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When an agency is established, and the agent acts for the principal, he is
insofar as the world is concerned essentially the principal acting in the
particular contract or transaction on hand. Consequently, the acts of the agent
on behalf of the principal within the scope of the authority have the same legal
effect and consequence as though the principal had been the one so acting in
the given situation. Some of the legal consequences that flow from the doctrine
of representation in the contract of agency are that --
: When an agent purchases the property in bad faith, the principal should also
be deemed a purchaser in bad faith. Caram, Jr. v. Laureta , 103 SCRA 7
(1981).
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that
"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."[2]
(at
p.
223)
In Doles v. Angeles , 492 SCRA 607 (2006), the Court held -"The CA is incorrect when it considered the fact that the "supposed friends of
The principal must have capacity to contract (Arts. 1327 and 1329), and
may either be a natural or juridical person (Art. 1919[4]).
There is legal literature that holds that since the agent assumes no
personal liability, he does not have to possess full capacity to act insofar as
third persons are concerned.[3] Since a contract of agency is first and foremost
a contract in itself, the parties (both principal and agent) must have to have
legal capacity to validly enter into an agency. If one of the parties has no legal
capacity to contract, then the contract of agency is not void, but merely
voidable, which means that it is valid until annulled.
(a)
Consent, express
the relationship;
or
implied,
of
the
parties
to
establish
The foregoing discussions would all make sense to support the fact that
as a general proposition the lack of legal capacity of the agent does not affect
the constitution of the agency relationship. And yet, it is clear under Article
1919(3) that if during the term of the agency, the principal or agent is placed
under civil interdiction, or becomes insane or insolvent, the agency is ipso jure
extinguished. It is therefore only logical to conclude that if the loss of legal
capacity of the agent extinguishes the agency, then necessarily any of those
cause that have the effect of removing legal capacity on either or both the
principal and agent at the time of perfection would not bring about a contract of
agency.
(d)
acts
Agent
as
acts
representative
within
the
and
scope
not
of
for
his
himself;
authority.[4]
must be an intention to accept the appointment and act on it, and in the
absence
of
such
intent,
there
is
generally
no
agency.
(4)
Perhaps the only exception to this rule is agency by estoppel, but 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. More discussions on the essential element of
consent shall take place in the section on essential characteristic of
consensuality of contracts of agency.
The compensation that the principal agrees to pay to the agent is part of
the terms of the contract of agency upon which their minds meet. Therefore,
the extent and manner by which the agent would be entitled to receive
compensation or commission is based on the terms of the contract.
Sometimes, the terms are not that clear, and decisions have had to deal with
the issue of when an agent has merited the right to receive the compensation
either stipulated or implied from the terms of the contract. The doctrine that
may be derived from the various decisions on the matter are anchored on the
nature of the contract of agency as a species of contracts of services in
general; and that consequently, an agent should be entitled to receive
compensation when it has been established that it was through his efforts or
service that the object of the agency was achieved.
Entitlement
of
Agent
on the Rendering of Service
to
Commission
Anchored
(3) Consideration
Cause or Consideration in agency is the commission that the principal
would pay the agent. Under Article 1875, agency is presumed to be for a
compensation, unless there is proof to the contrary. In other words, liberality
may be the proper cause or consideration for an agency contract only when it
is so expressly agreed upon. Unless otherwise stipulated, therefore, every
agent is entitled to remuneration or compensation for the services performed
under the contract of agency.
In Aguna v. Larena, 57 Phil 630 (1932), although the agent had rendered
service to the principal covering collection of rentals from the various tenants
of the principal, and in spite of the agreement that principal would pay for the
agent's service, nevertheless, the principal allowed the agent to occupy one of
his parcels of land and to build his house thereon. The Court held that the
service rendered by the agent was deemed to be gratuitous, apart from the
occupation of some of the house of the deceased by the plaintiff and his family,
"for if it were true that the agent and the deceased principal had an
understanding to the effect that the agent was to receive compensation aside
from the use and occupation of the houses of the deceased, it cannot be
explained how the agent could have rendered services as he did for eight
years without receiving and claiming any compensation from the deceased."
(at p. 632)
Not only is the contract of agency specifically named as such under the
Civil Code, it is a principal contract because it can stand on its own 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 falls
within its terms shall be considered as an agency arrangement and shall be
governed by the Law on Agency, notwithstanding any 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.
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that 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--it
will be an agency whether the parties understood the exact nature of the
relation or not.
(2) Consensual
In Amon Trading Corp. v. Court of Appeals, 477 SCRA 552 (2005), the
Court decreed that "In a bevy of cases as the avuncular case of Victorias
Milling Co., Inc. v. Court Appeals, [333 SCRA 663 (2000)], the Court decreed
from Article 1868 that the basis of agency is representation," (at p. 560),74 and
that consequently one of the strongest feature of a true contract of agency is
that of "control"--that the agent is under the control and instruction of the
principal. Thus, in Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663
(2000), it was ruled --
It is clear from Article 1868 that the basis of agency is representation. [6]
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. Indeed, the very word "agency" has come to connote control by
the principal.[7] The control factor, more than any other, has caused the courts
to put contracts between principal and agent in a separate category. . . .
of
an
agency
being
"preparatory
and
(a)
xxx
In the instant case, it appears plain to us that private respondent CSC
was a buyer of the SLDFR form, and not an agent of STM. Private respondent
CSC was not subject to STM's control. 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. That the authorization
given to CSC contained the phrase "for and in our (STM's) behalf" did not
establish an agency. Ultimately, what is decisive is the intention of the parties.
That no agency was meant to be established by the CSC and STM is clearly
shown by CSC's communication to petitioner that SLDR No. 1214M had been
"sold and endorsed" to it. The use of the words "sold and endorsed" means
that STM and CSC intended a contract of sale, and not an agency. . . (at pp.
676-677)
shall
pertain
to
the
principal
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that for an agency
to arise, it is not necessary that the principal personally encounter the third
person with whom the agent interactsprecisely, the purpose of agency is to
extend the personality of the principal through the facility of the agent.
(d)
It is said that the basis of agency is representation, that is, the agent acts
for and on behalf of the principal on matters within the scope of his authority
and said acts have the same legal effect as if they were personally executed
by the principal. By this legal fiction, the actual or real absence of the principal
is converted into his legal or juridical presence - qui facit per alium facit per se.
(at p. 593)
(e)
Earlier, in Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251
(1978), the Court held that "Agency is basically personal, representative, and
derivative in nature. The authority of the agent to act emanates from the
powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per alium facit per se. 'He who acts
through
another
acts
himself.'"
(at
p.
259)
EXCEPT:
(2)
the
agent
is
equivalent
(1)
where
the
agent's
adverse to those of the principal;
where
disclose the
the
agent's
information,
duty
as
to
interests
is
where
knowledge
are
not
he
to
is
informed
information; and
(3)
by way
of
confidential
acquiring
1435);
where
the
person
claiming
the
benefit
of the
rule
colludes
with
the
agent
to
defraud the
principal
(De
Leon
&
De
Leon, at p. 367,citing TELLER, at p.150)
adverse
to
that
of
the
principal.
(Art.
(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. Thomas v. Pineda, 89 Phil. 312 (1951);
Palma v. Cristobal, 77 Phil. 712 (1946); and
(c)
In Orient Air Services v. Court of Appeals, 197 SCRA 645 (1991), it was
held that the decision of the lower court ordering the principal airline company
to "reinstate defendant as its general sales agent for passenger transportation
in the Philippines in accordance with said GSA Agreement," was unlawful since
courts have no authority to compel the principal to reinstate a contract of
agency
it
has
terminated
with
the
agent:
title
In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court held that the
right of inspection given to a stockholder under the law can be exercised either
by himself or by any proper representative or attorney in fact, and either with or
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.
(a)
the
or
unfinished works, he did not assume any direct liability to the suppliers of the
contractor. Fressel v. Mariano Uy Chaco Sons & Co., 34 Phil. 122 (1915).
Taking into consideration the facts that the operator owed his position to
the company and the latter could remove him or terminate his services at will;
that the service station belonged to the company and bore its tradename and
the operator sold only the products of the company; that the equipment used
by the operator belonged to the company and were just loaned to the operator
and the company took charge of their repair and maintenance; that an
employee of the company supervised the operator and conducted periodic
inspection of the company's gasoline and service station; that the price of the
products sold by the operator was fixed by the company and not by the
operator; and that he was a mere agent, the finding of the Court of Appeals
that the operator was an agent of the company and not an independent
contractor should not be disturbed. Shell Co. v. Firemen's Insurance of
Newark, 100 Phil. 757 (1957).
When the terms of the agreement compels the purported agent to pay for
the products received from the purported principal within the stipulated period,
even when there has been no sale thereof to the public, the underlying
relationship is not one of contract of agency to sell, but one of actual sale. A
real 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.
Consequently, since the underlying agreement is not an agency agreement, it
cannot be revoked except for cause. Quiroga v. Parsons, 38 Phil 502 (1918).
When under the terms of the agreement, the purported agent becomes
responsible for any changes in the acquisition cost of the object he has been
authorized to purchase from a supplier in the United States, the underlying
agreement is not an contract of agency to buy, since an agent does not bear
any risk relating to the subject matter or the price. Being truly a contract of
sale, any profits realized by the purported agent from discounts received from
the American supplier, pertain to it with no obligation to account for it, much
less to turn it over, to the purported principal. Gonzalo Puyat v. Arco, 72 Phil.
402 (1941). Reiterated in Far Eastern Export & Import Co., v. Lim Tech Suan,
97 Phil. 171 (1955).
In Ker & Co., Ltd. v. Lingad, 38 SCRA 524 (1971), covering a contract of
distributorship, it was specifically stipulated in the contract that "all goods on
consignment shall remain the property of the Company until sold by the
Distributor to the purchaser or purchasers, but all sales made by the Distributor
shall be in his name;" and that the Company "at its own expense, was to keep
the consigned stock fully insured against loss or damage by fire or as a result
of fire, the policy of such insurance to be payable to it in the event of loss." It
was further stipulated that the contract "does not constitute the Distributor the
agent or legal representative of the Company for any purpose whatsoever.
Distributor is not granted any right or authority to assume or to create any
obligation or responsibility, express or implied in behalf of or in the name of the
Company, or to bind the Company in any manner or thing whatsoever." In spite
of such stipulations, the Court did find the relationship to be one of agency,
because it did not transfe4r ownership of the merchandise to the purported
distributor, even though it was supposed to enter into sales agreements in the
Philippines in its own name, thus:
Unlike an agent who must act in the name of the principal, a broker is
one who is engaged for others on a commission to negotiate between other
parties, never acting in his own name but in the name of those who employed
him. Reyes v. Rural Bank of San Miguel, 424 SCRA 135 (2004). He has no
relation with the thing he has been retained to buy or to sell; he is merely an
intermediary between the purchaser and the vendor. He acquires neither the
custody nor the possession of the thing he sells. His only office is to bring
together the parties to the transaction. Pacific Commercial Co. v. Yatco, 63
Phil. 398 (1936).
A broker may at the same time be an agent. When he acts in his behalf
in dealing with the public, even when he handles things pertaining to the
principal, he is a mere broker. On the other hand, if he is duly authorized to act
in the name of the principal, there is no doubt that the broker is also an agent.
Thus, in Abacus Securities Corp. v. Ampil, 483 SCRA 315 (2006), it was held
that since in that case the brokerage relationship was necessary a contract for
the employment of an agent, principles of contract law also govern the brokerprincipal relationship.
In the same manner, in Domingo v. Domingo, 42 SCRA 131 (1971), the
Court held that the duties and liabilities of a broker to his employer are
essentially those which an agent owes to his principal. In such a situation, the
decisive legal provisions [to determine whether a broker has violated his duty
or obligation] are found in Articles 1891 and 1909 of the New Civil Code,
whereby 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 owning to the principal; and that an agent is
responsible not only for fraud, but also for negligence .[10 On the other hand,
the Court also held in Domingo that "[t]he duty embodied in Article 1891 of the
New Civil Code will not apply 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." (at p. 140)
In Victoria Milling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000),
the Court held that an authorization given to the buyer of goods to obtain them
from the bailee "for and in behalf" of the bailor-seller does not necessarily
establish an agency, since the intention of the parties was for the buyer to take
possession and ownership over the goods with the decisive language in the
authorization being "sold and endorsed."
As a general rule, an agency to sell on commission basis does not
belong to any of the contracts covered by Articles 1357 and 1358 requiring
them to be in a particular form, and not one enumerated under the Statutes of
Frauds in Article 1403. Hence, unlike a sale contract which must comply with
the Statute of Frauds for enforceability, a contract of agency to sell is valid and
enforceable in whatever form it may be entered into. Lim v. Court of Appeals,
254 SCRA 170 (1996).
bound to pay the commission he has contracted with the broker for merely
finding the buyer.
To illustrate, in Guardex v. NLRC, 191 SCRA 487 (1990), the Court held
that when the terms of the agency arrangement is to the effect that entitlement
to the commission was contingent on the purchase by a customer of a fire
truck, the implicit condition being that the agent would earn the commission if
he was instrumental in bringing the sale about. Since the agent had nothing to
do with the sale of the fire truck, and is not therefore entitled to any
commission at all.
Thus, in Tan v. Gullas, 393 SCRA 334 (2002), quoting from Schmid &
Oberly, Inc. v. RJL Martinez Fishing Corp., 166 SCRA 493 (1988), it defined a
"broker" as "one who is engaged, for others, on a commission, negotiating
contracts relative to property with the cutody 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." (at
p. 339) The Court then held that "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." . . . Clearly, therefore, petitioners, 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." (at p. 341).
Although Schmid & Oberly, Inc. is now credited with laying down the
definition of a broker, the decision shows that it quoted from the early decision
of Behn, Meyer and Co., Ltd. v. Nolting and Garcia , 35 Phil. 274 (1916),
where the Court held -"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 negotiation 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 purpose the agent of both parties. (19 Cyc., 186;
Henderson vs. The State, 50 Ind., 234; Balck's Law Dictionary.) 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. (Mechem on Agency, sec.
10
13; Wharton on Agency, sec. 695). Judge Storey, in his work on Agency,
defines a broker as an agent employed to make bargains and contracts
between other persons, in matters of trade, commerce or navigation, for
compensation commonly called brokerage. (Storey on Agency, sec. 28)" (at p.
279-280)
[1]See Chemphil Export v. Court of Appeals, 251 SCRA 217 (1995); Shopper's
Paradise Realty v. Roque, 419 SCRA 93 (2004); Dominion Insurance Corp. v.
Court of Appeals, 426 SCRA 620, 626 (2002); Republic v. Evangelista, 466
SCRA 544 (2005); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006);
Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).
On the other hand, if the person has been given the power to enter into a
contract or commerce on behalf of any, or even for both the parties, he is truly
a broker and an agent. In which case, he assumes fiduciary obligations to the
person who is therefore legally his principal. In such case, he is entitled to a
commission if his efforts (i.e., the services he rendered) where the efficient
cause for the eventual perfection and consummation of the contract that was
the object for appointing him broker/agent.
Related Cases:
[10]Citing 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs.
Coates, 67 ALR 2d 943; Haymes vs. Rogers, 17 ALR 2d 896; Moore vs.
Turner, 32 ALR 2d 713.
National Rice and Corn Corp. v. Court of Appeals, 91 SCRA 437 (1979).
11
Under Article 1871, which describes the most ideal form of perfection of
the contract of agency, when the constitution of the agency is made with both
principal and agent being physically present at the time of perfection of the
contract of agency (i.e., "Between persons who are present"), the acceptance
of the agency may be implied if the principal delivers his power of attorney to
the agent and the latter receives it without objection.
In Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001), it was held that 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.
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. Thus, when a law firm allowed the
employee of its client to occasionally receive its mail, and not having formally
objected to the receipt by said employee of a court process, or taken any steps
to put a stop to it, meant that an agency relationship had been established, to
which receipt of the court process by said employee was legally deemed to be
service to the law firm.
On the other hand, under Article 1872, when the constitution of the
agency is made with the principal and agent not being physically present in
one place (i.e., "Between persons who are absent"), then there can be no
implied acceptance of the agency from the silence or inaction of the agent,
except in two instances:
(a)
In Lim v. Court of Appeals, 254 SCRA 170 (1996), the Court noted
that there are some provisions of law which require certain formalities for
particular contract: 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 Article 1357 and 1358 of the
Civil Code; and the third is when the form is required for the purpose of proving
the existence of the contract, such as those provide in the Statute of Frauds in
Article 1403. Since a contract of agency to sell pieces of jewelry on
commission does not fall into any of the three categories, it was
considered valid and enforceable in whatever form it may have been entered
into.
(b)
The languages used in Articles 1871 and 1872 indicates that the "power
of attorney" must constitute a written instruments, because in both cases the
articles refer to situations where "the principal delivers his power of attorney to
the agent," and when "the principal transmits his power of attorney to the
agent," which requires that it must be in writing, which today would include
texting and electronic mail, which are considered to be equivalent to a written
instrument under the Electronic Commerce Law. Consequently, when the other
provisions of the Law on Agency refers to "general power of attorney" and
"special power of attorney," does the law mean that they conform to the
rudimentary requirement that they be in writing?
12
In Conde v. Court of Appeals, 119 SCRA 245 (1982), the Court held that
when the right of redemption by sellers-a-retro is exercised by their son-in-law
who was given no express authority to do so, and the buyer-a-retro accepted
the exercise and done nothing for the next ten years to clear their title of the
annotated right of repurchase on their title, and possession had been given to
the sellers-a-retro during the same period, then "an implied agency must be
held to have been created from their silence or lack of action, or their failure to
repudiate the agency."
Under Article 1873, when the principal informs another person that he has
given a power of attorney to a third person (the agent), the latter thereby
becomes a duly authorized agent with respect to the person who received the
special information. The clear implication is that even when in fact there has
been no meeting of the minds between the purported principal and agent (i.e.,
there is strictly speaking no contract of agency), there is deemed to have
arisen one with respect to the third party who has been so informed by the
principal.
On the other hand, when the principal states by public advertisement that
he has given a power of attorney to a third person (the agent), the latter
thereby becomes a duly authorized agent with regard to any person.
In People v. Yabut, 76 SCRA 624 (1977), it was held that although the
perfection of a contract of agency may take an implied form, the existence of
an agency relationship is never presumed. The relationship of principal and
agent cannot be inferred from mere family relationship; for the relation to exist,
there must be consent by both parties. The law makes no presumption of
agency;
it
must
exist
as
a
fact. [1]
It is specifically provided in said article that "[t]he 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."
Thus, under Article 1921, if the agency has been entrusted for the
purpose of contracting with specific persons (referred to as "special agency"),
the revocation of the agency shall not prejudice the latter if they were not given
notice thereof. Under Article 1922, if the agent had been granted general
powers (referred to as "general agency"), the revocation of the agency will not
prejudice third persons who acted in good faith and without knowledge of the
revocation; however, notice of the revocation in a newspaper of general
circulation constitutes sufficient notice to bind third persons.
In Rallos v. Yangco, 20 Phil 269 (1911), the Court held that a longstanding client, acting in good faith and without knowledge, having sent goods
to sell on commission to the former agent of the defendant, could recover
from the defendant, when no previous notice of the termination of agency was
given said client. The Court emphasized that having advertised the fact that
Collantes was his agent and having given special notice to the plaintiff of that
fact, and having given them a special invitation to deal with such agent, it was
the duty of the defendant on the termination of the relationship of principal and
agent to give due and timely notice thereof to the plaintiffs. Failing to do so, the
defendant was held responsible to them for whatever goods may have been in
good faith and without negligence sent to the agent without knowledge, actual
or constructive, of the termination of such relationship.
In Bordador v. Luz, 283 SCRA 374 (1997), the Court held that "The basis
for agency is representation. Here, there is no showing that Brigida consented
to the acts of Deganos or authorized him to act on her behalf, much less with
respect to the particular transactions involved. Petitioners' attempt to foist
liability on respondent spouses through the supposed agency relation with
Deganos is groundless and ill-advised. Besides, it was grossly and
inexcusably negligent of petitioners to entrust to Deganos, not once or twice
but on at least six occasions as evidenced by six receipts, several pieces of
13
performing the duties usually entrusted to managing agent, then such owner is
bound by the act of such person.The Court held that "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 and in
the following pre-assumptions or deductions, which the law expressly directs to
be made from particular facts, are deemed conclusive." (at p. 555) The hotel
owner was deemed bound by the contracts entered into by said managing
agent that are within the scope of authority pertinent to such position, including
the purchasing such reasonable quantities of supplies as might from time to
time be necessary in carrying on the business of hotel bar.
In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court held that 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 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 to ascertain the extent of the authority said co-owner; being
negligent in this regard, the purported buyer cannot seek relief on the basis of
a
supposed
agency.
In Naguiat v. Court of Appeals, 412 SCRA 592 (2003), the Court applied
the provisions of Article 1873 of the Civil Code to rule that if by the interaction
between a purported principal and a purported agent in the presence of a third
person, the latter was given the impression of the existence of a principalagency relation, and the purported principal did nothing to correct the third
person's impression, an "agency by estoppel is deemed to have been
constituted, and the rule is clear: 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." (at p. 599)
On the other hand, under Article 1873, the declaration of a person that he
has appointed another as his agent is deem to have constituted the person
alluded to as an agent (even when the latter is unaware), insofar as the person
to whom such delcaration ihas been made. What is clear therefore is that third
parties must never take the words or representation of the purported agent at
face value; they are mandated to apprise themselves of the commission and
extent of powers of the purported agent. On the other hand, third parties (to
the contract of agency) can take the words, declarations and representations
of the purported principal with respect to the appointment of, and extent of
powers, of the purported agent. The principle is self-evident from the nature of
agency as a relation of representation--that an agent acts as though he were
the principal- and therefore if the principal himself says so, then it is taken at
face value as a contractual commitment.
In Litonjua, Jr. v. Eternit Corporation, 490 SCRA 204 (2006), the Court
held that for an agency by estoppel to exist, the following must be established:
(1) the principal manifested a representation of the agent's 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.
b. Agency by Estoppel
Under Article 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 auhtorized agent, even if previously there
was
never
a
meeting
of
minds
between
them.
Under Article 1911, even when the agent has exceeded his authority (i.e.,
he acts without authority from the principal), the principal shall be solidarily
with the agent if he allowed the agent to act as though he had full powers.
14
3. Kinds of Agency
On the other hand, Article 1876 defines a "special agency" when it covers
only one or more specific transactions. The better term for such an agency is
"particular agency;" for indeed, the term "special agency" has been used in
decisions of the Supreme Court to refer to one which is addressed to a
particular person or group of persons with whom the agent is to transact.
The classifications under Article 1876 are more academic than practical,
since outside of guardianship proceedings, hardly anybody in the modern
world empowers an agent to cover every business aspect owned by the
principal. Beside such a classification is not really useful because a "general or
universal agency" can by law only cover general powers of attorney covering
merely acts of administration; and cannot, without express or detailed
description, cover special powers of attorney, covering particular acts of strict
ownership. Therefore, a general agency is better achieved by other contractual
forms such as a contract of employment, or a universal partnership.
15
that unless so expressly stated, an agency covers only the powers to execute
acts of administration. Thus, under Article 1877 of the Civil Code: "An agency
couched in general terms comprises only acts of administration, even if the
principal should state that he withholds no power or that the agent may
execute such acts as he may consider appropriate, or even though the agency
should authorize a general and unlimited management."
1. GENERAL OBLIGATION
OF
Article 1884 expresses in the realm of Agency the contract law principles
of consensuality, mutuality and obligatory force expressed in Articles 1159 and
1315 of the Civil Code, which provide that "Obligations arising from contracts
have the force of law between the contracting parties and should be complied
with in good faith," and that "Contracts are perfected by mere consent, and
from that moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law." Likewise,
Article 1356 of the Civil Code provides that "Contracts shall be obligatory, in
whatever form they may have been entered into, provided all the essential
requisites for their validity are present." Finally, Article 1308 provides that the
"contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them."
In Macke vs. Camps, 7 Phill. 553 (1907), the Court held: "It seems easy
to answer that acts of administration are those which 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. (12 Manresa 468) But, unless
the contrary appears, the authority of an agent is presumed to include all the
necessary and usual means to carry out the agency into effect." (at p. 555)
In Insular Drug Co. v. PNB, 58 Phil 684 (1933), it was held that the right
of an agent to indorse a commercial paper is never presumed to exists; it must
be clearly granted by the principal. A salesman with authority to collect money
belonging to the principal does not have implied authority to indorse the
checks received in payment. Any person taking checks payable to a
corporation through the endorsement of an agent, does so at his peril and
must abide by the consequences if the agent who indorses the same is without
authority.
16
acts on behalf of the principal with respect to third parties. Consequently, even
if strictly speaking the agency relation is terminated upon the death of the
principal, the established but unfinished contracts and transactions then
pending must be fulfilled by the agent on behalf of the decedent, when
continuation of representation is necessary.
Measure
of
Damage
Performance of Obligation
for
an
Agent's
GENERAL
RULE
ON
AGENT'S
POWER
AND
AUTHORITY:
a. Duty of Obedience
(1) As Between the Principal and the Agent
That the agent must act "within the scope of his authority" means that
that every agent assumes by his acceptance of the agency to be obedient to
the will of the principal, which is best expressed under Article 1887 of the Civil
Code, which provides that "[i]n the execution of the agency, the agent shall act
in accordance with the instructions of the principal." There is no doubt that
17
As held in Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663
(2000), one factor that most clearly distinguishes an agency from other legal
concepts, including sale, is control: one person--the agent--agrees to act under
the control or direction of another--the principal. It is clear therefore, that when
an agent acts in accordance with the principals instruction, he is acting
within the scope of his authority.
Thus, under Article 1911, even when the agent has exceeded his
authority, the principal remains solidarily liable with the agent if the principal
allowed the agent to act as though he had full powers.
Under Article 1900, insofar 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 agent." In other words, as to third
parties acting in good faith, 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. In Bank of P.I. v. De
Coster, 47 Phil. 594 (1925), the Court held that the powers and duties of an
agent are confined and limited to those which are specified and defined in his
written power of attorney, which limitation is a notice to, and is binding upon,
the person dealing with such agent.
This principle is best expressed under Article 1881, which provides that
the agent "any do such acts as may be conducive to the accomplishment of
the purpose of the agency." Likewise, Article 1882 provides that "[t]he limits of
the agent's authority shall not be considered exceed should it have been
performed in a manner more advantageous to the principal than that specified
by him." In other words, an agent not only has express powers, but also
implied powers emanating from the express powers granted to him; as well as
incidental powers necessary in order to achieve the purpose for which the
agency
was
constituted.
In effect, when the power of attorney of the agent has been reduced in
writing by the principal, it constitute, even as to third parties dealing with the
agent, the highest form of the extent and limitation of the powers of the agent,
and third parties should contract on the basis of such written instrument. Thus,
Article 1902 provides that 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. In addition, private or
secret orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instruction shown them.
InTan Tiong v. SEC, 69 Phil 425 (1940), it was held that the agent is not
deemed to have exceeded his authority should he perform the agency in a
manager more advantageous to the principal than that indicated by the
principal. Thus, when the agent sells the car of the principal for more than the
amount indicated by the principal, then he has not exceeded his authority
because a higher price is more advantageous to the principal.
The principle was reiterated in the syllabus of the published decision
inOlaguer v. Purugganan, Jr., 515 SCRA 460 (2007), it was held that under
Article 1882 of the Civil Code the limits of an agent's authority shall not be
considered exceeded should it have been performed in a manner
advantageous to the principal than that specified by him. In that decision, the
manner by which the attorney-in-fact pursued the sale of the shares of the
18
and extent of the authority of the agent. Strong v. Gutierrez Repide, 6 Phil. 680
(1960); Deen v. Pacific Commercial Co., 42 Phil. 738 (1922); Velso v. La
Urbana, 58 Phil. 681 (1933);Toyota Shaw, Inc. v. Court of Appeals, 244 SCRA
320
(1995).
Civil Code confirm the truism that in the pursuit of the agency, it is expected
that the agent would have to act based on his own assessment of what is
necessary under the situation when it is not covered by an express instruction
from the principal. The agent is supposed to exercise the business judgment
expected from the principal when entering into juridical relations with third
parties or pursuing the business under his management.
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. Yu Eng Cho v. Pan American World Airways, Inc., 328
SCRA
717
(2000).
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 agents acts.
b. Duty of Diligence
19
agency was or was not for a compensation." In other words, acts of fraud or
negligence on the part of the agent, even when acting for and in behalf of the
principal, are by themselves causes of action for the injured party against the
person
of
the
acting
agent.
merits, but upon the ground that it has not been properly instituted. Esperanza
and Bullo v. Catindig, 27 Phil. 397 (1914).
Related Cases:
Maritime Agencies & Securities, Inc. v. Court of Appeals, 187 SCRA 346
(1990).
All contracts and transactions entered into by the agent on behalf of the
principal with the scope of his authority are binding on the principal, and the
agent does not stand to either be liable, or to have gained any right on his own
accord, thereunder. Thus, Article 1897 provides that "[t]he agent who acts as
such is not personally liable to the party with whom he contract, unless he
expressly binds himself or exceeds the limits of his authority without given
such party sufficient notice of his powers."
In Ang v. Fulton Fire Insurance Co., 2 SCRA 945 (1961), it was held
that when the agent has acted within the scope of his authority, the action on
the contract must be brought against the principal and not against the
agent.
In Bay View Hotel v. Ker & Co., 116 SCRA 327 (1982), the Court held
that the acts and declaration of the agent within the scope of his authority and
during its existence are considered and treated as those of principal.
The rules under Article 1317 are supported under Article 1403, which
includes among those classified an "unenforceable contracts," "(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 power."
Specifically, under the Law on Agency, Article 1898 provides that "[i]f 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." the following consequences
shall flow:
An action brought in the name of the agent and not in the name of the
principal who is the real party in interest, must be dismissed not upon the
20
Under Article 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; and
neither have such persons a right or cause of action against the principal. It a
well-established doctrine that when an agent, do acting within the scope of his
authority, enters into the covered contract in his own name, then the contract is
binding only against the agent, and the principal is not bound, nor does he
have legal standing to enforce it; this is because the contract is deemed to
have been entered between the third party and the agent as his own principal.
[1]
On the other hand, if the party which whom the agent contract is
unaware of the limits of the powers granted by the principal, the contract is
unenforceable under Article 1403(1).
Under Article 1900, the written power of attorney given by the principal
governs the contracts entered into with third parties, irregardless of any private
limitation of powers agreed upon between the principal and the agent.
The liability of an agent who exceeds the scope of his authority depends
upon whether the third person was aware of the limits of the agent's power.
The agent is not bound nor liable for damages in case he gave notice of his
power to the person with whom he has contracted, nor in case such person is
aware of the limits of the agent's powers. The resulting contract would be void
even as between the agent and the third person, and consequently not legally
binding as between them. However, if the agent promised or undertook to
secure the principal's ratification and failed, he is personally liable. If the
ratification is obtained, then the principal becomes liable. Cervantes v. Court of
Appeals, 304 SCRA 25 (1999); Safic Alcan v. Imperial Vegetable, 355 SCRA
559 (2001); DBP v. Court of Appeals, 231 SCRA 370 (1994).
(1)
Exception:
When
the
Property
Contract Belongs to the Principal
Involved
in
the
Related Cases:
Borja v. Sulyap, 399 SCRA 601 (2003).
National Power v. NAMARCO, 117 SCRA 789 (1982)
Zayco v. Serra, 49 Phil 985 (1925)
Thus, the fact that money used by the agent belonged to the principal is
covered by the exception. Sy-Juco v. Sy-Juco, 40 Phil 634 (1920).
(2)
21
Remedy of
from the Agent
the
Principal
Is
to
Recover
Damages
Article 1883 makes it clear that the foregoing rules are without prejudice
to actions between principal and agent.
Although according to article 1883, when the agent acts in his own name
he is not personally liable to the person with whom he enters into a contract
when things belonging to the principal are the subject thereof; yet such third
person has a right of action not only against the principal but also against the
agent, when the rights and obligations which are the subject matter of the
litigation cannot be legally and juridically determined without hearing both of
them. Beaumont v. Prieto, 41 Phil. 670 (1921).
22
Powers of attorney are generally construed strictly and courts will not
infer or presume broad powers from deeds which do not sufficiently
include property or subject under which the agent is to deal. The act
done must be legally identical with that authorized to be done.
Woodchild Holdiings, Inc. v. Roxas Electric & Construction Co.,
Inc., 436 SCRA 235 (2004).
23
Cases
Necessary
Where
Special
Powers
of
Attorney
Are
(2)
To
Effect
Novation
Obligations Already in
Agency Was Constituted
To
Make
Payments
as
Considered as Acts of Administration
Are
Not
an
the
End
Time
to
the
Which
Put
Existence at
Usually
(3)
To
Compromise,
To
Submit
Questions
to
Arbitration, To Renounce the Right to Appeal from
a Judgment, To Waive Objections to the Venue of
an
Action,
or
To
Abandon
a
Prescription
Already
Acquired
All other forms of payment for and in behalf of the principal would
constitute acts of strict dominion, which are not deemed within the power of
even a duly appointed agent, unless granted specially or under a special
power of attorney.
24
To
Enter
into
Any
Contract
by
Which
the
Ownership
of
an
Immovable
Is
Transmitted
or
Acquired
Either
Gratuitously
or
for
a
Valuable
Consideration
It does not mean however, that every agent of the principal would have
the power to waive the principal's obligation for valuable consideration outside
of authority to do so; what it means is that when within the scope of authority of
the agent's authority he may do so as an implied or incidental power; whereas,
the power to waive an obligation owed to the principal gratuitously can only
25
The Civil Code provides that in a sale of a parcel of land or any interest
therein is made through an agent, a special power of attorney is essential.
[Article 1878] This authority must be in writing, otherwise the sale shall be void.
[Article 1874] x x x A special power of attorney is necessary to enter into any
contract by which the ownership of an immovable is transmitted or acquired for
a valuable consideration. Without an authority in writing . . . any 'sale' . . . is
void. (at p. 228)
unenforceable in spite of the clear language of Article 1874 since the decision
was rendered under the terms of the old Civil Code, and Article 1874 is an
entirely new provision in the New Civil Code. Likewise, apart from the deed of
sale effected by the agent in Gutierrez Hermanos, the registered owner
subsequently thereto affirmed the sale under public documentation. The
procedure is also possible under Article 1874, which means that if the agent
enters into a sale of a piece of land without written authority, indeed the sale
would be void; but that if the principal subsequently, enters directly again with
the same buyer into a formal deed of sale, then the second transactions would
be valid for it is no longer covered under Article 1874.
Under Article 1879, "[a] special power to sell excludes the power to
mortgage; and a special power to mortgage does not include the power to
sell."
Nonetheless, only recently in Escueta v. Lim, 512 SCRA 411 (2007), the
Court affirmed the ruling in Gutierrez Hermanos. Escueta involved the sale is
parcels of land effected by the sub-agent appointed by the attorney-in-fact of
the owner, who claims that that the sub-agent was not given any special power
of attorney to sell the parcels of land. The Court held: "Even assuming that [the
sub-agent] has no authority to sell the subject properties, the contract she
executed in favor of the respondents is not void, but simply unenforceable,
under the second paragraph of Article 1317 of the Civil Code which reads . . . a
contract entered into in the name of another by one who has no authority or
legal representation, or who acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the persons on whose behalf it
has been executed, before it is revoked by the other contracting party." (at p.
424).
26
of the property. Any sale on the parcel of land concluded by such an appointee
would be void, and the sale could not produce any legal effect as to transfer
the subject property from its lawful owner.
Finally, it should be noted that in Bico Savings & Loan Assn. v. Court
of Appeals, 171 SCRA 630 (1989), the Court held that the sale proscribed
under Article 1879 refers to a voluntary sale effected through the agent; it does
not cover the public sale that happens as part of the foreclosure on the
mortgage duly constituted.
In Linan v. Puno, 31 Phil. 259 (1915), the Court held that for the principal
to confer the right upon an agent to sell real estate, a power of attorney must
so express the powers of the agent in clear and unmistakable language; and
when there is any reasonable doubt that the language so used conveys such
power, no such construction shall be given the document. Thus, in that
decision, a power of attorney providing that "I hereby confer sufficient power x
x x upon A, in order that in my name and representation he may administer the
interest I possess within this Municipality of Tarlac, purchase, sell, collect and
pay, etc." was held sufficient to cover the sale by the agent of land of the
principal in Tarlac.
Related Cases:
PNB v. Court of Appeals, 94 SCRA 357 (1979)
Kuenzle and Streiff v. Collector of Customs, 31 Phil 646 (1915)
Dela Pena v. Hidalgo, 16 Phil 450 (1910)
Rio y Olabbarrieta v. Yutec, 49 Phil 276 (1926)
(5-B)
Agent
Principal
Cannot
Validly
Purchase
Property
of
In Katigbak v. Tai Hing Co., 52 Phil. 622 (1928), it was held that the
authority
to
sell
any
kind
of
realty
that
"might
belong"
to the principal was held to include also such as the principal might afterwards
have during the time it was in force.
Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007), recognized that the
prohibition against agents purchasing property in their hands for sale or
management is clearly, not absolute; when so authorized by the principal, the
agent is not disqualified from purchasing the property he holds under a
contract of agency to sell.
27
the agent cannot be deemed to include the power to spend the amount thus
borrowed as he pleases. Hodges v. Salas, 63 Phil. 567 (1936).
On the other hand, under Article 1890, if the 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, the article also provides, that if
the agent has been empowered to lend money at interest, he cannot borrow it
without the consent of the principal.
Related Case:
The paragraph does not cover leases of personal property, which then
would lead to the conclusion that any power given to the agent to lease
28
(9)
In a contract of agency, the agent acts in representation or in behalf of
another with the consent of the latter. Article 1878 of the Civil Code expresses
that a special power of attorney is necessary to lease any real property to
another person for more than one year. 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. Shopper's Paradise Realty v. Roque, 419
SCRA 93 (2004).
To
Bind
the
Principal
Without Compensation
to
Render
Some
Service
Although the agent may bind himself to the contract of agency without
compensation, (Article 1875), in order to bind the principal to enter into service
without compensation would be unenforceable without a special power of
attorney. The implication of paragraph number 9 of Article 1878 is that to bind
the principal to render service for compensation would be deemed a mere act
of administration, and constituted in a mere general power of attorney, or more
specifically, to be an implied power of every agent.
The lease contract (Exh. "C"), the linchpin of petitioners' cause of action,
involves the lease of real property for a period of more than one year. The
contract was entered into by the agent of the lessor and not the lessor herself.
In such a case, the law requires that the agent be armed with a special power
of attorney to lease the premises. x x x.
Under Article 2047 of the Civil Code, by the contract of guaranty, the
guarantor binds himself to fulfill the obligation of the principal debtor in case
the latter should fail to do so; and if the person binds himself solidarily with the
principal debtor, he becomes a surety under a contract of suretyship.
29
When it comes to a mortgage, the Court has expressed the doctrine that
a person can become liable on a real estate mortgage which he never
executed either in person or by attorney-in-fact. Philippine sugar Estates Dev.
Co. v. Poizat, 48 Phil. 536 (1926). Rural Bank of Bombon, Inc. v. Court of
Appeals, 212 SCRA 25 (1992).
Under Article 1879, the power to sell excludes the power to mortgage;
and that the power to mortgage excludes the power sell. This supports the
proposition that each of the powers enumerated under Article 1878, are named
"acts of strict dominion," and cannot be implied powers; and that one form of
named special power cannot give the presumption that it includes under any
form of construction or interpretation another named special power.
Rodriguez v. Pamintuan and De Jesus, 37 Phil. 876 (1918).
The power to mortgage does not carry the implied power to represent the
principal in litigation. Valmonte v. Court of Appeals, 252 SCRA 92 (1996).
In Rural Bank of Bombon v. Court of Appeals, 212 SCRA 25 (1992),
although the agent was given a special power of attorney to mortgage the
property of the principal, nonetheless, when he signed the Deed of Real Estate
Mortgage in his name alone as mortgagor, without any indication that he was
signing for and in behalf of the property owner, the mortgage is void, and the
agent bound himself as the only debtor of under the loan obtained from the
bank.
A power of attorney to loan money does not include the implied power
to make the principle a surety for the payment of the debt a third
person. Bank of P.I. v. Coster, 47 Phil. 594 (1925).
In Philippine Sugar Estates Dev. Co., v. Poizat, 48 Phil. 536 (1925), the
Court held that it is a general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent, it must upon its
face purpose to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent was
in fact authorized to make the mortgage, if he has not acted in the name of the
principal. Neither is it ordinarily sufficient that in the mortgage the agent
described himself as acting by virtue of the power of attorney, if in fact the
agent has acted in his own name and has set his own hand and seal to the
mortgage. This is especially true where the agent himself is a party to the
instrument. However clearly the body of the mortgage may show and intend
that it shall be the act of the principal, yet, unless in fact it is executed by the
agent for and on behalf of his principal, it is not valid as to the principal.
Under Article 1044 of the Civil Code, any person "having the free
disposal of his property may accept or repudiate an inheritance," which
obviously under paragraph 13 of Article 1878 constitute acts of strict dominion.
30
31
the grant of the express power to manage the entire business affairs of the
principal, was deemed to include the power to sell co-ownership interest in
movable property, especially when the sale was necessary to conduct the
business of the principal.
[1]Citing City-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385 (2000);
Raet v. Court of Appeals, 295 SCRA 677 (1998).
[2]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
[3]See Gozun v. Mercado 511 SCRA 305 (2006); Yasuma v. Heirs of Cecilio S.
De Villa, 499 SCRA 466 (2006).
Double agency (where the same agent serves the two contracting
principals is frowned upon by law, and will be allowed only when known to both
parties. Domingo v. Domingo, 42 SCRA 131 (1971).
If the matters entered into by the agent in his own name are matters
that are within the scope of his authority or those pertaining to matters that
should pertain to the business of the principal, there would be no doubt that
the agent has breach his fiduciary duty of loyalty, by having preferred his own
interests to that of the principals. Whether the agent has used his own
funds or property, or those of the principals, he would still be in breach of
this fiduciary duty, and under Article 1891, he "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." In
either case, therefore, the principal has the right to demand that the agent
should turn-over to him whatever contract, property or business has been
acquired by the agent in breach of his duty of loyalty.
Under Article 1886 of the Civil Code, the only time that an agent is
legally bound to advance personal funds in the pursuit of the agency is when
such obligation has been expressly agreed upon in the creation of the contract
of agency. But even in such a case, the agent may refuse to advance any
personal funds when the principal is insolvent. Indeed, under Article 1919(3),
insolvency of the principal extinguishes the agency.
b. Agents Duty of Loyalty
32
another and the other reposes confidence in him, although there is no written
contract or no contract at all. If the agent violates his duty as fiduciary, a
constructive trust arises. It is immaterial that there was no antecedent fiduciary
relation and that it arose contemporaneously with the particular transaction." [1]
If the agent had used the funds belonging to the principal, under Article
1896 he "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." The provisions of this article presumes that the
property or business acquired by the agent for his own in violation of his
fiduciary duty is one that the principal is not demanding to be delivered to him.
This is clear from Article 1918 which provides that "[t]he principal is not liable
for the expenses incurred by the agent . . . [i]f the agent acted in contravention
of the principals instructions, unless the latter should wish to avail himself
of the benefits derived from the contract." In other words, if the contract or
business acquired by the agent in breach of his duty of loyalty is demanded by
the principal to be turned over to him, then the use of the principal's sum to
acquire such business would be deemed to have been ratified, and the agent
is not personally liable for the interests due on said amount.
What happens when the agent violates his obligations under Article
1890? 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
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.
Related Cases:
In addition, Article 1455 of the Civil Code (on implied trusts), provides
that "[w]hen any trustee, guardian or other person holding a fiduciary
relationship uses trust funds for the purchase of property and causes the
conveyance to be made to him or to a third person, a trust is established by
operation of law in favor of the person to whom the funds belong."
(b) When Agent Empowered to Borrow or Lend Money Article 1890 provides that when the agent is
empowered to borrow or lend money by the principal,
then:
33
xxx
"The intent with which the agent took a secret profit
has been held immaterial where the agent has in fact
entered into a relationship inconsistent with his agency,
since the law condemns the corrupting tendency of the
inconsistent relationship. Little vs. Phipps (1911) 94 NE
260."
34
same; the profits shall still pertain to the principal. Ojinaga v. Estate of Perez,
9 Phil. 185 (1907).
(1) When the Duty to Account Does Not Apply
Under Article 1914, the agent may retain in pledge the things which
are the object of the agency until the principal effects the reimbursement and
pays the indemnity provided in Article 1912 and 1913.
However, Domingo also held that the duty embodied in Article 1891 to
account will not apply "if the agent or broker had informed the principal of the
gift or bonus or profit he received from the purchaser and his principal did not
object thereto." (at p. 140)
Under Article 1896, the agent would owe interest to the principal on
the following items:
(a) On sums the agent applied to his own use from the
time he used them; and
(b) On sums owing the principal which remain outstanding
at the time of extinguishment of the agency, interest to
run from the time of such extinguishment.
The Supreme Court has recognized the two distinct cases covered
under Article 1896.[3]
Article 1909 provides that "[t]he 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."
Domingo v. Domingo, 42 SCRA 131 (1971), held that the provisions of
Article 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. 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." (at p. 137)
Therefore, when the agent enters into a contract that should pertain to
the principal, but in his own name, it would be a violation of his duty of loyalty
to the principal, and as between the principal and the agent, the latter must
account to the principal for all profits earned from the transaction.
It matters now how fair the conduct of the agent may have been in a
particular case, nor that the principal would have been no better of if the agent
had strictly pursued his power, nor that the principal was not, in fact, injured by
the intervention of the agent for his own profit. The result in both cases is the
35
of the agency, the agent shall act in accordance with the instructions of the
principal, and in default of instructions, the agent "shall do all that a good father
of a family would do, as required by the nature of the business;" and Article
1888, which provides that an agent "shall not carry out an agency if its
execution would manifestly result in loss or damage to the principal."
Any act done by the agent or the substitute in behalf of the principal is deemed
the act of the principal;
(2) When he has not been prohibited by the principal, and the agent appoints a
substitute, he is responsible for acts of substitute:
[1]at p. 777, citing Scott on Trusts, 3rd ed., Vol. V, p. 2544, citing Harrop v.
Cole,, 85 N.J. Eq. 32, 95 A. 378, affd 86 N.J. Ea. 250, 98 A. 1085.
[2]U.S. v. Reyes, 36 Phil. 791 (1917); U.S. v. Kiene, 7 Phil. 736 (1907);
Ojinaga v. Estate of Perez, 9 Phil. 185 (1907); In re Bamberger, 49 Phil. 962
(1972); Duhart Freres y Compania v. Macia, 54 Phil. 513 (1930).
[3]Ojinaga v. Estate of Perez, 9 Phil. 185 (1907); Mendezona v. Vda.
De Goitia, 54 Phil 557 (1930); A.L. Ammen Transportation Co. v. De Margallo,
54 Phil. 570 (1930).
36
simultaneously: (a) Joint, when nothing is stipulated; and (b) Solidary, only
when so stipulated.
(i) All acts of substitute as against the principal are void. (Art. 1892)
Under Article 1895, when solidarity has been agreed upon, each of the agents
is responsible for the non-fulfillment of the agency, and for the fault or
negligence of his fellow agents, except in the latter case when the fellow
agents acted beyond the scope of their authority.
(ii) It is clear that it would be the agent who becomes personally liable for the
contracts entered into by the substitute
The implication from the language used in Article 1893, that the principal would
have no cause of action against the substitute.
Compare the rule in Article in 1894 with the general rule of solidary liability
under Article 1915: when the agent is serving two or more principals, the
liability of the principals is solidary.
The legal maxim potestas delegate non delegare potest; a power once
delegated cannot be re-delegated, while applied primarily in political law to the
exercise of legislative power, is a principle of agencyfor another, a redelegation of the agency would be detrimental to the principal as the second
agent has no privity of contract with the former. Baltazar v. Ombudsman 510
SCRA 74 (2006).
In Municipal Council of Iloilo v. Evangelista, 55 Phil 290 (1930), the Court set
the general rule: when a person appoints two agents independently, the
consent of one will not be required to validate the acts of the other, unless that
appears positively to have been the principals intention.
7. RULES OF AGENTS LIABILITY TO THIRD PARTIES
Article 1897 of the Civil Code reinforces the familiar doctrine that an agent,
who acts as such, is not personally liable to the party with whom he contracts.
Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).
Related Cases:
Del Rosario v. La Badenia, 33 Phil 316 (1916).
37
One who signs a receipt as a witness with the word agent typed below
his signature, but never received the alleged amount or anything on account of
the subject transaction, is not personally liable. Caoile v. Court of Appeals,
226 SCRA 658 (1993).
(2) Exceptions:
In the following cases, an agent, even when acting as such within the scope of
his authority, may become personally liable on the contracts or transactions
entered into, when:
(a) The agent expressly makes himself personally liable for the contracts of his
principal. (Art. 1897); or
Under Article 1897, an agent who acts without or in excess of his authority
becomes personally liable to third parties even when he enters into said
contracts or transactions in the name of the principal, without giving such third
parties sufficient notice of his powers. This is supplemented under Article 1910
which provides that [a]s for any obligation wherein the agent has
exceeded his power, the principal is not bound.
(2) Exceptions:
In the following cases, even though the agent acts without or in excess of his
authority, he would not be personally liable for the contracts or transactions he
entered into in the name of the principal:
(a) When the principal ratifies the contract or transactions (Arts. 1898 and
1910);
(b) As to third parties who relied upon the terms of the power of attorney as
written, even if in fact the agent had exceeded the limits of his authority
according to an understanding between the principal and the agent (Arts. 1900
and 1903);
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 agents act.
Under Article 1902, every 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. Consequently, private or secret
38
orders and instructions of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown them.
must be pointed out that in case of excess of authority by the agent, like what
petitioner claims exists here, the law does not say that a third person can
recover from both the principal and the agent. Eurotech Industrial
Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007)
We likewise take note of the fact that in this case, petitioner is seeking to
recover both from respondents ERWIN, the principal, and EDWIN, the agent. It
is well to state here that Article 1897 of the New Civil Code upon which
petitioner anchors its claim against respondent EDWIN does not hold that
in case of excess of authority, both the agent and the principal are liable to the
other contracting party. Eurotech Industrial Technologies, Inc. v. Cuizon, 521
SCRA 584 (2007)
The scope and extent of the function of an adjustment and settlement agent,
does not include personal liability. His functions are merely to settle and adjust
claims in behalf of his principal. If those claims are disapproved by the
principal, the agent does not assume any personal liability. The recourse of the
insured is to press chis claim against the principal. Salonga v. Warner Barnes,
88 Phil 125 (1951); E. Macias and Co. v. Warner Barnes, 43 Phil 155 (1922).
(ii) Void if the party with whom the agent contracted is aware of the limits
of the powers granted by the principal; BUT the agent is personally liable, if he
undertook to secure the principals ratification. (Art. 1898).
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 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 Civil Code
come into play. DBP v. Court of Appeals, 231 SCRA 370 (1994).
The Rule that a contract entered into by one who has acted beyond his powers
shall be unenforceable refers to the unenforceability of the contract against the
principal, and does not apply where the action is against the agent himself for
contracting in excess of the limits of his authority. National Power Corp. v.
National Merchandising Corp., 117 SCRA 789 (1982).
When agent exceeds his authority, the matter can be raised only by the
principal, and when not so raised, recovery can be made by the third party only
against the principal. Article 1897 does not hold that in case of excess of
authority, both the agent and the principal are liable to the other contracting
party. Phil. Products co. v. Primateria Pour Le Commerce Exterieur:
Primaterial [Phil.], Inc., 15 SCRA 301 (1965).
Related Cases:
To reiterate, the first part of Article 1897 declares that the principal is liable in
cases when the agent acted within the bounds of his authority. Under this, the
agent is completely absolved of any liability. The second part of the said
provision presents the 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. However, it
39
(b) Where the agent possesses a beneficial interest in the subject matter of the
agency, such as a factor selling under a del credere commission (Art. 1907);
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. 46 In this case, the
petitioners failed to discharge their burden; hence, petitioners are not entitled
to damages. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).[2]
Related Cases:
Commissioner v. San Diego, 31 SCRA 617 (1970)
Bacaltos Coal Mines v. Court of Appeals, 245 SCRA 460 (1995)
Distinguish this default rule in the case of a contract of deposit, which under
Article 1976, the depositary is allowed to commingle grain or other articles of
similar nature and quality (Contract of Deposit) Depositary may commingle
grain or other articles of similar nature and quality, and the result would be prorata ownership among the owners thereof.
(a) Where the agent contracts in his own name, on a matter that it within the
scope of the agency (Art. 1883);
40
names of the buyers. If he fails to do so, the sale shall be deemed to have
been made for cash insofar as the principal is concerned.
the contract between the parties be one of sale or agency to sell, there is no
doubt that the purported agent would be personally liable for the price of the
merchandise sold. Being a commission agent under its authority, then
pursuant to Article 1905, it should not have sold the merchandise on credit.
Under Article 1905, the commission agent cannot, without the express or
implied consent of the principal, sell on credit; and should he do so, the
principal may demand from him payment in cash.
(5) Shall Bear the Risk of Collection under Del Credere Commission Setup Under Article 1908, should the commission agent receive on a sale, in
addition to the ordinary commission, another called a guarantee commission,
then: (i) He shall bear the risk of collection; and (ii) He shall pay the principal
the proceeds of sale on same terms agreed with purchaser
(6) To Collect Credits of the Principal Under Article 1908, a 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 exercise due diligence for that purpose.
(7) Shall Be Responsible for His Fraud and Negligence Under Article
1909, the agent is responsible to the principal for the damages suffered for his
fraud and his 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.
The failure of the sub-agent who has custody of the film to insure against loss
by fire, where there was no instruction received from the principal to so insure
or that the insurance of the film was not a part of the obligation imposed upon
an agent by law, does not constitute either negligence or fraud. International
Films v. Lyric Film Exchange, 63 Phil. 778 (1936).
Where the client order the broker to sell the shares giving a floor or minimum
price, and the broker did sell at the minimum price indicated even though the
prevailing ranging prices were much higher that they, the broker is liable for the
difference suffered by the principal because the broker failed to exercise the
prudence and tact of a good father of a family which the law required of him.
Tan Tiong Teck v. SEC, 69 Phil. 425 (1940).
OF
AGENCY
In Green Valley v. IAC, 133 SCRA 697 (1984), where the purported agent
refused to be held liable for merchandise received from the principle on the
ground that it was a mere agent to sell and the ultimate buyers of the products
should be the one made liable for the purchase price, (whereas the purported
principal insisted that it was a sale arrangement), the Court ruled that whether
2. PRINCIPAL
41
IS
The central principle in agency law is that all contracts and transactions
entered into by the agent on behalf of the principal within the scope of his
authority are binding on the principal as though he himself had entered into
them directly. This tenet is repeatedly expressed in various provisions of the
Law on Agency.
all benefits of the contract which it had authorized. Rural Bank of Milaor v.
Ocfemia, 325 SCRA 99 (2000).
How does Ocfemia ruling jive with the other rulings of the Supreme Court
that hold that even in the case of a corporation, the sale through its agent of a
piece of land requires that the authority of the corporate officer to sell on behalf
of the corporation must be in writing, otherwise the resulting transaction is void
pursuant to Article 1874? The Ocfemia ruling shows that the use of the term
"void" under Article 1874, is relative, in that it is void only insofar as the
principal is concerned; and that any attempt to enforce the purchase by a third
party is void when the principal refuses to accept the sale of a piece of land
effected by an agent in his name without written power of attorney. In other
words, if the principal, after the fact of sale, accepts the contract, does not
oppose the validity of the sale, or in other words, ratifies the sale, it would then
be valid and binding on the principal.
Article 1897 provides that the agent who acts as such is not personally
liable to the party with whom he contracts when acting within the scope of his
authority.
Article 1910 provides that the principal must comply with all the
obligations which the agent may have contracted within the scope of his
authority.
a. Principal Not Bound by Contracts Made by the Agent Without or
Outside the Scope of His Authority
In Ocfemia, when an action was brought by the buyer against the bank to
enforce the sale, it failed to contest the genuineness and due execution of the
deed of absolute sale executed by its general manager. The Court held --
The collolary rule would then be that "for any obligation wherein the
agent has exceed his power," or acts done by the agent outside of the scope of
his authority, even when entered into in the name of the principal, would not
bind the principal, and would thus not be void, but merely unenforceable (Art.
1403). In the following cases, though, even acts done by the agent in the name
of the principal, outside of the scope of his authority, would bind the principal,
thus:
Respondents based their action before the trial court on the Deed of Sale,
the substance of which was alleged in and a copy thereof was attached to the
Petition for Mandamus. The Deed named Fe S. Tena as the representative of
the bank. Petitioner, however, failed to specifically deny under oath the
allegations in that contract. In fact, it filed no answer at all, for which reason it
was declared in default. x x x.
(a) When the principal ratifies such contract, expressly or tacitly (Art.
1910);
In failing to file its answer specifically denying under oath the Deed of
Sale, the bank admitted the due execution of the said contract. Such
admission means that it acknowledged that Tena was authorized to sign the
Deed of Sale on its behalf.13 [Imperial Textile Mills, Inc. v. C.A., 183 SCRA 1,
March 22, 1990.] Thus, defenses that are inconsistent with the due execution
and the genuineness of the written instrument are cut off by an admission
implied from a failure to make a verified specific denial.
(b) When the principal has allowed the purported agent to act as though
he had full powers (Art. 1911); and
(c) When the principal has revoked the agency, but the third party have
acted in good faith without notice of such revocation.
Under Article 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. This is termed as agency by estoppel. It is also
referred to as the doctrine of apparent authority in Corporate Law.
x x x.
In any event, the bank acknowledged, by its own acts or failure to act, the
authority of Fe S. Tena to enter into binding contracts. After the execution of
the Deed of Sale, respondents occupied the properties in dispute and paid the
real estate taxes due thereon. If the bank management believed that it had title
to the property, it should have taken some measures to prevent the
infringement or invasion of its title thereto and possession thereof.
When a bank, by its acts and failure to act, has clearly clothed its
manager with apparent authority to sell an acquired asset in the normal course
of business, it is legally obliged to confirm the transaction by issuing a board
resolution to enable the buyers to register the property in their names. It has a
duty to perform necessary and lawful acts to enable the other parties to enjoy
42
"Settled jurisprudence has it that 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. In varying language, existence of such authority is
established, by proof of the course of business, the usages 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. So also,
"'x x x 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.'
The fact that the agent defrauded the principal in not turning over the
proceeds of the transactions to the latter cannot in any way relieve or
exonerate such principal from liability to the third persons who relied on his
agents authority. It is an equitable maxim that 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. Cuison v. Court of Appeals, 227 SCRA 391
(1993).
Under the general rules and principles of law, the mismanagement of the
business of a party by his agents does not relieve said party from the
responsibility that he had contracted with third persons. Commercial Bank &
Trust Co. v. Republic Armored Car Services Corp., 8 SCRA 425 (1963).
When the principal issued the checks in full payment of the taxes due,
but his agents had misapplied the check proceeds, the principal would still be
liable, because when a contract of agency exists, the agents acts bind his
principal, without prejudice to the latter seeking recourse against the agent in
an appropriate civil or criminal action. Dy Peh v. Collector of Internal
Revenue, 28 SCRA 216 (1969).
43
Related Cases:
Under Article 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 the agent
therefor, even if the business or undertaking was not successful, provided the
agent is free from fault.
We should compare this to the provisions in Article 1886 where the agent
is bound to advance the sums necessary to carry out the agency, but only
when he so consents or is stipulated in the agreement.
Under Article 1918, the principal is not liable for the expenses incurred by
the agent in the following cases:
(2) When the expenses were due to the fault of the agent;
Barton v. Leyte Asphalt, 46 Phi; 938 (1924)
(3) When the agent incurred them with knowledge that an unfavorable
result would ensue, if the principal was not aware thereof; or
(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.
FOR THE
When the authority of the area manager to settling the claims is further
limited by the written standard authority to pay, which states that the payment
shall come from his revolving fund or collection, the settlement beyond such
fund was a clear deviation from the instructions of the principal. Consequently,
the expenses incurred by the area manager in the settlement of the claims of
the insured may not be reimbursed from the insurance company pursuant to
the clear provision of Article 1918(1) of the Civil Code.
The general rule is that the principal is liable to injured third parties for
the torts committed by the agent at the principals director or in the course
and within the scope of the agents authority. It also goes without saying,
that since the act of negligence was that of the agent, he also becomes civilly
liable to the injured parties, even when he acts in representation of the
principal.
4. OBLIGATIONS
OF THE
PRINCIPAL
TO THE
AGENT
44
However, 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 Article 1236 of the Civil
Code on payment by a third party of the obligation of the debtor, allows
recovery only insofar as the payment has been beneficial to the
debtor. Thus, to the extent that the obligation of the insurance company
has been extinguished, the area manager may demand for reimbursement
from his principal. To rule otherwise would result in unjust enrichment of
petitioner. Dominion Insurance v. Court of Appeals, 376 SCRA 239 (2002).
Related Cases:
Under Article 1913, the principal must indemnify the agent for all the
damages which the execution of the agency may have caused the agent,
without fault or negligence on agents part.
Fiege & Brown v. Smith, Bell & Co., 43 Phil. 118 (1922).
J.M. Tuazon & Co. v. Collector of Internal Revenue, 108 Phil. 700 (1960).
(1) Right of Agent to Retain Object of Agency in Pledge for Advances and
Damages
Under Article 1914, the agent is granted the power to retain in pledge the
things which are the object of the agency until the principal effects the
reimbursement and pays the indemnity covering advances made and
damages sustained. This is an exception to the duty of the agent, expressed in
Article 1891, to deliver to the principal everything he received even if not due
to the principal.
5. OBLIGATION OF TWO
COMMON TRANSACTIONS
Under Article 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.
(i) the principal shall pay the agents commission only on the legal
basis that the agent has complied with his obligations with the principal; and
Even if the principals do not actually and personally know each other,
such ignorance does not affect their juridical standing of the agent. Doles v.
Angeles, 492 SCRA 607 (2006).
(ii) the principal shall be liable to the agent for the reasonable value of the
agents services.
45
OR
MORE PRINCIPALS
TO
AGENT APPOINTED
FOR
Under Article 1916, when two persons contract with regard to the same
thing, one of them with the agent and the other with the principal, and the two
contracts are incompatible with each other, that of prior date shall be preferred,
without prejudice to the provisions of Article 1544 on the rules on double sales.
2. REVOCATION
Article 1917 provides that in such a case, if the agent had acted in good
faith, the principal shall be liable in damages to the third person whose
contract must be rejected. On the other hand, if the agent acted in bad faith, he
alone shall be responsible.
But the near absolute power of the principal to revoke the agency should
not be confused with the thought that there can be no breach of contract
committed by a principal who revokes the agency which was constituted as
"irrevocable" for a definite term or period. In such a case, the agreement as to
the term of the agency would not make the principal lose his power to revoke,
and when he does so revoke the agency is terminated, but he would be liable
to the agent for the damages caused, including to the compensation due him
when the revocation was done in bad faith, i.e., to avoid the payment of the
commission earned by the agent.
AND
WHEN
AGENCY
AGENCY
1.
OF THE
a. Express Revocation
EXTINGUISHED
Article 1919 of the Civil Code enumarates the modes by which an agency
contract
is
extinguished,
thus:
Under Article 1920, the principal may revoke the agency at will, express
or implied, and thereby compel the agent to return the document evidencing
the agency. This would ensure that the document, i.e., power of attorney,
would not fall into the hands of third parties who then act in good faith in
entering into a contract in the name of the principal, believing there is still
existing the agency relation.
a. By revocation
b. By the withdrawal of the agent
Under Article 1925, when two or more principals have granted a power of
attorney for a common transaction, any one of them may revoke the same
without the consent of the others. This rule is consistent with the rule under
46
Article 1915 that the obligation of two or more principals to a common agent is
solidary, and consequently, the power to revoke the agency can be made by
the will of only one of the principals.
with respect to the third persons with whom the principal deals directly; as to
third parties who have previously known of the power of attorney of the agent
and who have not dealt with the principal, the agency cannot be considered
revoked. It is also apparent that unless the agent is aware or given notice that
the principal has directly managed the business which is covered by his power
of attorney, then insofar as the agent is concerned there is as yet no
revocation of his powers.
b. Implied Revocation
The following have been enumerated as to constitute implied revocation,
thus:
There is no proof in the record that the first agent, the son, knew of the
power-of-attorney to his mother.
It was necessary under the law for the defendants, in order to establish
their counterclaim, to prove that the son had notice of the second power-ofattorney. They have not done so, and it must be considered that Angel L.
Manzano was acting under a valid power-of-attorney from his father which had
not been legally revoked on the date of the sale of the half interest in the
steamer to the plaintiffs son, which half interest was legally inherited by the
plaintiffs. (at p. 584)
(2) When Principal Directly Manages Business
Under Article 1924, the agency is revoked when the principal directly
manages the business entrusted to the agent, dealing directly with third
persons. The provision does not state when the act of revocation takes place,
and it can be presumed therefore that the moment the principal directly
manages the business by dealing directly with third persons, the agency is
revoked. But that would only mean that the revocation of the agency is only
47
that such was done in order to evade the payment of agent's commission. (at
pp. 381-382)
general power of attorney. It is unfortunate that Article 1926 fuses two distinct
situations into one statutory rule.
CMS Logging confirms the legal position that the indication of a period in
the contract of agency does not mean that the contract was contractually
deemed irrevocable within the period granted, and to the effect revocation
within the period would amount to breach of contract for which the principal
may be held liable for damages. In addition, the ruling also confirms the
position that the grant to a person of an "exclusive agency" position does not
mean that the 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.
For example, the implication from the language of Article 1926 is 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 if illogical. The use of the terms "general power of attorney" and
"special power of attorney" is completely misleading in Article 1926, for the rule
is properly embodied in Article 1923, in that "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."
In Guardez v. NLRC, 191 SCRA 487 (1990), where the principal had
authorized the purported agent to "follow up" principals previous offer to
sell a firetruck to a company, the Court held that when the agent dropped out
of the scene and it was the principal that directly negotiated with the company
to saw the consummation of the sale, no commission was due to the agent
because "such agency would have been deemed revoked upon the
resumption of direct negotiations between" the principal and the company.
Again, if we look at the language of Article 1926, it would mean that "a
general power of attorney is not revoked by a special one granted to the same
agent." The falsity of such an implication is best shown in the decision in Dy
Buncio and Co. v. Ong Guan Can, 60 Phil 696 (1934).
In that decision, the son executed on behalf of the father, the deed
covering the sale of a rice-mill and camarin, in favor of buyers who relied upon
a 1928 power of attorney attached to the deed, but which turned out was "not a
general power of attorney but a limited one and [did] not give the express
power to alienate the properties in question." When the creditors of the
principal sought to have the sale declared void, the buyers claimed that the
defect in the sons authority to sell on behalf of the father was cured by an
earlier 1920 "general power of attorney given to the same agent [son]" by the
father. The Court nonetheless declared the sale void on the ground that "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 does not revoke the general power of
attorney, the execution of the second power of attorney would be a mere futile
gesture."
If the purpose of the principal in dealing directly with the purchaser and
himself effecting the sale of the principals property is to avoid payment of
his agents commission, the implied revocation is deemed made in bad
faith and cannot be sanctioned without according to the agent the commission
which is due him. Infante v. Cunanan, 93 Phil 693 (1953).
Where no time for the continuance of the agency is fixed by the terms,
the principal is at liberty to terminate it at will subject only to the requirements
of good faith. Daon v. Brimo, 42 Phil 133 (1921).
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Related Cases:
As is seen, the only question for our decision is whether or not the
plaintiffs, acting in good faith and without knowledge, having sent produce to
sell on commission to the former agent of the defendant, can recover of the
defendant under the circumstances above set forth. We are of the opinion that
the defendant is liable. Having advertised the fact that Collantes was his agent
and having given special notice to the plaintiffs of that fact, and having given
them a special invitation to deal with such agent, it was the duty of the
defendant on the termination of the relationship of principal and agent to give
due and timely notice thereof to the plaintiffs. Failing to do so, he is
responsible to them for whatever goods may have been in good faith and
without negligence sent to the agent without knowledge, actual or constructive,
of the termination of such relationship. (at pp. 272-273)
Lustan v. Court of Appeals, 266 SCRA 663 (1997), held that when the
special power of attorney duly authorized the agent to represent and act on
behalf of the principal, the power granted thereto can be relied upon by third
parties for whom specifically the authority was issued, thus:
Under Article 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. It seems clear, when compared with the
situation in Article 1873, that notice by public advertisement would not
constitute sufficient notice to bind such specified third parties.
In Rallos v. Yangco, 20 Phil 269 (1911), the former principal refused to be
personally liable for any account handled by his agent (Collantes) for
transactions that occurred after the principal had terminated the agency
relations, even to a long-standing customer who had done business with the
principal through the agent who was specially endorsed. In affirming the
liability of the principal, the Court held -It appears, however, that prior to the sending of said tobacco the
defendant had severed his relations with Collantes and that the latter was no
longer acting as his factor.
This fact was not known to the plaintiffs; and it is conceded in the case
that no notice of any kind was given by the defendant to the plaintiffs of the
termination of the relations between the defendant and his agent. The
defendant refused to pay the said sum upon demand of the plaintiffs, placing
such refusal upon the ground that at the time the said tobacco was received
and sold by Collantes he was acting personally and not as agent of the
defendant. This action was brought to recover said sum.
Lustan holds that where the special power of attorney provides that the
same is good not only for the principal loan but also for subsequent
commercial, individual, agricultural loan or credit accommodation that the
attorney-in-fact may obtain and until the power of attorney is revoked in a
public instrument and a copy of which is furnished to the bank, in the absence
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of any proof that the bank had knowledge that the last three loans were without
the express authority of the principal, the bank cannot be prejudice.
In Sevilla v. Court of Appeals, 160 SCRA 171 (1968), the Court found that
when the petitioner, Lina Sevilla, agreed to man the respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a contract of
agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another." The Court then held --
In a case covering a power of attorney to deal with the general public, the
fact that the revocation was advertised in a newspaper of general circulation
would be sufficient warning to third persons. Rammani v. Court of Appeals,
196 SCRA 731 (1991).
. . . In the case at bar, Sevilla solicited airline fares, but she did so for and
on behalf of her principal, Tourist World Service, Inc. As compensation, she
received 4% of the proceeds in the concept of commissions. And as we said,
Sevilla herself, based on her letter of November 28, 1961, presumed her
principal's authority as owner of the business undertaking. We are convinced,
considering the circumstances and from the respondent Court's recital of facts,
that the parties had contemplated a principal-agent relationship, rather than a
joint management or a partnership.
x x x.
This conduct on the part of Tourist World Service, Inc. betrays a sinister
effort to punish Sevilla for what it had perceived to be disloyalty on her part. It
is offensive, in any event, to elementary norms of justice and fair play.
While Article 1358 of the Civil Code requires that the contracts involving
real property must appear in a proper document, a revocation of a special
power of attorney to mortgage a parcel of land, embodied in a private writing,
is valid and binding between the parties, such requirement of Article 1358
being only for the convenience of the parties and to make the contract effective
as against third persons. PNB v. Intermediate Appellate Court, 189 SCRA
680 (1990).
Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).
d. CASES OF IRREVOCABLE AGENCIES
50
Related Cases:
National Sugar Trading v. PNB, 396 SCRA 528 (2003)
Bacaling v. Muya, 380 SCRA 714 (2002)
Perez v. PNB, 17 SCRA 833 (1966)
The same rule prevails at common law the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the
power be coupled with an interest. 10 This is the prevalent rule in American
Jurisprudence where it is well-settled that a power without an interest
conferred upon an agent is dissolved by the principal's death, and any
attempted execution of the power afterwards is not binding on the heirs or
representatives of the deceased. (at p. 260)
OF THE
Under Article 1928, the agent may withdrawal from the agency by giving
due notice to the principal. If the principal should suffer any damage by reason
of the withdrawal, the agent must indemnify him therefore, unless the agent
should base his withdrawal upon the impossibility of continuing the
performance of the agency without grave detriment to himself.
Under Article 1929, even when the agent should withdraw for a valid
reason, must continue to act until the principal has had reasonable opportunity
to take the necessary steps to meet the situation.
Related Cases:
OR INSOLVENCY OF THE
PRINCIPAL
Under Article 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
51
interest of the latter and of the agent, or in the interest of a third person who
has accepted the stipulation in his favor.
Article 1931 is the applicable law. Under this provision, an act done by
the agent after the death of his principal is valid and effective only under two
conditions, viz: (1) that the agent acted without knowledge of the death of the
principal, and (2) that the third person who contracted with the agent himself
acted in good faith. Good faith here means that the third son 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 unenforceable.
In Buason v. Panuyas, 105 Phil 795 (1959), the Court applied the
provisions of Article 1931 in upholding the validity of the sale of the land
effected by the agent only after the death of the principal, when no evidence
was adduced to show that at the time of sale both the agent and the buyers
were unaware of the death of the principal. (Reiterated in Herrera v. Uy Kim
Guan, 1 SCRA 406 [1961]).
In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978),
the Court emphasized that 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 Article 1931 to apply, thus --
52
"In case of a general power which does not specify the persons to whom
representation should be made, it is the general opinion that all acts executed
with third persons who contracted in good faith, without knowledge of the
revocation, are valid. In such case, the principal may exercise his right against
the agent, who, knowing of the revocation, continued to assume a personality
which he no longer had." (Manresa, Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
On the other hand, when it is clear at the constitution of the agency that
the common agents were intended to be considered as having capacity as a
group and not individually (such as by the use of the term and in
defining their powers), then the death, legal incapacity, or insolvency of one
would legally terminate the agency.
6. DISSOLUTION OF A CORPORATION
The dissolution of a corporation extinguishes its juridical personality for
every purpose that seeks to pursue "new business" (Alhambra Cigar v. SEC,
24 SCRA 269 [1968]) or that of "a going concern" (PNB v. Court of First
Instance of Rizal, Pasig, Br. XXI, 209 SCRA 294 [1992]). Consequently, upon
the dissolution of a corporation, its Board of Directors and corporate officers
lose every legal right to enter into an contract or transaction to pursue new
business or done in the ordinary course of business, and any of such contract
entered into would be void, even as against third parties who act in good faith,
for at the point of dissolution, existing creditors of the corporations must be
protected under the trust fund doctrine.
The Civil Code does not impose a duty on the heirs to notify the agent of
the death of the principal. What the Code provides in Article 1932 is that, 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. Hence, the 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. (at p. 264)
5. DEATH, INCAPACITY
OR INSOLVENCY OF THE
AGENT
However, under Article 1932, if the agent dies during the term of the
agency, his heirs must notify the principal thereof, and in the meantime must
adopt such measures as the circumstances may demand in the interest of the
principal. The provision establishes a rare situation where an obligation is
imposed by law upon persons who are not parties to a contractual relationship,
and that in fact of one that has already been extinguished by the death of the
agent.
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