BAR Q&A: AGENCY

Q: Jo-Ann asked her close friend, Aissa, to buy some groceries for her in the supermarket. Was there a
nominate contract entered into between Jo-Ann and Aissa? Explain.

A: Yes, there was a nominate contract. On the assumption that Aissa accepted the request of her close
friend Jo-Ann to buy some groceries for her in the supermarket, what they entered into was a
nominate contract of Agency. Article 1868 of the New Civil Code provides that 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. [UP LAW SUGGESTED ANSWERS]

ALTERNATIVE ANSWER: Yes, they entered into a nominate contract of lease to service in the
absence of a relation of principal and agent between them (Article 1644, New Civil Code). [UP LAW
SUGGESTED ANSWERS]

Better answer, if B agreed to the request of A, an agency relationship has been created, a nominate
contract has been created.

Alternative Answer: I can agree with the answer given by the UP Law Center that a lease of service
may have been created so long as there was no principal agency created or existing between A and B,
although from the facts hindi ito lease of service, bestfriend eh, good possibility, so that’s why I can
agree with the alternative answer of the UP Law Center the absence of principal agency relationship
may result in a lease of service. [Mickey Mouse Notes]

Q: A as principal appointed B as his agent granting him general and unlimited management over A’s
properties, stating that A withholds no power from B and that the agent may execute such acts as he
may consider appropriate. Accordingly, B leased A’s parcel of land in Manila to C for four (4) years
at P60,000.00 per year, payable annually in advance. B leased another parcel of land of A in Caloocan
City to D without a fixed term at P3,000.00 per month payable monthly.
xxx
All those contracts were executed by B while A was confined due to illness in the Makati Medical
Center. Rule on the validity and binding effect of each of the above contracts upon A the principal.
Explain your answer.

A: The agency couched in general terms comprised only acts of administration (Art. 1877, Civil Code).
The lease contract on the Manila parcel is not valid, not enforceable and not binding upon A. For B to
lease the property to C, for more than one (1) year, A must provide B with a special power of attorney
(Art. 1878. Civil Code).

The lease of the Caloocan City property to D is valid and binding upon A. Since the lease is without a
fixed term, it is understood to be from month to month, since the rental is payable monthly (Art.
1687, Civil Code).

The sale of the Quezon City parcel to E is not valid and not binding upon A. B needed a special
power of attorney to validly sell the land (Arts. 1877 and 1878, Civil Code). The sale of the land at a
very good price does not cure the defect of the contract arising from lack of authority. [UP LAW
SUGGESTED ANSWERS]

Q: Prime Realty Corporation appointed Nestor the exclusive agent in the sale of lots of its newly
developed subdivision. Prime Realty told Nestor that he could not collect or receive payments from
the buyers. Nestor was able to sell ten lots to Jesus and to collect the down payments for said lots.
He did not turn over the collections to Prime Realty. Who shall bear the loss for Nestor’s
defalcation, Prime Realty or Jesus?

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A: a) The general rule is that a person dealing with an agent must inquire into the authority of that
agent. In the present case, if Jesus did not inquire into that authority, he is liable for the loss due
to Nestor's defalcation unless Article 1900, Civil Code governs, in which case the developer
corporation bears the loss.

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

However, if Jesus made due inquiry and he was not informed by the principal Prime Realty of
the limits of Nestor's authority. Prime Realty shall bear the loss.

b) Considering that Prime Realty Corporation only "told" Nestor that he could not receive or collect
payments, it appears that the limitation does not appear in his written authority or power of
attorney. In this case, insofar as Jesus, who is a third person is concerned, Nestor's acts of
collecting payments is deemed to have been performed within the scope of his authority {Article
1900. Civil Code). Hence, the principal is liable.

However, if Jesus was aware of the limitation of Nestor's power as an agent, and Prime Realty
Corporation does not ratify the sale contract, then Jesus shall be liable (Article 1898. Civil Code).

Q: CX executed a special power of attorney authorizing DY to secure a loan from any bank and to
mortgage his property covered by the owner’s certificate of title. In securing a loan from MBank, DY
did not specify that he was acting for CX in the transaction with said bank. Is CX liable for the bank
loan? Why or why not? Justify your answer.

A: CX is liable for the bank loan because he authorized the mortgage on his property to secure the loan
contracted by DY. If DY later defaults and fails to pay the loan, CX is liable to pay. However, his
liability is limited to the extent of the value of the said property. [UP LAW SUGGESTED ANSWERS]

ALTERNATIVE ANSWER: CX is not personally liable to the bank loan because it was contracted by
DY in his personal capacity. Only the property of CX is liable. Hence, while CX has authorized the
mortgage on his property to secure the loan of DY, the bank cannot sue CX to collect the loan in case
DY defaults thereon. The bank can only foreclose the property of CX. And if the proceeds of the
foreclosure are not sufficient to pay the loan in full, the bank cannot run after CX for the deficiency.
[UP LAW SUGGESTED ANSWERS]

ALTERNATIVE ANSWER: While as a general rule the principal is not liable for the contract entered
into by his agent in case the agent acted in his own name without disclosing his principal, such rule
does not apply if the contract involves a thing belonging to the principal. In such case, the principal is
liable under Article 1883 of the Civil Code. The contract is deemed made on his behalf (Sy-juco v. Sy-
juco 40 Phil. 634 [1920]). [UP LAW SUGGESTED ANSWERS]

ALTERNATIVE ANSWER: CX would not be liable for the bank loan. CX's property would also not
be liable on the mortgage. Since DY did not specify that he was acting for CX in the transaction with
the bank, DY in effect acted in his own name. In the case of Rural Bank of Bombon v. CA, 212 SCRA,
(1992), the Supreme Court, under the same facts, ruled that "in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport 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 describes himself as acting
by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own
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hand and seal to the mortgage. There is no principle of law by which a person can become liable on a
real estate mortgage which she never executed in person or by attorney in fact". [UP LAW
SUGGESTED ANSWERS]

Q: X appoints Y as his agent to sell his products in Cebu City. Can Y appoint a sub-agent and if he does,
what are the effects of such appointment?

A: Yes, the agent may appoint a substitute or sub-agent 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. [UP LAW SUGGESTED ANSWERS]

Obligations of the Agent: Effects of appointment of Substitute /Liability in case of damage to

principal - Art. 1892

Prohibited Not Prohibited

(shall be responsible for the acts of the substitute)

Liable. Not given power to appoint Given power to appoint

All acts of the

substitute appointed Liable if substitute Not liable if Designated Not designated
against the prohibition acted outside the the substitute
of the principal shall be scope of authority acted within
Not liable, Agent shall Not liable as agent
void. OR there is bad faith the scope of
be shall NOT be
or negligence on the authority and unless he knew responsible responsible for the
part of the substitute. in that the for the acts acts of the
representatio designated of the substitute if the
n of the person is substitute if substitute is NOT
principal and notoriously the notoriously
acted with incompetent or substitute is incompetent nor
due diligence already notoriously insolvent.
and in good insolvent. (Art. incompetent
faith. 1888) or insolvent.
(The agent is
not an insurer
of the success
of the
business of
the principal.)

Q: As an agent, AL was given a guarantee commission, in addition to his regular commission, after he
sold 20 units of refrigerators to a customer, HT Hotel. The customer, however, failed to pay for the
units sold. AL’s principal, DRBI, demanded from AL payment for the customer’s accountability. AL
objected on the ground that his job was only to sell and not to collect payment for units bought by
the customer. Is AL’s objection valid? Can DRBI collect from him or not? Reason.

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A: No, AL's objection is not valid and DRBI can collect from AL. Since AL accepted a guarantee
commission, in addition to his regular commission, he agreed to bear the risk of collection and to pay
the principal the proceeds of the sale on the same terms agreed upon with the purchaser (Article
1907, Civil Code) [UP LAW SUGGESTED ANSWERS]

Q: Mario received from Edgar a pendant with diamonds valued at P5,000.00 to be sold on commission
basis or to be returned on demand. In the evening of August 31, 1987, while he was walking home,
two men snatched his clutch bag containing the pendant and ran away. Subsequently, the snatchers
were apprehended and charged. During the pendency of the criminal case, Edgar brought an action
against Mario for the recovery of the pendant or its value and damages. Mario interposed the
defense of fortuitous event but Edgar contends—1. That the defense of fortuitous event is untenable
because there was negligence on the part of the defendant; and; 2. That if the defense is tenable, there
must be a prior conviction of robbery before it can be availed of. Decide the case.

A: The factual setting of the above problem is identical to that of Austria vs. CA (39 SCRA 527). In that
case the Supreme Court held that defendant is not liable.

To constitute a caso fortuito that would exempt a person from responsibility, it is necessary (1) that
the event must be independent of the will of the debtor; (2) that it must be either unforeseeable or
unavoidable; (3) that the occurrence must render it impossible for the debtor to fulfil the obligation in
a normal manner; and (b) that the debtor to fulfil the obligation in a normal manner must be free of,
participation in, or aggravation of, the injury to the creditor.

All of the above requisites or conditions are present in this case. It is undeniable that in order to
completely exonerate the debtor by reason of a fortuitous event, such debtor must, in addition into
the cause itself, be free of any concurrent or contributory fault of negligence. We believe, however,
that her act in travelling alone in the evening, carrying jewellery of considerable value, cannot be
considered as either concurrent or contributory negligence. While it may be so considered now, we
are not persuaded that the same rule should obtain ten years previously when the robbery in
question took place, for at that time criminality had not by far reached the levels attained in the
present day.

There is likewise no merit in the contention that to allow the facts of robbery to be recognized in this
case before conviction is secured in the criminal action, would prejudice the latter case, or would
result in inconsistency should the accused obtain an acquittal or should the criminal case be
dismissed. It must be realized that a court finding that a robbery has happened would not found
guilty of the crime; nor would a ruling that those actually accused did not commit the robbery be
inconsistent with a finding that a robbery did not take place. The evidence to establish these facts
would not necessarily be the same. [UP LAW SUGGESTED ANSWERS]

Q: Stating briefly the thesis to support your answer to each of the following cases, will the death – (c) of
an agent end an agency?

A: Yes. The death of an agent extinguishes the agency, by express provision of par. 3, Art 1919 of the
Civil Code. [UP LAW SUGGESTED ANSWERS]

Q: In 1950, A executed a power of attorney authorizing B to sell a parcel of land consisting of more than
14 hectares. A died in 1954. In 1956, his four children sold more than 12 hectares of the land to C. In
1957, B sold 8 hectares of the same land to D. It appears that C did not register the sale executed by
the children. D, who was not aware of the previous sale, registered the sale executed by B, whose
authority to sell was annotated at the back of the Original Certificate of Title. a) What was the
effect of the death of A upon B’s authority to sell the land? b) Assuming that B still had the authority
to sell the land—who has a better right over the said land, C or D?
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A: a) B’s authority subsisted nothwithstanding the principal’s death because he was unaware of such
death and he contracted with 3rd persons who apparently acted in good faith. [UP LAW
SUGGESTED ANSWERS]

b) As the case at bar is a case of double sale of registered land he who recorded the sale in good
faith has a better right in conformity with Art. 1544 of the Civil Code. Since D was not aware of
the previous sale, he had to rely on the face of the certificate of title of the registered owner.
Hence, he now has a better right to the land. (Buason vs. Panuyas) [UP LAW SUGGESTED
ANSWERS]

Q: Richard sold a large parcel of land in Cebu to Leo for P100 million payable in annual installments
over a period of ten years, but title will remain with Richard until the purchase price is fully paid.
To enable Leo to pay the price, Richard gave him a power-of-attorney authorizing him to subdivide
the land, sell the individual lots, and deliver the proceeds to Richard, to be applied to the purchase
price. Five years later, Richard revoked the power of attorney and took over the sale of the
subdivision lots himself. Is the revocation valid or not? Why?

A: The revocation is not valid. The power of attorney given to the buyer is irrevocable because it is
coupled with an interest: the agency is the means of fulfilling the obligation of the buyer to pay the
price of the land (Article 1927, CC). In other words, a bilateral contract (contract to buy and sell the
land) is dependent on the agency. [UP LAW SUGGESTED ANSWERS]

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