation was created only during the agency

to pay P6M to be taken from the estate, because they had
relationship, the power to create such obligation granted
denied that Benedick was the illegitimate son of their father
to the agent includes with it the implied power to novate
in their answer. On the assumption that the Dy Chiao
it.
brothers had signed the SPA on Sept 20, 1995, a cursory

Ex. Where the terms of power granted to the substituted

reading of the compromise agreement will show that they
attorney-in-fact was to the end that the principal-seller
did not specifically empower their sister to enter into a
may be able to collect the balance of the selling price of
compromise agreement with Benedick in the Civil Case. The
the printing establishment sold, such substitute agent
SPA was executed as early as Sept 20, 1995, while the
had not power to enter into new sales agreements with
complaint was filed with the RTC almost a year thereafter, or
the buyer, or to novate the terms of the original sale.
on Aug 27, 1996. Since the decision of the RTC is null and
void, the writ of execution issued pursuant thereto and the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 34

subsequent sale at public auction of the properties

belonging to the estate of Benito Dy Chiao, Sr. are null and
void.
HELD: Art. 1878 of the NCC provides that an SPA is required
for a compromise. The power of attorney should expressly
mention the action for which it is drawn; as such, a
compromise agreement executed by one in behalf of
another, who is not duly authorized to do so by the
principal, is void and has no legal effect, and the
judgment based on such compromise agreement is
null and void. The judgment may thus be impugned and its
execution may be enjoined in any proceeding by the party
against whom it is sought to be enforced. A compromise
must be strictly construed and can include only those
expressly or impliedly included therein.
NOTE:
Villanueva and Casis agree that its merely
unenforceable not void

Reconciling Art. 1878(5) and Art.1874:

Object
of Specific
Written
contract
authorization
authoriza
(If
none,
tion
unenforceable
(If none,
)
void)
Sale of land

Purchase of land
Sale
of
an
immovable
other than land
Transmittal
of
ownership of an
immovable
other than land
Transmittal
of
ownership
of
land other than
(4) To Waive any Obligation Gratuitously
through a sale
Art. 1878. Special powers of attorney are necessary in the following cases: (4) To waive any obligation gratuitously;

Also means condonation or remission of debt which is

CASE: Estate of Lino Olaguer v Ongjoco (2008)
essentially gratuitous and requires the acceptance by
SUMMARY: When Lino died, his wife Olivia and a certain
the obligor
Eduardo became the administrators of his estate. Upon

It may be made expressly or impliedly.

order of the Probate court, the administrators were given
authority to sell some of the properties to pay obligations of

In the absence of SPA, an agent cannot condone or

the estate. One of these properties is Lot No. 76 which was
remit the obligations owing to the principal and if he
sold to Pastor Bacani but was resold to Olivia and Eduardo
does so, the act is unenforceable.
the following day for 12,000, in the proportion of 6/13 and

If Onerous: When the power to condone is within the

7/13 respectively. Jose, Olivias second husband, had Olivia
scope of authority of the agent, he may do so as an
execute a SPA authorizing him to sell or encumber the
implied or incidental power
properties with respect to Olivias 6/13 share on Lot No. 76.

However, if Gratuitous: It can only arise as n express

He caused the subdivision of Lot. 76. He later sold Lot. 76Bpower; not implied or incidental
G to his son Virgilio for only 3,000. Lot 76-B&C later became
Lot.1 and Lot. 2 and were sold to Ongjoco allegedly pursuant
(5) To Enter Into any Contract By Which the Ownership
to a general power of attorney. He later caused Virgilio to
of an Immovable is Transmitted or Acquired
executecases:
a power
attorney
him
sellthe
or
Art. 1878. Special powers of attorney are necessary in the following
(5) of
To enter
intoauthorizing
any contract
by to
which
encumber
the
6/13
share.
He
then
sold
the
remaining
lots,
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;
Lot 76-D to 76-G to Ongjoco. Petitioners argue that Ongjoco

Only immovables are covered. It also applies whether

cannot have been an innocent purchaser of value. Ongjoco,
contract is gratuitous or onerous.
on the other hand, avers that Jose was duly authorized by a

Note that Art. 1878 (5) and (12) refer to sales made by
written power of attorney when the properties were sold to
an agent for a principal and not to sales made by the
him (Ongjoco). This fact alone validated the sales of the
owner personally to another, whether that other be
properties and foreclosed the need for any inquiry beyond
acting personally or through a representative.
the title to the principal.

Art.1878 does not provide for the effect of the lack of

HELD: He was in bad faith when he bought Lots Nos. 1 and
specific authorization in the cases enumerated.
2 from Jose, as the latter was not proven to be duly

However, when the contract involves the sale of land, it

authorized to sell the said properties. No written authority
is void, pursuant to Art.1874. (Cosmic Lumber v. CA)
was shown. However, he was an innocent purchaser for
value with regard to Lots Nos. 76-D, 76-E, 76-F and 76-G

Covers all other transactions over immovables except

since it was entirely proper for him to rely on the duly
for SALE of a piece of land or any interest therein. If not
notarized written power of attorney executed in favor of
in SPA/writing, merely unenforceable. It is the general
Jose.
rule when it comes to immovable property.
DOCTRINE: According to the provisions of Article 1874 of

Sale of immovables need only be express rather than in

the Civil Code, when the sale of a piece of land or any
writing in order to be valid.
interest therein is made through an agent, the authority of
the latter shall be in writing. Absent this requirement, the
(5a) Sale of a Piece of Land Through an Agent
saleisshall
be void.
Also, the
under
Articleof
1878,
a special
Cf. Art. 1874. When a sale of a piece of land or any interest therein
through
an agent,
authority
the latter
shallpower
be in
of
attorney
is
necessary
in
order
for
an
agent
to
enter
into a
writing; otherwise, the sale shall be void. (n)
contract by which the ownership of an immovable property

Art. 1878 (5) covers both an agency to sell or dispose

is transmitted or acquired, either gratuitously or for a
and agency to purchase or acquire immovables, on
valuable consideration. We note that the resolution of this
behalf of the principal while
case, therefore, hinges on the existence of the written power

Art. 1874 clearly covers only SALE of a piece of land or

of attorney upon which Ongjoco bases his good faith.
any interest therein.
NOTE: DeLeons: Sale without written power of attorney is

If done orally, the agency relationship may be valid as

voidable since sale can be ratified by principal; Villanueva:
between the principal and agent, but that third parties
unenforceable; Casis: void
who deal with him must require written evidence of his
EXPLAIN: Casis: The effect of absence of written authority
power to execute acts of strict ownership, otherwise,
only goes into the validity of the sale and not as to the
they are bound to enter into the contract at their own
validity or existence of agency relationship. It is VOID and
risk.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 35

cannot be ratified. Villanueva: Admits that it is VOID only as

to the principal
CASE: St. Marys Farm v Prima Real (2008)
SUMMARY: St. Marys Farm Corp. approved a board
resolution authorizing Agana, its Treasurer to cede to
another party, 4k sqm of land owned by it, giving Agana the
title of the land. After said transaction, Agana did not return
to St. Marys the borrowed title and instead, allegedly
forged a board resolution of the corporation supposedly to
the effect that the corporation had authorized him to sell the
remaining 21,598 sqm of the subject property. Agana sold
the property to Prima Real as embodied in a deed of sale. St.
Marys allege that its Board of Directors never enacted a
resolution authorizing Agana to sell the subject property to
anyone but was limited to an authorization to negotiate, the
signature of its Corporate Secretary was forged and
document was merely presented to the notary public
without the required appearance before him; thus, the deed
of absolute sale being the result of transaction made by
Agana without authority was void. Prima, on the other hand,
argued that it acted in good faith in relying solely on the
face of the purported authorization of Agana which was
notarized and the presentation of the TCT of the land and a
separate Certification by St. Marys President authorizing
Agana to sell said property. Agana, in his defense, asserted
that even assuming that the authorization was forged, St.
Marys President accepted part of the purchase price
knowing fully well the same to be the proceeds of the sale of
the subject property.
HELD: Agana was duly authorized by St. Marys under the
Presidents Certification dated June 30, 1988 to enter into
the sale of the property with Prima Real. Prima Real did not
need to inquire into the fact, nature and extent of Aganas
authority. On the basis of the notarized board resolution,
Prima had every reason to rely on Rodolfo Aganas authority
to sell the subject property; it is thus, an innocent purchaser
for value in good faith. Agana had authority to sell and not
merely to negotiate since the board resolution further
averred that he was authorized and empowered to sign any
and all documents, instruments, papers or writings which
may be required and necessary for this purpose to bind the
Corporation in this undertaking. The certification of St.
Marys President also attests to this fact.
With this
notarized board resolution, Agana, undeniably, had the
authority to cede the subject property, carrying with it all
the concomitant powers necessary to implement said
transaction.
DOCTRINE: When the document under scrutiny is a special
power of attorney that is duly notarized, we know it to be
a public document where the notarial acknowledgment
is prima facie evidence of the fact of its due execution. A
buyer presented with such a document would have no
choice between knowing and finding out whether a forger
lurks
beneath
the
signature
on
it. The
notarial
acknowledgment has removed that choice from him and
replaced it with a presumption sanctioned by law that the
affiant appeared before the notary public and acknowledged
that he executed the document, understood its import and
signed it. In reality, he is deprived of such choice not
because he is incapable of knowing and finding out but
because, under our notarial system, he has been given the
luxury of merely relying on the presumption of regularity of
a duly notarized SPA. And he cannot be faulted for that
because it is precisely that fiction of regularity which holds
together commercial transactions across borders and time.
In sum, all things being equal, a person dealing with
a seller who has in his possession title to the property but
whose capacity to sell is restricted, qualifies as a buyer in
good faith if he proves that he inquired into the title of the
seller as well as into the latters capacity to sell; and that in

his inquiry, he relied on the notarial acknowledgment found

in the sellers duly notarized special power of attorney. He
need not prove anything more for it is already the function
of the notarial acknowledgment to establish the appearance
of the parties to the document, its due execution and
authenticity.

(5b) Agent Cannot Validly Purchase Property of

Principal
Art. 1491. The following persons cannot acquire by purchase, even a
the mediation of another: (2) Agents, the property whose administrat
consent of the principal has been given;
CASE: Olaguer v. Purugannan (2007)
SUMMARY: Eduardo Olaguer was a stockholder of
Businessday Corporation. He was also in active opposition
against the Marcos dictatorship. According to him,
anticipating the possibility that he will be arrested and
detained by the Marcos military, he had an unwritten
agreement with respondent Locsin etc that the latter would
support his family in case he is arrested. He also executed
an SPA appointing them as attorneys-in-fact to sell or
transfer his shares. The shares were bought by Locsin
himself. Olaguer contends that the purported sale is void
since it contravenes Article 1491 w/c provides that The
following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the
mediation of another: x x x x (2) Agents, the property whose
administration or sale may have been entrusted to them,
unless the consent of the principal has been given; x x x.
HELD: It is clear that Olaguer knew of the transaction,
agreed to the purchase price of P600,000 for the shares of
stock, and had in fact facilitated the implementation of the
terms of the payment by providing Locsin, through Olaguers
wife, with the information on the bank accounts of his inlaws. Olaguers wife and his son even provided receipts for
the payments that were made to them by Locsin,a practice
that bespeaks of an onerous transaction and not an act of
gratuity.
DOCTRINE:It is, indeed, a familiar and universally
recognized doctrine that a person who undertakes to act as
agent for another cannot be permitted to deal in the agency
matter on his own account and for his own benefit without
the consent of his principal, freely given, with full knowledge
of every detail known to the agent which might affect the
transaction. The prohibition against agents purchasing
property in their hands for sale or management is, however,
clearly, not absolute. It does not apply where the principal
consents to the sale of the property in the hands of the
agent or administrator.

(6) To Make Gifts

Art. 1878. Special powers of attorney are necessary in the followin
charity or those made to employees in the business managed by the a

GIFT/DONATION: Act of liberality whereby a person

disposes gratuitously of a thing or right in favor of
another person who accepts it.

Required to be in SPA, except:

o
Customary ones for charity
o
Those made to employees in the business
managed by the agent

May be void/not with regard to formalities required

under law of donation (because under agency law-it is
unenforceable)

(7) To Loan or Borrow Money

Art. 1878. Special powers of attorney are necessary in the following
act be urgent and indispensable for the preservation of the things whi
Art. 1890. If the agent has been empowered to borrow money, he ma
he has been authorized to lend money at interest, he cannot borrow it
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 36

Requires SPA Except:

o
Be
urgent
and
indispensable
for
the
preservation of the things which are under
administration
IF power granted was to borrow money and mortgage
principals property to secure the loan, it cannot be
interpreted to include authority to mortgage the
properties to support the agents personal loans.
EFFECT: Contracts entered into are unenforceable.
Art. 1890: If agent has been empowered to borrow
money, then he is not disqualified from being himself
the lender at the current rate of interest. On the other
hand, if agent has been empowered to lend money at
interest, he cannot borrow it without consent of the
principal

Even if agent has SPA, if contract of guaranty in behalf

of the principal is not in writing, the resultant contract
would be unenforceable.

(12)To Create or Convey Real Rights over immovable

property
Art. 1878. Special powers of attorney are necessary in the follow
immovable property;
Art. 1879. A special power to sell excludes the power to mortgage;

power to sell.

This intends to cover dealings on immovable property

outside of the sale of a piece of land or any interest of
dispositions of immovables by which ownership is
conveyed whether gratuitously or for valuable
consideration.

REAL RIGHTS: Mortgages, usufruct, easement etc., lease

contract
(8) To Lease Real Property for More than 1 Year

Art.
1879
the real
proposition
each person
of the
Art. 1878. Special powers of attorney are necessary in the following
cases:
(8) confirms
To lease any
property that
to another
powers enumerated in Art. 1878 are named act of strict
for more than one year;
Art. 1403. The following contracts are unenforceable, unless they aredominion
ratified: and cannot be implied powers; and that one
form hereafter
of named
special
power
cannot by
give
the
of Frauds as set forth in this number. In the following cases an agreement
made
shall be
unenforceable
action,
presumption
thatbyittheincludes
under orany
form
of
unless the same, or some note or memorandum, thereof, be in writing,
and subscribed
party charged,
by his
agent;
interpretation
another
power of
evidence, therefore, of the agreement cannot be received without theconstruction
writing, or a or
secondary
evidence
of its special
contents:
agreement of the leasing for a longer period than one year, or for the attorney.
sale of real property or of an interest therein;

Thus, the power to mortgage does not carry the implied

Lease for more than 1 year is a right in rem; whereas

power to represent the principal in litigation.
the act of entering into a contract of lease for less than
1 year or less may be in GPA.

EXCLUSIVE
AUTHORITY
TO
SELL
v
EXCLUSIVE
AUTHORITY OF SALE

This provision does not cover lease of personal property.

o
In the former, the P may endeavor to sell

Even if with SPA to lease for longer than 1 year, if lease

through his own efforts; in the latter, he may
for more than 1 yr is not in writing, the resulting
not so compete with the agent
contract is still unenforceable.
o
However, De Leon says that the words exclusive
sale may well mean exclusive agency to sell
(9) To Bind the Principal to Render Some Service
(Owner shall employ no other agent)
without compensation
Art. 1878. Special powers of attorney are necessary in the following cases: (9) To bind the principal to render some service
(13)To accept or repudiate an Inheritance
without compensation;
Art.
1878. Special powers of attorney are necessary in the following

This does not infer that to bind the principal to render

Repudiation goes against the interest of the principal.

service for compensation would be deemed a mere act
of administration.

It cannot be an implied power because the acceptance

of an inheritance involves an act of gratitude on the part

Any contract of service to be entered into on behalf of

of the heir and cannot therefore be presumed to be a
the principal should properly be considered an act of
burden that the principal is presumed to accept as a
strict ownership, for it obliges the principal to render a
matter of course.
personal obligation, which if he refuses makes him liable
for damages.
(14)To ratify or Recognize Obligations Contracted Before

It does not make sense that a contract of service, even

the Agency
when for compensation, would be deemed to be within
Art. 1878. Special powers of attorney are necessary in the following
implied powers of the agent to bind the principal.
before the agency;

RATIFY: Acceptance of a contract, which is either

(10)To Bind the Principal in a Contract of Partnership
voidable
or unenforceable,
andprincipal
has the in
effect
cleansing
Art. 1878. Special powers of attorney are necessary in the following
cases:
(10) To bind the
a contract
of
such contract of its legal defects that retroacts to the
partnership;
date of its perfection.

Consequently, contracts of partnership cannot be

Act of ratifying is an act of strict ownership and cannot

entered into in the name of the principal without a
be effected by agent w/out SPA
covering SPA. Principal must have trust and confidence
in the proposed partners.

RECOGNIZE: acknowledging what was a natural

obligation; transforms such to a civil obligation which
(11)To Obligate The principal as a Guarantor Surety
can be enforced against the estate of the principal
Art. 1878. Special powers of attorney are necessary in the following cases:
surety;
(15)Any other act of Strict Dominion
Art. 1403. The following contracts are unenforceable, unless they
are1878.
ratified:
Art.
Special powers of attorney are necessary in the following
of Frauds as set forth in this number. In the following cases an agreement
made
be unenforceable

Those hereafter
that may
be shall
constituted
as acts byofaction,
strict
unless the same, or some note or memorandum, thereof, be in writing,
and subscribed
party charged,
orinbythe
hisfirst
agent;
ownership,
but notbysothe
specifically
named
14
evidence, therefore, of the agreement cannot be received without the
writing, or a
secondary
of its
paragraphs,
would
alwaysevidence
need a SPA
tocontents:
be executed in
special promise to answer for the debt, default, or miscarriage of another;
behalf of the principal by the agent, but not being

Power of attorney to loan money does not include the

specifically enumerated in the first 14 pars., it is
implied power to make the principal a surety for the
possible that such acts which are nominally perceived as
payment of the debt of a third person.
acts of strict ownership, may, depending on
circumstances prevailing in each case, be shown to be
mere acts of administration and may be governed by a

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 37

GPA, or may be implied or incidental from express

powers or from the nature of the business covered by
the agency arrangement.
A sale of personal property is an act of strict dominion
hence there must be SPA but it can be argued that it
was made in the ordinary course of management, a
mere act of administration and therefore included in an
agency couched in general terms.

Doctrine of Implied Powers Flowing from Express

Powers

Grant of SPA must necessarily include all power implied

or incidental to such express powers, even if they
amount to acts of ownership or strict dominion.

EX. Agent granted authority to deal with the property of

the principal is deemed authorized to engage the
services of a lawyer to preserve the ownership and
possession of the properties of the principal if the
principal might or could have done it if personally
present.
Special Power of Attorney Excludes General Power of
Attorney Over the Matter Covered by the Special
Power of Attorney

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.

Villanueva: This article does not really cover GPA and

SPA but general agency and special agency. See in
Revocation

QUESTION: Does the grant of SPA (whether general or

special) exclude the power to execute all other acts of
administration? YES, because if the principal decides to
detail the powers he grants to the agent, then he means
to exclude all other powers of administration other than
those that are incidental to those specifically granted.

o
o

Generally speaking, the extent of the agents

authority depends upon the purpose of the
agency.
As between an agent and a principal, an act is
within the authority of the agent if it is not a
violation of his duty to the principal and it is
within his power if he has the legal ability to
bind the principal to a third person although the
act constitutes a violation of his duty to the
principal.
In fine, an agent with authority to do an act has
also the power to bind the principal, but the
latter may exist without the former.

When Principal Bound by Act of Agent

Requisites:
o
The agent must act within the scope of his
authority
o
The agent must act in behalf of the principal

Authority possess by agent Principal bound to actual or

apparent authority of agent
o
So long as the agent has actual authority,
express or implied, the principal is bound
whether third person believes or not that the
agent has actual authority
o
Under apparent authority, principal is liable only
as to third persons who have been led
reasonably to believe by the conduct of the
principal that such actual authority exists,
although none has been given
When a Person Not bound by Act of Another

When the agent acts without or beyond the scope of his

authority in the principals name

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 OF AGENT (Parang misplaced ang mga

Where acts in excess of authority more advantageous
articles na to; dont ask me bat dito assigned. Dahil hindi
to principal
ko alam. Hehe.)

The agent is not deemed to have exceeded the limits of

Art. 1881. The agent must act within the scope of his authority.hisHe
may doshould
such he
acts
as may
conducive
to the
authority
perform
thebe
agency
in a manner
accomplishment of the purpose of the agency.
more advantageous to the principal than that indicated
Art. 1882. The limits of the agent's authority shall not be considered
byexceeded
him, since he is authorized to do such acts as may be
more advantageous to the principal than that specified by him.
conducive to the accomplishment of the purpose of the
Authority
agency. This rule is evident equity.

The power of the agent to affect the legal relations of

the principal by acts done in accordance with the
CASE: Olaguer v. Purugannan (2007)
principals manifestation of consent to him. The

SUMMARY: Eduardo Olaguer was a stockholder of

authority of the agent is the very essence the sine qua
Businessday Corporation. He was also in active
non of the principal and agent relationshi
opposition against the Marcos dictatorship. According to

Source of authority is always the principal and never the

him, anticipating the possibility that he will be arrested
agent.
and detained by the Marcos military, he had an
unwritten agreement with Locsin etc that the latter
Authority vs. Power
would support his family in case he is arrested. He also
executed an SPA appointing them as attorneys-in-fact to
As to Existence
sell or transfer his shares. He now contends that the
o
While AUTHORITY and POWER are often
records failed to show that he gave his consent to the
synonymously
used,
the
former
maybe
sale of the shares to Locsin for the price of P600,000.
considered the source or cause, while the latter,

HELD: Olaguer received from Locsin, through his wife

the effect.
and in-laws, the installment payments for a total of
o
Thus, an agent granted authority by the
P600,000 from 1980 to 1982, without any protest or
principal has thereby the power to act for him,
complaint. It was only four years after 1982 when
which is taken to mean an ability on the part of
Olaguer demanded the return of the shares. Olaguers
the agent to produce a change in a given legal
claim that he did not instruct Locsin to deposit the
relation, by doing and not doing a given act.
money to the bank accounts of his in-laws fails to prove
o
The power of the agent is also the limitation
that Olaguer did not give his consent to the sale since
upon his ability to bind the principal only as to
Locsin was authorized, under the SPA, to
acts within his ACTUAL or APPARENT authority
negotiate the terms and conditions of the sale
As to Scope
including the manner of payment. Moreover, had
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 38

Locsin given the proceeds directly to the Olaguer, as the

latter suggested in this petition, the proceeds were likely
to have been included among Olaguers properties
which were confiscated by the military. Instead, Locsin
deposited the money in the bank accounts of Olaguers
in-laws, and consequently, assured that Olaguers wife
received these amounts. Also, he held on to the
proceeds of the sale after it had been made clear to him
that Locsin had considered the P600,000 as payment for
the shares, and asked Olaguer, through Fernando, to
endorse and deliver the stock certificates for
cancellation.

DOCTRINE:Article 1882 of the Civil Code provides that

the limits of an agents authority shall not be considered
exceeded should it have been performed in a manner
more advantageous to the principal than that specified
by him

The contract of agency, being a consensual contract, is

perfected by mere consent, or merely by the meeting
of the minds on the object (service: to enter into
juridical acts on behalf of the principal) and upon
consideration agreed upon, which primarily is a valuable
consideration or may be pure liberality.
In Lim v. CA, the Court noted that there are some provisions
of law which require certain formalities:
a. Form is required for validity
b. Required to make contract effective as against third
parties (1357 to 1358)
c. Required for the purpose of proving the existence of
the contract (Statute of Frauds)
In that case: Since a contract of agency to sell pieces of
jewelry does not fall into any of the three categories, it was
considered valid and enforceable in whatever form it may
have been entered into.

Perfection from the Side of the Principal

See 1869. An agency is constituted from the

principals acts formally adopting it, from his
silence or inaction or from his failure to
repudiate the agency knowing someone is
acting in his name.

Ideally: When principal issues a written power of

attorney to the person designated as agent;
HOWEVER there is no requirement that for agency
to arise the same must be in writing.
Perfection from the Side of the Agent

See 1870. The acceptance may be express or

implied or from his silence/inaction according
to circumstances.

Villanueva Notes: 1870 has no counterpart in the

Old CC; it may be considered a surplusage, and
misleading at worse. Why?
o against
There the
seems
to bewith
an whom
indication
that there
Art. 1883.If an agent acts in his own name, the principal has no right of action
persons
the agent
has
is such a thing as implied acceptance of the
contracted; neither have such persons against the principal.
appointment
on the part
From
In such case the agent is the one directly bound in favor of the person with whom
he has contracted,
asofif the
the agent.
transaction
were his own, except when the contract involves things belonging to the principal.a purely transactional POV, every act of the
agentbetween
in pursuance
of the and
agency
is never
The provisions of this article shall be understood to be without prejudice to the actions
the principal
agent.
implied, but always express, because the
requirement is that he must enter into a
Kinds of Principal
contract in the name of the principal.

DISCLOSED PRINCIPAL: IF at the time of the transaction

o
Also, there seems to be an indication in
contracted by the agent, the other party thereto has
1870 that there is such a thing as implied
known that the agent is acting for a principal and of the
acceptance of the appointment on the part
principals identity. This is the usual type of agency.
of the agent from his silence/inaction.

PARTIALLY DISCLOSED PRINCIPAL: If the other party

Since agency is essentially a

knows or has reason to know that the agent is or may
preparatory contract, it is hard to
be acting for a principal but is unaware of the principals
imagine that there is constituted a
identity. The PDP may enforce against the third person
contract of agency by mere silence
the contract of the agent like any disclosed principal.
or inaction of the agent.
Similarly, the third person has a right of action against

In fact, it is more likely that with

the principal.
the silence/inaction of the agent,

UNDISCLOSED PRINCIPAL: If a party has no notice of the

he
has
not
accepted
the
fact that the agent is acting as such for a principal
appointment.
o
HOWEVER, the presumptive rules on
Agency with Undisclosed Principal
implied
acceptance
do
serve
some

GENERAL RULE: Agent is directly liable to the third

commercial end:
persons

One who accepts an agency is from

o
No representation of the principal
that time on bound by the fiduciary
o
As if agent acts in his own name
duties of diligence and fidelity.

EXCEPTION: When the contract involves things

It would also be wrong for an agent

belonging to the principal
to take advantage of confidential
o
For the protection of 3rd persons against
information relayed to him by the
possible collusion between agent and principal
principal and later on claim that he

REMEDY: Principal to demand from agent damages

never accepted the appointment to
avoid liability.
A. PERFECTIONOF AGENCY(1873)
When principal bound by acts of agent beyond his
power

GENERAL RULE: Principal not bound by the acts of agent

beyond his limited powers; Third persons dealing with
an agent do so at their risk and are bound to inquire as
to the scope of his powers

EXCEPTIONS
o
Where principals acts have contributed to
deceive a third person in good faith
o
Where the limitations upon the power created
by him could not have been known by the third
person
o
Where the principal has placed in the hands of
the agent instruments signed by him in blank
o
Where the principal has ratified he acts of the
agent

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 39

Instances When there is Deemed to be Meeting of

Minds Between Principal and Agent
See 1871 and 1872.
1871. Describes the most ideal form evidencing the
perfection of the contract of agency: when both principal
and agent are physically present at the time of
perfection.

The acceptance may be implied if the principal

delivers the power of attorney and the agent
receives it without objection.
1872. Constitution made with the would be principal and
agent not being physically present in one place. There can
be no implied acceptance of the agency from the silence
and inaction of the agent, except:
a. When the principal transmits his power of
attorney to the agent who receives it without any
objection
b. When the principal entrusts to the agent 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.

DOCTRINE : Having given special notice regarding the

appointment of an agent to third persons, it was then the
duty of the principal to give due and timely notice to such
third persons regarding the termination of the agency.
Failing to do so, principal will be held liable to third parties
for whatever goods may have been in good faith and without
negligence sent to the agent without knowledge, actual or
constructive, of termination of such relationship

Note (Villanuevas Comment): General principle laid out

under 1872 of no implied acceptance except for two
circumstances is actually contrary to 1870 (Acceptance by
the agent may also beimplied fromhis silence or
inaction) According to Villanueva, it would be better that
1870 be deleted entirely.

CASE: Equitable PCI-Bank v. Ku(2001)

SUMMARY:
Litigation ensued between Rosita Ku and
Equitable. When CA ruled in favor of Rosita, Equitable filed a
motion for an extension of 30 days to file its petition for
review as it allegedly received the CA decision on April 25,
2000. However, Rosita argues that the petition is defective
because Bank actually received CA decision on April 24,
2000 when Joel Rosales, an employee of Banks law firm
received it from the Post office and thus Equitable should
have filed motion for extension on May 9, 2000 not May 10.
Equitable replied that Joel is not an agent of the bank as
expressly mentioned in his affidavit. HELD: Bank filed
petition beyond reglementary period. There was perfection
of the agency as Joel Rosales averred in his affidavit that on
occasions when I receive mail matters for said law office, it
is only to help them receive their letters promptly, implying
that counsel had allowed the practice of Rosales receiving
mail in behalf of the former. There is no showing that
counsel had objected to this practice or took steps to put a
stop to it. However, in the interest of justice, the petition
was still given due course.
DOCTRINE:

PERFECTION FROM SIDE OF PRINCIPAL: An agency may

be express but it may also be 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.

PERFECTION FROM
SIDE
OF
AGENT: Likewise,
acceptance by the agent may also be express,
although it may also be implied from his acts which
carry out the agency, or from his silence or inaction
according to the circumstances (Art. 1870).

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.
When principal specially informs another

Under 1873, when the principal informs another

person that he has given a power of attorney to a
third person (agent) the latter becomes a duly
authorized agent with respect to the person who
received the special information.

Implication: Even when in fact there has been no

meeting of the minds between the purported
principal and agent, there is deemed to have arisen
one with respect to the third party who has been so
informed by the principal in all contracts entered
into with the purported agent in the name of the
principal.
When principal states by public advertisement

The agent then becomes a duly authorized agent

with regard to any person.

Note: It is specifically provided that The power of

the agent shall continue to be in full force until the
notice is rescinded in the same manner in which it
was given.
CASE: Rallos v. Yangco(1911)
SUMMARY: Yangco informed Rallos that Collantes was his
agent so Rallos transacted with Collantes, acting as agent,
regarding the business of buying and selling of leaf tobacco
and other native product. Apparently, prior to last delivery of
tobacco, Yangco has already terminated his agency relation
with Collantes, unknown to Rallos. No notice of any kind was
given to Rallos. Yangco refused to pay Rallos on the ground
that pon time Collantes sold tobacco, he was acting
personally and not as his agent. SC held Yangco liable.

CASE: Conde v. Court of Appeals (1982)

Summary: The Condes (1) sold to the Alteras a 1 hectare
lot with right to repurchase within 10 years from 1938. In
1945, a document was signed by the Alteras son-in-law,
Cordero, stating that the Condes (1) have repurchased the
lot. Pio Altera sold the lot to Ramon and Catalina Conde (2).
Condes in their defense, allege that Cordero had no
authority to execute the document
SC/ DOCTRINE: An implied agency must be held to
have been created from their silence or lack of action,
or their failure to repudiate the agency within 24 years
wherein Condes (1) had possession over the property and
paid taxes.

CASE: Lim v. Court of Appeals (1996)

SUMMARY: Lim received 2 pieces of jewelry (ring +
bracelet) from Suarez for her to sell on commission basis.
She returned the bracelet but not the ring. Despite
demands, she claims that she returned both items. Suarez
filed a complaint for Estafa. SC: Lim is guilty of Estafa. They
entered into a contract to sell on commission basis. (Own
words and Logic ko na to: Contract/Agreement, evidenced
by a receipt establishes the obligations of parties. There is
no need for formalities to make it valid. Hence, it is binding
on the parties. The contract/agreement governs their
relationship. She is not authorized to return the ring to
Nadera. She is liable for it.)
DOCTRINE: There are some provisions of the law which
require certain formalities for particular contracts. The first is
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 40

when the form is required for the validity of the contract; the
second is when it is required to make the contract effective
as against third parties such as those mentioned in Articles
1357 and 1358; and the third is when the form is required
for the purpose of proving the existence of the contract,
such as those provided in the Statute of Frauds in Article
1403.
A contract of agency to sell on commission basis does not
belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into
B. PRESUMPTION
General Rule: Agency is not presumed

The relation between the principal and agent must

exist as a fact
o
It cannot be inferred from mere family
relationship
o
There must be consent by both parties

Where the relation of agency is dependent upon the

acts of the parties, the law makes no presumption of
agency, and it is always a fact to be proved w/ the
burden of proof resting upon the person alleging the
agency to show, not only the fact of its existence,
but also its nature an extent

Whatever statement or communications made by

the parties (supposed principal and agent) between
them, if anything appears contrary to their
intention, the latter will always prevail

Third parties must never take the words or

representation of the purported agent at face value.
Third parties can take the word, declaration or
representation of the principal
Exceptions: (from De Leon)

A presumption of agency may arise, in those cases

where an agency may arise by operation of law or
to prevent unjust enrichment
CASE: Lopez v. Tan Tioco
SUMMARY: Tioco bought sugar from Lopez. Accdg to Lopez,
she gave instructions to sell on Sept 29 04. She claims that
she could have the sold it on Dec 1 04, date complaint was
filed, and thus have a balance due on account worth
22,638.94 pesos, Mexican currency. Tioco, on the other hand
claims he received authority to sell on Mar 26 04. SC: The
correct basis is the market value of the 7,713.99 piculs of
sugar on Sept 29 04. The balance in favor of Lopez is to
8,712.53 pesos, Mexican currency. (In relation to Agency, SC:
No agency to sell on Mar 26 04, hence, it should not have
been sold that day.)
DOCTRINE:Where the plaintiff would be entitled to recover
on proof of the allegations of the complaint and the
defendant seeks to avoid the recovery by affirmative
allegations. The burden of proof as to such affirmative
allegations rests upon the defendant.
[Sec 297 of the Code of Civil Procedure: Each party must
prove his own affirmative allegations. Evidence need not be
given in support of a negative allegation except when such
negative allegation is an essential part of the statement of
the right or title on which the cause of action or defense is
founded, nor even in such case when the allegation is a
denial of the existence of a document the custody of which
belongs to the opposite party.]
The reason that he who alleges to be the creditor of another
is obliged to prove fact of agreement upon which his claims
founded, when it is contested; and that, on the other hand,
when the obligation is proved, the debtor who alleges that
he has discharged it is obliged to prove the payment, is
clearly one of those propositions in which every system of
jurisprudence must concur in general, whatever particular
rules may be adopted, as to the mode and form of the

allegations by which the necessity of such proof is to be

determined.
NOTE: General rule that Agency is not presumed applies.
CASE: People v. Yabut
SUMMARY: The Sps Yabut were charged w/ estafa for
issuing checks with insufficient funds in favor of Freeway
Tires Suply w/c did not have sufficient funds. They filed a
motion to quash which was granted. SC: MTQ was set aside.
The estafa charged is transitory or continuing in nature.
Deceit has taken place in Malolos, Bulacan, while the
damage in Caloocan City, where the checks were dishonored
by the drawee banks there. Jurisdiction can, therefore, be
entertained by either the Malolos court or the Caloocan
court. While the subject checks were written, signed, or
dated in Caloocan City, they were not completely made or
drawn there, but in Malolos, Bulacan, where they were
uttered and delivered. That is the place of business and
residence of the payee.
Modesto Yambao's receipt of the bad checks from Yabut/s in
Caloocan City cannot be licitly taken as delivery of the
checks to the. Andan at Caloocan City to fix the venue there.
There appears to be no contract of agency between Yambao
and Andan so as to bind the latter for the acts of the former.
Yambao is but her "messenger" or "part-time employee."
There was no special fiduciary relationship that permeated
their dealings. The place of business of the offended party,
the Freeway Tires Supply and Freeway Caltex Station, is at
Malolos, Bulacan, from where the tire and gas purchases
were made. Payment should be effected at Malolos, Bulacan.
The venue of the offense lies at the place where the check
was executed and delivered to the payee. CAB: it was in
Malolos, Bulacan where the checks were uttered and
delivered to Andan, at which place, her business and
residence were also located, the criminal prosecution of
estafa may be lodged there. The giving of the checks by the
Yabuts in Caloocan City to Yambo cannot be treated as valid
delivery of the checks, because Yambo is a mere
"messenger" or "part-time employee" and not an agent of
complaint Andan. The informations substantially conform
with the crimes charged as defined under the law. Modesto
Yambao is not an agent of Alicia Andan (so as the delivery of
the checks to Yambao was delivery to complainant)
DOCTRINE:
For a contract of agency to exist, the consent of both parties
is essential, the principal consent of both parties is essential,
the principal consents that the other party, the agent, shall
act on his behalf, and the agent consents so to act.
It must exist as a fact. The law makes no presumption
thereof.
The person alleging it has the burden of proof to show, not
only the fact of its existence, but also its nature and extent.
CASE: Harry E. Keeler Elec . Co. v. Rodriguez
SUMMARY:
Keeler sold a Matthews plant to the
Rodriguez through the efforts of Montelibano. Rodriguez paid
the purchase price to Montelibano without the knowledge of
the Keeler. Keeler filed an action for the payment of the
plant. SC: Montelibano was not authorized to receive the
payment and that Rodriguez made the payment to him at
his own risk. Outside of the fact that Montelibano received
the money and signed this receipt, there is no evidence that
he had any authority, real or apparent, to receive or receipt
for the money. Neither is there any evidence that the Keeler
ever delivered the statement to Montelibano, or authorized
anyone to deliver it to him
DOCTRINE:
Article 1162. Payment must be made to the persons in
whose favor the obligation is constituted, or to another
authorized to receive it in his name.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 41

Article 1727: The principal shall be liable as to matters with

respect to which the agent has exceeded his authority only
when he ratifies the same expressly or by implication.
Mechem on Agency, volume I, section 743: ON ASSUMED
AUTHORITY, there are certain fundamental principles which
must not be overlooked
(1) that the law indulges in no bare presumptions that an
agency exists: it must be proved or presumed from facts;
(2) that the agent cannot establish his own authority, either
by his representations or by assuming to exercise it;
(3) that an authority cannot be established by mere rumor
or general reputation;
(4) that even a general authority is not an unlimited one;
and
(5) that every authority must find its ultimate source in
some act or omission of the principal
An assumption of authority to act as agent for another of
itself challenges inquiry
Persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at
their peril, if they would hold the principal, to ascertain not
only the fact of the agency but the nature and extent of the
authority, and in case either is controverted, the burden of
proof is upon them to establish it
It is, moreover, in any case entirely within the power of the
person dealing with the agent to satisfy himself that the
agent has the authority he assumes to exercise, or to
decline to enter into relations with him
Person dealing with the agent must also act with ordinary
prudence and reasonable diligence. If he knows or has good
reason to believe that the agent is exceeding his authority,
he cannot claim protection. If the suggestions of probable
limitations be of such a clear and reasonable quality, or if
the character assumed by the agent is of such a suspicious
or unreasonable nature, or if the authority which he seeks to
exercise is of such an unusual or improbable character, as
would suffice to put an ordinarily prudent man upon his
guard, the party dealing with him may not shut his eyes to
the real state of the case, but should either refuse to deal
with the agent at all, or should ascertain from the principal
the true condition of affairs
Not only must the person dealing with the agent ascertain
the existence of the conditions, but he must also, as in other
cases, be able to trace the source of his reliance to some
word or act of the principal himself if the latter is to be held
responsible
An agent alone cannot enlarge or extend his authority by his
own acts or statements, nor can he alone remove limitations
or waive conditions imposed by his principal. To charge the
principal in such a case, the principal's consent or
concurrence must be shown
CASE: Bordador v. Luz
SUMMARY: Deganos bought jewelry from Bordador,
evidenced by 17 receipts, 6 of which were received for Luz,
his sister. Due to Deganos failure to pay the balance or
return the jewelry, Bordador sought to collect from him, Luz,
and her husband. SC: Neither an express nor an implied
agency was proven to have existed between Deganos and
Luz. She is not liable. It was negligent of Bordador to have
entrusted such to Degano on 6 occasions. The letters and
testimony of Luz do not aver that it is in connection with the
present transaction .The evidence does not support the
theory of Bordador that Deganos was the agent of Brigida D.
Luz as the latter clothed him with apparent authority as her
agent and held him out to the public as such, hence Brigida
can not be permitted to deny said authority to innocent third
parties who dealt with Deganos under such belief. While the
quoted statement in the findings of fact of the assailed
appellate decision mentioned that Deganos ostensibly acted
as an agent of Brigida, the actual conclusion and ruling of

the CA categorically stated that, (Luz) never authorized her

brother (Deganos) to act for and in her behalf in any
transaction with Bordador. no showing that Brigida
consented to the acts of Deganos or authorized him to act
on her behalf
DOCTRINE:
A person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent.
CASE: Dizon v. Court of Appeals
SUMMARY: Upon non-payment of rental, Dizons filed an
action for ejectment against Overland which was granted by
the City Court. Overland argues that it has exercised its
option to buy the land when it paid P300,000 to Alice,
Dizons agent, as partial payment for the land. Thus, it filed
an action for Specific Performance and Fixing of Period for
Obligation to compel the execution of a deed of sale
pursuant to the option to purchase and the receipt of the
partial payment, and to fix the period to pay the balance
which was dismissed by the RTC but was granted by the CA.
In a subsequent petition, CA also recognized the perfection
of the contract of sale between petitioners and Overland.
SC: No perfected contract of sale. Alice was not authorized
to accept such payment. There was no showing that the coowners authorized her to enter into a contract of sale with
Overland. Latter should have ascertained the extent of her
authority.
DOCTRINE: A co-owner does not become an agent of the
other co-owners, and therefore any exercise of an option to
buy a piece of land transacted with one co-owner does not
bind the other co-owners of the land. The basis for agency is
representation and a person dealing with an agent is put
upon inquiry and must discover upon his own peril the
authority of the agent. Since there was no showing that the
other co-owners consented to the act of one co-owner nor
authorized her to act on their behalf with regard to her
transaction with purported buyer, the most prudent thing
the purported buyer should have done was ascertain the
extent of the authority of said co-owner. Being negligent in
this regard, the purported buyer cannot seek relief on the
basis of a supposed agency. (AS cited in Villanueva)
The basis for agency is representation and a person dealing
with an agent is put upon inquiry and must discover upon
his peril the authority of the agent (Bordador vs. Luz).
Rule in dealing with an agent: Every person dealing with an
agent is put upon inquiry and must discover upon his peril
the authority of the agent. If he does not make such inquiry,
he is chargeable with knowledge of the agents authority,
and his ignorance of that authority will not be any excuse.
Persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at
their peril, if they would hold the principal, to ascertain not
only the fact of the agency but also the nature and extent of
the authority, and in case either is controverted, the burden
of proof is upon them to establish it. (Bacaltos Coal Mines
vs. CA)
NOTE: Inrelation toArticle 1873
C. AGENCY BY ESTOPPEL
Rule on agency by estoppel

One who clothes another with apparent authority as

his agent, and holds him out to the public as such,
cannot be permitted to deny the authority of such
person in good faith and in the honest belief that he
is what he appears to be
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 third persons interested
in the transaction in which he is engaged
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 42

Estoppel by principal:

As to agent: One who knows that another is acting

as his agent and fails to repudiate his acts, or
accepts the benefits of them, will be estopped to
deny the agency as against such other

As to sub-agent: to estop the principal from denying

his liability to a third person, he must have known or
be charged with knowledge of the fact of the
transaction and the terms of the agreement
between the agent and the sub-agent

As to third persons: 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

If the estoppel is on the ground of negligence or

fraud on the part of the principal, the agency is
allowed upon the theory that, when one of two
innocent persons must suffer loss, the loss should
fall upon him whose conduct brought about the
situation.
Estoppel of third persons

A third person, having dealt w/ one as an agent may

be estopped to deny the agency as against the
principal, agent or third person in interest

He will not be estopped where he has withdrawn

from the contract made with the unauthorized agent
before receiving any benefits thereunder
Estoppel by government:

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 officer s acting
w/in the scope of their authority
Applicability of the doctrine of apparent authority in
the field of hospital liability:

Where it can be shown that a hospital, by its

actions, has held out a particular physician as its
agent and/or employee and that the patient has
accepted treatment from the physician in the
reasonable belief that it is being tendered in behalf
of the hospital, then the hospital will be liable for
the physicians negligence.
A. Based on Statute:
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.
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.

Implied Agency vs Agency by Estoppel: in the

former, an actual agency exists. In the latter,
agency only exists with respect to a third person
who relied on the representations of the alleged
principal/agent.

Agency by estoppel is created to protect the

interests of a third person.

Agency by estoppel may be transformed into an

implied agency when the agent carries out the
agency, in which case the situation falls under CC
1870. Another case when agency by estoppel is
transformed into implied agency is when the alleged
agent is made aware of the info/advertisement and

he is silent/fails to act according to the

circumstances.
B. Based on Jurisprudence

Based on the general doctrine of estoppel.

Requisites (based on Litonjua vs Eternit case)

o
MANIFESTATION: The principal manifested a
representation of the agents authority or
knowingly allowed the agent to assume
such authority.
o
REPRESENTATION: Third person, in good
faith, relied upon such representation.
o
DETRIMENT: Third person changed his
position to his detriment.

Similar to doctrine of apparent authority (based on

US jurisprudence) which requires proof of reliance.
AGENCY BY ESTOPPEL
Existence of actual agency
No agency at all but one
assuming to act as agent
has apparent or ostensible,
although not real, authority
to represent another
Reliance by third persons
Reliance is necessary
Nature of Authority
An apparent agent has
none of the rights of an
agent, except where the
principals
conduct
or
representations are such
that the agent reasonably
believed that the principal
intended him to act as
agent in the matter
No agent at all
Proof
Restricted to cases where
authority is not real but
apparent

IMPLIED AGENCY

Apparent Authority
Definition
That which though not
actually
granted,
the
principal knowingly permits
the agent to exercise or
holds
him
out
as
possessing. It is founded in
the conscious permission of
acts beyond the power
Basis
Founded
on
conscious
permission of acts beyond
the powers granted

Authority by Estoppel

There is actual agency.

Principal alone is liable

Reliance is not necessary

Agent
has
an
actual
authority to act on behalf
of the principal
A real agent with all the
rights and liabilities

To
be
proved
from
deductions or interferences
from other facts

Where the principal, by his

culpable
negligence
permits
his
agent
to
exercise power not granted
to him even though, the
principal has no notice or
knowledge of the conduct
of the agent
Based on negligence of the
principal in failing properly
to supervise the affairs of
agent, allowing him to
exercise
powers
not
granted to him, and so
justifies others in believing
he possesses the requisite
authority

*NOTE: Accdg. to Maam, di raw compatible yung dalawa!

(Sure ako, ako nag-recite nito HAHA)
CASE: Macke v. Camps
SUMMARY: Flores, who appeared to be the agent of Camps
for the Washington Caf, ordered goods from Macke and Co.
The balance remained unpaid. Camps alleges Flores is not
his agent SC: Given the contracts, the title of managing
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 43

agent, and the fact that Flores appeared to be in-charge of

the business when Camps was at the province is sufficient to
sustain a finding that Flores was the agent Flores, as
managing agent had authority to buy such reasonable
quantities of supplies necessary in carrying on the business
may fairly be presumed from the nature of the business,
especially in view of the fact that his principal appears to
have left him in charge during more or less prolonged
periods of absence; he was acting within the scope of his
authority in ordering these goods acts are binding on his
principal
DOCTRINE: One who clothes another apparent authority as
his agent, and holds him out to the public as such, can not
be permitted to deny the authority of such person to act as
his agent, to the prejudice of innocent third parties dealing
with such person in good faith
"Whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief,
he can not, in any litigation arising out such declaration, act,
or omission, be permitted to falsify it" (subsec. 1, sec. 333,
Act no. 190);
Unless the contrary appears, the authority of an agent must
be presumed to include all the necessary and usual means
of carrying his agency into effect.
CASE; Naguiat v. Court of Appeals
SUMMARY: Naguiat granted a 200K loan to Queao.
Naguiat issued checks to constitute the proceeds of the
loan. As payment for the loan, Queao issued a Security
Bank check which was dishonored. After demands for
payment were made by Naguiats lawyer, there was a
meeting between Queao, Naguiat, and one Ruby
Reubenfeldt. In the said meeting, Queao said that she did
not receive the proceeds of the loan as Reubenfeldt,
allegedly Naguiats agent, retained the checks pending
Queaos delivery of additional collateral. (Note: Reubenfeldt
has previously acted as Naguiats agent in another loan
transaction involving Queaos friend; this is how Queao
and Naguiat met.) Naguiat now insists that Reubenfeldt was
not her agent and thus, her written representations do not
bind Naguiat. SC: there was agency by estoppel. The
existence of an agency relationship between Naguiat and
Ruebenfeldt is supported by ample evidence. Ruebenfeldt
was not a stranger or an unauthorized person. Naguiat
instructed Ruebenfeldt to withhold from Queao the checks
she issued or indorsed to Queao, pending delivery by the
latter of additional collateral. Ruebenfeldt served as agent of
Naguiat on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction that
Queao came to know Naguiat. It was also Ruebenfeldt who
accompanied Queao in her meeting with Naguiat and on
that occasion, on her own and without Queao asking for it,
Reubenfeldt actually drew a check for the sum of P220,000
payable to Naguiat, to cover for Queaos alleged liability to
Naguiat under the loan agreement. At the very least, as a
consequence of the interaction between Naguiat and
Ruebenfeldt, Queao got the impression that Ruebenfeldt
was the agent of Naguiat, but Naguiat did nothing to correct
Queaos impression.
DOCTRINE: One who clothes another with apparent
authority as his agent, and holds him out to the public as
such, cannot be permitted to deny the authority of such
person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the
honest belief that he is what he appears to be.
CASE: Litonjua, Jr. v. Eternit Corp.
SUMMARY: EC, a corporation, owned 90% of the stocks of
Belgian corporation ESAC. During the Marcos regime, ESAC
became concerned about the political situation of the

Philippines so it instructed EC to dispose of 8 parcels of land.

EC sought the services of a broker Marquez who found the
buyers Litonjua. Negotiations were made via telex, from
Marquezs offer to the buyers to the buyer and sellers
counter-proposal. The buyers eventually accepted the
counter-proposal so the broker communicated this
acceptance to an officer of EC who informed an officer of
ESAC. The buyers deposited the purchase price in a bank
and drafted an escrow agreement. However, when the
political scene in the Philippines improved, ESAC decided to
cancel the sale. Because of this, the Litonjuas demanded
payment of damages. ESAC refused, hence, the suit by the
Litonjuas. The primary issue in this case is the authority of
the broker, the officer of EC and the officer of ESAC to bind
the owner of the property, ESAC. If they didnt have
authority, then the Litonjuas have to bear their own
damages because of their negligent reliance on the
representation of the officers. If it is proven that they acted
with authority, ESAC will be liable for its cancellation of the
sale. The SC ruled that said people did not have the
authority to bind ESAC, absent any written authority or
resolution by its ESACs Board of directors through which,
the corporation acts. There was no agency by estoppel since
there was no proof. The transactions and communications
claimed to have ratified the agreement were never
submitted. (On the 1st factor of doctrine of apparent
authority) CMC impliedly held out Dr. Estrada as a member
of its medical staff. Through CMC's acts, CMC clothed Dr.
Estrada with apparent authority thereby leading the Spouses
Nogales to believe that Dr. Estrada was an employee or
agent of CMC. CMC cannot now repudiate such authority.
First, CMC granted staff privileges to Dr. Estrada. CMC
extended its medical staff and facilities to Dr. Estrada. Upon
Dr. Estrada's request for Corazon's admission, CMC, through
its personnel, readily accommodated Corazon and updated
Dr. Estrada of her condition. Second, CMC made Rogelio sign
consent forms printed on CMC letterhead. Prior to Corazon's
admission and supposed hysterectomy, CMC asked Rogelio
to sign release forms, the contents of which reinforced
Rogelio's belief that Dr. Estrada was a member of CMC's
medical staff. Third, Dr. Estrada's referral of Corazon's
profuse vaginal bleeding to Dr. Espinola, who was then the
Head of the Obstetrics and Gynecology Department of CMC,
gave the impression that Dr. Estrada as a member of CMC's
medical staff was collaborating with other CMC-employed
specialists in treating Corazon.
DOCTRINE:For an agency by estoppel to exist, the following
must be established:
(1) the principal manifested a representation of the agents
authority or knowingly allowed the agent to assume such
authority;
(2) the third person, in good faith, relied upon such
representation;
(3) relying upon such representation, such third person has
changed his position to his detriment.
An agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.
CASE: Nogales v. Capitol Medical
SUMMARY: Corazon, a pregnant woman, was under the
prenatal care of Dr. Estrada. She was found to have
condition which made her pregnancy dangerous. Upon labor,
Dr. Estrada advised that she be admitted to CMC. During
childbirth under the supervision of Dr. Estrada, Corazon died
of profuse bleeding. The family sued CMC and its personnel
for damages. SC: The hospital (principal) is liable for
negligent act of the independent contractor-physician
(agent) as the latter was considered by the SC as an
ostensible agent of the former. (Second factor) Spouses
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 44

Nogales relied upon a perceived employment relationship

with CMC in accepting Dr. Estrada's services. The Sps
specifically chose Dr. Estrada to handle Corazon's delivery
not only because of their friend's recommendation, but more
importantly because of Dr. Estrada's "connection with a
reputable hospital, the CMC." The Spouses Nogales looked to
CMC to provide the best medical care and support services
for Corazon's delivery. Prior to Corazon's fourth pregnancy,
she used to give birth inside a clinic. The Spouses Nogales
feared that Corazon might experience complications during
her delivery which would be better addressed and treated in
a modern and big hospital such as CMC. Rogelio's consent in
Corazon's hysterectomy to be performed by a different
physician, Dr. Espinola, is a clear indication of Rogelio's
confidence in CMC's surgical staff.
DOCTRINE:
In general, a hospital is not liable for the negligence of an
independent contractor-physician. There is, however, an
exception to this principle. The hospital may be liable if the
physician is the "ostensible" agent of the hospital. This
exception is also known as the "doctrine of apparent
authority."
Gilbert v. Sycamore Municipal Hospital: Under the doctrine of
apparent authority a hospital can be held vicariously liable
for the negligent acts of a physician providing care at the
hospital, regardless of whether the physician is an
independent contractor, unless the patient knows, or should
have known, that the physician is an independent
contractor. The elements of the action have been set out as
follows:
For a hospital to be liable under the doctrine of apparent
authority, a plaintiff must show that:
(1) the hospital, or its agent, acted in a manner that would
lead a reasonable person to conclude that the individual who
was alleged to be negligent was an employee or agent of
the hospital;
(2) where the acts of the agent create the appearance of
authority, the plaintiff must also prove that the hospital had
knowledge of and acquiesced in them; and
(3) the plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care and
prudence."
The element of "holding out" on the part of the hospital does
not require an express representation by the hospital that
the person alleged to be negligent is an employee. Rather,
the element is satisfied if the hospital holds itself out as a
provider of emergency room care without informing the
patient that the care is provided by independent contractors.
The element of justifiable reliance on the part of the plaintiff
is satisfied if the plaintiff relies upon the hospital to provide
complete emergency room care, rather than upon a specific
physician.
The doctrine of apparent authority essentially involves two
factors to determine the liability of an independentcontractor physician.
FIRST FACTOR
The first factor focuses on the hospital's manifestations and
is sometimes described as an inquiry whether the hospital
acted in a manner which would lead a reasonable person to
conclude that the individual who was alleged to be negligent
was an employee or agent of the hospital. In this regard, the
hospital need not make express representations to the
patient that the treating physician is an employee of the
hospital; rather a representation may be general and
implied.
The doctrine of apparent authority is a species of the
doctrine of estoppel.
Article 1431 of the Civil Code provides that "through
estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon."

Estoppel rests on this rule: "Whenever a party has, by his

own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true,
and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be permitted
to falsify it."
SECOND FACTOR
The second factor focuses on the patient's reliance. It is
sometimes characterized as an inquiry on whether the
plaintiff acted in reliance upon the conduct of the hospital or
its agent, consistent with ordinary care and prudence.
SUMMARY 2 elements that proved existence of agency by
estoppel:
1. (MANIFESTATION) Principal/agent acted in a manner that
would lead a reasonable person to conclude that the
individual is an employee/agent of the principal. (note:
express representation not necessary, mere failure to inform
the third person is sufficient)
2. (RELIANCE) Third person acted in reliance upon the
conduct of the principal and agent, concistent with ordinary
care and prudence.
III. Rights, Obligations and Liability of the Agent
A. Rights (Compensation, Appoint a Substitute,
Retain objects of agency and Lend/Borrow Money)

1. To Compensation
Art. 1875. Agency is PRESUMED to be for a COMPENSATION, unless
NOTES:
AGENCY: PRESUMED TO BE WITH COMPENSATION

Art. 1875 changes the rule in the Old Civil Code (Art.
1711) under which an agency was presumed to be
gratuitous. Hence, the agent does not have to prove
that the agency is for compensation.

The prima facie presumption that the agency is for

compensation may be contradicted by contrary
evidence.

According to Villanueva, the element of cause or

consideration in establishing a contract of agency is the
compensation or commission that the principal agreed
or committed to pay the agent for the latters services.
However, Casis says that compensation is not an
element of the agency contract. (mag-usap kayo please,
ano ba talaga mga kuya-hehehe)

There is obligatory force in a compensation clause

agreed upon in a contract of agency.

This emphasizes that as a commercial contract, agency

exhibits one of the 3 characteristic common to all
commercial contract, which is that of being customary
and equitable.
NECESSITY OF COMPENSATION

The relation of principal and agent can be created

although the agent receives no compensation.

Can agent forfeit his commission? YES, agency can be

gratuitous

Although agency contracts are primarily onerous, a

person who agrees to act as an agent without
compensation is a gratuitous agent. However, it is the
burden of the party who avers that the agency was
gratuitous, that the agent agreed to serve gratuitously,
who has the burden of proving such contract.

Ordinarily, the promise of a gratuitous agent to perform

is not enforceable. He is however, bound by his
acceptance to carry out the agency. (Art. 1884, par. 1)

The fact that he is acting without compensation has no

effect upon his rights and duties with reference to the
principal and to third parties. However, the
circumstance that the agency was for compensation or
not, shall be considered by the court in determining the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 45

extent of liability of an agent for fraud or for negligence.

(Art. 1909)
The principal is liable for the torts of the gratuitous
agent.

RIGHT OF AGENT TO COMPENSATION (LIABILITY OF

PRINCIPAL TO PAY COMPENSATION)

(1) AMOUNT The principal must pay the agent the

compensation AGREED upon, or the REASONABLE VALUE
of the agents services if no compensation was
specified.
o
GENERAL RULE: Pay in accordance with the
terms agreed upon
o
EXCEPTION: If no particular formula agreed
upon

Principal shall pay only on the legal

basis that the agent has complied with
his obligations with the principal

Reasonable value of the agents

services (what the market customarily
pays as stated by Villanueva)

(2) COMPLIANCE BY AGENT WITH HIS OBLIGATIONS

The liability of the principal to pay commission
presupposes that the agent has complied with his
obligation as such to the principal. (See heading when
entitled to commission) Procuring cause; successful
efforts

(3) EVASION OF COMMISSION IN BAD FAITH Principal

cannot evade the payment of commission agreed upon
by inducing agent to sign a deed of cancellation of
written authority on the ground that she was no longer
interested in the deal. Such act is unfair as would
amount to bad faith, and cannot be sanctioned w/out
according to the agent the compensation which is due
him. (Infante v Cunanan)

(4) COMPENSATION CONTINGENT ON PROFITS: Where

the compensation is contingent or dependent upon the
realization of profit, the agent is not entitled to
compensation until the principal realizes the profit, and
there is no profit as yet, through the mere signing of the
contract of sale.

(5) REDUCTION BY PRINCIPAL OF OVERPRICE: If principal

agreed to give agent a commission equivalent to the
overprice and principal accepted a lower price, he
cannot be liable for the whole of the overprice as
commission in the absence of bad faith, fraud or fault on
his part. He would be liable for the difference if he
accepted the reduced price to PREJUDICE the agent.

(6) COMMISSION PAYABLE BY OWNER OF PROPERTY

SOLD: In a sale or real property where a commission is
payable to the agent, it is the owner and not the buyer
who must pay.

(7) GRANT OF COMPENSATION ON EQUITABLE GROUND:

See Pratts v CA where the agent was granted
compensation for diligent steps to bring together the
principal and the buyer on the basis of EQUITY

(8) RIGHT OF AGENTS COMPANION TO COMPENSATION:

Where there was no understanding, express or implied,
between the P & A that no part of the compensation to
which the latter is entitled to receive can be paid to an
companion or helper of his and there is no prohibition
in law against the employment of a companion to look
for a buyer of the principals land nor is it against public
policy such companion or helper is entitled to
compensation and may, therefore, be joined with the
agent as party to a case against the principal never
dealt, directly or indirectly with such companion or
helper.

(9) TERMINATION OF AGENCY CONTRACT: Where no time

for the continuance of the contract is fixed by its terms,

either party is at liberty to terminate it at will, subject

only to the ordinary requirements of good faith (Danon v
Brimo).
(10)
VALIDITY
OF
EXCLUSIVE
SALES
AGENCY
AGREEMENT: An exclusive sales agency agreement
providing that during the continuance of the agreement,
the broker is entitled to the commission irrespective as
to whether the property is sold by the broker, the seller,
or a third party without the aid of the broker and that for
a period of 3 months ff its expiration, the broker may
still be entitled to the commission if the property were
sold by the seller to a purchaser to whom it was
submitted by the broker during the continuance of such
agency without notice to the seller has been upheld as
not contrary to law, good customs, or public policy.
o
Such agreement aims to pin down the seller to
his obligation to give what is due to his broker
for his efforts during the life of the agency. It
seeks to prevent bad faith among calculating
customers to the prejudice of the broker
particularly when the negotiations have reached
that stage where it would be unfair to deny the
broker his commission just because the sale
was effected after the expiration of the brokers
contract.
(11) SALE THROUGH ANOTHER AGENT: Where, however,
no definite period was fixed by the principal within
which the broker might effect the sale of the principals
property nor was he given by the principal the exclusive
agency on such sale, it was held that the broker cannot
complain of the principals conduct in selling the
property through another agent before the brokers
efforts were crowned with success for one who has
employed a broker can himself sell the property to a
purchaser whom he has procured, without any aid from
the broker.

RIGHT OF AGENT TO COMPENSATION IN CASE OF

DOUBLE AGENCY

An agent acting at once for both contracting parties (ie.

vendor, vendee) assumes a DOUBLE AGENCY.

GEN RULE: Double agency is disapproved by law; thus

agent cannot recover compensation

EXCEPTIONS: Agent may recover compensation if: (1) he

acted with full knowledge and free consent of both
principals OR (2) his employment was merely to bring
the parties together
If WITH knowledge of BOTH principals: RECOVERY OF
COMPENSATION

Recovery of agent may be had. No public policy or

principle of sound morality is violated by contracts of
double agency where all the principals have knowledge
and consented.

However, it is necessary that it should appear that

knowledge of every circumstance connected with his
employment by either party should be communicated to
the other, insofar as the same would naturally affect his
action, and when it is done, the right of such agent to
compensation cannot be denied on any just principle of
morals or of law.

KEY: Fully informing both parties.

If WITHOUT knowledge of BOTH principals: NO
RECOVERY OF COMPENSATION

In law, as in morals, as a principle, no servant can serve

2 masters for either he will hate the one and love the
other, or else he will hold to the one and despise the
other.

FOR FIRST PRINCIPAL: Unless the principal contracts for

less, the agent is bound to serve him with all his skill,
judgment and discretion. By engaging the second, agent
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 46

forfeits his right to compensation from the one who first

employed him.

FOR SECOND PRINCIPAL: Agent, if he does not in fact

disable himself from rendering to the first employer the
full quantum of service contracted for, at least tempts
himself not to do so. And for the same reason, he cannot
recover from the 2nd employer, who is ignorant of the 1st
agreement
If WITH knowledge of ONE principal: LAW WILL LEAVE
THEM AS IT FINDS THEM

If the 2nd employer has knowledge of the 1 st

engagement, then both he and the agent are guilty of
wrong committed against the 1 st employer, and the law
will not enforce an executory contract entered into in
fraud of the rights of the 1st employer.

It is no answer to say that the 2 nd employer having

knowledge of the 1st employment should be liable on his
promise, because he could not be defrauded in the
transaction. The contract itself is VOID as against public
policy and good morals, and both parties thereto being
in PARI DELICTO, thelaw will leave them as it finds
them.
WHEN ENTITLED TO COMMISSION

The extent and the manner by which the agent is

entitled to the receive compensation or commission is
based on the terms of the contract or the meeting of
minds between the principal and the agent. If not clear,
the court may deal with the issue of whether the agent
has merited the right to compensation either as
stipulated or implied from the contract.
o
IF rendering of service alone and not the
results, is the primordial basis for which the
compensation is given, then the proof that the
services have been rendered should entitle the
agent to the compensation agreed upon.
o
IF the nature of service to be compensated is
understood to be based on the results to be
achieved, ie. that a particular contract with a 3 rd
party is entered into in behalf of the principal,
then mere rendering of service without
achievement of the results agreed upon would
not entitle the agent to compensation agreed
upon.

It is sufficient that the agent set the sale in motion.

(Tan v. Gullas) To deprive the agent of his commission
subsequent to the sale which was consummated
through his efforts would be a breach of his agency
contract (Lim v.Saban).

GENERAL RULE:

TO BE ENTITLED TO A COMMISSION: Agent must be the

procuring cause of the sale, which simply means
that the measures employed by him and the efforts he
exerted must result in a sale (Damon vs. Brimo & Co).

In other words, an agent receives his commission only

upon the successful conclusion of a sale (Hanh vs.
CA). Conversely, it follows that where his efforts are
unsuccessful, or there was no effort on his part, he is
not entitled to a commission.

Procuring cause
o
a cause originating from a series of events
which, without breaking their continuity, result
in the accomplishment of the prime objective of
the employment of the brokerproducing a
purchaser ready, willing, and able to buy on the
owners
terms
(Philippine
Health
TCare
Providers v. Estrada)
o
must have been the foundation on which the
negotiations resulting in a sale began

procuring cause
agents

as regards brokers and

BROKERS
Bringing the buyer and seller together sufficient to be entitled
to commission
set the sale in motion
Penetrated the market, laid the groundwork
Efforts were the foundation of negotiations
EXCEPTIONS:
(1)
Wheredespite
unsuccessful
efforts/expiration
of
authority, the agent is still entitled to commission/payment:

Prats vs. CA: SC held that for the purpose of EQUITY, an

agent who is not the efficient procuring cause is
nonetheless entitled to a sum by way of compensation,
where said agent, notwithstanding the expiration of his
authority, nonetheless, took diligent steps to bring
back together the parties, such that a sale was
finalized and consummated between them.
Manotok Brothers vs. CA: Where the Deed of Sale was
only executed after the agents extended authority had
expired, SC, applying its ruling in Prats, held that the
agent (in Manotok) is entitled to a commission since
he was the efficient procuring cause of the sale,
notwithstanding that the sale took place after his
authority had lapsed. The proximate, close, and
causal connection between the agents efforts
and the principals sale of his property cannot be
ignored.
o
Note: Sir Casis says that this is the best way to
determine whether an agent is entitled to
commission or not.
o
What is crucial is the effect of the agents
efforts on the sale, not whether such sale was
consummated within the period of the authority
of the agent.
Infante v Cunanan: Where the principal, in order to
escape payment of the commission agreed upon, made
the agents sign a Deed of Cancellation of their agency
contract SC held that an agent is entitled to payment of
commission even if there was valid withdrawal of the
authority to sell if such withdrawal was a ruse to escape
the payment of the commission agreed upon.
(2) Forfeiture of right - Where despite successful efforts, the
agent is not entitled to commission:

Domingo v. Domingo: Buyer gave agent a tip for

convincing principal to reduce price of land being sold;
agent did not tell principal about the tip. Principal went
directly to buyer and negotiated the sale with agent out
of the picture. Agent found out and demanded
commission per terms of agency agreement, which
principal tore into pieces. SC held that the nondisclosure by the agent of the tip was a fraudulent act
violative of the agency agreement. Agent violated his
obligations to the principal and committed fraudulent
acts against the principals interest, thus, he forfeits the
right to compensation.
Problem:
A is a well known lawyer who works pro bono for the poor. P
hired A to represent him in a labor dispute (illegal
dismissal).P lost. When A sent the bill, P refused to pay. Is A
entitled to compensation? YES - cite Art.1875presumed to
be for compensation.
Problem:
Peter authorized Ana in writing to sell Peters land for
P1million. The agency would expire one month from Jan.1.
On Jan. 15, Ana found Tim ready, willing and able to buy the
land. Peter said that he would think it over first. The sale
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 47

AGEN
Succe
comm
Effort

pushed through on Feb.28. Peter refused to pay commission.

Is Ana entitled to commission? YES-cite Philippine Health
TCareProviders
v.
Estrada,
Sanchez
v.
Medicard,
Manotokv.CAprocuring cause, set the sale in motion, causal
connection
Problem:
Pong executed an SPA authorizing Aster to sell his lot for
P2million. Aster found Tess. Tess gave Aster P5,000 as a
gift. Is Aster entitled to commission? NO-cite Domingo v.
Domingo
What if Tess paid Pong P2.5m? still NO, It doesnt affect the
gift Aster received.
EXAMPLES OF GENERAL RULE
CASE: Inland Realty v. CA (1997)
SUMMARY: Araneta authorized Inland as its broker in the
sale of 9800 shares of stock of Architect Bldg for P1500 per
share. Inland informed Araneta of Standfords offer to buy
the shares of stocks for P1000. Araneta asked Inland to
negotiate for a better price but the agency expired without
the sale being consummated. The sale was consummated 1
year and 5 months after the expiration of the agency for
P13.5M (more than P1000/share). Now, Inland is claiming
from Araneta its commission. Araneta refused on the ground
that Inland abandoned the transaction immediately after its
agency expired and that it has no participation in the
haggling, the consummation of the sale and preparation of
documents. TC ruled in favor of Araneta. CA took notice of
the lapse of time from expiration of agency to
consummation of sale thus ruling for Araneta.
HELD: SC affirmed CA ruling. The period from the expiration
of the agency to the consummation of the sale (which is in
this case 1 year and 5 months) may be viewed as an
evidence of the lack of the agents involvement in the
negotiation between the buyer and the seller. Inland Realty
were not the efficient procuring cause in bringing about
the sale in question on July 8, 1977 and are, therefore, not
entitled to the stipulated broker's commission of "5% on the
total price."
DOCTRINE: When the acts of the broker were not the
efficient procuring cause in bringing about the sale, he is not
entitled to the commission.
CASE: Danon v. Brimo & Co. (1921)
SUMMARY:Brimo and Co., through its manager Antonio A.
Brimo, employed Julio Danon to look for a purchaser of its
factory known as Holland American Oil Co. for P1,200,000
payable in cash. Brimo and Co. promised to pay the plaintiff,
as compensation for his services, a commission of 5% on the
P1,200,000, if the sale was consummated, or if the plaintiff
should find a purchaser ready, able and willing to buy said
factory for the said sum of P1,200,000. Another broker,
Sellner, was also negotiating the sale, or trying to find a
purchaser for the same property. Subsequently, Danon found
a purchaser w/c was the president of the Santa Ana Oil Mill,
a corporation, and offered to sell the property at P1.2M. Sta
Ana inspected the property and asked for an appointment
with Mr. Brimo to perfect the negotiation. In the meantime,
Sellner, the other broker referred to, had found a purchaser
for the same property, who ultimately bought it for P1.3M.
Sta. Ana never came to see Mr. Brimo to perfect the
proposed negotiation.
However, Brimo and Co. refused to sell the factory without
any justifiable motive or reason and without having
previously notified Danon of its desistance or variation in the
price and terms of the sale. Brimo interposed a general
denial. TC rendered judgment in favor of Danon.
HELD: Danon is not entitled to the commissions agreed
upon because he had no intervention in the sale in question.
No definite period was fixed by Brimo and Co. within which

Danon might effect the sale of its factory. Nor was Danon
given by Brimo and Co. the exclusive agency of such sale.
Therefore, Danon cannot complain of the companys conduct
in selling the property through another agent before the
plaintiff's efforts were crowned with success. Danon has no
proof of authority to sell. The most that can be said as to
what Danon accomplished is that he had found a person
who might have bought the factory if the company had not
sold it to someone else. The evidence does not show that
the Santa Ana Oil Mill had definitely decided to buy the
property in question at the fixed price of P1.2M. Danon
cannot recover anything. His action is not one for damages
for breach of contract; it is an action to recover "the
reasonable value" of services rendered. His "services" did
not any way contribute towards bringing about the sale of
the factory in question. He was not "the efficient agent or
the procuring cause of the sale."
DOCTRINE:

The broker must be the efficient agent or the procuring

cause of sale. The means employed by him and his
efforts must result in the sale. He must find the
purchaser, and the sale must proceed from his efforts
acting as broker. The duty assumed by the broker is to
bring the minds of the buyer and seller to an agreement
for a sale, and the price and terms on which it is to be
made, and until that is done his right to commissions
does not accrue.

It follows, as a necessary deduction from the established

rule, that a broker is never entitled to commissions
for unsuccessful efforts. The risk of a failure is wholly
his. The reward comes only with his success. That is the
plain contract and contemplation of the parties.

The broker may devote his time and labor, and expend
his money with ever so much of devotion to the interest
of his employer, and yet if he fails, if without effecting
an agreement or accomplishing a bargain, he abandons
the effort, or his authority is fairly and in good faith
terminated, he gains no right to commissions. He loses
the labor and effort which was staked upon success. And
in such event it matters not that after his failure, and
the termination of his agency, what he has done proves
of use and benefit to the principal. In a multitude of
cases that must necessarily result.

He may have introduced to each other parties who

otherwise would have never met; he may have created
impressions, which under later and more favorable
circumstances naturally lead to and materially assist in
the consummation of a sale; he may have planted the
very seed from which others reap the harvest; but all
that gives him no claim. It was part of his risk that
failing himself, not successful in fulfilling his obligation,
others might be left to some extent to avail themselves
of the fruit of his labors.

The principal violates no right of the broker by selling to

the first party who offers the price asked, and it matters
not that sale is to the very party with whom the broker
had been negotiating. He failed to find or produce a
purchaser upon the terms prescribed in his employment,
and the principal was under no obligation to wait longer
that he might make further efforts. The failure therefore
and its consequences were the risk of the broker only.

LIMITATION: If the efforts of the broker are

rendered a failure by the fault of the employer; if
capriciously he changes his mind after the purchaser,
ready and willing, and consenting to the prescribed
terms, is produced; or if the latter declines to complete
the contract because of some defect of title in the
ownership of the seller, some unremoved incumbrance,
some defect which is the fault of the latter, then the
broker does not lose his commissions.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 48


No one one can avail
himself of the nonperformance of a condition
precedent, who has himself occasioned its
nonperformance.

Where no time for the continuance of

the contract is fixed by its terms either party is at
liberty to terminate it at will, subject only to the
ordinary requirements of good faith.

Usually the broker is entitled to a fair and

reasonable opportunity to perform his obligation, subject
of course to the right of the seller to sell independently.

But having been granted him, the right of

the principal to terminate his authority is absolute and
unrestricted, except only that he may not do it in bad
faith, and as a mere device to escape the payment of
the broker's commissions.

Thus, if in the midst of negotiations

instituted by the broker, and which were plainly and
evidently approaching success, the seller should revoke
the authority of the broker,with the view of concluding
the bargain without his aid, and avoiding the payment
of commission about to be earned, it might be well said
that the due performance his obligation by the broker
was purposely prevented by the principal.

But if the principal acts in good faith, not

seeking to escape the payment of commissions, but
moved fairly by a view of his own interest, he has the
absolute right before a bargain is made while
negotiations remain unsuccessful, before commissions
are earned, to revoke the broker's authority, and the
latter cannot thereafter claim compensation for a sale
made by the principal, even though it be to a customer
with whom the broker unsuccessfully negotiated, and
even though, to some extent, the seller might justly be
said to have availed himself of the fruits of the broker's
labor.

The undertaking to procure a purchaser

requires of the party so undertaking, not simply to name
or introduce a person who may be willing to make any
sort of contract in reference to the property, but to
produce a party capable, and who ultimately becomes
the purchaser.

"One who has employed a broker can

himself sell the property to a purchaser whom he has
procured, without any aid from the broker."
CASE: People v. Castillo (2000)
SUMMARY: This is an appeal before the SC of RTCs
conviction for kidnapping for ransom and illegal possession
of firearms. Victim was Wilhelmina Andrada who was
engaged in real estate business. The accused perpetrated
the crime by initially pretending to be a buyer of a house
Wilhelminas agency had for sale. SC affirmed their
convictions.
HELD: SC noted that when "Albert Gutierrez" called
Wilhelmina to inquire about the house for sale, he never
mentioned that he was referred by either of the agents
Castillos. This is suspicious. Common practice is for a buyer
to inform the seller who referred him. Likewise, agents
working on commission basis will not normally pass up a
commission by not informing their principal of a referred
buyer.
CASE: Sanchez v Medicard (2005)
SUMMARY: Sanchez was the special corporate agent of
Medicard for health insurance. Through his efforts, Medicard
and Unilab executed a 1 Yr-Health Care Program Contract.
This was renewed and for both times, he was given a
commission. Prior to contracts expiration, Medicard
proposed a premium increase to Unilab w/c latter rejected.

Medicards Pres. requested Sanchez to reduce his

commission but he refused. Thus, Medicards officers
discussed with Unilab ways to continue insurance coverage
of its employees w/c culminated to a new contract/scheme
and for which Sanchez was not given a commission. He
claims this commission now thru this action.
HELD: Since Sanchez refused to reduce his commission,
Medicard directly negotiated with Unilab, thus revoking its
agency contract with Sanchez. This revocation is valid.
Sanchez did not render services to Medicard, his principal, to
entitle him to a commission. No showing that he exerted
effort in order for Unilab and Medicard, after the expiration
of the Health Care Program Contract, to renew it for the third
time. His refusal to reduce his commission constrained
Medicard to negotiate directly with Unilab. No reason in law
or in equity to rule that he is entitled to a commission. He
was not the agent or the procuring cause of the third
Health Care Program Contract between Medicard and
Unilab.
DOCTRINE: In order for an agent to be entitled to a
commission, he must be the procuring cause of the sale,
which simply means that the measures employed by him
and the efforts he exerted must result in a sale. In other
words, an agent receives his commission only upon the
successful conclusion of a sale. Conversely, it follows that
where his efforts are unsuccessful, or there was no effort on
his part, he is not entitled to a commission.
EXAMPLES OF EXCEPTIONS
CASE: Infante v. Cunanan (1953)
SUMMARY: Infante entered into an agreement whereby
defendants would sell the property for 5% commission.
Defendants introduced Infante to buyer Noche. Infante
manifested that she was no longer willing to sell and
cancelled the defendants authority to do so to which the
defendants agreed. Subsequently, Infante dealt w/ Noche
directly. Defendants sued for their commission arguing that
they agreed to cancel merely upon the verbal assurance
that, should the property be sold to their own buyer, they
would be given the commission.
HELD: SC held that although Infante may validly withdraw
the authority to sell, she acted in bad faith and must pay
commission originally agreed upon.That Infante had
changed her mind even if respondents had found a buyer
who was willing to close the deal, is a matter that would not
give rise to a legal consequence if respondents agree to call
off the transaction in deference to the request of the
petitioner. But the situation varies if one of the parties takes
advantage of the benevolence of the other and acts in a
manner that would promote his own selfish interest. This act
is unfair as would amount to bad faith. This act cannot be
sanctioned without ac-cording to the party prejudiced the
reward which is due him. This is the situation in which
respondents were placed by petitioner. Infante took
advantage of the services rendered by respondents, but
believing that she could evade payment of their commission,
she made use of a ruse by inducing them to sign the deed of
cancellation. This act of subversion cannot be sanctioned
and cannot serve as basis for Infante to escape payment of
the commission agreed upon.
DOCTRINE: An agent is entitled to payment of commission
even if there was valid withdrawal of the authority to sell if
such withdrawal was a ruse to escape the payment of the
commission agreed upon.
CASE: Pratts v. Court of Appeals (1978)
SUMMARY: This is a petition for certiorari to review the
decision of CA, dismissing Prats case for recovery of sum of
money. Doronilla wishes to sell property to SSS but failed to
consummate such sale. Prats was then given an exclusive
option and authority in writing to negotiate the sale of
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 49

Doronilla's Montalban lot. However, the sale to SSS was

finalized and consummated only after the expiration of the
exclusive option. Doronilla was ordered in the RTC to pay
Prats P1.380M based on an alleged exclusive option and
authority to negotiate the sale of Doronillas property. CA
reversed.
HELD: SC said that there was no evidence that shows that
Prats was the efficient procuring cause in bringing about the
sale, hence he is not entitled to the commission which was
awarded by the RTC. However, he was awarded an amount
in the interest of equity.
CASE: Manotok Bros. Inc. v. Court of Appeals (1993)
SUMMARY: Saligumba brokered a sale for Manotok Brothers
with the City of Manila. The ordinance for the appropriation
of funds for the sale was approved by the city after several
extensions of Saligumbas authority, but the mayor was able
to sign the documents 3 days after the expiry of the same.
Manotok refused to pay Saligumbas commission.
HELD: Saligumbas case was within the exception. He was
entitled to his commission since there was a causal
connection between his efforts and the consummation of the
sale. The characterization of an agent as the procuring
cause should not be based on whether the sale is
consummated within the period of authority of the agent.
Time period may be taken into account; however, if the
agency contract specifically stipulated that the deed of sale
be executed within an agreed time period.

Art. 1892 has reversed the old Civil Code which provided
that without express power to do so, an agent is without
authority to appoint a substitute.
Discussion here is really different from the three authors
so remember Maam agrees with Sir Casis. HAHA.
Anyway, De Leons comments are on the assumption
that the substitute granted by Art. 1892 can be a subagent, that is, an agent of the agent (he even defines it
as delegation) and a substitute of the agent while Sir
Casis argues that it only grants a substitute of the
principal or an alternate agent and not agent of agent
which involves delegation (see letter d.); Villanueva is
confused because he thinks principal can be held liable
under sub-agency contract but critics Baltazar v
Ombudsman as erroneous when it ruled that there can
be no delegation of the agency and that 2 nd agent has
no privity of contract with former.

a. When Allowed

Law presumes that agent is allowed to appoint a

substitute unless principal has prohibited agent from
doing so. If a principal does not want any other person
acting on his behalf, he must prohibit agent from doing
so.

b. Responsibility for the acts of substitute

GENERAL RULE (Principal is responsible for acts of
substitute): When the agent VALIDLY appoints a substitute
(Substitution authorized).
CASE: Domingo v. Domingo (1971)
o
If in the contract of agency, the agent is given
SUMMARY: Buyer gave agent a tip for convincing principal
the power to appoint a substitute and he validly
to reduce price of land being sold; agent did not tell principal
appoints a substitute, the substitute becomes
about the tip. Principal went directly to buyer and negotiated
an agent of the principal.
the sale with agent out of the picture. Agent found out and

REASON: There is privity between the

demanded commission per terms of agency agreement,
principal and sub-agent
which principal tore into pieces. The
o
If
the
substitute
is the person designated by the
HELD: Non-disclosure by the agent of the tip was a
principal
fraudulent act violative of the agency agreement. According

EFFECT: Absolute exemption of the

to the SC: [The law] demand[s] the utmost good faith,
agent.
fidelity, honesty, candor and fairness on the part of the
o
De Leon submits the idea that if a person is
agent, the real estate broker in this case, to his principal,
given authority to appoint whomever but
the vendor. The law imposes upon the agent the absolute
principal did not designate who to appoint (no
obligation to make a full disclosure or complete account to
express power), it releases the agent from his
his principal of all his transactions and other material facts
responsibility UNLESS substitute appointed is
relevant to the agency, so much so that the law as amended
notoriously incompetent or insolvent (2 nd
does not countenance any stipulation exempting the agent
scenario).
from such an obligation and considers such an exemption as
EXCEPTIONS (Agent becomes responsible for substitutes
void. The duty of an agent is likened to that of a trustee.
acts):
This is not a technical or arbitrary rule but a rule founded on

FIRST SCENARIO: When the agent appoints a

the highest and truest principle of morality as well as of the
substitute WITHOUT having the POWER to do so
strictest justice. Since Vicente did not know of the propina,
o
1st: Substitution prohibited/Agent appoints
and more so because he had no contract with the former,
despite prohibition
Purisima cannot recover from him. Gregorio is solely liable to

Follows from the rule that an agent is

Purisima for the one-half share in the 5% commission
because the sub-agency contract was between Gregorio and
empowered to appoint a substitute as
Purisima. Since Gregorio received PhP300 from Vicente and
long as there is no prohibition.
PhP1000 from de Leon, he must pay Purisima PhP650 (half
o
2nd:
Substitution
not
authorized,
not
of what he received).
prohibited/Agent appoints without express
DOCTRINE: An agent who violates his obligations to the
authority of principal (friends magulo talaga
principal and commits fraudulent acts against the principals
yung part na to, pa-recheck na lang)
interest forfeits the right to compensation.

WHY? Because even without authority,

a person can appoint a substitute if
2. To appoint a substitute
principal did not prohibit. Substitute
Art. 1892. The agent may appoint a substitute IF the principal has NOT PROHIBITED
doing so;
he shall
be
doeshim
notfrom
become
the but
agent
of the
RESPONSIBLE for the acts of the substitute:
principal. However, principal is still
(1) When he was NOT GIVEN THE POWER to appoint one;
protected because agent will be
(2) When he was GIVEN SUCH POWER, but without designating the person, and responsible
the person appointed
for the was
actsnotoriously
of the
incompetent or insolvent.
substitute.
All acts of the substitute appointed against the prohibition of the principal shall
VOID. (1721)
be
HOWEVER,
De Leon posits the idea that
NOTES:
if the agent appoints a substitute when
he was not given the power to appoint
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 50

one, the law recognizes the validity of

the substitution if the same is
BENEFICIAL to the principal because
the agency has thus been executed in
fulfillment of its object. (See problem)

If the substitution has occasioned

damage to the principal, agent is
primarily responsible as if he executed
them. (Serona v CA)

Principal also has a right of action

against the substitute.

SECOND SCENARIO: When the agent is GIVEN THE

POWER to appoint one WITHOUT DESIGNATING THE
PERSON he can appoint, yet he appoints a substitute
who is notoriously incompetent or insolvent
o
Two requisites:
1. the agent is given the power to appoint but
without designating the person to appoint

could mean that the authority granted

did not identify a specific person to
appoint
2. the agent appoints as substitute someone
who is notoriously incompetent or insolvent

not clear from the provision if the

notoriety refers to both incompetence
and insolvency

may be sufficient to show that the

person appointed has a history or
record of failures in previous business
ventures similar
to what he
was
appointed to as substitute

REASON: Abuse by the agent of

principals confidence.

EFFECT: The principal may proceed

against both the agent and the
substitute for DAMAGES he may have
suffered.
Problem:
Perry executed an SPA in favor of Aura. It was not stated that
she can appoint substitute.

Can she appoint one? YES

What if Aura appoints Sammy as substitute? (No express
authority, not designated, not prohibited)

Who is responsible for Sammys acts? PERRY (If

beneficial to principal)
What if the SPA states that Aura can appoint a female
substitute and Sammy is male? (With express authority,
prohibited)

Who is responsible for Sammys acts? AURA,

because the SPA specifies that it must be female
What if Sammy is female but notoriously incompetent?
(With express authority, not designated, notoriously
incompetent)

Who is responsible for Sammys acts? AURA

substitute dahil di naman pwede habulin ng 3 rd

person si principal)
o
Villanueva says that insofar as the principal is
concerned, the contracts (bet. substitute & 3 rd
person) are unenforceable subject to his
ratification. (See Escueta v Lim) (o bahala na
kayo dyan if void or unenforceable, nyahaha;
VOID-De
Leon,
Law,
Casis
versus
UNENFORCEABLE-Villanueva, though, if void,
where does the 3rd persons cause of action
come from?)

ACTS OF SUBSTITUTE VALID (Action of third persons

against principal)
o
If substitution AUTHORIZED (w/ or without
express designation)

If in accordance with the instructions of

the principal, sub-agent is agent of the
principal

Agent
does
not
bear
personal
responsibility
for
the
fraud
or
negligence of the sub-agent for the
agent merely acted within the scope of
his authority or in accordance with the
instructions of the principal when he
appointed the sub-agent

EXCEPTION: If with express authority,

without express designation, substitute
is notoriously incompetent or insolvent

Question? What if with express

authority, with express designation and
substitute is notoriously incompetent or
insolvent: Then substitution is valid and
principal is liable
o
If
NOT
prohibited:
Principal
knows
of
substitution

Principal liable to third persons if he

fails to repudiate agency (implied
agency is established

Agent/Substitute is liable to third

persons if principal repudiates them
o
If NOT prohibited: Principal does not know of
substitution (Si De Leon nagsabi nito)

Principal liable to third persons for the

acts of the sub-agent w/c is beneficial
to the principal because agency has
been executed in fulfillment of its
object)

Agent/Substitute is liable to third

persons for the acts of the sub-agent
within the scope of agents authority
w/c has occasioned damage to principal
(See Serona v CA)

VALIDITY OF SUBSTITUTES ACTS UNKNOWN: (Action

against agent)
o
Unknown because the Code does not say if it is
valid or void although it makes the agent
c. Validity of the Acts of Substitute
therefor.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, responsible
the PRINCIPAL
may furthermore bring an action
without express
authority
AGAINST THE SUBSTITUTE with respect to the obligations which the latter ohas IF
contracted
under the
substitution. (1722a)

If NOT prohibited and principal does not

NOTES:
know of substitution: Agent is liable to

ACTS OF SUBSTITUTE VOID: (Action of third persons

third persons for the acts of the subagainst agent/substitute, if latter knows of prohibition)
agent within scope of agents authority
o
If against express prohibition of the principal
(De Leon)
o
REASON: Substitute is, in effect, a person acting
o
IF substitute is notoriously incompetent or
as an agent but is not authorized. Agent, on the
insolvent
other hand, exceeds limits of his authority and
o
Validity of the acts need to be weighed under
thus he is personally liable as thought the
their particular circumstances
contracts of the substitute were his own.
o
If the acts of the substitute be declared valid,
o
Principal has no cause of action against the
principal has the right to bring an action against
substitute (di ko gets bat kailangan pa to
the substitute with respect to the obligations
sabihin e di naman hahabulin ni principal si
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 51

which the latter contracted under the

substitution.

Seriously, magulo to so maglalagay ako ng cases kahit

walang assigned
CASE: Escueta v Lim (2007)
SUMMARY: The father has given his daughter a SPA to sell
real properties without prohibition to appoint substitute
agent. Substitute agent sold properties in favor of
respondents. Father seeks the declaration of nullity of the
sale effected by the substitute agent.
HELD: Father is incapable of legally seeking the declaration
of nullity of the sale. It is clear that she is not prohibited
from appointing a substitute. By authorizing the substitute
agent to sell the subject properties, the daughter merely
acted within the limits of the authority given by her father,
but she will have to be responsible for the acts of the subagent, among which is precisely the sale of the subject
properties in favor of respondents.
OTHER: In a situation where the SPA to sell a piece of land
contains a prohibition to appoint a substitute but
nevertheless the agent appoints a substitute who executed
the Deed of sale in the name of the principal, agent may
have acted outside the scope of his authority but that did
not make the sale void but merely unenforceable under Art.
1317. His acceptance of the proceeds is tantamount to
ratification thereof.
CASE: Villa v. Garcia Bosque (1926)
SUMMARY: Villas original attorney in fact was Pirretas.
Villa, thru Pirretas, sold her printing establishment to Bosque
and Ruiz. The buyers undertook the pay the same in
installments. France and Goulette were their sureties. Since
Pirretas went on a prolonged trip to Spain, he executed a
partial substitution of agency to transfer his right to collect
the installment payments for the sale. The right was
transferred to Figueras Hermanos, a mercantile entity.
However, it was M.T. Figueras (he is a natural person) who
subsequently entered into an agreement with Bota Printing
Company, which was to be substituted as debtor. By virtue
of the same agreement, the sureties were released from
liability by M.T. Figueras. However, Villa still brought an
action against the original buyers and sureties, saying that
(1) the partial substitution of agency was only meant for the
purpose of collecting the installments due and did not
encompass novation; and (2) M.T. Figueras had no authority
to execute the agreement on her behalf.
HELD: CFI and SC ruled in her favor. The original buyers and
sureties were still liable.

The sole purpose of the act of substitution was to

authorize Figueras Hermanos to collect the balance due
to Villa upon the price of La Flor de Catalua, the sale of
which had already been affected by Pirretas. There is
nothing here that can be construed to authorize
Figueras Hermanos to discharge any of the debtors
without payment or to novate the contract by which
their obligation was created.

Moreover, under the partial substitution of agency, the

substituted authority should be exercised by Figueras
Hermanos or the person duly authorized to represent
the same. But in the actual execution of the document
releasing the sureties, M. T. Figueras intervenes as
purported attorney in fact without anything whatever to
show that he is the legal representative of Figueras
Hermanos or that he is acting in such capacity. The act
of substitution conferred no authority whatever on M. T.
Figueras as an individual.
DOCTRINE: A sub-agent appointed by the agent to collect
the deferred installments from the sale of property made by
an attorney-in-fact was held to be without authority to enter
into a new contract with the transferee by modifying the
terns of the sale and releasing the solidary sureties in the

original contract. The release of the sureties was deemed to

be invalid insofar as the principal is concerned.
Problem:

Pablo executed an SPA in favor of Abdul prohibiting the

appointment of a substitute. Abdul appoints Sacha as
sub. Sacha deals with Tracy. Tracy pays but Sacha fails
to deliver. Can Tracy sue Pablo for breach?
o
NO! cite Art.1892(1)

What if the SPA doesnt prohibit the appointment of a

substitute, but Sacha is notoriously incompetent? (no
express
authority,
no
prohibition,
notoriously
incompetent) Can Tracy sue Pablo? Walang sagot to
pero tingin ko kung may express authority na nga si
agent na mag-appoint although di designated kung
sino, liable pa rin siya kapag notoriously incompetent
ang sub-agent pano pa kapag no express authority, da
burs.
d. Substitute Agent: Alternate not Delegate

Q: Is there a difference between substitute agent and a

sub-agent? YES, accdg. to Prof. Casis (to w/c Maam
agrees); NO, accdg. to De Leon. (If di niyo magets, dont
shoot the messenger please. Hehe.)
SUBSTITUTE
AGENT SUB-AGENT (De Leon)
(Casis)
What Art. 1892 allows is The agent may appoint a
SUBSTITUTE to the AGENT.
sub-agent or substitute.
Papalitan niya lang si
agent.
SUBSTITUTE
AGENT:
A SUB-AGENT: A person to
designation by the principal whom
the
agent
of an ALTERNATE, not a DELEGATES, as his agent,
delegation of the agency.
the performance of an act
for the principal which the
agent has been empowered
to perform through his
representative.
Substitute is agent of the Sub-agent is agent of the
principal; not an agent of agent. The agent in this
the agent.
case is a principal with
respect to the substitute.
There is privity of contract Sub-agent is a stranger to
between substitute agent the principal who originally
and principal.
gave life to the agency.
Privity of contract exists
only between them when
sub-agent is appointed by
agent w/ authority from
principal.
Any act of the substitute in If agent appoints sub-agent
behalf of the principal is on its own account, any act
deemed an act of the of the substitute is deemed
principal.
an act of the agent.

Death
of
principal
terminates
the
agency.
Death of the agent does
not affect the sub-agents
authority.

If agent appoints sub-agent

with
authority
from
principal, any act of the
sub-agent is deemed an act
of the principal.
If agent appoints sub-agent
on its own account, death
of agent terminates his
authority
even
if
substitution is given in
original power.
If agent appoints sub-agent
with
authority
from
principal, death of agent
does
not
affect
his

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 52

authority.
NOTES:

Confusion as to the term sub-agent may be explained

by the improper application of the U.S. common law
concept of sub-agent.

American jurisprudence (gantong-ganto si De Leon)

defines a sub-agent as a person employed by the agent
to assist him or her in conducting the principals
affairs. He can be either the agent of the principal
or just the agent of the agent. The difference will
only lie in whether the agent was authorized to appoint
a sub-agent.

Casis says that the appointment of a substitute is more

akin to the designation of an alternate agent rather than
a delegation of the agency. Baltazar vs. Ombudsman is
in point when it stated that A re-delegation of agency is
detrimental to the principal.

HOW TO DETERMINE IF DESIGNATION OF ALTERNATE

AGENT OR DELEGATION OF AGENCY
o
See Serona v CA: Agreement is not necessarily
a delegation because the substitute agent took
on the very same obligation as the agent; it was
the same contract entered into by the agent.
o
Compared to Baltazar v Ombudsman where the
agent was authorized to lease a fishpond while
the sub-agent was authorized to institute a suit
in connection with the lease, SC held the same
as not sufficient authorization and a delegation
of the agency which is prohibited.

The practical effect of designating an alternate agent

and delegating the agency is the same, in the sense
that both designee and the delegate are authorized to
act as the agent acted. However, the distinction is
important as far as privity of contract is concerned. In
the case of the alternate, the validity of actions filed by
the principal or the third party against each other for the
acts of the alternate seem clear; with the delegate, not
so much.
CASE: Baltazar v. Ombudsman (2006)
SUMMARY: A fishpond is owned by Patricia Regala, with
Faustino Mercado as her attorney-in-fact. Ernesto Salenga
was a watchman of the fishpond and was hired by the
lessee, Eduardo Lapid, and the sub-lessee, Rafael Lopez.
Salenga filed a complaint with the PARAB, praying for
payment of salaries and the share of the harvest, among
other reliefs. Pending resolution, a certain Antonio Baltazar,
presented an SPA w/ authority by Mercado, and filed a
complaint with the Ombudsman against Salenga for
Violation of RA 3019.
HELD: Baltazar had no standing to file the case because he
was not a real party in interest. His principal, Mercado, was
an agent of Regala himself anf cannot delegate his agency
to another. Regala has no privity of contract with Baltazar.
DOCTRINE: Agency cannot be further delegated. An agent
cannot delegate to another the same agency. Potestas
delegata non delegare potest; a power once delegated
cannot be re-delegated. A re-delegation of the agency would
be detrimental to the principal as the second agent has no
privity of contract with the former. Art.1892 allows the
substitution, not re-delegation.
CASE: Serona v. People (2002)
SUMMARY: Serona, Quilatans agent, was tasked to sell
jewelry. When Serona failed to pay for the jewelry after she
gave them to her sub-agent, Labrador, to sell, she was
convicted of estafa by misappropriation/conversion.
HELD: Serona was not expressly prohibited from appointing
a sub-agent. The Civil Code allows an agents appointment
of a substitute in the absence of express prohibition. The

agents act of entrusting the jewelry to a substitute was not

an abuse of confidence. She is not guilty of estafa.
DOCTRINE: The SC in this case used the CC provision which
allows for appointment of substitute as authority to say that
agents act of entrusting the jewelry to a substitute is not an
abuse of confidence. Nonetheless, whats relevant in this
case is the fact that this is an example of designating an
alternate and not a delegation of agency as Labrador took
on the very same obligation as Serona.

3. Retain objects of the agency

Art. 1914. The agent may retain in pledge the things which are t
reimbursement and pays the indemnity set forth in the two preceding
Refers to:
Art. 1912. The principal must advance to the agent, should the latt
the agency.
Should the agent have advanced them, the principal must reim
was not successful, provided the agent is free from all fault.
The reimbursement shall include interest on the sums advanced, f
Art. 1913. The principal must also indemnify the agent for all the
caused the latter, without fault or negligence on his part. (1729)
NOTES:

This is an instance of LEGAL PLEDGE or pledge created

by operation of law. Unlike contractual pledges,
however, the agent is not entitled to excess in case the
things are sold to satisfy his claim and the proceeds
thereof are more than the amount due.

This is an EXCEPTION to the duty of the agent in Art.

1891 to deliver to the principal everything he received
even if not due to the principal.

Based on Art. 1914, there are 2 grounds by which an

agent may lawfully retain in pledge the things, which are
the object of the agency:
o
IF the agent ADVANCES funds for the execution
of the agency; or
o
IF the agent has suffered injury caused by the
execution of the agency (DAMAGES)

Under any of these 2 conditions, the agent may retain in

pledge the objects of the agency UNTIL the principal
reimburses funds advanced or pays the indemnity.
o
Q: Can agent retain objects if claim by agent is
for commission? (Prof. S did not really affirm but
seems as if answer is NO)
NATURE OF AGENTS RIGHT OF LIEN

Right limited to subject matter of agency The lien of

the agent is specific or particular in character, and not a
general lien so as to give the agent a right to retain the
principals goods for claims disconnected with the
business of the agency.

Right requires POSSESSION by agent of subject matter

An agent in order to have a lien, must have some
possession, custody, control, or disposing power in and
over the subject matter in which the lien is claimed. The
lien does not arise where possession of the property is
acquired by the agent under a contract which expressly
or impliedly shows a contrary intention, as where it is
delivered to him for a particular purpose inconsistent
with the existence of the lien thereon.
o
To entitle the agent to a lien, the funds or
property against which it is asserted must have
acquired that possession lawfully and in his
capacity as agent.

Right generally in favor of agent In the absence of a

ratification of a sub-agents acts by the principal, the
right of lien exists only in favor of the agent and cannot
be claimed by one to whom the agent delegates his
authority where no privity exists between sub-agent and
the principal

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 53

4.

Lend Money to/Borrow Money from the

Agency is established so that the agent may act on

Agency (in Casis Book)
behalf of a principal. However, his ability to bind his
Art. 1890. If the agent has been empowered to borrow money, he may
himself
the lender
the current
rate of interest. If
principal
is be
limited
by theat
authority
given.
he has been authorized to lend money at interest, he cannot borrow
without
consent
the legally
principal.identical with that
itThe
act the
done
mustof be
NOTES:
authorized to be done. (Woodchild v. Roxas)

Art. 1890 provides that when agent is empowered to

Arts. 1881 and 1882 must be read together with other

BORROW or LEND money by the principal, then:
provisions.
o
If empowered to BORROW money, he may be
o
A transaction requiring a special power of
the LENDER at current interest;
attorney as required under Art. 1878 may not
o
If empowered to LEND money at interest, he
be validly performed without such SPA on the
can BORROW provided it is with the principals
ground that it is conducive or advantageous to
consent.
the principal. (Woodchild v. Roxas)

Agent cannot, without SPA, loan of borrow money [Art.

conducive acts and advantageous acts
1878(7)]
a. LEND

considered within the scope of the agent s authority

Law allows agents to lend money to the agency, if as

principal does not need to list everything the agent is

agent, he is authorized to borrow money on behalf of his
allowed to do, nor does agent need detailed
principal.
authorization for each act he needs to do

Because the agency has no separate juridical

without prejudice to specific requirements for particular

personality, the agent is in effect lending money to his
transactions (e.g. Art. 1878)
principal. But the loan must be subject to the current

As long as acts meet the standards of conduciveness,

rate of interest.
they are considered as being performed within the
o
IF agent lends money to the principal at a
scope of the agent s authority.
higher interest rate than the current interest

However, the principal may challenge whether an act is

rate, then the difference would have to be
in fact conducive or advantageous to him.
returned to the principal.

The language employed by the article does not allow for

collateral acts
an exception for stipulations to the contrary. Thus, even

those which are the natural and ordinary incidents of the

if the agent is authorized to borrow money at a higher
main act or business authorized (Guinhawa v. People)
rate of interest, the agent can only lend to the agency at

Certain collateral acts are impliedly within the authority

the current rate of interest.
of the agent. (Guinhawa v. People)

There is no danger of the principal suffering any damage

since the current rate of interest would have to be paid
Problem:
in any case if the loan were obtained from a 3rd person.
Pina authorized Apple to manage her canteen. Apple noticed
b. BORROW
that the canteen will get more customers if they adopt an

The same article also allows the agent to borrow money

eat now pay later scheme.
from the agency if as agent, he was authorized to lend
Is Apple working within the scope of her authority? YES
money on behalf of the principal at interest. However,
conducive, advantageous
there must be consent on the part of the principal.
What if it works for a few months but then customers stop

NOT ALLOWED: If agent was authorized to lend money

paying?
at interest, he cannot be borrower w/out consent
because the agent may prove to be a bad debtor. There
is here a possible conflict of interest. (Art. 1890) The
transaction may thus be prejudicial to the principal.
o
IF agent borrows for himself the money which
the principal authorized him to lend, and he
borrows such without the principals consent, he
would not only be liable for the current interest
that the principal would have earned had it be
lent out to a third party, he would also be liable
or damages that the principal may have
suffered.
III-B. Obligations of an Agent (Arts. 1884-1891)
I. General Rule on Agents Power and Authority: Act
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.
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

Statutory Measures of Compliance by the Agent of his

fiduciary duties of obedience and diligence: Agent must
act within scope of his authority (Art. 1881)
a. In General

b. As Regards Third Persons

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

Art. 1900 contemplates a situation wherein the principal

provided limitations to the authority of the agent orally
or in some other document apart from the written power
of attorney. !

The rule, however, should not apply if the third person

dealing with the agent was aware of the understanding
between the principal and the agent.!
Problem:
Pancho got Alma as his agent for his catering business. Alma
gave a discount to Ted despite Panchos instruction not to do
so.
Did Alma act within the scope of her authority? YES! cite
Art. 1900 as regards Ted (third persons;
NO! cite Art.
1881, 1887 as regards principal

c. Authority of corporate officers

Where similar acts have been approved by the directors
as a matter of general practice, custom and policy, the
general manager may bind the corporation without
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 54

formal authorization of the board of directors. (Board of

Liquidators v. Kalaw)
A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the
extent that the authority to do so has been conferred
upon him, and this includes...such powers as...are
incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and
usage,...and such apparent powers as the corporation
has caused persons dealing with the officer or agent to
believe that it has conferred. (San Juan v. CA)
The declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of
such director, are held not binding on the corporation.
(AF Realty v. Dieselman)
If a corporation knowingly permits one of its officers, or
any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public
as possessing power to do those acts, the corporation
will, as against anyone who has in good faith dealth with
the corporation through such agent, be estopped from
denying his authority. (Francisco v. GSIS)

A. General Obligation of Agent Who Accepts Agency:

Carry out Agency
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.
Art. 1888. An agent shall not carry out an agency if its
execution would manifestly result in loss or damage to the
principal.
NOTES:
a. In General

Legally bound to carry out the terms of the agency

IF he fails or refuses to carry on the agency: Liable

for damages suffered by principal
o
Measure of damages: Losses and damage
caused were occasioned by the fault or
negligence of agent

PRINCIPLE: Duty of diligence or care

Once the agent accepts the authorization granted by

the principal, he is bound to carry out his duties as
agent. If he does not and the principal suffers injury, he
is liable for damages to the latter.

An agent is also responsible for any negligence in the

performance of its function and is liable for damages
which the principal may suffer by reason of its negligent
act. (British Airways v. CA)

b. Continuing business
Agent must finish the business already begun even if
the principal subsequently dies, should delay entail any
danger.
The general idea behind the provision is that the agent
must continue carrying out duties which were pending
when the principal died if non1continuation will cause
economic prejudice to the principals interest.
Such continuing business should only be to the extent
necessary to avoid the danger contemplated.

c. In case of withdrawal
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.
d. When not required to carry out

Art. 1888. An agent shall not carry out an agency if its

execution would manifestly result in loss or damage to the
principal.

The agent must prove that carrying out the agency

would manifestly result in loss or damage to the
principal.
B. General Obligation of Agent Who Declines Agency:
Observe Diligence of a Good Father
Art. 1885. In case a person declines an agency, he is bound
to observe the diligence of a good father of a family in the
custody and preservation of the goods forwarded to him by
the owner until the latter should appoint an agent or take
charge of the goods.
NOTES:

GR: No contract of agency.

EX (Art. 1885): 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 (Duty of diligence)

Different from one who withdraws from agency he

previously accepted (Art. 1929)
Agent must continue to act until principal has had
reasonable opportunity to take the necessary steps to meet
the situation
C. Duty of Obedience: Act in Accordance with the
Instructions of the Principal
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.

Act in accordance with the instructions of the principal

(Art. 1887)

GEN: If agent refuses:

o
Agent becomes personally liable for damages
arising from a breach of his duty of obedience
to principal
o
Principal not personally bound by contract w/ 3 rd
persons
o
Agent becomes personally liable for such
contract or transaction (Art. 1898)

EX:
o
Conducive to the accomplishment of the
purpose of the agency (Art. 1881)
o
Performed in a manner more advantageous to
the principal than that specified by him (Art.
1882)

Not only must an agent act within specific limits of

authority, but he must also perform such acts in the
manner dictated by his principal.

Principal may indicate to his agent the way he wants the

transactions handled. If the principal does not provide
instructions, the rule is that the diligence of a good
father of a family is expected.

Such diligence is determined by the nature of the

business.
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.

If an agent was simply following instructions but a third

person is injured in some way, the principal cannot
blame the agent if the injury was caused by
circumstances the agent was unaware of but the
principal was aware of.
Presentation of Power of attorney or instruction
(Art.1902)
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 55

GR: A third person deals with an agent at his peril

He (Third person) is bound to inquire as to the

extent of the agents authority.

This is especially true where the act of the agent is

of an unusual nature

Ignorance of the agents authority is no excuse

It is the duty of the third person to require the agent

to produce his power of attorney or instructions
from the principal and ascertain the scope of his
authority
Exception: A third person is not bound by the principals
private or secret orders and instruction

A third person cannot be prejudiced by any

understanding between the principal and the agent.

Such secret orders cannot be invoked as a against

third parties if the principal agent has apparent
authority
INSTRUCTIONS
Directs the manner of
transacting the authorized
business and contemplates
only a private rule of
guidance to the agent and
are
independent
and
distinct in character
Refers to the manner or
mode of his action with
respect to matters which in
their substance are within
the scope of permitted
action
Without
significance
as
against those dealing with
the agent with neither
knowledge nor notice of
them because they only
concern the principal and
the agent
Not expected to made
known to those with whom
the agent deals

AUTHORITY
The sum total of the
powers
committed
or
permitted to the agent by
the principal, may be
limited in scope and such
limitations are themselves
part of the authority
Relates to the subject with
which
the
agent
is
empowered to deal or the
kind
of
business
or
transactions upon which he
is empowered to act
Limitations of authority are
operative against those
who have or are charged
with knowledge of them
and
ignorance
of
the
authority will not be any
excuse
Contemplated to be made
known to the third person
dealing with the agent.
The third person must
therefore
verify
or
investigate the authority

When
departure
from
principals
instructions
justified: (SAI)
1. Sudden emergency

admit no delay for communication with the principal

2. Ambiguous instructions

honest mistake; construction different from that

intended by the principal

it is the duty of the principal to couch his

instructions in clear terms
3. Insubstantial departure

does not affect result

CASE: Gutierrez Hermanos v. Oria Hermanos (1915)
Gutierrez Hermanos and Oria Hermanos entered into a
contract wherein GH bound itself to acquire for and forward
to OH certain goods such as rice, cash, petroleum, etc.
Because of this, GH and OH decided to open a mutual
current account under Oria Hermanos on the books of
Gutierrez Hermanos with 8% interest. Gutierrez Hermanos
informed Oria Hermanos. that said current account would be
closed within 30 days, after which, Oria Hermanos would
have to settle the balance due to Gutierrez Hermanos, if any.
However, despite repeated demands from Gutierrez

Hermanos to Oria Hermanos, the latter never paid which led

to the filing of this suit. Up until the closing of the account,
GH had sent OH various quantities of salt, petroleum,
tobacco, groceries, and beverages and had collected a
commission on the sale. The semiannual accounts rendered
by GH were never questioned. However, OH claims that GH
had set higher prices than the price actually paid, thereby
defrauding OH. OH prayed that GH render an account as well
as the vouchers used to determine the purchase price of the
said goods. OH also claimed that GH had kept the discount
in addition to collecting commission on the sale of goods.
Issue: W/N OH is liable to GH for its unsettled account
HELD/DOCTRINE: Yes, but only upon proper accounting of
the expenses for the shipment of rice and petroleum which
were claimed to be overpriced. When an agent in executing
the orders and commissions of his principal carries out the
instructions he has received from his principal, and does not
appear to have exceeded his authority or to have acted with
negligence, deceit, or fraud, he cannot be held responsible
for the failure of his principal to accomplish the object of the
agency. Since it was not proven that the price of the goods
were overstated, thereby defrauding OH, OH cannot escape
the liability of paying GH for performing the task given to
him by OH as his principal.
D. Duty of Diligence: Good Father of a Family
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.

In default of instructions, agent shall do all that a good

father of a family would do, as required by the nature of
the business (Art. 1887)

Agent shall not carry out an agency if its execution

would manifestly result in loss or damage to the
principal (Art. 1888)
o
Agent not guarantor that principal would suffer
no loss
i.
Measure of Liability for Breach of Duty of
Diligence
a. No negligence if acts in accordance with
orders of principal
ii.
When Agent is Guilty of Fraud or Negligence
a. Agent Becomes personally liable to
principal for damages caused to principal
CASE: PNB v. Manila Surety & Fidelity Co., Inc. (1965)
SUMMARY: PNB extended a credit to ATACO which was
secured by Manila Surety. As additional security to the loan,
ATACO constituted PNB as its assignee and attorney-in-fact
to collect from the Bureau of Public Works the amount
receivables by ATACO. PNB collected from the Bureau for
some time but eventually stopped in its collection. PNB
found that there was still balance on the debt of ATACO, so
the former demanded from ATACO and Manila Surety its
payment. TC ordered ATACO and Manila Surety to pay. Upon
appeal by Manila Surety, CA released it from its obligation.
SC affirmed CA and ruled in favor of Manila Surety.
DOCTRINE: An agent is required to act with the care of a
good father of a family (Civ. Code, Art. 1887) and becomes
liable for the damages which the principal may suffer
through his non-performance (Civ. Code, Art. 1884)
E. Duty of Loyalty

In General
o
A. Bound to render an account of his
transactions
o
B. 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
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 56

Liable for damages if there being a

conflict between his interest and those
of the principal, he should prefer his
own
Contract not void

IV. Specific Obligation Rules for Agents

A. Obligation to Advance Funds
Art. 1886. Should there be a stipulation that the agent shall
advance the necessary funds, he shall be bound to do so
except when the principal is insolvent.
Two conditions must be present for this provision to
apply:
1. There must be stipulation that the agent must advance
funds
2. The principal is solvent
B. Prefer interest of the principal over personal interest
Art. 1889. The agent shall be liable for damages if, there
being a conflict between his interests and those of the
principal, he should prefer his own.
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.
Conflict of Interests

Agency is a fiduciary relationship which means that in

case of a conflict of interest between the agent and the
principal, the agent must prefer the interest of his
principal over his own.

Article does not state that the agency is dissolved or the

contract is invalidated if the agent prefers his own
interest.
a.
b.

c.

Purchase of Principals Property Without Latters

Consent
When Agent Empowered to Borrow or Lend Money
(Art. 1890)
If empowered to borrow money: he may be lender at
current interest
If empowered to lend money at interest, he cannot
borrow w/out principals consent
Liability: If charge higher to principal: Difference must
be returned; If borrows for himself, pay principal current
interest and damages
Obligation to Turn-Over to the Principal Whatever
Received by Virtue of the Agency

C. Render Account or Deliver

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.
i. When an Agent Violates His Duty of Loyalty: US v
Reyes: Guilty agent is made to forfeit the commission that
otherwise should be due to him as penalty for violation of his
duty of loyalty
ii. Obligation of the Agent to Render Account

If not done, not entitled to Compensation

The obligation discourages agents from soliciting or

accepting gifts from third persons he deals with on
behalf of the principal because he is bound to turn over
such to the latter.

The law demands the utmost good faith, fidelity,

honesty, candor and fairness on the part of the agent to
his principal. (Domingo v. Domingo)

All profits made and any advantage gained by an agent

in the execution of his agency should belong to the
principal. (Murao v. People)

Two scenarios where Art. 1891 will not apply

(Domingo v. Domingo):

If the agent or broker acted only as a middleman with

the task of merely bringing together the vendor and
vendee, who themselves thereafter will negotiate on the
terms and conditions of the transaction
o
A middleman is an agent of both parties, or an
agent of neither of them. Thus, the receipt of
gifts from the transacting parties will not
amount to a breach of fiduciary duty.

If the agent or broker had informed the principal of the

gift or bonus he received from the purchaser and his
principal did not object
iii. When Agent May legally Withhold
Principal (See agents right of retention)

from the

CASE: Domingo v. Domingo, supra

SUMMARY: Buyer gave agent a tip for convincing principal
to reduce price of land being sold; agent did not tell principal
about the tip. Principal went directly to buyer and negotiated
the sale with agent out of the picture. Agent found out and
demanded commission per terms of agency agreement,
which principal tore into pieces. The SC held that the nondisclosure by the agent of the tip was a fraudulent act
violative of the agency agreement. According to the SC:
[The law] demand[s] the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent, the
real estate broker in this case, to his principal, the vendor.
The law imposes upon the agent the absolute obligation to
make a full disclosure or complete account to his principal of
all his transactions and other material facts relevant to the
agency, so much so that the law as amended does not
countenance any stipulation exempting the agent from such
an obligation and considers such an exemption as void. The
duty of an agent is likened to that of a trustee. This is not a
technical or arbitrary rule but a rule founded on the highest
and truest principle of morality as well as of the strictest
justice.
DOCTRINE: An agent who violates his obligations to the
principal and commits fraudulent acts against the principals
interest forfeits the right to compensation. The dual
obligation under NCC 1891 to account for transactions and
deliver WHATEVER MAY BE RECEIVED BY VIRTUE OF THE
AGENCY is an absolute requirement which the courts will
rigorously apply. An agent may even be held criminally liable
for estafa for violating this provision. This stems from the
special fiduciary nature of the principal-agent relation. The
purpose of the rule is prevention of wrong and not
reparation of actual damage.

CASE: U.S. v. Reyes (1917)

SUMMARY: Reyes was a agent of Blackman tasked to
collect various amounts (total 860). Reyes collected 540 and
retained 20%, allegedly as commission. Blackman insists
Reyes is only entitled to 10% commission and filed a case of
estafa. TC: guilty of estafa entitled to only 10%
SC: affirmed TC ruling.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 57

DOCTRINE: Reyes was an agent who was bound to pay to

the principal all that he had received by virtue of the agency.
V. When Third Party Liable to the Agent Himself Even
if Pursuant to Agency

Agent contracts in his own name for an undisclosed

principal on a matter within the scope of the agency

Agent possesses beneficial interest in the subject matter

of agency

Third party commits tort against agent

Where the agent pays money of his principal to a third

party by mistake or under a contract which proves
subsequently illegal, the agent being ignorant with
respect to its illegal nature (added by De Leon)
CASE: Villa v. Garcia Bosque (1926)
SUMMARY: Villas original attorney in fact was Pirretas.
Villa, thru Pirretas, sold her printing establishment to Bosque
and Ruiz. The buyers undertook the pay the same in
installments. France and Goulette were their sureties. Since
Pirretas went on a prolonged trip to Spain, he executed a
partial substitution of agency to transfer his right to collect
the installment payments for the sale. The right was
transferred to Figueras Hermanos, a mercantile entity.
However, it was M.T. Figueras (he is a natural person) who
subsequently entered into an agreement with Bota Printing
Company, which was to be substituted as debtor. By virtue
of the same agreement, the sureties were released from
liability. However, Villa still brought an action against the
original buyers and sureties, saying that (1) the partial
substitution of agency was only meant for the purpose of
collecting the installments due and did not encompass
novation; and (2) M.T. Figueras had no authority to execute
the agreement on her behalf. CFI and SC ruled in her favor.
The original buyers and sureties were still liable.
IMPORTANT RULINGS:

The sole purpose of the act of substation was to

authorize Figueras Hermanos to collect the balance due
to Villa upon the price of La Flor de Catalua, the sale of
which had already been affected by Pirretas. There is
nothing here that can be construed to authorize
Figueras Hermanos to discharge any of the debtors
without payment or to novate the contract by which
their obligation was created.

Moreover, under the partial substitution of agency, the

substituted authority should be exercised by Figueras
Hermanos or the person duly authorized to represent
the same. But in the actual execution of the document
releasing the sureties, M. T. Figueras intervenes as
purported attorney in fact without anything whatever to
show that he is the legal representative of Figueras
Hermanos or that he is acting in such capacity. The act
of substitution conferred no authority whatever on M. T.
Figueras as an individual.
CASE: Ramos v. Caoibes (1954)
SUMMARY: The principal CONCEPCION RAMOS DIPUSOY
executed before a notary public two documents, appointing
BENIGNO RAMOS her true and lawful attorney-in-fact to
collect any amount due from the Philippine War Damage
Commission. The second document stated that one-half of
the amount to be collected shall be given to BENIGNO
CAOIBES. One year before the principal died, the principal
filed a claim with the Commission. It was granted several
days after the death of the principal. BENIGNO presented the
two public documents which authorized him to collect and
which entitled him to one-half of the amount. This was all
done AFTER the death of the principal. The administratrix of
the estate of the principal filed a motion praying that
BENIGNO be ordered to return the full amount of the check.

BENIGNO said that he should only return one-half of the

amount, by virtue of the second document. The Supreme
Court held that BENIGNO should return the full amount.
DOCTRINE: Under Article 1711 of the old Civil Code (which
was in force at the time of the transaction), the contract of
agency is presumed to be gratuitous, unless the agent is a
professional agent. There is no proof that Caoibes was such.
Furthermore, according to Article 1732 of said Code, an
agency is terminated, among other causes, by the death of
the principal or of the agent. When Caoibes made use of the
power of attorney, his principal, Concepcion was already
dead.
III-C. LIABILITY (Arts. 1894-1909)
I. JOINT/MULTIPLE AGENTS
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.
Art. 1895. If solidarity has been agreed upon, each of
the agents is responsible for the non-fulfillment of
agency, and for the fault or negligence of his fellow
agents, except in the latter case when the fellow agents
acted beyond the scope of their authority.
Joint agent

agents appointed by one or more principals under such

circumstances as to induce the interference that it was
the principals intent that all should act in conjunction in
consummating the transaction for which they were
appointed

Private joint agency: cannot be exercised except by

the concurrence of all the agents

Public joint agency: created by law, or essentially

public in character. It may be exercised by a majority
Several agents (in American Law):

A principal may appoint more than one agent, each one

to act separately in a particular branch of his principals
business or in a particular locality

They are to act separately

When more than one agent is appointed with reference

to the same business, they are still several agents if it
appears that it was the intention of the principal that
they should act separately, and an execution of the
power by one of them is valid and binding on the
principal
Nature of Liability of 2 or more agents to their
Principal

Joint obligation: each debtor is liable only for a

proportionate part of the debt
o
The presumption is that an obligation is joint

Solidary obligation: each debtor is liable for the entire

obligation
o
Art 1894 follows the general principle
respecting solidarity

The responsibility is JOINT, except if solidarity has been

expressly stipulated

If solidarity has been agreed upon, each agent is

responsible for the:
o
(1)non-fulfillment of the agency
o
(2) fault or negligence of his fellow agents;
except when the fellow agents acted beyond
the scope of their authority

De Leon: An innocent agent has a right

later on to recover from the guilty or
negligent act.

Casis: The other agents are not liable.

(no solidary liability)

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 58

An agent who exceeds his powers does not act as such

agent, and, therefore, the principal assumes no liability
to third persons
o
Since this is so, solidary liability cannot be
demanded by the principal

II. INDIVIDUAL AGENT

Consideration of the Fiduciary Duties of the Agent as
to Third Parties

Rules provided when agent exceeds authority is

between principal and agent and does not affect 3 rd
parties

Principal remains solidarily liable to 3rd persons in good

faith for agency by estoppel or when it is written in an
agreement
CASIS NOTES: Agent becomes personally liable

when the agent expressly binds himself (Art. 1897)

when the agent exceeds the limits of his authority

without giving the person he is transacting with
sufficient notice of his powers (Art. 1897)
o
The agent cannot be held liable if he does not
give the third party sufficient notice of his
powers. (Eurotech v. Cuizon)
o
In case of excess of authority by the agent, the
law does not say that a third person can recover
from both the principal and the agent. (Eurotech
v. Cuizon)

when the following elements are present (Art. 1898):

o
1. person transacting with the agent is aware of
the limits of the agent s authority
o
2. the agent exceeded the scope of his
authority
o
3. the agent undertook to secure the principal s
ratification
o
4. the principal does not ratify the contract
A. Effects on the Agent of Contracts Entered into
within the Scope of his authority
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: Agent not personally liable to third

parties
EXCEPTIONS:
o
When agent expressly makes himself personally
liable (voluntary contractual commitment)
o
When agent is guilty of fraud of negligence

Produces liability as against 3rd persons

and against principal

Both principal and agent are joint

tortfeasors as against 3rd parties

Remedy of principal is to sue agent

Agent has no authority to bring suit in contracts entered
into in the name of the principal: Not party, only in
representation

Duties and Liabilities of Agent to third persons

GR: The principal is responsible for the acts of the agent

done w/in the scope of his authority and should bear any
damage caused to third persons
o
The agent acquires no rights whatsoever, nor
does he incur any liabilities arising from the
contract entered into by him on behalf of his
principal

The duties of an agent to third persons and his

corresponding liabilities must be considered with
reference to the character of his act as to whether it is

authorized or unauthorized, and also with reference to

the nature of liability which it sought to assert as being
in contract or in tort
o
The agent is liable to third persons for his torts
which result in an injury to the third person
-Unauthorized assumption of agency: one who
unauthorizedly assumes to act for another is guilty of a
wrong, and is liable for the damage to those dealing
with him in reliance on his assumed authority in that
they are deprived of the benefit of the responsibility of
the principal
o
The assumed agent, by his act, impliedly
warrants or represents that he has authority,
thereby predicating liability for the damage
sustained
o
The implied warranty and its accompanying
liability is not confined merely to the making of
contracts but extends to all unauthorized acts
perpetrated in his assumed agency
o
If no damages have been sustained, no liability
for the agents false assumption of authority
exists
o
Nature of liability: A purported agent will be
held personally liable as principal on a contract
executed w/o authority if the contract contains
apt words to bind him personally, or if such was
the intention of the parties. However, in the
absence of an apt expression or intention, the
nature of his liability is the subject of some
divergence in judicial opinion. (Some liable,
some not liable)

When an agent incurs personal liability

GENERAL RULE: The agent is not personally liable to the

party with whom he contracts (since he is only
representing the principal)

EXCEPTIONS: Unless he expressly binds himself or

exceeds the limits of his authority w/o giving such part
sufficient notice of his powers or by his acts he incurs
the liabilities of a principal under the contract

A suit against an agent cannot, w/o compelling

reasons, be considered a suit against the principal
(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 w/o authority and, therefore, the

contract is unenforceable against the principal
unless the latter ratifies the act
o
the agent becomes personally liable
because by his wrong or omission, he
deprives the third person with whom he
contracts of any remedy against the
principal. The third person would be
defrauded if he would not be allowed to
recover from the agent
o
there has been some wrong or omission on
the
part
of
the
agent
either
in
misrepresenting,
or
in
affirming,
or
concealing the authority under which the
agent assumes to act. Inasmuch as the
non-disclosure of the limits of the agency
carries with it the implication that a
deception
was
perpetuated
on
the
unsuspecting client, the provisions of
Articles 19, 20 and 21 of the CC come into
play
o
That the agent exceeded his authority must
be proved by the principal if he denies
liability, or by the third person if he wants
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 59

to hold the agent personally liable, on that

ground. In case of excess authority by the
agent, the law does not say that a third
person can recover from both the principal
and agent.
(3) When an agent by his acts prevents the performance on
the part of the principal

One who has intervened in the making of a contract

in the character of agent cannot be permitted to
intercept and appropriate the thing which the
principal is bound to deliver, and thereby make
performance by the principal impossible

The agent in any event must be precluded from

doing any positive act that could prevent
performance on the part of his principal. This much,
ordinary good faith towards the other contracting
party requires.
(4) When a person acts as agent without authority or without
a principal

He is himself regarded as a principal, possesses of

all the rights and subject to all the liabilities of a
principal

Contracts are binding only between the parties

thereto, and it is the consent manifested to the
other that binds, not ones undisclosed, and in that
sense, secret intention (to act in the name of the
principal)

A person who contracts as the representative of the

non-existent principal (i.e. a proposed corporation or
an unincorporated association) is the real party to
the contract
(5) A person who purports to act as agent of an
incapacitated principal

unless the third party was aware of the incapacity

(6) An agent who undertook to secure the ratification of the
principal (in case such agent contracts in the name of the
principal, exceeding his authority, and the principal does not
ratify the contract, even if the party with whom the agent
contracted is aware of the limits of the powers granted by
the principal (Art 1898)
Elements:

3rd person is aware of agents limits

Agent exceeded the scope of authority

Agent attempted to secure the ratification of the

principal

The principal did not ratify the contract

(7) Fraud and negligence by agent (Art. 1909)
B. Effects of Acts Done by Agent Without Authority or
in Excess of his Authority
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.

GENERAL RULE: Principal is not liable; Agent may be

liable (Art. 1317)
o
UNENFORCEABLE contract; not void
o
Contract entered into in the name of the
principal shall be void as to the principal and
the third party, if such third party with whom
the agent contracted was aware of the limits of
the powers granted by the principal
o
In such case, the agent would be liable
personally to such 3rd party, if he undertook to
secure the principals ratification

If the agent did not undertake to secure the

principals ratification, the agent does not
become liable on the contract since the 3 rd
party has no one to blame but himself, knowing
fully well the limits to the agents authority
o
LIABILITY OF AGENT FOR DAMAGES: Depends if
3rd person is aware of limits of agents power

NONE: If 3rd person is aware or agent

notified -> VOID

IF
agent
promised
principals
ratification and failed, liable

If ratification is obtained, principal is

liable
EXCEPTIONS: Principal may be Bound
o
When principal ratifies
o
As to 3rd parties who relied on power of attorney
as written
o

CASE: Development Bank of the Phils. v. CA (1994)

SUMMARY: Dans applied for 500k loan with DBP. DBP
advised Dans to obtain mortgage redemption insurance with
DBP MRI Pool. When Dans applied, he was 76 y/o. Within the
year, Dans died of cardiac arrest. Subsequently, DBP MRI
Pool notified DBP that Dans was not eligible for MRI
coverage because he exceeded the maximum acceptance
age limit of 60 yrs at the time of application. Estate of Dans
thus filed a complaint for Collection of Sum of Money with
Damages against DBP and insurance pool. RTC absolved
insurance pool but held DBP liable for having led Dans to
apply despite knowledge of age ineligibility. CA Affirmed.
Held: DBP is liable for damages as an insurance agent who
exceeded its authority. It was not authorized to accept
applications of persons over 60. DBP thus exceeded the
scope of its authority when it accepted Dan's application for
MRI by collecting the insurance premium, and deducting its
agent's commission and service fee. As to the insurance
pool, the agreement expressly stated that it will only take
effect upon approval; hence by virtue of DBP MRI pools
disapproval, it cannot be liable for a contract that did not
exist.
DOCTRINE: The liability of an agent who exceeds the scope
of his authority depends upon whether the third person is
aware of the limits of the agent's powers. If the third person
dealing with an agent is unaware of the limits of the
authority conferred by the principal on the agent and he
(third person) has been deceived by the non-disclosure
thereof by the agent, then the latter is liable for damages to
him. The rule that the agent is liable when he acts without
authority is founded upon the supposition that there has
been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority
under which he assumes to act. Inasmuch as the nondisclosure of the limits of the agency carries with it the
implication that a deception was perpetrated on the
unsuspecting client, the provisions of Articles 19, 20 and 21
of the Civil Code come into play.
NOTE (Mels):Thus obligation of agent is the full disclosure
of limits of the authority conferred by principal to agency to
prevent implication that deception was perpetrated

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 60

CASE: Eugenio v. CA (1994)

SUMMARY: Nora Eugenio was a dealer of Pepsi soft drinks.
Alfredo Eugenio used to be a route manager of Pepsi in its
QC plant. Pepsi filed a complaint for a sum of money against
the spouses Eugenio to collect their alleged outstanding
balance on products they purchased on credit. As a defense,
the spouses presented four trade provisional receipts (TPRs)
allegedly issued to them by Pepsis Route Manager Estrada
evidencing the payments it made, which if credited to their
account would even result in overpayment. Pepsi tried to
prove that Estrada denied signing the said TPRs. SC ruled in
favor of the spouses, ruling that Estrada was an agent of
Pepsi.
DOCTRINE: As far as third persons are concerned, an act is
deemed to have been performed within the scope of the
agent's authority, if such 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 his agent.
CASE: National Power Corp. v. National Merchandising
Corp.
SUMMARY: NPC and Namerco, as the representative of the
ICC (New York City), executed in Manila a contract for the
purchase by NPC from the New York firm of 4,000 long tons
of crude sulfur for its Maria Cristina Fertilizer Plant. It was
stipulated in the contract of sale that the seller would deliver
the sulfur at Iligan City within 60 days from notice of the
establishment in its favor of a letter of credit and that failure
to effect delivery would subject the seller and its surety to
the payment of liquidated damages. The New York supplier
was not able to deliver the sulfur within the stipulated period
due to its inability to secure shipping space. Hence, NPC
filed this action for the recovery of liquidated damages. SC:
Namerco did not act within the scope of its authority as
agent in signing the contract of sale. ICC in its cable to
Namerco stated that the sale was subject to availability of a
steamer. However, Namerco did not disclose that cable to
the NPC and, contrary to its principals instruction, it agreed
that non-availability of a steamer was not a justification for
nonpayment of the liquidated damages. Namerco acted
beyond the bounds of its authority because it violated its
principals cabled instructions: (1)
The delivery of the
sulfur should be C & F Manila, not C & F Iligan City, (2)
The sale be subject to the availability of a steamer and (3)
The seller should be allowed to withdraw right away the full
amount of the letter of credit and not merely eighty percent
thereof. Namerco is liable for damages because under article
1897 of the CC the agent who exceeds the limits of his
authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such
party. Even before the contract of sale was signed Namerco
was already aware that its principal was having difficulties in
booking shipping space. In a cable one day before the
contract of sale was signed, ICC advised Namerco that the
latter should not sign the contract unless it (Namerco)
wished to assume sole responsibility for the shipment. Sycip,
Namercos president, replied that he had no choice but to
finalize the contract of sale because the NPC would forfeit
Namercos bidders bond by the Domestic Insurance
Company if the contract was not formalized. Three days
later, ICC cabled Namerco that the firm did not consider
itself bound by the contract of sale and that Namerco signed
the contract on its own responsibility. In its letters, ICC
informed Namerco that since the latter acted contrary to the
formers cabled instructions, the former disclaimed
responsibility for the contract and that the responsibility for
the sale rested on Namerco. Later letters were even more
revealing. It bluntly told Namerco that the latter was never
authorized to enter into the contract and that it acted

contrary to the repeated instructions of the former. Here, it

is the agent that is sought to be held liable on a contract of
sale which was expressly repudiated by the principal
because the agent took chances, it exceeded its authority
and, in effect, it acted in its own name. Unenforceable
contract? Yes against the principal. But it is enforceable
against NAMERCO and the surety. Namerco, as agent,
exceeded the limits of its authority in contracting with the
NPC in the name of its principal. The NPC was unaware of
the limitations on the powers granted by the New York firm
to Namerco. Namerco never disclosed to the NPC the cabled
or written instructions of its principal. For that reason and
because Namerco exceeded the limits of its authority, it
virtually acted in its own name and not as agent and it is,
therefore, bound by the contract of sale which, however, is
not enforceable against its principal. If, as contemplated in
articles 1897 and 1898, Namerco is bound under the
contract of sale, then it follows that it is bound by the
stipulation for liquidated damages in that contract.It would
be unjust and inequitable for Namerco to escape liability
after it had deceived the NPC. Domestic Insurance Company
is liable to the NPC because because it was Namerco that
actually solicited the bond from the Domestic Insurance
Company and, as explained already, Namerco is being held
liable under the contract of sale because it virtually acted in
its own name. It became the principal in the performance
bond. In the last analysis, the Domestic Insurance Company
acted as surety for Namerco.
DOCTRINE: The agent who exceeds the limits of his
authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such
party.
The agent who exceeds the limits of his authority is
personally liable and the third person who contracts with the
agent in such a case would be defrauded if he would not be
allowed to sue the agent.
Article 1898 of the Civil Code which provides that 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.
Want of authority of the person who executes an obligation
as the agent or representative of the principal will not, as a
general rule, affect the suretys liability thereon, especially
in the absence of fraud, even though the obligation is not
binding on the principal
CASE: Perpetual Savings Bank v. Fajardo
SUMMARY: J.J. Mining issued a promissory note, signed by
Fajardo and Mundo to PSB. Upon maturity and despite
Perpetuals repeated demands, the PN was not paid. PSB
filed a complaint against JJ Mining and Jose Jalandoni(stock
holder) for the collection of the amounts due, impleading
also Fajardo and Del Mundo as agents/ representatives of JJ
Mining. Fajardo and Del Mundo filed a MTD on the ground
that the complaint failed to state a cause of action against
them. MTD was denied, MR was denied. CA: Granted the
motion and dismissed the case. SC: The complaint state a
cause of action against Fajardo and Del Mundo. Case
remanded to TC for further proceedings. Fajardo and Del
Mundo were impleaded as agents/ representatives of JJ
Mining who were signatories in the promissory note or
alternatively, in their personal capacities. (1) If they were
properly authorized, and acted within the scope of their
authority, then JJ Mining is the maker of the note which is
directly liable to the bank, and not respondents who merely
acted for JJ Mining in that transaction. This is because JJ
Mining has a personality separate and distinct from the
persons who have been duly authorized to represent the
corporation in that particular transaction. (2) If Fajardo and
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 61

Del Mundo purported to act for and in behalf of JJ Mining,

and were either not authorized at all or somehow acted in
excess of their authority as agents/ representatives of JJ
Mining, then in principle, they would be personally liable
instead of the corporation unless JJ Mining actually received
all or part of the proceeds of the loan and benefited, and to
that extent, had impliedly ratified the transaction. Fajardo
and Del Mundo are being sued as tort-feasors who
contracted the loan although they allegedly knew that the
apparent principal obligor, J.J. Mining, would never be able to
pay the loan upon maturity. The cause of action here is
fraudulent inducement, concealment or misrepresentation
exercised upon the bank which was misled into granting and
releasing the loan. The second basis for suing Fajardo and
Del Mundo in their personal and individual capacities is that
they allegedly used the proceeds of the loan for their own
personal benefit, rather than for the benefit of the
corporation. (3) A third possible basis for seeking to hold
Fajardo and Del Mundo liable in their personal capacities is
that they acted without or in excess of their authority as
agents or representatives of the borrower corporation. This
third basis, however, was not explicitly set out by the bank
in its complaint. The complaint did not directly allege this.
However, such an allegation may be said to have been
implicitly made along with the allegation that respondents
had knowingly induced petitioner to grant the loan though
J.J. Mining had no capacity to pay, or with the allegation that
respondents had converted the loan proceeds to their
personal benefit. Sec. 13, Rule 3 of the RoC on alternative
defendants is applicable. The bank had pleaded with
sufficient clarity its claimed rights against alternative
defendants: the borrower corporation and Fajardo and Del
Mundo. That the rights pleaded against the borrower
corporation are prima facie inconsistent with the rights
pleaded against Fajardo and Del Mundo, is also clear: either
the borrower corporation alone is liable; or respondents
Fajardo and Del Mundo are alone liable in lieu of J.J. Mining;
or Fajardo and Del Mundo are solidarily liable with J.J. Mining.
DOCTRINE:
Test for determining W/N a complaint states a cause
of action: W/N admitting hypothetically the truth of the
allegations of fact made in the complaint, a judge may
validly grant the relief demanded in the complaint.
CASE: Eurotech Industrial Technologies, Inc. v. Cuizon
SUMMARY: Eurotech sold to Impact Systems, owned by
ERWIN, various products including a sludge pump. EDWIN is
the sales manager of Impact Systems. EDWIN and Alberto
de Jesus, general manager of Eurotech, executed a Deed of
Assignment of receivables from Toledo Co. in favor of
Eurotech for the delivery of the pump (for payment of its
balance). Pump was delivered. Edwin and Erwin, despite
Deed of Assignment, proceeded to collect from Toledo Co.
the receivables. Despite demands, EDWIN and Erwin were
still unable to make full payment. Hence, Eurotech instituted
a complaint for sum of money, damages, with application for
preliminary attachment. Edwin alleged that he is not a real
party in interest in this case: he was acting as mere agent of
his Impact Systems, in his transaction with Eurotech and the
latter was very much aware of this fact (as stated in the
complaint and deed of assign). RTC dropped EDWIN as a
party defendant. SC: Edwin is not personally liable as agent.
Neither did he exceeded his authority when he signed the
Deed of Assignment. EDWIN does not fall within any of the
exceptions contained in this NCC 1897 (See doctrine) Deed
of Assignment clearly states that respondent EDWIN signed
thereon as the sales manager of Impact Systems. The
position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of
the principal, thus: "The powers of an agent are particularly
broad in the case of one acting as a general agent or

manager; such a position presupposes a degree of

confidence reposed and investiture with liberal powers for
the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the
business entrusted to his care and management. In the
absence of an agreement to the contrary, a managing agent
may enter into any contracts that he deems reasonably
necessary or requisite for the protection of the interests of
his principal entrusted to his management' Edwin acted wellwithin his authority when he signed the Deed of Assignment.
EDWINs participation in the Deed of Assignment was
"reasonably necessary" or was required in order for him to
protect the business of his principal
DOCTRINE:
NCC 1897 reinforces the familiar doctrine that an agent, who
acts as such, is not personally liable to the party with whom
he contracts
Two instances when an agent becomes personally liable to a
third person:
(1) when he expressly binds himself to the obligation
(2) when he exceeds his authority
In the last instance, the agent can be held liable if he does
not give the third party sufficient notice of his powers
NCC 1897 "does not hold that in case of excess of authority,
both the agent and the principal are liable to the other
contracting party". The first part of Article 1897 declares
that the principal is liable in cases when the agent acted
within the bounds of his authority -> agent is completely
absolved of any liability
The second part presents situations when the agent himself
becomes liable to a third party when he expressly binds
himself or he exceeds the limits of his authority without
giving notice of his powers to the third person.
In case of excess of authority by the agent, law does not say
that a third person can recover from both the principal and
the agent
C. Consequences When Agent Acts in His Own Name
Art. 1883. If an agent acts in his own name, the principal
has no right of action against the persons with whom the
agent has contracted; neither have such persons against the
principal.
In such case the agent is the one directly bound in favor of
the person with whom he has contracted, as if the
transaction were his own, except when the contract involves
things belonging to the principal.
The provisions of this article shall be understood to be
without prejudice to the actions between the principal and
agent.
acts in his own name

An agent acts in his own name when he enters into a

contract covering the subject matter of the agency
without notice to the third party that he was acting as
an agent.

In such a scenario, the third person believes in good

faith that he is dealing with the agent only. The agent is
directly bound as a party to the contract. Hence, the
principal and the third person have no cause of action
against each other.

often referred to as an agency with an undisclosed

principal

If the contract involves things belonging to the principal,

the agent remains liable to both the principal and the
third person. The exception does not say that such third
person does not have, and cannot bring an action
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 62

against the agent also. (Beaumont v. Prieto) Principal

has no right of action against persons with whom agent
has contracted
Effect

Principal also cannot be liable

Binding only to agent not principal

EXCEPTION:
o
When property involved in the contract belongs
to principal (transaction undertaken still for
account of principal)

Remedy of principal is to recover from agent damages

If on a matter that falls within the Scope of the agency

o
Breach of fiduciary duty of loyalty
o
Principal has the right to demand that the agent
should turn-over to him whatever contract,
property, business has been acquired
o
Agent personally liable to 3rd person
CASE: Albert v. University Publishing Co. (1965)
SUMMARY: (Battle of the law book authors) CA Justice
Albert won a case against his publisher UPC for breach of
contract. Upon execution of the judgment, it was discovered
that UPC was not registered with the SEC as a corporation.
The administrator of Justice Alberts estate therefore moved
to have the judgment executed on UPC President Aruego,
with whom Justice Albert transacted in the first place. UPC
countered that Aruego was not a party to the case, impliedly
asserting that it exists as a corporation. CFI denied the
motion but the SC upheld it, saying that UPC never adduced
any evidence to prove its existence as a corporation. Aruego
can therefore be held liable for the judgment since he is the
(mis)representative of UPC. From the original filing of the
case in 1949 it was Aruego who was appearing and litigating
for UPC. Both as counsel and as purported president, Aruego
is therefore the real party to the contract and the judgment
can be executed upon him.
DOCTRINE: One who has induced another to act
upon his wilful misrepresentation that a corporation
was duly organized and existing under the law,
cannot thereafter set up against his victim the
principle of corporation by estoppel. A representative
or agent of a non-existent principal who enters into a
contract and executes acts under it is also liable under that
same contract. "A person acting or purporting to act on
behalf of a corporation which has no valid existence
assumes such privileges and obligations and
becomes personally liable for contracts entered into
or for other acts performed as such agent".
D. Liability of agent for interest
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.
(1) to sums belonging to the principal which the agent
applied to his own use and

by way of compensation of indemnity (not to be

confused with interest for delay) which shall be
computed from the day on which he did so

the agents liability is w/o prejudice to a criminal action

tha may be brought against him because of the
conversion
(2) to sums which the agent still owes the principal after the
expiration of the agency

exception to rule that while there is no liability for

interest on sums which have not been converted for the
agents own use

If by provision of law the agent is bound to deliver to the

principal whatever he may have received by virtue of
the agency, demand is no longer necessary
The obligation to pay interest pertains to funds the
agent applied to personal use.
Article provides that an agent is only entitled to borrow
funds from the agency if the agent has been authorized
to lend money at interest. Authorization is required.
If the agent uses agency funds for personal use, there is
no reason why he should not be required to pay interest
apart from other penalties arising from such use despite
lack of authorization.

E. Liability of agent for fraud and negligence/

intentional wrong (Art. 1909)
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.
(1) In the fulfillment of his obligation, the agent is
responsible to the principal not only for fraud committed by
him but also for negligence.

It is his duty to notify the principal of all the relevant

and material facts or any information having a
bearing on the interests of the principal as soon as
reasonably possible aster learning them.

The circumstance that the agency is or is not

gratuitous will be considered by the courts in fixing
the liability of the agent for negligence (not fraud)
o
Agency is presumed to be for compensation

But the agent is liable when he does not discharge

the agency with due promptness, or accdg. to the
instructions of the principal, or w/in the limits of his
authority, or when he does not make use of the
powers conferred to him
(2) Quasi-delict or tort may be committed by act or
omission.

If it causes damage to another, there being fault or

negligence, the guilty party is liable for the damage
done

Art.
1909
speaks
of
negligence
(simple
carelessness).

-The agent, to be sure, is also liable for torts

committed willfully.

GR: The principal is not responsible if the agents

tort was intentional rather than merely negligent
o
Reason: An intentional wrong committed by
one employed is more likely motivated by
personal reasons than by a desire to serve
or benefit his employer

The principal is solidarily liable if the tort was

committed by the agnent while performing his
duties in furtherance of the principals business
CASIS NOTES:

If the agent was compensated for his services, the

amount of damages he is liable for in case of fraud or
negligence may be more as compared to if he rendered
service gratuitously.

The provision may also be interpreted to mean that an

agent who is paid is required to exercise a higher degree
of diligence than an agent who is not.
CASE: Metropolitan Bank Trust Co. v. CA (1991)
SUMMARY: Agent Metrobank got exasperated (i.e.
nakulitan) with the repeated inquiries of principal Golden
Savings and Loan Association. It assumed that the treasury
warrants Golden had deposited were cleared and allowed
account holder Gomez to withdraw. It turns out that most of
the treasury warrants were not cleared. For a bank with
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 63

plenty of experience, Metrobank was negligent for not

checking the treasury warrants properly.
DOCTRINE: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.
THIRD PERSONS
Art. 1900. So far as third persons are concerned, an act
is deemed to have been performed within the scope of
the agent's authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an
understanding between the principal and the agent.
Art. 1901. A third person cannot set up the fact that the
agent has exceeded his powers, if the principal has
ratified, or has signified his willingness to ratify the
agent's acts.
Art. 1902. A third person with whom the agent wishes to
contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions
as regards the agency. Private or secret orders and
instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or
instructions shown them.
Scope of agents authority as to third persons (Art
1900)

Scope of agents authority: includes not only the

actual authorization conferred upon the agent by his
principal, but also that which has apparently or
impliedly been delegated to him
(1) Where authority no in writing

Every person dealing with an assumed agent is put

on an inquiry and must discover upon his peril , if he
would hold the principal liable, not only the fact of
the agency but the nature and extent of authority of
the agent

If he does not make such an inquiry, he is

chargeable with knowledge of the agents authority,
and his ignorance of authority will not be excused
o
He must act with ordinary prudence and
reasonable diligence to ascertain whether
the agent is acting and dealing with him
within the scope of his powers
o
The fact that one is dealing with an agent,
whether the agency be general or special,
should be a danger signal

The
mere
representation
or
declaration of one that he is
authorized to act on behalf of
another cannot of itself serve as
proof of his authority to act as
agent or of the extent of his
authority as agent
o
The mere opinion of an agent as to the
extent of his powers will not bind the
principal who may act on the presumption
that third persons dealing with his agent
will not be negligent as to the extent of his
authority as well as the existence of the
agency.

The authority or extent of authority

must be upon the basis of the
manifestations of the principal
himself

In case the fact of agency or the extent of authority

of the agent is controverted, the burden of proof is
upon the third person to establish it

In the absence of proof, he cannot seek

relief on the basis of a supposed agency.

The law makes no presumption

with respect to an agents authority
(2) Where authority in writing

If the authority of an agent is in writing, such person

(third person) is not required to inquire further than
the terms of the written power of attorney

As far as he (third person) is concerned, an act of an

the agent within the terms of the power of attorney
as written is within the scope of the agents
authority, although the agent has in fact exceeded
the limits of his actual authority according to the
secret understanding between him and the
principal.
o
In such a case, the principal is estopped
from claiming that the agent exceeded his
authority.
o
The rule is necessary to protect the
interests of third persons.
o

Methods of broadening and restricting agents

authority (UNDIE)
*from De Leon/BEDA
1. Implication
2. Usage and custom
Except:
a. Where it is sought to vary the terms of an express
authorization
b. Where it is sought thereby to dispose with a legal
requirement enacted for the principals benefit
c. Where it is sought thereby to change the rule of
law or as to dispense with the formality required by
law
d. Where it is sought to vary an essential quality of
the agency relationship
3. Necessity
Requisites
a. The emergency really exists
b. The agent is unable to communicate with the
principal
c. The agents enlarged authority is exercised for
the principals protection
d. The means adopted are reasonable under the
circumstances
4. Doctrines
a. apparent authority
b. liability by estoppel
c. ratification
5. Ejusdem generis (of the same kind)
Effect where third person aware of limits of agents
power (Art. 1898) *from De Leon/BEDA

The liability of an agent who exceeds the scope of his

authority depends on whether the third person is aware
of the limits of the agents power
The agent is not bound nor liable for damages
in case he gave notice of his powers to the
person with whom he has contracted nor in
case such person is aware of the limits of the
powers granted by the principal
The effect is to make the contract,
which is unenforce-able as against the
principal, void even as between the
agent and the third person, and
consequently, not legally binding on
them

If the agent promised or

undertook
to
secure
the
principals
ratification
and
failed, he is personally liable
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 64

If the ratification is obtained,

then the principal becomes
liable

COMMISSION AGENT
Art. 1903. The commission agent shall be responsible for
the goods received by him in the terms and conditions
and as described in the consignment, unless upon
receiving them he should make a written statement of the
damage and deterioration suffered by the same.
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.
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.
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.
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
collection and shall pay the principal the proceeds of the
sale on the same terms agreed upon with the purchaser.
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.
Factor or commission agent

One whose business is to receive and sell goods for

a commission (factorage) and who is entrusted by
the principal with the possession of goods to be
sold, and usually selling in his own name.

He may act in his own name or that of the principal

commission agent

also known as factor or commission merchant

one who receives goods from his principal for sale to

third persons, and for which service is entitled to
commission for the goods sold

an agent entitled to the possession of the goods of

the principal (Padilla) one whose business it is to
receive and sell goods for a commission (Mechem)

a commercial agent, employed by a principal to sell

merchandise consigned to him for that purpose, for
and in behalf of the principal, but usually in his own
name, being intrusted with the possession and
control of the goods and being remunerated by a
commission,
commonly
called
factorage
(Lindstrom v. Baybank)
Ordinary Agent
Need not have possession
of the goods of the
principal

Commission Agent
Must be in possession

Specific Obligations of a Commission Agent

Take Custody of Goods

Not Commingle Similar Goods Belonging to Different

Principal

Cannot Sell on Credit w/out Principals Authorization

To inform the principal of every pre-authorized sale

on credit
Shall bear the risk of collection under Del Credere
Commission Set-up
To collect credits of the principal
Responsibility for Fraud and Negligence

Liability of the commission agent as to goods

received (Art. 1903)

If the commission agent received goods consigned

to him, he is responsible for any damage or
deterioration suffered by the same terms and
conditions and as described in the consignment

in the terms and conditions and as described in the

consignment: refers to the quantity, quality and
physical condition of the goods.

To avoid any liability: the commission agent should

make a written statement of the damage and
deterioration if the goods received by him do not
agree with the description in the consignment
Obligation of commission agent handling goods of the
same kind and mark (w/c belong to different owners)
(Art. 1904)
(1) distinguish them by countermarks
(2) designate the merchandise respectively belonging to
each principal

Purpose: Prevent any possible confusion or

deception

Agent may not commingle the goods without

authority

An agent is also under the duty not to mingle his

principals property in a way which would make it
appear to be his own property.

Ordinarily, the agent must hold the property only in

the name of the principal .

Where he violates that duty by mingling the

property as w/ his own, he (the agent) becomes
liable to him (the principal) for any losses suffered
as a result of the mingling
Exceptions
(1) BY CUSTOM: some agents (ie. auctioneers), normally are
permitted to mingle their principals property with their own
(2) some agents (i.e. collecting banks) are permitted to
mingle the funds of their principal (depositior) w/ their own
and the property of the other principals
Sale on credit by commission agent (Art 1906)

A commission agent can sell on credit only with the

express or implied consent of the principal
Two Alternatives of the principal if sale on credit is
made w/o authority
(1) He may require payment in cash

Any interest or benefit from the sale shall belong to

the agent since the principal cannot be allowed to
enrich himself at the agents expense
(2) He may ratify the sale on credit

It will have all the risks and advantages to him

Obligation of commission agent where sale on credit
authorized (Art. 1906)

Commission agent shall inform the principal with a

statement of the names of the buyers

Upon failure of the agent to inform the principal of

such sale on credit w/ a statement of the names of
the buyers, the sale shall be deemed to have been
on a cash basis in so far as the principal (not third
parties) is concerned
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 65

Purpose: To prevent the agent form stating that the

sale was on credit when in fact it was made for
cash

Guarantee commission (Art. 1907)

One where, in consideration of an increased

commission, the factor or commission agent
guarantees to the principal the payment of the
debts arising through his agency

Purpose: To compensate the agent the risks he will

have to bear in the collection of the credit due the
principal

Art. 1907 applies to both cash and credit sales

because it make no distinction
Del credere agent

an agent who guarantees payment of the

customers account in consideration of the higher
commission

bear risk of collection and pay the principal the

proceeds of the sale on the same terms agreed
upon with the purchaser
Nature of liability of a del credere agent

An agent with a del credere commission is liable to

the principal if the buyer fails to pay or is incapable
of paying
o
not primarily the debtor

Principal may sue the buyer in his own name

notwithstanding the del credere commission, so
that the latter amounts no more than a guaranty

The liability of a del credere agent is a contingent

pecuniary liability to make good in the event the
buyer fails to pay the sum due.
o
It does not extend to other obligation of the
contract

A del credere agent may sue in his own name for

the purchase price in the event of non-performance
by the buyer
Obligations of commission agent to collect credits of
the principal (Art. 1908)

A commission agent who has made an authorized

sale on credit must collect the credits due the
principal at the time they become due and
demandable

If he fails to do so, he shall be liable for damages

unless he can show that the credit could not be
collected notwithstanding the exercise of due
diligence on his part

Where the agent is not liable, the principals

remedy is to proceed against he debtor

Art. 1908 does not apply to a case where there is a

guarantee commission
IV.RIGHTS,
PRINCIPAL

OBLIGATIONS,

and

LIABILITY

OF

THE

A. RIGHTS
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

Right of principal when sale on credit made without

authority
The principal has a right to demand from the agent
payment in cash if without the express or implied

consent of the principal, he sells on credit; but the

commission agent shall be entitled to any interest or
benefit which may result from such sale.
o
The principal is not allowed to enrich himself at
the agents expense
The principal may also ratify the sale on credit in which
case, it shall have all the risks and advantages to him

CASE: Green Valley Poultry & Allied products, Inc. v.

IAC
SUMMARY: Green valley and Squibb entered into a letter of
agreement whereby Green valley would be a non-exclusive
distributor for Squibb veterinary products. Squibb filed suit
to collect alleging that the contract was one of sale. Green
valley alleges that it was a mere agency to sell and the
action was premature as they have yet to collect from
purchasersSC: Whether it is an agency to sell or a contract
to sell, green valley is liable because it sold on credit without
authority from its principal. SC applied NCC 1905. If the
contract is an agency to sell, it is liable because it sold on
credit without authority from its principal.
DOCTRINE: 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.
(See Art. 1905, discussed already)
B. OBLIGATIONS (Arts. 1912-1914)
1. Comply With All Obligations Contracted By Agent
Within the Scope of His Authority
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.
Binding Effect of the Terms of the Contract of Agency

Contract is law between the parties. Principal is

bound by the terms agreed upon under the contract
of ageancy.

A contract of agency which is not contrary to law,

public order, public policy, morals or good custom is
a valid contract and constitutes the law between the
parties

However, principal has power to evolve the

relationship beyond the written terms of the
instrument and agent bound to comply by virtue of
fiduciary duty of obedience w/c shows the
characteristic of agency as a progressive contract
a. Acts within scope of his authority
Principal Bound by the Contracts Made by the Agent
in his behalf

GENERAL RULE: Principal responsible for all acts done by

agent within the scope of authority

EXCEPTION: Principal is not Bound

o
Agent expressly binds himself

Must be stipulated or he consents

o
Agent exceeded his authority

Agency not void; just not valid as

against principal; unenforceable

Principal no bound by contracts made

without authority or outside the scope
of authority
o
Agent goes against instruction of principal

EXCEPTION TO EXCEPTION: Principal personally bound

(May be solidarily liable)
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 66

Principal ratifies contract, expressly or tacitly

(Art. 1910)
o
Principal allowed agent to act as though he had
full powers (Agency By Estoppel) (Art. 1911)
o
Principal revoked agency but 3rd party has acted
in good faith without notice of such revocation
Burden of proof: Plaintiff (3 rd party) to prove agency
relationship
Even when the agent has expressly bound himself to the
contract entered in the name of the principal, the act
does not relieve the principal from the obligations
incurred
Knowledge of the agent is chargeable as knowledge of
the principal
If a third person waives his claims against the principal,
he cannot assert them against the agent
Principal may be bound to the effects of dishonesty and
misrepresentations (even negligence) of the agent
Instances when the principal can be held personally
liable for his agents deceitful acts exercised on third
parties (Pahud v. CA)
o
If the representation is authorized
o
If it is within the implied authority of the agent
to make for the principal
o
If it is apparently authorized, regardless of
whether the agent was authorized by him or not
to make the representation
o

CASE: Prudential Bank v. CA

SUMMARY: Depositor was made to sign a withdrawal slip on
the representation of a bank employee that it was simply a
procedural requirement for the renewal of her Central Bank
bills investment. When she wanted to withdraw her deposit,
the bank refused, saying that she had already withdrawn her
deposit when she signed the withdrawal slip. Meanwhile the
bank employee had disappeared. Suit ensued. SC: there was
breach of the contract involving the investment because the
bank employee acted as agent of the bank in accepting the
investment and subsequently acting in relation to such
investment. The acts of the employee bound the bank with
respect to the depositor and the bank cannot now escape
liability by claiming that it was held liable on a quasi-delict.
PRUDENTIAL as principal is liable for the acts of its
employees in entering into the investment with CRUZ.
DOCTRINE: The New Civil Code affirms the ancient legal
rule that the principal is liable for the acts of the agent
because these acts are deemed to be acts of the principal.

Banks are liable for the wrongful or fraudulent acts

committed by its officers which were made in the course
of official dealings or in the interests of the bank more
so because the trust and confidence of the people in the
banks must be maintained by imposing high standards
of fidelity and honesty in these institutions.

Qui per alium facit per seipsum facere videtur (He who
does a thing by an agent is considered as doing it
himself). A bank is liable for wrongful acts of its officers
done in the interests of the bank or in the course of
dealings of the officers in their representative capacity
but not for acts outside the scope of their authority. A
bank holding out its officers and agent as worthy of
confidence will not be permitted to profit by the frauds
they may thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. Banks have
a fiduciary relationship with its customers and the
stability of the banking system depends upon popular
trust and confidence in its honesty and efficiency.

[A] banking corporation is liable to innocent third

persons where the representation is made in the course
of its business by an agent acting within the general
scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or
some other person, for his own ultimate benefit.

b. Ratified Acts
Conditions for Ratification (Accdg. to BEDA)

Principal must have capacity and power to ratify

Principal must have had knowledge of material facts

Principal must ratify the acts in its entirety

Act must be capable of ratification

Act must be done in behalf of the principal

Acts that may be ratified

Valid/Void acts

Voidable acts

Unrevoked acts

Criminal acts

Tortious acts
RATIFICATION
Basis
Rests on the intention,
express
or
implied,
regardless of prejudice to
another
Effect
Is retroactive and makes
the unauthorized act good
from the beginning

Substance
Confirmation
of
the
unauthorized
act
or
contract after it has been
done or made. Ratification
may be complete without
any element of estoppel

ESTOPPEL
Rests on prejudice rather
than intention

Operates upon something

which has been done but
after the misleading act
and in reliance on it and
may only extend to so
much of such act as can be
shown to be affected by
the stopping conduct
Principals inducement to
another to act to his
prejudice. Acts and conduct
amounting to an estoppel
de pais may in some
instances
amount
to
ratification

Principals responsibility where agent acted with

improper motives
GR: Motive of agent is immaterial
Exceptions:
(1) Where third person knows that the agent is
acting for his benefit
(2) Where owner is acting for his benefit
Principals
responsibility
for
agents
misrepresentation
1. Within the scope of authority

principal is liable
2. Beyond the scope of agents authority

principal is not bound but he cannot take advantage

of the contract
3. For the agents own benefit

If it is within the scope of authority, the weight of

authority holds the principal liable
Ratification by the principal (Art. 1901)

Binding effect of ratification

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 67

same effect as if the principal originally

authorized it
o
The 3rd person cannot set up the fact that
the agent exceeded his authority to
disaffirm his contract not only after the
principal has ratified the agents acts but
even before such ratification where he has
signified his willingness to ratify
o
Ratification shall have a retroactive effect

It relates back to the time of the

act or contract ratified and is
equivalent to original authority

Only principal can ratify

o
There must be knowledge on the part of the
principal of the things he is going to ratify
o
Before ratification by the principal or
expression of willingness on his part to
ratify, the third person may repudiate the
act of the agent

Receipt by the principal of benefits of the

transaction
o
Where a person acts for another who
accepts or retains the benefits or proceeds
of his effort with knowledge of the material
facts surrounding the transaction, the latter
must be deemed to have ratified the
methods employed, as he may not, even
though innocent, receive or retain the
benefits and at the same time disclaim
responsibility for the measures by which
they were acquired

in accord w/ the principle that a

principal may not accept the
benefits of a transaction and
repudiate its burdens
CASIS NOTES

The principal must have full knowledge at the time of

ratification of all the material facts and circumstances
relating to the unauthorized act of the person who
assumed to act as agent. If material facts were
suppressed or unknown, there can be no valid
ratification. (Manila Memorial v. Linsangan)
o
does not apply if the principal s ignorance
was willful, or that he chooses to act in
ignorance of the facts. (Manila Memorial v.
Linsangan)

For an act of the principal to be considered as an implied

ratification of an unauthorized act of an agent, such act
must be inconsistent with any other hypothesis than
that he approved and intended to adopt what had been
done in his name. (Woodchild v. Roxas)
o

General rule: The acts of an agent beyond the scope of his

authority do not bind the principal.
Exception: when the principal ratifies them, expressly or
impliedly (Art. 1910)
Exception to the exception: if the principal does not have
full knowledge of all material facts (Manila Memorial v.
Linsangan)
Exception to the exception to the exception: when the
principal s ignorance was willful (Manila Memorial v.
Linsangan)
CASE: Board of Liquidators v. Kalaw (Mel)
SUMMARY: NACOCO assails Kalaws act of executing
contracts as its general manager without the Board of
Directors approval as required by NACOCOs by-laws for
which act resulted to NACOCOs liability to account for
settlements with buyers for undelivered copra when
typhoons ravaged the country. HELD: Kalaws acts were

valid. He has authority to act for and bind a corporation as it

may be presumed fromBoard of Directors recognition of such
authority through the years. The practice of the corporation
has been to allow its general manager to negotiate and
execute contracts in its copra trading activities for and in
NACOCO's behalf without prior board approval. By corporate
confirmation, the contracts executed by Kalaw are thus
purged of whatever vice or defect they may have.
DOCTRINE: See Art. 1901. Ratification by the principal (of
agents act w/c exceeded his authority) shall have
retroactive effect. It relates back to the time of the act or
contract ratified and is equivalent to original authority (as
seen in De Leon). Ratification by a corporation of an
unauthorized act or contract by its officers or others relates
back to the time of the act or contract ratified, and is
equivalent to original authority. The corporation and the
other party to the transaction are in precisely the same
position as if the act or contract had been authorized at the
time.
A corporate officer "intrusted with the general management
and control of its business, has implied authority to make
any contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the
corporation (2 Fletcher Cyclopedia Corporations).
As such officer, "he may, without any special authority from
the Board of Directors perform all acts of an ordinary nature,
which by usage or necessity are incident to his office, and
may bind the corporation by contracts in matters arising in
the usual course of business (Sparks vs. Dispatch Transfer
Co).
Where similar acts have been approved by the directors as a
matter of general practice, custom, and policy, the general
manager may bind the company without formal
authorization of the board of directors (Harris vs. H. C. Talton
Wholesale Grocery Co).
Existence of such authority is established, by proof of the
course of business, the usage and practices of the company
and by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation (Van
Denburgh vs. Tungsten Reef Mines Co).
So also, authority to act for and bind a corporation may be
presumed from acts of recognition in other instances where
the power was in fact exercised (McIntosh vs. Dakota Trust
Co).
When, in the usual course of business of a corporation, an
officer has been allowed in his official capacity to manage its
affairs, his authority to represent the corporation may be
implied from the manner in which he has been permitted by
the directors to manage its business (Murphy vs. W. H. & F.
W. Cane).
2 Fletcher, p. 858: Ratification by a corporation of an
unauthorized act or contract by its officers or others relates
back to the time of the act or contract ratified, and is
equivalent to original authority; the corporation and the
other party to the transaction are in precisely the same
position as if the act or contract had been authorized at the
time.
Kridelbaugh vs. Aldrehn Theatres Co:"The adoption or
ratification of a contract by a corporation is nothing more or
less than the making of an original contract. The theory of
corporate ratification is predicated on the right of a
corporation to contract, and any ratification or adoption
is equivalent to a grant of prior authority.
NCC 1396: Ratification cleanses the contract from all its
defects from the moment it was constituted
c. When Estopped
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
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 68

powers.

There is an actual agency relationship, but the agent

acts in excess of his authority. It is not a case of agency
by estoppel because there is an actual agency. It can
apply to both implied and express agencies.
o
The rule covers the absence of express
authority, not the absence of an agency.

Despite the absence of express authority, the principal

is solidarily liable because he allowed the agent to act
as if he had authority. (See Board of Liquidators v. Kalaw
and Francisco v. GSIS, supra, page 27)
o
The principal is estopped due to his failure to
repudiate, which indicates an implied agency.
CASE: Cuison v. CA
SUMMARY: Cuison had a branch office in Binondo where Tiu
was his manager. Tiu made several orders of paper products
to Valiant. Valiant delivered the products Tan, also pursuant
to Tius instructions. When Valiant sought to collect from
Cuison after the postdated checks issued by Tiu were
dishonored, Cuison denied that Tiu was authorized to make
the said orders.
HELD: Cuison is now estopped from denying Tius
authority.By his own acts and admission, Cuison held out Tiu
Huy Tiac to the public as the manager of his store in
Binondo. No reason for anybody especially those transacting
business with Cuison to even doubt the authority of Tiu Huy
Tiac as his manager. THUS, the transaction in question as
well as the concomitant obligation is valid and binding upon
Cuison. Tiu Huy Tiac, therefore, by Cuison's own
representations and manifestations, became an agent of
Cuison by estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon
(Art. 1431).
DOCTRINE: 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 (Article 1911). It (Art. 1911) is intended to protect
the rights of innocent persons. In such a situation, both the
principal and the agent may be considered as joint
tortfeasors whose liability is joint and solidary

It matters not whether the representations are

intentional or merely negligent so long as innocent, third
persons relied upon such representations in good faith
and for value

PNB v IAC: A party cannot be allowed to go back on his

own acts and representations to the prejudice of the
other party who, in good faith, relied upon them

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
(Article 1911), as in the case at bar.

As between two innocent parties, the one who made it

possible for the wrong to be done should be the one to
bear the resulting loss (Francisco vs. GSIS)
Obligations of the Principal to the Agent
A. To Pay Agents Compensation

GENERAL RULE: Pay in accordance with the terms

agreed upon (Art. 1875. Agency is presumed to be for a
compensation unless there is proof to the contrary)

EXCEPTION: If no particular formula agreed upon

o
Principal shall pay only on the legal basis that
the agent has complied with his obligations with
the principal
o
Reasonable value of the agents services

Agency is presumed to be for compensation, unless

there is proof to the contrary (Art. 1875)
An action upon a written contract, such as a contract of
agency, must be brought within ten years from the time
the right of action accrues

B. To Advance Sums Requested for Execution of the

Agency
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.

If requested

If agent advanced them, principal to reimburse with

interest

WHEN NOT LIABLE TO REIMBURSE:

o
Against principals instructions

UNLESS: Availed of benefit

o
Expenses due to agents fault
o
Agent incurred them w/ knowledge that an
unfavorable result would ensue

Principal must be w/out knowledge

o
Stipulated that expenses would be borne by
agent/entitled to only a certain or specific sum

UNLESS: Action is under Art. 1236 for

obligations and contracts for which
recovery is allowed to agent only
insofar as the payment is beneficial to
principal (unjust enrichment)
o
Dominion v. Insurance: While the Law on
Agency prohibits the area manager from
obtaining reimbursement, his right to recover
may still be justified under the general law on
obligations and contracts, particularly Art 1236
of the NCC on payment by a third party of the
obligation of the debtor. To rule otherwise would
result in unjust enrichment.
C. To Indemnify Agent for Damages Sustained
Art. 1913. The principal must also indemnify the agent for
all the damages which the execution of the agency may
have caused the latter, without fault or negligence on his
part.

Without fault or negligence on agents part

Art. 1913 is counter balance to Art. 1884 w/c makes

agent liable for damages by virtue of non-performance
of obligation

RIGHT TO RETENTION For Advances & Damages

o
Retain in pledge the object of agency until
principal effects reimbursement and pays
indemnity covering advances made and
damages sustained
o
LEGAL PLEDGE: Agent not entitled to excess
o
De Leon: Thing must be in possession of agent;
acquired lawfully and in his capacity as agent

Albadejo v. Cia: all expenses incurred and any loss

sustained, by the agent in pursuit of the business of the
principal and those undertaken upon instruction of the
principal, should be reimbursed by the principal to the
agent
D. To Reimburse the Agent for what the Latter has
Advanced (Plus Interest) *From de leon
Art. 1914. The agent may retain in pledge the things which
are the object of the agency until the principal effects the
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 69

reimbursement and pays the indemnity set forth in the two

preceding articles.

Even if the business was not successful, provided the

agent was free from fault
C. LIABILITY (Art. 1915-1918)
*Note: Liability of the Principal

vis--vis the agent : Arts 1915 and 1918

vis--vis third persons : Arts 1916 and 1917 (also

1910 and 1911)
WHEN LIABLE
1. Obligation of 2 or More Principals to Agent
Appointed for Common Transactions
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.
Principals are Solidary: Agent may collect from any of
them the whole compensation and indemnity owing to
him by the others
Only those interested or bound themselve\s in particular
transactions are solidary
The solidarity arises from the common interest of the
principals and not from the act of constituting the
agency.
Art. 1915 applies even when the appointments were
made in separate acts
Joint Principal

Two or more persons who appoint an agent on a

common transaction or undertaking
Requisites

2 or more principals

Principals have all concurred in the appointment of

the same agent

Agent appointed for a common transaction or

undertaking
2. Contract Involving Things Belonging to the
Principal
Art. 1883. If an agent acts in his own name, the principal
has no right of action against the persons with whom the
agent has contracted; neither have such persons against the
principal.
In such case the agent is the one directly bound in favor of
the person with whom he has contracted, as if the
transaction were his own, except when the contract involves
things belonging to the principal.
The provisions of this article shall be understood to be
without prejudice to the actions between the principal and
agent.

General rule: The principal is not bound when the agent

acts in his own name. (Art. 1883)
o
Third person has no cause of action against
principal, and vice versa.

Exception: when the contract involves things belonging

to the principal (Art. 1883, second paragraph)
o
The principal is considered a party tot eh
contract. He can enforce rights under the
contract. (NFA v. IAC)
o
The principal is entitled to the benefits of the
transaction. (Syjuco v. Syjuco)

Exception to the exception: when the agent acts beyond

the scope of his authority

The principal is not bound in this event (PNB v.

Agudelo)

3. Liability of principal towards third persons for

Ignorance of Agent (Art 1899)
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.

GENERAL RULE: If the principal appoints an agent who is

ignorant, the fault is his alone
o
Equity demands that the principal should be
bound by the acts of his agent

NOT APPLICABLE: If agents acts are intentional

3. Liability for Agents Illicit Acts/Tort
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.
GENERAL RULE:

Principal liable to injured parties for torts committed by

agent at the principals direction or in the course of and
w/n scope agents authority

Where the fault or crime committed by agent is not in

the performance of an obligation of the principal, the
latter is not bound by the illicit act of the agent, even if
it is done in connection with his function
EXCEPTIONS:

Where the delict or the quasi-delict was committed by

the agent because of the defective instructions from the
principal, or due to lack of necessary vigilance or
supervision of his part, the principal is liable for his own
negligence

When the agent secures a contract through fraud, or

makes a fraudulent alienation, or executes a simulated
contract, all of these acts are imputable to the principal
as if done by him, because the illicit act is inseparable
from the transaction executed from him.

When the crime consists in the performance of an act

which is within the powers of an agent, but becomes
criminal only because of the manner in which the agent
has performed it, the principal is also liable to third
persons who acted in good faith
NOTE:

Principal is still liable for mismanagement of business by

agent
EFFECT:

Versoza v Lim: Owner and agent are liable for damages

HOWEVER, See Eurotech

o
If agent exceeds authority, 3 rd party cannot
recover from both principal and agent

But accdg to BEDA: The agent is also liable with the

principal and their liability is solidary
*Other BEDA/De Leon notes
Motivation-Devition Test

The bounds of the agents authority are not the

limits of the principals tort liability, but rather the
scope of employment which may or may not be
within the bounds of authority. Scope of
employment is much wider than scope of authority
Requisites for vicarious liability *Note that Maam never
mentioned this , usually may isang liable lang sa kanya

Satisfactory evidence that the employee in doing

the act, in which the tort is committed, was
motivated in part, at least, by a desire to serve his
employer
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 70

Satisfactory evidence that the act, in the doing of

which the tort is committed, was not an extreme
deviation from the normal conduct of such
employee

4. Liability for Damages for Breach of Contract if

Revoke Authority Without Just Cause Prior to End of
Period
CASE: Diolosa v. CA
SUMMARY: Sps. Diolosa, owners of Villa Alegre Subdivision,
entered into an agreement with Baterna, constituting him as
their exclusive sales agents until all the properties in the
subdivision has been disposed of. Subsequently, the Sps.
Diolosa terminated the agreement for the reason that they
wanted to reserve the remaining lots for their grandchildren.
HELD: the intention of the Sps. cannot prevail over the clear
terms of the agreement (to dispose of, sell, cede, transfer
and convey ... until out the subject property as subdivided is
fully disposed of."). The Sps. were held liable for damages
for breach of contract. The agency agreement is a valid
contract. Not one of the grounds for rescission (in Art 1381
and 1382) is present which may be the subject of an action
of rescission, much less can the Sps say that Baterna
violated the terms of their agreement-such as failure to
deliver to them (Subdivision owners) the proceeds of the
purchase price of the lots.
DOCTRINE: Principal is liable for damages for breach of
contract in revoking the agency without valid cause.
CASE:Valenzuela v. CA
SUMMARY: Valenzuela was an agent of Philamgen in
soliciting and selling non-life insurances and was paid on
commission basis. Because of his reluctance to agree on a
proposal by Philamgen to share with his commissions, he
was terminated and was held liable to pay half of the unpaid
and uncollected premiums he contracted with policyholders.
SC: Valenzuela, as agent, cannot be held liable to pay the
unpaid premiums by insured, since such non-payment
rendered the policies ineffective and inexistent. Sec 77
provides that the remedy for the non-payment of premiums
is to put an end to and render the insurance policy not
binding. It is inconsistent for the company to hold such
policies invalid for recovering indemnity and to collect the
unpaid premiums of the policies.
1) The agency involving Valenzuela and Philamgen is one
"coupled with an interest," and, therefore, should not be
freely revocable at the unilateral will of the latter. The
primary and compelling reason or the pivotal factor
rendering Philamgen and the others liable in damages is
that the termination by them of the General Agency
Agreement was tainted with bad faith. With the termination
of the General Agency Agreement, Valenzuela would no
longer be entitled to commission on the renewal of
insurance policies of clients sourced from his agency. Worse,
despite the termination of the agency, Philamgen continued
to hold Valenzuela jointly and severally liable with the
insured for unpaid premiums. Valenzuela had an interest in
the continuation of the agency when it was unceremoniously
terminated not only because of the commissions he should
continue to receive from the insurance business he has
solicited and procured but also for the fact that by the very
acts of the respondents, he was made liable to Philamgen in
the event the insured fail to pay the premiums due.
Termination of Valenzuela as General Agent was improper
because the principal cause of his termination was his
refusal to share his Delta commission. The records show the
apparent bad faith of Philamgen and its officers in
terminating the General Agency Agreement of Valenzuela
[as in facts]. Valenzuela is entitled to damages.
DOCTRINE:
GENERAL RULE: An agency is revocable at will of principal.

EXCEPTION: When the agency has been given not only for
the interest of the principal but for the interest of third
persons or for the mutual interest of the principal and the
agent. In these cases, it is evident that the agency ceases to
be freely revocable by the sole will of the principal (Padilla,
Civil Code Annotated).

The principal may not defeat the agent's right to

indemnification by a termination of the contract of
agency (Erskine v. Chevrolet Motors Co).

Where the principal terminates or repudiates the agent's

employment in violation of the contract of employment
and without cause ... the agent is entitled to receive
either the amount of net losses caused and gains
prevented by the breach, or the reasonable value of the
services rendered. Thus, the agent is entitled to
prospective profits which he would have made except
for such wrongful termination provided that such profits
are not conjectural, or speculative but are capable of
determination upon some fairly reliable basis. And a
principal's revocation of the agency agreement made to
avoid payment of compensation for a result which he
has actually accomplished (Hildendorf v. Hague, et.al)

If a principal violates a contractual or quasi-contractual

duty which he owes his agent, the agent may as a rule
bring an appropriate action for the breach of that duty.
The agent may in a proper case maintain an action at
law for compensation or damages ... A wrongfully
discharged agent has a right of action for damages and
in such action the measure and element of damages are
controlled generally by the rules governing any other
action for the employer's breach of an employment
contract. (Riggs v. Lindsay, et.al.)
LIABILITY FOR DAMAGES OF PRINCIPAL: If a principal acts in
bad faith and with abuse of right in terminating the agency,
then he is liable in damages. This is in accordance with the
precepts in Human Relations enshrined in our Civil Code
(Art. 19, 20 & 21).

A principal can be held liable for damages in cases of

unjust termination of agency.

Danon v. Brimo: Where no time for the continuance of

the contract is fixed by its terms, either party is at
liberty to terminate it at will, subject only to the ordinary
requirements of good faith. The right of the principal to
terminate his authority is absolute and unrestricted,
except only that he may not do so in bad faith.

Under NCC 2200, "indemnification for damages shall

comprehend not only the value of the loss suffered, but
also that of the profits which the obligee failed to
obtain."
WHEN NOT LIABLE
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.
CONFLICTING CONTRACTS
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,
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 71

without prejudice to the provisions of Article 1544.

Art. 1917. In the case referred to in the preceding
article, if the agent has acted in good faith, the principal
shall be liable in damages to the third person whose
contract must be rejected. If the agent acted in bad faith,
he alone shall be responsible.
Rights of Persons when faced with Conflicting
Contracts

Contemplates
2
separate
contracts
constituted
separately by agent and principal

Must be with regard to the same thing and the contracts

are incompatible with each other

Contract of prior date will be preferred

If agent acted in good faith: Principal liable in damages

to 3rd person whose contract must be rejected

If agent in bad faith: Agent alone is responsible

Court: Agent Montelibano was able to sell principal

Keelers electric plant to third person Rodriguez.
Rodriguez paid the price to Montelibano who issued a
receipt. The Court held that the receipt did not prove
that Montelibano was the agent authorized to sell
Keelers electric plant, and that persons dealing with an
assumed agent are bound at their peril to ascertain the
truth of the agency and the extent of authority of the
agent. The burden of proof is on the third person who
must act with ordinary prudence and reasonable
diligence because it is entirely within his power to
satisfy himself that the agent has the authority.
The Keeler rules provide principles for determining the
existence of authority assumed by an agent. (Do not
refer to them as the Keeler rules in exams, since the
name was only something Sir invented for brevity.)

a. Fundamental principles
i. The law indulges in no bare presumption that an
Art. 1544.
agency exists: it must be proved or presumed from facts

If the same thing should have been sold to different

Agency cannot be presumed because agency

vendees, the ownership shall be transferred to the
requires mutual consent, whether express or
person who may have first taken possession thereof
implied, from the principal and agent.
in good faith, if it should be movable property.

Just because a person acts like an agent does not

Should it be immovable property, the ownership

automatically mean there is an agency.
shall belong to the person acquiring it who in good
ii. The agent cannot establish his own authority, either
faith first recorded it in the Registry of Property.
by the representations or by assuming to exercise it.

Should there be no inscription, the ownership shall

GR: An agent does not have authority simply

pertain to the person who in good faith was first in
because he represented himself to have authority.
the possession; and, in the absence thereof, to the

XPN: if the principal was aware of the

person who presents the oldest title, provided there
representations and did not repudiate them
is good faith.

XPN to the XPN: non-repudiation does not apply to

contracts declared void by law, such as the absence
V. THE THIRD PARTY DEALING WITH THE AGENT
of written authority in the sale of the principals land
through an agent.
A. Rights of Third Parties
iii. An authority cannot be established by mere rumor or
1. Require Presentation of Authority or Instructions
reputation
Article 1902. A third person with whom the agent wishes to contractgeneral
on behalf
of the principal may require
the
GR: agency.
It is not
sufficient
basisorders
for the third party to
the presentation of the power of attorney, or the instructions as regards
Private
or secret
consider
person
if the entire
and instructions of the principal do not prejudice third persons who have relied
uponathe
powerauthorized
of attorney even
or
community believes said person is the agent of
instructions shown them.
another.

An agent is obligated to disclose his specific authority

XPN: If the community is led to believe there is

and other orders given to him by his principal. In other
agency because of the principals acts that
words, it is the right of the third party to demand proof
apparently clothe the agent with authority.
of authority and instructions from the agent.

XPN to the XPN: apparent clothing does not apply to

The presumption is that the agent acts within the scope

contracts declared void by law, again, such as the
of authority, as far as third persons are concerned (refer
absence of written authority in the sale of the
to the previous discussion about acting within the scope
principals land through an agent.
of authority in part IV)
iv. Even a general authority is not an unlimited one

When an agent exceeds his authority, an agent may be

general authority is taken to mean an agency

personally liable to a third party if he did not give the
couched in general terms
party sufficient notice of his powers

General authority does not give the agent free reign

2. Reliance on Representation
to do anything, because acts of strict dominion

If a principal tells a third person that he has given a

require a special power of attorney
power of attorney to an agent, the latter will be
v. Every authority must find its ultimate source in some
considered a duly authorized agent in relation to the
act or omission of the principal
third person.

All the acts of the agent must have been expressly

The principal is responsible for the agents acts under

or impliedly authorized by the principal.
the concept of agency by estoppel.
c. Duty to inquire

It is the third partys duty to inquire into the existence

B. Obligation of Third Parties
and validity of the agency and the agents authority.

While 1902 gives the third party the right to demand

Specifically, the third party must inquire as to
proof of authority and instructions, jurisprudence shows
o
The existence of an agency relationship
that such party has a duty to ascertain the authority of
o
The nature of the agency or authority granted
the agent.
to the agent

Foremost of these cases is Keeler Electric v Rodriguez,

o
The extent of the authority granted to the agent
which outlines key principles of the third persons duty
o
The duty to inquire is the core obligation of the
to ascertain authority
Keeler rules.
1. The Keeler Rules
d. Burden of proof
Keeler Electric v Rodriguez (1922)
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 72

It is the third party who must prove the nature and

extent of the agents authority.
e. Standard of care

GR: In dealing with an alleged agent, the third party

must act with ordinary prudence and reasonable
diligence. It is not required that the third party have
expert legal knowledge.

XPN: If the third party knew or had reason to believe

that the agent is exceeding authority.

Examples of reasons to believe that an agent is beyond

his authority would be:
1. Clear and reasonable suggestions of probable limitations
2. The agent has a suspicious or unreasonable character
3. The authority the agent seeks to exercise is so unusual or
improbable that it would make an ordinarily prudent man
suspicious

If the exception is the situation, the third party should

not turn a blind eye to it. S/he should:
1. Refuse to deal with the agent
2. Ascertain the true condition of affairs from the principal
2. Later Jurisprudence
a. Fundamental Principles
i. No presumption of agency

Tuazon v Heirs of Ramos, People v Yabut: The law makes

no presumption of agency
ii. Insufficiency of declarations of agent
Sole allegation, declarations of agents alone are
generally insufficient to establish the fact/extent of
authority

Affidavit also weak probative value

b. Duty to inquire
BA Finance v. CA (1992)

Loan by which Wong, as credit administrator of BA

Finance, undertook to guarantee the loan of the Gaytano
spouses as evidenced by a letter. Wong alleges he is
authorized to bind petitioner in a contract of guarantee,
as he had done in the past.

Court held that the letter should not be given probative

weight. This allegation lacked credence for Wongs
failure to show documents/records of alleged past
transactions. Moreover, the Court held that it was the
third partys burden to satisfactorily prove Wongs
authority. It will be presumed that the 3rd party knew
the actual authority granted to the agent. This
presumption also arises in favor of the principal. The
duty to inform, however, does not fall upon the
principal. The third party must first inquire.
NPC v. National Merchandising (1982)

Sulfur transaction for NPCs fertilizers. Namerco was

agent of ICC (sulfer supplier). Namerco advised NPC to
apply for letter of credit for purchase of sulfur from ICC,
despite ICCs instruction not to. ICC could not deliver.

Namerco liable for recovery of liquidated damages. Duty

to inquire does not apply in this case because A (not P)
is sought to be held liable. Duty to inquire only
applicable if P sought to be held liable, too.
c. Burden of Proof

Persons dealing with an agent are bound at their peril, if

they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of
authority

General rule regarding BOP still applies, i.e. the one who
alleges the fact must prove such fact clearly, positively
and convincingly
d. Standard of Care
Bacaltos Coal Mines v CA (1995)

Bacaltos (P) thru Savellon (A) entered into a Trip Charter

Party with SMC (T). The vessel only made one trip. SMC

sues Bacaltos and Savellon for specific performance and

damages.
Court absolved P from liability and made A solidarily
liable. If T had exercised due diligence/prudence, it
should have known there is absolutely nothing on the
face of the documents that confers upon the agent the
authority to enter into a TPC. T should have required its
presentation to determine what it is and how it may be
used.

VI. Extinguishment of Agency

Art. 1231.OBLIGATIONS are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
condition, and prescription, are governed elsewhere in this Code. (115

Art. 1919. AGENCY is extinguished:

(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the princip
(4) By the dissolution of the firm or corporation which entrusted or acc
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constitute
NOTES:
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; and the burden of
proving a revocation or other termination of an agency
is on the party asserting it.
Modes of extinguishing an agency (exclusive to
agency):
1. by agreement (5,6)
2. by the 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 provided not exclusive:

Art. 1919 gives only those causes of extinction which

are peculiar to agency. The list is not exclusive.

GENERALLY: Also by modes of extinguishment of

obligations in general (loss of the thing and novation)
OTHERS:

WAR: Inoperative if the agent or principal is an enemy

alien

LEGAL IMPOSSIBILITY: It must be capable of being

carried out legally at the time called for by the contract.
An agency terminates if a change in the law makes the
purpose of the agency unlawful

TERMINATION OF PRINCIPALS AUTHORITY: Subagents authority terminates with termination of

principals authority
Loss or Destruction of Subject Matter

GENERAL RULE: In the absence of any agreement by

the parties to the contrary, the loss or destruction of the
subject matter of the agency or the termination of the
principals interest therein terminates the agents
authority to deal with reference to it.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 73

EXCEPTIONS: The contract will not always be

terminated in every case where the subject matter of
the agency is lost or destroyed
o
If it is possible to substitute other material for
that which was destroyed without substantial
detriment to either party or if the destroyed
subject matter was not in fact essential to the
contract, the agency may continue
o
A partial loss or destruction of the subject
matter does not always result in a complete
termination of the agency, and under such
circumstances, while the agency may be ended
insofar as the destroyed property is concerned,
it may continue in existence as to other
property not affected.
LIABILITY OF PRINCIPAL: The termination of the
agency does not necessarily free the principal from
liability. If the principal, for example, sells personal
property in reference to the sale of which he has
appointed an agent, the agency is, of course,
terminated, but the principal is liable in damages for his
wrongful terminating act. On the other hand, should the
subject matter be destroyed without fault of the
principal, no liability is assumed by him. However, if a
third party has given money or a thing of value for the
subject matter, he may sue the principal to recover the
same.

Change of conditions

GENERAL RULE: Where 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. Among those changes in the circumstances
which will terminate the authority of the agent are
changes in the value of the subject matter and changes
in the general business climate which should indicate to
him that the principal would not desire him to act.
o
The agent is under a duty to exercise due care
in ascertaining the business conditions in the
market in which he is to act. IF they are not
conducive to his acting, his authority may be
terminated.

EXCEPTIONS:
o
If the original circumstances are restored within
a reasonable period of time, the agents
authority may be revived.
o
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. Of course, when in doubt, the agent
can always protect himself by contracting the
principal for instructions if it is at all possible.
o
Where the principal and agent are in close daily
contact, the agents authority to act will not
terminate upon change of circumstances if the
agent knows the principal is aware of the
change and does not give him new instructions.
Confidential Information acquired by former agent in
the course of his agency

To determine if confidential information, court must

determine
o
First. Whether the knowledge or information,
the use of which the complainant seeks to
enjoin, is confidential
o
Second. Whether, if it be confidential, in whole
or in part, its use ought to be prevented.

An employee lawfully entering upon a competing

business may be enjoined from the use of trade secrets

or processes, knowledge of the employers business

surreptitiously obtained, or copied lists of customers or
information about them
If information be imparted privately, the character of the
secret is immaterial, if it is one important to the
business of the employer and one to which the
employment relates. For an employee to quit the
employment and then use in service of a rival,
information of a confidential nature gained in the prior
employment, is contrary to good faith and fair dealing.
If one is employed to devise or perfect an instrument, or
a means for accomplishing a prescribed result, he
cannot, after successfully accomplishing the work for
which he was employed, plead title thereto as against
his employer. That which he has been employed and
paid to accomplish becomes, when accomplished, the
property of this employer.
REASON WHY ENJOINED: There is a contract of
service subsisting between the principal and 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.

A. Revocation
I. In General: At the Will of the Principal
Art. 1920. The principal may revoke the agency at will, and co
the agency. Such revocation may be express or implied.
NOTES:

Absolute power to revoke agency at any time, at his

mere option, with or without reason
o
This is an exception to the general rule that the
validity or compliance of a contract cannot be
left to the will of one of the parties.

RATIONALE: Personal contract of representation based

on trust and confidence, from the moment that
confidence disappears, the principal has a perfect right
to revoke the power.
o
The mere fact that the agency is to be
irrevocable will not make it so; and the principal
may still revoke the relationship at will.
o
A contract of agency is generally revocable as it
is a personal contract of representation based
on trust and confidence reposed by the
principal on his agent. As the power of the
agent to act depends on the will and license of
the principal he represents, the power of the
agent ceases when the will or permission is
withdrawn by the principal. Thus, generally, the
agency may be revoked by the principal at will.
(Republic v Evangelista)
o
When agency does not cease when confidence
between agent and principal ceases, the
contract would become unnatural, converting
the representation into a real alienation of
personality something repugnant to the
principles of modern law.
o
Since the authority of the agent emanates from
the principal, it is enough that the principal
should wish to terminate the agency.
o
The principal-agent relationship is consensual
and personal in nature and no one can be
forced to retain another as his agent against his
will.

Unlike RESCISSION w/c requires breach, revocation is

literally at the will of the principal

The law makes no distinction thus revocation at will is

proper whether the agency is gratuitous or with
compensation.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 74

Renunciation of agency BY AGENT is also possible since

the contract is consensual essence is the willingness of
agent to act for the principal. (See withdrawal by the
agent)

Return of the document evidencing agency (Written

power of attorney)

If the authority of the agent is in writing, the principal

can compel the agent to return the document
evidencing the agency.

To ensure that it would not fall into the hands of 3 rd

parties who then would be acting in good faith entering
into a contract in the name of the principal, believing
there is still existing agency relation; to prevent the
agent from making use of power of attorney and thus
avoid liability to third persons who may subsequently
deal with the agent on the faith of the instrument.

Return of written power of attorney before revocation is

not required for effectivity. The return is merely another
right granted to the principal.

RATIO: Implied in revocation being EXPRESS or IMPLIED.

If return of written power of attorney is required for
revocation, then there is no such thing as implied
revocation (w/c has no written power).

There is no rule in case the principal revokes the agency

but does not order the return of the written power of
attorney, and the agent uses the same to transact.
o
It may still be binding on the principal if an
implied agency is established where the
principal knew that the agent was still using the
written power of attorney on the principals and
failed to repudiate it.
o
If written power of attorney was not returned
after revocation and P knew that A was still
using this, an implied agency is established
Notice of Revocation(See D. Effects of Revocation on 3rd
parties)

To agent: Not always necessary; Absent such will not

render invalid an act done in pursuance of the authority
o
If the party to be notified actually knows, or has
reason to know, facts indicating that his
authority has been terminated or is suspended,
there is sufficient notice.

To third persons: Actual notice must be brought home

to former customers while notice by publication is
sufficient as to other persons
o
GEN. RULE: Acts of an agent within the
apparent scope of his authority are binding on
the principal as regards on who had formerly
dealt with him through the agent and who has
no notice of the revocation, because such
person is justified in assuming the continuance
of the agency relationship.
o
In the absence of any notice of revocation, the
principal may also be held liable even to third
persons who have never dealt with the agent
previous to the revocation, if they, in common
with the public at large, are justified in believing
that such agency continues to exist. This is
especially so where, after the revocation, the
agent is permitted to deal with the principals
goods in his own name and in a manner
indicating that he is the owner.
o
It is not always necessary that the notice of
revocation be shown in a written oral
communication from the principal or agent.
Whether a 3rd person has received such notice
depends upon the facts of the particular case.
One may be deemed to have knowledge or

notice of the termination of the agency when,

for example, he knows that the principal has
ceased to do business, or is dealing with the
subject matter of the agency, or the principal
has appointed another agent for the purpose
Period of Revocation

See Art. 1923 on Implied Revocation byappointment of

a new agent where revocation is FROM the day on which
NOTICE thereof was given TO THE FORMER AGENT.
Liability of Principal for Damage caused by
Revocation

GENERAL RULE: Principal has absolute power to revoke

and cannot claim damages for such revocation

EXCEPTION: To pay agent damages (Differentiate bet.

right to revoke or power to revoke -> see Revocability of
agency coupled with an interest)
o
Revokes agency constituted for a definite term
or period before the expiration of period
(wrongful discharge)

In such a case however, the action for

indemnity would be derived not from
the law but from the breach ofcontract
of the parties. (Diolosa v CA) (tingin ko,
itong situation na to parang may
power siya to revoke anytime pero
dapat tignan mo kung may right siya;
kung wala breach of contract)

Where the principal has absolute right

to revoke (such as when confidence in
agent disappears) even if period fixed
has not yet expired, the agent cannot
object or claim damages (Barreto v
Sta. Marina, CMS vs. Logging)

In essence, revocation must be without

valid reason (to make principal liable)
o
Revokes agency where no time was fixed for
continuance of agency in Bad Faith

Principal is at liberty to terminate it at

will subject only to the requirements of
good faith
o
Revokes agency in order to evade the
payment of agents commission (even if
time fixed or not fixed)

A principal is liable under Art. 19 of Civil

Code in terminating the agency a
legal act when such termination
would deprive the agent of his
legitimate business or in order to evade
payment of commission
CASE: Barreto v Santa Marina (1913)
Summary: Sta Marina appointed Barretto as agent/
manager of the business. Barretto advised Sta Marina that
he is tendering his resignation on the occasion of the
disappearance of the Chinaman who had failed to pay the
company 97k. Barretto was removed him from the
management of the business and was replaced by another
agent. He now claims 1 years salary and 100k in damages
for terminating services without reason.
HELD: Barretto not entitled to the 1 years salary he claims.
Barretto ostensibly and frankly acknowledged that he had
been negligent in the discharge of his duties and that he had
overstepped his authority in the management of the factory.
Principal merely exercised his lawful right of relieving the
plaintiff from the position which he had voluntarily given up.
No period whatever was stipulated. It is unquestionable that
Sta. Marina, even without good reasons, could lawfully
revoke the power conferred and pay Barretto one month and
odd days salary
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 75

DOCTRINE: Citing Art. 279 of Code of Commerce as

amended by NCC 1920, contract of agency can subsist only
so long as the principal has confidence in his agent,
because, from the moment such confidence disappears and
although there be a fixed period for the exercise of the office
of agent, a circumstance that does not appear in the present
case, the principal has a perfect right to revoke the power
that he had conferred upon the agent owing to the
confidence he had in him and which for sound reasons had
ceased to exist.
From the mere fact that the principal no longer had
confidence in the agent, he is entitled to withdraw it and to
revoke the power he conferred upon the latter, even before
the expiration of the period of the engagement or of the
agreement made between them.
CASE: Diolosa v CA (1984)
SUMMARY: Sps. Diolosa, owners of Villa Alegre Subdivision,
entered into an agreement with Baterna, constituting him as
their exclusive sales agents until all the properties in the
subdivision has been disposed of. Subsequently, the Sps.
Diolosa terminated the agreement for the reason that they
wanted to reserve the remaining lots for their grandchildren.
The Court held that the intention of the Sps. Diolosa cannot
prevail over the clear terms of the agreement. The Sps.
Diolosa were held liable for damages for breach of contract.
HELD: Under the contract, Exhibit "A", Sps Diolosa allowed
Baterna "to dispose of, sell, cede, transfer and convey ...
until out the subject property as subdivided is fully disposed
of." The authority to sell is not extinguished until all the lots
have been disposed of. When, therefore, the Sps revoked the
contract with Baterna in a letter, Exhibit "B" they become
liable to him for damages for breach of contract of agency.
Since the agency agreement, Exhibit "A", is a valid contract,
the same may be rescinded only on grounds specified in
Articles 1381 and 1382 of the Civil Code
DOCTRINE: The agency agreement is a valid contract. It
may be rescinded only on grounds specified in Art 1381 and
1382 of the Civil Code. The principal could be held liable for
damages for breach of contract on the ground that the
agency agreement could not be terminated.
CASE: CMS Logging v CA (1992)
SUMMARY: DRACOR is the exclusive export and sales agent
of CMS for all logs that CMS may produce for a period of 5
years. However, CMS learned that DRACOR used Shinko
Trading Co. as agent in selling CMS' logs in Japan for which
Shinko earned a commission from the buyer. After this
discovery, CMS sold and shipped logs directly to several
firms in Japan without the aid of DRACOR. CMS then sued
DRACOR for the commission received by Shinko. DRACOR
filed a counterclaim for its commission from the sales made
by CMS of logs directly to Japanese firms.
HELD: DRACOR is not entitled to collect damages from CMS
as it was not made in order to evade the payment of
DRACOR's commission. Damages are awarded if act of
revocation is to evade the payment of the agent's
commission.
DOCTRINE: Grant of an exclusive agency does not mean
agency is irrevocable within the period provided in the
contract of agency but that merely it means that the
principal would not appoint another agent to handle the
business covered. The principal may revoke a contract of
agency at will, and such revocation may be express, or

implied, and may be availed of even if the period fixed in the

contract of agency as not yet expired. As the principal has
this absolute right to revoke the agency, the agent can not
object thereto; neither may he claim damages arising from
such revocation, unless it is shown that such was done in
order to evade the payment of agent's commission.

Art. 1925. When two or more principals have granted a power of a

may revoke the same without the consent of the others.

Consistent with Art. 1915 that the obligations of 2 or

more principals to a common agent is solidary and thus,
the power to revoke the agency can be made by the will
of only one of the principals.
A. Express Revocation
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. (1734)
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. (n)
NOTES:

Notice to specified persons is required as to the

revocation of an agency entrusted for the purpose of
contracting with 3rd persons

If there is general agency, notice in newspaper of gen.

circulation is sufficient

B. Implied Revocation
1. Appointment of New Agent
Art. 1923. The appointment of a new agent for the same business o
day on which NOTICE thereof was given TO THE FORMER AGENT, with
articles.
NOTES:
a) Implied revocation of Previous Agency

Revocation does not take effect upon appointment of

the new agent, but upon notification of the old agent.
(notice is the operative act)
o
CRITICAL TIME: from the day on which NOTICE
thereof was given TO THE FORMER AGENT

EFFECT: If NOTICE came AFTER date of effectivity of

appointment of new agent, transactions made by the
agent during the period prior to notice were still made
within the scope of authority.

If NOTICE came BEFORE the date of effectivity of the

appointment, it will be considered advance notice of
the revocation of the former agency and should not be
considered the point in time the former agency is
revoked.

Revocation is without prejudice to the rights of third

persons who were not aware of or notified of such
situation

Revocation is effective on third persons depending on

whether the agency was entrusted for the purpose of
contracting with specified persons or whether the
agent has general powers

The rule finds no application with respect to the agent,

should notice come BEFORE appointment.

There is no implied revocation where the appointment of

another agent is not incompatible with the continuation
of a like authority in the first agent, or the first agent is
not given notice of the appointment of the new agent.
b) Substitution of counsel of record No substitution of
counsel of record is allowed unless the ff. essential requisites
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 76

of a valid substitution of counsel concur: (I dont think this is

important)

There must be a written request for substitution

It must be filed with the written consent of the client

It must be with the written consent of the attorney to be

substituted

In case, the consent of the attorney to be substituted

cannot be obtained, there must be at least a proof of
notice, that the motion for substitution was served on
him in the manner prescribed by the ROC

In a case, the authority of the Attorney-in-fact was

revoked by the principal, the real party-in-interest in a
pending litigation. It was held that the revocation did not
affect the authority of the counsel retained by said
agent-he remained counsel of record of the principal
absent a valid substitution of counsel. The first counsel
may not be presumed substituted by a new counsel
merely from the filing of a formal appearance by the
latter.
CASE: Barreto v Santa Marina (1913)
Summary: Sta Marina appointed Barretto as agent/
manager of the business. Barretto advised Sta Marina that
he is tendering his resignation on the occasion of the
disappearance of the Chinaman who had failed to pay the
company 97k. Barretto was removed him from the
management of the business and was replaced by another
agent, Mr. J. McGavin. He now claims 1 years salary and
100k in damages for terminating services without reason.
HELD: Barretto not entitled to the payment of 100k
damages. If the principal, Santa Marina, deemed it suitable
to relieve the agent, for having been negligent and
overstepping his authority in the discharge of his office, it
cannot be explained how such person can be entitled to
demand an indemnity for losses and damages, from his
principal, who merely exercised his lawful right of relieving
the Barretto from the position which he had voluntarily given
up. Principal accepted his resignation and appointed agents
replacement and communicated this fact to the latter, by
means of the letter which was presented to him by the
bearer thereof, McGavin himself, the new manager and
agent appointed.
DOCTRINE: By the mere fact that principal remained silent
and designated another person, to discharge in the agent's
stead the powers and duties of an agent, the former agent
should have understood that the principal revoked the
power he had conferred upon him as this fact has also been
communicated to him.
Problem:

On Monday, P appoints A to sell his lots. On Tuesday, P

appoints B to sell the same. On Wednesday, P informs A
of Bs appointment.

When is the revocation effective?

If A and B were appointed to sell to X, when is the

revocation effective?

the power of the principal to execute acts of

ownership and administration
o
Principal may only desire for him and agent to
manage the business together and has no
intention to revoke
o
Acts would be so construed if they are
inconsistent with the terms of the power of
attorney previously given to the agent
o
A principal working on his business from time to
time should not be taken as a revocation
o
The appointment of an agent does not
necessarily require the complete abdication by
the principal of his right to participate in his
business
PERIOD: The moment the principal directly manages
the business by dealing directly with third persons
o
This means that the revocation of the agency is
only with respect to the third persons with
whom the principal deals directly
o
As to third parties who have previously known
the agents power of attorney and who have not
dealt with the principal, the agency cannot be
considered revoked
o
Also, unless he agent is aware or given notice
that principal has directly managed the
business which is covered by his power of
attorney, then insofar as agent is concerned,
there is no revocation
The issue of implied revocation in a case like this go
into the issue of entitlement of the agent to the
commission or remuneration agreed upon under the
contract of agency
o
In other words, agency being a contract of
service, the agent must earn through his
service
or
efforts,
the
commission
or
remuneration agreed upon with the principal
such that if it s is the principal himself through
his own efforts, who is able to effect the
transaction contemplated by the agency, the
agent would not be entitled to receive any
commission
This is different from Art. 1916 where there are rights
under conflicting contracts. Art. 1916 governs the
relations as between themselves of third persons who
separately contract with the agent and the principal with
regard to the same thing.

CASE: CMS Logging v CA,supra (1992)

SUMMARY: DRACOR is the exclusive export and sales

agent of CMS for all logs that CMS may produce for a
period of 5 years. However, CMS learned that DRACOR
used Shinko Trading Co. as agent in selling CMS' logs in
Japan for which Shinko earned a commission from the
buyer. After this discovery, CMS sold and shipped logs
directly to several firms in Japan without the aid of
2. Direct Management by the Principal
DRACOR. CMS then sued DRACOR for the commission
Art. 1924. The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly
received by Shinko. DRACOR filed a counterclaim for its
with third persons. (n)
commission from the sales made by CMS of logs directly
NOTES:
to Japanese firms.

REASON: If principal directly manages the business,

then there would no longer be any basis for the
representation previously conferred

HELD: CMS is not entitled to recovery of Shinkos

Intent of the principal should be taken into

alleged commission because it adduced no evidence to
account
show that Shinko did receive the commission and even if
o
Continued involvement of principal does not
shown, it is still not entitled as these were paid by the
necessarily mean intent to revoke because
buyers to Shinko for arranging the sale and not part of
agency arrangements are not meant to curtail
the gross sales of CMS's logs. DRACOR is also not
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 77

entitled to a commission from the direct sale made by

CMS to the Japanese firms since the contract of agency
was impliedly revoked by CMS when it sold its logs to
Japanese firms without the intervention of DRACOR.
Neither would DRACOR be entitled to collect damages
from CMS as it was not made in order to evade the
payment of DRACOR's commission.

DOCTRINE: The principal may revoke a contract of

agency at will, and such revocation may be express, or
implied,and may be availed of even if the period fixed in
the contract of agency has not yet expired. As the
principal has this absolute right to revoke the agency,
the agent can not object thereto; neither may he claim
damages arising from such revocation, unless it is
shown that such was done in order to evade the
payment of agent's commission. NCC 1924 is an implied
revocation of the contract of agency in which the
agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with
third persons.

CASE: Sanchez v Medicard (2005)

SUMMARY: Sanchez was the special corporate agent of

Medicard for health insurance. Through his efforts,
Medicard and Unilab executed a 1 Yr-Health Care
Program Contract. This was renewed and for both times,
he was given a commission. Prior to contracts
expiration, Medicard proposed a premium increase to
Unilab w/c latter rejected. Medicards Pres. requested
Sanchez to reduce his commission but he refused. Thus,
Medicards officers directly discussed with Unilab ways
to continue insurance coverage of its employees w/c
culminated to a new contract/scheme and for which
Sanchez was not given a commission. He claims this
commission now thru this action.

HELD: Since Sanchez refused to reduce his commission,

Medicard directly negotiated with Unilab, thus revoking
its agency contract with Sanchez. This revocation is
valid pursuant to Art. 1924. Sanchez did not render
services to Medicard, his principal, to entitle him to a
commission. No showing that he exerted effort in order
for Unilab and Medicard, after the expiration of the
Health Care Program Contract, to renew it for the third
time. His refusal to reduce his commission constrained
Medicard to negotiate directly with Unilab. No reason in
law or in equity to rule that he is entitled to a
commission. He was not the agent or the procuring
cause of the third Health Care Program Contract
between Medicard and Unilab.

DOCTRINE: In order for an agent to be entitled to a

commission, he must be the procuring cause of the sale,
which simply means that the measures employed by
him and the efforts he exerted must result in a sale. In
other words, an agent receives his commission only
upon the successful conclusion of a sale. Conversely, it
follows that where his efforts are unsuccessful, or there
was no effort on his part, he is not entitled to a
commission.
Problem:

P manufactures tuba and appointed A as a US distributor

for 5 years. 3 years into the contract, P started selling in
California. Did P revoke the agency?
o
YES. Cite CMS Logging v. CA

NO, at least not entirely. Cite Art.1924 and

Art.1926 It was only revoked with respect to
California.

Problem:

P issued to A a GPA to manage his funeral parlor and

flower shop. P issued to B a SPA to sell the funeral parlor
and flower shop. Is there revocation? NO!

3.
Special
Authority
Revokes
General
Authority in Part
Art. 1926. A GENERAL power of attorney is revoked by a SPECIAL
special matter involved in the latter. (n)
NOTES:

This provision refers to a general agency (covering all

the business of the principal) and a special agency (only
one or some out of all the business of the principal).

2 agents are involved:

o
One to whom a general power is previously
granted
o
Another to whom a special power is given;
o
or may apply where the special power is
subsequently granted to the same agent (See
Villanuevas comment)

General agency is not completely revoked, but only the

part covered by the special agency
o
General power is impliedly revoked as to the
matters covered by the special power
o
REASON: A special power naturally prevails over
a general power.

This does not apply to an agency couched in general

terms and a subsequent special power of attorney.
o
There is no authority in the agency couched in
general
terms
(covers
only
acts
of
administration) which conflicts with the SPA
(covers acts of strict dominion), thus there is
nothing to revoke.

May be applied to a certain case involving a general

agency and a special power of attorney.
o
If the general agency granted to the first agent
included acts of strict dominion, then an SPA
granted to another agent covering the same
acts will revoke the prior authority granted to
the first agent.
o
This does not apply if the general agency does
not include acts of strict dominion.

Villanueva: This provision fuses 2 distinct situations into

1 statutory rule
o
It also implies that a special power of attorney
granted to one person is not revoked by a
general power of attorney subsequently
granted in favor of another person as to the
special matter involved in the special power of
attorney for indeed the proposition is illogical
o
Also implies that a general power of attorney is
not revoked by a special one granted to the
SAME AGENT; which is false (Dy Buncio v Ong
Guan Can) -> to which De Leon agrees.

Cf. Art. 1923

Problem: (In De Leon)

P appoints A as manager of Ps business. The authority

of A to manage Ps business includes the authority to
enter into reasonable contracts of employment of such
personnel as are usual and necessary in the conduct of
the business. If subsequently, P grants special power to
B to hire personnel for his business, is general power
revoked? YES, as regards this matter of hiring
employees, the general power is revoked. As to matters
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 78

not covered by the special power, the general power

remains valid.
Property was sold under a SPA not giving authority to
sell, executed after a general power was previously
granted. Did the second power supplant the first? YES.
The making and accepting of a new power of attorney,
whether it enlarges or decreases the power of the agent
under a prior power of attorney, must be held to
supplant and revoke the latter when the two are
inconsistent. If the new appointment with limited powers
did not revoke the general power of attorney, the
execution of the second power of attorney would have
been a mere futile gesture. Sale by A is not valid.
Property was sold under a GPA by A without notice of a
second GPA given later to B. Did the power of attorney
to B revoke that given to A? NO. Sale by A was valid. In
the absence of proof that A had notice of the 2 nd power
of attorney, it must be considered that A acted under a
valid power of attorney from the principal which had not
been legally revoked at the date of the sale.

4. Agents Authority Impliedly Revoked in the

Same Manner as in the Case of Appointment
of an Agent (Art. 1869)
Art. 1869.Agency may 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.

EFFECT: Revocation not binding without notice to 3 rd

parties
Applies when agency has been entrusted for purpose of
contracting with specified persons
In this case, the third party would not be prejudiced if
notice were not given to him
It is not explicitly required that the fact that the agency
has been entrusted to deal with specified persons be
indicated in a written power of attorney
The principal has the duty to give due and timely
notice to third persons of the termination of the
relationship and the principal is responsible to third
persons for whatever goods may have been in good
faith and without negligence sent to the agent without
knowledge of the termination. (Rallos v.Yangco)
REASON: Since third 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
Notice not required if the third persons already know of
the revocation.

CASE: Lustan v CA (1997)

SUMMARY: Lustan executed an SPA in favor of Parangan to
secure an agricultural loan from PNB using the land as
collateral. A second SPA was executed by Lustan and
Parangan was able to secure 4 addl loans. Lustan signed a
Deed of Pacto de Retro Sale in favor of Parangan which was
superseded by the Deed of Definite Sale which Lustan
signed upon Parangans representation. Lustan demanded
C. Revocation by one of Two or More Principals
the return of the TCT. Parangan asserted his rights over the
Art. 1925. When two or more principals have granted a power of attorney for a common transaction, any one of them
property. Lustan filed an action for cancellation of liens and
may revoke the same without the consent of the others. (n)
recovery of possession arguing that the last 3 mortgages
NOTES:
were void for lack of authority.

As the appointment of an agent by 2 or more principals

HELD: Lustans property is liable to PNB for the loans
for a common transaction or undertaking makes them
contracted by Parangan by virtue of the SPA. Lustans parcel
solidarily liable to the agent for all the consequences of
of land was mortgaged to PNB on 5 occasions. Said SPAs are
the agency (Art. 1915), any one of the principals is
a continuing one and absent a valid revocation duly
granted this right under this article, the right to revoke
furnished to the mortgagee, the same continues to have
the power of attorney without the consent of the others.
force and effect as against third persons who had no

REASON: In solidary obligations, the act of one is the act

knowledge of such lack of authority quoting Art. 1921. SPA
of all.
authorized Parangan to represent and act on behalf of
NOTE: Only those interested, or bound themselves in
Lustan. Having done so, Lustan clothed Parangan with
particular transactions, are solidary
authority to deal with PNB on her behalf and in the absence
of any proof that the bank had knowledge that the last 3
D. Revocation on the Basis of Breach of Trust
loans were without the express authority of Lustan, it cannot
be prejudiced thereby.

A principal may dismiss agent for just cause for

DOCTRINE: As far as third persons are concerned, an act is
malfeasance or misfeasance in the performance of
deemed to have been performed within the scope of the
duties. Under NCC, the principles of breach of
agent's authority if such is within the terms of the power of
confidence as the lawful basis for revocation of the
attorney as written even if the agent has in fact exceeded
agency arrangement are valid.
the limits of his authority according to the understanding

The position of an agent is one of confidence, and the

between the principal and the agent.
fiduciary role of the agent implies that when he has

Where SPA provides that the same is good not only for
breach the trust or confidence reposed in him by the
the principal loan but also for subsequent commercial,
principal, then it would constitute a basis for revocation.
individual, agricultural loan or credit accommodation
that the attorney-in-fact may obtain and until the power
CASE: Barreto v Santa Marina, supra (1913)
of attorney is revoked in a public instrument and a copy
SUMMARY: Barretto ostensibly and frankly acknowledged
of which is furnished to the bank, in the absence of the
that he had been negligent in the discharge of his duties and
any proof that the bank had any knowledge that the last
that he had overstepped his authority in the management of
3 loans were w/out express authority of the principal,
the factory. Principal merely exercised his lawful right of
the bank cannot be prejudiced.
relieving the plaintiff.

2.
Revocation of General Powers of
E. Effects of Revocation on Third Parties
Attorney/Dealing with Public in General
1. When it Affects Dealing with Specified Third
Art. 1922. If the agent had GENERAL POWERS, revocation of the ag
Parties
in GOOD FAITH
and WITHOUT
KNOWLEDGE
ofshall
the not
revocation. NOT
Art. 1921. If the agency has been entrusted for the purpose of contracting
with specified
persons,
its revocation
prejudice the latter if they were not given notice thereof. (1734) circulation is a sufficient warning to third persons. (n)
Art. 1873. If a person specially informs another or states by public a
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 79

loan using
Alcedos
Leticia
to a third person, the latter thereby becomes a duly authorized agent,
in the former
caselot.
withWhen
respect
to the defaulted,
person who PNB
foreclosed
Alcedos property and bought it in a public
received the special information, and in the latter case with regard
to any person.
auction.
Alcedoinseeks
reconveyance
the property.
The power shall continue to be in full force until the notice
is rescinded
the same
manner inof
which
it was given.
HELD: Ruled in Alcedos favor despite the fact that the
NOTES:
revocation of the SPA did not appear in a public instrument.

EFFECT: Revocation not binding without notice to 3 rd

DOCTRINE: While Article 1358 requires that the revocation
parties
of a Special Power of Attorney to mortgage property should

Agent with general powers may be construed

appear in a public instrument, nevertheless, a revocation
differently
embodied in a private writing is valid and binding between
o
general agent who manages all the principals
the parties. Such requirement is only for the convenience of
business
the parties and to make the contract effective as against
o
agent performing only acts of administration
third persons.
over the principals business, or one without
specific powers of the exercise of acts of strict
II. When Agency Cannot be Revoked: Irrevocable
dominion
Agency
o
an agent authorized to transact with the
Art. 1927. An agency cannot be revoked if a bilateral contract de
general public (Most likely, the interpretation
obligation already contracted, or if a partner is appointed manager of
contemplated by the framers, in light of Art.
removal from the management is unjustifiable. (n)
1922 s counterpart provision, Art. 1921)
NOTES:

If the agency was established for transactions w/ the

Agency cannot be revoked if [BFP]

general public, then third persons must have knowledge
o
A bilateral contract depends upon it
of the revocation in order to be binding on them
o
It is the means of fulfilling an obligation already

If the agency has been granted for the purpose of

contracted
contracting with certain persons, the revocation must be
o
A partner is appointed manager of a partnership
made known to them. But if the agency is general in
in the contract of partnership and his removal
nature, without reference to particular person with
from the mgt is unjustifiable
whom the agent is to contract, it is sufficient that the
Art.
1930.
The
agency shall remain in full force and effect even after
principal exercise due diligence to make the revocation
in the common interest of the latter and of the agent, or in the interes
of the agency publicity known.
in his favor.

Publication constitutes notice upon everybody and this

Lim v Saban lays down 4 rules:

is true whether or not such third persons have read the
o
There is mutual benefit on the part of the
newspaper concerned.

Principal and agent; or

In case of a general power which does not specify the

The principal and 3rd persons

persons to whom represents' on should be made, it is
o
Cannot be revoked as long as the interest of the
the general opinion that all acts, executed with third
agent or third person exists
persons who contracted in good faith, without
o
The agents interest must be in the subject
knowledge of the revocation, are valid. In such case, the
matter of the power conferred and not merely
principal may exercise his right against the agent, who,
an interest in the exercise of the power because
knowing of the revocation, continued to assume a
it entitles him to compensation
personality which he no longer had. (Rallos v Go Chan)
o
If the agents interest is confined to

DIFF: Art. 1921, notice MUST BE personal; Art. 1922,

compensation, it is not an agency coupled w an
MAY BE personal
interest
Problem:
NOTES:

P appointed A to manage his event planning agency. A

GENERAL RULE: Agency is revocable at the will of the

dealt with T for the latters wedding. P revoked As
principal.
agency on Jan.10 and published it on Jan.13. The
o
Reason: The essence of an agency is the
wedding was held on Jan.12.T paid A on that day.
agents duty of obedience to the principal.

Was there revocation as to T? NO!

EXCEPTION if it is an agency coupled with an interest

What if P told T on Jan.11 about the revocation? Is the

(3 instances of irrevocability in Art. 1927)
revocation valid? YES!
o
Created not only for the interest of the principal

What if T heard rumors about revocation on Jan.11? Is

but also for the interest of third persons
the revocation valid as to T?
o
When the agency is created for the mutual

NO! cite Keeler rules agency cannot be established by

interest of both the principal and the agent
mere rumor
o
Effect: Cannot be revoked by sole will of the
principal as long as the interest of the agent or
3. Revocation of Special Powers of Attorney
third person subsists. However, an irrevocable
Art. 1358. The following must appear in a public document:
power of attorney
is obligatory
only
on the
(1) Acts and contracts which have for their object the creation, transmission, modification
or extinguishment
of real
rights
principalbywho
executed
the 2,agency.
It cannot
over immovable property; sales of real property or of an interest therein as governed
Articles
1403, No.
and 1405;
affect one who is not a party thereto.

EXCEPTION TO THE EXCEPTION: if it is for just cause

CASE: PNB v IAC (1990)
(Coleongco v. Claparols)
SUMMARY: Alcedo executed an SPA in favor of Leticia Sepe
to enable the latter to use as additional collateral Alcedos
AGENCY COUPLED WITH INTEREST
lot for her loan with PNB. Alcedo and Leticia agreed to split

Where a bilateral contract is dependent on it (Art. 1927)

the proceeds of the loan between themselves. However,

Means of fulfilling an obligation already contracted (Art.

when Alcedo did not receive his one-half share, he wrote to
1927)
PNB saying that he was revoking the SPA. PNB wrote back to
him that while his lot was already used as collateral for the

A partner is appointed manager of a partnership, and his

1970-71 loan, PNB would exclude his lot as collateral for
removal from the management is unjustifiable (Art.
Leticias 1971-72 loans. Despite PNBs advise to Leticia to
1927)
replace the collateral, it allowed Leticia to obtain another
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 80

Constituted in the common interest of the

principal and the agent, or in the interest of a
third person (stipulation pour autrui) (Art. 1930)

EXAMPLES

When a power of attorney is constituted in a contract of

REM pursuant to Act. 3135, which would empower the
mortgagee, upon the default of the mortgagor, to effect
the sale of the mortgaged property through extrajudicial
foreclosure

When appointment of agent is not merely for principals

benefit but also allows agent to build business interest
that would yield him gains in terms of commission on a
long-term basis (insurance agent)

Example of Bilateral Contract: P sold to B a factory

for P1M. B paid only P800k. It was stipulated that the
ownership in the factory would be transferred to B only
after the payment of the balance to be made w/n 6
months and P would appoint A to manage the factory
and that any profits would be used to pay off the
balance of the purchase price.

Example of Means of Fulfilling His Obligation: P

borrowed from B P50k. As security for debt, P gives A a
power of attorney to collect rents due from tenants of P
and authorizes A to apply the same to the debt of P50k.

Example of Third Instance: A, B and C are partners in

business. By common agreement, A was appointed a
manager in the articles of partnership. The appointment
of A is revocable only upon just and lawful cause and
upon the vote of the partners representing the
controlling interest. The reasons is that the appointment
is in effect one of the conditions of the contract and it is
only logical that such appointment should not be
revoked without the consent of all the partners,
including A.
Requisites for agency to be coupled with interest (Del
Rosario v. Abad):

1. The interest must be specified in the power of

attorney.

2. It must be pertinent to the power granted to the

agent.
CASE: Republic v Evangelista (2005)

SUMMARY: ISAFP and PSG head Gen. Calimlim

(representing government) authorized Reyes to dig for
treasure in a piece of land owned by Legaspi. Legaspi
objected to the digging operation and was kept out of
his own property by soldiers deployed by Gen. Calimlim.
Legaspi authorized his nephew Gutierrez via a Special
Power of Attorney to deal with the treasure hunters and
sue them if necessary. Legaspi agreed to give Gutierrez
40% of whatever treasure may be found on the land.

Gutierrez sued Calimlim and his aide Diciano.

Defendants moved to dismiss the case, asserting that
Legaspi had already revoked Gutierrez authority as
agent. The motion was denied; the denial was upheld by
the CA.

HELD: Case constituted an exception to the general

rule that a contract of agency may be unilaterally
revoked by the principal. In this case, there is an agency
with interest; such that there is a separate bilateral
contract which depends on the agency. The separate
contract means that the interest of the agent or of third
persons may be affected by the agency; and therefore
the principal loses the right of unilateral revocation.
Having no basis, the dismissal cannot be granted and
the case must proceed.

DOCTRINE: Re: extinguishment of agency: An agency

with interest cannot be unilaterally revoked by the

principal. If the agent has an interest in the subject

matter of the agency as a result of another bilateral
contract which depends on the agency, there is an
agency with interest. (NCC 1927) When an agency is
constituted as a clause in a bilateral contract, that is,
when the agency is inserted in another agreement, the
agency ceases to be revocable at the pleasure of the
principal as the agency shall now follow the condition of
the bilateral agreement.
CRITIC: Both agent and lawyer would be entitled to a
percentage of such treasures as part of their
compensation. It does not appear to be an interest apart
from compensation. Lim v Saban states that an agents
interest must be in the subject matter of the power
conferred and not merely an interest in the exercise of
the power because it entitles him to compensation.

Termination of the Agency

An agency coupled with an interest cannot be

terminated by the sole will of the principal although it is
so revocable after the interest ceases.

Interest in the subject matter conferred. The agents

interest must be in the subject matter of the power
conferred and not merely an interest in the exercise of
the power because it entitles him to compensation. (Lim
v. Saban)
o
The fiduciary relationship inherent in ordinary
contracts of agency is replaced by material
consideration in an agency coupled with an
interest which bars the removal or dismissal of
the agent as attorney-in-fact on the ground of
loss of trust and confidence.

The agency becomes part of another obligation or

agreement. It is not solely the rights of the principal but
also that of the agent and third persons which are
affected. (Republic v. Evangelista)

Sufficiency of interest. It must be a present interest in

the subject matter itself and that an interest in the
proceeds of the powers exercise as compensation is
insufficient.
o
An agents interest in earning his agreed
compensation is an ordinary incident of agency,
and neither contract that the principal will not
revoke nor a contract that the agent can protect
his rights to earn commission in spite of
revocation will deprive the principal of control
over acts to be done by the agent on his behalf.
o
It is a usual by-product of agency which does
not affect the essential nature of the
relationship.
o
The agents remedy is to sue for breach of
contract if the principal terminates their
contract.
o
So hindi agency coupled with interest ang
commission agent??? Apparently not if you
argue on the basis of Lim v Saban because the
interest of CA is merely on the commission (and
De Leon agrees); Yes, if you argue on the basis
of Republic v Evangelista

REMEMBER: Possible if she assumed a personal

obligation (as in obligating to pay premiums or pay
monthly rentals with the principal) and interest not
limited to commissions she earns but EXTENDS to the
very subject matter of the power of management
delegated to her
Terminology used by parties not controlling

Whether an interest which will make an agency or power

irrevocable exists in a particular case is to be
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 81

determined from the entire agreement between the

parties and from the facts and circumstances.
The terminology used by the parties is not controlling.
Even though an agency or power is made in terms
irrevocable, that fact will not prevent its revocation by
the principal where the agency or power is not, in fact,
coupled with an interest.
Nor will the fact of a stipulation in the instrument that
the intention of the grantor of the power is that it shall
be construed as a power of attorney coupled in the
interest of the subject matter thereof prevent its
revocation.
A mere statement in the power of attorney that it is
coupled with interest is not enough. In what does such
interest consist must be stated in the power of attorney.
The revocation of authority may be made by the
principal at his pleasure, though the terms of the
appointment declare that it shall be exclusive or
irrevocable if the interest by the agent is merely on his
commission.
o
REASON: Want of consideration. There is no
mutuality of obligation.

Revocability of agency coupled with an interest

Agency coupled with interest cannot be revoked merely

by the principals will EXCEPT if with just cause.

JUST CAUSE: Bad faith, commits a breach of confidence

or a betrayal or trust

Where there is no just cause: A contract not to revoke

an agency only abridges the right of the principal to
revoke, and not his power to revoke (Art. 1920).
However, where the authority given to the agent is
coupled with an interest in the subject matter of the
agency itself, the rule is that BOTH the RIGHT and the
POWER to revoke the agency without the agents
consent is taken away, and a purported revocation can
have no effect unless by express provision the authority
remains revocable.
o
POWER kaya niyang irevoke pero may right ba
siya?? RIGHT - may right siyang tanggalin pero
kaya ba niya

Where there is just cause: A power of attorney can be

made irrevocable by contract only in the sense that the
principal may not recall it at his pleasure; but couple
with interest or not, the authority certainly can be
revoked for a just cause, such as when the agent
betrays the interest of the principal.
CASE: Coleongco v Claparols (1964)

SUMMARY: Claparols was running a nail factory, and

due to losses, he was compelled to look for a financier,
and was introduced to Coleongco. Claparols, pursuant to
the contract they executed wherein Coleongco was to
finance the importation of nail wire, executed a special
power of attorney in favor of the latter to open and
negotiate letters of credit, to sign contracts, etc.
Thereafter, Coleongco became the assistant manager of
the factory and took over its business transactions.
Claparols was then surprised when he was served an
alias writ of execution to enforce a judgment obtained
against him by PNB (with which Claparols had loans and
mortgage contracts). He eventually learned that this
was caused by the derogatory information obtained by
PNB from Coleongco thru letters. Claparols also learned
Coleongcos plans of acquiring the factory without the
formers knowledge. Because of the Coleongcos
disloyalty, Claparols revoked the power of attorney.
Coleongco filed a suit against Claparols charging breach
of contract. The CFI and SC ruled in favor of Claparols.

DOCTRINE: A power of attorney can be made

irrevocable by contract only in the sense that the
principal may not recall it at his pleasure, but coupled
with interest or not, the authority certainly can be
revoked for a just cause, such as when the attorney-infact betrays the interest of the principal. The
irrevocability of the power of attorney may not be used
to shield the perpetration of acts in bad faith, breach of
confidence or betrayal of trust by the agent for that
would amount to holding that a power coupled with an
interest authorizes the agent to commit frauds against
the principal.

Nature of agents interest in power given as security

to him

The agents power may be given as security without

transferring to the agent any interest in the subject
matter of the agency, or he may be given, in addition,
an interest in the subject matter of the agency.

Revocable by death of principal when without interest in

subject matter. According to Mechem, in the first case,
there is a power or authority given as security, which,
though irrevocable during the principals lifetime, is
revoked by his death. In the second case, there is a
power or authority coupled with interest, which is
irrevocable by the principal, whether by any act during
his lifetime or by his death.

Contrary view. This distinction is not followed by the

Restatement of Agency which holds that neither type of
power is revocable by the principal, whether during his
lifetime or by his death. The Restatement uses the term
power given as security to cover both types of cases.
o
De Leon: The position taken by the Restatement
would seem to be a commendable one, for the
relation of trust and confidence which is
supposed to stand in the way of absolute
irrevocability of an agents appointment is
affected adversely as much by one type of
power as it is by the other.
o
In both cases, the agent acts for himself (or for
the benefit of a third person), and not on behalf
of the principal
Agency coupled with an interest not a true agency
(De Leons opinion)

Magugulo lang tayo, di ko na to sinama ha

B. Withdrawal of the agent (Arts. 1928-1929)
Art. 1928. The agent may withdraw from the agency
by giving due notice to the principal. If the latter
should suffer any damage by reason of the withdrawal,
the agent must indemnify him therefor, unless the agent
should base his withdrawal upon the impossibility of
continuing the performance of the agency without grave
detriment to himself.
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.
The agent may renounce or withdraw from the agency at
any time, without the consent of the principal, even in
violation of the latters contractual rights, subject to
liability for breach of contract or for tort. This rule is
applicable whether or not the agency is gratuitous or for
compensation.
Basis: The constitutional prohibition against
involuntary servitude and the concept that agency is a
voluntary relationship betweent the parties.
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 82

1.

2.

Without just cause: Law imposes upon the agent

the duty to give due notice to the principal
AND to indemnify the principal should the
latter suffer damage by reason of such
withdrawal
Reason: Agent fails in his obligation, and
as such, answers for losses and damages
occasioned by non fulfillment.
With just cause: For instance, when the
withdrawal is based on the impossibility of
continuing with the agency without grave detriment
to himself (1928) or is due to a fortuitous event
(1174), the agent CANNOT be held liable.
Example: Council of Elrond (P) assigns Frodo
(A) to destroy The Ring. Frodo may withdraw
from the agency without having to indemnify
the Council as Frodo would suffer grave
detriment to himself on his journey to Mordor
(from Casis Reviewer)

Obligation of Agent to Continue to Act After

Withdrawal (1929)
o
PURPOSE: To prevent damage or prejudice to
principal
o
Reconciles interests of agent with principal;
withdrawal is permitted on the condition that no
damage results to the principal and if the agent
desires to be relieved of the obligation and of
making reparation when he withdraws with just
cause, he must continue to act so that no
inquiry may be caused to the principal
(Manresa)
o
Cf. Art. 1885. In case of a person who declines
an agency

Valera v Velasco: The fact that an agent instituted an

action against his principal for the recovery of the
balance in his favor resulting from the liquidation of the
accounts between them arising from the agency and
rendered a final account of his operations was
equivalent to express renunciation of the agency and
termination the juridical relation between them

De la Pena v Hidalgo: Held as valid express renunciation,

when agent informs principal that for reasons of health
and medical treatment, he is about to depart from the
place where he is executing his trust, abandons the
property, turns it over to a third party, renders accounts
of its revenues up to the date he ceases to hold his
position and transmits to his principal a general
statement which summarizes and embraces all the
balances of his accounts.
CASE: Infante v Cunanan (1953)
SUMMARY: Infante entered into an agreement whereby
defendants would sell the property for 5% commission.
Defendants introduced Infante to buyer Noche. Infante
manifested that she was no longer willing to sell and
cancelled the defendants authority to do so to which the
defendants agreed. Subsequently, Infante dealt w/ Noche
directly. Defendants sued for their commission arguing that
they agreed to cancel merely upon the verbal assurance
that, should the property be sold to their own buyer, they
would be given the commission.
HELD: Although Infante may validly withdraw the authority
to sell, she acted in bad faith and must pay.
DOCTRINE: Although a principal may validly withdraw the
authority given to an agent at will; if done in bad faith,
principal will be liable for damages.
C. Death, civil interdiction, insanity or insolvency of
the principal or of the agent (Arts. 1930-1932)

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

RATIO:The agency, being based on representation,

there is no one to be represented where the
principal is already dead.

Manresa: As integration of the personality of the

principal & that of the agent, it is not possible for
the representation to continue to exist once the
death of either is established; Pothier agrees;

Laurent: Juridical tie is severed ipso jure upon the

death of either without necessity for the heirs of the
fact to notify the agent of the fact of death of the
former

Same rule prevails at common law

Exceptions: In full force even after death
1. If the agency has been constituted in the
common interest of the principal and the agent;
and (1930)
2. If it has been constituted in the interest of a
third person who has accepted the stipulation in
his favor (1930)
3. act done by agent is valid if without knowledge
of principals death (1931)
Ex:
1.

2.

3.

Mel renders services to Kat who authorizes Mel to

sell her (Kats) land for not less than P1,000 and to
pay herself (Mel) out of the proceeds. Before the
land is sold, Kat dies (sorry Kat). In this case:
Agency to sell is one coupled with interest. Thus: It
is NOT extinguished by the death of Kat
Another agency coupled with interest: When a
power of attorney is constituted in a contract of REM
pursuant to the requirement of Act No. 3135, which
would empower the mortgagee upon the default of
the mortgagor to payment of the principal
obligation (by sale of the mortgaged property
through extrajudicial foreclosure), it has been held
that the power of sale in the deed of REM is NOT
revoked by the death of the principal-mortgagor, on
the ground that it is an ancillary stipulation
supported by the same cause that supports the
mortgage. The power of attorney survives the death
of the mortgagor and allows the mortgagee to effect
foreclosure even after the death of the principalmortgagor.
Jamie borrows from Therese P500 payable in 1
month. Before the due date of the obligation, Jaimie
sells his land to Joseph and authorizes Joseph to pay
his debt out of the purchase price. Therese accepts
the agency of Joseph. In this case: The right of
Therese to receive payment from Joseph cannot be
defeated by the death of Jamie.

Whatever conflict of legal opinion was generated by

Cassiday v. McKenzie in American jurisprudence, no
such conflict exists in our own for the simple reason that
our statute, the Civil Code, expressly provides for two
exceptions to the general rule that death of the principal
revokes ipso jure the agency 1930 & 1931 (Rallos v Go
Chan)
Although a revocation of a power of attorney to be
effective must be communicated to the parties
concerned, yet a revocation by operation of law, such as
AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 83

by death of the principal is, as a rule, instantaneously

effective inasmuch as "by legal fiction the agent's
exercise of authority is regarded as an execution of the
principal's continuing will
Civil Code does not impose a duty on the heirs to notify
the agent of the death of the principal

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.
OPERATIVE ACT: Knowledge of death by principal
REQUISITES:
(1) that the agent acted without knowledge of the death of
the principal
(2) that the third person who contracted with the agent
himself acted in good faith
o
Good faith here means that the third person
was not aware of the death of the principal at
the time he contracted with said agent.

These two requisites must concur the absence of one

will render the act of the agent invalid and
unenforceable

Being the general rule it follows a fortiori that any act of

an agent after the death of his principal is void ab initio
unless the same falls under the exception provided for
in 1930 and 1931
o
1931, being an exception to the general rule ->
strictly construed

IF IN BAD FAITH (knows of death): Villanueva says

that such contract is VOID not just unenforceable for
lackof the essential element of consent.
CASE: Rallos v Go Chan (1978)
SUMMARY: This is a case of an attorney-in-fact, Simeon
Rallos, who after of his death of his principal, Concepcion
Rallos, sold the latter's undivided share in a parcel of land
pursuant to a power of attorney which the principal had
executed in [his] favor. The administrator of the estate of
then went to court to have the sale declared unenforceable
and to recover the disposed share. The trial court granted
the relief prayed for, and nullified the sale with respect to
the pro indiviso share of Concepcion is concerned, but
upon appeal the Court of Appeals upheld the validity of the
sale and the complaint.
HELD: Reversed CA and reinstated trial court. The agency
was extinguished by operation of law by the death of the
principal and this case does not fall under the exceptions.
Agent Simeon knew of the death of his principal at the time
he sold the share in lot to respondent corporation. Simon
Rallos 'must have known of the death of his sister, and yet
he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing
appellant (the realty corporation) of the death of the
former".
Cases Inapplicable:
Buason & Reyes v. Panuyas: sustained the validity of a
sale made after the death of the principal because it
was not shown that the agent knew of his principal's
demise
Herrera, et al., v. Luy Kim Guan, et al: death of the
principal does not render the act of an agent
unenforceable, where the latter had no knowledge of
such extinguishment of the agency
DOCTRINE: Lack of knowledge of the death of the principal
must exist at the time of contract with both the agent and
the third parties for the provision of Art. 1931 to apply.
In addition: As to the argument that they were never
informed, the Civil Code does not impose a duty on the heirs

to notify the agent of the death of the principal.Fact that no

notice of the death of the principal was registered on the
certificate of title of the property in the Office of the Register
of Deeds, is not fatal to the cause of the estate of the
principal.
CASE: Herrera, et al., v. Luy Kim Guan (1961)
SUMMARY: Luis Herrera appointed Luy Kim as his attorneyin-fact and authorized him to sell properties. Luis heir,
Natividad, questions the sales made in 1937 and 1939 by
Luy Kim as they were supposedly made after his death in
1931 and, consequently, when the power of attorney was no
longer operative.
HELD: No proof as to date of death. Testimony that he was
alive in 1940. Assuming arguendo, that he was dead at the
time of the sale, there is no proof that agent knew.
DOCTRINE: The death of the principal does not render the
act of an agent unenforceable, where the latter had no
knowledge of such extinguishment the agency.
CASE: Buason & Reyes v. Panuyas (1959)
SUMMARY: Eustaquio Bayuga was the agent of Sps. Dayao
& Vega in selling their 14.8 hectares parcel of land after the
termination of a case in their favor. When Dayao died, his 4
children subsequently sold 12.8413 hectares of the land to
Sps. Buason & Reyes who took possession. Subsequently,
Bayuga also sold 8 hectares of the land to Sps. Panuyas &
Cruz. Thus, Buason filed a case to annul the Deed of Sale in
favor of Panuyas contending that the death of the principal
ended the authority of the agent and so the sale made after
principals death is not valid.
HELD: The sale made by an agent without knowledge of his
principals death after the death of his principal is valid as to
3rd persons in good faith. Panuyas and his wife had no
knowledge of the previous sale and had a right to rely on the
face of the certificate of title of the registered owners and of
the authority conferred by them upon the agent also
recorded on the back of the certificate of title. No evidence
shown that Bayuga knew that the principal died.
DOCTRINE: It has not been shown that the agent knew of
his principal's demise, and for that reason 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 (NCC 1931).
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.

Agency establishes a purely personal relationship such

that agency is not extinguished by death of agent and
his rights and obligations are not transmittable to his
heirs
HOWEVER, this establishes a rare situation where an
obligation is imposed by law upon persons who are not
parties to a contractual relationship, w/c has been
extinguished.
IF MULTIPLE AGENTS
o
GR: Death of one or more but not all would not
extinguish the agency with respect to those
who remain living
o
EXC: When they are intended to be considered
as having capacity as a group and not
individually
Can the heirs continue the agency?
o
GR: No, since an agency calls for personal
services on the part of the agent.
o
EXC:

Agency by operation of law, or a

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 84

Agency is coupled with an interest in

the subject matter of the agency.

D. Dissolution of the firm or corporation which

entrusted or accepted the agency

The dissolution of a corporation extinguishes its juridical

personality for every purpose that seeks to pursue new
business or that of a going concern.

Board of Directors lose every legal right to enter into a

contract or transaction to pursue new business or done
in ordinary course of business and any such contract
entered into would be void even as against third parties
in good faith
o
At the point of dissolution, existing creditors of
the corporations must be protected under the
trust fund doctrine

HOWEVER: Corporation still has juridical personality

after dissolution and within 3 years only for purpose of
liquidation.
THUS: Board/corporate officers are with agency
powers to represent the corporation for any and all
purpose that seek the liquidation of its assets and
the payment of its liabilities

No reason to assume to continued existence of authority

to do something which can no longer be done
Also possible is the non-accomplishment of the object
within a reasonable time

F. Expiration of the period

If 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.

If no time is specified, it terminates at the end of a

reasonable period of time.

The period may be implied from the terms of the

agreement, the purpose of the agency and the
circumstances of the parties:
o
An agreement that the agency shall continue
for 1 year may be implied from a provision for
payment of a salary in quarterly annual
installments
o
Where the principal agrees to furnish the agent
as many machines as he may be able to sell
prior to a certain date, an agreement that the
agency is to continue until that date is implied.

E. Accomplishment of the object or purpose of the

agency

At least as between the parties, the fulfillment of the

purpose for which the agency is created ipso facto
terminates the agency, even though expressed to be
irrevocable
o
SALE: Agency expired when property was sold;
agent could not subsequently dispose of the
property to another
o
CONVEY LAND FOR PAYMENT OF DEBT:
Extinguished by payment of debt

AGENCY | SANCHEZ | by Hipolito, Paras and Ugalino| 85