REPORT NARRATIVE ON THE

CONTRACT OF AGENCY

A final requirement for the subject:

Laws on Partnership, Agency, and Trust

Submitted by:

Rosel Joy A. Provido

Jonathan G. Pacifico
Christzabelle L. Villa
Gerald Mamaradlo

Submitted to:

Atty. Mykedox Knoel Cuchapin

June 3, 2019
 CHAPTER 1
NATURE, FORM AND KINDS OF AGENCY

by: Rosel Joy A. Provido

WHAT IS A CONTRACT OF AGENCY?

Under Article 1868 of the New Civil Code

By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.

WHAT ARE THE CHARACTERISTICS OF A CONTRACT OF AGENCY?

1. Bilateral – If it is for compensation, it gives rise to reciprocal rights and obligations.

2. Unilateral – If gratuitous, it creates obligations for only one of the parties.
3. Nominate – It has its own name.
4. Consensual – It is perfected by mere consent
5. Principal – It can stand by itself without need of another contract.
6. Preparatory – It is entered into as a means to an end
7. Generally onerous
8. Representative relation-the agent acts for and on behalf of the principal on matters
within the scope of his authority and said acts have the same legal effect as if they were
personally executed by the principal

WHAT ARE THE CLASSIFICATION OF AGENCY?

1. As to manner of creation
a. Express – Agent has been actually authorized by the principal, either orally or in
writing (NCC, Art. 1869).
b. Implied– Agency is implied from the acts of the principal, from his silence or lack of
action or his failure to repudiate the agency, knowing that another person is acting on his
behalf without authority (NCC, Art. 1869)

2. As to character
a. Gratuitous – Agent receives no compensation for his services (Art. 1875)
b. Onerous– Agent receives compensation for his services (NCC, Art. 1875)

3. As to extent of business of the principal

a. General – Agency comprises all the business of the principal (NCC, Art. 1876).

b. Special– Agency comprises one or more specific transactions (NCC, Art. 1876).

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4. As to authority conferred

a. Couched in general terms – Agency is created in general terms comprises only acts of
administration (NCC, Art. 1877).

b. Couched in specific terms – Agency authorizing only the performance of a specific act
or acts (NCC, Art. 1876)

5. As to nature and effects

a. Ostensible or representative – Agent acts in the name and representation of the

principal (NCC, Art. 1868).

b. Simple or commission – Agent acts in his own name but for the account of the principal

WHO ARE THE PARTIES TO A CONTRACT OF AGENCY?

1. Principal – One whom the agent represents and from whom he derives his authority;
he is the person represented.

2. Agent – One who acts for and represents another; he is the person acting in a
representative capacity

WHAT ARE THE ESSENTIAL ELEMENTS OF AN AGENCY?

1. Consent (express or implied) of the parties to establish the relationship.

A person may express his consent:

a. by contract (NCC, Art. 1868), orally or in writing;

b. by conduct (NCC, Art. 1869);

c. by ratification (NCC, Art. 1910); or

d. the consent may arise by presumption or operation of law

2. The object is the execution of a juridical act in relation to third persons.

3. The agent acts as a representative and not for himself.

4. The agent acts within the scope of his authority

WHAT ARE THE REQUISITES FOR THE APPOINTMENT OF AN AGENT?

General Rule: There are no formal requirements governing the appointment of an agent.

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 Exception: When the law requires a specific form. i.e. – when sale of land or any interest
therein is through an agent, the authority of the latter must be in writing; otherwise, the
sale shall be void (NCC, Art. 1874).

WHAT ARE THE RULES ON IMPLIED ACCEPTANCE OF AGENCY?

There are two circumstances to consider in order to know what rules to apply on implied
acceptance of agency:

The first circumstance is:

1. Between persons who are present –

The acceptance of the agency may also be implied if the principal delivers his power
of attorney to the agent and the latter receives it without any objection (NCC, Art.
1871)
The second circumstance is:

2. Between persons who are absent –

The acceptance of the agency cannot be implied from the silence of the agent except:

a. When the principal transmits his power of attorney to the agent, who
receives it without any objection;

b. When the principal entrusts to him by letter or telegram a power of attorney

with respect to the business in which he is habitually engaged as an agent and
he did not reply to the letter or telegram (NCC, Art. 1872).

HOW DOES AN AGENT ACCEPT THE AGENCY?

Acceptance by the agent may also be express or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances (NCC, Art. 1870).

WHAT IS THE NATURE OF THE RELATIONSHIP BETWEEN PRINCIPAL AND

AGENT?

It is fiduciary in nature that is based on trust and confidence. The agent is estopped from
asserting or acquiring an interest adverse to that of his principal.

WHAT ARE THE QUALIFICATIONS OF A PRINCIPAL?

He must be a natural or juridical person and he must have capacity to act.

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WHAT ARE THE KINDS OF PRINCIPAL?

Disclosed principal – At the time of the transaction contracted by the agent, the other party
knows that the agent is acting for a principal and of the principal’s identity.

Partially disclosed principal – The other party knows or has reason to know that the agent is
or may be acting for a principal but is unaware of the principal’s identity.

Undisclosed principal – The party has no notice of the fact that the agent is acting as such
for a principal

WHAT DO WE MEAN BY “JOINT PRINCIPALS”?

Two or more persons appoint an agent for a common transaction or undertaking (NCC, Art.
1915).

WHAT ARE THE REQUISITES FOR SOLIDARY LIABILITY OF JOINT

PRINCIPALS?

First, there are two or more principals. Second, they have all concurred in the appointment
of the same agent. Third, the agent is appointed for a common transaction or undertaking.

WHAT IS THE THEORY OF IMPUTED KNOWLEDGE?

The importance of the duty to give information of material facts becomes readily apparent
when it is borne in mind that knowledge of the agent is imputed to the principal even though
the agent never communicated such knowledge to the principal.

Is the Theory absolute? What are the exceptions?

The theory is not absolute. The exceptions are: First, the agent’s interests are adverse to
those of the principal. Second, the agent’s duty is not to disclose the information, as where
he is informed by way of confidential information. Third, the person claiming the benefit of
the rule colludes with the agent to defraud the principal.

In the case of Sunace International Management Services, Inc. v. NLRC, (G.R.

No. 161757, January 25, 2006), the Supreme Court discussed the theory, to wit:

The theory of imputed knowledge ascribes the knowledge of the agent to the principal, not
the other way around. The knowledge of the principal cannot be imputed to his agent.

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WHAT ARE THE KINDS OF AGENTS?

Universal agent – employed to do all acts which the principal may personally do, and which
he can lawfully delegate to another the power of doing.

General agent – employed to transact all business of the principal, or all the business of a
particular kind or in a particular place, do all acts connected with a particular trade, business
or employment.

Special or particular agent – authorized to do act in one or more specific transactions or to

do one or more specific acts or to act upon a particular occasion

IS THE EXISTENCE OF AGENCY PRESUMED?

The general rule is that Agency is not presumed. The relation between principal and agent
must exist as a fact. Thus, it is held that where the relation of agency is dependent upon the
acts of the parties, the law makes no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the person alleging the agency to show, not
only the fact of its existence, but also its nature and extent.

What are the exceptions?

First, by operation of law; and second, to prevent unjust enrichment

WHAT IS “AGENCY BY NECESSITY”?

Agency cannot be created by necessity. What is created instead is additional authority in an

agent appointed and authorized before the emergency arose. By virtue of the existence of an
emergency, the authority of an agent is correspondingly enlarged in order to cope with the
exigencies or the necessities of the moment.

WHAT ARE THE REQUISITES FOR THE ADDITIONAL AUTHORITY OF

AGENT IN CASES OF NECESSITY?

First, there must be a real existence of emergency. Second, there must be an inability of the
agent to communicate with the principal. Third, the exercise of additional authority is for
the principal’s protection. Lastly, there must be an adoption of fairly reasonable means,
premises duly considered.

WHAT IS THE RULE REGARDING DOUBLE AGENCY?

The general rule is that it is disapproved by law for being against public policy and sound
morality.

The exception is where the agent acted with full knowledge and consent of the principals.

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WHAT ARE THE ACTS THAT A PRINCIPAL MAY DELEGATE TO HIS AGENT?

The general rule: What a man may do in person, he may do thru another.

The exceptions are personal acts; and criminal acts or acts not allowed by law.

Example of personal acts are marrying a person. One cannot marry a person on behalf of the
other.

What are the instances when the act of an agent is binding to the principal?

1. When the agent acts as such without expressly binding himself or does not exceed the
limits of his authority (NCC, Art. 1897).
2. If principal ratifies the act of the agent which exceeded his authority (NCC, Art. 1898).
3. Circumstances where the principal himself was, or ought to have been aware (NCC,
Art. 1899).
4. If such act is within the terms of the power of attorney, as written (NCC, Arts.
1900&1902).
5. Principal has ratified, or has signified his willingness to ratify the agent’s act (NCC,
Art 1901).

WHAT ARE THE EFFECTS OF THE ACTS OF AN AGENT?

We have to take note of two instances: with authority and without authority.

If it is with authority:
a. In principal’s name – Valid
b. b. In his own name – Not binding on the principal; agent and stranger are the only
parties, except regarding things belonging to the principal or when the principal
ratifies the contract or derives benefit there from.

If it is without authority:
a. In principal’s name – Unenforceable but may be ratified, in which case, may be
validated retroactively from the beginning.
b. In his own name – Valid on the agent, but not on the principal.

WHAT IS THE RULE AS TO WHEN THE PRINCIPAL IS NOT BOUND BY THE

ACT OF THE AGENT?

The general rule is, he is not bound then the act is without or beyond the scope of his
authority in the principal’s name.
The exceptions are:
a. Where the acts of the principal have contributed to deceive a 3rd person in good faith.

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 b. Where the limitation upon the power created by the principal could not have been
known by the 3rd person. c. Where the principal has placed in the hands of the agent
instruments signed by him in blank. d. Where the principal has ratified the acts of the
agent.
Also, he is not bound when the act is within the scope of the agent’s authority but in his own
name.

The exception is: When the transaction involves things belonging to the principal (NCC, Art.
1883).

We have to take note that the limits of the agent’s authority shall not be considered exceeded
should it have been performed in a manner more advantageous to the principal than that
specified by him.

WHAT ARE THE RIGHTS OF AGENTS?

The following are instances when the agent may retain in pledge the object of the agency:
1. If principal fails to reimburse the agent the necessary sums, including interest, which the
latter advanced for the execution of the agency (NCC, Art. 1912).
2. If principal fails to indemnify the agent for all damages which the execution of the agency
may have caused the latter, without fault or negligence on his part (NCC, Art. 1913).

WHAT IS THE RULE WHEN TWO PERSONS DEAL SEPARATELY WITH THE
AGENT AND THE PRINCIPAL?
If the two contracts are incompatible with each other, the one of prior date shall be preferred.
This is subject however to the rule on double sale under Art. 1544 of the NCC.
We have to take note of the Rules of preference in double sale:

1. Personal property – possessor in good faith

2. Real property a. Registrant in good faith b. Possessor in good faith c. Person with the
oldest title in good faith (NCC, Art. 1544).
If agent acted in good faith, the principal shall be liable for damages to the third person
whose contract must be rejected. If agent is in bad faith, he alone shall be liable (NCC, Art.
1917).

Here are some of the related cases of the contract of agency:

In the case of Ong v. CA (G.R. No. 119858, April 29, 2003):

A person acting as an agent cannot escape criminal liability by virtue of the contract of
agency. The law on agency has no application in criminal cases. When a person participates
in the commission of a crime, he cannot escape punishment on the ground that he simply
acted as an agent of another party

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In the case of Uy v. CA (G.R. No. 120465, September 9, 1999):

An agent cannot maintain an action against persons with whom they contracted on behalf of
his principal. Agents are not a party with respect to that contract between his principal and
third persons. As agents, they only render some service or do something in representation
or on behalf of their principals. The rendering of such service did not make them parties
to the contracts of sale executed in behalf of the latter.

The fact that an agent who makes a contract for his principal will gain or suffer loss by the
performance or non-performance of the contract by the principal or by the other party
thereto does not entitle him to maintain an action on his own behalf against the other party
for its breach.

In the case of Sps. Yu v. Pan American World Airways, Inc., (G.R. No. 123560, March 27,
2000):

Proving the existence of principal-agent relationship through mere representation. Mere

representation of an alleged agent is not sufficient to prove the existence of a principal-agent
relationship. The declarations of the agent alone are generally insufficient to establish the
fact or extent of agency. It is a settled rule that the persons dealing with the assumed agent
are bound at their peril, if they would hold the principals liable, to ascertain not only the fact
of agency but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it.

Now, let’s compare the contract of agency to other contracts:

AGENCY VS. GUARDIANSHIP

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AGENCY VS. JUDICIAL ADMINISTRATION

AGENCY VS. JUDICIAL ADMINISTRATION

AGENCY VS. TRUST

(Source: De Leon, 2010)

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 CHAPTER 2
OBLIGATIONS OF THE AGENT
by: Jonathan G. Pacifico

SPECIFIC OBLIGATION OF THE AGENT TO THE PRINCIPAL

• To carry out the agency that he has accepted

• To suffer damages which through his performance the principal may suffer
• To finish the partnership already begun on the death of the principal
• To observe diligence of a father of a good family in the custody and the preservation
of the goods forwarded to him in case he declines the agency until an agent is
appointed
• To advance the necessary funds should there be a necessity to do so
•
SPECIFIC OBLIGATION OF THE AGENT TO THE PRINCIPAL

• To act in accordance with the instructions of the principal and in default thereof to do
all the good father of a family would do
• Not to carry out the agency if its execution would manifest a result in the loss or
damage to the principal
• To answer for damages if there being a conflict between his interest and the principal,
he should prefer his own
• Not to loan to himself if he has been authorized to lend money at interest

SPECIFIC OBLIGATION OF THE AGENT TO THE PRINCIPAL

• To render an account of his transaction and to deliver to the principal whatever he

may receive by virtue of the agency
• To be responsible in certain cases for the acts of the substitute appointed by him
• To inform the principal where an unauthorized sale of credit has been made of such
sale
• To bear the risk of collection should he receive on a sale a guarantee commission

SPECIFIC OBLIGATION OF THE AGENT TO THE PRINCIPAL

• To distinguish goods by countermarks and designate the merchandise respectively

belonging to each principal in the case of a commission agent who handles goods of
the same kind and mark which belong to different owner
• To pay the interest of funds he has applied to his own use
• To indemnify the principal for damages for his failure to collect the credits of his
principal at the time that they become due
• To be responsible for fraud negligence

ILLUSTRATIVE CASES

FACTS: P ASKED A TO LOOK FOR A HOUSE WITH CERTAIN SPECIFICATIONS, A

FOUND A HOUSE WORTH 5000 AND BOUGHT THE SAME. THEREAFTER HE TRIED
TO SELL IT TO P FOR 6000 REPRESENTING THAT HE HAD BOUGHT THE SAME FOR
5500

ISSUE: IS P ENTITLED TO A’S PROFIT

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HELD: YES, WHEN THE RELATIONSHIP OF AN AGENT AND PRINCIPAL EXIST IT IS
THE DUTY OF THE AGENT TO ACT HONESTLY AND FAITHFULLY TOWARDS HIS
PRINCIPAL AND HE CONCEALS, AND BY FRAUD HE OBTAINS ADVANTAGE HE
SHALL BE LIABLE.

(REIGER VS CAMPBELL-STUART)

FACTS: P ASKED A TO SELL HIS SHARE WHICH IS VALUED AT 1 PER SHARE.

UPON ARRIVING AT THE MARKET, A KNEW THAT SUCH SHARE IS BEING SOLD FOR
1.5 PER SHARE. A STILL SOLD THE SHARE FOR 1 PESO PER SHARE

ISSUE: IS A LIABLE FOR DAMAGES

HELD: YES, AN AGENT HAS THEOBLIGATION TO EXERCISE DILIGENCE AS A

FATHER OF A GOOD FAMILY HENCE HE IS LIABLE TO THE LOSS OF THE
PRINCIPAL

(Source: De Leon, 2010)

CHAPTER 3
OBLIGATIONS OF THE PRINCIPAL
by: Christzabelle L. Villa

I. Article 1910

a. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
b. As for any obligation wherein, the agent has exceeded his power, the principal
is not bound except when he ratifies it expressly or tacitly
c. The duties and liabilities of the principal are primarily based upon the contract
and the validity of the contract between them.
d. The principal is under an obligation to deal fairly and in good faith with his
agent who owes the same duty to his principal
e. The law imposes upon the principal certain obligations to his agent, among
which are the following:
i. To comply with all the obligations which the agent may have contracted
within the scope of his authority and in the name of the principal
ii. To advance to the agent, should the latter so request, the sums
necessary for the execution of the agency
iii. To reimburse the agent for all advances made by him, provided the
agent is free from fault (Ibid.);
iv. To indemnify the agent for all the damages which the execution of the
agency may have caused the latter without fault or negligence on his
part; and
v. To pay the agent the compensation agreed upon, or if no compensation
was specified, the reasonable value of the agent’s services.

f. It may be stated as a general rule that where the relation of agency legally
exists, the principal will be liable to third persons for all acts committed by the
agent and obligations contracted by him in the principal’s behalf in the course
and within the actual (express or implied) or apparent scope of his authority,
and should bear the damage caused to third persons
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g. The principal becomes liable to the third party when he ratifies an authorized
act of his agent.
h. The principal is bound by the act of his agent when he has placed the agent in
such position that persons of ordinary prudence are thereby led to believe and
assume that the agent is possessed of certain authority, and to deal with him
in reliance on such assumption
i. An agent is the instrumentality of the principal whose primary design is to
obtain rights against third parties. The principal’s rights are the third parties’
liabilities.
j. Since notice by a third party to the agent is notice to the principal, the third
party is not liable for damages for failure of the agent to give notice to his
principal
k. The third person’s tort liability to the principal, insofar as the agent is involved
in the tort, arises in three main factual situations:
i. Where the third person damages or injures property or interest of the
principal in the possession of the agent;
ii. Where the third person colludes with the agent to injure or defraud the
principal; and
iii. Where the third person induces the agent to violate his contract with
the principal to betray the trust reposed upon him by the principal

l. Under general rules and principles of law, the mismanagement of the business
of a party by his agents does not relieve said party from the responsibility that
he had contracted to third persons.
m. Where the agent’s acts bind the principal, the latter may seek recourse against
the agent.
n. This rule is based upon the principle that he who does an act through another
does it himself.
o. The agent, to be sure, is also liable with the principal and their liability shall be
solidary, i.e., the third person may sue both the principal and the agent or
choose whom he will hold
p. The “business hazard theory” advances the argument that “it is thought that
the hazards of business should be borne by the business directly
q. Motivation-deviation test. — The bounds of the agent’s authority are not the
limits of the principal’s tort liability, but rather the “scope of the employment”
which may or may not be within the bounds of authority.
r. It is not enough, however, that the agent should act within the scope of his
authority under Article 1910. The agent must also act in a representative
capacity, in the principal’s name; otherwise, the principal assumes no liability
s. ratification is the adoption or affirmance by a person of a prior act which did
not bind him, but which was done or professed to be done on his account thus
giving effect to the acts as if originally authorized

t. The following conditions must be fulfilled for ratification to be effective:

i. The principal must have the capacity and power to ratify;
ii. He must have had knowledge or had reason to know of material or
essential facts about the transaction;
iii. He must ratify the acts in its entirety;
iv. The act must be capable of ratification;
v. The act must be done in behalf of the principal.

u. For an act of the principal to be considered as an implied ratification of an

unauthorized act of an agent, such act must be inconsistent with any other
hypothesis than that he approved and intended to adopt what had been done
in his name

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 v. A voidable act or transaction by reason of incapacity to give consent may be
ratified but the defect must first be removed
w. The third party has a right to withdraw from the trans- action prior to
ratification
x. The principal could not be made liable in the absence of showing that he had
knowledge a material fact
y. In order to bind a principal by ratification, he must have been in possession of
all the facts and must have acted in the light of such facts
z. This principle does not apply if the principal’s ignorance of the material facts
and circumstances was willful, or that the principal chooses to act in ignorance
of the facts
aa. The act must be ratified in its entirety or not at all
bb. Usually, those acts that may be authorized and which are voidable may be
ratified. Acts which are absolutely void cannot be authorized nor ratified.
cc. A principal cannot ratify the unauthorized act of another person unless that
person purported to act as agent for, and in the name of, the principal, and not
in his own behalf.
dd. Once made, ratification becomes irrevocable.
ee. Ratification does not render the principal liable for fraudulent
misrepresentations made by the agent without his knowledge.

II. Article 1911

a. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full
powers
b. Estoppel is a bar which precludes a person from denying or asserting anything
contrary to that which has been established as the truth by his own deed or
representation either express or implied
c. Ratification affects the entire transaction and from the beginning, while
estoppel affects only the relevant parts of the transaction and from that time
only when estoppel may be said to be spelled out
d. The substance of ratification is confirmation of the unauthorized act or
contract after it has been done or made, whereas, the substance of estoppel is
the principal’s inducement to another to act to his prejudice
e. Apparent authority is that which though not actually granted, the principal
knowingly permits the agent to exercise or holds him out as possessing.
f. Authority by estoppel arises in those cases where 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.
g. If the estoppel is caused by the principal, he is liable to any third person who
relied on the misrepresentation.
h. If the estoppel is caused by the agent, then only the agent is liable.

III. Article 1912

a. The principal must advance to the agent, should the latter so request, the sums
necessary for the execution of the agency.
b. Should the agent have advanced them, the principal must reimburse him
therefor, even if the business undertaking was not successful, provided the
agent is free from all fault.

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 c. The reimbursement shall include interest on the sums advanced, from the day
on which the advance was made
d. In the absence of stipulation that the agent shall advance the necessary funds,
the principal must advance to the agent upon his request the sums necessary
for the execution of the agency
e. If the principal fails to comply with his obligations, the agent will not be liable
for the damage which, through his non- performance, the principal may suffer.

IV. Article 1913

a. The principal must also indemnify the agent for all the damages which the
execution of the agency may have caused the latter, without fault or negligence
on his part
b. No promise to indemnify will be implied for losses or damages caused by the
independent and unexpected wrongful acts of third persons for which the
principal is in no way responsible
c. There is no obligation to indemnify where no agency relation exists, as where
it appears that the supposed agent acted upon its own account and not as an
agent, in the legal sense

V. Article 1914
a. The agent may retain in pledge the things which are the object of the agency
until the principal effects the reimbursement and pays the indemnity set forth
in the two preceding articles
b. The agent is not entitled to the excess in case the things are sold to satisfy his
claim and the proceeds thereof are more than the amount due
c. The lien of the agent is specific or particular in character, and not a general lien
so as to give the agent a right to retain the principal’s goods for claims
disconnected with the business of the agency
d. To entitle the agent to a lien, the funds or property against which it is asserted
must be in his actual or constructive possession, and he must have acquired
that possession lawfully and in his capacity as agent

VI. Article 1915

a. If two or more persons have appointed an agent for a common transaction or

undertaking, they shall be solidarily liable to the agent for all the consequences
of the agency
b. An agent appointed by the partnership or by a partner thereof acting within
the scope of the partnership business binds all the partners by his valid acts or
transactions
c. On the other hand, the responsibility of two or more agents, even though they
have been appointed simultaneously, is joint, not solidary

VII. Article 1916

a. When two persons contract with regard to the same thing, one of them with
the agent and the other with the principal, and the two contracts are in-
compatible with each other, that of prior date shall be preferred, without
prejudice to the provisions of article 1544
b. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof
in good faith, if it should be movable property
c. Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property

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 d. Should there be no inscription, the ownership shall pertain to the person who,
in good faith was first in the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith

VIII. Article 1917

a. If the agent has acted in good faith, the principal shall be liable in damages to
the third person whose contract must be rejected.
b. If the agent acted in bad faith, he alone shall be responsible

IX. Article 1918

a. The principal is not liable for the expenses incurred by the agent in the
following cases:
i. 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;
ii. When the expenses were due to the fault of the agent;
iii. When the agent incurred them with knowledge that an unfavorable
result would ensue, if the principal was not aware thereof;
iv. When it was stipulated that the expenses would be borne by the agent,
or that the latter would be allowed only a certain sum

(Source: De Leon, 2010)

CHAPTER 4
MODES OF EXTINGUISHMENT OF AGENCY
by: Gerald Mamaradlo

There are six (6) modes of extinguishing agency under Article 1919 of the Civil Code:

1) By revocation.
General Rule: Principal has the authority to revoke agency at will.

Kinds of Revocation
a) Express- should be in writing

b) Implied –
b.1. Appointment of another agent over same business under agency. (Art 1923)
b.2. Principal directly manages the business entrusted to the agent. (Art 1924)
b.3. Subsequent granting of special power of attorney over general power. (Art
1926)
b.4. Silence or inaction, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority. (Art 1869)

When principal cannot exercise revocation at will (Article 1927)

a. When a period has been agreed upon.

b. When a bilateral contract depends upon it.
c. When it is the means of fulfilling an obligation already contracted.
d. When a partner is appointed manager of a partnership in the contract of
partnership and his removal from the management is unjustifiable.

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 Example:

P borrows from A P10,000.00. P mortgages his property as security for the debt and
gives A the power to dispose of it should P default. (irrevocable due to principle of
“agency coupled with interest”)

Note: Proper notice of revocation of agency is needed to bind third person.

2) By withdrawal of the agent.

- An agent may withdraw or renounce the agency at will, even without the consent of the
principal. (prohibition against involuntary servitude)

- An agent may withdraw or renounce the agency at will, even without the consent of the
principal Due to fortuitous event. (Art 1174)

Exceptions:

a) Forbidden to prefer his interest to those of the principal. (Art 1889)

b) Impossibility (factors) to carry on the agency. (Art 1928)

Note: For a valid reason, an agent may withdraw or renounce the agency at will,
provided principal be given reasonable opportunity to take necessary
steps. (Art 1929)

3) By death, civil interdiction, insanity, or insolvency of the principal or of the

agent

General Rule: Agency is extinguished ipso jure the death of either principal or agent.

- Power to foreclose survives death of mortgagor; mortgagor-mortgagee

relationship is not an ordinary agency. (Act 3135)

- Agency remains in full force even after death of either principal or agent
if it has been constituted in both of their common interest or of a third
person. (Art 1930)

Example:

P authorizes A to sell his land for a certain price and pays himself out of the
proceeds. P dies before the land is sold. Agency survives due to “agency coupled
with interest” principle.

Civil interdiction is a court order which disqualifies a person who is mentally ill or
insane, the right to manage his/her affairs and receive the rents and profits of
his/her estate. Civil interdiction terminates upon death of the interdict or by
judgment of the court.

Insolvency is incapacity to pay debts upon the date when they become
due in the ordinary course of business; the condition of an individual
whose property and assets are inadequate to discharge the person's debts.
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4) By dissolution of the firm or corporation which entrusted or accepted the
agency.

General Rule: Once a firm/corporation was shown that it exists, the agency relation
will be presumed to have continued, in the absence of anything to
show its termination.

5) By the accomplishment of the object or purpose of the agency.

- Simply illogical to assume continuity of agency when there is nothing left to be

done.

- Agency is also terminated by the non-accomplishment of the purpose or object

within a reasonable time.

6) By the expiration of the period for which the agency was constituted.

- Period is either express or implied.

Illustration: (Implied Period)

Gokou appointed Vegetta to manage the SAIYAN’S SAMALAMIG while he is gone to

Planet Nemek, upon his (Gokou) return, the agency is automatically terminated.

-End-

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