AGENCY MIDTERM REVIEWER (ATTY.

COCHINGYAN)
3. Elements of a Contract of Agency (C.O.R.S)
Nature and Object of Agency 1. Consent, express or implied, of the parties.
1. Definition 2. Object, the execution of a juridical act in relation to
• Contract of Agency: a contract whereby a person binds third parties.
himself to render some service or to do something in 3. Agent acts as a Representative and not for himself.
representation or on behalf of another with the consent 4. Agent acts withing Scope of his authority.
or authority of the latter. (Art. 1868)
• No presumption of agency, proving the nature and
CODAL Break down of extent of the authority is incumbent upon the person
Characteristics (memory aid) alleging it.
By contract of agency - Nominate, Principal o Agency is a question of fact.
a person binds himself - Unilateral
to render some service - Primarily Onerous, A. Consent
or to do something Preparatory • Principal: actual/implied intention to appoint.
in representation or on - Representative, Personal, • Agent: actual/implied intention to accept.
behalf of another Fiduciary B. Object or Subject Matter: Execution of Juridical
with the consent or - Consensual, Revocable Acts in Behalf of Principal
authority of the latter • The execution of Juridical acts in behalf of
the principal must NOT be compelled by
law or any court.
2. Roots and Objecttives C. Consideration
1. Purpose: The ability, by legal fiction, to extend the • Agency is presumed to be for compensation,
personality of the principal through the facility of the unless there is proof to the contrary. (Art.
agent. 1875)
i. What a man may do in person he may do  This means that such presumption
through another. may be rebutted by competent
2. Art. 1307: No one may enter into a contract in the evidence. [Only prima facie]
name of another without being authorized or unless  The intention can be inferred from
he has a right in law to make such representation. the principal’s manifestations.
3. Art. 1403[1]: Contracts entered into in the name of • OLD CIVIL CODE: Agency is presumed to
another without authority are unenforceable unless be gratuitous.
ratified.
4. Essential Characteristics of Agency (NP. UP. C. PR. PFR.)

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 a) Nominate and Principal
• If the act done by one person is in its essential
nature one of agency, then it doesn’t matter if
the “name” of the contract is NOT that of
agency because it will still be treated as an
agency.
• Nominate – own name/chapter/title in the
Civil Code
• Principal – can stand on its own
• It will be an agency w/n the parties
understood it as an agency. What is
controlling is the essence of the actions.
b) Unilateral and Primarily Onerous
• Unilateral – only one party makes a promise
or undertakes performance
• Onerous – presumed to be for compensation
c) Consensual
• Principal (appointment): Express or
Implied, from his actions, silence, lack of
action, failure to repudiate the agency.
• Agent (acceptance): Express or Implied,
from his acts, silence or inaction.
• The basis for agency is representation. It is
incumbent upon the person dealing with an
agent to discover upon his peril the authority
of the agent.
• Example: A co-owner does not necessarily
become the agent of the other co-owners with
respect to the sale of a co-owned land.
Meaning that the sale of a co-owner of land of
the whole land will not bind the other co-
owners absent any authorization from the
other co-owners.
d) Preparatory and Representative (and Derivative)
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• Representative: obligations are contracted
for and in behalf of another. (qui facit per
alium facit per se: he who acts through
another acts himself)
• Consequences:
o Principal is liable if agent acts within
the scope of his authority.
o If agent buys property in bad faith,
principal is a buyer in bad faith.
o Notice to the agent is notice to the
principal (even if the principal NEVER
became aware of the notice)
o Third person must discover upon his
peril the authority of the agent.
• Control
o The agent agrees to be under the
control/direction of the principal.
• It can be said that the actual absence of the
principal is converted into his legal or
juridical presence.
o The acts of the agent (within the scope
of authority), by legal fiction, become
the acts of the principal.
o Hence, these acts are generally
binding upon the principal.
• When agent may be held liable
o Expressly binds himself
o Exceeds his authority and does not
give the third party sufficient notice of
his authority/powers.
e) Personal, Fiduciary, and Revocable
• Fiduciary: similar to a trust relationship.
o Agent is precluded from asserting a
title adverse to that of the principal.
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 o Cestui que trust – Consistent with the over the agent with to ensure duties and
principles of good faith, he ccannot be respect to the matters responsibilities are
allowed to create in himself an interest relevant to the undertaken. (Remember
in opposition to that of his principal. agency only. Control Coch’s example:
(relate to conflict of interest later) and direction is employee’s being
o Art. 1491 [2] – regarding the property merely incidental for monitored regarding
forming the subject matter of the representation attendance, tasks etc.)
agency, agent cannot acquire or buy Representation By legal fiction, the Cannot represent
such from the principal (unless there is agent becomes the employer.
consent) principal in so far as Principal/Employer’s
• Death (principal or agent): agency is the former acted responsibility is only
extinguished. within his authority vicarious (respondeat
• Revocable: Generally, the principal can or the latter ratifies it. superior)
revoke the authority of the agent at will.

5. Distinguished from other similar contracts b) Contract for a Piece-of-Work

a) Employment Contract
• Principle of Representation: Not present in AGENCY INDEPENDENT
a security guard – company employment. In CONTRACT/PIECE-
contrast with Agency whereing OF-WORK
representation serves as its basis. Main Purpose For Representation Fulfillment of specific
• Single Person performing SAME task as (must undertake duty or result or product
BOTH employee and agent: Devoid of ANY purpose of agency in
jurisprudential support or precedent. representation of the
principal)
AGENCY EMPLOYMENT Element of Principal exercises Generally the
CONTRACT Control control and direction principal/employer does
Main Purpose For Representation Fulfillment of duties and over the agent with not have control over
(must undertake responsibilities in respect to the matters the contractor except
purpose of agency in accordance with job relevant to the agency only with regard to the
representation of the description only. Control and RESULT or
principal) direction is merely PRODUCT. (Free to do
Element of Principal exercises Employer exercises incidental for anything as long as the
Control control and direction control over employees representation task or product is

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 accomplished) purchaser ready to buy the object on the
Representation By legal fiction, the No representation terms of the seller). Important: broker’s
agent becomes the efforts must be the foundation where the
principal in so far as negotiations resulting in the sale BEGAN.
the former acted • Difference: A real estate broker, for example,
within his authority or only has to find a purchaser BUT he cannot
the latter ratifies it. bind the principal by signing a contract of
sale. The authority to find a purchaser does
c) Broker not include the authority to sell.
• Broker: duty is only to find a purchaser.
Such broker becomes entitled to the usual AGENCY BROKERAGE
commissions whenever he brings a party who Main Purpose For Representation (must Task is to only find
is able and willing to take the property and undertake purpose of a purchaser; to
enter into a valid contract. (The nitty gritty agency in representation bring the buyer and
details may still be negotiated by the of the principal) seller together; the
principal and the buyer without participation “procuring cause”
from the broker. The JOB of the broker is of the sale
simply to bring them together.) Element of Through the principal, Broker has no
• Broker: earns pay merely by bringing the Control over agent/commission-agent relation with the
buyer and seller together, even if no sale is the Subject is one engaged in the subject property or
eventually made. Property purchase or sale for the principal
• Agent: receives his commission upon the another of a property
successful conclusion of the sale. which for this purpose is
• Duties and liability (Broker): essentially the placed upon his
same with that of an agent (This means that possession and at his
principles of contract law also govern broker- disposal. (agent has a
principal relationships). Therefore, a broker relation with the
has to render an account of whatever he may principal and the subject
have received by virtue of the relationship. property)
• Procuring Cause: refers to a cause Representation By legal fiction, the Broker cannot
originating a series of events which, without agent becomes the represent the
break in their continuity, result in the principal in so far as the principal.
accomplishment of the prime objective of the former acted within his [Exceptional
employment of the broker (to produce a authority or the latter situation: see

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 ratifies it. Domingo v • Primordial difference: Transfer of
Domingo] Ownership in Sale, NOT applicable in
Broker has no Agency.
relation with the
principal and that AGENCY TO SALE
its task is only to SELL
negotiate between Mode of Transfer Delivery only Delivery of the goods
the parties (Principal delivers to the buyer and
goods, agent transfer of ownership
• Indentor – one who, for compensation, acts as receives them)
a middleman in bringing about the purchase Mode of Agent cannot Buyer appropriates the
and sale of goods between a foreign supplier Appropriation appropriate. thing for himself since
and a local purchaser. Proceeds of the sale he is the owner
• In Tan v Gullas broker earns his money or his must be delivered
pay merely by bringing the buyer and seller to the principal, but
together. Compare with Medrano v CA agent is entitled to
wherein broker must be the procuring cause his commission.
which would result into the consummation of Restitution For If agent is unable to Generally, buyer
the sale. Non-Sale or sell, he may return cannot return since he
d) Sale Otherwise the thing to the is the owner.
• Agency: There is no personal responsibility principal
and duty to actually buy the products unlike Control of the Agents is bound Owner may do
in sale. thing according to the anything he pleases.
• A real agent’s obligation is merely to turn instructions of the
over the proceeds of the sale to the principal principal
once he receives them from the buyer. A true
agent bears NO risk relating to the subject e) Other Contracts
matter or the price.
• If the contract entails that the pruported AGENCY LOAN/MUTUUM
“agent” is going to bear the risk of the change Advances in General rule: The creditor lends (or
in price of the products such “agent” is NOT Money Principal must advances) money or
bound to render account to his principal advance money upon fungible things to the
because such relationship is not one of agency request of the agent. debtor.
but rather that of sale. Agent does not incur

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 debt here since AGENCY BAILMENT/COMMO
principal is not DATUM
lending the agent Use of the ENTRUSTED ENTRUSTED
money thing PROPERTY PROPERTY
[If otherwise
stipulated or when Agent must take care of
necessary for the the thing delivered to Bailee is entitled to the
business, agent may him by the principal enjoyment and use of the
advance.] according to the thing. Bailee still needs
latter’s instructions or to exercise due care.
Capacity to In agency, agent may Creditor, upon in default thereof,
Borrow/Lend lend money to the assessment of credit agent must exercise
principal. But agent worthiness if necessary, diligence of a good
cannot borrow from may lend to a debtor. father.
the principal without
the latter’s consent. Control Principal exercises Bailor does not exercise
control over the agent control over bailee.
Agent may collect Creditor may demand with regard to the
loans on behalf of the payment from debtor if thing.
principal. loan is due Liability Principal is liable for Bailor is not liable for
the actions of the agent the actions and liabilities
Agent needs a written Debtor borrow money withing the scope of of the bailee.
S.P.A. to loan to or from a third person on authority.
borrow from a third his own.
person UNLESS the AGENCY GUARDIANSHIP
latter act is urgent and Authority The authority of the Authority of the
indispensible for the agent is derived from guardian is not derived
preservation of the the principal. from the ward. It may be
things which are conferred by law or by
under the agent’s appointment.
administration Control Principal exercises Guardian exercises
Relationship Trust Relationship Debtor-Creditor control over the agent control and supervision
(Fiduciary) relationship with regard to the over the ward pursuant
things under his to the authority

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 administration or the conferred upon the repudiate the
purpose of the agency. former. agency with
Creation of Consensual Guardianship may KNOWLEDGE
the consituted even without that another is
relationship mutual consent or even acting on his
with the incapacity of behalf without
the ward (e.g. minority, authority
insanity, etc.)
b) From the side of the Agent.
FORMS AND KINDS OF AGENCY • Express or Implied acceptance.
• When present (1870): If given a letter with
1. How Agency May Be Constituted. power of attorney then it is received WITHOUT
• For express agency objection.
o General Rule: No specific form is required to • When absent (1871): no implication unless (1)
constitute agency power of attorney is transmitted and received
o Certain formalities may be required. without any objection or (2) it is entrusted a
i. Form is required for the validity of a contract power of attorney in a letter/telegram and there
ii. Form is required to make it effective against was no reply to the letter or telegram.
third parties. • Special information: having specially informed
iii. Form is required for the purpose of proving another, principal must give due and timely
the existence of the contract. notice to the agent, for the latter to be bound to
• For implied agency that specific person.
o Constituted by acts, silence, lack of action, failure • Public Advertisement: having publicly
to repudiate the agency (1869). advertised the agency, the principal must give due
a) From the side of the Principal and timely notice to the agent for the latter to be
• Example: If the principal acquiesced in the acts of bound with regard to any person.
the agent and even received and appropriated to • In both cases: Power shall be in full force until
his own use the benefits result in from the acts of notice of rescission. Rescission should be in the
the agent, then there is an implied agency. same manner given

Express Implied Express Implied

- Stipulation - Silence - Stipulation - Silence
- Consent freely - Lack of action - Consent freely - Inaction depending on
given - Failure to given the circumstances

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Between Persons Present:
If given a letter with power of
attorney then it is received
WITHOUT objection
Between Persons Absent:
GENERAL RULE: Implied
agency is not presumed.
Exception:
(1) power of attorney is
transmitted and received
without any objection or
(2) it is entrusted a power of
attorney in a letter/telegram
and there was no reply to the
letter or telegram.
c) From the side of Third Parties/Public
• Third Parties: when specially informed. If the
agency has been entrusted for the purposes of
contracting with SPECIFIED PERSONS, its
revocation shall not prejudice third persons if
they are not given notice thereof.
• Public: when the appointment of the agent is by
public advertisement. (1873).
• If there is an agency for the purpose of
contracting with third persons, the revocation of
the agency will not affect/prejudice such third
party IF no notice was given. (Art. 1921)
• Notice by way of publication in a newspaper of
general circulation is sufficient warning to 3rd
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persons. If the agent had general powers,
revocation of the agency does not prejudice third
persons who acted in good faith and without
knowledge. NOTICE OF REVOCATION in a
NEWSPAPER OF GENERAL CIRCULATION
is a sufficient warning to third persons.
• Doctrine of apparent authority: One who
clothes another apparent authority as his agent
and holds him out to the public as such, cannot
be permitted to deny the authority of such person
to the prejudice of innocent third parties dealing
with such person in good faith.
2. Kinds of Agency
a) Based on Business or Transactions Encompassed.
• General/Universal Agency
o One authorized to do all acts for his
principal which can lawfully be delegated
to an agent. (Universal)
o One authorized to do all acts pertaining to
a business of a certain kind or at a
particular place, or all acts pertaining to a
business of a particular class or series.
(General)
• Special/Particular Agency
o One authorized to do some particular act
or to act upon some particular occasion;
he acts usually in accordance with
specific instructions or under
limitations necessarily implied from the
nature of the act to be done. (Special)
o Example: A salesman with authority to
collect money for his principal does not
have the implied authority to indorse
checks received in payment. In this case,
8
 the special agency is ONLY for the
collection of money.
b) Whether it Covers Legal Matters
• Attorney-at-Law
o Lawyer.
• Attorney-in-Fact
o Does not have to be a lawyer.
• Also note: the principal can enter into
compromise agreements and that the lawyer
cannot impugn such agreement because doing so
will be an act done in excess of his/her
authority.
c) Whether it Covers Acts of Administration or Acts of
Dominion: “Powers of Attorney”
• Definition: Instrument in writing by which one
person, as principal, appoints another as his agent
and confers upon him the authority to perform
certain acts on his behalf.
• Forms of PoAs
o General or Special
• General Power of Attorney
o An agency couched in general terms
comprises only of acts of administration.
(This does not include acts of strict
ownership such as disposition or
encumbrance).
o Permits the agent to do all acts for which
the law does not require a special power
(see below for enumeration).
• Special Power of Attorney
o The title is not really important, it is the
specific words in the power of attorney
which is controlling. If there appears in
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the Power of Attorney a clear mandate as
to the authority of the agent, then that
clear mandate will control not the mere
title given in the document.
o PoAs are strictly construed, real intention
is important.
o The special power can be included in the
general power when it is specified
therein the act/transaction for which the
special power is required.
o Example: An agent given the general
control and management of a business is
deemed to have the power to employ as
necessary in the conduct of the business.
(No need for SPA)
o RULES ON CONSTRUCTION –
STRICT INTERPRETATION: Power
of attorney must be strictly construed and
pursued to grant only those powers
specified and agent may neither go
beyond nor deviate from the power of
attorney.
 EXCEPTION TO STRICT
INTERPRETATION: Strict
construction is not applicable if
such would result to the
destruction of the very purpose for
which the power is constituted.
o Art 1878 (Instances which REQUIRE a
SPA)
1. Payments not considered as acts of
administration
2. To effect Novations which puts an
end to obligations already in
9
 existence at the TIME the agency
WAS CONSTITUTED.
3. Compromise, Submit questions in
arbitration, Renounce right to
appeal, waive objections to venue
of action, abandon prescription
already acquired
a. Power to compromise
DOES NOT include power
to enter into arbitration.
(1880)
b. Compromise – the power
of parties, by making
reciprocal concessions, to
avoif a litigation or put an
end to one.
c. Arbitration – the power of
parties to submit their
controversis to one or more
arbitrators/arbiters for
decision.
d. Cosmic Lumber v CA –
Compromise agreement
entered into by the agent
without SPA from the
principal IS NULL AND
VOID.
i. Reason: It is not
only unenforceable
because a void,
compromise
agreement usually
substitutes a b. PoA need not be a public
judicial decision
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and is conducted
with the
supervision of the
court. Hence, if the
compromise is
treated with the
force akin to a
judicial decision,
then principal
might be bound
thereby and cannot
interposed
unenforceability.
4. Waive any obligation gratuitously
(condonation or remission)
5. Transfer or Acquisition
(gratuitously or for valuable
consideration) of immovables by
way of contract.
a. 1874: sale of a piece of
land or any interest therein
must be in writing. If not,
then the sale is void.
i. This rule is to
protect the interest
of the owner from
unauthorized acts
of the agent.
ii. Only the sale is
not
necessarily the
agency.
instrument, all that is
10
 necessary in this case is for a. This is not merely an act of
the instrument to be in administration but rather
writing. an act of strict ownership.
c. Agents cannot buy 9. Bind principal to render service
property of principal w/out compensation.
unless authorized 10. Bind principal in a contract of
(1491[2]) partnership
6. To make Gifts 11. Bind principal as guarantor or
7. Loan/Borrow money (unless surety
urgent+indispensable for a. An authority to execute
preservation of things under contracts (lease, sale,
administration.) assignment) relating to the
a. Power to sell excludes the principal’s property in
power to mortgage and relation to the management
vice-versa. of the business will not be
b. If the authority is to secure interpreted as also giving
loans by way of mortgage the power to bind the
and what was entered into principal as guarantor or
was a sale with a right to surety WHEN it is
repurchase, it could fall unconnected with the
w/in the scope of authority conduct of the business.
because such sale can be 12. To create or convey real rights
considered as an equitable (immovables)
mortgage. 13. Accept/Repudiate inheritance
i. This does not 14. Ratify/Recognize obligations
include authority to contracted before agency.
RESCIND or 15. Any OTHER act of STRICT
MODIFY terms of dominion.
the sale. a. Example: Sale or purchase
c. Note: Says here only of PERSONAL
“MONEY”, how about PROPERTY except if
fungible things? (see merely incidental to
mutuum) administration.
8. Lease real property >1 year.

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 b. Anything “real” and • Example: A finance company executes a chattel
“existing” can fall under mortgage with a debtor. The said mortgage contains a
acts of dominion. provision which says that in case of accident/loss, it
• Express PoA excludes Power of shall make a proper claim against the insurance
Administration (GPA) company. Because of that provision, there exists an
d) [moved to (c) under discussion of SPAs] agency relationship wherein the agent (finance
e) Notarized Power of Attorney company) undertakes to carry out the agency to the
a. Carries with it evidentiary weight which is direction of the principal (the debtor/borrower). If the
conferred upon it with respect to its due agent refuses to make a claim according to the
execution. repeated demands of the borrower-principal , then
b. It is a prima facie evidence of its due execution. they have breached their duty and will assume the
i. A buyer could rely on such power of damages suffered by the borrower-principal. They
attorney and be considered as an innocent will no longer be able to collect on the remaining
purchaser. amount on the mortgage loan.
ii. Being prima facie, it is therefore • Negligence in the performance of functions: Agent
rebuttable. is liable for damages.
2. Obligation of Agent Who Declines/Withdraws Agency (Art.
POWER AND OBLIGATIONS OF THE AGENT 1885)
• If agent declines but goods are forwarded to him
1. General Obligation of Agent Who Accepts Agency (Art. [presupposes a no-agency situation]
1884) i. Observe diligence of a good father of a family
• Upon acceptance of appointment, agent is bound to (ordinary diligence)
carry on agency to its completion and for the • If agent WITHDRAWS (as compared to declining
benefit of principal. the agency)
• Otherwise, agent will be liable for damages i. He must continue to act until the principal
which may be suffered by the principal through takes the necessary steps to meet the situation
his non-performance. (Art. 1929)
• In the event of DEATH of Principal. Agent MUST 3. General Rule on Exercise of Power
finish the business already begun should delay entail a. Agent Must Act “Within the Scope of His Authority”
any danger. (Art. 1881)
• The burden is on the person who seeks to make an • Performance within the scope of his authority means
agent liable. It is his burden to show that losses and that according to the terms of the authority, the
damage caused were occasioned by agent acts no further than what is granted to him.
fault/negligence of the agent.

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 • Perform acts conducive to the accomplishment of the
agency purpose (2nd sentence Art. 1881)
• For the act to be binding on the principal, such act
must be within the scope of its authority. The agent is
granted the right to affect legal relations of his
principal by the performance of acts effectuated in
accordance with the principal’s manifestation and
consnet.”
b. Agent Must Follow the Directions of the Principal
• In default thereof (lack of directions), he must
exercise ordinary diligence as required by the nature
of the business. (Art. 1887)
c. Authority of Agent NOT Deemed Exceeded IF
Performed in a Manner Advantageous to Principal
(Art. 1882)
• This is consistent with another article which says
Agent should not act if it would manifestly result
in loss or damage to principal (Art. 1888).
• In the first (Art. 1882), it means that even if the act is
NOT directed by the principal, IF such act redounds
to the benefit / is advantageous to the principal, the
authority of the agent is NOT deemed exceeded.
• In the second (Art. 1888), it means that even if the
act is within the scope it should not be done IF it is
manifestly obvious that such act would RESULT
in LOSS/DAMAGE to principal.
d. Effects of Non-Ratified Acts Done by Agent in Excess
of His Authority: Unenforceable, Not Void. (Art. 1317,
1403 and 1898)
• …A contract entered into in the name of another by
one who has no authority or legal representation, or
who has acted beyond his powers, shall be
unenforceable, unless it is ratified.. (Art. 1317)
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• Unenforceable unless ratified… those entered into
the name of another person by one who has been
given no authority or legal representation, or who has
acted beyond his powers… (Art. 1403[1])
• 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 liable if he
undertook (promised) to secure the principal’s
ratification. (Art. 1898)
o If the 3rd person knows that the agent was
acting beyond the scope of its authority, the
principal cannot be held liable for the acts
of the agent.
o Illustration: An agent exceeds his authority in
a compromise agreement entered on behalf of
the principal by inserting a penalty clause (the
insertion of this clause meant that he
exceeded his authority). The clause is NOT
void but MERELY VOIDABLE (capable of
being ratified).
• Illustration: An administrator enters into a contract
outside the scope of his authority. The contract is
not an absolute nullity. It is simply unenforceable
at the instance of the parties who had been
improperly represented. Only those parties CAN
assert the nullity [unenforceability] of said
contracts.
• These contracts are called unauthorized contracts
and are unenforceable, UNLESS they are ratified.
13
 VOID INSTANCES:
1. Sale of a piece of land or any interest therein by the
agent without written authority, the sale is void (1874)
2. Agent acts beyond the limits of his authority, and the
principal does not ratify, the same shall be void if the
party with whom the agent has contracted is aware about
the agent’s limits. (1898)
3. Any stipulation exempting the agent from the
obligation to render accounts (1891)
4. All of the acts of the substitute appointed against the
prohibition of the principal shall be void (1892). (If
principal’s perspective then void, if third person then
unenforceable. Please refer to syllabus heading)
5. Compromise agreements entered into by the agent
without authority from the principal. (1878 [3])
Cosmic Lumber v CA:
“This being the case, a judgment based on a compromise
entered into by an attorney without specific authority from
the client is void.”
e. Consequences When Agent Acts in His Own Name
• If agent acts in his own name, the principal has no
right of action against the persons with whom the
agent has contracted; neither have such persons
against the principal (Art. 1883[1]).
o Illustration: An agent has a special power of
attorney to mortgage the property of the
principal. Nevertheless, he executed the real
estate mortgage in his own name. According
to Art. 1883[1], such act is not valid and
binding on the principal.
o This provision would mean that the principal
would have no standing to sue by reason of
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the contract entered by the agent in his own
name.
o Exception: when the contract involves things
belonging to the principal.
• … 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 (Art.
1883[2]).
o Mortgage on real property of the principal not
made and signed in the name of the principal
is not valid as to the principal.
o Illustration: The president of a corporation
signs a bill/exchange but fails to disclose his
principal. He becomes liable even when he
did the act expressly as an agent. The NIL
says that any agent who signs in a
representative capacity MUST disclose his
principal or else, such agent will incur
personal liability.
o Exception: When contract involves things
belonging to the principal.
o Illustration: A gives B money to buy a boat.
B buys a boat but does so in his name. B has
breached his fiduciary obligation and is
obliged to transfer the same to the plaintiffs,
or the plaintiffs have a right to be subrogated.
The exception applies in this case because
the MONEY belongs to the principal.
o Illustration: A is a co-owner of a mining
claim with B. A sells the WHOLE of the
claim to C. C knew that the sale included the
one-half share of the other co-owner. In this
transaction, we can consider A to be acting as
14

an agent of B. By reason of Art. 1883 B may
sue C because the transaction involved
things belonging to B.
• These are without prejudice to actions between
Principal and Agent. (Art. 1883[3]).
4. Specific Obligation Rules for Agents
a) No obligation to advance funds (Art. 1886)
• Generally it is the obligation of the Principal to
advance funds.
• Except when there is an express stipulation.
• Exception to the exception: When the principal is
insolvent. (This means that even if there is an express
stipulation, if the principal is insolvent, there will be
no obligation to advance funds.) In this case,
insolvency extinguishes the agency
• Principal will pay interest on advances made by
Agent from the day the said advances were made.
b) Shall carry out agency in accordance with the
instructions of the principal. (Art. 1887)
• If the agent followed the instructions of the principal,
the latter cannot set up the agent’s ignorance or
circumstance which principal was/ought to have
been aware of. (Art. 1899)
• Agents, although they act in representation of the
principal, are not guarantors for the success of the
business enterprise they are asked to manage.
c) Obligation to not carry out the agency if execution would
manifestly result in loss/damage to Principal. (Art.
1888)
d) Duty of Loyalty: Obligation in a Conflict of Interest
Situation
1. Agent is liable to principal if, in case there is a choice
between the principal’s interest or the interest of the
agent, the agent chose his own interest. (Art. 1889)
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
2. This duty does not distinguish between gratuitous or
for compensation agency.
3. Agent is prohibited from buying property entrusted to
him for administration OR sale without principal’s
consent. (Art. 1491[2])
• Agent cannot represent himself and his principal
in a single transaction wherein the liability of the
agent for a debt to the principal is shifted to
another person.
• Illustration #1: The director of a company, D, is
the main negotiator with the Gov’t for the sale of
a piece of land. D knows that the stocks of the
company will rise if there is a completed sale of
the land. D now has the fiduciary duty to the
stockholders to inform them of such knowledge
(In effect, he is their agent). If D goes on to BUY
the shares of other stockholders prior to the
completion of the sale, D is, in effect, committing
fraud and is liable to the stockholders.
• Illustration #2: If an employee X knows that his
principal B is negotiating with the owner O of
some land, and then he surreptitiously buys the
said land in the name of his wife, X commits an
act of disloyalty and he becomes liable for the
damages caused.
e) Rule if agent is Empowered to Borrow/Lend money
(Art. 1890)
1. If empowered to borrow money, he MAY be the
lender at current interest.
2. If empowered to lend money at interest, he
CANNOT borrow without principal’s consent.
f) Obligation to render account (Art. 1891)
1. Agent MUST render account to principal.
15

• Exception: When principal accepted the
correctness of the accounting (even if such
accounting was actually wrong). Notice that
in this case, there was still accounting, BUT it
was inccorect/insufficient accounting. Agents
STILL HAVE TO RENDER
ACCOUNTING. Any stipulation exempting
the agent to render account is VOID.
2. Deliver to Principal whatever is received by virtue of
Agency.
• Everything is included even those NOT due
to the principal because legally speaking, it
is the principal who receives them
(remember that agents act in representation of
their principals so it is them who are
theoretically receiving those things).
• Possession of agent of the money/property of
the principal is termed juridical possession.
3. Obligation arises and becomes demandable at
agency’s end.
4. Stipulation exempting agent from obligation to
render an accounting is void.
• If the principal accepts the accounting of the
agent, he is estopped from asking for a re-
accounting unless he can show that there
was fraud, deceit, error or mistake in the
approval of the accounts.
g) Liability of Agent for Interest (Art. 1896)
• Liable on sums he applied to his own use (from the
time he used them)
• Liable on sums owing the principal (from the
extinguishment of the Agency)
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
• Illustration: X is the agent of F who has died. During
the course of the agency, X made certain transactions
in the name of F. The successor-in-interest S now
claims that such collections/transactions by X were
entered for the personal use of X and as such, S as
successor of F is entitle to the interest. SC rules here
that there must be evidence showing that he
converted the money entrusted to him to his own
use. The burden of proof is on S because he is
claiming that X misappropriated the money.
h) Duty of Diligence: Agent liable for Fraud and
Negligence. (Art 1884 and 1909)
• What shall aggravate or mitigate liability arising out
of negligence is W/N agency was for compensation
or was gratuitous.
• Illustration (Fraud): Agent X induces his Principal P
to sell to him the property Y at a price less than
what he has already contracted to sell it for. In
such a situation, X is liable for the difference (the
amount he sold it for subtracted by the amount which
he bought it from the principal). Such conduct
amounts to fraud which will entitle the principal to
annul the contract.
• Illustration (Negligence): A collecting bank CB was
negligent in stamping ‘all prior indorsements
guaranteed’ without doing the necessary checks on
the indorsements. CB is therefore liable to the
collecting bank for such negligence. The agent (CB)
is not only responsible for fraud BUT also for
negligence.
5. When Agent Appoints a Substitute
a) General Rule: Agent must act by himself, but may
appoint a substitute (WHEN not prohibited)
16

• Old Civil Code Rule: Opposite to the present rule, a
delegated power cannot be further delegated.
• If he was not prohibited to appoint a substitute BUT
it also was NOT expressly conferred as one of his
powers, the agent shall be responsible for the acts
of the sub-agent. (Art. 1892[1])
• If he was given the power to appoint a substitute
without designating the person, the principal
becomes bound to the acts of the sub-agent provided
that such actions were within the scope of its
authority.
• If he was given the power to appoint a substitute
without designating the person BUT the one
appointed was notoriously incompetent or
insolvent, the agent becomes liable for the acts of the
sub-agent. (Art. 1892[2])
b) Effects when Agent Appoints a Substitute (See Above
Discussion)
• A subagent cannot be held at a greater liability than
the main agent.
c) All acts of substitute appointed against principal’s
prohibition are void as against the principal.
• Appointment of a subagent allowed in the absence of
an express agreement to the contrary.
• Illustration #1: Agent X was charged with estafa for
allegedly misappropriating jewelry because X
delivered it to sub-agent Y under the same terms and
conditions as X received it from owner O. There was
no prohibition for the appointment of a sub-agent.
Therefore, the delivery of the jewelry to a sub-agent
in the absence of an express prohibition does NOT
amount to conversion or misappropriation. X is not
liable for estafa although he is civilly liable for the
amount of the jewelry lost.
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
• Illustration #2: The SPA in favor of Agent X
contained an express prohibition from appointing a
sub-agent. Nevertheless the agent appointed a sub-
agent who thereafter executes a deed of sale in the
name of the principal. By Art. 1317[2] such sale is
NOT VOID but rather unenforceable unless ratified.
d) Rights of Principal Againt Substitute
• When the agent is not given the power to appoint one
or when he was given such power but without
designating the person and the person appointed was
notoriously incompetent or insolvent, the principal
may bring an action against the substitute with
respect to the obligations which the latter has
contracted under the substitution.
6. Rule on Liability When Two or More Agents Appointed
by Same Principal
a) Responsibiility of Two or More Agents Not solidary
(Art. 1894)
• Exception: When expressly stipulated.
• When two different persons are given letters of
attorney covering the same powers, the consent of
one is not necessary in order to make the actions of
the other agent to be valid. This is the general rule
unless it was expressly intended by the principal
that the agents ACT JOINTLY.
b) Where Two or More Agents Agree to be Solidarily
Bound (Art. 1895)
• This must be by express stipulation
• Each is responsible for (1) the non-fulfillment of the
agency and (2) for the fault or negligence of his
fellower agent/s.
o Exception to (2): when the fellow agents
acted beyond the scope of their authority.
17

7. Rule on Liability to Third Parties: Agent not Bound to
Third Party (Art. 1897)
• Unless he (1) expressly binds himself or (2) exceeds
the limits of his authority without giving such party
sufficient notice of his powers.
• Example: A resident agent, as a representative of a
foreign company is tasked only to receive legal
processes on behalf of its principal and not to
answer personally for any insurance claims.
a) Principal is the ONE Bound.
• As long as the agent is acting within the scope of his
authority, he does not become bound to the third
party because he is acting in representation of his
principal and, in essence, it is the principal who is
binding himself to the actions and contracts entered
into by the agent.
• Illustration #1: Buyer B buys a certain product from
Seller S. S informs B that part of the purchase price
should be paid directly to one of the creditors of S, C.
When B gives part of that purchase price to C, B
does NOT become subrogated in the rights of C. B
was merely acting as an agent in the payment of the
money due to C.
• Illustration #2: Agent A was authorized to sell land.
A enters into a contract with Buyer B. For some
reason, B no longer wants to buy the property. A, as
agent, cannot claim damages in the form of
unrealized commissions against B because contracts
may only be violated by the parties thereto and the
real parties-in-interest in such cases are the parties to
the contract. The agent is NOT a party to such
contract, therefore, he can claim no damages.
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
• Principal is bound when (1) the representation is
authorized; (2) the act is within the authority of the
agent; (3) it is apparently authorized, regardless of
whether the agent was authorized by him or not.
b) 2 Exceptions to (a)
1. Expressly bound himself
• Note: If there is a previous agent (of a union) who
bound himself personally liable on the contracts
such agent entered into while working for the
union, the new agent is NOT deemed bound by
the assumption undertaken by the original agent.
2. He exceeds his authority without giving notice of
limited powers
• A third party cannot generally sue on the contract
seeking both the principal and the agent to be
liable thereon, for by suing the principal on the
contract, the agent is deemed not to be personally
liable.
• Illustration: Agent A is given the power to
approve loans amounting up to P350k.
Subsequently, A enters into an agreement
wherein it bound the principal as a guarantor. The
total money involved in the said agreement was
P65k. A acted in excess of his authority because
the power to loan DOES NOT include the
power to enter into a contract of guaranty.
• In cases where the agent exceeed the limits of his
authority, the law does not say that a third person
can recover from both principal and agent. (See
the first bullet point under this number).
3. When agent acts with Fraud or Negligence. (also, it
must be beyond the scope of the agent’s authority)
18

• Illustration: Bank B extended a loan to Borrower
C. B required C to get a mortgage-redemption-
insurance for the loan. B then deducted the
premiums pertaining thereto from the loan
proceeds. In this situation B is acting both as
lender and agent of the insurer. B also
knew/ought to have known that C was not
qualified for the MRI because C was over the age
limit for such MRI. B exceeded the limits of his
authority. B is liable to C (in his capacity as
agent).
c) Agent is criminally Liable for crime committed even
in the pursuit of agency.
• Law of agency has no application in criminal
cases.
d) Agent’s written power of attorney, insofar as concerns
Third persons, governs questions whether agent acted
within scope of authority even if it exceeds authority
according to understanding between Principal and
Agent (Art. 1900)
• Illustration: Wife W gave her Husband H the
authority to loan and borrow money and for that
purpose to mortgage her property to secure such
loan. H did get a loan and gave a mortgage on
W’s property to secure the loan. The proceeds of
the loan was paid to H. This transaction is
binding on W regardless of what H will do with
the money he obtained from the loan.
• The burden is on the third party to ascertain the
authority of the agent.
o Ascertain not only the fact of agency
BUT also the nature and extent of such
agency.
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
o Mere representation/declaration is not
enough.
• The person dealing with the agent assumes the
risk of lack of authority of the agent.
o The principal may act on the presumption
that third persons dealing with his agent
will not be negligent in ascertaining the
extent of the authrority of the agent.
• The third person should exercise reasonable
degree of diligence and prudence in ascertaining
the scope of authority of the agent.
e) Third Person cannot set-up facts of agent’s exceeding
authority where principal ratified or signified willingness
to ratify agent’s acts. (Art. 1901)
• Principal should be the one to question agent’s
lack or excess of authority.
• Presentation of power of attorney (MUST) be
required by third party (Art. 1902)
• Private or secret orders of principal do not
prejudice third persons who relied upon agent’s
power of attorney or principal’s instruction. (Art.
1902)
8. Obligations of Commission Agents
a) Commission agent responsible for goods received
according to terms and conditions and as described in
consignment. (Art. 1903)
• Exception: Unless the agent, upon receiving
them, should make a written statement of the
damage and deterioration suffered by the same.
b) Obligation in handling various goods for different
owners (Art. 1904)
• Distinguish them by counter-marks (if goods are
of the same kind and mark) AND designate the
19
 merchandise respectively belonging to each
principal.
o Purpose: To prevent conflict of interest
among owners
• Distinguished from Art. 1976 (Contract of
Deposit) – Depositary may co-mingle grain or
other articles of similar nature and quality.
c) He cannot sell on credit without the principal’s consent
(Art. 1905)
• If done without consent, such sale amounts to a
cash sale as to the principal. This means that
even though the actual sale was on credit, the
principal can demand the payment in cash from
the agent.
d) When with principal’s authority to sell on credit. (Art.
1906)
• He shall inform the principal, with a statement
of the names of the buyers.
• Failure to do so would mean that the sale shall be
deemed to have been made for cash insofar as the
principal is concerned. (Same effect as (c)).
e) Effect when agent receives a guaranty or del credere
commission (Art. 1907)
• The guaranty commission is in addition to the
ordinary commission. In such a case, the agent
shall bear the risk of collection and shall pay
the principal on the SAME TERMS agreed
upon with the purchaser.
f) Liability for failure to collect principal’s credit when due
(Art. 1908)
• Agent is liable for damages unless he proved that
he exercised due diligence for that purpose
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
SUMMARY OF OBLIGATIONS OF THE AGENT TO
THE PRINCIPAL
1. To carry out the agency which 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
should delay entail any danger
4. To observe diligence of a good father of a famiily 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 continue to act as such until the principal takes the
necessary steps to meet the situation, if the agent
withdraws from the agency.
6. To advance the necessary funds should there be a
stipulation to do so
7. 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.
8. Not to carry out the agency if its execution would
manifestly result in the loss or damage to the
principal.
9. To answer for damages if there being a conflict
between his interests and those of the principal, he
should prefer his own.
10. Not to loan himself if he has been authorized to lend
money at interest.
11. To render an account of his transactions and to deliver
to the principal whatever he may have received by
virture of their agency
12. To distinguish goods by countermarks and designate
the merchnsise respectively belonging to each
principal, in the case of a commission agaent, who
20

handles goods of the same kind and mark, which
belong to different owners
13. To be responsible in certain cases (prohibited by the
principal or subagent is notoriously incompetent or
insolvent) for the acts of the substitute appointed by
him.
14. To pay interest on funds he has applied to his own use
15. To inform the principal where an authorize sale of
credit has been made of such sale
16. To bear the risk of collection, should he receive malso
on a sale, a guarantee commission.
17. To indemnify the principal for damages for his failure
to collect the credits of his principal at the time that
they become due (except when he execised due
dilgence for that purpose)
18. To be responsible for fraud or negligence.
Obligations of the Principal
1. Binding effect on principal of contracts made by agents
a) When done within agent’s scope of authority: Principal
Bound (Art. 1897)
• Principals in an agency relationship are solely
obliged to observe the solemnity of the
transaction entered into by the agent on their
behalf, absent any proof that the latter acted
beyond its authority. Also, the principal assumes
the risks that may arise from the transaction.
b) When done outside of agent’s scope of authority:
Principal NOT Bound (Art. 1910)
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
• Illustration: Agent A was authorized by his
principal P to enter into contracts according to
the forms provided by the principal. All the
terms/conditions necessary are in those forms. A
enters into a contract with X BUT instead of
following the forms they entered into an
agreement different from that of the content of
the form provided by the principal. In this case, A
is liable because he exceeded his authority.
c) Exception for (b)
1. Ratification, express or implied (Art. 1910)
• Subsequent acts of the principal is taken into
consideration. The principal is not allowed to
reap the benefits of misrepresentation of its agent
AND at the same time deny its responsibility.
• Illustration: Bank B give authority to its officer O
to give loans to applicants. O goes against the
instructions, rules and regulations of B. O is
therefore liable as agent and the filing of
complaints by B to recover money against the
borrower IS NOT RATIFICATION with
respect to O.
• Generally, mismanagement of the business by its
agent does not relieve the principal from
obligations contracted with third persons. The
agent is NOT a guarantor of the success of a
business.
• Knowledge of the agent is knowledge of the
principal. The principal cannot claim
innocence/lack of knowledge when the agent was
aware of the situation. The agent is responsible
for informing his principal.
21
 • Equitable Maxim: That between two innocent
parties, the one who made it possible for the
wrong to be committed should be the one to bear
the resulting loss.
• If the agent was negligent, BUT still acted within
the scope of its authority, then the principal is
STILL bound. Of course, this is without prejudice
to the actions that the principal might bring up
against the agent.
• Ratification: the adoption or confirmation by one
person of an act performed on his behalf by
another without authority. Substance of this act is
confirmation AFTER conduct. The principal
must have FULL KNOWLEDGE at the time of
ratification of ALL the material facts and
circumstances.
o If material facts were suppressed or
unknown, NO RATIFICATION.
o If the principal’s ignorance to the material
facts are willful or chooses to act in
ignorance of the facts, then this principle
does NOT apply.
• Even when the agent exceeds his authority, the
principal is still solidarily liable together with the
agent if the principal allowed the agent to act as
though the agent had full powers.
Conditions for a 1. The principal must have the
valid ratificiation capacity and power to ratify
2. The principal must have had
knowledge or has reason to
know of material or
essential facts about the
transaction
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
3. He must ratify the acts in its
entirety
4. The act must be capable of
ratification (not void)
5. The act must be done in
behalf of the principal.
2. Where agent acts in excess of authority, where
principal allowed agent to act as though agent had
full powers – Solidarily Liable. (Art. 1911)
a) Exception to the rule that obligations are
presumed to be joint.
b) Doctrine of apparent authority.
• Principal’s manifestation of the existence of
agency
• Third person’s reliance on the conduct of
the principal/agent.
• W/N the principal has by his voluntary act
placed the agent in such a situation that a
person of ordinary prudence is justified in
presuming that such agent has authority to
perform the particular act in question.
• This doctrine is determined ONLY by the
acts of the principal and not by the acts of
the agent.
c) Agency by Estoppel
• Illustration #1: A is the agent of R a real
estate company. A acted unlawfully and
outside the scope of his authority in selling
the same lots twice. The principal accepted
without protest the proceeds of the sale of
22
 the agent. When it learned of the misdeeds,
it took NO ACTION to protect the rights of
the buyers and failed to prevent further wrong
from being committed. R even failed to
advertise the revocation of A’s authority. R
and A are therefore, solidarily liable.
• To claim benefit of estoppel, one must show
that he was not misled through his own want
of reasonable care and circumspection.
• Agency by estoppel requires the proof of
reliance upon the representation, and that, in
turn, needs proof that the representations
predated the action taken in reliance.
• Agency by estoppel similar to doctrine of
apparent authority.
1. Principal manifested a representation of
the agent’s authority OR knowingly
allowed the agent to assume such
authority.
2. Third person, in good faith, relied upon
such representation
3. Relying upon such representation, such
third person has changed his position to
his detriment.
Difference of Apparent Authority and Agency by estoppel
APPARENT AUTHORITY AGENCY BY ESTOPPEL
Authority not actually granted The principal, by his culpable
but principal knowingly negligence, permits his agent
permists the agent to exercise or to exercise powers not granted
holds him out as possessing to him, even though the
such principal may have no notice
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
Not founded on negligence of
the principal but in the
conscious permission of acts
beyond the powers granted
Presence of reliance by third
parties is unnecessary to invoke
apparent authority.
Agency by estoppel and Implied Agency Distinguished
Implied agency
There is an actual agency, as
much as if it were created by
express words. The principal
alone is liable.
Principal is liable for the acts by
the implied agent within scope
of authority.
or knowledge of the conduct
of the agent
The rule of estoppel has its
basis in the negligence of the
principal in failing to properly
supervise the affairs of the
agent, allowinf him to exercise
powers not granted to him, and
so justifies others in believing
he possesses the requisite
authority
Can apply only in those cases
in which third party acted to
his detriment in reliance upon
the appearance of authority the
principal has held the agent
out as having
AGENCY BY ESTOPPEL
There is no agency at all
(either express or implied), but
the one assuming to act as
agent has apparent or
ostensile, although not real,
authority to represent
If estoppel caused by
principal, he is liable to any
third person who relied on the
misrepresentation. If estoppel
is caused by the agent, then
only agent is liable
23

Reliance by an innocent third Agency by estoppel can be
person is not necessary for invoked only by third person
implied agency. who acted in good faith and
relied on the conduct of the
principal in holding agent out
as being authorized
An agent by implied The principal, by his culpable
appointment is a real agent with negligence, permits his agent
all the rights and liabilities of to exercise powers not granted
one. He has actual authority to to him, even though the
act on behalf of the principal. principal may have no notice
or knowledge of the conduct
of the agent
2. Obligations of the Principal
a) Obligation to pay agent’s compensation (Art. 1875)
• When there is a close, proximate and causes
connection between the agent’s efforts and labor and
the principal’s sale of his property, the agent is
entitled to compensation. (PROCURING CAUSE)
• Illustration: A is the agent of B who wanted to sell
Land L. A brings buyer X to B for negotiation. A’s
contract as agent of B expired without any sale
coming to fruition. 8 years after the expiration of
the agency, B was able to sell the land to X. A now
claims compensation, is he entitled to it? NO. The
long time between the expiration of the agency and
the consummation of the sale means that the agent
was no longer the procuring cause.
b) Obligation to advance sums requested for execution of
agency. (Art. 1912)
AGENCY | BLOCK B 2016 (TANTOCO | GALANG)
• Agent has right to reimbursement for expenses
advanced including interest from the day it was
advanced.
• Compare to the situation where agent consents and is
bound to advance sums as stipulated (Art. 1886)
• Where principal not liable to agent for expenses
incurred (Art. 1918)
1. If the agent acted in contravention of the
principal’s instructions, unless the latter should
wish to avail himself of the benefits derived from
the contract;
2. Expenses were due to the fault of the agent;
3. The agent incurred them with knowledge that an
unfavorable result would ensue, if the principal
was not aware thereof;
4. When it was stipulated that the expenses would
be borne by the agent, or that the latter would be
allowed only a certain sum.
• Exception: under general law on obligations and
contracts (Art. 1236), payment by a third party of
the obligation of the debtor, allows recovery
“only insofar as the payment has been beneficial
to the debtor. To rule otherwise would amount to
unjust enrichment
c) Obligation to indemnify agent for damages (Art. 1913)
• Compare to the liability for damages for non-
performance of agency (Art. 1884)
o If the agent is liable to damages caused by
him to the principal (Art. 1884) then it right
and just that the principal be liable to
damages caused to the agent in the course of
the execution of the agency provided that
such agent act without fault or negligence
(Art. 1913).
24

d) Right to retain object of agency in pledge for advances
and damages (Art. 1914)
• This right exists until the principal effects the
reimbursement and pays the indemnity set forth in
1912 and 1913.
• Agent is also bound to deliver everything he
received even if not due the principal (Art. 1891)
• Thing pledged may be sold only after demand of
amount due – Public auction will take place 1 month
after such demand. Debtor may demand the return of
the things NOT sold within this period. (Art. 2122)
o The non-happening of the auction will give
rise to the right of the debtor to the return of
the things not sold.
3. Obligation of two or more principals to agent appointed for
common transactions – SOLIDARY (Art. 1915)
a) Obligation of the principals are solidary because they
have common interest.
• In this case, the agent may recover from any one of
the principals, the obligation being solidary in nature.
b) Compare with two or more agents with one principal –
Agent’s obligation is not solidary unless expressly
stipulated.
c) Right of each principal to revoke authority of common
agent (Art. 1925)
• Anyone of the principal may revoke the authority of
the agent even without consent from the other
principals.
4. Rights of persons who contracted for same thing, one with
the principal and the other with the agent. (Art. 1916)
a) That of prior date is PREFERRED.
b) In double-sale situations, follow Art. 1544
a. Movable property – person who first takes
possession
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b. Immovable property – person acquiring it in
good faith who first recorded it in th Registry
of Property
i. No incription – ownership shall pertain to
the person who in good faith was first in
possession; in the absence thereof, to the
person who presents the oldest title,
provided there is good faith.
5. Liability of Principal and agent to third persons whose
contract must be rejected pursuant to Art. 1916 (Art. 1917)
a) If agent in Good Faith – Principal LIABLE
b) If agent in Bad Faith – Agent alone LIABLE
6. Liability of principal to third persons for acts of agent’s
employees
• There is no vinculum juris between the agent’s employee
and the principal and the contractual relationship
between the principal and agent DOES NOT operate
to creat a juridical tie between the principal and the
agent’s employees.
Extinguishment of Agency
1. How and when agency extinguished (Art. 1919)
a) By principal’s revocation of agency
b) By agent’s withdrawal from agency
c) By death, civil interdiction, insanity, or insolvency of
the principal OR agent.
d) By the dissolution of the Juridical Entity which entrusted
or accepted the agency.
e) By the accomplishment of the object or purpose of the
agency.
f) By the expiration of the period for which the agency
was constituted.
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2. Express Revocation: The principal may revoke agency “at
will”
a) In which case, principal may compel agent to return the
document evidencing the agency (Art. 1920)
• The right of the principal to revoke the agency is only
subject to the requirement of good faith.
b) Right of either two or more principals to revoke
a. Obligation of several principals to common agent
is solidary (Art. 1915)
b. Any of the Principals can revoke authority of
their common agent without the consent of the
others. (Art. 1925)
3. Implied revocation
a) Appointment of new agent for same business/transaction
(Art. 1923)
a. Impliedly revoked as to the agents ONLY.
b. As to third persons, notice to them is necessary
(Art. 1922)
• Notice of the revocation in a newspaper of
general circulation is a sufficient warning to
third persons.
• The fact that a second attorney enters an
appearance on behalf of a litigant does not
authorize a presumption that the authority
of the first attorney has been withdrawn.
• When the agent does not know that his
authority has been revoked, any transaction
entered into prior to such knowledge is valid
and binding.
b) When principal directly manages the business entrusted
to agent. (Art. 1924)
• Agency is revoked.
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• If such actions was clothed with bad faith (e.g. trying
to avoid having to pay the agent’s commission) then
such action cannot be sanctioned and the principal is
still liable to pay the agent whatever it is that is due
him.
• The revocation of a SPA although in a private writing
is valid and binding between the parties.
• Principal may revoke, express or impliedly, a
contract of agency at will, and may be availed of
even if the period fixed in the contract of agency has
not yet expired. Agent may not claim damages from
such revocation unless it can be shown that such acts
were undertaken in order to avoid having to pay
agent’s commission.
c) General power of attorney is revoked by a special one
granted to another agent as regards the special matter
involved in the latter (Art. 1926)
• A SPA giving the son the authority to sell the
principal’s properties is deemed revoked by a
subsequent GPA that does not give such power to the
son. Any sale effected thereafter by the son in the
name of the father would be void.
• A principal may dismiss his employee/agent for (1)
fraud, (2) breach of trust, or (3) engaging in any
commercial transaction for their own account
without the express knowledge and permission of
the principal.
• Courts are without authority to reinstate an agency
arrangement that has been revoked or terminated by
the principal. (Agency cannot be compelled by law or
by any court).
4. Cases of Irrevocable Agencies (Art. 1927)
a) When a bilateral contract depends upon it.
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 • The reason for irrevocability is because the agency
becomes part of another obligation. The rights of
third persons are also affected. In this case, the law
provides that agency cannot be revoked at the sole
will of the principal.
• The ONLY exception where the agency shall remain
in full force and effect even after the death of the
principal is when 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.
b) When it is the means of fulfilling an obligation already
contracted.
• When the agency is created for the mutual interest of
the agent and the principal, such agency cannot be
revoked at will.
• Illustration: Agent A acquired interest in the business
entrusted to her. She even assumed certain personal
obligations (e.g. payment of rent). She continued to
operate the business using her own name, after such
operations were already stopped by the principal. Her
interest is obviously not limited just to the
commissions but one that extends to the very
subject matter of the power of management
delegated to her. It is an agency that cannot be
revoked at will.
• Illustration #2: Agent A is an insurance agent. Given
the extreme difficulty of getting people to buy
insurance policies, if A incurred liability in reliance
on the continuance of the agency and such agency
was terminated (at the will of the principal), A is
exposed to personal loss and liability. This
relationship cannot be considered to be one without
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mutual interest of the principal and agent.
Therefore, it cannot simple be revoked at the sole will
of the principal.
• Also, an agency coupled with interest may be
revoked on the ground of fraud committed by the
agent. In this case, it is actually an act of rescisison
and must be clearly proven.
c) Unjustified removal of managing partner – Revocation
needs the vote of controlling partners (Art. 1800)
• The irrevocability of the agency may not be used to
shield the perpetration of acts in bad faith, breach
of confidence, betrayal of trust, etc.
5. Effects of revocation on third parties
a) When it affects dealing with specified third parties (Art.
1921)
1. Referes to an agency created by principal to deal with
specified third persons
2. For revocation to prejudice them, notice is needed
3. Compared to the effect of special notice or public
advertisement re: Appointment and Revocation of
agent. (Art. 1873)
• In Art. 1873 what it talks about is the
appointment. If you want to bind a specified
person, one needs to specially inform (give
notice to) such person. If you want to bind
everyone else, stating the appointment in a public
advertisement is sufficient.
• In Art. 1921 what is talks about is revocation. In
this case, in order for the specified person(third
party) to be bound, he/she needs to be given
notice thereof. In Art. 1922 it says that notice of
revocation in a newspaper of general circulation
is a sufficient warning to third persons.
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 b) Revocation of agent’s general powers effective against
third persons (Art 1922)
• Refers to agency created to deal with general public
• Revocation will not prejudice third persons who deal
with the agent in good faith and without knowledge
of revocation.
• However notice of revocation in a newspaper of
general circulation is sufficient warning.
• A revocation of a SPA to mortgage a parcel of land
embodied in a private writing, is valid and binding
between the parties.
o Such requirement of Art. 1358 being only for
convenience and to make the contract
effective against third persons.
• If an 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.
• Those who enter into a contract with an agent whose
powers had been revoked, if they are in good faith
will be protected in their contract.
6. Right of agent to Withdraw (Resign) from agency (Art.
1928)
a) By giving due notice to principal
b) Agent to indemnify principal should he suffer any
damage by reason of such withdrawal
c) Unless withdrawal is due to impossibility of continuing
agency without grave detriment to agent.
• Illustration: Agent A wants to withdraw from an
agency contract with Principal P because A’s son is
gravely ill. Subsequently, A sends a letter to P stating
the reason for his withdrawal. A also informed P of
when he will leave, whom he left the property under
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his administration to. A then rendered accounts to P
and gives P all the documents that pertain to his
administration. Such acts are sufficient
manifestations on the part of A in withdrawing from
the agency of P.
d) Agent’s obligation to act even after withdrawing from
agency (Art. 1929)
• He must continue to act until the principal has had
reasonable opportunity to take the necessary steps to
meet the situation. (even if the agent is withdrawing
for a valid reason)
• In comparison with when the agent declines the
agency (Art. 1885)
o In withdrawal from the agency, the agent is
already in the management of a certain
business/property while when the agent
declines an agency, he has not yet undertaken
the management/administration of a certain
business/property.
o In withdrawal, one must continue to act (as
admin/manager) to preserve the business.
o In declining an agency, the only duty is to
observe ordinary diligence in the custody
and preservation of the goods forwarded to
him by the owner until the latter should
appoint an agent or shall take charge of the
goods.
7. Death of the principal extinguishes the agency (Art. 1919[3],
1931)
• Illustration: A is the attorney of P. P subsequently dies
of natural causes. P’s death divests his lawyer of
authority to represent him as counsel. Why? Because a
dead person has NO personality and cannot be
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 2. Adopt measures as circumstances demand in
represented. (Note that there are some exceptions to the principal’s interest.
general rule: see below)
a) When the agency continues despite death of principal • If principal dies, there is no provision in law which
(Art. 1930) requiresoblgiates his heirs to notify the agent.
1. If it was constituted for the common interest of the • In the death of an agent, his rights and obligations
principal and agent; form the contract of agency are not transmissible to
2. In favor of a third person who accepted situation in his heirs.
his favor.
• Illustration: A is the agent of P. A loaned money to P
and was given the power to sell the mortgaged
property is P is not able to pay. P died. After some
time, A moved to foreclose/sell the property. P’s
heirs contested that the agency was already
extinguished upon the death of the principal. Are
they correct? NO. This falls under (1) of the
exception as stated above. Such agency was
constituted in the common interest of the principal
(he was able to borrow money) and the agent (had the
power to sell upon default and also earn interest upon
the principal amount). In this case, P’s death did not
extinguish the agency.
b) Effects of acts done by agent without knowledge of
principal’s death (Art. 1931)
• Acts are valid PROVIDED:
o Agent does not know of the death or other
cause of extinguishment of agency AND;
o Third person dealing with agent MUST also
be in good faith, meaning not aware of death
or other cause of extinguishment of agency.
• Evidence must be adduced that the agent or the
buyers were unaware of the death of the principal.
8. Death of the agent extinguishes the agency
a) Obligation of agent’s heirs in case of death (Art. 1932)
1. Notify principal

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