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Nature and Object of Agency

1. Definition

Contract of Agency: a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another with the consent or authority of the latter. (Art. 1868)


Break down of Characteristics (memory aid)

By contract of agency

- Nominate, Principal

a person binds himself

- Unilateral

to render some service or to do something

Primarily Onerous, Preparatory


in representation or on behalf of another

Representative, Personal, Fiduciary


with the consent or authority of the latter


Consensual, Revocable

2. Roots and Objecttives

1. Purpose: The ability, by legal fiction, to extend the personality of the principal through the facility of the agent. i. What a man may do in person he may do through another.

2. Art. 1307: No one may enter into a contract in the name of another without being authorized or unless he has a right in law to make such representation.

3. Art. 1403[1]: Contracts entered into in the name of another without authority are unenforceable unless ratified.

3. Elements of a Contract of Agency (C.O.R.S)

1. Consent, express or implied, of the parties.

2. Object, the execution of a juridical act in relation to third parties.

3. Agent acts as a Representative and not for himself.

4. Agent acts withing Scope of his authority.

No presumption of agency, proving the nature and extent of the authority is incumbent upon the person alleging it.

o Agency is a question of fact.

A. Consent

Principal: actual/implied intention to appoint.

Agent: actual/implied intention to accept.

B. Object or Subject Matter: Execution of Juridical

Acts in Behalf of Principal

The execution of Juridical acts in behalf of the principal must NOT be compelled by law or any court.

C. Consideration

Agency is presumed to be for compensation, unless there is proof to the contrary. (Art.


This means that such presumption may be rebutted by competent evidence. [Only prima facie]

The intention can be inferred from the principal’s manifestations.

OLD CIVIL CODE: Agency is presumed to be gratuitous.

4. Essential Characteristics of Agency (NP. UP. C. PR. PFR.)

a) Nominate and Principal

Representative: obligations are contracted

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

for and in behalf of another. (qui facit per alium facit per se: he who acts through another acts himself)

agency because it will still be treated as an




Principal is liable if agent acts within

If agent buys property in bad faith,

Nominate – own name/chapter/title in the Civil Code


the scope of his authority.

Principal – can stand on its own

principal is a buyer in bad faith.

It will be an agency w/n the parties understood it as an agency. What is controlling is the essence of the actions.


Notice to the agent is notice to the principal (even if the principal NEVER became aware of the notice)

b) Unilateral and Primarily Onerous


Third person must discover upon his

Unilateral – only one party makes a promise or undertakes performance


peril the authority of the agent.

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.

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.

Agent (acceptance): Express or Implied, from his acts, silence or inaction.

The basis for agency is representation. It is


The acts of the agent (within the scope of authority), by legal fiction, become the acts of the principal.

incumbent upon the person dealing with an agent to discover upon his peril the authority


Hence, these acts are generally binding upon the principal.

of the agent.

When agent may be held liable

Example: A co-owner does not necessarily


Expressly binds himself

become the agent of the other co-owners with


Exceeds his authority and does not

respect to the sale of a co-owned land. Meaning that the sale of a co-owner of land of

give the third party sufficient notice of his authority/powers.

the whole land will not bind the other co-


Personal, Fiduciary, and Revocable

owners absent any authorization from the

Fiduciary: similar to a trust relationship.

other co-owners.


Agent is precluded from asserting a

d) Preparatory and Representative (and Derivative)

title adverse to that of the principal.


Cestui que trust – Consistent with the principles of good faith, he ccannot be allowed to create in himself an interest in opposition to that of his principal. (relate to conflict of interest later)


over the agent with respect to the matters relevant to the agency only. Control and direction is merely incidental for representation

to ensure duties and responsibilities are undertaken. (Remember Coch’s example:


Art. 1491 [2] – regarding the property forming the subject matter of the agency, agent cannot acquire or buy such from the principal (unless there is consent)

employee’s being monitored regarding attendance, tasks etc.)


By legal fiction, the agent becomes the principal in so far as the former acted within his authority or the latter ratifies it.

Cannot represent employer. Principal/Employer’s responsibility is only vicarious (respondeat superior)

Death (principal or agent): agency is extinguished.

Revocable: Generally, the principal can revoke the authority of the agent at will.


5. Distinguished from other similar contracts

a) Employment Contract

Principle of Representation: Not present in a security guard – company employment. In contrast with Agency whereing representation serves as its basis.

Single Person performing SAME task as BOTH employee and agent: Devoid of ANY

jurisprudential support or precedent.





Main Purpose

For Representation (must undertake purpose of agency in representation of the principal)

Fulfillment of duties and responsibilities in accordance with job description

Element of

Principal exercises control and direction

Employer exercises control over employees


b) Contract for a Piece-of-Work





Main Purpose

For Representation (must undertake purpose of agency in representation of the principal)

Fulfillment of specific duty or result or product

Element of


Principal exercises control and direction over the agent with respect to the matters relevant to the agency only. Control and direction is merely incidental for representation

Generally the principal/employer does not have control over the contractor except only with regard to the RESULT or PRODUCT. (Free to do anything as long as the task or product is



By legal fiction, the agent becomes the principal in so far as the former acted within his authority or the latter ratifies it.

No representation



purchaser ready to buy the object on the terms of the seller). Important: broker’s efforts must be the foundation where the negotiations resulting in the sale BEGAN.

Difference: A real estate broker, for example, only has to find a purchaser BUT he cannot bind the principal by signing a contract of sale. The authority to find a purchaser does not include the authority to sell.

Broker: duty is only to find a purchaser. Such broker becomes entitled to the usual commissions whenever he brings a party who is able and willing to take the property and enter into a valid contract. (The nitty gritty details may still be negotiated by the principal and the buyer without participation




Main Purpose

For Representation (must undertake purpose of agency in representation of the principal)

Task is to only find a purchaser; to bring the buyer and seller together; the “procuring cause” of the sale

from the broker. The JOB of the broker is simply to bring them together.)

Element of

Through the principal, agent/commission-agent is one engaged in the purchase or sale for another of a property which for this purpose is placed upon his possession and at his disposal. (agent has a relation with the principal and the subject property)

Broker has no relation with the subject property or the principal

Broker: earns pay merely by bringing the buyer and seller together, even if no sale is eventually made.

Control over

the Subject


Agent: receives his commission upon the successful conclusion of the sale.


Duties and liability (Broker): essentially the same with that of an agent (This means that principles of contract law also govern broker- principal relationships). Therefore, a broker has to render an account of whatever he may have received by virtue of the relationship.

Procuring Cause: refers to a cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime objective of the employment of the broker (to produce a


By legal fiction, the agent becomes the principal in so far as the former acted within his authority or the latter

Broker cannot

represent the



situation: see


ratifies it.

Domingo v Domingo] Broker has no relation with the principal and that its task is only to negotiate between the parties




















Mode of Transfer

Delivery only (Principal delivers goods, agent receives them)


Delivery of the goods to the buyer and transfer of ownership


Indentor – one who, for compensation, acts as a middleman in bringing about the purchase and sale of goods between a foreign supplier and a local purchaser.

In Tan v Gullas broker earns his money or his pay merely by bringing the buyer and seller together. Compare with Medrano v CA wherein broker must be the procuring cause which would result into the consummation of the sale.


Mode of

Agent cannot appropriate. Proceeds of the sale must be delivered to the principal, but agent is entitled to his commission.

Buyer appropriates the thing for himself since he is the owner




Restitution For

If agent is unable to sell, he may return the thing to the principal

Generally, buyer cannot return since he is the owner.

Non-Sale or




Agency: There is no personal responsibility and duty to actually buy the products unlike in sale.


Control of the thing

Agents is bound according to the instructions of the principal


Owner may do anything he pleases.


A real agent’s obligation is merely to turn over the proceeds of the sale to the principal once he receives them from the buyer. A true agent bears NO risk relating to the subject matter or the price.



Other Contracts


If the contract entails that the pruported “agent” is going to bear the risk of the change in price of the products such “agent” is NOT bound to render account to his principal because such relationship is not one of agency but rather that of sale.






Advances in


General rule:


The creditor lends (or advances) money or fungible things to the debtor.


Principal must advance money upon request of the agent. Agent does not incur


debt here since principal is not lending the agent money [If otherwise stipulated or when necessary for the business, agent may advance.]






Use of the thing







Agent must take care of the thing delivered to him by the principal according to the latter’s instructions or in default thereof, agent must exercise diligence of a good father.

Bailee is entitled to the enjoyment and use of the thing. Bailee still needs to exercise due care.

Capacity to

In agency, agent may lend money to the principal. But agent cannot borrow from the principal without the latter’s consent.

Agent may collect loans on behalf of the principal.

Creditor, upon assessment of credit worthiness if necessary, may lend to a debtor.


Creditor may demand

payment from debtor if loan is due


Principal exercises control over the agent with regard to the thing.

Bailor does not exercise control over bailee.


Principal is liable for the actions of the agent withing the scope of authority.

Bailor is not liable for the actions and liabilities of the bailee.

Agent needs a written S.P.A. to loan to or borrow from a third person UNLESS the latter act is urgent and indispensible for the preservation of the things which are under the agent’s administration

Debtor borrow money from a third person on his own.





The authority of the agent is derived from the principal.

Authority of the guardian is not derived from the ward. It may be conferred by law or by appointment.


Principal exercises control over the agent with regard to the things under his

Guardian exercises control and supervision over the ward pursuant to the authority


Trust Relationship (Fiduciary)




administration or the purpose of the agency.

conferred upon the former.





Creation of


Guardianship may consituted even without mutual consent or even with the incapacity of the ward (e.g. minority, insanity, etc.)















1. How Agency May Be Constituted.

For express agency

b) From the side of the Agent.

Express or Implied acceptance.

When present (1870): If given a letter with power of attorney then it is received WITHOUT objection.


General Rule: No specific form is required to constitute agency

When absent (1871): no implication unless (1) power of attorney is transmitted and received


Certain formalities may be required.

without any objection or (2) it is entrusted a


Form is required for the validity of a contract

power of attorney in a letter/telegram and there


Form is required to make it effective against

was no reply to the letter or telegram.

third parties. iii. Form is required for the purpose of proving

the existence of the contract.

For implied agency

o Constituted by acts, silence, lack of action, failure to repudiate the agency (1869).

a) From the side of the Principal

Example: If the principal acquiesced in the acts of the agent and even received and appropriated to his own use the benefits result in from the acts of the agent, then there is an implied agency.

Special information: having specially informed another, principal must give due and timely notice to the agent, for the latter to be bound to that specific person.

Public Advertisement: having publicly advertised the agency, the principal must give due and timely notice to the agent for the latter to be bound with regard to any person.

In both cases: Power shall be in full force until notice of rescission. Rescission should be in the same manner given





- Stipulation

- Silence

- Stipulation

- Silence

- Consent


- Lack of action

- freely


- Inaction depending on the circumstances


- Failure



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.


(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 3 rd

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


One authorized to do all acts for his principal which can lawfully be delegated


an agent. (Universal)


One authorized to do all acts pertaining to


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


One authorized to do some particular act


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)


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,

the special agency is ONLY for the collection of money.

b) Whether it Covers Legal Matters

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.



PoAs are strictly construed, real intention



is important.



The special power can be included in the

Example: An agent given the general


Does not have to be a lawyer.

general power when it is specified

Also note: the principal can enter into compromise agreements and that the lawyer cannot impugn such agreement because doing so

c) Whether it Covers Acts of Administration or Acts of


therein the act/transaction for which the special power is required.

will be an act done in excess of his/her authority.

control and management of a business is deemed to have the power to employ as necessary in the conduct of the business.

Dominion: “Powers of Attorney”

(No need for SPA)

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.


RULES ON CONSTRUCTION – STRICT INTERPRETATION: Power of attorney must be strictly construed and pursued to grant only those powers

Forms of PoAs

specified and agent may neither go


General or Special

beyond nor deviate from the power of

General Power of Attorney




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).

EXCEPTION TO STRICT INTERPRETATION: Strict construction is not applicable if such would result to the destruction of the very purpose for


Permits the agent to do all acts for which

which the power is constituted.

the law does not require a special power (see below for enumeration).


Art 1878 (Instances which REQUIRE a SPA)

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

1. Payments not considered as acts of administration

2. To effect Novations which puts an end to obligations already in

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.


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 compromise agreement usually


and is conducted


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


necessarily the agency.




b. PoA need not be a public



instrument, all that is


necessary in this case is for the instrument to be in writing.


property of principal

unless authorized




a. This is not merely an act of administration but rather an act of strict ownership.

9. Bind principal to render service w/out compensation.

10. Bind principal in a contract of partnership

6. To make Gifts


11. Bind principal as guarantor or

7. Loan/Borrow







An authority to execute

preservation of things under administration.)

contracts (lease, sale, assignment) relating to the


Power to sell excludes the power to mortgage and

principal’s property in relation to the management


vice-versa. If the authority is to secure loans by way of mortgage and what was entered into was a sale with a right to repurchase, it could fall w/in the scope of authority

of the business will not be interpreted as also giving the power to bind the principal as guarantor or surety WHEN it is unconnected with the conduct of the business.

because such sale can be considered as an equitable

12. To create or convey real rights (immovables)


13. Accept/Repudiate inheritance


This does not include authority to

14. Ratify/Recognize obligations contracted before agency.


15. Any





MODIFY terms of




the sale. Note: Says here only “MONEY”, how about fungible things? (see mutuum)


Example: Sale or purchase of PERSONAL PROPERTY except if merely incidental to administration.

8. Lease real property >1 year.



“existing” can fall under acts of dominion.




Administration (GPA)





d) [moved to (c) under discussion of SPAs]

e) Notarized Power of Attorney

a. Carries with it evidentiary weight which is

conferred upon it with respect to its due execution.

b. It is a prima facie evidence of its due execution.


A buyer could rely

on such power of

attorney and be considered as an innocent purchaser. ii. Being prima facie, it is therefore rebuttable.


1. General Obligation of Agent Who Accepts Agency (Art.


Upon acceptance of appointment, agent is bound to carry on agency to its completion and for the benefit of principal. Otherwise, agent will be liable for damages which may be suffered by the principal through his non-performance.

In the event of DEATH of Principal. Agent MUST finish the business already begun should delay entail any danger.

The burden is on the person who seeks to make an agent liable. It is his burden to show that losses and damage caused were occasioned by fault/negligence of the agent.

Example: A finance company executes a chattel mortgage with a debtor. The said mortgage contains a provision which says that in case of accident/loss, it shall make a proper claim against the insurance company. Because of that provision, there exists an agency relationship wherein the agent (finance company) undertakes to carry out the agency to the direction of the principal (the debtor/borrower). If the agent refuses to make a claim according to the repeated demands of the borrower-principal , then they have breached their duty and will assume the damages suffered by the borrower-principal. They will no longer be able to collect on the remaining amount on the mortgage loan.

Negligence in the performance of functions: Agent is liable for damages.

2. Obligation of Agent Who Declines/Withdraws Agency (Art.


If agent declines but goods are forwarded to him [presupposes a no-agency situation]

i. Observe diligence of a good father of a family (ordinary diligence)

If agent WITHDRAWS (as compared to declining the agency)

i. He must continue to act until the principal takes the necessary steps to meet the situation (Art. 1929)

3. General Rule on Exercise of Power

a. Agent Must Act “Within the Scope of His Authority” (Art. 1881)

Performance within the scope of his authority means that according to the terms of the authority, the agent acts no further than what is granted to him.

Perform acts conducive to the accomplishment of the agency purpose (2 nd 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)

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)

c. Authority of Agent NOT Deemed Exceeded IF Performed in a Manner Advantageous to Principal


If the 3 rd person knows that the agent was acting beyond the scope of its authority, the


(Art. 1882)

principal cannot be held liable for the acts

This is consistent with another article which says


of the agent.

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)

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

…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

These contracts are called unauthorized contracts and are unenforceable, UNLESS they are ratified.

unenforceable, unless it is ratified

(Art. 1317)




the contract entered by the agent in his own name.


Sale of a piece of land or any interest therein by the agent without written authority, the sale is void (1874)



Exception: when the contract involves things belonging to the principal.


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)

… 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.


Any stipulation exempting the agent from the obligation to render accounts (1891)




Mortgage on real property of the principal not made and signed in the name of the principal


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)



not valid as to the principal.



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.


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.”


Consequences When Agent Acts in His Own Name



Exception: When contract involves things belonging to the principal.

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]).



Illustration: A gives B money to buy a boat.



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.


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.



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



This provision would mean that the principal would have no standing to sue by reason of

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.


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)

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.

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)

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)

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.

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.

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.

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)

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


c) Agent is criminally Liable for crime committed even in the pursuit of agency.

Law of agency has no application in criminal


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.

o Mere





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.


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

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.


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


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

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)

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.

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.


If material facts were suppressed or unknown, NO RATIFICATION.


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.

a valid ratificiation



1. The principal must have the 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

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

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



Authority not actually granted but principal knowingly permists the agent to exercise or holds him out as possessing such

The principal, by his culpable negligence, permits his agent to exercise powers not granted to him, even though the principal may have no notice

or knowledge of the conduct of the agent

Not founded on negligence of the principal but in the conscious permission of acts beyond the powers granted

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

Presence of reliance by third parties is unnecessary to invoke apparent 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 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.

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

Principal is liable for the acts by the implied agent within scope of authority.

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

Reliance by an innocent third person is not necessary for implied agency.

Agency by estoppel can be invoked only by third person who acted in good faith and relied on the conduct of the principal in holding agent out as being authorized

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

The principal, by his culpable negligence, permits his agent to exercise powers not granted to him, even though the 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)



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).

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

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.

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.

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.

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

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.


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.

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.

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)



Such requirement of Art. 1358 being only for

convenience and to make the contract

In comparison with when the agent declines the



effective against third persons.

agency (Art. 1885)

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.


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

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.


In withdrawal, one must continue to act (as admin/manager) to preserve the business.

6. Right of agent to Withdraw (Resign) from agency (Art.


In declining an agency, the only duty is to


observe ordinary diligence in the custody


By giving due notice to principal

and preservation of the goods forwarded to


Agent to indemnify principal should he suffer any damage by reason of such withdrawal

him by the owner until the latter should appoint an agent or shall take charge of the


Unless withdrawal is due to impossibility of continuing


agency without grave detriment to agent.


Death of the principal extinguishes the agency (Art. 1919[3],

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


Illustration: A is the attorney of P. P subsequently dies


authority to represent him as counsel. Why? Because a

dead person has NO personality and cannot be









represented. (Note that there are some exceptions to the general rule: see below)

a) When the agency continues despite death of principal (Art. 1930)

1. If it was constituted for the common interest of the principal and agent;

2. In favor of a third person who accepted situation in 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:


Agent does not know of the death or other cause of extinguishment of agency AND;


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








principal’s interest.


If principal dies, there is no provision in law which requiresoblgiates his heirs to notify the agent.

In the death of an agent, his rights and obligations form the contract of agency are not transmissible to his heirs.