1.

Types of Agency
a. As to the manner of creation
 EXPRESS – either orally or in writing
 IMPLIED – 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
b. As to its character
 GRATUITOUS
 ONEROUS
c. As to extent of business covered
 GENERAL – one which comprises all the business of the principal
 SPECIAL – one which comprises one or more specific transactions
d. As to authority conferred
 COUCHED IN GENERAL TERMS – one which is created in general terms and is deemed to comprise only acts
of administration
 COUCHED IN SPECIFIC TERMS – one authorizing only the performance of a specific act or acts
e. As to its nature and effects
 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
2. Can there be specific part and CIGT at the same time?
YES. A general power of attorney may include a special power if such special power is mentioned or referred to
in the general power. The SPA can be included in a GPA when it specifies therein the act or transaction for which the
special power is required. The requirement of a special power is met if there is a clear mandate from the principal
specifically authorizing the performance of an act.
3. Instances when SPA is necessary (ART. 1878)
a. To make such payments as are not usually considered as acts of administration
b. To effect novations which put an end to obligations already in existence at the time the agency was constituted
c. To compromise, to submit questions to arbitration, to renounce a right to appeal from judgment, to waive
objections to the venue of an action, or to abandon a prescription already acquired
d. To waive any obligation gratuitously
e. To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously
or for a valuable consideration
f. To make gifts, except customary ones for charity, or those made to employees in the business managed by the
agent
g. To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things
which are under administration
h. To lease any real property to another person for more than one year
i. To bind the principal to render some service without compensation
j. To bind the principal to a contract of partnership
k. To obligate the principal as a surety or guarantor
l. To create or convey real rights over immovable property
 m. To accept or repudiate an inheritance
n. To ratify or recognize obligations contracted before the agency
o. Any other act of strict dominion
4. What is novation? (ART. 1291)
Novation is the extinction of an obligation through the creation of a new one. Obligations may be modified by:
(1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person
in the rights of the creditor.
5. What is condonation? (ART. 1270)
“To waive any obligation gratuitously” is the inelegant version of the legal term “condonation or remission of
the debt” which under Art. 1270 is “essentially gratuitous, and requires the acceptance of the obligor.”
It does not mean that every agent would have the power to wave the principal’s obligation for valuable
consideration outside of an express authority to do so; what it means is that when the power to condone is within the
scope of authority of the agent, he may do so as an implied or incidental power; whereas, the power to waive an
obligation owed to the principal gratuitously can only arise as an express power, but not implied or incidental power of
an agent.
In other words, the equivalent of the term “to waive any obligation onerously,” would be equivalent to payment
or performance of the obligation, which by its essence is an act advantageous to the principal, and when done without
express authority is still within the scope of the agent’s authority.
Another way of approaching the issue is to consider that under paragraph 1 of Article 1878, every agent has the
implied power to make payments that is considered to be in the ordinary course of business, then more so can such
agent collect payments on obligations owing to the principal, which by their nature are also acts of administration or
management.
6. What if the personal service is with compensation?
Any contract of service to be entered into on behalf of the principal should properly be considered an act of
strict ownership, for it obliges the principal to render a personal obligation, which if he refuses makes him liable for
damages. Precisely, a contract of agency is entered into by the principal to allow him to participate in juridical acts
through an agent, and without need of his physical presence. Therefore, it does not make sense that a contract of
service, even when for compensation, would be deemed to be within the implied powers of the agent to bind the
principal.
7. Does SPA need to be in writing?
Article 1878 does not state that the special authority be in writing. Be that as it may, the same must be duly
established by evidence other than self-serving assertion of the party claiming that such authority was verbally given
him.
The power of authority of the agent is deemed only to cover “acts of administration” unless there be specific
granting acts of ownership. Therefore, it seems that the clearest manner by which there is specific grant of power of
strict ownership is that it be in writing; otherwise, the presumption under Article 1877 must prevail; that the agent can
only pursue acts of administration.
8. Article 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.
If he has been expressly empowered to borrow money, he may himself be the lender at the current rate of
interest for there is no danger of the principal suffering any damage since the current rate of interest would have to be
paid in any case if the loan were obtained from a third person.
 If the agent has been authorized to lend money at interest, he cannot be the borrower without the consent of
the principal because the agent may prove to be a bad debtor. There is here a possible conflict of interest. The
transaction may thus be prejudicial to the principal.
In the case where the agent was the lender to the principal and charged interest higher than the current rate,
the difference would have to be returned to the principal. If the agent borrows for himself without the principal‘s
consent the money which the principal has authorized him to lend out, he would not only be liable for the current
interest that the principal would have earned had it been lent out to a third party, he would also be liable for damages
that the principal may have suffered.
9. Obligations of an agent
a. To carry out the agency which he has accepted
b. To answer for damages which through his performance the principal may suffer
c. To finish the business already begun on the death of the principal should delay entail any danger
d. To observe the diligence of a good father of a family in the custody and preservation of the goods forwarded to
him by the principal in case he declines an agency, until an agent is appointed
e. To advance the necessary funds if there be stipulation to do so
f. To act in accordance with the instructions of the principal, and in default thereof, to do all that a good father of a
family would to
g. Not to carry out the agency if its execution would manifestly result in loss or damage to the principal
h. To answer for damages if there being a conflict between his interests and those of the principal, he should prefer
his own
i. Not to loan to himself if he has been authorized to lend money at interest
j. To render an account of his transactions, and to deliver to the principal whatever he may have received by virtue
of the agency
k. To distinguish by countermarks and to designate the merchandise respectively belonging to each principal, in case
of a commission agent who handles goods of the same kind and mark, which belong to different owners
l. To be responsible in certain cases for the acts of the substitute appointed by him
m. To pay interest on funds applied to his own use
n. To inform the principal, where an authorized sale on credit has been made, of such sale
o. To bear the risk of collection, should he receive also on a sale, a guarantee commission
p. To indemnify the principal for damages for his failure to collect the credits of his principal at the time that they
become due
q. To be responsible for fraud or negligence
10. Rules with respect to a substitute (General rule and exception)
ART. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall
be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the person appointed was
notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall be void.
ART. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may furthermore bring
an action against the substitute with respect to the obligations which the latter has contracted under the substitution.
GENERAL RULE: The agent may appoint a substitute if the principal has not prohibited him from doing so.
 EXCEPTIONS: (1) When prohibited by the principal; and (2) when the work entrusted to the agent to carry out
requires special knowledge, skill, or competence.
EXCEPTION TO THE 2ND EXCEPTION: When authorized by the principal.
Although the last paragraph of Article 1892 provides that “All acts of the substitute appointed against the
prohibition of the principal shall be void,” the contracts are really unenforceable insofar as the principal is concerned
and subject to his ratification.
a. When the sub-agent appointed pursuant to the instructions of the principal
The sub-agent is really an agent of the principal as well, and privity exists between the principal and the sub-
agent. Any act done by the agent or the substitute in behalf of the principal is deemed the act of the principal.
In addition, the 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. The EXCEPTION to this rule is “When the agent has been given the power, but without the
principal designating the person, and the person appointed was notoriously incompetent or insolvent.”
b. When the sub-agent not prohibited by principal
Refer to Article 1892. 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.
If the substitution has occasioned damage to the principal, the agent shall be primarily responsible for the acts
of the substitute as if he himself executed them. The principal also has a right of action against the substitute.
c. When the sub-agent appointed against the principal’s prohibition
The agent is personally liable for the acts of the substitute, as though the contracts of the substitute where his
own. If the principal ratifies the contract, the principal would of course be liable. The implication from the language used
in Article 1893 is that the principal would have no cause of action against the substitute.
11. Who is a factor agent?
A factor or commission agent is one whose business is to receive and sell goods for a commission 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 in that of the principal. An ordinary agent need not have possession of the goods of his principal, while the
commission agent must be in possession.
12. Factor agent vs. Broker
A commission agent is one engaged in the purchase or sale for another of personal property which for this
purpose, is placed in his possession and at his disposal. He maintains a relation not only with his principal and the
purchaser or vendor, but also with the property which is the subject matter of the transaction.
On the other hand, a broker has no relation with the thing he buys or sells. He is merely an intermediary or
negotiator between the purchaser and the vendor relative to the property with the custody or possession of which he
has no concern. His only office is to bring together the parties to the transaction never acting in his own name but in the
name of those who employed him. In effecting a transaction, he, however, acts in a certain sense as the agent of both
parties.
An agent receives a commission upon the successful conclusion of a transaction such as 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.
13. Del Credere Agent
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.
An agent with a del credere commission is liable to the principal if the buyer fails to pay or is incapable of
paying. But he is not primarily the debtor. On the contrary, the principal may sue the buyer in his own name
notwithstanding the del credere commission, so that the latter amounts to no more than a guaranty.
 A del creder commission is one where, in consideration of an increased commission, the commission agent
guarantees to the principal the payment of debts arising through his agency.
14. Rules if a person declines an agency
GENERAL RULE: No contract of agency arises and thereby no obligation is assumed by such person
EXCEPTION: Article 1885
ART. 1885. In case a person declines an agency, he is bound to observe the diligence of a good father of a family
in the custody and preservation of the goods forwarded to him by the owner until the latter should appoint an agent.
The owner shall as soon as practicable either appoint an agent or take charge of the goods.
15. Is the agent required to strictly follow his authority? Is deviation allowed?
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.
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.
ART. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits
of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal’s
ratification.
ART. 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. 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.
Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with
the principal’s manifestation of consent to him.
If the agent acts without authority of in excess or beyond the scope of his authority, there is no representation.
Such act is unauthorized and, therefore, unenforceable, whether or not the party with whom the agent contracted was
aware of the limits of the agent’s power, UNLESS THE PRINCIPAL RATIFIES the transaction before it is revoked by the
other contracting party or IS IN ESTOPPEL to deny the agent’s authority.
Doctrine of implied powers flowing from express powers: Even when the rule in special powers of attorney is
that in any of the cases covered with the first 14 paragraphs of Article 1878 are deemed to have been granted to the
agent only when so “named” or “expressly granted” by the principal, there is still applicable the “doctrine of implied
powers” – that the grant of express powers or SPA must necessarily include all power implied or incidental to such
express powers, even if they amount to acts of ownership or strict dominion.
16. In case of death of a principal (ART. 1884)
Although the death of the principal extinguishes the agency, the agent has an obligation to conclude the
business already begun on the death of the principal. The rule is in accord with the principles of equity. But the duty
exists only should delay entail any danger.
17. What are the consequences if the agent misappropriated the thing?
Where a sales agent misappropriates or fails to turn over to his principal proceeds of things or goods he was
commissioned or authorized to sell for the latter, he is guilty of ESTAFA. A receiving teller of a bank who misappropriates
money received by him for the bank is guilty of QUALIFIED THEFT on the theory that the possession of the latter is the
possession of the bank he being a mere bank employee and a mere custodian of the funds received.
18. Rules regarding instructions or orders
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 requi9red 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.
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.
Instructions are private directions which the principal may give the agent in regard to the manner of performing
his duties as such agent but of which a third party is ignorant.
In the event that the agent refuses to follow the instructions of the principal, then the obligatory nature of the
agency relationship is preserved by legal consequences mandated by law: First, the agent becomes personally liable for
damages arising from a breach of his duty of obedience to the principal. Second, since the agent had not given the
principal’s consent to the contract or transaction entered into with a third party, the principal is not personally bound by
the terms of such transactions or contract. Third, it would then be the agent who may become personally liable for the
contract or transaction (Art. 1898).
The written instructions of the principal are the binding powers of the agent, and cannot be overcome by non-
written instructions of the principal not made known to them.
Outside of the written power of attorney of an agent, third parties who deal with such agent are not supposed
to presume that the agent is fully authorized. The rule has always been that every person dealing with an assumed agent
is put upon 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 the authority of the agent.
If an act done by an agent is within the apparent scope of the authority with which he has been clothed, it
matters not that it is directly contrary to the instructions of the principal. The principal will, nevertheless be liable unless
the third person with whom the agent dealt knew that he was exceeding his authority or violating his instructions. Third
persons dealing with an agent do so at their peril and are bound to inquire as to the extent of his authority but they are
not required to investigate the instructions of the principal.
When departure from principal’s instructions justified:
a. By a SUDDEN EMERGENCY where the principal cannot be consulted and the circumstances cannot admit delay
b. Where instructions are AMBIGUOUS, the agent is not chargeable with disobedience or its consequences in
case he makes an honest mistake and adopts a construction different from that intended by the principal.
c. An agent may not be said to have breached the agency contract by reason of an INSUBSTANTIAL DEPARTURE
from the principal’s instructions, which does not affect the result.
Nonetheless, in spite of the fact that the purported agent acts without authority or in excess of authority, under
Article 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.
19. What is the current interest rate? What is the basis and when was it issued?
The rate of interest for loan or forbearance of any money, goods, or credits and the rate allowed in judgments,
in the absence of an express contract as to such rate of interest, shall be 6% per annum, according to BSP Monetary
Board Circular No. 799. Said circular took effect on July 1, 2013.