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Law on Agency

Definition
Article 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. (1709a)

Principal is not required to meet with third party


Agency exerts principals personality to third party

P and A are friends, A on Ps behalf met T and brought business relations between P and
T. When P did not even encounter P. Is there a contract of agency? Doles vs Angeles
(2006), Philex Mining Corp vs CIR (2008) , Litonjua Jr vs Eternit Corp (2006)
Yes, agency is valid and compensation is tenable.

Air France vs CA (1983)


Principle of Representation

Notice to the agent is notice to the principal


Knowledge of the agent is of the principal
Bad faith of the agent is in his personal capacity, does not bind the principal;
however if bad faith is done through the authority of the principal, then it binds
the principal as well
Suit against the agent is if he is sued in his personal capacity, then it will not
extend to principal. However, if suit is because of an act authorized by the
principal, then it extends to the principal.

Caram Jr vs Laureta (1981)


A, acting on behalf of P, purchased a property in bad faith. Is P deemed in bad faith,
too?
Depends on presence of authority if it was given by principal or not.
PNB vs Ritrato Groups Inc. (2001)

Authority by the principal is kin.


A is Ps agent. T sued A. Is the suit considered against P? Depends on presence
of authority if it was given by principal or not.

Parties capacity
Both principal and agent must have the capacity to contract to enter into a valid
agency.
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(A1327, A1329, A 1919)


Article 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
Article 1329. The incapacity declared in article 1327 is subject to the modifications determined by law, and is
understood to be without prejudice to special disqualifications established in the laws. (1264)
Article 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted. (1732a)

!!!

Capacitated + capacitated = Valid


Capacitated + incapacitated = voidable
Incapacitated + incapacitated = Unenforceable

A is Ps agent. A is incapacitated to enter into an agreement. A, on Ps behalf, sold Ps


property to T.

Is the agency valid? Voidable


Is the sale valid? Yes

Principle of Relativity
The agency is personal. If the principal or agent dies or becomes legally incapacitated,
the agency should ipso facto jure cease. But
Public Policy
But agency is preparatory contract. It must effect the juridical relationship between
the principal and the third party. The law of agency affirms the validity of the contract.
If a person represented someone to a third party without capacity/ without legal
representation and the third party/person does not know it, contract is valid because of
public policy
Civil interdiction, insanity and insolvency extinguishes the agency. If these grounds exist
before the agency is perfected

Is the agency valid? VOID


Is the sale entered into by the incapacitated agent in behalf of the principal
valid? Yes

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Is the valid if the one incapacitated is the principal? Voidable

Principle of consensuality
No person may be represented without his will, nor a person be compelled against his
will to represent another.
Exception to the rule: Agency by estoppel
The agency of estoppel is an exception to the principle of consensuality.

The purported principal and the purported agent is brought into a relationship in so far
as a third party in good faith are concerned.

Knowledge of defect by the third person is a manifestation of bad faith and does
connotes misrepresentation.

A represents to T that he is Ps agent. A, on Ps behalf sold Ps property to T.

Is the agency valid? Not valid, agency by estoppel


Is the sale valid? Sale against A and P is valid, however enforceability will
depend on P

Object of agency
Can real and personal properties be a valid object of agency? Rallos vs Felix Go Chan
and Sons Reality Corp. (1978)
No, by definition, only service and not properties is subject to a contract of agency

Presumption of compensation
Agency is presumed to be for compensation (A 1875)
Article 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary. (n)

A is Ps agent. A, on Ps behalf, collects rentals from Ps tenants for 8 years since 1920. A
did not receive compensation ever since but was allowed to occupy Ps parcel of land
and build a house thereon. Is A entitled to compensation aside from the use of Ps
property? Aguna vs Larena (1932)

On the case decided, prior to institution of NC, NO because there is no


presumption

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If case is decided on NCC, YES because of the presumption

NB: August 30, 1950 is the effectivity date of the NCC

A is Ps sales agent. A, introduced P to T, a buyer. 3 days after As authority to sell


expired, P and T consummated a sale. Is A entitled to compensation? Mamatok Brs inc
vs CA (1993); Citing Prats vs CA (1978)

Yes, the act of introducing P and T by A is the efficient processing cause.

A is Ps sales agent. A, introduced P to T, a buyer. 17 months after As authority to sell


expired, P and T consummated a sale. Is A entitled to compensation? Inland Reality vs
CA (1997)

No, intervening time is so long and the introduction of P to T by A is not the efficient
procuring cause.

Characteristics

Nominate and principal


Consensual
Unilateral and primarily onerous
Preparatory and representative
Derivative, fiduciary and revocable

A, acting on Ps behalf and with his authority, sold Ps property to T. P calls him
employee. A calls P boss. They entered into an employment contract. Is there a valid
employment contract? Doles vs Angeles (2006)
None, it is a contract of agency or contract of representation because of the element
of authority to act in behalf of the principal.
NB: Contract is what the law says it is and not what the parties call it.

A is Ps sales agent. A failed to fulfil his obligation under the agency. Is he liable to P
assuming he agreed not to be entitled to compensation?
Article 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. (n)
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Article 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary. (n)
Article 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. (1726)

Control

The basis of agency is representation, and that consequently, one of the strongest
feature of a true contract of agency is that of control that the agent is under control
and instruction of the principal

A is authorized by P to act on Ps behalf. P sold and endorsed his property to A. Is there


an agency? Amon trading Corp vs CA (2005); Victorias Milling Co Inc vs CA (2000)

None, this is a contract of sale

Agency is preparatory and representative. A is authorized by P to sell his property for


20M. A sold it for 19.9M to T. Is P bound to this sale? Amon trading Corp vs CA (2005);
Victorias Milling Co Inc vs CA (2000)
Yes, because of public policy. The remedy of P is to go after A for the difference or not
to pay A for compensation.

S, Stockholder, authorized A to exercise his right to inspect the books of C, a


corporation. Can C stop the As inspection of the books if S is not present during the
inspection? Philpotts vs Phil Mfg Co (1919)
No, C cant stop A because it defeats the purpose of agency

P pre-terminated As contract of agency. The court reinstated A as an agent in


accordance with the contract. Is there a valid agency? Orient air services vs CA (1991)
None, a contract of agency is based on trust and confidence and is fiduciary in nature.

Agency versus

Employment contract
Contract for a piece of work
Management agreement

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Contract of sale
Brokerage contract

T, a theatre, hired S, a security guard and authorized him to maintain peace and order
at the entrance of the theatre. Is there an agency? Dela Cruz vs Nrotheren Theatrical
Ent. (1954). Yes

P authorized C to build a house on Ps behalf. C can choose the men, method, and
materials for building the house. C didnt finish building the house, so P took over. Can S,
Cs supplier run after P to assume Cs direct liability to S? Fressel vs Mariano Uy Chaco
Sons and Co. (1915)
This is a contract of piece of work. Hence S cannot run after P, his remedy is to run after
C in his personal capacity.

P authorized M under a management contract to develop mine, operate the mill, and
do all undertakings necessary or incidental to the development of mine or operation of
mill. Can P revoke Ms contract at will? Neilson and Co vs Lepandto Consolidated
Mining Co. (1968)
No, what is contemplated above is not a contract of agency but a management
contract hence is not revocable at will.

S, authorized O as Ss operator. Under Os contract, S can terminate O at will; S owns


the service station and O will only sell Ss product; Ss employee supervises O and
inspects the service station periodically; and the price of the product is fixed by S. Is O
an agent of S? Shell CO. vs Firemens Insurance (1968)
No, O is a franchise of S. This is an example of a retail operator.

P authorizes A to sell Ps products. Under As contract, at the end of 60 days and the
products are unsold, A should pay P. Is there a valid agency? Quiroga vs Parsons (1918)
None, based on stipulations, the contract is a consignment sale.
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P authorizes A to sell goods to B. Under the contract, P can hold A liable to the prices
fixed, even if there an unforeseen events unfavorable to A like price changes, loss of
goods not covered by insurance, or client doesnt fill the order. Is there a valid agency?
Gonzalo Puyat and Sons vs Arco Amusement CO. (1941)
None, this is a contract of sale.

B contracted I to import boxes of oranges from USA. The boxes were lost in transit. B
demanded refund of advance payment, I refused on the ground that it merely
imported the oranges on Bs behalf. Is there a valid agency? Chua Ngo vs Universal
Trading Co Inc (1950)
This is a contract of sale. A refund should be made by I to B for non-compliance of his
obligation to deliver.

P appointed D as sole distributor of bee waxes in the Visayan area. Under the
distributorship, D will be responsible to pay the value of the shipment so purchased. A
failed to pay so P run after Ds surety. Is this a sale or an agency? Pearl island
commercial Corp vs Lim Tan Tong (1957) .. Quiroga vs Parsons (1918)
It is a contract of sale.

P appointed D as distributor of Ps goods. P consigns the goods to D. Ownership of


goods remain with P until sold by D to buyers. D is not constituted as legal
representative of P. D is not granted the right to create obligation on behalf of P or bind
P. Is this a sale or agency? Ker and Co., Ltd. Vs Lingad (1971)
No. A contract of agency can never be presumed because it is a consensual contract.
The case at bar is a contract of sale.

Is a contract of agency subject to the Statute of Frauds? Lim vs CA (1996)


NO, it is personal and consensual.

P and A entered into a formal contract whereby A agreed to act as Ps agent to export
corn and rice, and to import collateral goods thru barter on no-dollar remittance basis;
A also agreed to buy the collateral goods. The government issued rules barring barter
of goods from abroad. P wanted to recover price for exported grains. Is there a sale or
agency? National Rice and Corn Co (1979)
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This is a valid contract of agency. P cannot run after A.

Is a broker an agent?

A broker is a middle man whose task is to bring arties together to close a deal. Hence a
broker is not an agent.

Can an agent also be a broker at the same time?

Yes, an agent may be a broker but not the other way around.
o
o
o
o

Schmid and Oberly Inc vs RJL Martinez (1998)


Reyes vs Rural Bank of San Miguel (2004)
Pacific Commercial Co. vs Yatco (1936)
Abacus Securities Corp vs Ampil (2006)

B is Ps broker appointed to find prospective buyer for Ps parcel of land. Is the Broker
authorized to enter into a contract in the name of the principal? Litonjua vs Eternit Corp
(2006)
No, a brokers task is only to bring the parties together. It has no authority to close a
deal.
B is Ps broker appointed to find prospective buyer for Ps parcel of land. Is the Broker
authorized to enter into contract in the name of the principal?
No, a brokers task is limited to bringing the parties together. It has no authority to close
a deal.

B is Ps broker appointed to find prospective buyer for Ps parcel of land. Is the Broker
allowed to buy Ps parcel of land? (A 1491, A 1492) ; Araneta vs Del Paterno
No, he is restricted by law.
Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his guardianship;
(2) Agents, the property whose administration or sale may have been intrusted to them, unless the
consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any
government-owned or controlled corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and
employees connected with the administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any litigation in which
they may take part by virtue of their profession;
(6) Any others specially disqualified by law. (1459a)

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Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption,
compromises and renunciations. (n)

A is Ps broker appointed to find prospective buyer and sell Ps parcel of land. A


brought B the buyer to P. B and P never entered into a contract of sale thereafter. Is A
entitled to a commission? (1) Tan vs Gullas (2002); (2) Schmid and Oberly, Inc vs RJL
Martinez Fishing Corp (1988)
(1) NO, because he did not finish the job
(2) Yes, if it is stipulated

Agency may be constituted:

Expressly by the principal


Impliedly from principals acts
Impliedly from principals silence
Impliedly by principals failure to repudiate the agency

Agency may be accepted:

Expressly by the agent


Impliedly from agents acts
Impliedly from the agents silence
Impliedly by agents inaction

A law firm has a client whose employee has been receiving it for the client and turning
it over to the law firm. One day, the law firm did not receive a court notice and found
out that the same employee received it but failed to turn it over to the law firm. Is there
a valid service of the notice to the law firm? Equitable PCI bank vs KU (2001)
Yes, this implies a contract of agency for failure of the law firm to repudiate the
relationship of it to the employee. Hence, notice is valid and binding.
A is Ps agent. This has been known to C. Ps long standing client. P sent a termination of
the agency to A. In spite it, A still receives goods from C. Can C make P responsible for
the goods? Rallos vs Yangco (1911)
Yes, P is responsible. A contract of agency can be terminated at will. However, answer
would be different if C was not notified of the termination of the agency.
The son-in-law of the seller, though not authorized by the seller, exercised the sellers
right of redemption. The buyer accepted the exercise and did nothing for the next 10
years to clean the title. Is the redemption valid? Conde vs CA (1982)
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Yes, through prescription.


An agency can be constituted and accepted impliedly. As such, can the existence of
agency be presumed?

Lopez vs Tan tionco (1907)


People vs Yabut ( 1977)
Compania Maritima vs Limson (1986)
Lim vs CA (1995)

S, jewel owner, entrusted the jewelries of substantial value to A, who represented as Ps


agent. P did not authorize A to receive jewelries from S. Is there an implied agency?
Borador vs Luz (1977); Harry E Keller Electric Co vs Rodriguez (1922)
None, an agency is not implied in the case at bar.
C and O are co-owners of a piece of land. On this account, S bought the land from C.
Is there an implied agency between C and O being co-owners of the said piece of
land? Dizon vs CA (1999)
None, however sale is valid up to the extent of ownership f C in the co-ownership after
liquidation has been made.
Agency by Estoppel
If a person specially informs another or states by public advertisement that he has given
a power of attorney to a third person, the latter thereby becomes a duly authorized
agent, even if there was ever a meeting of the minds between them.

H, hotel owner, allowed T, a third party, to use the tile managing agent and to take
charge of the business, in Hs prolonged absences. T bought supplies for the Hotel bar,
without Hs authority from Hs suppliers. Is there an agency? Macke vs Camps (1907)

Yes, there exists an agency by estoppel.

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