Finals Reviewer

AGENCY

Sem; 2003

Essential Elements of Agency:

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

Chapter 1. Nature, Form and Kinds

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

Acts that cannot be done through an agent:

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

Agency: A relationship which implies a power in

rd
an agent to contract with a 3 person on behalf of
a principal.

Nature of Relation between Principal and Agent:

Fiduciary, based on trust and confidence.

Kind of Contract: It is a preparatory contract. It is a

contract entered not for its own end but to be able
to enter into other contracts.

Agency v. Lease of Work or Service

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

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

Agency v. Guardianship
Agency
Guardianship
Agent represents a
Guardian represents an
capacitated person.
incapacitated person.
Agent appointed by
Guardian appointed by
principal and can be
court and stands in loco
removed by him.
parentis.
Agent subject to directions
Guardian not subject to
of principal.
directions of ward but
must act for his benefit.
Agent can make principal
Guardian has no power to
personally liable.
impose personal liability on
his ward.
Agency to Sell v.
Sale
Agency to sell
Sale
Agent receives the goods
Buyer receives the goods
as the goods of the
as owner.
principal.
Agent delivers proceeds of
Buyer pays the price.
the sale.
Agent can return object in
Generally, buyer cannot
case he is unable to sell to
return the object sold.
rd
a 3 person.
Agent in dealing with the
Buyer can deal with the
thing received is bound to
thing as he pleases, being
act accdg to the
the owner.
instructions of his principal

Basis: Representation.
The acts of the agent on behalf of the principal within
the scope of his authority produce the same legal and
binding effects as if the principal personally did them.
Distinguishing Features:
1.) Representative character; and
2.) Derivative authority.
Purpose: To extend the personality of the principal
through the facility of the agent.
Parties:
1.) Principal; and
2.) Agent.
Who can be principal?
The principal may be a natural person or a juridical
person. He must be capacitated. The rule is if a
person is capacitated to act for himself or in his own
right, he can act through an agent.
Must the agent have capacity?
rd

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

Helen C. Arevalo

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Art. 1870. Acceptance by the agent may also be

express, or implied from his acts which carry out
the agency, or from his silence or inaction
according to the circumstances.

Agent v. Independent Contractor

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

Form of Acceptance by Agent:

Acceptance may be express or implied; express when it
is oral or written; implied when it can be inferred from the
acts of the agent which carry out the agency, or from his
silence or inaction accdg to the circumstances.

Art. 1869. Agency must be express, or implied

from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the
agency, knowing that another person is acting on
his behalf without authority.
Agency may be oral, unless the law requires
a specific form.

Art. 1871. Between persons who are present,

the acceptance of the agency may also be
implied if the principal delivers his power of
attorney to the agent and the latter receives it
without any objection.
Between 2 persons who are present, when
acceptance deemed implied?
When the agent receives a power of atty from
the principal himself personally without objection.

Classifications of Agency: as to
1.) Manner of Creation:
a.) Express: actually authorized, either
orally or in writing.
b.) Implied: implied from acts of principal,
from his silence or lack of action or his
failure to repudiate the agency
knowing that another person is acting
on his behalf w/o authority.
2.) Character:

it

Is this presumption conclusive?

NO, it can be rebutted by contrary proof.
Power of attorney: An instrument in writing by which one
person, as principal, appoints another as his agent and
confers upon him the authority to perform certain
specified acts or kinds of acts on behalf of the principal.
Its primary purpose is to evidence the authority of the

a.) Gratuitous: agent receives no

compensation for his services.

b.) Onerous: agent does receive

compensation.
3.) Extent of business covered:
a.) General: comprises all the business of
the principal.
b.) Special: comprises one or more specific
transactions.
4.) Authority conferred:
a.) Couched in general terms: deemed to
comprise only acts of administration. b.)
Couched in specific terms: authorizes
only the performance of a specific act/s.
5.) Nature and effects:
a.) Representative: agent acts in name and
representation of principal.
b.) Simple/Commission: agent acts in his
own name but for the account of the
principal.

agent to 3

rd

parties w/ whom the agent deals.

Construction
A power of atty is strictly construed and strictly
pursued. The instrument will be held to grant only those
powers which are specified, and the agent may neither
go beyond nor deviate from the power of atty. The only
exception is when strict construction will destroy the
very purpose of the power.
Meaning of present
Not limited to face-to-face encounters. 2 persons
conversing on the phone are also considered as both
present.
Art. 1872. Between persons who are absent,
the acceptance of the agency cannot be implied
from the silence of the agent, except:
1.)
When the principal transmits his power
of attorney to the agent, who receives it
without any objection;
2.)
When the principal entrusts to him by
letter or telegram a power of attorney
with respect to the business in which he
is habitually engaged as an agent, and he
did not reply to the letter or telegram.

Can agency be presumed?

Generally NO because the relationship between the
principal and agent must exist as a fact. The only
exceptions to this rule are when agency arises by
operation of law or agency is presumed to prevent
unjust enrichment.
Form: Generally, NO formal requirements. Agents
authority may be oral or written, it may be in public or
private writings. The only exception is when the law
requires a specific form (e.g. sale of real property or any
interest therein by an agent.)

Helen C. Arevalo

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AGENCY

2 Ways of Giving Notice of Agency

1.) By special information; or
2.) By public advertisement.

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its agents. But it may be estopped through

affirmative acts of its officers acting within the
scope of their authority.

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

Art. 1874. When a sale of a piece of land or any

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

Revocation An agency is revoked in the same manner

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

A letter is sufficient [Jimenez v. Rabot].

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

Art. 1873. If a person specially informs another

or states by public advertisement that he has
given a power of attorney to a third person, the
latter thereby becomes a duly authorized agent,
in the former case with respect to the person who
received the special information, and in the latter
case with regard to any person.
The power shall continue to be in full force
until the notice is rescinded in the same manner in
which it was given.

Broker: One who in behalf of others, and for

compensation or fee, negotiate contracts relative to
property. He is the negotiator between the parties,
never acting in his own name, but in the name of those
who employ him. He is strictly a middleman and for
some purposes, the agent of both parties.
When is a broker entitled to compensation?
A broker is entitled to commission whenever he rings
to his principal a party who is able and willing to take
the property, and enter into a valid contract upon the
terms named by the principal, although the particulars
may be arranged and the matter negotiated and
completed between the principal and the purchaser
directly. A broker is never entitled to commission for
unsuccessful efforts.

Agency by Estoppel: There is really no agency at all, but

the alleged agent seemed to have apparent or
ostensible, although no real authority to represent
another.
1.) Estoppel of Agent One professing to act as
agent for another may be estopped to deny his
agency both as against his asserted principal
rd
and the 3
persons interested in the
transaction in which he is engaged.
2.) Estoppel of Principal
a.) As to Agent One who knows that
another is acting as his agent and fails
to repudiate his acts, or accept the
benefits of them, will be estopped to
deny the agency as against such other.
b.) As to sub-agent To estop the principal
rd
from denying his liability to a 3
person, he must have known or be
charged with knowledge of the fact of
the transmission and the terms of the
agreement between the agent and subagent.
rd
c.) As to 3 persons One who knows that
another is acting as his agent or
permitted another to appear as his
rd
agent, to the injury of 3 persons who
have dealt with the apparent agent as
such in good faith and in the exercise of
reasonable prudence, is estopped to
deny the agency.
rd
rd
3.) Estoppel of 3 Persons A 3 person, having
dealt with one as an agent may be estopped to
deny the agency as against the principal,
rd
agent or 3 persons in interest.

Does the law allow double agency?

Such agency is disapproved by law for being against
public policy and sound morality. The exception is where
the agent acted with full knowledge and free consent of
the principals.
In case the agent assumes a double agency, what is his
right to compensation?
1.) If with knowledge of both principals recovery
can be had from both.
2.) If without knowledge of both agent can
recover from neither.
3.) If with knowledge of only one as to the
principal who knew of that fact and as to the
agent, they are in pari delicto and the courts
shall leave them as they were, the contract
between them being void as against public polisy
and good morals.
Art. 1876. An agency is either general
or special.
The former comprises all the business of the
principal. The latter, one or more specific
transactions.
Classification of Agents:

4.) Estoppel of the govt The govt is neither

estopped by the mistake or error on the part of

Helen C. Arevalo

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AGENCY

1.) Universal agent: One employed to do all acts that

the principal may personally do, and which

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AGENCY

Sem; 2003

Art. 1877. An agency couched in general terms

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

the principal can lawfully delegate to another

the power of doing.
2.) General agent: One employed to transact all the
business of his principal, or all business of a
particular kind or in a particular place, or in
other words, to do all acts connected with a
particular trade, business, or employment.
3.) Special/Particular agent: One authorized to act
in one or more specific transactions, or to do
one or more specific acts, or to act upon a
particular occasion. e.g.:
a.) Atty at law: One whose business is to
represent clients in legal proceedings. b.)
Auctioneer: One whose business is to sell
property for others to the highest
bidder at a public sale.
c.) Broker: One whose business is to act as
intermediary between 2 other parties.
d.) Factor: One whose business is to receive
and sell goods for a commission, being
entrusted with the possession of the
goods involved in the transaction.

Examples of acts of mere administration:

1.) To sue for collection of debts;

2.) To employ workers or servants and employees
needed for the conduct of business;
3.) To engage counsel to preserve the ownership
and possession of the principals property;
4.) To lease real property to another person for 1
year or less, provided the lease is not
registered;
5.) To make customary gifts for charity or to
employees in the business managed by
the agent
6.) To borrow money if it be urgent and
indispensable for the preservation of the things
under administration.

Attorney-in-fact: One who is given authority by his

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

How are contracts of agency construed?

Contracts of agency as well as general powers of
attorney must be interpreted in accordance with the
language used by the parties. The real intention of the
parties is primarily determined from the language used
and gathered from the whole instrument. In case of
doubt, resort must be had to the situation,
surroundings and relations of the parties. The intention
of the parties must be sustained rather than defeated.
So if the contract be open to 2 constructions, one of
which would uphold the intention while the other would
overthrow it, the former is to be chosen.

General Agent v. Special Agent [SNETI]

As to
General agent
Special agent
Scope of
All acts connected
Only one or more
w/ the business in
specific acts in
authority
which he is
pursuance of
engaged.
particular
instructions or w/
restrictions
necessarily implied
from the act to be
done.
Nature of
Series a
Single transaction
transactions
or a series of
service
authorized
involving a
transactions not
continuity of
involving continuity
service.
of service.
Extent to
By an act within
Cannot in a manner
the scope of his
beyond or outside
which agent
may bind
authority although
the specific acts w/c
principal
it may be contrary
he is authorized to
to his special
perform.
instructions.
Termination
Apparent authority Termination
rd
of authority
does not terminate effective as to 3
by mere revocation party unless agency
of authority w/o
was for purpose of
rd
notice to 3
contracting w/ that
rd
3 party.
parties.
Construction Merely advisory.
Strictly construed.
of
Limits the authority
instructions
of agent.
of principal
Helen C. Arevalo

nd

MEMORIZE THIS: [PNC-WIGLLS-PG-CARS]

Art. 1878. Special powers of attorney
are necessary in the following cases:
1.)
To make such payments as are not
usually considered as acts of
administration;
2.)
To effect novations which put an end to
obligations
already in existence at the
time the agency was constituted;
3.)
To compromise, to submit questions to
renounce the right to
arbitration, to
appeal from a judgment, to waive
objections to the venue of an action or to
abandon a prescription already acquired;
4.)
To waive any obligation gratuitously;
5.)
To enter into any contract by which the
ownership of an immovable is
transmitted or acquired either
gratuitously or for a valuable
consideration;
6.)
To make gifts, except customary ones for
charity or those made to employees in
the business managed by the agent;

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7.)

8.)
9.)
10.)
11.)
12.)
13.)
14.)
15.)

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5.) Fix the terms of the sale unless there be set

conditions stipulated by the principal;
6.) Sell only for cash;
7.) Receive the price unless he was authorized only
to solicit orders.

To loan or borrow money, unless the

latter act be urgent and indispensable for
the preservation of the things which are
under administration;
To lease any real property to another
person for more than one year;
To bind the principal to render some
service without compensation;
To bind the principal in a contract of
partnership;
To obligate the principal as a guarantor
or surety;
To create or convey real rights over
immovable property;
To accept or repudiate an inheritance;
To ratify or recognize obligations
contracted
before the agency;
Any other act of strict dominion.

The ff are not included in a Power to

Mortgage The power to:
1.) Sell;
nd
2.) Execute a 2 mortgage;
3.) Mortgage for the agents personal benefit or for
rd
the benefit of any 3
person, unless the
contrary has been clearly indicated.
Does the principal have the power to revoke a contract
giving an agent exclusive authority to sell?
YES. But he may not have the right to use such power
if he has agreed not to exercise such power during a
certain period. In case he fails to comply with this
obligation-not-to-do, he will be liable for damages.

Scope of General Authority to Purchase

Where an agents power to purchase is general and
unrestricted, he has implied authority to do whatever is
usual and necessary in the exercise of such power. He
may:
1.) Determine the usual and necessary details of the
contract,
2.) agree upon the price,
3.) modify or rescind the contract of purchase,
4.) accept delivery for his principal,
5.) give directions for the delivery of the property
purchased, and
6.) may borrow money to pay for the care and
preservation of the property purchased.
But he has no special power to
rd
1.) Settle a contest between the principal and a 3
person regarding the ownership of goods
purchased, or
2.) Agree to an account stated, or
3.) Do anything not usual or necessary to the
exercise of such authority.

Art. 1880. A special power to compromise

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

What happens if the agent is specifically authorized

to submit to arbitration?
Then the arbitration award binds the principal,
provided, of course, that the agent acted within
the scope of his authority.
Art. 1881. The agent must act within the scope
of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of
the agency.

Scope of Special Authority to Purchase

Where the agency is a special one, or is restricted to
purchases upon certain terms and conditions, the agent
has no authority to
1.) Purchase upon different terms and conditions
from those authorized, or
2.) Modify or rescind a contract of purchase made
by the principal.

Authority: The power of the agent to affect the legal

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

Art. 1879. A special power to sell excludes

the power to mortgage; and a special power to
mortgage does not include the power to sell.

Kinds of Authority:
1.) Actual: when it is actually granted, and it may
be express or implied. It results from what the
principal indicates to the agent.
2.) Express: when it is directly conferred by words.
3.) Implied: when it is incidental to the transaction
or reasonably necessary to accomplish the
purpose of the agency, and therefore, the

The ff are included in a Power to Sell:

The power to:
1.) Find a purchaser or to sell directly;
2.) Deliver the property;
3.) Make the usual representation and warranty;
4.) Execute the necessary transfer documents;

Helen C. Arevalo

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AGENCY

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5.)
6.)

7.)

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

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

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Kinds of Principals:
1.) Disclosed: if at the time of the transaction
contracted by the agent, the other party thereto
has known that the agent is acting for a principal
and has known the principals identity.
2.) Partially disclosed: if the other party knows or
has reason to know that the agent is or may be
acting for a principal but is unaware of the
principals identity. The partially disclosed
rd
principal may enforce against the 3 person the
contract of the agent like any disclosed
rd
principal. Similarly, the 3 person has a right of
action against the principal.
3.) Undisclosed: if the party has no notice of the
fact that the agent is acting as such for a
principal.

Requisites for Principal to be Bound by Act of Agent:

1.) The agent must act in behalf of the principal;
2.) The agent must act within the scope of his
authority.

Authority?
With authority
With authority
Without
Without

with whom the agent contracted; neither

have such persons against the principal.
In such case the agent is the one directly bound
in favor of the person with whom he has
contracted, as if the transaction were his own,
except when the contract involves things
belonging to the principal.
The provisions of this article shall be
understood to be without prejudice to the
actions between the principal and agent.

principal is deemed to have actually

intended the agent to possess.
Apparent or Ostensible: when it is conferred by
words, conduct or even by the silence of the
rd
principal which causes a 3 person reasonably to
believe that a particular person, who may or may
not be the principals agent, has actual authority
to act for the principal. Ostensible authority is
another name for authority by estoppel.
General: when it refers to all the business of the
principal.
Special: when it is limited only to one or more
specific transactions.
By necessity or by operation of law: when it is
b. demanded by virtue of the existence of
an emergency; it terminates when the
emergency has passed.

a.

4.)

nd

AGENCY

General Rule in 1883: If the agent is authorized to act

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

Status of K
Valid
Depends. [1883]
Unenforceable
Valid

Exception: If the contract involves something belonging

to the principal.

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

Remedy of the Principal if this situation arises:

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

Note: The authority to look for buyers does not

carry with it the authority to sell.

Remedy of the 3 person with whom the agent

contracted in case the oblig is not complied with:

If the case falls under the general rule, he can sue

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

Art. 1882. The limits of the agents authority

shall not be considered exceeded should it have
been performed in a manner more advantageous to
the principal than that specified by him.

What happens if the agent exceeds his authority but he

performs the agency in a manner more advantageous to
the principal?
It will e as if he did not exceed the limits of his
authority since he must do such acts as may be
conducive to the accomplishment of the purpose of the
agency.
Test: Would the principal enter into this transaction?
Art. 1883. If an agent acts in his own name, the
principal has no right of action against the persons
Helen C. Arevalo

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AGENCY

Chapter 2. Obligations of the Agent

Art. 1884. The agent is bound by his
acceptance to carry out the agency and is liable
for the damages which, through his nonperformance, the principal may suffer.
He must also finish the business already
begun on the death of the principal, should delay
entail any danger.
General Obligations of an Agent to his Principal:
1.) To act with the utmost good faith and loyalty for
the furtherance and advancement of the
interests of the principal.
2.) To obey the principals instructions.
3.) To exercise reasonable care.
Specific Obligations:
1.) To carry out the agency he has accepted.
2.) To answer for damages which through his nonperformance the principal may suffer.
3.) To finish the business already begun on the
death of the principal should delay entail danger.
4.) To observe the diligence of a good father or a
family in the custody and preservation of the
goods forwarded to him by the owner in case he
declines an agency, until an agent is appointed.
5.) To advance the necessary funds should there be
a stipulation to do so.
6.) To act in accordance with the instructions of the
principal, and in default thereof, to do all that a
good father of a family would do.
7.) Not to carry out the agency if its execution
would manifestly result in loss or damage to the
principal.
8.) To answer for damages if there be a conflict
between his interests and those of the principal,
he should prefer his own.
9.) Not to loan to himself if he has been authorized
to lend money at interest.
10.) Not to render an account of his transactions
and to deliver to the principal whatever he may
have received by virtue of the agency.
11.) To be responsible in certain cases for the act of
the substitute appointed by him.
12.) To pay interest on funds he has applied to his
own use.
Art. 1885. In case a person declines an agency,
he is bound to observe the diligence of a good father
of a family in the custody and preservation of the
goods forwarded to him by the owner until the latter
should appoint an agent. The owner shall as soon as
practicable either appoint an agent or take charge of
the goods.

What is the rule if a person declines agency?

In the event a person declines an agency, he is
bound to observe the diligence of a good father of a
family in the custody and preservation of the goods
forwarded to him by the owner.
Duty of Owner in case an Agency is Declined:

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He must act as soon as possible by appointing an

agent or by taking charge of the goods.

Art. 1886. Should there be a stipulation that

the agent shall advance the necessary funds, he
shall be bound to do so except when the
principal is insolvent.

Relates to the subject with

which the agent is
empowered to deal or the
kinds of business or
transactions upon which he
is powered to act.
Limitations of authority are
operative as against those
who have or are charged
with knowledge of them.

In a contract of agency, may the parties stipulate that

the agent shall advance the necessary funds? YES.

What is the oblig then of the

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

Contemplated to be made
rd
known to the 3 person
dealing w/ the agent.
Instructions pertain to the

Art. 1887. In the execution of the agency,

the agent shall act in accordance with the
instructions of the principal.
In default thereof, he shall do all that a
good father of a family would do, as required
by the nature of the business.

Authority pertain to the agent and 3

Helen C. Arevalo

rd

persons.

Exceptions to the rule that the agent must not

depart from the instructions of the principal: [SAI]
A departure may be justified by:
1.) A sudden emergency;
2.) If the instructions are ambiguous; or
3.) If the departure is so insubstantial that it does
not affect the result and the principal suffers no
damage thereby.

Instructions: Private directions which the principal

may give the agent in regard to the manner of
performing his duties as such agent.
Authority v. Instructions
Authority
Sum total of powers
committed or permitted to
the agent by the principal.

only a private rule of

guidance to the agent.
Refers to the manner or
mode of his action with
respect to matters which in
their substance are within
the scope of permitted
action.
Without significance as
against those dealing with
the agent with neither
knowledge nor notice of
them.
Not expected to be made
known to those w/ whom
the agent deals.
principal and agent

Instructions
Direct the manner of
transacting the authorized
business and contemplates

When the Agent has a right to disobey the principals

instructions:

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Every stipulation exempting the agent from the

obligation to render an account shall be void.

1.) When the instruction calls for the performance of

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

Rationale: Contrary to public policy as it would

encourage fraud. It is in the nature of a waiver of an
action for future fraud w/c is void.

Art. 1888. An agent shall not carry out an

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

If the agent fails to deliver and instead converts or

appropriates for his own use the money or property
belonging to his principal, with what can he be charged?
ESTAFA.

Rationale: The duty of the agent who is merely an

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

Art. 1892. The agent may appoint a substitute if

the principal has not prohibited him from doing
so; but he shall be responsible for the acts of the
substitute:
1.)
When he was not given the power to
appoint one;
2.)
When he was given such power, but
without designating the person, and the
person appointed was notoriously
incompetent or insolvent.
All acts of the substitute appointed against the
prohibition of the principal shall be void.

Art. 1889. The agent shall be liable for damages

if, its execution would manifestly result in loss or
damage to the principal.
Note: This provision applies to both onerous and
gratuitous transactions. The law does not distinguish
so neither should we.
Rationale: An agent occupies a fiduciary position and
therefore is bound to exercise loyalty, obedience, and
diligence with respect to the interest of the principal.

Sub-agent: A person to whom the agent delegates, as

his agent, the performance of an act for the principal
which the agent has been empowered to perform
through his representative.

If the agent follows the principals instructions yet his acts

rd
still result in damage to 3 persons, who is liable?

General rule: The agent is NOT liable.

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

Relation among the principal, agent and sub-agent

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

Art. 1890. If the agent has been empowered to

borrow money, he may himself be the lender at
the current rate of interest. If he has been
authorized to lend money at interest, he cannot
borrow it without the consent of the principal.
Rationale: The agent can lend money to the principal
using the agents own funds at the current rate of
interest and NOT at a higher interest rate because the
agent is supposed to act for the principals benefit.

If the agent is authorized to lend the principals

rd
money, with interest, to 3 persons, the agent cant be
the borrower without the consent of the principal
because the agent may not be a good borrower or he
may be insolvent or he may not be a good risk. There is
a danger here that the interest of the principal would
be jeopardized.
This would also seem to be the case if the agent
is authorized to lend money w/o interest because of
the same reason.

When can an agent appoint a sub-agent?

So long as theres no prohibition. However, he shall
be responsible for all the sub-agents acts.
4 Instances where a Sub-agent is appointed and the
Effects of each:
Instance
Effect
No prohibition
Agent responsible for all
the acts of sub-agent.
Prohibition
Sub-agents acts are VOID
as to the principal.
Authority to appoint but
Agent liable for acts of
not designated by principal sub-agent if the sub-agent
is notoriously incompetent
or insolvent.
Authority to appoint and
Agent is released from any
designated by principal
liability from the acts of

Art. 1891. Every agent is bound to render an

account of his transactions and to deliver to the
principal whatever he may have received by
virtue of the agency, even though it may not be
owing to the principal.

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Reason for general rule: Because an agent who acts as

such within the scope of his authority represents the
principal so that his contract is really the principals.

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

Exceptions:
1.) When the agent binds himself; or
2.) When he exceeds the limits of his authority
without giving the third party sufficient notice
of his powers.

When can the principal sue the substitute?

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

Reasons for exceptions:

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

Art. 1894. The responsibility of two or more

agents, even though they have been appointed
simultaneously, is not solidary, if solidarity has not
been expressly stipulated.
If solidarity is not stipulated, what is the liability to 2 or
more agents? JOINT.
Each is liable only for proportionate part of debt.

Art. 1898. If the agent contracts in the name of

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

Art. 1895. If solidarity has been agreed upon,

each of the agents is responsible for the nonfulfillment of the agency, and for the fault or
negligence of his fellow agents, except in the
latter case when the fellow agents acted beyond
the scope of their authority.
What happens if solidarity has been agreed upon?
Then each of the agents becomes solidarily liable for:
1.) The non-fulfillment of the agency; or
2.) The fault or negligence of the fellow agent
provided the latter acted within the scope of
his authority.
But the innocent agent has a right later on to recover
from the guilty or negligent agent.

Art. 1899. If a duly authorized agent acts in

accordance with the orders of the principal, the
latter cannot set up the ignorance of the agent as
to circumstances whereof he himself was, or ought
to have been aware.
This

article

refers

principal towards 3

What happens if the fellow agent acted beyond

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

rd

to

the

liability

of

the

persons.

What happens if the principal appoints an agent who

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

Art. 1896. The agent owes interest on the

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

Art. 1900. So far as third persons are

concerned, an act is deemed to have been
performed within the scope of the agents
authority, is such act is within the terms of the
power of attorney, as written, even if the
agent has in fact exceeded the limits of his
authority according to an understanding
between the principal and the agent.

Art. 1897. The agent who acts as such is not

personally liable to the party with whom he
contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving
such party sufficient notice of his powers.
rd

Agent 3 Party (wrong party to complain if

the principal doesnt complain
of the agents acts)

Requisite for article to apply:

Authority to agent must be in writing.

General rule: an agent who acts as such is not

personally liable to the party with whom he contracts.

Helen C. Arevalo

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AGENCY

Scope of agents authority includes:

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i.) Vary the terms of an express

Not only the actual authorization conferred upon the

agent by the principal, but also that which has
apparently or impliedly been delegated to him.

authorization;
ii.) Dispense with a legal requirement
enacted
for
the
principals
benefit;
iii.) Change a rule of law or dispense
with a formality required by law;
iv.) Vary an essential quality of the
agency relationship.
b.) General rule: principal must have notice
of the alleged custom, before the agents
acts, in accordance therewith, may bind
the principal. Exceptions:
i.) Where the principal and the agent
reside in the same community,
the usage is definite and wellknown, and the agent has no
notice that he is to act to the
contrary;
ii.) Where the agent is authorized to
deal in a particular place or
in a particular market
exchange.
4.) By necessity the existence of an emergency or
other unusual conditions may operate to invest
in an agent authority to meet the emergency,
provided:
a.) Emergency really exists;
b.) Agent is unable to

rd

To hold the principal liable, a 3 person dealing with an

agent must:
Discover upon his peril not only the fact of agency
but the nature and extent of authority of the agent. He
is put on inquiry. He must also act with ordinary
prudence and reasonable diligence.
Fundamental principles when inquiring whether authority
exists:
1.) The law indulges in no bare presumptions that
an agency exists, it must be proved and
presumed from facts;
2.) The agent cannot establish his own authority,
either by his representations or by assuming to
exercise it;
3.) An authority cannot be established by mere
rumor or general reputation;
4.) A general authority is not an unlimited one; and
5.) Every authority must find its ultimate source in
some act or omission of the principal.
In case the fact of agency or the extent of the authority
of the agent is controverted, the burden of proof is on:
rd

The 3 person to establish the fact of agency or

the extent of authority of the agent.
rd

Does the 3
person have to inquire further if the
power of attorney is written?
No. He is not required to inquire further than
the terms of the written power of attorney.

communicate w/ the principal;

c.) Agents enlarged authority is

exercised for the principals

protection; and
d.) The means adopted are
reasonable under the
circumstances.
5.) By certain doctrines
a.) Apparent authority
b.) Liability by estoppel;
c.) Ratification.
6.) By the ejusdem generis rule such that where
in an instrument of any kind, an enumeration of
specific matters is followed by a general phrase
is held to be limited in scope by the specific
matters.

If there is a secret mutual understanding between the

principal and the agent, and such is not expressed in
rd
the written power of attorney, does the 3 person have
to inquire?
No. As far as he is concerned, an act of the agent
within the terms of the power of attorney as written, is
within the scope of the agents apparent authority
notwithstanding that the agent may have exceeded the
limits of his actual authority according to a secret
understanding between him and the principal. In such a
case, the principal is estopped from claiming that the
agent exceeded his authority.

Responsibility of principal when agent acts w/

improper motives:
General rule: Motive of agent in entering into a K
rd
w/ a 3 person is immaterial.
Exceptions:
rd
1.) Where the 3 person knew that the agent was
acting for his benefit, in w/c case, the
rd
principal is not liable to the 3 person; and
2.) Where the owner is seeking recovery of personal
property of w/c he has been unlawfully deprived.

Ways by which the agents authority may be broadened

or restricted: [Im-UNDEr]
1.) By implication agents authority extends not
only to express requests, but also to those acts
and transactions incidental thereto. It embraces
all the necessary and appropriate means to
accomplish the desired end.
2.) By usage and custom
a.) An agents authority may not be
enlarged through usage and custom in
the following cases: Where it is sought
to
Helen C. Arevalo

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Principals responsibility for an agents

misrepresentation:

nd

Sem; 2003

attorney to ascertain the scope of his authority. He may also

ask for the instructions of the principal.
rd

1.) Within the scope of the agents authority

Principal is subject to liability for lass caused
rd
to another by the 3 persons reliance upon a
deceitful representation of an agent in the
course of his employment if:

Do secret orders or private instructions prejudice 3

persons?
No, he cannot be prejudiced by any secret
understanding between the principal and the agent.
rd
Such secret orders cannot be invoked as against 3
parties if the agent had apparent authority.

a.) Representation is authorized;

b.) Within the implied authority of the agent
to make for the principal; or
c.) Apparently authorized.
2.) Beyond the scope of the agents authority
General rule: Principal is not bound. Exception:
when the principal takes advantage of a K made
under the false misrepresentation of his agent.

Art.
1903.
The
commission
be suffered
responsible
for
the
goods
received
byagent
him
inmake
the
terms
and
conditions
and
as
described
in
the shall
consignment,
unless
upon
receiving
them
he
should
a written
statement
of
the
damage
and
deterioration
by
the
same.

Commission agent: One whose business is to receive

and sell goods for a commission and who is entrusted by
the principal with the possession of goods to be sold,
and usually selling in his own name.
Ordinary agent v. Commission agent:
Ordinary agent
Commission agent
Acts for and behalf of his
May act in his own name
principal.
or in that of his principal.
Need not have possession
Must be in possession.
of the goods of his
principal.
Commission
agent
v.
broker:
Commission agent
Broker
Has a relation to principal,
No relation w/ the thing
buyers or sellers, and the
w/c he purchases or sells.
property itself.
Merely a go-between.

3.) For the agents own benefit Principal is liable

(motive of agent immaterial).
Art. 1901. A third person cannot set up the fact
that the agent has exceeded his powers, if the
principal has ratified, or has signified his
willingness to ratify the agents acts.
Effect of ratification by the principal:
Ratification of a contract gives it the same effect as if
the principal had originally authorized it.
Who must ratify the contract?
Only the principal. But there must be knowledge on
the part of the principal of the things he is going to
ratify.

Liability of commission agent as to goods received:

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

rd

When can the 3

person repudiate the contract?
Before actual ratification by the principal, or before
the principal has signified his willingness to ratify the
agents acts.

Presumption established in this article:

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

Effect of the principal receiving the benefits of the

transaction:
He is deemed to have ratified it. A principal may not
accept the benefits of a transaction and at the same
time repudiate its burdens.

What the commission agent must do to avoid liability:

Make a written statement of the damage and
deterioration if the goods received by him do not agree
w/ the description in the consignment.
Agent v. Depositary:
Agent
Cannot commingle goods
of the same kind.

Art. 1902. A third person with whom the agent

wishes to contract on behalf of the principal may
require the presentation of the power of attorney,
or the instructions as regards the agency. Private
or secret orders and instructions of the principal
do not prejudice third persons who have relied
upon the power of attorney or instructions shown
them.
Duty of a 3

rd

Depositary
Can commingle goods of
the same kind.

Art. 1904. The commission agent who handles

goods of the same kind and mark, which belong
to different owners, shall distinguish them by
countermarks, and designate the merchandise
respectively belonging to each principal.

person who deals w/ an agent:

rd

3 person deals w/ an agent at his peril. He is bound to

inquire as to the extent of the agents authority, and this is
especially true where the act of the agent is of an unusual
nature. Ignorance of the agents authority is no excuse. It is
his duty to require the agent to produce his power of

Helen C. Arevalo

Purpose of this provision:

Prevent any possible confusion or deception.
Art. 1904 gives the general rule. Exceptions:
1.) By custom;
2.) Collecting banks.
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On the contrary, the principal may sue the buyers in his

own name. In such a case, the agent amounts to no
more than a guaranty. Liability is a contingent pecuniary
liability.

Art. 1905. The commission agent cannot,

without the express or implied consent of the
principal, sell on credit. Should he do so, the
principal may demand from him payment in
cash, but the commission agent shall be entitled
to any interest or benefit, which may result from
such sale.

Can the agent with a guarantee commission put up

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

Rule given in this article:

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

Art. 1908. The commission agent who does not

collect the credits of his principal at the time
when they become due and demandable shall be
liable for damages, unless he proves that he
exercised due diligence for that purpose.

Right of the principal in case the commission agent sold

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

Obligation of the commission agent under this article:

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

2.) He may r atify the sale on credit, in w/c case it

will have all the risks and advantages to him.

Art. 1906. Should the commission agent, with

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

Does this article apply to a case where there is

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

Obligation of the commission agent where a sale

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

Art. 1909. The agent is responsible not only

for fraud, but also for negligence, which shall be
judged with more or less rigor by the courts,
according to whether the agency was or was not
for a compensation.

Reason for this article: Prevent the agent from stating

that the same was on credit when in fact it was made
for cash.

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

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

Art. 1907. Should the commission agent receive

on a sale, in addition to the ordinary commission,
another called a guarantee commission, he shall bear
the risk of collection and shall pay the principal the
proceeds of the sale on the same terms agreed upon
with the purchaser.

Why does the court have to take into consideration

whether the agency was gratuitous or for compensation?
In order to fix the liability of the agent for
negligence only (not fraud).

Guarantee commission: One where, in consideration of

an increased commission, the commission agent
guarantees to the principal the payment of debts arising
through his agency.

Chapter 3. Obligations of the Principal

Purpose of guarantee commission: To compensate the

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

Art. 1910. The principal must comply with

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

Nature of liability of guarantee commission agent:

Liable to principal if the buyer fails to pay or is
incapable of paying. But he is not primarily the debtor.
Helen C. Arevalo

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ratification is subsequent but it is equivalent to prior

authority.

Where can the specific obligations and duties of

the principal to the agent be found?
Usually in the contract creating the agency.

Conditions to ratification: [ICK-PEC]

1.) Intent to ratify;
2.) Principal must have capacity & power to ratify;
3.) He must have had knowledge of material facts;
4.) The act must be done in behalf of the principal;
5.) Principal must ratify acts in its entirety;
6.) The act must be capable of ratification.

Principal obligations of the principal to the agent in the

absence of such agreement:
1.) To comply with all the obligations which the
agent may have contracted in his name and
within the scope of his authority;
2.) To advance should the agent so request sums
necessary for the execution of the agency;
3.) To reimburse the agent for all advances made
by him provided the agent is free from fault;
4.) To indemnify the agent for all the damages
which the execution of the agency may have
caused the latter without fault or negligence
on his part; and
5.) To pay the agent the compensation agreed upon
or the reasonable value of the latters services.

Effects of ratification with respect to the agent:

rd

1.) Relieves the agent from liability to the 3 party

to the unauthorized transaction; and
2.) To his principal for acting without authority; and
3.) He may recover compensation due for
performing the act which has been ratified.
Effects of ratification with respect to the principal:
1.) He assumes responsibility for the unauthorized
act, as fully as if the agent had acted under
original authority; but
2.) He is not liable for acts outside the authority
approved by his ratification.

rd

Liability of the principle to 3 persons:

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

Effects of ratification with respect to 3

rd

persons:

rd

1.) 3 person is bound by ratification to the same

extent as he would have been bound if the
st
ratified act had been authorized in the 1
instance; and
2.) He cannot raise the question of the agents
authority to do the ratified act.

Liability of the principal for mismanagement of the

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

Must ratification be communicated to the agent or to

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

Liability of principal for a tort committed by the agent:

rd

The principal is civilly liable to 3 persons for torts of

an agent committed at the principals direction or I the
course and within the scope of the agents employment.
The principal cannot escape liability whether the tort is
committed willfully or negligently so long as the tort is
committed by the agent while performing his duties in
furtherance of the principals business. Nor is it a
defense that the act which caused the tort was unknown
to him or even that it was in disobedience to his
instructions.

Art. 1911. Even when the agent has exceeded

his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act
as though he had full powers.
Estoppel: precludes a person from denying or asserting
anything contrary to that which has been established
as the truth by his own deed or representation, either
express or implied.

nd

Meaning of ratification in 2 paragraph:

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

Helen C. Arevalo

nd

AGENCY

Ratification v. Estoppel
Ratification
Rests on intention
Affects the entire
transaction from the
beginning
Substance is confirmation
of a unauthorized act or
conduct after it has been
done.
13

Estoppel
Rests on prejudice
Affects only relevant parts
of the transaction.
Substance is the principals
inducement to another to
act to his prejudice.

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

Apparent authority v. Authority by estoppel

Apparent authority
Authority by estoppel
That which though not
Arises in cases where the
actually granted, the
principal, by his
principal knowingly
negligence, permits his
permits the agent to
agent to exercise powers
exercise or holds him out
not granted to him, even
as possessing.
though the principal may
have no notice or
knowledge of the conduct
of the agent.

What is the nature of the agents right of lien? Specific

or particular. It is not general in the sense

that it gives the agent a right to retain the goods

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

Requisites for application of this article:

2
[2C ] 1.) There are 2 or more principals;
2.) The principals have all concurred in the
appointment of the same agent;
3.) The agent is appointed for a common
transaction or undertaking.

Basis of article 1911:

Principle of estoppel. Necessary for the protection
rd
of innocent 3 persons. Instance when solidarity is
imposed by law.
Art. 1912. The principal must advance to the
agent, should the latter so request, the sums
necessary for the execution of the agency.

Why is solidarity the rule?

Because of the common transaction. Thus, even if
the agent was appointed separately, the rule should
apply in the interest of justice.

Should the agent have advanced them, the

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

Art. 1916. When two persons contract with

regard to the same thing, one of them with the
agent and the other with the principal, and the
two contracts are incompatible with each other,
that of prior date shall be preferred, without
prejudice to the provisions of Article 1544.

Should the principal reimburse the agent for advances

made by the latter even if the agency was unsuccessful?

It depends. Yes, if the agent is free from fault. No, if

the agent was with fault.

May 2 persons contract with regard to the same thing,

one with the agent and the other with the principal?
Yes.

Is a broker always entitled to a commission?

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

If this situation arises, which of the contracts will be

preferred?
If the contracts are compatible, they will both be
given effect. If they are incompatible, then the
contract of prior date shall be preferred.

Art. 1913. The principal must also indemnify the

agent for all the damages which the executive of
the agency may have caused the latter, without
fault or negligence on his part.

Art. 1544: If the same thing should have been sold to

different vendees, the ownership shall be transferred to
st
the person who may have 1 taken possession thereof
in good faith if it should e movable property. Should it
be immovable property, the ownership shall belong to
st
the person acquiring it who in good faith 1 recorded it
in the Registry of Property. Should there be no
inscription, the ownership shall pertain to the person
st
who in good faith was 1 in possession; and in the
absence thereof, to the person who presents the oldest
title, provided there is good faith.

Basis for the above rule: Equity. Since the principal

receives the benefits of the agency, and has a right to
demand damages from the agent should the latter not
perform the agency, he should answer for the damages
resulting from the execution thereof without fault or
negligence on the part of the agent.
Art. 1914. The agent may retain in pledge the
tings which are the object of the agency until the
principal effects the reimbursement and pays the
indemnity set forth in the two preceding articles.

Art. 1917. In the case referred to in the

preceding article, if the agent has acted in good
faith, the principal shall be liable in damages to
the third person whose contract must be
rejected. If the agent acted in bad faith, he alone
shall be responsible.

What happens when the principal fails to reimburse or

indemnify the agent for expenses set forth in arts. 1912
and 1913?
The agent has the right to retain in pledge the things
which are the object of the agency.
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Is the principal always liable for damages caused by

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

2.) By the withdrawal of the agent;

3.) By the death, civil interdiction, insanity or
insolvency of the principal or of the agent;
4.) By the dissolution of the firm or corporation which
entrusted or accepted the agency;
5.) By the accomplishment of the object or
purpose of the agency;
6.) By the expiration of the period for
which the agency was constituted.

What is the extent of liability covered under this article?

Damages.

Meaning of Presumption of continuance of agency:

When once shown to have existed, an agency
relation will be presumed to have continued in the
absence of anything to show its termination.

What is good faith referred to in this article?

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

rd

person.

Who has the burden of proving the

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

Note: If the contract is one of sale, article 1544

governs and not arts. 1916 and 1917.
Art. 1918. The principal is not liable for the
expenses incurred by the agent in the
following cases: [F*CKS]
1.) If the agent acted in contravention of the
principals instructions, unless the latter
should wish to avail himself of the benefits
derived from the contract;
2.) When the expenses were due to the fault
of the agent;

Note: Even if the reason for extinguishing the agency

is not true, the agent cant insist on reinstatement. The
agent can only demand damages.
Modes of extinguishing an agency, generally: [ASO]
1.) Agreement;
2.) Subsequent acts of the parties which may be
either:
a.) By the act of both parties or by mutual
consent;
b.) By the unilateral act of one of them.
3.) By operation of law.

3.) When the agent incurred them with knowledge

that an unfavorable result would ensue, if the
principal was not aware thereof;

4.) When it was stipulated that the expenses

would be borne by the agent, or that the
latter would be allowed only a certain sum.

Modes of extinguishment, specifically: [WR-DEAD]

1.) Withdrawal of the agent;
2.) Revocation;
3.) Death, civil interdiction, insanity or insolvency of
the principal or of the agent;
4.) Expiration of the period for which the agency
was constituted;
5.) Accomplishment of the object or purpose of the
agency; and
6.) Dissolution of the firm/corp which entrusted or
accepted the agency;

Instances wherein the principal is not liable for expenses

incurred by the agent?
In the instances enumerated under this article.
Reasons why the principal is not liable for the agents
expenses: Under
1.) To punish the agent, but when the principal has
availed of the benefits, he is deemed to have
impliedly ratified the agents acts.
2.) Kasi, kasalanan niya, eh.
3.) The agent is guilty of bad faith and lack of
diligence;
4.) An express stipulation which is not contrary to
law, morals, good customs, public order or
public policy is binding between the parties.

Necessary characteristics of the parties for

the continuance of the agency: [PCS]
1.) Present;
2.) Capacitated;
3.) Solvent.
Why is presence necessary?
Because the general rule in art 1919 is that death of
any of the parties extinguishes agency. However in the
case where you have several principals and/or several
agents, whether the death of one principal or of one agent
terminates the agency would depend on the intention of
the parties. Generally the death of one of several
principals does not revoke the agents authority nor does
the death of one of several agents put an end to the
agency. The intention of the parties controls.

Chapter 4. Modes of Extinguishment

of Agency
Art. 1919. Agency is extinguished: [WR-DEAD]
1.) By its revocation;

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What happens if the subject matter of the agency is

lost or destroyed?
In the absence of any agreement by the parties to
the contrary, the loss or destruction of the subject
matter of the agency terminates the agents authority to
deal with reference to it.

Why is capacity necessary?

For instance, in the case of civil interdiction, it
deprives the offender during the period of his sentence
of the right to manage his property and dispose of such
property by any act or any conveyance inter vivos. A
person under civil interdiction hence, cannot validly give
consent. Same is true for insane people.

Exceptions:
1.) If it is possible to substitute other material for
that which was destroyed without substantial
detriment to either party, or
2.) If the destroyed subject matter was not in fact
essential to the contract; and
3.) A partial loss or destruction.

Why is solvency necessary?

As by an act of insolvency, the principal loses control
of the subject matter of the agency, the authority of the
agent to act for his principal ceases by operation of law
upon an adjudication of the principals insolvency. On
the other hand, the insolvency of the agent will
ordinarily put an end to the agency, at least if it is in any
way connected with the agents business which has
caused his failure.

Are the modes of extinguishments of agency exclusive?

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

General rule as to death of the principal or agent:

By reason of the very nature of the relationship
between the principal and the agent (which is fiduciary
argh!), agency is distinguished ipso jure upon the
death of the principal.

Does war extinguish agency?

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

Exceptions:
1.) If the agency is coupled with an interest;
2.) If the act of the agent was executed without the
knowledge of the death of the principal and the
rd
3 person who contracted w/ the agent acted
in good faith.

Does legal impossibility terminate agency?

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

Why does dissolution of a firm or corp extinguish the

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

What happens if the principals authority terminates?

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

What happens when the term for which the agency was
supposed to continue expires?
When an agency is created for a fixed period, the
expiration of such period ends the agency, even though
the purpose for which the agency was created has not
been accomplished.

In case of loss of the subject matter, does the principal

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

What happens if no time is specified?

The agency terminates at the end of a reasonable
period of time.
Can the period be implied? Yes, from
1.) The terms of the agreement;
2.) Purpose of the agency; and
3.) The circumstances of the parties.

Helen C. Arevalo

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Will a change of conditions affect the agency?

General rule: When there is a basic change in the

circumstances surrounding the transaction not

contemplated by the parties which would reasonably
lead the agent to believe that the principal would not
desire him to act, authority of agent is terminated.
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be forced to retain another as his agent

against his will.

Exceptions:
1.) If the original circumstances are restored within
a reasonable period of time, the agents
authority may be revived.
2.) Where the agent has reasonable doubts as to
whether the principal would desire him to act,
his authority will not be terminated if he acts
reasonably. (But when in doubt, agent could
contract principal for instructions if possible).
3.) Where the principal and agent are in close daily
contact, the agents authority to act will not
terminate upon a change of circumstances if the
agent knows the principal is aware of the change
and does not give him new instructions.

In case a principal does revoke an agency, is there any

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

Confidential information
It is difficult to determine whether information is
confidential or not, because while the relation of
principal and agent is confidential, not all knowledge
acquired by the agent is of a confidential nature. Some
clearly is of so general a nature that equity ought not
attempt to restrict its subsequent use.
Usually, what a court does is to determine 2 things:
1.) Whether the knowledge or information is indeed
confidential, and
2.) Whether its subsequent use ought to be
prevented.

Reason for requiring agent to return the document

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

Principle behind enjoining an agent from using

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

Is notice of revocation to the agent necessary? Yes.

A revocation without notice to the agent will not render
invalid an act done in pursuance of the authority.

Is express notice of revocation to the agent necessary?

As between the principal and the agent, express
notice to the agent that the agency is revoked is not
always necessary. If the party to be notified actually
knows, or has reason to know, facts indicating that his
authority has been terminated or suspended, there is
sufficient notice.

Art. 1920. The principal may revoke the

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

Is notice of revocation to 3

May an agency be terminated by a subsequent act of the

principal? Yes, when he does so, its called revocation.

rd

persons necessary? Yes.

What kind of notice should you give 3

rd

persons?

1.) As to former customers, actual notice must e

given to them because they always assume the
continuance of the agency relationship.
2.) As to other persons, notice by publication is
enough.

May an agency be terminated by a subsequent act of the

agent? Yes, its called withdrawal or renunciation.
Does it matter if the agency is gratuitous or with
compensation when we speak of revocation by the
principal? No, art 1920 makes no distinction.

May the agent renounce the agency at will?

Yes, but subject to the contractual obligations owing
the principal.

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

Reason: The essence of the principal -agent relationship is

the consent and willingness of the agent to act for the
principal. The law cannot compel the parties to continue an
agency if they do not want to do so. (The principal cannot
even sue for affirmative specific performance because that
would lead to involuntary servitude!)

2.) Confidence being the cardinal basis of the

relation, it stands to reason that it should
cease when such confidence disappears.
3.) The principal-agent relationship is consensual
and personal in nature. No one can nor should
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2
rd

to 3 person informed of
the appointment.

Form of renunciation:
It is not always necessary for the agent to
renounce the agency expressly. He can do so
impliedly, as for example
1.) Where he has conducted himself in a manner
incompatible with his duties as agent; or
2.) When he abandons the object of his agency and
acts for himself in committing a fraud upon his
principal; or

Except: If you can prove that the 3

the notice in the newspaper.

rd

What is the effect of revocation in relation to 3

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

Art. 1924. The agency is revoked if the

principal directly manages the business entrusted
to the agent, dealing directly with third persons.

Art. 1922. If the agent had general powers,

revocation of the agency does not prejudice third
persons who acted in good faith and without
knowledge of the revocation. Notice of the
revocation in a newspaper of general circulation
is a sufficient warning to third persons.

What does the above article provide?

It provides for another case of implied revocation.
Effect of direct management of the business by
the principal himself:
Generally, it revokes the agency because there would
no longer be any basis for the representation previously
conferred.
Exception: when the only desire of the principal
in doing so is for him and the agent to manage the
business together.

rd

Effect of revocation in relation to 3 persons if the agent

was authorized to contract with the public in general:
rd
In case the agent has general powers, innocent 3
parties dealing with the agent will not e prejudiced by
the revocation before they had knowledge thereof. In
this case, however, the fact that the revocation was
advertised in a newspaper of general circulation would be

Art. 1925. When two or more principals have

granted a power of attorney for a common
transaction, any one of them may revoke the
same without the consent of the others.

persons for publication constitutes notice

rd

Rationale: Since the appointment of an agent by 2 or

more principals for a common transaction or undertaking
makes them solidarily liable to the agent for all
consequences of the agency, then each one of the
principals should be granted the right to revoke the

Notice required in art. 1921 v. that in art. 1922:

Art. 1921
Art. 1922
Must be personal.
May be personal.
rd
Revocation must be known Even if 3 person doesnt
Helen C. Arevalo

person read

What does this article mean?

1.) There is implied revocation of the previous
agency when the principal appoints a new
agent for the same business or transaction if
there is incompatibility. But the revocation does
not become effective as between the principal
and the agent unless it is in some way
communicated to the latter. Again, the rights of
rd
3 persons who acted in good faith and without
knowledge of the revocation will not be
prejudiced thereby.
2.) There is no implied revocation where the
appointment of another agent is not
incompatible with the continuation of like
st
st
authority in the 1 agent, or if the 1 agent is
not given notice of the appointment of the new
agent.

Art. 1921. If the agency has been entrusted for

the purpose of contracting with specified
persons, its revocation shall not prejudice the
latter if they were not given notice thereof.

upon everybody and this is true whether or not such 3

persons have read the newspaper concerned.

rd

Art. 1923. The appointment of a new agent for

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

Does a violation of the instructions of the principal

amount to a renunciation?
No. Mere fact that agent violates his instructions
does not amount to renunciation, and although he may
thus render himself liable to the principal, he does not
cease to become an agent.

sufficient to 3

know, as long as there is

publication in a newspaper
of general circulation.

General rule: Special information needs special

information of revocation.

3.) When he files a complaint against the principal and

adopts an antagonistic attitude towards him.

rd

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to deal with the thing in order to make the

assignment, pledge or lien effectual.

power of attorney even without the consent of the

others. Remember that in a solidary obligation, the act
of one is the act of all.

If the contract of agency stipulates that such will be

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

Art. 1926. A general power of attorney is

revoked by a special one granted to another agent,
as regards the special matter involved in the
latter.
How many agents are involved in this article?
2, one to whom a general power is previously
granted. Another to whom a special power is
given. (Note that this can also apply if a special
power is subsequently given to the same agent.)

If an agency is coupled with an interest, does this

mean that the principal can never ever revoke it?
No. You can still revoke in extreme situations, e.g.:
1.) Irrevocability can never be used as a shield for
the perpetration of acts in ad faith, breach of
confidence or betrayal of trust. The law will
never permit the agent to commit frauds
against the principal.
2.) When the interest is already terminated.

Effect of the issuance of a special power as regards the

general power:
The general power is impliedly revoked as to matters
covered by the special power because a special power
naturally prevails over a general power.
Art. 1927. An agency cannot be revoked if a
bilateral contract depends upon it, or if it is the
means
of
fulfilling
an
obligation
already
contracted, or if a partner is appointed manager of
a partnership in the contract of partnership and
his removal from the management is unjustifiable.

Why is it said that agencies coupled with interest are

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

General rule: Principal may revoke an agency at will

since the essence of agency is the agents duty of
obedience to the principal.
Exceptions: [BF=Partner]
1.) When a bilateral contract depends on the
agency;
2.) When the agency is the means of fulfilling an
obligation already contracted;
3.) When a partner is appointed as manager of a
partnership in the contract of partnership and
his removal from the management is
unjustifiable.

Art. 1928. The agent may withdraw from the

agency by giving due notice to the principal. If
the latter suffer any damage by reason of the
withdrawal, the agent must indemnify him
therefor, unless the agent should base his
withdrawal upon the impossibility of continuing
the performance of the agency without grave
detriment to himself.
Does the agent have a right to renounce or withdraw
from the agency at any time?
Yes. Even without the consent of the principal. But, in
the latter case, he may be subject to liability for breach
of contract or for tort.

Can an agency, coupled with an interest, be terminated

by the sole will of the principal? No.
Requisite for agency to be irrevocable for being coupled
with a interest:
Interest of the agent must be in the subject matter of
the power conferred and not merely an interest in the
exercise of the power.

Basis: Constitutional prohibition against involuntary

servitude.
Obligation of agent if he withdraws from agency without
just cause:
1.) Notify principal (even if w/ just cause); and
2.) Indemnify the principal should the latter suffer any
damage by reason of such withdrawal.

Instances of an agency coupled with an interest:

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

Helen C. Arevalo

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Reason for indemnity: To answer for losses and

damages occasioned by the non-fulfillment of his
obligation as agent.

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same way that revocation of the agency does not

rd
prejudice 3 persons who have dealt with the agent in
rd
good faith without notice of revocation, such 3 persons
are also protected where it is not shown that the agent
had knowledge of the termination of the agency because
of the death of the principal or any other like cause
which extinguishes the agency.

Is the agent liable for indemnity if the withdrawal was

for just cause? No. Agent cannot be held liable if the
agent withdraws for a valid reason as when:
1.) The withdrawal is based on the impossibility of
continuing the agency without grave detriment
to himself; or
2.) Fortuitous event.

Does this article only require the agent to be in good

What happens when the agent sues the principal?

Equivalent to withdrawal of the agent.

faith? No, both agent and 3

rd

person must be.

Art. 1932. If the agent dies, his heirs must

notify the principal thereof, and in the meantime
adopt such measures as the circumstances may
demand in the interest of the latter.

Art. 1929. The agent, even if he should

withdraw from the agency for a valid reason, must
continue to act until the principal has had
reasonable opportunity to take the necessary
steps to meet the situation.

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

1.) Notify the principal to enable the latter
reasonable opportunity to take such steps as
may be necessary to meet the situation; and

Obligation of agent after withdrawal:

Even when withdrawal is for a valid reason, he must
continue to act until the principal has had reasonable
opportunity to take the necessary steps like the
appointment of a new agent to remedy the situation
caused by the withdrawal. This is to prevent damage or
prejudice to the principal.

2.) Adopt such measures as the circumstances may

demand in the interest of the principal.
Can the heirs continue the agency?
General rule: No, since an agency calls for
personal services on the part of the agent.
Exceptions:
1.) Agency by operation of law, or a presumed or
tacit agency;
2.) Agency is coupled with an interest in the subject
matter of the agency.

Art. 1930. The agency shall remain in full force

and effect even after the death of the principal, if
it has been constituted in the common interest of
the latter and of the agent, or in the interest of a
third person who has accepted the stipulation in
his favor.
If the agent dies, his heirs should tell the principal.
However, if the principal dies, the principals heirs
have no obligation to tell the agent.

GOOD LUCK!
This is for that small syndicate of people who
name themselves after a labor case!

General rule: Agency is terminated instantly by the

death of the principal.

I basically just typed up the reviewer minus the cases

and problems. I dont think the problems are all that
important, theyre Atty. Quimson problems not Enriles. Our
case outline differs from theirs a bit too. Besides, were all
set with case digests na, we just have to find them!

Rationale: Agency, being based on representation, there

is no one to e represented where the principal is already
dead.
Exceptions:
1.) If the agency has been constituted in the
common interest of the principal and the agent;
and
2.) If the agency has been constituted in the
rd
interest of a 3 person who has accepted
the stipulation in his favor.

Thanx to that other group of people who name

themselves after an imaginary perfect place. Sorry, I
plagiarized your reviewer guys, but I wouldnt have had to if
you didnt stamp your huge seal right smack center of every
page!

Art. 1931. Anything done by the agent, without

knowledge of the death of the principal or of any
other cause which extinguishes the agency, is
valid and shall be fully effective with respect to
third persons who may have contracted with him
in good faith.
What does this article provide?
It provides that the death of the principal or any
other like cause, extinguishes the agency. But in the
Helen C. Arevalo

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