Cor Jesu College

A Written Report
on Agency
Articles 18781883
Law School Department

Prepared by: Virginia Q. Abil

Charlotte F. Gallego

Submitted to: Atty. Jalika Mae F. Rosello

6 October 2014

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;
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;
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;
14.) To ratify or recognize obligations contracted before the agency;
15.) Any other act of strict dominion.

Special 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.

Powers of attorney are generally construed strictly.

Q: Must Special Powers of Attorney be in writing?

A: When no particular formality is required by law, rules or regulation, then the principal
may appoint his agent in any form which might suit his convenience or that of the agent.
(Kuenzle and Streiff vs. Collector of Customs)

However such doctrine pertains only to the constitution of an agency relationship or the
formal designation of the principal of the agent. And it seems therefore, that the clearest
manner by which there is specific grant of power of strict ownership is that it be in
writing.

The fifteen cases enumerated are general acts of strict dominion or ownership as
distinguished from acts of administration:
1. To make payment- but when payment is made in the ordinary course of
management, it is considered as a mere act of administration.
2. To effect novation- novation is the extinction of an obligation through the
creation of a new one which substitutes it by changing the object or principal
conditions thereof. (Art 1291)
The power of an agent to novate obligations already in existence at the time the
agency is constituted, which must be covered by a special power of attorney,
would imply that if the obligation was created only during the agency relationship,
the power to create such obligation granted to the agent includes with it the
implied power to novate it.
3. To compromise, etc. A judgment based on a compromise entered into by an
attorney without specific authority of the client is null and void.( Cosmic Lumber
Corp. vs. CA 265 SCRA 168)

But although the law expressly requires a special power of attorney in order that
one may compromise an interest of another, it is neither accurate nor correct to
conclude that its absence renders the compromise agreement void. In such a
case, the compromise is merely unenforceable. (Dungo vs. Lopena 6 SCRA
1007)

4. To waive an obligation gratuitously- this does not mean however, that every
agent would have the power to waive the principals obligation for valuable
consideration outside of an express authority to do so; what it means is that
when the power to condone is within the scope of authority of the agent, he may
do so as an implied or incidental power; whereas the power to waive an
obligation owed to the principal gratuitously can only arise as an express power,
but not implied or incidental power of an agent
5. To convey or acquire immovable- this applies whether the contract is
gratuitous or onerous. This also refers only to immovable. On the other hand,
when it comes to movable properties, the power to dispose may be an act of
administration, such as the sale of merchandise in the ordinary course of
business.

When a house and lot was sold by an agent who had no authority from the
registered owner to do so, the resulting sale was declared void. (Pineda vs. CA)

However, in the language of Article 1874 declaring the sale void, means that it
is void only as to the principal, precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of another. The net effect
thus making the sale unenforceable, subject to ratification by the principal.

6. To make gifts- but the making of customary gifts for charity, or those made to
employees in the business managed by the agent, are considered acts of
administration.

7. To loan or borrow money- Refers only to money and not to other fungible
things. (refer to art. 1253) The power to borrow any amount of money which the
agent deems necessary cannot be interpreted as also authorizing him to use the
money as he pleases. (Hodges vs. Salas, 63 PHIL 567)
The authority to borrow money for the principal is not to be implied from the
special power of attorney to mortgage real estate. (PNB vs. Maximo Sta. Maria,
29 SCRA 303)
Exceptions:
a. If borrowing is usually incident to the performance of acts which the agent is
authorized to perform for the principal
b. If it is impossible for the agent to communicate to the principal and borrowing
is indispensable to the continuance of the business or to prevent very
considerable loss. (Babb vs. Martin)
c. If the act is urgent and indispensable for the preservation of the things which
are under administration.
8. To lease real property for more than one year- since a lease of more than one
year created a right in rem; whereas the act of entering into a contract of lease
for one year or less, would be considered an act of administration, and may be in
the form of general power of attorney.
9. To bind the principal to render service gratuitously- if the service is for
compensation, the power may be implied.
10. To bind the principal in a contract of partnership
11. To obligate principal as guarantor or surety- A power of attorney to loan
money does not authorize the agent to make the principal liable as a surety for
the payment of the debt of a third person. (BPI vs. Coster, 47 PHIL 594)
12. To create or convey real rights over immovable property- An agent cannot
create or convey real rights like mortgage, usufruct, easement, etc. over
immovable property without special power.
13. To accept or repudiate an inheritance
14. To ratify obligations contracted before the agency- Ratify is a legal term that
involves the acceptance of a contract which is either voidable or unenforceable,
and has the effect of cleansing such contract of its legal defects that retracts to
the date of its perfection.
15. Any other act of strict dominion- A sale or purchase of personal property is an
act of strict dominion, hence a special power is necessary.

DOCTRINE OF IMPLIED POWERS FLOWING FROM THE EXPRESS

POWERS: That the grant of express powers or special power of attorney must
necessarily include all power implied or incidental to such express powers, even
if they amount to acts of ownership or strict dominion.

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.
The following 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;
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.
The following are not included in a Power to Mortgage
The power to:
1.) Sell;
2.) Execute a 2nd mortgage;
3.) Mortgage for the agents personal benefit or for the benefit of any 3rd person, unless
the contrary has been clearly indicated.
Q: Does the principal have the power to revoke a contract giving an agent exclusive
authority to sell?
A: 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.

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.
Q: What happens if the agent is specifically authorized to submit to arbitration?
A: 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.
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.
Whenever the doing of a certain act, or the transaction of a given affair, or the
performance of certain business is confided to an agent, the authority to so act will
generally carry with it by implication the authority to do all the collateral acts which are
the natural and ordinary incidents of the main act or business authorized. (Guinnawa vs.
People)

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 principal is deemed to have
actually intended the agent to possess.
4.) Apparent or Ostensible: when it is conferred by words, conduct or even by the
silence of the principal which causes a 3rd 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.
5.) General: when it refers to all the business of the principal.
6.) Special: when it is limited only to one or more specific transactions.
7.) By necessity or by operation of law: when it is demanded by virtue of the existence
of an emergency; it terminates when the emergency has passed.

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.

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

A: 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.

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.

Q: What happens if the agent exceeds his authority but he performs the agency in a
manner more advantageous to the principal?
A: It will be 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.
Example: P gave a power of attorney to A authorizing him to sell Ps car for atleast
P500,000.00 payable in cash. Suppose A sold the car for P550,000.00 cash, did he
exceed his power? No, because the price is more advatageous to P. What is prohibited
is for A to sell the car at price less than P500,000.00 but there is no prohibition against
selling it at a better price. (Tan Tiong Teck vs. SEC, 69 PHIL 425)

Art. 1883. If an agent acts in his own name, the principal has no right of action
against the persons 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.

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 principal may enforce against the 3rd person the contract of the agent like any
disclosed principal. Similarly, the 3rd 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.
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.
Exception: If the contract involves something belonging to the principal.
Remedy of the Principal if this situation arises:
He can demand from the agent damages for his failure to comply with the agency.
Remedy of the 3rd person with whom the agent contracted in case the obligation 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.