Law on Sales, Agency, and Credit Transactions

Atty. Jal A. Marquez

Articles 1868-1932
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him in all matters connected with the

Title X. - AGENCY construction work.

CHAPTER 1 CHARACTERISTICS of a contract of agency:

NATURE, FORM AND KINDS OF AGENCY 1. Consensual
  2. Principal
Art. 1868 3. Nominate
By the contract of agency a person binds 4. Unilateral (if gratuitous) or Bilateral (if
himself to render some service or to do for compensation)
something in representation or on behalf of 5. Preparatory – entered into as a means
another, with the consent or authority of to an end, i.e., creation of other contracts.
the latter.
ESSENTIAL ELEMENTS of agency:
AGENCY 1. Consent
A relationship which implies a power in an 2. Object – execution of a juridical act in
agent to contract with a third person on behalf relation to third persons
of the principal. 3. Agent acts AS A REPRESENTATIVE
and not for himself
NOTE: A CONTRACT and a 4. Agent acts WITHIN the scope of his
REPRESENTATIVE RELATIONSHIP authority

NOTES: PARTIES to the contract:

 REPRESENTATION constitutes the 1. Principal – one whom the agent
BASIS of agency. represents and from whom he derives his
 The acts of the agent on behalf of the authority
principal within the scope of his authority 2. Agent – one who acts for and
produce the same legal and binding effect represents another
as if they were personally done by the
principal. CAPACITY of the parties
 The relation of an agent to his principal is 1. Principal – any person who is
FIDUCIARY, i.e., based on trust and capacitated to act in his own right
confidence. 2. Agent – since he assumes no
 The PURPOSE of agency is to extend the personal liability, he does not have to
personality of the principal. possess full capacity to act insofar as third
 Excludes the relationship of the ff.: persons are concerned. However,
1. Employer and Employee persons who are absolutely incapacitated,
2. Master and Servant e.g., insane persons, cannot be agents.
3. Employer and Independent Contractor
 It is the power to affect the principal’s ACTS that may be delegated to agents:
contractual relations with third persons
that differentiates the agent from the IN GENERAL – what a man may do in person,
employee, the servant and the he may do thru another.
independent contractor.
EXCEPTIONS:
ILLUSTRATION 1. Personal acts – in cases personal
P, owner of land, wants to construct a building performance is required by law or public
on it. He may do the ff.: policy or agreement of the parties. E.g.,
1. Independent contractor – he right to vote, making of a holographic will,
may hire C, a building contractor, to statements to be made under oath.
construct the building with the materials 2. Criminal acts or acts not allowed
and labor to be furnished by C. by law. E.g., an alien cannot purchase a
2. Employee – he himself may land through a Filipino agent.
construct the building, buying the
necessary materials and employing W Art. 1869
who shall construct the building under his Agency may be express, or implied from
direction and supervision. the acts of the principal, from his silence or
3. AGENT – he may secure the lack of action, or his failure to repudiate the
services of A to supervise and to act for
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
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agency, knowing that another person is Acceptance by the agent may also be
acting on his behalf without authority. express, or implied from his acts which
carry out the agency, or from his silence or
Agency may be oral, unless the law inaction according to the circumstances.
requires a specific form.
NOTE: Since agency is a contract, there must
KINDS of agency: be consent by both parties.
1. Manner of Creation (1870)
a. Express Art. 1874
b. Implied When a sale of a piece of land or any
2. Character (1875) interest therein is through an agent, the
a. Gratuitous authority of the latter shall be in writing;
b. Onerous/Compensated otherwise, the sale shall be void.
3. Extent of Business Covered (1876)
a. General – comprises all the NOTES:
business of the principal  Under Art. 1403, no. 2, par. (e) CC, an
b. Special – comprises one or agreement for the sale of real property or
more specific transactions an interest therein is UNENFORCEABLE
4. Authority Conferred even if there is no agent.
a. Couched in general terms  Art. 1874 speaks only of agency for SALE,
(1877) – comprise only acts of NOT PURCHASE. However, purchase is
administration covered under Art. 1878 (5).
b. Couched in specific terms _____________________________________
(1878) – authorizing only the
performance of specific act/acts Art. 1875
Agency is presumed to be for a
FORM compensation, unless there is proof to the
In general, NO form. Agent’s authority may be contrary.
Oral or Written, e.g., (1874) Sale of piece of
land or any interest therein through an agent. NOTE:
If there is no compensation specified, a
1. Express REASONABLE VALUE of the agent’s services
2. Implied shall be given.
a. Acts of the principal
b. From his silence or lack of
Art. 1876 (as to extent of business covered)
action
An agency is either general or special.
c. Failure to repudiate the
agency
The former comprises all the business of
the principal. The latter, one or more
ILLUSTRATE (acts of the principal)
specific transactions.
A sold the goods belonging to P without the
consent of the latter. With the knowledge of
GENERAL AGENCY
the facts, P received the proceeds of the sale
Comprises all the business of the principal
and even gave A a commission.
(RATIFICATION)
SPECIAL AGENCY
Comprises one or more specific transactions.
ILLUSTRATE (principal’s silence or lack of
action, or failure to repudiate agency)
NOTES:
P’s property was being administered by A.
Later, B took charge of the administration of  The distinction is based on the SCOPE of
said property through the designation by A the business covered.
who had to absent himself from the place for
reasons of health. P did not oppose the  A GENERAL agency is not the same with
designation of B nor did he appoint a new one COUCHED IN GENERAL terms
agent although the designation was expressly (1877).
communicated to him.
CLASSIFICATION OF AGENTS:
1. Universal agent – one authorized to
Art. 1870
do all acts that the principal may
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
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personally do, and which he can lawfully (8) To lease any real property to another
delegate to another. person for more than one year;
2. General agent – one authorized to (9) To bind the principal to render some
transact all the business of his principal, or service without compensation;
all business of a particular kind or in a (10) To bind the principal in a contract of
particular place. partnership;
3. Special or particular agent – one (11) To obligate the principal as a
authorized to act in one or more specific guarantor or surety;
transactions. (12) To create or convey real rights over
_____________________________________ immovable property;
(13) To accept or repudiate an inheritance;
Art. 1877 (as to authority conferred) (14) To ratify or recognize obligations
An agency couched in general terms contracted before the agency;
comprises only acts of administration, (15) Any other act of strict dominion.
even if the principal should state that he
withholds no power or that the agent may NOTE:
execute such acts as he may consider These refer to acts of strict dominion or
appropriate, or even though the agency ownership as distinguished from acts of
should authorize a general and unlimited administration.
management.
Art 1881
NOTE: The agent must act within the scope of his
An agency couched in general terms may be a authority. He may do such acts as may be
general agency or a special agency. conducive to the accomplishment of the
purpose of the agency.
AGENCY COUCHED IN GENERAL TERMS
Includes only acts of administration, i.e., the Art. 1882
authority of an agent regarding the necessary The limits of the agent's authority shall not
and usual means to carry out the agency into be considered exceeded should it have
effect. This excludes acts of strict ownership. been performed in a manner more
_____________________________________ advantageous to the principal than that
specified by him.
Art. 1878 (as to authority conferred)
Special powers of attorney are necessary AUTHORITY OF AN AGENT
in the following cases: The power of the agent to affect the legal
(1) To make such payments as are not relations of the principal by acts done in
usually considered as acts of accordance with the principal’s manifestation
administration; of consent to him.
(2) To effect novations which put an end to
obligations already in existence at the time GENERAL RULE:
the agency was constituted; The principal is bound by the acts of an agent
(3) To compromise, to submit questions to within his authority.
arbitration, to renounce the right to appeal
from a judgment, to waive objections to the REQUISITES in order that the principal may
venue of an action or to abandon a be bound to third persons by the act of the
prescription already acquired; agent:
(4) To waive any obligation gratuitously; 1. Agent must act within the scope of his
(5) To enter into any contract by which the authority
ownership of an immovable is transmitted 2. Agent must act on behalf of the
or acquired either gratuitously or for a principal
valuable consideration;
(6) To make gifts, except customary ones PRINCIPAL IS BOUND BY ACT OF AGENT:
for charity or those made to employees in (ILLUSTRATE)
the business managed by the agent; 1. Within the scope and on behalf of the
(7) To loan or borrow money, unless the principal
latter act be urgent and indispensable for 2. Ratification by principal
the preservation of the things which are 3. Performance of agency more
under administration; advantageous to principal
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
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EXC: Where the contract involves things

OTHERS belonging to principal.
4. Where principal’s acts have
contributed to deceive a third person in
good faith CHAPTER 2
5. Where limitations upon the power OBLIGATIONS OF THE AGENT
created by principal could not have been  
known by the third person Specific Obligations of the agent:
6. Where principal has placed in the 1. To carry out the agency in accordance
hands of the agent instruments signed by with its terms (1884)
him in blank 2. To answer for the damages which
through his non-performance the principal
NOTE: may suffer (1884)
If the agent acts without authority or in excess 3. To finish the business already begun
or beyond the scope of his authority, such act on the death of the principal, should delay
shall be UNENFORCEABLE, unless ratified, entail any danger (1884)
expressly or impliedly. 4. To observe the diligence of a good
father of a family in the custody and
Art. 1883 preservation of the goods forwarded to
If an agent acts in his own name, the him by the owner in case he declines an
principal has no right of action against the agency, until an agent is appointed (1885)
persons with whom the agent has 5. To advance the necessary funds
contracted; neither have such persons should there be a stipulation to the effect
against the principal. (1886)
6. To act in accordance with the
In such case the agent is the one directly instructions of the principal (1887)
bound in favor of the person with whom he 7. Not to carry out the agency if its
has contracted, as if the transaction were execution would manifestly result in loss or
his own, except when the contract involves damage to the principal (1888)
things belonging to the principal. 8. To answer for damages should he
prefer in case of conflict, his own interests
The provisions of this article shall be to those of the principal (1889)
understood to be without prejudice to the 9. Not to loan to himself without the
actions between the principal and agent. consent of the principal when he has been
authorized to lend at interest (1890)
KINDS of principal: 10. To render an account of his
1. Disclosed – at the time of transaction, transactions and to deliver to the principal
the third party has notice that the agent is whatever he may have received by virtue
acting for a principal and of the principal’s of the agency (1891)
identity 11. To be responsible in certain cases for
2. Partially disclosed – third party has the acts of the substitute appointed by
notice that the agent is or may be acting him (1892)
for a principal but has no notice of 12. To pay interest on funds he has
principal’s identity applied to his own use (1896)
3. Undisclosed – third party has no 13. To distinguish goods by countermarks
notice that agent is acting for a principal and designate the merchandise
respectively belonging to each principal,
NOTE: in case of a commission agent who
This refers an agent being authorized to act on handles goods of the same kind and
behalf of the principal, instead acts in his own mark, which belong to different owners
name. (1904)
14. To inform the principal, where an
GR: The effect is that the agent is the one authorized sale of credit has been made
directly responsible to the person with whom of such sale (1906)
he had contracted as if the transaction were 15. To bear the risk of collection, should
his own. he receive also on a sale, a guarantee
commission (1907)
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
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16. To indemnify the principal for necessary for the execution of the agency
damages for his failure to collect the (1912)
credits of his principal at the time that
they become due (1908) EXCEPTION:
17. To answer for his fraud or negligence This article refers to the exception, UNLESS
(1909) principal is insolvent.

The insolvency of the principal is a ground for

Art. 1884 the EXTINGUISHMENT of agency (1912[3])
The agent is bound by his acceptance to
carry out the agency, and is liable for the Art. 1887
damages which, through his non- In the execution of the agency, the agent
performance, the principal may suffer. shall act in accordance with the
instructions of the principal.
He must also finish the business already
begun on the death of the principal, should In default thereof, he shall do all that a
delay entail any danger. good father of a family would do, as
required by the nature of the business.
NOTES:
 The general rule in contracts apply, to wit: DISTINGUISH:
that any person guilty of fraud, negligence, INSTRUCTIONS are directions while
or delay in the fulfillment of his obligation, AUTHORITY is the extent or the limitation of
or who in any other manner fails to comply the agent’s power to represent the principal.
with the terms thereof shall be liable for
damages (1170)” HENCE, acting in accordance with instructions
is distinct from the rule that the agent must act
 Although the death of the principal within the scope of his authority (1881)
extinguishes the agency (1913[3]), the
agent has an obligation to conclude the NOTES:
business already begun on the death of  Agent exceeded authority –
the principal, SHOULD delay entail any UNENFORCEABLE
danger.  Agent acted not in accordance with
_____________________________________ instructions – DAMAGES

Art. 1885 (SELF-EXPLANATORY) EXCEPTION: Agent may disobey

In case a person declines an agency, he is instructions where it call for the performance of
bound to observe the diligence of a good ILLEGAL acts, or where he is privileged to do
father of a family in the custody and so to protect his security interest in the subject
preservation of the goods forwarded to him matter of the agency, e.g., lien
by the owner until the latter should appoint
an agent or take charge of the goods. Art. 1888
An agent shall not carry out an agency if its
CORRELATE WITH: execution would manifestly result in loss
1885 refers in the event a person DECLINES or damage to the principal.
an agency while 1929 refers to obligation of an
agent who WITHDRAWS from an agency. REASON:
BOTH requires the agent to act as such until The duty of the agent is to render service for
the principal has meet the situation. the benefit of the principal and not to act to his
detriment. Furthermore, an agent must
Art. 1886 exercise due diligence in carrying out the
Should there be a stipulation that the agent agency.
shall advance the necessary funds, he
shall be bound to do so except when the Art. 1889
principal is insolvent. The agent shall be liable for damages if,
there being a conflict between his interests
GR: and those of the principal, he should prefer
The principal must advance to the agent, his own.
should the latter so request, the sums
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
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REASON: for goods he is to sell at a certain price. He

Agency, being a fiduciary relation, the agent is may not make any profit out of the agency
required to observe utmost good faith and beyond his stipulated compensation.
loyalty towards his principal.

NOTE: Rule applies regardless the agency is

ONEROUS or GRATUITOUS.
ILLUSTRATE: QUESTION:
P authorized A to buy specified goods. A must Is it necessary that a demand for payment be
not sell P goods belonging to him. Such sale made by the principal in order that delay on
is VOIDABLE. the part of the agent shall exist?
A’s obligation to P requires him to buy at the ANSWER:
lowest possible price while his self interest NO. The law provides that the agent is bound
prompts him to sell at the highest price to deliver to the principal whatever he may
obtainable. have received by virtue of the agency.
RECALL: Demand is no longer necessary.
Purchase by guardian, agent or
executors/administrators – VOIDABLE. (1491) Art. 1892
Sale between spouses - VOID The agent may appoint a substitute if the
principal has not prohibited him from doing
Art. 1890 so; but he shall be responsible for the acts
If the agent has been empowered to borrow of the substitute:
money, he may himself be the lender at the (1) When he was not given the power to
current rate of interest. If he has been appoint one;
authorized to lend money at interest, he (2) When he was given such power, but
cannot borrow it without the consent of the without designating the person, and the
principal. person appointed was notoriously
incompetent or insolvent.
NOTE:
There must be an SPA for an agent to loan or All acts of the substitute appointed against
borrow money (1878[7]) the prohibition of the principal shall be
void.
REASON: Agent may be a bad debtor.
Art. 1893
Art. 1891 (HARMONIZE with 1905 – In the cases mentioned in Nos. 1 and 2 of
Commission agent shall be the preceding article, the principal may
entitled to any interest or furthermore bring an action against the
benefit..) substitute with respect to the obligations
Every agent is bound to render an account which the latter has contracted under the
of his transactions and to deliver to the substitution.
principal whatever he may have received
by virtue of the agency, even though it may GR:
not be owing to the principal. The agent may appoint a subagent or
substitute UNLESS prohibited by the principal.
Every stipulation exempting the agent from
the obligation to render an account shall be NOTE:
void. The right of action against the substitute is an
exception to the general rule that contracts are
NOTE: binding only between the contracting parties,
If the agent fails to deliver and instead their assigns and heirs (1311[1])
converts or appropriates for his own use the
money or property belonging to the principal, SCENARIOS:
the agent is liable for ESTAFA (315, par. 1[b], 1. SUBSTITUTION PROHIBITED - The
RPC) agent exceeds the limits of his authority.
Hence, all acts of the substitute in such a
ILLUSTRATE: case shall be void.
P employs A as a full-time salesman. A must
turn over to P any overprice received by him
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
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2. SUBSTITUTION AUTHORIZED – The

substitution has the effect of releasing the EFFECTS:
agent from his responsibility unless the Between Principal and Agent –
person appointed is notoriously UNENFORCEABLE
incompetent or insolvent. Between Agent and 3rd Person - VOID
EXCEPTION: If the substitute is the
person designated by the principal, the
agent is exempt from liability.

3. SUBSTITUTION NOT AUTHORIZED,

BUT NOT PROHIBITED – The law CHAPTER 3
recognizes the validity of the substitution. OBLIGATIONS OF THE PRINCIPAL
The agent as well as the substitute shall
be responsible. Specific obligations of the principal:
_____________________________________ 1. COMPLY with all the OBLIGATIONS
which the agent may have contracted
Art. 1897 within the scope of authority of his
The agent who acts as such is not authority and in the name of the
personally liable to the party with whom he principal;
contracts, unless he expressly binds 2. ADVANCE to the agent, should the
himself or exceeds the limits of his latter so request, the SUMS necessary
authority without giving such party for the execution of the agency (1912);
sufficient notice of his powers. 3. REIMBURSE the agent for all
ADVANCES made by him provided
Art. 1898 the agent is free from fault (1912);
If the agent contracts in the name of the 4. INDEMNIFY the agent for all the
principal, exceeding the scope of his DAMAGES which the execution of the
authority, and the principal does not ratify agency may have caused the agent
the contract, it shall be void if the party without fault or negligence on his part
with whom the agent contracted is aware of (1913);
the limits of the powers granted by the 5. PAY the agent the COMPENSATION
principal. In this case, however, the agent agreed upon, if no compensation was
is liable if he undertook to secure the specified, the reasonable value of the
principal's ratification. agent’s services.

GR: Art. 1910 (SELF-EXPLANATORY)

An agent is not liable for acts done in The principal must comply with all the
accordance with the instructions and within the obligations which the agent may have
scope of his authority. contracted within the scope of his
EXCEPTIONS: authority.
1. When the agent expressly binds
himself As for any obligation wherein the agent has
2. When the agent exceeds his authority exceeded his power, the principal is not
– UNENFORCEABLE bound except when he ratifies it expressly
3. When the agent promised to secure or tacitly.
the principal’s ratification and failed

EXCEPTIONS to EXCEPTIONS: Art. 1912

1. If the agent GAVE SUFFICIENT The principal must advance to the agent,
NOTICE of his power to third persons should the latter so request, the sums
dealing with him and such persons necessary for the execution of the agency.
nevertheless contract with the agent,
neither the principal nor the agent are Should the agent have advanced them, the
bound (1897) principal must reimburse him therefor,
2. If the agent is AWARE of the limits of even if the business or undertaking was
the agent’s power (1898) not successful, provided the agent is free
3. If there was RATIFICATION by from all fault.
principal (1910[2])
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
Page 8 of 13
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The reimbursement shall include interest execution of the agency may have caused
on the sums advanced, from the day on the latter, without fault or negligence on his
which the advance was made. part.

NOTE: NOTE:
The principal is under obligation to provide the The liability of the principal for damages is
means with which to execute the agency. limited only to that which the execution of the
agency has caused the agent.
CLARIFY:
Under 1912, the principal MAY or MAY NOT
advance to the agent funds. However, in case
the agent REQUESTS, the principal is bound ILLUSTRATE:
to advance the funds. P authorized A to scout for properties in
Mindanao. A met an accident while in
On the other hand, under 1886, the agent Mindanao.
MAY or MAY NOT advance the funds.
However, in case of STIPULATION, the agent Art. 1914
is bound to advance the funds, unless the The agent may retain in pledge the things
principal is insolvent. which are the object of the agency until the
principal effects the reimbursement and
EFFECT: pays the indemnity set forth in the two
If the principal fails to advance the necessary preceding articles.
funds, the agent will not be liable for the
damage which, through his non-performance, NOTE:
the principal may suffer. This is an instance of legal pledge or pledge
which is created by operation of law.
NOTE:
Demand is not necessary in order that delay PLEDGE
on the part of the principal shall exist. A contract by virtue of which the debtor
(Correlate with 1169[1]) delivers to the creditor or to a third person a
movable, or instrument evidencing incorporeal
“1169. Those obliged to deliver or to rights for the purpose of securing the
do something incur in delay from the fulfillment of a principal obligation with the
time the oblige judicially or understanding that when the obligation is
extrajudicially demands from them the fulfilled, the thing delivered shall be returned
fulfillment of their obligation. with all its fruits and accessions.

However, the demand by the creditor

shall not be necessary in order that
delay may exist:

1) When the obligation or the law

expressly so declares.”

NOTE:
The obligation to reimburse cannot be
defeated by the fact that the business or
undertaking was not successful, provided the
agent is free from fault.

REASON:
The agent simply obligates himself to
represent the principal and not that all the
business entrusted to him shall be successful.

Art. 1913
The principal must also indemnify the
agent for all the damages which the
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
Page 9 of 13
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CHAPTER 4
MODES OF EXTINGUISHMENT OF
AGENCY
 
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 principal or of the
agent;
(4) By the dissolution of the firm or
corporation which entrusted or accepted
the agency;
(5) By the accomplishment of the object or
purpose of the agency;
(6) By the expiration of the period for which
the agency was constituted.
MODES OF EXTINGUISHING AN AGENCY
1. By agreement – 5 and 6
2. By subsequent act of the parties (1
and 2)
3. By operation lf law (3 and 4)
NOTE:
Agency requires the existence and capacity of
both the principal and agent.
CIVIL INTERDICTION
A form of disqualification which deprives the
offender during the period of his sentence of
the right to manage his property and dispose
of such property by any act or any conveyance
inter vivos. (Art. 34, RPC)
DISSOLUTION
Extinguishes the corporation’s
existence. It is equivalent to death.
NOTE: The modes
EXCLUSIVE.
OTHER MODES OF EXTINGUISHMENT:
1. Extinguishment of obligations (i.e.,
payment/performance, loss of the thing,
condonation/remission, confusion/merger,
compensation, novation [1231])
2. Change in law (e.g., making the
subject illegal)
3. Change in conditions not anticipated
(e.g., war)
Art. 1920 (by subsequent acts)
The principal may revoke the agency at
will, and compel the agent to return the
document evidencing the agency. Such
revocation may be express or implied.
NOTE:
If by principal – REVOCATION (1919[1])
If by agent – RENUNCIATION/WITHDRAWAL
(1919[2])
EXCEPTION: 1927:
1. If a bilateral contract depends upon it; or
2. If it is the means of fulfilling an obligation
already contracted; or
3. If a partner is appointed manager of a
partnership in the contract of partnership and
his removal from the management is
unjustifiable.
NOTE: This applies whether gratuitous or
onerous.
IMPLIED REVOCATIONS:
1. 1923 – Appointment of new agent
2. 1924 – Principal directly manages the
business entrusted to the agent
3. 1926
Art. 1923 (Implied Revocation)
The appointment of a new agent for the
same business or transaction revokes the
previous agency from the day on which
notice thereof was given to the former
agent, without prejudice to the provisions
of the two preceding articles.
NOTES:
 Revocation does not become effective as
between the principal and the agent until it
is same way communicated to the latter.
juridical
(1873?)
 “Without prejudice to the provisions of the
provided are NOT
two preceding articles” – The rights of third
persons who acted in good faith and
without knowledge of the revocation will
not be prejudiced thereby. (1921,1922)
ILLUSTRATE:
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
Page 10 of 13
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P (exclusively) authorized A to sell the 1. The agency is created not only for the
former’s land. Subsequently, P also gave interest of the principal but also for the
authority to B to sell the same land. interest of third persons; and
2. The agency is created for the mutual
Art. 1924 (Implied Revocation) interest of both the principal and the agent.
The agency is revoked if the principal (1930)
directly manages the business entrusted to
the agent, dealing directly with third ILLUSTRATE:
persons. (If a bilateral contract depends upon it)
P sold to B a factory for 1M. B paid only 800k.
EXCEPTION: It was stipulated that the ownership in the
Only desire of the principal is for him and the factory would be transferred to B only after the
agent to manage the business together. payment of the balance of 200k to be made
within (6) months. It was further agreed that P
NOTE: would appoint A to manage the factory and
If the purpose is to merely to avoid payment of that any profits would be used to pay off the
agent’s commission, the implied revocation is balance of the purchase price.
deemed in bad faith and cannot be sanctioned Here, P cannot revoke the agency at will for a
without, according to the agent, the bilateral contract depends upon it.
commission which is due him.
ILLUSTRATE:
(If it is the means of fulfilling an obligation
Art. 1926 (Implied revocation)
already contracted)
A general power of attorney is revoked by a
P borrowed money from B 50k. As security for
special one granted to another agent, as
the debt, P gives A power of attorney to collect
regards the special matter involved in the
rents due from tenants of P and authorizes A
latter.
to apply the same to the debt of 50k.
Here, P cannot revoke the agency, without any
NOTES:
justifiable cause, for it is a means of fulfilling
 This refers to a PARTIAL revocation of
his obligation to B.
general power.
AGENCY COUPLED WITH INTEREST
 A specific power naturally prevails over a
EXAMPLE: P borrows from A 10k. If P
general power. pledges his property to A as security for the
debt and gives A the power to dispose of it
ILLUSTRATE: should P default, there is also an agency
P appoints A as manager of P’s business,
coupled with an interest which is irrevocable.
including the hiring of personnel. If P grants a
special power to B to hire personnel for his
business, then as regards the matter of hiring Art. 1928
employees, the general power granted to A is The agent may withdraw from the agency
revoked while the other remains. by giving due notice to the principal. If the
latter should suffer any damage by reason
of the withdrawal, the agent must
Art. 1927 (EXCEPTION to 1921 – revocable indemnify him therefor, unless the agent
at will) should base his withdrawal upon the
An agency cannot be revoked if a bilateral impossibility of continuing the
contract depends upon it, or if it is the performance of the agency without grave
means of fulfilling an obligation already detriment to himself.
contracted, or if a partner is appointed
manager of a partnership in the contract of GR:
partnership and his removal from the The agent may withdraw from the agency at
management is unjustifiable. any time, gratuitous or onerous. (BASED on
the principle of involuntary servitude)
GR:
The principal may revoke an agency at will. WITHOUT JUST CAUSE
Likewise, an agent may withdraw upon notice The agent shall indemnify the principal should
to principal. the latter suffer damage by reason of such
withdrawal.
EXCEPTIONS:
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
Page 11 of 13
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 The death of the principal or the

WITH JUST CAUSE revocation of agency does not prejudice
As when based upon the impossibility of third persons who have dealt with the
continuing the performance of the agency agent in good faith.
without grave detriment to himself, or is due to
a fortuitous event, the agent cannot be liable  BOTH the agent and the third person must
for damages by reason of such withdrawal. have acted in good faith.

Art. 1929 (CORRELATE w/ 1885 – in case CORRELATE:

supposed agent declines) 1884[2], Agent is required to finish the
The agent, even if he should withdraw from business already begun on the death of the
the agency for a valid reason, must principal, should delay entail danger.
continue to act until the principal has had
reasonable opportunity to take the ILLUSTRATE:
necessary steps to meet the situation. P authorized A to sell the former’s land.
Subsequently, P died. Without knowledge of
Art. 1930 (EXCEPTION to 1919 [3]) P’s death, A sold the land to X.
The agency shall remain in full force and Can the heirs of P recover the land from X?
effect even after the death of the principal, No, if both A and X acted in good faith.
if it has been constituted in the common Yes, if either A or X acted in good faith.
interest of the latter and of the agent, or in
the interest of a third person who has Art. 1932
accepted the stipulation in his favor. If the agent dies, his heirs must notify the
principal thereof, and in the meantime
GR: adopt such measures as the circumstances
Agency is terminated by the death of either the may demand in the interest of the latter.
principal.
NOTE:
REASON: If the agent dies, the agency is extinguished.
Since agency is based on representation, However, the law imposes upon the heirs of
there is no one to be represented where the the deceased agent not only the obligation to
principal is already dead. notify the principal but also to adopt such
measures as the circumstances may demand
EXCEPTIONS: for the interest of the principal.
1. Constituted in the common interest of
the principal and agent; RECALL:
2. Constituted in the interest of a third “Art. 1311. Contracts take effect only between
person who has accepted the stipulation in the parties, their assigns and heirs, except in
his favor. (1311 [2] – stipulation apour trui) case where the rights and obligations arising
from the contract are not transmissible by their
ILLUSTRATE: nature, or by stipulation or by provision of law.
P borrows from B 5k payable in (1) year. The heir is not liable beyond the value of the
Before due date of the obligation, P sells his property he received from the decedent.”
land to A and he authorizes A to pay P’s debt
out of the purchase price. B accepts the
agency of A.
Here, the right of B to receive payment from A
cannot be defeated by the death of P.

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.

NOTES:
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
Page 12 of 13
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16. Is there a need for the agent to accept the agency?

YES -1870
17. Acceptance by agent
17.1. Express
17.2. Implied
18. Sale/Purchase of a piece of land through an agent
shall be in writing, otherwise VOID – 1874
19. Presumption – Onerous - 1875
OUTLINE 20. Principal is bound by acts of agent - 1882
20.1. Within scope and on behalf
1. Definition - 1868 20.2. Ratification by principal
2. Nature 20.3. Performance of agency more
2.1. Contract advantageous to principal
2.2. Representative Relationship 21. Requisites: Principal may be bound to 3rd persons
3. Basis – Representation by the acts of the agent
4. Relationship – Fiduciary 21.1. Act within the scope of his authority
5. Purpose – extend personality of principal 21.2. Act on behalf of the principal
6. Characteristics 22. If the agent acts without authority or in excess or
6.1. Consensual beyond the scope of his authority, such act shall be
6.2. Principal UNENFORCEABLE, unless ratified, expressly or
6.3. Nominate impliedly.
6.4. Unilateral if gratuitous; Bilateral if for
compensation 23. Obligations of the Agent
6.5. Preparatory 23.1. Carry out the agency in accordance with its
7. Essential Elements terms
7.1. Consent 23.2. Answer for damages which through his non-
7.2. Object performance the principal may suffer
7.3. Acts as representative 23.3. Finish the business already begun on the
7.4. Acts within scope of authority death of the principal, should delay entail
8. Parties any danger
8.1. Principal 23.4. Observe ordinary care in the custody and
8.2. Agent preservation of the goods forwarded to him
9. Acts which may be delegated by the owner in case he declines an agency
9.1. ALL 23.5. Advance the necessary funds, should there
10. Acts which may not be delegated be a stipulation to the effect
10.1. Personal acts 23.6. Act in accordance with the INSTRUCTIONS
10.2. Criminal acts of the principal
Kinds - 1869 23.7. Not to carry out the agency if its execution
11. Form/Manner of creation would manifestly result in loss or damage to
a) Express principal
b) Implied 23.8. Answer for damages should he prefer in
i) Acts of the principal case of conflict, his own interests to those of
ii) From his silence or lack of action the principal
iii) Failure to repudiate the agency 23.9. Render an account of his transactions and
12. Character deliver to the principal whatever he may
1. Gratuitous have received by virtue of the agency
2. Onerous 23.10. Be responsible in certain cases for the acts
13. Extent of Business Covered - 1876 of the substitute appointed by him
a) General – comprises all the business of the 23.11. Indemnify the principal for damages for his
principal failure to collect the credits of his principal at
b) Special – comprises one or more specific the time that they become due
transactions 23.12. Answer for fraud or negligence
14. Authority Conferred - 1877
a) Couched in general terms – only acts of 24. Obligations of the Principal
administration 24.1. Comply with all the obligations which the
b) Couched in specific terms – strict agent may have contracted within scope of
dominion/specific acts (see 1878) authority and in the name of the principal
15. Form required - none
Law on Sales, Agency, and Credit Transactions
Atty. Jal A. Marquez
Articles 1868-1932
Page 13 of 13
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24.2. Advance to the agent, should the latter

request the sums necessary for the
execution of the agency
24.3. Reimburse the agent for all advances
made by him
24.4. Indemnify the agent for all the damages
which the execution of the agency may
have caused the agent without fault or
negligence on his part
24.5. Pay the agent the compensation agreed
upon
25. Modes of Extinguishment of Agency
25.1. By Revocation of the principal (at will) [see
no. 19 for EXCEPTIONS]
25.1.1.Express
25.1.2.Implied
25.1.2.1.Appointment of new agent
25.1.2.2.Principal directly manages the
business entrusted to the agent
25.1.2.3.Issuance of a SPA revoking a
GPA
25.2. By withdrawal of the agent
25.3. By the death, civil interdiction, insanity or
insolvency of the principal/agent
EXCEPTIONS:
25.3.1.Constituted in the common interest of
the principal and agent
25.3.2.Constituted in the interest of a third
person who has accepted the stipulation
in his favor
25.4. By the dissolution of the firm or corporation
as principal/agent
25.5. By the accomplishment of the object or
purpose of the agency
25.6. By the expiration of the period of agency
26. GR: Principal may revoke an agency at will.
Likewise, an agent may withdraw at will upon
notice, gratuitous or onerous.
EXCEPTIONS
26.1. Agency is also created for the interest of 3 rd
persons
26.2. Agency is created for the mutual interest of
both the principal and agent