AGENCY

• Agent – he who acts or stands for

another
CHAPTER 1 o Generally, he must be able to
bind himself, but only insofar as
NATURE, FORM, AND KINDS his obligations are concerned
o Generally does not assume
OF AGENCY personal liability

DISTINCTIONS OF AGENCY
ARTICLE 1868. By the contract of agency a
person binds himself to render some service AGENCY PARTNERSHIP
or to do something in representation or on Agent acts for his Partner acts for
behalf of another, with the consent or principal himself, for his firm,
authority of the latter. and for his partners.

What the agent does for the principal is a AGENCY LOAN

JURIDICAL ACT, and not merely a material one. Agent may be given Borrower is given
funds by the principal money for purposes
CHARACTERISTICS: to advance the of his own, and must
• Principal latter’s business generally return it
• Nominate
• Bilateral A furnished B with money for current expenses.
• Preparatory B was obliged to render monthly accounts of
• Commutative such expenses to A. It was also agreed that
• Generally onerous eventually B would pay for them. B then
obtained goods from C on credit.
PARTIES TO THE CONTRACT:
May C sue A on the theory that A is B’s principal,
• Principal – the person whom the agent and that B is only an agent?
represents and from who he (agent)
derives authority No, for it is clear that B was a borrower, not an
o Generally, if he is capacitated to agent of A. (Atchenson R. Co. v. Maber,23 Kan.
act for himself, he can act 163)
through an agent.
§ Must be capacitated to
AGENCY GUARDIANSHIP
give consent
Agent represents a Guardian represents
§ If any special capacity is
needed, it is the capacitated person an incapacitated
person
principal who must
possess it and not the Agent is appointed by Guardian is
agent the principal and can appointed by the
o May be a natural or juridical be removed by the court, and stands in
person latter loco parentis

AGENCY & PARTNERSHIP

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 Agent is subject to Guardian is not AGENCY LEASE OF SERVICES
the directions of the subject to the Agent represents the Worker or lessor of
principal directions of the principal services does not
ward, but must act represent his
for the benefit of the employer
latter Relationship can be Generally, the
Agent can make the Guardian has no terminated at the will relationship can be
principal personally power to impose of either party terminated only at
liable personal liability on the will of both
the ward parties
Agent exercises Employee has
JUDICIAL discretionary powers ministerial powers
AGENCY
ADMINISTRATION Usually involves 3 Usually involves 2
Agent is appointed by Judicial administrator people: principal, people only
the principal is appointed by the agent, and stranger
court (Master-Servant Relationship)
Represents the Represents the court,
principal the heir, and the INDEPENDENT
AGENCY
creditors of the CONTRACTOR
estate Agent acts under the Independent
Agent generally does Administrator files a principal’s control contractor is
not file a bond bond authorized to do the
Agent is controlled by His acts are subject to work according to his
the principal through the specific orders own method,
their agreement from the court WITHOUT being
subject to the other
AGENCY LEASE OF PROPERTY party’s control,
Agent is controlled by Lease is not except when the
the principal controlled by the result of the work is
lessor concerned
Agency may involve Involves property Agent of the agent Employees of the
things other than only may be controlled by contractor are not
property the principal employees of the
Agent can bind the Lessee cannot bind contractor’s
principal the lessor employer
Agent can bind the Ordinarily, the
A son was allowed by his father to use the principal independent
latter’s land and to make improvements on it. contractor cannot
The son was also authorized to get profits as a bind the employer by
result of whatever improvements may be tort
introduced. One day, the son purchased certain
Negligence of the Negligence of the
materials which he needed for the
improvements. Is the father liable? agent is imputable to independent
the principal contractor is
The father is not liable, since he did not constitute generally not
his son as his agent. The relationship between imputable to his
them insofar as the land is concerned is similar to employer
that of lessor and lessee, not that of principal and
agent.

AGENCY & PARTNERSHIP

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 which will be binding authority to bind the
Operators of gasoline stations owned by the
Shell Company sell only products of the on his principal trustor
company; use company equipment let to them; Agency is a Trust may be the
dispose of stock at prices fixed by the company; contractual relation result of the contract
are in fact appointed and are removable by the or not; it may be
company. If said operators by their negligence created by law
cause damage to third parties, will the Shell
Company be liable? AGENCY TO SELL SALE
Ownership of the Ownership is
Yes, for clearly, they are agents, not independent
contractors. The negligence of an agent is
goods is not transferred to the
certainly imputable to the principal. transferred to the buyer after delivery
agent
Agent DELIVERS the Buyer PAYS the price
NEGOTIORUM price
AGENCY
GESTIO
There is a contract A quasi-contract. AGENCY TO BUY SALE
caused by the The agent acquires The buyer acquires
meeting of the minds (NOTE: once there is ownership in behalf ownership for himself
an agreement or of the principal
ratification, there The agent must The buyer who
arises an express account for all obtains a discount
agency) benefits or discounts does not have to
Agent is controlled by Officious manager received from the reveal such fact to its
the principal follows his judgment seller own buyer
and the presumed The agent delivers The buyer pays the
will of the owner the price price
Legal relation is Legal relation is
created by the parties created by the law AGENT BROKER
Agent receives a Broker earns his pay
AGENCY TRUST commission upon the merely by bringing
Agent usually holds Trustee may hold successful conclusion the buyer and seller
no title at all legal title to property of a sale together
Usually, agent acts in Trustee may act in his Agent acts in the Broker acts in his own
the name of the own name capacity of his capacity
principal principal
Usually, agent may be Trust is usually ended Merely represents Represents both the
terminated orby the the principal buyer and the seller
revoked at any time accomplishment of
the purposes for Broker – one who is engaged, for others, on a
which it was formed commission, negotiating contracts relative to
Agency may not be Trust involves control property with the custody of which he has no
connected at all with over property concern; the negotiator between other parties,
property never acting in his own name but in the name of
Agent has authority Trustee does not those who employed him.
to make contracts necessarily or even
possess such

AGENCY & PARTNERSHIP

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DOCTRINE OF APPARENT AUTHORITY
• Does not apply if the principal did not
commit any acts or conduct which a
third party knew and relied upon in good
faith as a result of the exercise of
reasonable prudence.
• Corporation will be stopped from
denying the agent’s authority if it
knowingly permits one of its officers or
any other agent to act within the scope
of an apparent authority, and it holds
him out to the public as possessing the
power to do those acts. (Advance Paper
Corp. v. Arma Traders Corp., 712 SCRA
313)
ARTICLE 1869. Agency may be express, or
implied from the acts of the principal, from
his silence or lack of action, or his failure to
repudiate the agency, knowing that another
person is acting on his behalf without
authority.
Agency may be oral, unless the law requires a
specific form.
KINDS:
According to Manner of Constitution:
• Express
• Implied -- from
o acts of the principal;
o principal’s silence;
o principal’s lack of action;
o principal’s failure to repudiate
the agency.
According to Form:
• Oral
• Written
ARTICLE 1870. Acceptance by the agent may
also be express, or implied from his acts
which carry out the agency, or from his
silence or inaction according to the
circumstances.
AGENCY & PARTNERSHIP
ARTICLE 1871. Between persons who are
present, the acceptance of the agency may
also be implied if the principal delivers his
power of attorney to the agent and the latter
receives it without any objection.
ARTICLE 1872. Between persons who are
absent, the acceptance of the agency cannot
be implied from the silence of the agent
except:
(1) When the principal transmits his
power of attorney to the agent, who
receives it without any objection;
(2) When the principal entrusts to him by
letter or telegram a power of
attorney with respect to the business
in which he is habitually engaged as
an agent, and he did not reply to the
letter or telegram.
A had a horse deposited with B. One day A asked
a friend, C, if C would take the horse from B and
sell it for him (A) – if A would write him (C) a
letter to that effect. C answered “yes.”
Subsequently A wrote C to get the horse from B
and to sell it. C did not answer, but proceeded to
get the horse, and was subsequently able to sell
it.
Did C act as A’s agent?
Yes, for the acceptance of the agency could
clearly be inferred from his acts.
ARTICLE 1873. If a person specifically informs
another or states by public advertisement
that he has given a power of attorney to a
third person, the latter thereby becomes a
duly authorized agent, in the former case
with respect to the person who received the
special information, and in the latter case
with regard to any person.
The power shall continue to be In full force
until the notice is rescinded in the same
manner in which it was given.
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WAYS IN INFORMING OTHER PEOPLE OF THE
ARTICLE 1874. When a sale of a piece of land
EXISTENCE OF AGENCY:
or any interest therein is through an agent,
• Special information;
the authority of the latter shall be in writing;
• Public Advertisement.
otherwise, the sale shall be void.

A company wrote a circular letter to its

customers introducing a certain X as its duly
authorized agent. One customer then dealt with
the company through X. One day, X’s authority
was revoked, but the customer continued to
deal through X since it was never was informed
by circular or otherwise of the revocation.
Is the Company still liable for X’s acts even after
the revocation of the agency?
Yes, for the customer was in good faith, not
having been informed by circular or otherwise, of
the revocation.
If the article is violated, the sale is VOID, not
merely unenforceable. Therefore, the principal
cannot technically RATIFY. If he does so, there
should be no retroactive effect.
A brother wrote his sister to sell his parcels of
land. The lands were purchased by a third
person, but the sister did not forward the
money. The brother now wants to recover the
parcel of lands.
Since the agency was in writing, the sale is VALID,
hence the lands cannot be recovered. The letter
was sufficient authority.

AGENCY BY ESTOPPEL ARTICLE 1875. Agency is presumed to be for

• One who clothes another with 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 act as his agent, to the
prejudice of innocent third parties
dealing with such person in good faith,
and in the honest belief that he is what
he appears to be.
a compensation, unless there is proof to the
contrary.
Compensation may be in the form of gratuitous
use by the agent of the principal’s real estate. In
the absence of stipulation, the agent is entitled
to compensation only after he has completely or
substantially completed his obligation as agent.

AGENCY BY Fiege and Brown acted as the agents of Smith,

IMPLIED AGENCY Bell and Co., for the sale of machinery. It was
ESTOPPEL
agreed that the agents were to receive one-half
Agent is the true Agent is not a true of the profits derived from the sale of machines.
agent, with rights and agent, hence he has They were able to sell the goods, and as soon as
duties of an agent no rights as such the customers’ contracts were signed, the
Principal is always Estoppel is caused by agents demanded their 50% fee, although the
liable the principal, but only buyers had not yet paid for the machines. Were
is the third person they entitled to their share as soon as the
acted on the properties were sold?
misrepresentation
No, because the machines had not yet been paid
Agent is never Estoppel is caused by
for. “Until such time as the company made a profit
personally liable the agent, it is only on a given contract, plaintiff’s commission was
the agent who is not earned as to that contract.” There was no
liable, never the profit through the mere signing of the contract by
alleged principal the purchaser and its acceptance by the
company.

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BROKERS
• A negotiator between parties, never
acting in his own name, but in the name
of those who employ him
• Strictly a middleman
• He is an independent contractor
• It follows that if the broker does not
succeed in bringing the mind of the
purchaser and the vendor to an
agreement with reference to the terms
of a sale, he is not entitled to a
commission. (Rocha v. Prats and Co., 43
Phil. 397)
• So long as the sale is pushed through,
the broker is entitled to a commission,
even if the sale had been temporarily
delayed due to the principal’s lack of
tact. The important thing is that the sale
really eventually was entered into.
(Ysmael and Co., Inc. v. William Lines,
Inc., L-9614, 1952)
• A broker is not entitled to recover his
expenses during the negotiations for the
sale, such expenses having been
incurred at his own risk, and in
consideration of the commission agreed
upon. (Ysmael and Co., Inc. v. William
Lines, Inc., L-9614, 1952)
• Where the person introduced by the
broker is not able, ready, and willing to
buy on the terms prescribed by the
owner, the broker is not entitled to
compensation on a sale subsequently
made on those terms by the principal to
the same person through another
broker. (Quijano v. Esguerra)
ARTICLE 1876. An agency is either general or
special.
The former comprises all the business of the
principal. The latter, one or more specific
transactions.
• The distinction here depends on the
EXTENT of the business covered.
AGENCY & PARTNERSHIP
Absent substantial evidence to show a special
agent’s authority from his principal to give
consent to the creation of a tenancy
relationship, can the former’s action give rise to
an implied tenancy?
No. (Dionisia L. Reyes v. Ricardo L. Reyes, GR
140164, Sept. 6, 2002)
ARTICLE 1877. An agency couched in general
terms compromises only acts of
administration, even if the principal should
state that he withholds no power or that the
agent may execute such acts as he may
consider appropriate, or even though the
agency should authorize a general and
unlimited management.
ACCORDING TO THE POWER OF ATTORNEY:
Agency may be—
• Couched in general terms.
o General Agency may be:
§ Couched in general
terms; or
§ Couched in specific
terms.
o Comprises only ACTS OF
ADMINISTRATION
o Special Agency may be:
§ Couched in general
terms; or
§ Couched in specific
terms.
Conchita made Sonia her agent in this manner:
“I make you my agent for all my properties. I
withhold no power from you. You may execute
such acts as you may consider appropriate. You
are hereby given general and unlimited
management.”
May Sonia compromise in behalf of Conchita?
No.
May Sonia accept or repudiate an inheritance for
Conchita? No.
May Sonia sell or mortgage Conchita’s lands? No.
These are acts of strict dominion, not mere acts
of administration.
Page 6 of 25
EXAMPLES OF ACTS OF MERE
ADMINISTRATION:
• To employ workers or servants and
employees needed for the conduct of a
business.
• To engage counsel to preserve the
ownership and possession of the
principal’s property.
• To lease real property to another person
for one year or less, provided the lease is
not registered.
• To make customary gifts for charity or to
employees in the business managed by
the agent.
• To borrow money if it be urgent and
indispensable for the preservation of the
things under administration.
ARTICLE 1878. Special power of attorney are
necessary in the following cases:
1) To make such payments as are not
usually considered as acts of
administration;
2) To effect novations which put an end
to obligations already on existence at
the time the agency was constituted;
3) To compromise, to submit questions
to arbitration, to renounce the right
to appeal from a judgment, to waive
objections to the venue of an action
or to abandon a prescription already
acquired;
4) To waive any obligations
gratuitously;
5) To enter into any contract by which
the ownership of an immovable is
transmitted or acquired either
gratuitously or for a valuable
consideration;
6) To make gifts, except customary
ones for charity or those made to
employees in the business managed
by the agent;
7) To loan or borrow money, unless the
latter act be urgent and
indispensable for the preservation of
the things which are under
administration;
AGENCY & PARTNERSHIP
ARTICLE 1876.
8) To lease any real property to another
person for more than one year;
9) To bind the principal to render some
service without compensation;
10) To bind the principal in a contract of
partnership;
11) To obligate the principal as a
guarantor or surety;
12) To create or convey real rights over
immovable property;
13) To accept or repudiate an
inheritance;
14) To ratify or recognize obligations
contracted before the agency;
15) Any other act of strict dominion.
ACTS OF A LAWYER WHICH NEED A SPECIAL
POWER OF ATTORNEY:
• To compromise, to submit questions to
arbitration, to renounce the right to
appeal from a judgment, to waive
objections to the venue of an action or
to abandon a prescription already
acquired;
• To enter into any contract by which the
ownership of an immovable is
transmitted or acquired either
gratuitously or for a valuable
consideration;
• To lease any real property to another
person for more than one year;
• To obligate the principal as a guarantor
or surety;
• To accept or repudiate an inheritance.
WHEN SPECIAL POWERS OF ATTORNEY ARE
NEEDED:
• Acts of strict dominion or ownership
• Gratuitous contracts
• Contracts where personal trust or
confidence is of the essence of the
agreement
Page 7 of 25
The basis for agency is representation. On the
part of the principal, there must be an actual
intention to appoint or an intention naturally
inferable from his words or actions. On the part
of the agent, there must be an intention to
accept the appointment and act on it, and in the
absence of such intent, there is generally no
agency.
Camps, the owner of the Washington Café, left
Mr. Flores in charge as managing agent of the
Café. As manager, Flores purchased goods for
the Café from Macke. Is Camps liable for the
purchase price of the goods?
Yes. Flores, as managing agent of the Washington
Café, had authority to buy such reasonable
quantities of supplies as might from time to time
be necessary in carrying on the business of the
Café.
Where an agent’s power to purchase is general
and unrestricted, he has implied authority to do
whatever is usual and necessary in the exercise
of such power.
Where the agency is a special one, or is restricted
to purchases upon certain terms and conditions,
the agent has no authority to purchase upon
different terms and conditions from those
authorized or to modify or rescind a contract of
purchase made by the principal.
ARTICLE 1879. A special power to sell
excludes the power to mortgage, and a
special power to mortgage does not include
the power to sell.
POWER TO SELL
The power to sell carries with it the—
a. Power to find a purchaser or to sell
directly;
b. Power to deliver the property;
c. Power to make the usual representation
and warranty;
AGENCY & PARTNERSHIP
d. Power to execute the necessary transfer
documents;
e. Power to fix the terms of the sale,
including the time, place, mode of
delivery, price of the goods, and the
mode of payment unless there be set
conditions stipulated by the principal;
f. Power to sell only for cash;
g. Power to receive the price, unless he
was authorized only to solicit orders.
POWER TO MORTGAGE
The power to mortgage does not include—
a. Power to sell;
b. Power to execute a second mortgage;
c. Power to mortgage for the agent’s
personal benefit or for the benefit of any
third person, unless contrary has been
clearly indicated.
ARTICLE 1880. A special power to
compromise does not authorize submission
to arbitration.
A principal may authorize his agent to
compromise because of absolute confidence in
the latter’s judgment and discretion to protect
the former’s rights and obtain for him the best
bargain in the transaction. If the transaction
would be left in the hands of an arbitrator, said
arbitrator may not enjoy the trust of the
principal.
ARTICLE 1881. The agent must act within the
scope of his authority. He may do such acts as
may be conducive to the accomplishment of
the purpose of the agency.
FUNDAMENTAL PRINCIPLES OF AGENCY
a. The agent must act within the scope of
his authority;
b. The agent must act in behalf of his
principal.
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EFFECTS:
• WITH AUTHORITY:
o In PRINCIPAL’S behalf – VALID
(principal is bound; agent not
personally liable unless he
bound himself)
§ P authorized A to sell his
(P’s) car. A then sold the
car in P’s name. The
transaction is VALID. A
assumes no personal
liability.
o In AGENT’S behalf – APPLY Art.
1883 (generally not binding on
principal; agent and stranger are
the only parties, except
regarding things belonging to
the principal)
§ P authorized A to sell his
(P’s) car. A then sold the
car in his (A’s) own
name, without
disclosing who the
principal was.
Ordinarily, the agent
can only have recourse
only against the agent
under Art. 1883.
HOWEVER, since the car
belonged to the
principal, P can have
recourse against the
buyer and the buyer
can have recourse
against P.
• WITHOUT AUTHORITY:
o In PRINCIPAL’S behalf –
UNAUTHORIZED AND
UNENFORCEABLE but may be
RATIFIED, in which case it may
be validated from the very
beginning
§ Without P’s authority, A
sold P’s car to a buyer in
P’s behalf. The
transaction, insofar as P
is concerned is
AGENCY & PARTNERSHIP
unauthorized, hence
unenforceable. P is
therefore not bound,
unless he ratifies the
transaction. Without
the necessary
ratification, the buyer
can have a claim only
against the alleged
agent A. The moment a
ratification is made, A
steps out of the picture,
since he would no
longer be personally
liable, and now it is P
who will have to deal
with the buyer.
o In AGENT’S behalf – VALID,
whether or not the subject
matter belongs to the principal,
provided that at the time
delivery is to be made, the agent
can transfer legally the
ownership of the thing.
Otherwise, he will be held liable
for breach of warranty against
eviction. Article 1883 does NOT
apply.
§ A, without authority
from P, and
representing himself to
be the owner of P’s car,
sold it to a buyer. It is
clear that the
transaction is valid,
provided that at the
time delivery is to be
made, the agent can
transfer legally the
ownership of the thing.
Otherwise, he will be
held liable for breach of
warranty against
eviction. It is also clear
that only A is liable to an
innocent purchaser.
Page 9 of 25
AUTHORITY o General – agent’s discretion is
• The right of the agent to effect the legal complete
relations of his principal by the o Special – particular instructions
performance of acts effectuated in are given
accordance with the principal’s o Apparent – agent (or third
manifestation of consent. person) was led by the
• Kinds of authority: principal’s conduct or words to
o Express – authority is clearly believe that the agent was really
defined authorized , when in fact, he was
o Implied – includes the necessary NOT)
acts to accomplish the purpose
§ Examples of Implied
Germann and CO. authorized its agent
Authority: Kommerzell to direct and administer its
§ If an agent is authorized commercial business, and, among others, “to
to collect a debt, he collect sums of money and exact their payment
usually is also impliedly by legal means.” With this authority, can the
authorized to employ an agent principal’s name, bring a court of action
attorney as counsel, and for collection?
to bring suit for the
enforcement of the Yes. The collection of a claim is necessarily a part
of administration, but even if it be regarded as an
payment.
act of strict ownership, still the right to exact
§ An agent or attorney-in- payment by legal means carriers with it the right
fact who is authorized to to sue in court for collection. Indeed, it cannot be
pay the debts of the reasonably supposed that it was the intention of
principal and to employ the principal to withhold from his agent a power
an attorney to defend so essential to the efficient management of the
the interests of the business entrusted to his control as that to sue for
latter is naturally the collection of debts. (Germann and Co. v.
impliedly empowered to Donaldson Sim & Co., 1 Phil. 63)
pay the fees of the
attorney for services
rendered in the interest DOCTRINE OF AGENCY BY NECESSITY
of said principal. • By virtue of the existence of an
§ Examples where there is emergency, the authority of an agent is
no implied authority: correspondingly enlarged in order to
§ An agent authorized to cope with the exigencies or the
borrow necessary funds necessities of the moment.
has no authority to pay • Conditions/Requisites:
his own personal debts o Real existence of an emergency;
therewith. o Inability of the agent to
§ An agent authorized to communicate with the principal;
collect a debt has no o Exercise of the additional
right to make a novation authority for the principal’s own
of the contract and to protection;
release the sureties of o Adoption of fairly reasonable
the debtor. means, premises duly
considered;

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Page 10 of 25
 o Ceasing of the authority the o Example:
moment the emergency no o If an agent was asked to sell on
longer demands the same. the installment plan an object
§ Example: for 100,000.0, but he is able to
§ If a bus conductor is get 100,000.00 cash for the
seriously hurt, the driver object, he is deemed not to have
is authorized to engage exceeded his authority.
the services of a • The agent should not sell things received
physician, in the by him from his principal at a price less
company’s name, so than that fixed by the latter. BUT there
that the conductor may is no prohibition against his selling the
survive. This is really for goods at a better price, is said price can
the best interest of all be obtained.
concerned.
• Authorization to sell for cash does not
DISTINCTIONS OF AUTHORITY include the authorization to sell on
credit.
AUTHORITY POWER
May be considered May be considered An agent with general powers for
the cause the effect administration, desirous of improving the
Emanates from the Emanates from the financial condition of his principal’s business,
principal and is given act of the principal sold a piece of land belonging to his principal for
to the agent giving double the price that appeared in an inventory
prepared by the principal before leaving the
AUTHORITY INSTRUCTIONS place. Do you think the agent has exceeded his
power? Why?
Principal affects only Concern only the
third persons, principal and the Yes, the agent has exceeded his powers despite
because if the act is agent the fact that the price obtained was double the
done outside the value of the property. The important fact is that
scope of the agent’s he made a sale, a transaction which requires a
authority, the special power of attorney
principal is not bound
Third persons must Third persons do not
ARTICLE 1883. If an agent acts in his own
therefore verify or have to investigate or
name, the principal has no right against the
investigate the verify the instructions
persons with whom the agent has
authority
contracted; neither have such persons
against the principal.
ARTICLE 1882. The limits of the agent’s In such case, the agent is the one directly
authority shall not be considered exceeded bound in favour of the person with whom he
should it have been performed in a manner has contracted, as if the transaction were his
more advantageous to the principal than that own, except when the contract involves
specified by him. things belonging to the principal.
The provisions of this article shall be
• This is justified because of the greater understood to be without prejudice to the
benefit that would accrue to the actions between the principal and agent.
principal.

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Page 11 of 25
 • GENERAL RULE: If an agent acts in his
own name and contracts with third
persons, he is personally liable.
EXCEPTION: When the agent acts in his
own name but contracts with third
persons involving the things belonging
to the principal, the principal is also
liable.
• If an agent transacts business in his own
name, it is not necessary for him to state
the principal’s name, and he is directly
liable as if the business were for his own
account, to the person with whom he
transacts the same.
• If an authorized agent buys in his own
name but really in behalf of his principal,
the seller has the option to look to
EITHER for payment unless:
o He trusted the agent exclusively;
or
o By the usage and understanding
of business, the agent only is
held; or
o Unless the special circumstances
of the case reveal that only the
agent was intended to be bound
and the seller knew it, or was
chargeable with knowledge of it.
• If it cannot be determined whether or
not the agent was authorized, or had
disclosed a principal, the action must be
directed against both the agent and the
principal.
AGENCY & PARTNERSHIP
CHAPTER 2
OBLIGATIONS OF THE
AGENT
ARTICLE 1884. The agent is bound by his
acceptance to carry out the agency and is
liable for the damages which, through his
non-performance, the principal may suffer.
He must also finish the business already
begun on the death of the principal, should
delay entail any danger.
• An agent who does not carry out the
agency is liable for damages.
• If he fulfills his duty, he is not personally
liable unless he binds himself.
• An agent who has been authorized to
sell some merchandise is not allowed to
bind the principal by selling to himself
(the agent) directly or indirectly. If an
agent, through his sub-agent, buys from
the principal, the principal is not
required to fill such orders unless said
principal ratifies the sale after he has had
full knowledge of the fatcs of the case.
ARTICLE 1885. In case a person declines an
agency, she is bound to observe the diligence
of a good father of a family in the custody and
preservation of the goods forwarded to him
by the owner until the latter should appoint
an agent. The owner shall as soon as
practicable either appoint an agent or take
charge of the goods.
• A person is free to refuse to be an agent
• The owner must act as soon as possible
by appointing an agent, or by taking
charge of the goods.
Page 12 of 25
 ARTICLE 1886. Should there be a stipulation
that the agent shall advance the necessary
funds, he shall be bound to do so except when
the principal is insolvent.
• GENERAL RULE: Principal funds the
agent
EXCEPTION: When there is a stipulation
wherein the principal advances the
funds to the agent
EXCEPTION TO THE EXCEPTION: When
the principal is insolvent
ARTICLE 1887. In the execution of the agency,
the agent shall act in accordance with the
instructions of the principal.
In default thereof, he shall do all that a good
father of a family would do, as required by
the nature of the business.
• If an agent carried out the instructions
he has received from the principal, he
cannot be held responsible for the
failure of his principal to accomplish the
object of the agency unless the said
agent exceeded his authority or has
acted with negligence, deceit, or fraud.
• It is the duty of the principal to make his
terms so clear and unambiguous so as
to avoid any misconstruction.
• If it is susceptible of two different
meanings, and the agent in good faith
and without negligence adopts one of
them, the principal cannot be heard to
assert, either as against the agent or
against third persons who have, in good
faith and without negligence, relied
upon the same construction.
• Instructions are to be construed as a
“plain man acquainted with the object in
view, and attending reasonably, to the
language used, has in fact, construed it.
He is not bound to take the opinion of an
attorney concerning the meaning of a
word not technical and apparently
employed in a popular sense.”
AGENCY & PARTNERSHIP
ARTICLE 1888. An agent shall not carry out an
agency if its execution would manifestly
result in loss or damages to the principal.
ARTICLE 1889. The agent shall be liable for
damages if, there being a conflict between
his interests and those of the principal he
should prefer his own.
• Example:
o P owns a Mercedes Benz car. He
appoints A to sell the car. A is
also an owner of a Mercedes car
of the same model as P’s. X, a
third person, is interested in
buying either P’s or A’s car for
P12 million. If A sells his own car,
P may sue A for damages for it is
clear that A has preferred his
own interest.
ARTICLE 1890. If the agent has been
empowered to borrow money, he may
himself be the lender at the current rate of
interest. If he has been authorized to lend
money at interest, he cannot borrow it
without the consent of the principal.
• Examples:
o A was authorized to borrow
money. May A lend his own
money to the principal?
Yes, at the current rate of
interest.
§ Reason: principal
suffers no injury
o A has been authorized to lend
money at interest. May A
borrow the money for himself?
No, unless the principal
consents.
§ Reason: agent may not
be a good borrower or
he may be insolvent or
he may not be a good
risk.
Page 13 of 25
 • Borrowing of the money must be for the
benefit of the principal.
• Agents cannot acquire by purchase the
property whose administration or sale
has been entrusted to them, unless the
consent of the principal has been given.
ARTICLE 1891. Every agent is bound to render
an account of his transactions and to deliver
to the principal whatever he may have
received by virtue of the agency, even though
it may not be owing to the principal.
Every stipulation exempting the agent from
the obligation to render an account shall be
void.
• This does not apply to cases of solution
indebiti since in such cases, recovery can
be had by the payor against the agent
himself.
An agent did not reveal to his principal that he
(the agent) was able to obtain a secret profit
from the transaction in the nature of a bonus,
gratuity, or personal benefit. Does he still have
the right to collect the commission that
ordinarily should be due to him?
No, on account of his breach of loyalty to the
principal. The forfeiture of the commission will
take place, even if the principal does not suffer
any injury by reason of such breach of loyalty. It
does not even matter that the agency was a
gratuitous one, or that the principal obtained
better results, or that usage or custom allows the
receipt of such a bonus. An agent has an absolute
duty to make a full disclosure or accounting to his
principal of all transactions and material facts that
may have some relevance with the agency.
• The agent has the obligation to deliver to
the principal all the funds that he has
collected on his principal’s account.
• Even if the agent is entitled to receive
commission, he does not become a co-
owner of the money that has been
collected.
AGENCY & PARTNERSHIP
• An agent is not allowed to make a profit
for his own benefit as long as the agency
still exists.
DOCTRINES ON DUTY TO ACCOUNT
• Whoever administers another’s affairs
must render an account because of the
representative relation and because of
the fiduciary position.
• If the agent refuses to account when it is
his duty to do so, the principal may at
once terminate the agency and dies, the
agency is extinguished, BUT the duty to
account subsists, and can be demanded
by the principal’s heirs or legal
representatives.
• The principal, or his legal
representatives, has the right to pass
upon the correctness of the accounting.
• A principal has the right to make a
reasonable inspection of the books of
account and memoranda, including the
original entries.
• An agent cannot dispute his principal’s
title to the property in his possession.
ARTICLE 1892. The agent may appoint a
substitute if the principal has not prohibited
him from doing so; but he shall be responsible
for the acts of the substitute:
(1) When he was not given the power to
appoint one;
(2) When he was given such power, but
without designating the person, and
the person appointed was
notoriously incompetent or
insolvent.
All acts of the substitute appointed against
the prohibition of the principal shall be void.
• Examples:
o A is P’s agent. In their contract of
agency, nothing was mentioned
as to whether or not A could
appoint a substitute. A
appointed S as his substitute. Is
Page 14 of 25
 the appointment of the
substitute valid?
Yes, but A shall be responsible
for the acts of the substitute.
o Suppose the substitute violated
the instructions of P, whom can
P hold liable?
P can hold A liable and P can also
hold S liable.
o A is P’s agent. A asked
permission to appoint a
substitute, but A did not mention
who the substitute would be. P
agreed. Now, the substitute
violated P’s instructions as well
as A’s instructions, causing
damage to P. Can P hold A liable
for the substitute’s actuations, in
case for example, the substitute
is insolvent?
It depends. If the substitute
appointed by A was at the time
of the appointment notoriously
incompetent or insolvent, then P
can hold A liable, subsidiarily or
even primarily. If the substitute
at the time of the appointment
was neither notoriously
incompetent or insolvent, then P
cannot hold A liable, either
primarily or subsidiarily.
ARTICLE 1893. In the cases mentioned in Nos.
1 and 2 of the preceding article, the principal
may furthermore bring an action against the
substitute with respect to the obligations
which the latter has contracted under the
substitution.
• GENERAL RULE: Contracts take effect
only between parties, their assigns and
heirs.
EXCEPTION:
AGENCY & PARTNERSHIP
a. Where the rights and obligations
arising from the contract are not
transmissible by their nature, or
by stipulation, or by provision of
law.
b. If the contract should contain
some stipulation in favor of a
third person, may demand
fulfillment provided the third
person communicated his
acceptance.
ARTICLE 1894. The responsibility of two or
more agents, even though they have been
appointed simultaneously, is not solidary, if
the solidarity has not been expressly
stipulated.
• Liability is joint and personal, only if
each can act separately.
ARTICLE 1895. If solidarity has been agreed
upon, each of the agents is responsible for the
non-fulfillment of the agency, and for the
fault or negligence of his fellow agents,
except in the latter caase when the fellow
agents acted beyond the scope of their
authority.
• Example:
o P appointed A and B as agents.
Solidarity between the agents
was agreed upon. Through B’s
fault, the agency was not
fulfilled. Can P sue A for
damages?
If B acted within the scope of his
authority, A, being solidary
agent, can be made responsible
for the entire damages, without
prejudice to his right later on to
recover from the erring agent.
If one agent acts beyond the
scope of his authority, the
innocent agent cannot be held
Page 15 of 25
 liable at all to the principal, even
if solidarity had been agreed
upon.
ARTICLE 1896. The agent owes interest on
the sums he has applied to his own use from
the day on which he did so, and those on
which he still owes after the extinguishment
of the agency.
• This is without prejudice to a criminal
action that may be brought because of
conversion.
• There is no liability for interest on sums
which have not been converted for the
agent’s own use, UNLESS, at the
expiration of the agency, the agent still
owes the principal certain sums.
ARTICLE 1897. The agent who acts as such is
not personally liable to the party with whom
he contracts, unless he expressly binds
himself or exceeds the limits of his authority
without giving such party sufficient notice of
his powers.
• In case of acts by the agent in excess of
authority, the principal cannot be bound
unless he ratifies the act.
• The agent must be prohibited to
perform any positive act that could
prevent fulfillment on the part of his
principal.
• An action against a person who merely
acted in behalf of another should be
dismissed.
• A power of attorney allowing the agent
to sell all the property of the principal is
sufficient to validate the sale of any
single parcel of land which may be
included in said properties.
• If an agent is authorized generally to sell
merchandise, he is also allowed to
include in the contract of sale stipulation
which are customary in the trade in such
goods.
AGENCY & PARTNERSHIP
ARTICLE 1898. If the agent contracts in the
name of the principal, exceeding the scope of
his authority, and the principal does not ratify
the contract, it shall be void if the party with
whom the agent contracted is aware of the
limits of the powers granted by the principal.
In this case, however, the agent is liable if he
undertook to secure the principal’s
ratification.
• Refers only to the liability of the agent
towards the third person.
• What becomes void is the tie between
the agent and the third party.
An agent was authorized to sell his principal’s
car. The agent sold in the principal’s name the
principal’s radio cabinet to a third person who
knew that the agent was not so authorized. Give
the status of the sale.
Even as between the agent and the third person,
such a sale is completely null and void. However,
if the agent had promised to obtain the principal’s
ratification, said agent would be liable in case of
failure to obtain such ratification. If ratification
has been obtained, then the principal would be
bound.
ARTICLE 1899. If a duly authorized agent acts
in accordance with the orders of the principal,
the latter cannot set up the ignorance of the
agent as to circumstances whereof he himself
was, or ought to have been, aware.
• It is the principal’s fault should he have
appointed an ignorant agent.
• Equity demands that the principal
should be made responsible.
• It is not enough that the agent acts
within the scope of his authority, it is
also imperative that he complied with
the orders and instruction of the
principal.
Page 16 of 25
 ARTICLE 1900. So far as third persons are ARTICLE 1901. A third person cannot set up
concerned, an act is deemed to have been the fact that the agent has exceeded his
performed within the scope of the agent’s powers, if the principal has ratified, or has
authority, if such is within the terms of the signified his willingness to ratify the agent’s
power of attorney, as written, even if the acts.
agent has in fact exceeded the limits of his
authority according to an understanding
between the principal and the agent. ARTICLE 1902. A third person with whom the
agent wishes to contract on behalf of the
principal may require the presentation of the
The scope of the agent’s authority is what power of attorney, or the instructions as
appears in the written terms of the power of regards the agency. Private or secret orders
attorney. While third persons are bound to and instructions of the principal do not
inquire into the extent or scope of the agent’s prejudice third persons who have relied upon
authority, are they required to go beyond the
the power of attorney or instructions shown
terms of the written power of attorney?
them.
No. Third persons cannot be adversely affected by
an understanding between the principal and his
agent as to the limits of the latter’s authority. In ARTICLE 1903. The commission agent shall be
the same way, third persons need not concern responsible for the goods received by him in
themselves with instructions given by the terms and conditions and as described in the
principal to his agent outside of the written consignment, unless upon receiving them he
power of attorney. (Siredy Enterprises, Inc. v. CA should make a written statement of the
& Conrado de Guzman, GR129039, Sept. 17, 2002) damage and deterioration suffered by the
same.
P gave his agent A a power of attorney, wherein
was written A’s right to sell 2 parcels of land • Commission Agent – must be a merchant
belonging to P. P and A however had an or broker, the agent having the option of
understanding to the effect that A should only acting in his own name or in that of the
sell one parcel of land. A sold both. P did not principal.
ratify the contract. Is P bound by the sale of both
parcels? COMMISSION
BROKER
AGENT (DEALER)
Yes. While it is true that a third party deals with Engaged in the No relation with the
an agent at his own risk, and while it is the duty of
purchase and sale for thing which he
the third party to investigate the extent of an
agent’s authority, nevertheless, in this case the a principal of purchases or sells
power of attorney as written showed complete personal property
authorization. It is unfair to demand that the third Things are placed at Things are not in the
person inquire further than the terms of said the possession and possession of the
power of attorney as written. To hold otherwise disposal of the broker
would be to open the door to countless frauds commission agent
and machinations. Has a relation with his Had no relations and
principal, buyer or is merely a go-
seller, and the between
property which is the (intermediary

AGENCY & PARTNERSHIP

Page 17 of 25
 object of the between the buyer
transaction and the seller)
• A commission agent has an established
place of business
ARTICLE 1904. The commission agent who
handles goods of the same kind and mark,
which belong to different owners, shall
distinguish them by countermarks, and
designate the merchandise respectively
belonging to each principal.
ARTICLE 1905. The commission agent cannot,
without the express or implied consent of the
principal, sell on credit. Should he do so, the
principal may demand from him payment in
cash, but the commission agent shall be
entitled to any interest or benefit, which may
result from such sale.
• The commission agent is not allowed to
escape the effects by proving that the
profits would have been less had the sale
been made on a cash basis. This is
untenable on the part of the agent
because it will be the way wherein it
opens the doors for delay, fraud and bad
faith.
• Choices given to the principal:
o Require cash payment – the
principal should not be allowed
to enrich himself at the agent’s
expense
o Ratify the sale on credit – the
principal will have both the risks
and advantages
ARTICLE 1906. Should the commission agent,
with authority of the principal, sell on credit,
he shall so inform the principal, with a
statement of the names of the buyers. Should
he fail to do so, the sale shall be deemed to
have been made for cash insofar as the
principal is concerned.
AGENCY & PARTNERSHIP
• An authorized sale on credit may be
treated of as one on a cash basis.
• This is to prevent the commission agent
from stating that a sale which was in
cash in reality, was made on credit basis.
ARTICLE 1907. Should the commission agent
receive on a sale, in addition to the ordinary
commission, another called a guarantee
commission, he shall bear the risk of
collection and shall pay the principal the
proceeds the sale on the same terms agreed
upon with the purchaser.
• Guarantee Commission (del credere
commission) – given in return for the
risks the agent will have to bear in the
collection of credits
• If the agent receives a guarantee
commission, he cannot put up the
defense that the debtor-third person
possesses property. This is precisely the
risk the commission agent assumed. This
bother need worry the principal.
ARTICLE 1908. The commission agent who
does not collect the credits of his principal at
the time when they become due and
demandable shall be liable for damages,
unless he proves that he exercised due
diligence for that purpose.
• Applies where there is no guarantee
commission
• Even if the commission agent can prove
that he exercised due diligence on
collecting the credits, he would still be
responsible for non-payment on time in
case he assumed the risks of collection
by receiving a guarantee commission
• If a commission agent without a
guarantee commission should prove he
exercised due diligence in the collection
of the credit, and the credit is not
collected, by the fault of the third party,
the agent is freed from responsibility.
Page 18 of 25
 ARTICLE 1909. The agent is responsible not
only for fraud, but also for negligence, which
shall be judged with more or less rigor by the
courts, according to whether the agency was
or was not for a compensation.
• If an agent is instructed to insure the
goods under his custody, and he does
not do so, he is responsible, but if no
such obligation has been imposed by the
principal, the agent cannot be held liable
because the obligation to insure is not
one of the duties required by the law to
be performed by the agent.
CHAPTER 3
OBLIGATIONS OF THE
PRINCIPAL
ARTICLE 1910. The principal must comply
with all the obligations which the agent may
have contracted within the scope of his
authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not
bound except when he ratifies it expressly or
tacitly.
• Aside from acting within the scope of his
authority, the agent must also act in the
name of the principal, and not in his own
name; otherwise, the principal is not
bound except when the transaction
concerns things belonging to the
principal.
• If an agent misrepresents to a purchaser,
and the principal accepts the benefits of
such misrepresentation, he cannot at
the same time deny responsibility for
such misrepresentation.
AGENCY & PARTNERSHIP
ARTICLE 1911. Even when the agent has
exceeded his authority, the principal is
solidarily liable with the agent if the former
allowed the latter to act as though he had full
powers.
• The principal may be said to be in
estoppel and therefore innocent third
persons should not be prejudiced. It
cannot be denied that the principal
failed to adopt the needed measures to
prevent misrepresentation.
ARTICLE 1912. The principal must advance to
the agent, should the latter so request, the
sums necessary for the execution of the
agency.
Should the agent have advanced them, the
principal must reimburse him therefor, even
if the business or undertaking was not
successful, provided the agent is free from
fault.
The reimbursement shall include interest on
the sums advanced, from the day on which
the advance was made.
• Failure of the agency through no fault of
the agent must be borne by the
principal.
• Even if the agency be gratuitous, the
agent will still be entitled to
reimbursement and interest. (This does
not refer to commission or
compensation)
ARTICLE 1913. 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.
• Based on equity
• There should be an existing agency
Page 19 of 25

ARTICLE 1914. 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.
• NOTE: Pledge no longer exists.
• See: Personal Property Security Act
(RA11057)
ARTICLE 1915. If two or more persons have
appointed an agent for a common
transaction or undertaking, they shall be
solidarily liable to the agent for all the
consequences of the agency.
• Even if the agent was appointed
separately, the rule on solidarity shall
still apply in the interest of justice.
• Examples:
o W, X, and Y employ agent A to
sell land owned in common by
the three, with A receiving a
commission of P1,500,000. If A is
successful, A can collect from
any of the three the amount of
P1,500,000 because of their
solidary liability. If X pays the
P1,500,000, he can recover
reimbursement of P500,000
each from Y and W.
o C, D, and E appoint F as their
agent to sell their separate
houses. The liability of C, D, and
E are merely joint and not
solidary even if the appointment
is made in one instrument. This
is because this is NOT a common
transaction or undertaking.
• The solidarity arises from the common
interest of the principals, and not from
the act of constituting agency.
(Constante Amor de Castro v. Court of
Appeals, GR 115838, July 18, 2002)
AGENCY & PARTNERSHIP
• In case of labor-only contracting, the
basis of the solidary liability of the
principal is Art. 106 of the Labor Code:
“In such cases [labor-only contracting],
the person or intermediary shall be
considered merely as an agent of the
employer who shall be responsible to the
workers in the same manner and extent
as if the latter were directly employed by
him.”
ARTICLE 1916. 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
incompatible with each other, that of the
prior date shall be preferred, without
prejudice to the provisions of Article 1544.
• Article 1544 – Rules on Double Sale
On Jan. 31, 2002, A who owns a piece of
agricultural land, gave a general power of
attorney to B. On Feb. 20, 2005, A, without the
knowledge of B, executed in favour of C a special
power of attorney to sell said piece of land. On
Feb. 25, 2002, B as attorney-in-fact of A,
executed a deed of sale in favour of D. On the
same date, C, under the special power given by
A, sold the same piece of land to E.
Assuming that the vendees have not yet
registered their respective documents or have
taken possession of the land, which of the two
sales is valid and enforceable and who is
responsible for damages, if any? State the legal
basis.
The sale by C in favour of E is valid and
enforceable because C was specially granted
authority to sell. B, who only had a general power
of attorney had NO right to sell, since selling
ordinarily is not a mere act of administration.
Moreover, under Art. 1878, a special power of
attorney is needed to effectuate a sale. If anyone
is liable for damages, it is certainly B who
performed an unauthorized act.
Page 20 of 25
 A principal authorized his brother as agent to sell CHAPTER 4
certain parcels of land. The sale was made, with
both the deed of sale and the authority of the MODES OF
agent being registered in the Registry of
Property. Subsequently, the principal sold the EXTINGUISHMENT OF
same parcels of land to another buyer who
managed to have the title given to him. Which AGENCY
buyer must prevail?

The buyer from the agent, in the view of the

registration in good faith in his name of the sale. ARTICLE 1919. Agency is extinguished:
Here, Art. 1544 regarding double sale of property
(1) By its revocation;
can be applied. Hence also, if said buyer sues for
(2) By the withdrawal of the agent;
annulment of the transaction and seeks to
recover its value, he will prevail in view of the (3) By the death, civil interdiction,
breach of warranty against eviction. The value of insanity or insolvency of the principal
the land must be returned, even if said value be or of the agent;
greater or less than the price of the sale. (4) By the dissolution of the firm or
(Diosdado Sta. Romana v. Carlos Imperio, L- corporation which entrusted or
17280, Dec. 29, 1965) accepted the agency;
(5) By accomplishment of the object or
purpose of the agency;
ARTICLE 1917. In the case referred to in the (6) By the expiration of the period for
preceding article, if the agent has acted in which the agency was constituted.
good faith, the principal shall be liable in
damages to the third person whose contract • Keyword: EDWARD
must be rejected. If the agent acted in bad o Expiration
faith, he alone shall be responsible. o Death
o Withdrawal
o Accomplishment
ARTICLE 1918. The principal is not liable for o Revocation
the expenses incurred by the agent in the o Dissolution
following cases: • Other modes of extinguishment:
(1) If the agent acted in contravention of o Termination by mutual consent;
the principal’s instructions, unless o Novation;
the latter should wish to avail himself o Loss of the subject matter of the
of the benefits derived from the agency;
contract; o Outbreak of war if inconsistent
(2) When the expenses were due to the with the agency.
fault of the agent; • Death of the principal
(3) When the agent incurred them with o Ordinarily terminates the
knowledge that an unfavourable agency even if a period had been
result would ensue, if the principal stipulated and such period has
was not aware thereof; not yet ended
(4) When it was stipulated that the o Under Art. 1931, “anything done
expenses would be borne by the by the agent, without the
agent, or the latter would be allowed knowledge of the death of the
only a certain sum. principal or of any other cause

AGENCY & PARTNERSHIP

Page 21 of 25
 which extinguishes the agency,
is VALID and shall be fully
effective with respect to third
persons who may have
contracted with him in good
faith.”
ARTICLE 1920. The principal may revoke the
agency at will, and compel the agent to
return the document evidencing the agency.
Such revocation may be express or implied.
• Agency is generally revocable at the will
of the principal because the trust and
confidence may have been lost.
• Revocation at will is proper:
o Even if the agency is onerous;
o Even in the period fixed has not
yet expired.
• The agency cannot be revoked at will in
the following instances:
o When it is coupled with an
interest (interest possessed by
the agent not in the proceeds
arising from the exercise of
power, but interest in the subject
matter of the power)
o In the cases mentioned under
Article 1927:
§ When bilateral contract
depends on the agency;
§ When the agency is the
means of fulfilling an
obligation already
contracted;
§ In the case of a partner
appointed manager in
the contract of
partnership and his
removal from the
management
unjustifiable.
o When there has been a WAIVER
by the principal (the
irrevocability of a power of
attorney cannot affect one who
is not a party thereto, it being
AGENCY & PARTNERSHIP
obligatory only on the principal
who created the agency)
o When the principal is obliged
not to revoke (principal can still
revoke, but he can be held liable
for damages, for breach of
contract)
o When the revocation is done in
bad faith (principal can still
revoke, but innocent third
parties should not be prejudiced;
the innocent agent can be
entitled to damages from him
[principal])
• When the revocation is proper (under
the general rule), the agent cannot get
damages because the principal is merely
exercising a right.
• Kinds of revocation:
o Express
o Implied:
§ Appointment of a new
agent for the same
business transaction
provided there is
INCOMPATIBILITY
§ If the principal directly
manages the business
entrusted to the agent,
dealing directly with
third persons, in a way
INCOMPATIBLE with the
agency
ARTICLE 1921. If the agency has been
entrusted for the purpose of contracting with
specified persons, its revocation shall not
prejudice the latter if they were not given
notice thereof.
is • The principal who fails to give the
notification can be held liable for
damages.
• No notice is required for persons who
already know of the revocation for then
the purpose of the notification shall have
already been served.
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 ARTICLE 1922. If the agent had general ARTICLE 1927. An agency cannot be revoked
powers, revocation of the agency does not if a bilateral contract depends upon it, or if it
prejudice third person who acted in good is the means of fulfilling an obligation already
faith and without knowledge of the contracted, or if a partner is appointed
revocation. Notice of the revocation in a manager of a partnership in the contract of
newspaper of general circulation is sufficient partnership and his removal from the
warning to third persons. management is unjustifiable.
• Three instances of irrevocability:
o If a bilateral contract depends
ARTICLE 1923. The appointment of a new
upon the agency
agent for the same business or transaction
§ Examples:
revokes the previous agency from the day on
§ A power to sell, where
which notice thereof was given to the former
the property is delivered
agent, without prejudice to the provisions of
to the agent to dispose
the two preceding articles.
of it for the protection of
• Appointment of a new agent revokes the himself and other
first agency only in case of creditors is an authority
incompatibility. coupled with an
• A special power revokes a general interest, and therefore
power. irrevocable, provided
• If the first agent is not notified of the the interest is indicated
appointment of the second agent, it is in the power of
understood that the first agency still attorney.
exists. (Garcia v. De Manzano, 39 Phil. § If the agency is only a
577) clause or a part of a
reciprocal contract. (The
contract itself and the
ARTICLE 1924. The agency is revoked if the clause on the agency
principal directly manages the business cannot generally be
entrusted to the agent, dealing directly with revoked except through
third persons. mutual consent.
• Applies only in case of incompatibility. o If the agency is the means of
fulfilling an obligation already
contracted
ARTICLE 1925. When two or more principals § Bisaya Land
have granted a power of attorney for a Transportation Co., Inc.
common transaction, any one of them may v. Sanchez, GR 74623:
revoke the same without the consent of the
others. S and B entered into a
• Power to revoke is a consequence of the shipping agency
solidary liability of co-principals. contract whereby S had
been appointed as a
shipping agent of B.
ARTICLE 1926. A general power of attorney is Later, B opened its own
revoked by a special one granted to another branch office which, in
agent, as regards the special matter involved
in the latter.

AGENCY & PARTNERSHIP

Page 23 of 25
 effect, revoked the
ARTICLE 1930. The agency shall remain in full
contract of agency.
force and effect even after the death of the
principal, if it has been constituted in the
The revocation of the
common interest of the latter and of the
contract of agency is not
agent, or in the interest of a third person who
sanctioned by law
has accepted the stipulation in his favour.
because the agency is
the means by which S • When can an agency continue even after
could fulfill his the death of the principal?
obligation. o When it is coupled with a
• If a partner is appointed manager in the common interest;
contract of partnership and his removal § Example:
from the management is unjustifiable. § Zenaida borrows from
• An agency coupled with an interest Jose, and as security
cannot be terminated unilaterally by the entrusts to Jose a ring,
principal, but revocation can be made which Jose can sell in
AFTER the interest terminates. case Zenaida fails to pay
the debt at the time of
maturity. Even if
ARTICLE 1928. The agent may withdraw from Zenaida dies, the agency
the agency by giving due notice to the of Jose would still
principal. If the latter should suffer any remain.
damage by reason of the withdrawal, the § GENERAL RULE: If the
agent must indemnify him therefor, unless authority of an agent is
the agent should base his withdrawal upon coupled with an
the impossibility of continuing the interest, it is not
performance of the agency without grave revocable by death, act,
detriment to himself. or condition of the
• Reasons of health can justify withdrawal principal
by the agent. EXCEPTION: If there is
• When an agent files a complaint against an agreement to the
the principal for a monetary claim in the contrary between the
former’s favor, dignity and decorum will two parties
not ordinarily permit the continuation of § An agent whose agency
the agency. Such complaint is equivalent is coupled with an
to withdrawal of the agent from the interest cannot stand
agency. on a better ground than
a partner appointed as
manager in the articles
ARTICLE 1929. The agent, even if he should of partnership insofar
withdraw from the agency for a valid reason, as revocability of
must continue to act until the principal has authority or power is
had reasonable opportunity to take the concerned.
necessary steps to meet the situation. § In order for the power
• This is to prevent the principal from to be irrevocable, when
damages. it is coupled with an
interest, it is necessary

AGENCY & PARTNERSHIP

Page 24 of 25
 that the interest shall be
in the subject matter of
the power and not in
the proceeds which will
arise from the exercise
of the power.
§ A power has been held
NOT to be coupled with
interest where the
interest arises out of
commission or out of
the proceeds of a
transaction as where
the agent’s interest is
merely his right to
receive, by way
compensation, a certain
percentage of the
proceeds.
§ A power to make a
collection or sale out of
the proceeds to pay an
existing debt due to the
agent from the principal
is a power coupled with
an interest, as is also an
interest, as is also an
authority to the agent to
reimburse himself from
such proceeds for
advances made to the
principal.
§ Whether an interest
which will make the
agency or power
irrevocable exists in a
particular case is to be
determined from the
entire agreement
between the parties,
and from the facts and
circumstances
attending the relation
existing between the
parties.
o When it is coupled with the
interest of a third person who
AGENCY & PARTNERSHIP
has accepted the stipulation in
his favor.
§ Example:
§ Melady sells his land to
Bravo and appoints
Bravo his agent in
paying with the
purchase price what
Melady owes Arellano, a
third person. Here, even
when Melady dies, the
agency of Bravo
continues to exist.
ARTICLE 1932. Anything done by the agent,
without knowledge of the death of the
principal or of any other cause which
extinguishes the agency, is valid and shall be
fully effective with respect to third persons
who may have contracted with him in good
faith.
ARTICLE 1932. If the agent dies, his heirs
must notify the principal thereof, and in the
meantime adopt such measures as the
circumstances may demand in the interest of
the latter.
• If the heirs of the dead agent are unable
to give notice, one good measure for
them to do is to consign the object or
property of the agency in court.
• The heir’s duty arises from presumed
agency or tacit agency or an agency by
operation of law.
In an agency coupled with interest, does the
death of the agent terminate the agency?
Generally, the agent’s death ends the agency for
it should not be continued by one upon whom the
principal has reposed no confidence, but under
American Law, when the agency is coupled with
an interest, it has been held that the agent’s
death does not terminate the agency; such a
power may be subsequently exercised by his
personal representative, at least insofar as may
be essential to protect the interests of the estate
of the agent.
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