Finals Reviewer

AGENCY

nd

Sem; 2003

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.
Agency: A relationship which implies a power in an
rd
agent to contract with a 3 person on behalf of a
principal.
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.
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.
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.

Essential Elements of
Agency:
1.) Consent, express
or implied;
2.) Object of
the
contract
is the
execution
of a
juridical
act in
relation to
rd
3
persons;
3.) The agent
acts as a
representativ
e and not for
himself;
4.) The agent acts
within the scope of
his authority.
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.
Nature of
Relation
between
Principal and
Agent:
Fiduciary,
based on
trust and
confidence.

Agency v. Lease of Work

or Service

Agency
Basis is representation.
Agent exercises
discretionary powers.
3 persons are involved:
rd
principal, agent & 3
person.
Commercial or business
transactions.
Agency v. Guardianship
Agency
Agent represents a
capacitated person.
Agent appointed by
principal and can be
removed by him.
Agent subject to directions
of principal.
Agent can make principal
personally liable.
Agency to Sell v. Sale
Agency to sell
Agent receives the goods
as the goods of the
principal.
Agent delivers proceeds of
the sale.
Agent can return object in
case he is unable to sell to
rd
a 3 person.
Agent in dealing with the
thing received is bound to
act accdg to the
instructions of his principal

Lease of Work/Service
Basis is employment
Lessor only performs
ministerial functions.
Only 2 persons involved:
lessor and lessee
Matters of mere manual or
mechanical execution.
Guardianship
Guardian represents an
incapacitated person.
Guardian appointed by
court and stands in loco
parentis.
Guardian not subject to
directions of ward but
must act for his benefit.
Guardian has no power to
impose personal liability on
his ward.
Sale
Buyer receives the goods
as owner.
Buyer pays the price.
Generally, buyer cannot
return the object sold.
Buyer can deal with the
thing as he pleases, being
the owner.
Helen C. Arevalo 1

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AGENCY

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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.
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.
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:
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.
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.)

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.

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.

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.

Meaning of present
Not limited to faceto-face encounters. 2
persons conversing on
the phone are also
considered
as
both
present.

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 it acceptance
deemed implied?
When the agent
receives a power of atty
from the principal
himself personally
without objection.
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
rd

agent to 3 parties w/ whom

the agent deals.

Construction
A power of atty is strictly
Helen C. Arevalo 2

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.
2 Ways of Giving Notice of
Agency
1.) By special
information; or
2.) By public
advertisement.

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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.

its agents. But

it may be
estopped
through
affirmative acts
of its officers
acting within
the scope of
their authority.

Revocation An agency is revoked in the same manner as

it was given.
Art. 1874. When a
General rule: Special information needs special
information of revocation.
sale of a piece of land
rd
or any interest therein
Except: if you can prove that the 3 person read the
is through an agent,
notice in the newspaper.
the authority of the
Art. 1873. If a person specially informs another
latter
shall
be
in
or states by public advertisement that he has given writing; otherwise, the
a power of attorney to a third person, the latter
sale shall be void.
thereby becomes a duly authorized agent, in the
former case with respect to the person who received A letter is sufficient
the special information, and in the latter case with
[Jimenez v. Rabot].
regard to any person.
The power shall continue to be in full force until
Art. 1875.
the notice is rescinded in the same manner in which Agency is
it was given.
presumed to be
for a
Agency by Estoppel: There is really no agency at all, but
compensation,
the alleged agent seemed to have apparent or ostensible, unless there is
although no real authority to represent another.
proof to the
1.) Estoppel of Agent One professing to act as agent contrary.
for another may be estopped to deny his agency
rd
both as against his asserted principal and the 3
Broker: One who in
persons interested in the transaction in which he is behalf of others, and for
engaged.
compensation or fee,
2.) Estoppel of Principal
negotiate contracts
a.) As to Agent One who knows that
relative to property. He
another is acting as his agent and fails to is the negotiator
repudiate his acts, or accept the benefits between the parties,
of them, will be estopped to deny the
never acting in his own
agency as against such other.
name, but in the name
b.) As to sub-agent To estop the principal
of those who employ
rd
from denying his liability to a 3 person, him. He is strictly a
he must have known or be charged with
middleman and for some
knowledge of the fact of the transmission purposes, the agent of
and the terms of the agreement between both parties.
the agent and sub-agent.
rd
c.) As to 3 persons One who knows that
When is a broker entitled
another is acting as his agent or permitted to compensation?
another to appear as his agent, to the
A broker is entitled to
rd
injury of 3 persons who have dealt with commission whenever he
the apparent agent as such in good faith
rings to his principal a
and in the exercise of reasonable
prudence, is estopped to deny the agency. party who is able and
willing to take the
rd
rd
3.) Estoppel of 3 Persons A 3 person, having
property, and enter into a
dealt with one as an agent may be estopped to
deny the agency as against the principal, agent or valid contract upon the
rd
terms named by the
3 persons in interest.
4.) Estoppel of the govt The govt is neither estopped
principal, although the
particulars may be
by the mistake or error on the part of
arranged and the matter
negotiated and completed
between the principal and
the purchaser directly. A
broker is never entitled to
commission for
Helen C. Arevalo 3

Section II- D

unsuccessful efforts.
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:
1.) Universal agent:
One employed to
do all acts that the
principal may
personally do, and
which

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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.
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.
General Agent v. Special Agent [SNETI]
As to
General agent
Special agent
Scope of
All acts connected
Only one or more
authority
w/ the business in
specific acts in
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
service
transactions
or a series of
authorized
involving a
transactions not
continuity of
involving continuity
service.
of service.
Extent to
By an act within
Cannot in a manner
which agent the scope of his
beyond or outside
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

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.
Examples of
acts of
mere
administr
ation: 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.
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.
MEMORIZE THIS: [PNCWIGLLS-PG-CARS]
Art. 1878.
Special powers of
attorney are
necessary in the
following cases:
1.)
To
make
such
paymen
ts as
are not
usually
conside
red as
acts of
adminis
tration;
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

6.)

consideration;
To make gifts,
except
customary ones
for charity or

Helen C. Arevalo 4

those made to
employees in
the business
managed by
the agent;
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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;

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 ff are not

included in a
Power to
Mortgage
The power
14.)
To ratify or recognize obligations
to:
1.) Sell;
contracted before the agency;
nd
15.) Any other act of strict dominion.
2.) Execute a 2
mortgage;
3.) Mortgage for the
Scope of General Authority to Purchase
agents personal
Where an agents power to purchase is general and
benefit or for the
rd
unrestricted, he has implied authority to do whatever is
benefit of any 3
usual and necessary in the exercise of such power. He
person, unless the
contrary has been
may:
clearly indicated.
1.) Determine the usual and necessary details of the
contract,
Does the principal have
2.) agree upon the price,
the power to revoke a
3.) modify or rescind the contract of purchase,
contract giving an agent
4.) accept delivery for his principal,
exclusive authority to
5.) give directions for the delivery of the property
sell?
purchased, and
YES. But he may not
6.) may borrow money to pay for the care and
have the right to use such
preservation of the property purchased.
power if he has agreed
But he has no special power to
not to exercise such power
rd
1.) Settle a contest between the principal and a 3
during a certain period. In
person regarding the ownership of goods
case he fails to comply
purchased, or
with this obligation-not-to2.) Agree to an account stated, or
do, he will be liable for
3.) Do anything not usual or necessary to the
damages.
exercise of such authority.
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.
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 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 5

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
Section II- D

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.
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.
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

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5.)
6.)
7.)

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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
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.

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
When is a principal not bound by the act of his agent?
contracted by the
When the agent acts without or beyond the scope
agent, the other
of
party thereto has
his authority; or when the agent acts within the scope
known that the
of his authority but in his own name except when the
agent is acting for a
transaction involves things belonging to the principal.
principal and has
known the
Authority?
Whose behalf?
Status of K
principals identity.
With authority
Principals
Valid
2.) Partially disclosed: if
the other party
With authority
Own
Depends. [1883]
knows or has reason
Without
Principals
Unenforceable
to know that the
Without
Own
Valid
agent is or may be
acting for a principal
but is unaware of
Who to sue?
the principals
In case the agent acts in the name of the
identity. The
principal and within his scope of authority, you must
partially disclosed
name the principal as the defendant.
principal may
enforce against the
rd
Note: The authority to look for buyers does not
3 person the
carry with it the authority to sell.
contract of the
agent like any
disclosed principal.
Art. 1882. The limits of the agents authority
rd
Similarly, the 3
shall not be considered exceeded should it have
person has a right
been performed in a manner more advantageous
of action against the
to the principal than that specified by him.
principal.
3.) Undisclosed: if
What happens if the agent exceeds his authority but he
the party has no
performs the agency in a manner more advantageous
notice of the
to the principal?
fact that the
It will e as if he did not exceed the limits of his
agent is acting
authority since he must do such acts as may be
as such for a
conducive to the accomplishment of the purpose of
principal.
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 6

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
Section II- D

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.
rd

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.

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.

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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:
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.
In a contract of
agency, may the
parties stipulate that
the agent shall
advance the necessary
funds? YES.

What
is
th
e
o
bl
ig
th
e
n
of
th
e
a
g
e
nt
?
H
e
is
b
o
u
n
d
to
fu
rn
is
h
s
u
c
h
fu
n
d
s.
Except: When the
principal is insolvent.
This exception is based
on the principals
obligation to reimburse
the agent.
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.
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.
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.
Contemplated to be made
rd
known to the 3 person
dealing w/ the agent.
Instructions
pertain to the
principal and
agent Authority
pertain to the
agent and 3
persons.

rd

Exceptions to the rule

that the agent must
not depart from the
instructions of the
principal: [SAI]
A
d
e
p
a
r
t
u
r
e
m

Direct
transa
busine
only a
guidan
Refers
mode
respec
their s
the sc
action
Witho
agains
the ag
knowl
them.
Not ex
known
the ag

ay 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.

a right to disobey the

principals
instructions:

When the Agent has

Helen C. Arevalo 7

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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.
Art. 1888. An agent shall not carry out an
agency if its execution would manifestly result in
loss or damage to the principal.
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. 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.
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.

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.
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.
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.
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.
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
designatin
g the
person,
and the
person
appointed
was
notoriously
incompete
nt or
insolvent.
All acts of the
substitute appointed
against the
prohibition of the
principal shall be
void.
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.
Relation among the
principal, agent and subagent
In reality, the subagent 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 subagent in behalf of the
principal is deemed an
act of the principal; so
neither agent nor subagent may be held
personally liable as long
as they act within the
scope of their authority.
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
No prohibition
Prohibition
Authority to appoint but
not designated by principal
Authority to appoint and
designated by principal

Effect
Agent responsible for all
the acts of sub-agent.
Sub-agents acts are VOID
as to the principal.
Agent liable for acts of
sub-agent if the sub-agent
is notoriously incompetent
or insolvent.
Agent is released from any
liability from the acts of
Helen C. Arevalo 8

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Reason for general rule:

Because an agent who
acts as such within the
scope of his authority
Art. 1893. In the cases mentioned in Nos. 1 and 2 represents the principal so
of the preceding article, the principal may
that his contract is really
furthermore bring an action against the substitute
the principals.

the sub-agent.

with respect to the obligations which the latter has

contracted under the substitution.
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.
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. 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.
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.
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. 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.
Principal Agent 3

rd

Party (wrong party to complain if the

principal doesnt complain
of the agents acts)

General rule: an agent who acts as such is not personally

liable to the party with whom he contracts.
Helen C. Arevalo 9

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.
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 his
wrong or
omission, he
rd
deprives the 3
party with whom
he contracts of
any remedy
against the
principal.
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
Section II- D

liable if he undertook to
secure the principals
ratification.
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
to the liability of the
principal towards 3
persons.

rd

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. 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.
Requisite for article to
apply:
Authority to agent must
be in writing.
Scope of agents
authority includes:

Finals Reviewer

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Not only the actual authorization conferred upon the

agent by the principal, but also that which has apparently
or impliedly been delegated to him.
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.
If there is a secret mutual understanding between the
principal and the agent, and such is not expressed in the
rd
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.
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

i.) Vary the

terms of an
express
authori
zation;
ii.) Dispense
with a legal
requirement
enacte
d for
the
princip
als
benefit
;
iii.) Change a
rule of law or
dispense
with a
formali
ty
require
d by
law;
iv.) Vary an
essential
quality of the
agency
relatio
nship.
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
commu
nity,
the
usage
is
definite
and
wellknown,
and
the
agent
has no
notice
that he

is to
act to
the
contrar
y;
ii.) Where the
agent is
authorized to
deal in
a
particul
ar
place
or in a
particul
ar
market
exchan
ge.
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
.
)
E
m
e
r
g
e
n
c
y
r
e
a
l
l
y
e
x
i
s
t
s
;
b
.
)
A
g
e
n

t is unable to

General rule: Motive

communicate w/ the principal; c.) of agent inrdentering into

a K w/ a 3 person is
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.
Responsibility of principal when agent acts w/ improper
motives:
Helen C. Arevalo

immaterial.
Exceptions:
rd
1.) Where the 3
person
knew
that the agent
was acting for
his benefit, in
w/c case, the
principal is not
rd
liable to the 3
person; and

2.) Where the owner is

seeking recovery of
personal property of
w/c he has been
unlawfully deprived.

Principal
s
10

responsi
bility for
an
agents
misrepr
esentati
on:
1.) Within the scope of
the agents authority
Principal is
subject to
liability for lass
caused to
another by the
rd
3 persons
reliance upon a
deceitful
representation of
an agent in the
course of his
employment if:
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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.
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.
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.
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.
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

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 attorney
to ascertain the scope of his authority. He may also ask for
the instructions of the principal.
rd

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.

Helen C. Arevalo

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

Art. 1903. The

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

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.

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.

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.

Ordinary agent v.
Commission agent:
Ordinary agent
Acts for and behalf of his
principal.
Need not have possession
of the goods of his
principal.

Purpose of this provision:

Prevent any possible
confusion or deception.

Commission agent v. broker:

Commission agent
Has a relation to principal,
buyers or sellers, and the
property itself.
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.

Art. 1904
gives the
general
rule.
Exception
s: 1.) By
custom;
2.) Collecting banks.

Presumption established
in this article:
Damage in the
11

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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.
Rule given in this article:
Commission agent can sell on credit only with the
express or implied consent of the principal.
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
2.) He may ratify the sale on credit, in w/c case it
will have all the risks and advantages to him.

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

Art. 1908. The

commission agent who
Art. 1906. Should the commission agent, with
does not collect the
authority of the principal, sell on credit, he shall so credits of his principal
inform the principal, with a statement of the names at the time when they
of the buyers. Should he fail to do so, the sale shall become due and
be deemed to have been made for cash insofar as
demandable shall be
the principal is concerned.
liable for damages,
unless he proves that
he exercised due
Obligation of the commission agent where a sale on
diligence for that
credit was authorized:
purpose.
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
Obligation of the
credit with a statement of the names of the buyers.
commission agent
under this article:
The commission
Reason for this article: Prevent the agent from stating
agent who has made
that the same was on credit when in fact it was made
an authorized
for cash.
sale on credit must collect
Art. 1907. Should the commission agent receive on a the credits due the
principal at the time they
sale, in addition to the ordinary commission, another
called a guarantee commission, he shall bear the risk of become due and
demandable. If he fails to
collection and shall pay the principal the proceeds of
do so, he shall be liable for
the sale on the same terms agreed upon with the
damages unless he can
purchaser.
show that the credit could
Guarantee commission: One where, in consideration of an not be collected
increased commission, the commission agent guarantees notwithstanding the
exercise of due diligence
to the principal the payment of debts arising through his
on his part. In such a
agency.
case, the principals
Purpose of guarantee commission: To compensate the remedy is to proceed
agent for the risks he will have to bear in the collection of against the debtor.
the credit due to the principal.

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

Does this article

apply to a case
where there is a
guarantee
commission?
12

No, because the

agent already assumed
the risks of collection by
accepting the guarantee
commission.
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.
Is the agent liable for
fraud? Yes, in all cases.
For negligence? Yes,
but this shall be
adjudged with rigor
by the courts.
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).

Chapter 3.
Obligations of 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.

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Where can the specific obligations and duties of the

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

ratification is
subsequent but it is
equivalent to prior
authority.

Conditi
Principal obligations of the principal to the agent in the
ons
absence of such agreement:
to
rati
1.) To comply with all the obligations which the
agent may have contracted in his name and
fica
tion
within the scope of his authority;
:
2.) To advance should the agent so request sums
[IC
necessary for the execution of the agency;
K3.) To reimburse the agent for all advances made
PEC
by him provided the agent is free from fault;
]
4.) To indemnify the agent for all the damages which
1.)
the execution of the agency may have caused
Int
the latter without fault or negligence on his part;
ent
and
5.) To pay the agent the compensation agreed upon or to
rati
the reasonable value of the latters services.
fy;
rd
2.) Principal must
Liability of the principle to 3 persons:
have capacity &
Where the relation of agency legally exists, the
rd
power to ratify; 3.)
principal will be liable to 3 persons for all acts
He must have had
committed by the agent in his behalf in the course and
knowledge
of
within the actual or apparent scope of his authority, and
material
facts;
4.)
this is not altered y the fact that the agent may also be
The act must be
liable, nor by the fact that some of the acts are to the
done in behalf of
principals advantage while others are to his
disadvantage.
the principal; 5.)
Principal
must
Liability of the principal for mismanagement of the
ratify acts in its
business by the agent:
entirety;
Mismanagement of the business of the principal by the
6.) The act must be
agent does not relieve said principal from the
capable of
rd
ratification.
responsibility that he had contracted to 3 persons. But
where the agents acts bind the principal, the latter may
seek recourse against the agent.
Effects of ratification with
respect to the agent:
Liability of principal for a tort committed by the agent: The
1.) Relieves the
rd
agent from
principal is civilly liable to 3 persons for torts of
liability to the
an agent committed at the principals direction or I the
rd
3 party to
course and within the scope of the agents employment.
the
The principal cannot escape liability whether the tort is
unauthorized
committed willfully or negligently so long as the tort is
transaction;
committed by the agent while performing his duties in
and
furtherance of the principals business. Nor is it a defense
2.) To his principal for
that the act which caused the tort was unknown to him or
acting without
even that it was in disobedience to his instructions.
authority; and
3.) He may
nd
Meaning of ratification in 2 paragraph:
recover
compensat
Ratification is the adoption or affirmance by a person of
ion due for
a prior act which did not bind him, but which was done or
performin
professed to be done on his account, thus giving effect to
g the act
the act as if originally authorized. The doctrine applies to
which has
the ratification of the act of an agent in excess of his
been
authority of the act of one who purports to be an agent
ratified.
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
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.
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 ratified act
had been
authorized in
st
the 1
instance; and
2.) He cannot
raise the
question of
the agents
authority to
do the
ratified act.
Must ratification be
communicated to the
rd
agent or to the 3 party?
No. To be effective,
ratification need not be
communicated or made
known to the agent or
rd
the 3 party. The act or
conduct of the principal
rather than his
communication is the
key. But before
rd
ratification, the 3 party
is free to revoke the
unauthorized contract.
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.

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.

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

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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.
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.

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.
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.
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.
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.
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.
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.

In case the agent sells

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

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.

What is the nature of the

agents right of lien?
Specific or particular. It
is not general in the
sense

May 2 persons contract

with regard to the same
thing, one with the agent
and the other with the
principal?
Yes.

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.

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.

Requisites for
application of
this article:
2
[2C ] 1.)
There are 2 or
more
principals;
2.) The
principals
have all
concurred
in the
appointmen
t of the
same
agent;
3.) The agent
is
appointed
for a
common
transactio
n or
undertaki
ng.

Art. 1544: If the same

thing should have been
sold to different vendees,
the ownership shall be
transferred to the person
st
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
the person acquiring it
st
who in good faith 1
recorded it in the Registry
of Property. Should there
be no inscription, the
ownership shall pertain to
the person who in good
st
faith was 1 in
possession; and in the
absence thereof, to the
person who presents the
oldest title, provided there
is good faith.
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.

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.
Art. 1916. When two
persons contract with
regard to the same
thing, one of them with
the agent and the other
Helen C. Arevalo

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Is the principal always liable for damages caused by a

rd
3 person or is it the agent who is liable?
Whether the principal or the agent will be the one liable
rd
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.
What is the extent of liability covered under this article?
Damages.
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.

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;

3.) When the agent incurred them with knowledge

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

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
accomplish
ment of the
object or
purpose of
the agency;
6.) By the
expiration of
the period
for which the
agency was
constituted.

Meaning of
Presumption of
4.) When it was stipulated that the expenses would
continuance of
be borne by the agent, or that the latter would
agency: When once
be allowed only a certain sum.
shown to have
existed, an agency
Instances wherein the principal is not liable for expenses
relation will be
incurred by the agent?
presumed to have
In the instances enumerated under this article.
continued in the
absence of anything to
Reasons why the principal is not liable for the agents
show its termination.
expenses: Under
1.) To punish the agent, but when the principal has
Who
availed of the benefits, he is deemed to have
has
impliedly ratified the agents acts.
the
2.) Kasi, kasalanan niya, eh.
burd
3.) The agent is guilty of bad faith and lack of
en of
diligence;
provi
4.) An express stipulation which is not contrary to
ng
law, morals, good customs, public order or
the
public policy is binding between the parties.
revo

Chapter 4. Modes of Extinguishment of

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

catio
n/ter
mina
tion
of
agen
cy?
The burden of
proving a revocation
or other termination
of agency is on the
party asserting it.

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.
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;
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
Helen C. Arevalo

terminates the agency

would depend on the
intention of the parties.
Generally the death of one
of several principals does
not revoke the agents
15

authority nor does the

death of one of several
agents put an end to the
agency. The intention of
the parties controls.
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In the absence of any

agreement by the parties
Why is capacity necessary?
to the contrary, the loss or
For instance, in the case of civil interdiction, it deprives destruction of the subject
the offender during the period of his sentence of the right matter of the agency
to manage his property and dispose of such property by
terminates the agents
any act or any conveyance inter vivos. A person under
authority to deal with
civil interdiction hence, cannot validly give consent. Same reference to it.
is true for insane people.
Exceptions:
Why is solvency necessary?
1.) If it is possible
As by an act of insolvency, the principal loses control of
to
substitute
the subject matter of the agency, the authority of the
other
material
agent to act for his principal ceases by operation of law
for that which
upon an adjudication of the principals insolvency. On the
was
destroyed
other hand, the insolvency of the agent will ordinarily put
without
an end to the agency, at least if it is in any way connected
substantial
with the agents business which has caused his failure.
detriment
to
either party, or
2.) If the destroyed
General rule as to death of the principal or agent: By
subject matter
reason of the very nature of the relationship
was not in fact
between the principal and the agent (which is fiduciary
essential to the
argh!), agency is distinguished ipso jure upon the death of
contract; and
the principal.
3.) A partial loss or
destruction.
Exceptions:
1.) If the agency is coupled with an interest;
2.) If the act of the agent was executed without the Are the modes of
knowledge of the death of the principal and the
extinguishments of
rd
agency exclusive? No.
3 person who contracted w/ the agent acted in
good faith.
Art. 1919 gives only
those causes of
Why does dissolution of a firm or corp extinguish the
extinction
agency?
which are particular to
Dissolution of a corp extinguishes its juridical
agency. But the list is not
existence.
exclusive. The general rule
actually is, an agency may
What happens when the object or the purpose of the
be extinguished by the
agency is accomplished?
modes of extinguishments
As between the parties, the principal and the agent, of obligations in general
the fulfillment of the purpose for which the agency was whenever they are
applicable, like loss of the
created ipso facto terminates the agency.
thing and novation (see
art. 1231).
What happens when the term for which the agency was
supposed to continue expires?
Does war extinguish
When an agency is created for a fixed period, the
agency?
expiration of such period ends the agency, even though
During the existence of
the purpose for which the agency was created has not
war, a contract of agency
been accomplished.
is inoperative if the agent
or the principal is an
What happens if no time is specified?
enemy alien. But since it
The agency terminates at the end of a reasonable
is generally conceded that
period of time.
war suspends all
commercial intercourse
Can the period be implied? Yes, from 1.)
between the residents of
The terms of the agreement; 2.)
2 belligerent states, the
Purpose of the agency; and
general rule is that
3.) The circumstances of the parties.
agency is terminated, as
a matter of law, upon the
What happens if the subject matter of the agency is lost
break of war.
or destroyed?
Does legal impossibility
terminate agency?
Implied in every
Helen C. Arevalo

16

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.
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 subagents authority
terminates with the
termination of the
principals authority.
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.
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.
Exceptions:
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be forced to
retain another as
his agent against
his will.

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
Confidential information
liable in damages
It is difficult to determine whether information is
occasioned by the
confidential or not, because while the relation of principal
wrongful
and agent is confidential, not all knowledge acquired by
discharge of the
the agent is of a confidential nature. Some clearly is of
agent before the
so general a nature that equity ought not attempt to
expiration of the
restrict its subsequent use.
period fixed.
2.) If the agent can
Usually, what a court does is to determine 2 things: 1.)
Whether the knowledge or information is indeed
prove that the
principal acted in
confidential, and
bad faith by
2.) Whether its subsequent use ought to be
revoking the
prevented.
agency in order to
avoid payment of
Principle behind enjoining an agent from using
commission about
confidential information:
to be earned, the
There is in the contract of service subsisting between
principal can be
the principal and the agent an implied contract on the part
held liable for
of the agent that he will not, after the service is
damages.
terminated, use information which he has gained while the
service has been subsisting to the detriment of his former
Reason for requiring
employer.
agent to return the
document evidencing the
Art. 1920. The principal may revoke the agency
agency: To prevent the
at will, and compel the agent to return the
agent from making use
document evidencing the agency. Such revocation
of the power of attorney
may be express or implied.
and thus avoid liability to
rd
3 persons who may
May an agency be terminated by a subsequent act of the subsequently deal with
principal? Yes, when he does so, its called revocation.
the agent on the faith of
the instrument.
May an agency be terminated by a subsequent act of the
Kin
agent? Yes, its called withdrawal or renunciation.
d
s
Does it matter if the agency is gratuitous or with
compensation when we speak of revocation by the
o
principal? No, art 1920 makes no distinction.
f
Reasons:
1.) Since the authority of the agent emanates from the R
principal, if the principal wishes to terminate the e
v
agency the law must enable him to do so.
o
2.) Confidence being the cardinal basis of the
c
relation, it stands to reason that it should cease
a
when such confidence disappears.
t
3.) The principal-agent relationship is consensual
i
and personal in nature. No one can nor should
o
n
:
1
.

)
E
x
p
r
e
s
s
;
o
r
2
.
)
I
m
p
l
i
e
d
,
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.
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.
Is notice of revocation to 3

rd

persons necessary? Yes.

rd

What kind of notice should you give 3 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.
Helen C. Arevalo

May the agent renounce

the agency at will?
Yes, but subject to the
contractual obligations
owing the principal.
Reason: The essence of the
principal-agent relationship
is the consent and
willingness of the agent to
17

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!)
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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

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

adopts an antagonistic attitude towards him.

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.
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.
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
rd
not prejudice such 3 persons until notice thereof is
rd
given 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
rd
principal. But of course, notice is not required if the 3
persons already know of the revocation.
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.
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
rd

be sufficient to 3 persons for publication constitutes

notice upon everybody and this is true whether or not
such 3

rd

persons have read the newspaper concerned.

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

rd

to 3 person informed of
the appointment.

General rule:
Special
information
needs special
information of
revocation.
Except: If you can
rd
prove that the 3
person read the
notice in the
newspaper.
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.
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,
rd
the rights of 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 authority in
st
the 1 agent, or
st
if the 1 agent
is not given
notice of the
appointment of
the new agent.
Art. 1924. The
agency is revoked if
the principal directly
manages the business
entrusted to the agent,
dealing directly with
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.
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.
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

Helen C. Arevalo 18

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AGENCY

nd

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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.
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.

to deal with
the thing in
order to
make the
assignment,
pledge or
lien
effectual.

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.

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 the contract of agency

stipulates that such will
be irrevocable, is such
terminology controlling in
all cases?
No. Whether an
interest will make an
Effect of the issuance of a special power as regards the
agency irrevocable exists
general power:
in a particular case is to be
The general power is impliedly revoked as to matters
determined from the
covered by the special power because a special power
entire agreement between
naturally prevails over a general power.
the parties and from the
facts and circumstances.
Art. 1927. An agency cannot be revoked if a
The terminology is not
bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already contracted, controlling. Even if an
or if a partner is appointed manager of a partnership agency is made in terms
in the contract of partnership and his removal from irrevocable, the fact will
not prevent its revocation
the management is unjustifiable.
by the principal when the
agency is not in fact
General rule: Principal may revoke an agency at will
coupled with an interest.
since the essence of agency is the agents duty of
obedience to the principal.
If an agency is coupled
with an interest, does this
Exceptions: [BF=Partner]
mean that the principal
1.) When a bilateral contract depends on the
can never ever revoke it?
agency;
No. You can still
2.) When the agency is the means of fulfilling an
revoke in extreme
obligation already contracted;
situations, e.g.: 1.)
3.) When a partner is appointed as manager of a
Irrevocability can
partnership in the contract of partnership and
never be used as a
his removal from the management is
shield for
unjustifiable.
the perpetration of
acts in ad faith,
Can an agency, coupled with an interest, be terminated
breach of
by the sole will of the principal? No.
confidence or
betrayal of trust.
Requisite for agency to be irrevocable for being coupled
The law will never
with a interest:
permit the agent
Interest of the agent must be in the subject matter of
to commit frauds
the power conferred and not merely an interest in the
against the
exercise of the power.
principal.
2.) When the interest
Instances of an agency coupled with an interest:
is already terminated.
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

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.
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.

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
Helen C. Arevalo

Reason for
indemnity: To
answer for losses
and damages
occasioned by the
non-fulfillment of
his obligation as
agent.
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Finals Reviewer

AGENCY

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same way that revocation

of the agency does not
Is the agent liable for indemnity if the withdrawal was
rd
prejudice 3 persons who
for just cause? No. Agent cannot be held liable if the
have
dealt
with
the agent
agent withdraws for a valid reason as when:
in
good
faith
without
1.) The withdrawal is based on the impossibility of
notice of revocation, such
continuing the agency without grave detriment to
rd
3 persons are also
himself; or
protected where it is not
2.) Fortuitous event.
shown that the agent had
knowledge of the
termination of the agency
What happens when the agent sues the principal?
because of the death of
Equivalent to withdrawal of the agent.
the principal or any other
like cause which
Art. 1929. The agent, even if he should withdraw extinguishes the agency.
from the agency for a valid reason, must continue to
act until the principal has had reasonable
Does this article only
opportunity to take the necessary steps to meet the require the agent to
situation.
be in good faith? No,
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.
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.
General rule: Agency is terminated instantly by the
death of the principal.
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.
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

both agent and 3

person must be.

rd

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.
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

tacit agency;
2.) Agency is coupled
with an interest in
the subject matter
of the agency.

GOOD
LUCK!

This is for that

small syndicate of
people who name
themselves after a
labor case!
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!
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!

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
20

Section II-D