AGENCY midterms (from the given outline)

Purpose:
I.

Agency as a Concept
A. Definition
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.
Art. 1869 Agency may 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. 1870 Acceptance by the agent may
also be expressed, or implied from his acts
which carry out the agency, or from his
silence or inaction according to the
circumstances.
--Characteristics:
a. Consensual
b. Principal
c. Nominate
d. Unilateral/Bilateral
e. Preparatory
Nature:
>manifest consent
>agent becomes principal
>presence/absence of
contract/consideration
Basis:

>Extend personality of principal through

agent
Parties to a contract:
1. Principal
2. Agent
Delegation of Acts:
General Rule: What a man may do in
person, he may do thru another.
Exceptions:
1. Personal acts
a. Right to vote
b. Making of a will
c. Statements made under oath
d. Right to attend board meetings
e. Re-delegation of agency
2. Criminal acts/acts not allowed by law
a. Alien cannot purchase land
through Filipino-agent
b. Persons prohibited to acquire
property theyre in charge of
cannot acquire it through
mediation of another
c. When one participates in a
commission of a crime, he
cannot escape punishment
using agency as a defense
How to determine existence of agency:
a. Designation by parties
b. Fact of existence
c. Intention to create relationship

>personal contract of representation

>acts of agent = acts of principal

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Nature of relationship between principal

and agent
a. Relation fiduciary in character
b. Agent estopped from asserting interest
adverse to his principal

LOAN
Money advanced to
another is expressly
regarded as loan

Financing of
operations to be
carried by another
for the mutual
advantage of both,
without any
obligation of such
other to return
money advanced

Borrower is given
money for purposes
of his own and must
return it

Agent may be given

funds by principal to
advance the latters
business

After checks are

collected, the
creditor-debtor
relationship is
created between
depositor and bank

Checks deposited
with a collecting
bank, agency

One deposits money

in bank with
instructions to apply
it in satisfaction or
debt of another
person (creditordebtor relationship
between bank and
depositor)

Agency between
bank and creditor

c. Agent must not act as an adverse party

d. Agent must not act for an adverse party
e. Agent must not use or disclose secret
information
f.

Agent must give notice of material facts

General Rule: Knowledge of agent is

imputed to the principal.
Exceptions:
1. Agents interests are adverse to
principal
2. Agents duty is not to disclose
information
3. Person claiming the benefit of the rule
colludes with agent to defraud principal
Agent subject to principals control:
>subject matter of agency control
>act of agent General Rule: Principal may
direct the acts of his agent even though the
principal has promised not to do so.
Characteristic which distinguishes agency
relationship from similar contracts or
relations:
*Agents power to bring about business
relations between his principal and third
person.

AGENCY

AGENCY

LEASE (of service)

Basis is
representation

Employment

Agent exercises
discretionary powers

Performs
ministerial
functions

3 persons involved

2 persons (lessor,
lessee)

Relates to
commercial or

Mere manual or
mechanical

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business transactions

execution

Note: Agent is employed to establish contractual relations

between his principal and third persons, servant is not.

AGENCY
Agent is subject to
control and
direction of
principal

INDEPENDENT
CONTRACT
Not subject to control
of employer except as
to result of work

Note: Employer is not liable for torts or

injury inflicted by the independent
contractor upon third persons or by
employees of contractor.

AGENCY

PARTNERSHIP

AGENCY

BROKERAGE

Engaged for
purchase or sale of
properties and
maintains
relationship with
principal, purchaser,
and property

No relation with
thing he buys/sells

Receives
commission upon
successful
conclusion of
transaction

Earns pay by merely

bringing the buyer
and seller together

Re: control by principal

Applicable

Not applicable
Re: Liability of agent

Generally not liable

Liable

Re: sharing of profits

Agreed
compensation

AGENCY

Profits belong to all

parties in agreed
proportions

NEGOTIORUM
GESTIO

Representation is
expressly conferred

Without authority
and knowledge of
owner

Contract

Quasi-contract

AGENCY

SALE

Agent receives goods

as the goods of the
principal

Buyer receives
goods as owner

Agent delivers
proceeds of sale

Buyer pays price

Agent can return the

object in case he is
unable to sell it

Buyer as a general
rule cannot return
object sold

Agent is bound to act

according to the
instructions of a
principal

Buyer can deal

with the thing as
he pleases

Sale transfer of title from one to another

Agency appointment of one to act for
another

AGENCY

BAILMENT
Bailee has no power
to bind bailor in
personal liability

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Owes neither loyalty

nor obedience to
bailor

AGENCY

GUARDIANSHIP

Derives authority
from principal

Does not derive his

authority from ward

Relationship is
founded upon
consent

Not founded upon

consent

Subject to control
of principal

Not subject to control

by ward

Agent is appointee
of the principal, at
any time can
abrogate agent

Legal guardian is
substituted by law

AGENCY
Represents and
acts for principal

1. Consent can be express or implied

2. Object execution of juridical act in
relation to third persons
3. Agent acts as a representative and not
for himself
4. Agent acts within the scope of his
authority
C. Nature of Agency
1. Scope
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.
Classes and kinds of agents:
f.

TRUST
Title and control of
property passes to
the trustee who acts
on his own name

Universal agent one employed to do

all acts that the principal may
personally do, and which he can
lawfully delegate to another the power
of doing.

g. General agent one employed to

transact all the business of his principal,
or all business of a particular kind or in
a particular place; to do all acts
connected with a particular trade,
business, or employment.

Agency may be
revoked at any
time

Trust may be
terminated only by
the fulfillment of its
purpose

Constant
supervision and
control of principal

Discretion of the
trustee and guidance
by the settler

h. 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.

JUDICIAL
ADMINISTRATION

Special types of agents:

AGENCY

Appointed by court

a. Attorney at law represent clients in

legal proceedings

Representative of court,
heirs, and creditors of
the estate

b. Auctioneer sell property for others to

the highest bidder at a public sale

Required to file a bond

c. Broker act as intermediary between

two other parties

B. Elements
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d. Factor receive and sell goods for a

commission, being entrusted with the
possession of the goods involved
e. Cashier in bank represent a banking
institution in its financial transactions
f.

Attorney-in-fact one given authority

to do a particular act not of a legal
character
General Agent

Special Agent

Scope of authority
All acts connected
with the business or
employment in which
a principal is engaged

Only one or more

specific acts in
pursuance of
particular
instructions or with
restrictions
necessarily implied
from the act to be
done

Continuous nature of service authorized

Conduct a series of
transactions over
time involving a
continuity of service

Conduct a single
transaction or
series of
transactions not
involving continuity
of service and
covering a
relatively limited
period of time

Extent to which agent may bind the

principal
Can bind principal by
an act within the
scope of his authority
although it may be
contrary to his special
instructions

Cannot bind a
principal in a
manner beyond or
outside the specific
acts which he is
authorized to
perform on behalf
of the principal

Knowledge/disclosure of limitations of
power

Continuing and
unrestricted by
limitations other than
those which confine
the authority within
the bounds of what is
usual, proper, and
necessary under like
circumstances. If
there are limitations,
principal must
disclose them.

Temporary and
naturally suggests
limitations of
power of which
third persons must
inform themselves

Note: The expertise of the agent or the

amount of discretion given to him is not
relevant in making a distinction between
general and special agents.
Termination of authority
Apparent authority
created in a general
agent does not
terminate by mere
revocation of his
authority without
notice to the third
party

Duty imposed upon

the third party to
inquire makes
termination of the
relationship
between the
principal and agent
effective as to such
third party unless
the agency has
been entrusted for
the purpose of
contracting with
such third party

Construction of instructions of principal

Statement by
principal with respect
to agents authority
would ordinarily be
regarded as advisory
in nature only

Statement by
principal with
respect to agents
authority would be
regarded as words
limiting the
authority of the
agent

General rule: Authority of a special agent

must be strictly pursued. Persons dealing
with such an agent must at their peril
inquire into the nature and extent of his

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authority.

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

2. Authority
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 and
unlimited management.
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
arbitration, to renounce
the right to appeal from
a judgment, to waive
objections to the venue
of an action or to
abandon a prescription
already acquired

6. To make gifts, except

customary ones for
charity or those made
to employees in the
business managed by
the agent
7. To loan or borrow
money, unless the
latter act be urgent and
indispensable for the
preservation of the
things which are under
administration
8. To lease any real
property to another
person for more than
one year
9. To bind the principal to
render some service
without compensation
10. To bind the principal in
a contract of
partnership
11. To obligate the
principal as a guarantor
or surety
12. To create or convey real
rights over immovable
property
13. To accept or repudiate
an inheritance

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14. To ratify or recognize

obligations contracted
before the agency
15. Any other act of strict
dominion
When special powers are necessary:

To effect novation:
*Novation is the extinction of an
obligation through the creation of a
new one which substitutes the old one.
*Obligations must already be in
existence at the time the agency was
constituted.

*Acts of strict dominion

*Powers of attorney are generally
construed strictly and courts will not
infer or presume broad powers from
deeds which do not sufficiently include
property or subject under which the
agent is to deal. Exception: Rule should
not be applied to the extent of
destroying the very purpose of the
power.
*Art. 1878 refers to the nature of the
authorization, not its form.
*A power of attorney is valid although
no notary public intervened in its
execution.
*The special power of attorney can be
included in a general power of attorney
when it specifies therein the act or
transaction for which the special power
is required.
To make payment:
*Payment is the delivery of money or
the performance in any other manner
of an obligation.
*It is an act of ownership because it
involves the conveyance of ownership
of money or property.
*If payment is made in the ordinary
course of management, it is considered
a mere act of administration.
*A special power to make payment is
implied from the authority to buy a
designated piece of land at a certain
price.

To compromise etc.:
*A compromise must be strictly
construed.
*These are acts of ownership since they
involve the possibility of disposing of
the thing or right subject to
compromise or arbitration.
*Compromise is merely unenforceable
if without a special power of attorney.

To waive an obligation gratuitously:

*Agent cannot waive a right belonging
to the principal without valuable
consideration or even for a nominal
consideration.
*Waiver may not be inferred when the
terms thereof do not explicitly and
clearly prove an intent to abandon the
right.
To convey or acquire immovable:
*Applies whether gratuitous or
onerous.
*Refers only to immovable.
*Refers only to sales made by an agent
for a principal and not to sales made by
the owner personally to another,
whether that other be acting personally
or through a representative.
To make gifts:
*Donations.

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*Making of customary gifts for charity

or those made to employees in the
business managed by the agent are
considered acts of administration only.
To loan or borrow money:
*If authorized to borrow money, it is
not deemed implied that he can also
use the money as he pleases.
*Authority to borrow money is rarely
inferred. It can only be inferred if such
borrowing is usually incident to the
performance of acts which the agent is
authorized to perform and in cases
which the agent cannot contact the
principal and it is indispensable to the
continuance of the business or to
prevent a very considerable loss.
*Refers only to money and not to other
fungible things.

To lease realty for more than one year:

*Unrecorded lease of real estate is not
binding upon third persons.
*Less than one year of lease is mere act
of administration provided that the
lease is not registered.
*Requirement of special power of
attorney extends to renewal or
extension of lease to another.
*Agreement for leasing of real property
for more than one year is
unenforceable unless made in writing.
*Even if agent is authorized, lease must
still be in writing because it would still
be unenforceable to the principal if not
made in writing.
*Does not refer to lease of real
property of another person and to lease
of personalty.

To bind the principal to render service

gratuitously:
*If the service is for compensation, the
power may be implied.
To bind the principal in a contract of
partnership:
*By the contract of partnership, the
partners bind themselves to contribute
money, property, or industry to a
common fund with the intention of
dividing the profits among themselves.
*It creates obligations in which the
fulfillment of those require an act of
strict ownership.
To obligate a principal as guarantor or
surety:
*By the contract of guaranty, the
guarantor binds himself to fulfill the
obligation of the principal debtor in
case the latter should fail to do so. If
the person binds himself solidarily, he is
a surety and the contract is called a
suretyship.
*Contract of guaranty or surety cannot
be inferred from the use of vague or
general words.
*The power to create a contract of
suretyship cannot be inferred; it must
be expressed.
*Contract of guaranty is unenforceable
unless it is made in writing.
To create or convey real rights over
immovable property:
*Mortgage, usufruct, etc.
To accept or repudiate an inheritance:
*Act of strict dominion
To ratify obligations contracted before
the agency:

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*He cannot ratify or recognize

obligations contracted before the
agency without special power from
principal.

ve

Any other act of strict dominion:

>created by contract which may be oral,

written, or implied.

*Sale or purchase of personal property

on

Form of agency:

1. In general no formal requirements in

appointment of an agent.
II. How Agency is Established
A. Oral or Written
Art. 1869 Agency may 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.
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.

2. May be implied from words and conduct

of the parties and circumstances of the
particular case (cannot be inferred from
mere family ties)
Appointment of agency:
>not essential that he should be appointed
directly by principal
Presumption of agency:
General Rule: Agency is not presumed and
must exist as a fact.
Exceptions:
a. Agency arises from operation of law
b. To prevent unjust enrichment

Kinds of Agency
As to manner of creation
Express

Implied
As to character

Gratuitous

Onerous

As to extent of business covered

General

Special
As to authority conferred

General terms

Specific terms

As to nature and effects

Ostensible/representati

Simple/commissi

Sale of land through an agent:

>Sale of a piece of land (not any other real
estate) or any interest thereon (usufruct,
mortgage) is void unless the authority of
agent to sell is in writing. It should be
considered as voidable, however.
>It may be argued that an agency to
purchase need not be in writing (Shans
thoughts: however, a sale and purchase is
one and the same!)
>Refers only to sales made by an agent for a
principal and not to sales made by the
owner personally through another.
>Real estate broker is not covered by this.
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>Letter containing specific authority to sell

is held sufficient. Except when there is
reasonable doubt.
>Sale must be expressly mentioned
>Power of attorney must be plain in its
terms
>Where co-owners affixed their signatures
on the contract to sell, they were selling the
same in their own right
B. Express and Implied Agency; Agency by
Estoppel
c. Implied from the acts of the principal
d. Implied from acts of the agent
Art. 1870 Acceptance by the agent
may also be expressed, or implied from
his acts which carry out the agency, or
from his silence or inaction according to
the circumstances.
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.

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

Form of acceptance by agent:

>Express or implied
Definition and purpose of a power of
attorney:
>Power of attorney is 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.
>Primary purpose is to evidence the
authority of the agent to third parties
within whom the agent deals.
Construction of powers of attorney:
General Rule: Power of attorney must be
strictly construed and strictly pursued.
Exception: General rule must not be applied
to the extent of destroying the very
purpose of the power.
Acceptance between persons absent (Art.
1872):
If both principal and agent are absent,
acceptance of the agency by the agent is
NOT implied from his silence or inaction.
Except in the two cases mentioned in the
article.

Art. 1872
Principal transmits
the power of
attorney to the
agent

Art. 1871
Principal personally
delivers the power of
attorney to the
agent

e. Estoppel
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

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10

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.
2 Ways of Giving Notice of Agency
a. By special information (letter)
person appointed as agent is
considered such with respect to the
person to whom it was given
b. By public advertisement agent is
considered as such with regard to any
person

If he
knows that
an agent is
acting on
behalf of
principal
and fails to
repudiate
his acts or
accepts
benefits
from it, he
is
estopped
to deny
agency

He will be
estopped to
deny agency
if he has
knowledge
of the fact
of the
transaction
and the
terms of
agreement
between
the agent
and subagent

*Agency is deemed to exist whether

there is actually an agency or not.

If principal
knows that
the other is
acting as
his agent
or
permitted
him to act
as his
agent,
injury to
third
persons is
imputed to
principal
and
principal
cannot
deny
agency

*Revocation made in any manner is

effective where the person dealing with
agent has actual knowledge thereof;
otherwise bad faith and fraud would be
transmitted.

Estoppel of THIRD PERSONS a third

person having dealt with one as an
agent may be estopped to deny the
agency as against the principal, agent,
or third persons in interest. Exception:
If he has withdrawn from the contract
made with an unauthorized agent
before receiving any benefits.

Estoppel to deny agency

Estoppel of the GOVERNMENT

General Rule: Government is neither
estopped by the mistake or error on the
part of its agents. Exception: It may be
estopped through affirmative acts of its
officers acting within the scope of their
authority.

*Power of attorney must be revoked in

the same manner it was given.

Estoppel of AGENT one professing to

act as agent for another may be
estopped to deny his agency both as
against his asserted principal and third
persons
Estoppel of PRINCIPAL
As to
AGENT:

As to SUBAGENT:

As to
THIRD
PERSONS:

AGENCY BY
ESTOPPEL

IMPLIED
AGENCY

Existence of actual agency

No agency at all, but
the one assuming to
act as agent has
apparent or
ostensible, although

There is an
actual agency,
as much as if it
were created by

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11

not real, authority to

represent another
-If estoppel is caused
by principal, he is
liable to any third
person who relied on
the
misrepresentation.

express words.
-Principal alone
is liable.

III. Agents Rights

-If estoppel is caused

by agent, only agent
is liable.

A. Right to Compensation

Reliance by third persons

Can be invoked only
by a third person
who in good faith
relied on the conduct
of the principal in
holding agent out as
being authorized.

recognized in the law. The agency is

allowed upon the theory that, when
one of two innocent persons must
suffer loss, the loss should fall upon him
whose conduct brought about the
situation.

Reliance is not
necessary since
the agent is a
real agent.
-Principal is
liable

Art. 1875 Agency is presumed to be for a

compensation, unless there is proof to the
contrary.
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.
Presumption: There is compensation.

-Principal is liable
Nature of authority
An apparent agent is
no agent at all, and
as against the
principal, has none of
the rights of an agent
except where the
principals conduct or
representations are
such that the agent
believed that the
principal intended
him to act as agent in
the matter

An agent by
implied
appointment is
a real agent
with all the
rights and
liabilities; he
has actual
authority to act
on behalf of the
principal

Should be restricted
to cases in which
authority is not real
but apparent

An actual
agency in which
it is a fact to be
proved by
deductions or
inferences from
other facts

Note: Agency by estoppel is well

Necessity of compensation:
>There can be agency even without
compensation.
>Even though it is gratuitous, agent is still
bound to act like how an agent with
compensation is to act.
Liability of principal to pay compensation:
>Amount must be paid based on whatever
compensation is agreed upon or if theres
nothing agreed upon, a reasonable value
for the services.
>Liability of the principal to pay commission
presupposes that the agent has complied
with his obligation as such to the principal.
>The agent must prove that he was the
guiding cause for the transaction or the
procuring cause thereof, depending upon
the facts of the particular case.
>>Procuring cause refers to a cause
originating a series of events which, without
break in their continuity, result in the
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12

accomplishment of the prime objective of

the employment [of the broker].
>Principal cannot evade payment of
commission agreed upon by inducing the
agent to sign a deed of cancellation of the
written authority given him after the agent
had found a buyer who was able, ready and
willing to close the deal under the terms
prescribed by the principal on the ground
that he was no longer interested in the
deal.
>>Sellers withdrawal in bad faith of
brokers authority cannot unjustly deprive
the broker of his commission.
>If compensation is contingent upon the
realization of profit, agent is not entitled to
compensation until principal realizes the
profit. (No profit yet through mere signing
of contract of sale)

>Termination of the agency contract can be

done any time subject only to the ordinary
requirements of good faith.
>Exclusive sales agency agreement is valid
>If no definite period for the sale of a
certain property by the broker is given, or if
no exclusive agency was given, then the
seller can sell the property through another
agent.
Liability of agent for fraud and
negligence/intentional wrong:
>Agent is responsible to the principal for
fraud and negligence.
>Agents duty is to notify the principal all
relevant and material facts or any
information having a bearing on the
interests of the principal.

>In a sale of real property where a

commission is payable to agent, it is the
owner and not the buyer who must pay.

>The circumstance that the agency is or is

not gratuitous will be considered by the
courts in fixing the liability of the agent for
NEGLIGENCE (not fraud).

>General Rule: Agent/broker not entitled to

commission until he has successfully done
the job given to him.

>General Rule: Principal is not responsible if

the agents tort was intentional rather than
merely negligent.

Exception:

>The principal is solidarily liable if the tort

was committed by the agent while
performing his duties in the furtherance of
the principals business.

a. Where if the agency is expired but the

agent/broker is the one who brought
them together and the third party just
didnt want to be mediated through the
broker but broker nevertheless did his
job in bringing them together, broker is
entitled to compensation by way of
equity.
b. Even though the agency is expired
already, if he was the procuring cause,
he is still entitled to compensation.

B. Right to Borrow from or Lend to Agency

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.

>If no stipulation regarding the

compensation with regards to the agents
companion, such companion is entitled to
compensation along with the agent.
C. Right to Appoint a Substitute

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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 substituted appointed against
the prohibition of the principal shall be
void.
Art. 1893 In the cases mentioned in Nos. 1
and 2 of the preceding article, the principal
may furthermore bring an action against
the substitute with respect to the
obligations which the latter has contracted
under the substitution.
*A sub-agent is a person employed or
appointed by an agent as his agent, to assist
him in the performance of an act for the
principal which the agent has been
empowered to perform.
*There can be an implied sub-agency.
Power of agent to appoint sub-agent:
>Unless prohibited by principal, agent can
appoint sub-agent.
>An agent may not delegate to a sub-agent
works that require special knowledge, skill,
or competence unless he has been
authorized to do so by the principal.

*Sub-agent appointed by agent for his sole

account
>Sub-agent is a stranger to the principal.
>Principal will not be liable to third parties
for the sub-agents acts.
>Agent is liable to principal and third parties
for the sub-agents wrongful acts.
*Sub-agent appointed by agent with
authority from principal
>Any act done by the sub-agent is deemed
an act of the principal.
>Neither agent nor sub-agent can be held
liable as long as they act within the scope of
their authority.
*Effect of death of principal/agent
>If sub-agent derives authority from
principal: Death of agent does not affect
sub-agents authority.
>If sub-agent derives authority on the sole
account of agent: Death of agent
terminates his authority.
Effects of substitution:
*If substitution is prohibited:
>Agent exceeds limits of his authority.
>All acts of substitute is void.
*If principal has not prohibited agent from
appointing substitute:
>Principal is liable to third persons for acts
of the substitute even though he may not
know the substitute.
*If substitution authorized:
>If the substitute is the person designated
by the principal, the consequence is the
absolute exemption of the agent.

Relation among the principal, agent, and

sub-agent:

*Substitution not authorized, but not

prohibited:

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>Law recognizes the validity of substitution

if the same is beneficial to the principal.
>>Because the agency has thus been
executed in fulfillment of its object.
>If substitution has occasioned damage to
the principal, the agent shall be primarily
responsible for the acts of the substitute as
if he himself executed them.
>>Principal also has a right of action against
the substitute.
D. Right to Retain in Pledge Objects of the
Agency
Art. 1912 The principal must advance to
the agent, should the latter so request, the
sums necessary for the execution of the
agency. Should the agent have advanced
them, the principal must reimburse 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. 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. 1914 The agent may retain in pledge
the things which are the object of the
agency until the principal effects the
reimbursement and pays the indemnity set
forth in the two preceding articles.

>Principal must advance funds to the agent

>If agent has advanced them, principal must
reimburse him
>If principal fails to comply with his
obligations, agent will not be liable for
damage which, through his nonperformance, the principal may suffer
Obligation to reimburse agent for funds
advanced by him:
>Demand is not necessary in order that
delay on the part of the principal to exist.
*Obligation founded on implied promise to
repay
>General Rule: Principal reimburses agent
who acted in good faith
*Obligation not affected even if
undertaking not successful
>Even if the business or undertaking was
not successful, principal must still
reimburse provided that agent is free from
all fault.
Obligation to indemnify agent for
damages:
>Rule is based on equity
*Where damages caused by the execution
of agency:
>Agent has right to assume that principal
wont order anything that would make him
liable for damages to third persons.
>If in the performance of his agency, he
incurs liability, the principal being the one
who was the cause of everything should be
liable and not the agent.
>If theres an unlawful order by the
principal in which the agent didnt know
that its unlawful, then damages should be
paid to the agent.

Obligation to advance funds:

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*Where damages caused by wrongful acts

of third persons:
>No promise of principal to indemnify the
agent for acts done by third persons in
which the principal is in no way responsible.

*Authority is 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.

*Where agent acted upon his own account:

>No obligation to indemnify because no
agency exists when the agent acted on his
own and for his own.
*Agent has a right to retain in pledge the
object of agency.

AUTHORITY
Source/cause

Effect

Limits are defined by

purpose

Law

-not a violation of his

duty to principal

Requisites:
a. Agent must have possession first.
b. If principal fails to reimburse or
indemnify agent.
Nature of agents right of lien:
>Right is limited to subject matter of agency
only. No right to retain the principals goods
for claims not related to the agency.
>Agent must have possession over the
subject matter in which the lien is claimed.
>If no ratification of the sub-agents acts by
principal, this right is only available to
agent.
IV. Agents Obligations
A. Obligation to act 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.
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.

POWER

-it is within his

power if he has the
legal ability to bind
the principal to a
third person
although the act
constitutes a
violation of his duty
to the principal

Kinds of authority:
a. Actual
b. Express
c. Implied
d. Apparent or ostensible
e. General
f.

Special

g. Authority by necessity or law

ACTUAL

APPARENT

No express
authority

No agency; no
authority at all

Agent has a real

right

Apparent agent only

by conduct or
silence/inaction

-principal is liable
as if in a regular
agency
relationship

-does not enjoy rights

as regular agent

-agent has same

rights
Does not require

Third party in good

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16

reliance by third
party in good faith

faith can invoke

existence

When principal bound by act of agent:

*Requisites:
a. Agent must act within the scope of his
authority
b. Agent must act in behalf of his principal
>Principal is bound by either actual or
apparent authority of agent.
>There are times when a person who is not
an agent makes a contract on behalf of
another or he is an agent but he exceeded
his powers. If the principal ratifies the
agents actions, an agency relationship is
created.
A person is not bound by an act of another:
1. The agent acts without or beyond the
scope of his authority in the principals
name
2. The agent acts within the scope of his
authority but in his own name, except
when the transaction involves things
belonging to the principal
General Rule: Unauthorized acts are
unenforceable.
Exceptions:
1. When the principal ratifies the
transaction before it is revoked by the
other contracting party.
2. When principal is in estoppel to deny
agents authority.
3. When acts in excess of authority is
more advantageous to the principal.

Liability of principal/agent for acts of agent

beyond his authority/power:
*Principal
General Rule: Principal is not liable.
Exceptions:
1. Where his acts have contribute to
deceive a third person in good faith
2. Where the limitations upon the power
created by him could not have been
known by the third person
3. Where the principal has placed in the
hands of the agent instruments signed
by him in blank
4. Where the principal has ratified acts of
agent
*Agent
General Rule: If no ratification by principal,
agent is liable to either principal or third
party.
>If principal is liable to third party on
ground of apparent authority:
>>Agent is liable to principal
>If principal is not liable to third person
because no apparent authority is present:
>>Agent is liable to third party
>If agent personally assumes responsibility
for a particular transaction:
>>If the principal defaults, he is also liable
as a co-principal
*Action must be brought by and against
principal.

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17

B. Obligations to third persons

Art. 1900 So far as third persons are
concerned, an act is deemed to have been
performed within the scope of the agents
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.

Fundamental principles (to know whether

an assumed authority exists):
1. Law indulges no bare presumptions that
an agency exists; it must be proved and
presumed from the facts
2. Agent cannot establish his own
authority, either by his representation
or by assuming to exercise it

*Scope of agents authority includes:

3. Authority cannot be established by

mere rumor or general reputation

-actual authorization conferred upon the

agent by principal

4. Even a general authority is not an

unlimited one

-authorization which has apparently or

impliedly been delegated to him

5. Every authority must find its ultimate

source in some act or omission of the
principal. An assumption of authority to
act as agent for another of itself
challenges inquiry.

If authority is not in writing:

>Third person must inquire and he must
know the nature and extent of authority of
the agent.

If authority is in writing:

>General Rule: Third person must act with

ordinary prudence and reasonable diligence
to ascertain whether the agent is acting and
dealing with him within the scope of his
powers.

>Third person is not required to inquire

further than the terms of the written power
of attorney.

>Mere opinion of an agent as to the extent

of his powers will not bind the principal
who may act on the presumption that third
persons dealing with his agent will not be
negligent to ascertain the extent of his
authority as well as the existence of agency.

1. By implication

Methods of broadening and restricting

agents authority:

2. By usage or custom
3. By necessity
4. By doctrines of:
a. Apparent authority
b. Liability of estoppel
c. Ratification
5. By the rule of ejusdem generis
Responsibility of principal where agent
acted with improper motives:

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18

General Rule: Motive is immaterial

Exceptions:
1. When third person knew that the agent
was acting for his private benefit
(principal is not liable to third person)
2. When the owner is seeking recovery of
personal property of which he has been
unlawfully deprived (principal is entitled
to recover the thing)
Principals responsibility for agents
misrepresentation
>If within the scope of agents authority
principal is liable
>If beyond the scope of agents authority
principal is not liable
>If agent acted for his own benefit and
within the scope of agency principal is
liable

AUTHORITY

INSTRUCTIONS

Sum total of
powers permitted
to agent; may be
limited in scope
and such
limitations are part
of the authority

Direct the manner of

transacting the
authorized business
and contemplates
only a private rule of
guidance to agent
and are independent
and distinct

Relates to the
subject with which
the agent is
empowered to act

Manner or mode of
his action with
respect to matters
which in their
substance are within
the scope of
permitted action

Limitations of
authority are
operative as
against those who
have or are
charged with
knowledge of them

Instructions limiting
the agents authority
are without
significance as against
those dealing with
the agent with
neither knowledge
nor notice of them

To be made known
to the third person
dealing with the
agent

Not expected to be
made known to those
with whom the
person deals

C. Obligation to obey instructions

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.
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.
*Instructions are private directions which
the principal may give the agent in regard
to the manner of performing his duties as
such agent but of which a third party is
ignorant.

Effect of violation of principals

instructions:
>If the act done by an agent is within his
authority, principal is liable to third party
and it doesnt matter if instructions were
followed or not

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19

>Agent is liable to principal if agent did not

act within his authority

begun on the death of the principal, should

delay entail any danger.

Obligation to act in accordance with the

principals instructions:

Obligations, in general, of agent to

principal

>Agent has duty to obey reasonable and

lawful instructions

*Agent must be in good faith and must be

loyal to principal

>If the agent exceeds, violates, or fails to

act upon such instructions, he is liable to
the principal for any damage or loss
resulting therefrom
>In the absence of specific instructions of
principal, agent has a duty to do all that a
good father of a family would do to take
care of the business as if it were his own

>General Rule: Agent performed his duty in

good faith and the principal may rely upon
his agents faithfulness. Exception: Where
there is no relation of trust between
parties.

>If agent followed instructions and acted

within the scope of his powers, he cannot
be held responsible if there was failure to
accomplish the object of the agency

*Agent must obey principals instructions

>Agent may disobey instructions where it

calls for the performance of illegal acts or
where he is privileged to do so to protect
his security interest in the subject matter of
the agency

>An agent is not liable if he violates the

principals instructions for a good reason.

Where departure from principals

instructions justified:

1. Carry out agency

>When there is a sudden emergency

2. Answer for damages which through his

performance the principal may suffer

>When instructions are ambiguous

>When there is an insubstantial departure
from the principals instructions (did not
affect results)
*If principal appoints an ignorant agent,
principal is at fault and equity demands that
he should be bound by the acts of the
agent.
D. Obligation to carry out the agency
Art. 1884 The agent is bound by his
acceptance to carry out the agency and is
liable for the damages which, through his
non-performance, the principal may suffer.
He must also finish the business already

>If he did not obey principal, he becomes

liable for any loss even if he can show that
he acted in good faith.

*Agent must exercise reasonable care

Specific obligations of agent to principal:

3. Finish the business already begun on

the death of the principal should delay
entail any danger
4. Advance necessary funds if theres a
stipulation to do so
5. Observe diligence of a good father of a
family with regards to things forwarded
to him in case he declines agency, until
an agent is appointed
6. Act in accordance with the instructions
of the principal and if no instructions
were given, to do all that a good father
of a family will do

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20

7. Not to carry out agency if its execution

would result in loss or damage to
principal
8. To answer for damages if theres a
conflict of interest and he preferred his
own
9. Not to loan to himself if he has been
authorized to lend money at interest

Exception to exception: When principal is

insolvent.
F. Obligation to prioritize principals interests
Art. 1889 The agent shall be liable for
damages if, there being a conflict between
his interests and those of the principal, he
should prefer his own.
h. Principals property

10. To render an account of transactions

and deliver to principal whatever he
may have received during the agency

Art. 1491 (2) Agents, the property

whose administration or sale may have
been entrusted to them, unless the
consent of the principal have been
given.

11. To distinguish goods in case he holds

similar goods but with different owners
12. To be responsible for acts of substitute
appointed by him
13. To pay interest on funds he has applied
to his own use
14. To inform principal, where an
authorized sale of credit has been
made, of such sale
15. To bear the risk of collection, should he
receive also on a sale, a guarantee
commission
16. To indemnify the principal for damages
for his failure to collect the credits of
the principal at the time they became
due
17. To be responsible for fraud or
negligence
E. Obligation to advance funds
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.
General Rule: Principal must advance to
agent the sums necessary for execution of
agency.
Exception: When theres a stipulation that
agent shall advance necessary funds.

i.

Double sale
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.
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.
Art. 1544 If the same thing should
have been sold to different vendees,
the ownership shall be transferred to
the person who may have first taken
possession thereof in good faith, if it
should be movable property. Should it
be immovable property, the ownership
shall belong to the person acquiring it
who in good faith first recorded it in the
Registry of Property. Should there be no
inscription, the ownership shall pertain
to the person who in good faith was
first in the possession; and, in the
absence thereof, to the person who

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21

presents the oldest title, provided there

is good faith.

the day on which he did so, and on those

which he still owes after the extinguishment
of the agency.

G. Obligation to account and to deliver

proceeds

2 cases contemplated:

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.
Every stipulation exempting the agent from
the obligation to render an account shall be
void.

1. Sums belonging to principal which

agent applied to his own use
>Agent is liable for indemnity or
compensation from the day on which
he did so
>Also liable for criminal prosecution
2. Sums which the agent still owes the
principal after expiration of agency
>Agent is liable for interest from the
date agency is extinguished

Obligation to render accounts

>It is immaterial whether such money is the
result of performance or violation of agents
duty.
>In case of secret profit, principal can forfeit
agents commission even if there was no
damage to him because of breach of
loyalty.
*Stipulation that an agent is exempt to
render an account is void because it
encourages fraud.
*If agent fails to deliver and converts it for
his own use he is liable for estafa.
When obligation to account not applicable:
>If agent or broker acted only as a
middleman in which his task is merely to
bring together principal and third person.
>If agent or broker notified principal that he
received a profit from third person and
principal did not object.
>When a right of lien exists in favor of
agent.
H. Obligation to pay interest
Art. 1896 The agent owes interest on the
sums he has applied to his own use from

I.

Obligation to make good in case of fraud or

negligence
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.
Liability of agent for fraud and
negligence/intentional wrong:
>Agent is responsible to the principal for
fraud and negligence.
>Agents duty is to notify the principal all
relevant and material facts or any
information having a bearing on the
interests of the principal.
>The circumstance that the agency is or is
not gratuitous will be considered by the
courts in fixing the liability of the agent for
NEGLIGENCE (not fraud).
>General Rule: Principal is not responsible if
the agents tort was intentional rather than
merely negligent.

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22

>The principal is solidarily liable if the tort

was committed by the agent while
performing his duties in the furtherance of
the principals business.

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23