AgPart 925 - Reviewer

AGENCY
I.
NATURE & OBJECTIVE, AND KINDS OF CONTRACTS OF AGENCY
AGENCY: 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.
1.
Definition and Objectives of Agency
No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no

authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the
other contracting party.
Doctrine of representation: When an agency relationship is established, and

the agent acts in the name of the principal, the agent is, insofar as the world
is concerned, essentially the principal acting in the particular contract or
transaction on hand. Consequently, the acts of the agent on behalf of the
principal within the scope of the authority have the same legal effects and
consequences as though the principal had been the one so acting in the
given situation.
Purpose of Agency: ability, by legal fiction, to extend the personality of the

principal through the facility of the agent; but that the same can only be
effected with the consent of the principal.
For an agency to arise, it is not necessary that the principal personally

encounter the third person with whom the agent interacts.
2.
Parties to a Contract of Agency

a. Principal (Mandante): the person represented
b. Agent (Mandatario): the person who acts for and in representation of
another
3.
Elements of the Contract of Agency

(a) Consent, express or implied, of the parties to establish the relationship;
On the part of the principal, there must be an actual intention to

appoint or an intention naturally inferable from his words or actions;
and 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.
Exception to this rule is the principle of agency by estoppel.

(1)
Capacity of the Parties
Principal must have capacity to contract
Principal may either be a natural or juridical person
Since the agent assumes no personal liability, the agent does not
have to possess full capacity to act insofar as third persons are
concerned.
The parties (both principal and agent) must have legal capacities
to validly enter into an agency. However, if one of the parties has
no legal capacity to contract, then the contract of agency is not
void, but merely voidable by reason of vitiation in consent, which
means that it is valid until annulled.
If the principal is the one who has no legal capacity to
contract, and his agent enters into a contractual relationship in the
principals name with a third party, the resulting contract is
voidable and subject to annulment.
If the principal has legal capacity, and it is the agent that has
no legal capacity to contract, the underlying agency
relationship is voidable; and when the incapacitated agent
enters into a contract with a third party, the resulting contract
would be valid, not voidable, for the agents incapacity is
irrelevant, the contract having been entered into, for and in
behalf of the principal, who has full legal capacity.
(b)
Object, which is the execution of a juridical act in relation to third parties;
The object of every contract of agency is service, which particularly is

the legal undertaking of the agent to enter into juridical acts with
third persons on behalf of the principal.
(c)
Cause or consideration
Art. 1875. Agency is presumed to be for a compensation, unless there is
proof to the contrary.
The cause or consideration in agency is the compensation or

commission that the principal agreed or committed to be paid to the
agent for the latters services.
There can be a valid agency contract which is supported by

consideration of liberality on the part of the agent; that although agency
contracts are primarily onerous, they may also be constituted as
gratuitous contracts.
(1) Entitlement of Agent to Commission Anchored on the Rendering of
Service
The compensation that the principal agrees to pay to the agent is

part of the terms of the contract of agency
The extent and manner by which the agent would be entitled to

receive compensation or commission is based on the terms of the
contract
When the rendering of service alone, and not the results, is the
primordial basis for which the compensation is given, then the
proof that services have been rendered should entitle the
agent to the compensation agreed upon.
On the other hand, if the nature of the service to be compensated

is understood by the results to be achieved then mere
Agency, Trusts, Partnerships and Joint Ventures

Vera Marie H. Bautista
rendering of service without achievement of the results

agreed upon would not entitle the agent to the compensation
agreed upon.
The basis of agency is representation.

One of the strongest feature of a true contract of agency is that of
control that the agent is under the control and instruction of the
principal.
(1)
Principles Flowing from Agency Characteristics of Personal,

Representative and Derivative
i. The contract entered into with third persons pertains to the
principal and not to the agent; the agent is a stranger to said
contract, although he physically was the one who entered
into it in a representative capacity;
The liabilities incurred shall pertain to the principal

and not the agent;
The agent has neither rights or obligations from the

resulting contract;
The agent has no legal standing to sue upon said

contract;
The agent who acts as such is not personality 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
ii. Generally, all acts that the principal can do in person, he
may do through an agent, except those which under public
policy are strictly personal to the person of the principal.
iii. A suit against an agent in his personal capacity cannot,
without compelling reasons, be considered a suit against the
principal.
iv. Notice to the agent should always be construed as notice
binding on the principal, even when in fact the principal
never became aware thereof.
Except:
o
Agents interests are adverse to those of the
principal;
o
Agents duty is not to disclose the information,
as where he is informed by way of confidential
information; and
o
The person claiming the benefit of the rule
colludes with the agent to defraud the principal
4.
Agent acts as a representative and not for himself; and

Agent acts within the scope of his authority.
Essential Characteristics of Agency

a. Nominate and Principal
Specifically named as such under the Civil Code
Provided with its own set of rules and legal consequences
It is a principal contract because it can stand on its own without need

of another contract to validate it.
Whatever the parties name the contractual relationship, when it has

the essential elements of a contract of agency, then it would be
governed by the Law on Agency
b.
Consensual
The contract of agency is perfected by mere consent,
An agency may be express or implied from the act of the principal,

from his silence or lack of action, or failure to repudiate the agency;
agency may be oral, unless the law requires a specific form.
No form or solemnity is required in order to make it valid, binding and

enforceable.
c.
Unilateral and Primarily Onerous
An agency is onerous in nature, where the agency expects

compensation for his services in the form of commissions.
However, an agency may be supported by pure liberality, and thus

would be gratuitous, but the burden of proof would be to show that the
agency was constituted gratuitously.
Even when it is supported by a valuable consideration (i.e.,

compensated or onerous agency), it would still be characterized as a
unilateral contract, because it is only the fulfillment of the primary
obligations of the agent to render some service upon which the
subordinate obligation of the principal to pay the compensation agreed
upon arises.
d.
Personal, Representative and Derivative

Art. 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.
The main purpose is to allow the agent to enter into contracts with third
parties on behalf of, and which would be binding on, the principal.
The authority of the agent to act emanates from the powers granted to
him by his principal; his act is the act of the principal if done within the
scope of the authority.
e.
Fiduciary and Revocable
The powers of the agent are essentially derived from the principal, and
consequently, it is essentially fiduciary in nature.
Because it is fiduciary in nature, it is essentially revocable: neither the

principal nor the agent can be legally made to remain in the
relationship when they choose to have it terminated.
They are based on trust and confidence, which must flow from the
essential nature a contract of agency that makes the agent the
representative of the principal.

2.
As regards property forming the subject matter of the

agency, the agent is estopped from asserting or acquiring
a title adverse to that of the principal. (Art. 1435)
In a conflict-of-interest situation, the agent cannot choose

a course that favors himself to the detriment of the
principal; he must choose to the best advantage of the
principal.
The agent cannot purchase for herself the property of

the principal which has been given to her management
for sale or disposition
General Rule: The agency may be revoked by the principal at will,
since it is a personal contract of representation based on trust and
confidence reposed by the principal on his agent.
courts have no authority to compel the principal to reinstate a contract
of agency it has terminated with the agent.
f.
5.
Preparatory and Progressive
A contract of agency does not exist for its own purpose; it is a

preparatory contract entered into for other purposes that deal with the
public in a particular manner: for the agent to enter into juridical acts
with the public in the name of the principal
merely a tool or medium resorted to achieve a greater objective of

being able to enter into juridical relations on behalf of the principal
the object [of every relationship of agency] is the execution of a

juridical act in relation to a third person
c.
6.
Attorney-in-fact: all agents appointed by a principal to act on

juridical relations that have nothing to do with legal matters and
do not constitute a practice of law on the part of the agent.
Whether It Covers Acts of Administration or Acts of Ownership

1. General Power of Attorney: covers only acts of administration, or
expressed in commercial terms, it only covers power to pursue the
ordinary or regular course of business.
An agency couched in general terms comprises 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.
2. Special Power of Attorney: covers acts of dominion or strict
ownership, or represents a situation that is described as
extraordinary conditions or those pursued not in the ordinary course
of business.
Agency Distinguished from Similar Contracts

a. From an Employment Contract
AGENCY
Essentially contractual in nature
Nature
Kinds of Agency
a. Based on the Business or Transactions Covered
1. General Agency: encompasses all of the business of the principal
One authorized to do all acts pertaining to a business of a certain

kind or at a particular place, or all acts pertaining to a business of
a particular class or series. He has usually authority either
expressly conferred in general terms or in effect made general by
the usages, customs or nature of the business which he is
authorized to transact.
2. Universal Agency: one authorized to do all acts for his principal which
can lawfully be delegated to an agent
3. Special Agency: covers only one or more specific transactions
one authorized to do some particular act or to act upon some

particular occasion.
Purpose
enter into juridical relationship

on behalf of the principal with
third parties
Element
of
Representation
Representation
b.
Definition
Whether or Not It Covers Litigation Matters

1. Attorney-at-law: appointment of an agent to represent the
principal on legal matters, particularly on matters pertaining to
litigation or court matters
Agent would be practicing law and would have to be a licensed

lawyer. The relationship is one that is fiduciary and professional in
character
EMPLOYMENT CONTRACT
The
relationship
between
capital and labor [which] are not
merely contractual. They are so
impressed with public interest
employee to render service for
the direct benefit of the
employer or of the business of
the employer
No representation
Employee does not have the
power to enter into juridical
relations on behalf of the
employer
b.
From the Contract for a Piece-of-Work

AGENCY
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.
CONTRACT FOR A PIECEOF-WORK

By the contract for a piece of
work the contractor binds
himself to execute a piece of
work for the employer, in
consideration of a certain price
or
compensation.
The
contractor may either employ
only his labor or skill, or also

Element
of
Representation
Essence
Representation
Element
Control
c.
of
Power of Agent
or Lessee of
Services
Revocability
since the contractor cannot be

dictated upon by the client on
how to go about accomplishing
the objective of the contract.
Obligation
Transfer
of
ownership over
the goods
Revocability
Statute
Frauds
of
AGENCY
Representation
MANAGEMENT AGREEMENT
Employment
Agent represents his principal
The lessor of services does not

represent his employer
Not a preparatory contract
Only material (non-juridical)
acts
Preparatory contract
Agent can execute juridical acts
(creation,
modification
or
extinction of relations with third
parties).
Revocable at the will of the
principal
e.
his obligation is merely to turnover to the principal the

proceeds of the sale once he
receives them from the buyer
No transfer of ownership
The principal remains the
owner of the goods
Revocable at the will of the
principal
An
agency
to
sell
on
commission basis is not
covered
A contract of agency to
sell
is
valid
and
enforceable in whatever
form it may be entered
into.
AGENCY
Agent received the thing to sell
it, and does not pay its price,
but delivers to the principal the
price he obtains from the sale
of the thing to a third person,
and if he does not succeed in
selling it, he returns it.
True agent does not assume
personal responsibility for the
payment of the price of the
object of the agency
AGENCY
Agent represents his principal
Cannot be revoked at will and

was
binding
to
its
full
contracted period.
SALE
The purported agent to pay for
the products received from the
purported principal within the
stipulated period, even when
there has been no sale thereof
to the public
Assumes personal liability for
the goods
Nature
services
rendered
He can retain profits
There is transfer of ownership

over the goods
Power to rescind is available
only when the purported
principal is able to show
substantial breach on the part
of the purported agent.
Sale contract which must
comply with the Statute of
Frauds for enforceability
From a Contract of Brokerage
From the Contract of Sale
Personal
Responsibility
Agent acts under the control of

the principal. He must follow
the instructions of the principal.
furnish the material

contractor is not an agent of the
principal (i.e., the client), and
the contractor has no authority
to represent the principal in
entering into juridical acts with
third parties.
services rendered must give
rise to the manufacture or
production of the object agreed
upon
No element of control
From the Management Agreement
Basis
d.
Representation
of
In relation to the
thing
to
be
bought or sold
Enters into juridical acts in the

name of the principal himself
Acquires
thing
possession
of
the
BROKERAGE
One who is engaged, for
others, on a commission,
negotiating contracts relative to
property with the custody of
which he has no concern; the
negotiator
between
other
parties, never acting in his own
name but in the name of those
who employed him. . . . a
broker is one whose occupation
is to bring the parties together,
in matters of trade, commerce
or navigation
Find third parties who may be
interested in entering into
contracts with other parties
over particular matter, and may
include negotiating in behalf of
both parties the perfection of a
contract, but that the actual
perfection must still be done by
the parties represented
No relation with the thing he
has been retained to buy or to
sell

Acquires
neither
the
custody
nor
the
possession of the thing he
sells; his only office is to
bring together the parties
to the transaction.
No fiduciary relation
Merely an intermediary
No such authority
Fiduciary
relation
Authority
to
enter
into
contracts in the
name of the
principal
Capacity
to
purchase
property of the
principal
Entitlement to
Commission
Based on trust and confidence

Agent has the authority to do so
(b) Perfection from the Side of the Agent

Art. 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.
Agent is prohibited from

purchasing the property of his
principal.
Broker
Is
Not
Legally
Incapacitated
to
Purchase
Property of the Principal
Agent receives a commission

upon the successful conclusion
of a sale.
A broker earns his pay merely

by bringing the buyer and the
seller together, even if no sale
is eventually made.
Entitlement of a broker or agent to the compensation or commission
stipulated would have to depend upon the contractual clause covering the
same.
II.
FORMALITIES FOR CONTRACT OF AGENCY AND GRANT OF POWERS TO

AGENTS
1.
How Agency May Be Constituted

Art. 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.
(a)
Consensual contract, is perfected by mere consent, or merely by

the meeting of the minds on the object
Perfection from the Side of the Principal
An agency may be express but it may also be 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
An agency is constituted (i.e., principal has given his consent to

the agency arrangement) from his acts formally adopting it, or
from his silence or inaction, or particularly from his failure to
repudiate the agency knowing someone is acting in his name.
The ideal form by which the principal is deemed to have entered

into a contract of agency is when he issues a written power of
attorney to the person designated as agent
No requirement that for agency to arise the same must be in
writing
(c)
The acceptance of the agency (i.e., agent has given his consent
to the agency arrangement) by the agent may be express, or
implied from his acts which carry out the agency, or from his
silence or inaction according to the circumstances
Whenever any agent enters into any contract in pursuance of the
agency, his acceptance of his designation as an agent is never
implied nor presumed, for precisely he enters into such
contract clearly in the name of the principal.
One who accepts an agency is from that time on bound by the
fiduciary duties of diligence and fidelity, such that if the fails to act
when the circumstances required that he should have so acted to
protect the interests of the principal, he can be made liable for
breach of duty.
A principal should never presume that an designated person
has accepted the agency by mere silence so that he should be
vigilant in protecting his rights.
Instances When There is Deemed to Be Meeting of Minds

Between the Principal and the Agent
Art. 1871. Between persons who are present, the acceptance of the
agency may also be implied if the principal is delivers his power of
attorney to the agent and the latter receives it without any objection. (n)
Art. 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.
Most ideal form evidencing the perfection of the contract of

agency, when the constitution of the agency is made with both
principal and agent being physically present at the time of
perfection of the contract of agency

When the constitution of the agency is made with the would-be

principal and the would-be agent not being physically present
in one place (i.e., Between persons who are absent), then there
can be no implied acceptance of the agency from the silence or
inaction of the agent, except in two instances:
(a) When the principal transmit his power of attorney to

the agent (i.e., it is in writing or some other form), who receives
it without any objection; or
(b) When the principal entrusts to the agent 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.
2.
Perfection of the Contract of Agency As It Affects Third Persons

Art. 1873. If a person specially informs another or states by public
advertisement that the 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.
Art. 1922. If the agent had general powers, revocation of the agency
does not prejudice third persons who acted in good faith and without
knowledge of the revocation. Notice of the revocation in a newspaper of
general circulation is a sufficient warning to third persons. (n)
The power shall continue to be in full force until the notice is rescinded
in the same manner in which it was given. (n)
Art. 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.
a.
b.
Special Agency: When the principal informs another person that he has
given a power of attorney to a third person (the agent), the latter
thereby becomes a duly authorized agent with respect to the person
who received the special information
Even when in fact there has been no meeting of the minds

between the purported principal and agent, there is deemed to
have arisen one with respect to the third party
Revocation of the agency shall not prejudice the latter if they were
not given notice thereof
General Agency: By public advertisement: latter thereby becomes a
duly authorized agent with regard to any person.
The power [of the agent] shall continue to be in full force until the
notice is rescinded in the same manner in which it was given.
The revocation of the agency will not prejudice third persons who
acted in good faith and without knowledge of the revocation;
however, notice of the revocation in a newspaper of general

circulation constitutes sufficient notice to bind third persons.
It is the duty of the principal on the termination of the relationship
of principal and agent to give due and timely notice thereof to the
third persons. Failing to do so, the principal was held responsible
to them for whatever goods may have been in good faith and
without negligence sent to the agent without knowledge, actual or
constructive, of the termination of such relationship.
Rules on the Existence of Agency, Insofar as Third Parties Are

Concerned
Although the perfection of a contract of agency may take an

implied form, the existence of an agency relationship is never
presumed.
A third person must act with ordinary prudence and reasonable

diligence to ascertain whether the agent is acting and dealing with
him within the scope of his powers. Obviously, if he knows or has
good reason to believe that the agent is exceeding his authority,
he cannot claim protection.
Declaration of one that he is an agent of another is never to

be accepted at face value, except in those cases where an
agency arises by express provision of law.
Persons dealing with an assumed agent are bound at their peril,

and if they would hold the principal liable, to ascertain not only
the facts of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof
is upon them to prove it
Third parties must never take the words or representation of

the purported agent at face value; they are mandated to
apprise themselves of the commission and extent of powers of
the purported agent.
Third parties (to the contract of agency) can take the word,
declaration and representation of the purported principal with
respect to the appointment of, and extent of powers, of the
purported agent
The minimum requirement on how such third party shall be

deemed to have acted with due diligence: he must demand a
written authority coming from the principal; otherwise, it would
be grossly and inexcusably negligent for such third party to enter
into a contract with such agent without a written authorization
from his alleged principal.
a.
Agency by Estoppel
Art. 1873. If a person specially informs another or states by public
advertisement that the 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. (n)
Art. 1403. The following contracts are unenforceable, unless

they are ratified:
Art. 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. (n)
One who clothes another apparent authority as his agent,

and holds him out to the public as such, can not 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 following pre-assumptions or
deductions, which the law expressly directs to be made from
particular facts, are deemed conclusive.
if by the interaction between a purported principal and a
purported agent in the presence of a third person, the latter
was given the impression of the existence of a principalagency relation, and the purported principal did nothing to
correct the third persons impression, an agency by estoppel
is deemed to have been constituted.
For an agency by estoppel to exist, the following must be
established:
(a) the principal manifested a representation of the agents
authority or knowingly allowed the agent to assume such
authority;
(b) the third person, in good faith, relied upon such
representation;
(c) relying upon such representation, such third person
has changed his position to his detriment. An agency by
estoppel, which is similar to the doctrine of apparent
authority, requires proof of reliance upon the representations,
and that, in turn, needs proof that the representations
predated the action taken in reliance.
3.
Formal Requirements on Grant of Powers to the Agent

a. General Principles on Contracts Entered into by Agents
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent
him.
A contract entered into in the name of another by one who has
no authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before
it is revoked by the other contracting party. (1259a)
(1) Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has acted
beyond his powers;
b.
General Powers of Attorney

Art. 1877. An agency couched in general terms comprises 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. (n)
Acts of Administration: act, transaction or contract that is within
the ordinary course of business
Expected to occur and for which action is expected without much

changing the course of the business
Must Powers of Attorney Be In Writing for the Juridical Acts
Executed Pursuant Thereto Be Valid and Enforceable?
A power of attorney be in writing seems to be more critical to the

constitution of a special power of attorney, than to a general
power of attorney
In the absence of a written evidence, the burden of proof to show

that there is indeed a contract of agency is on the part of the
person who purports to act for and in behalf of a principal
A special power of attorney is necessary to confer power in the

agency that would constitute acts of ownership; ideally the
agency contract must be in writing.
When therefore a special power of attorney, or the conferment

of powers to the agent to execute acts of strict ownership on
behalf of the principal, is done orally, the agency relationship
may be valid as between the principal and agent, but that third
parties who deal with him must require written evidence of his
power to execute acts of strict ownership, otherwise, they are
bound to enter into the contract at their own risk.
Article 1878 does not state that the special power of attorney
be in writing; be that as it may, the same must be duly
established by evidence other than the self-serving assertion
of the party claiming that such authority was verbally given him.
Every contract entered into by the agent on behalf of the principal

covering acts of ownership made pursuant to a verbal special
power of attorney would not be void, but rather unenforceable
o
Except: Sale of Land: Must be in writing
A special power of attorney must be strictly construed; the

instrument will be held to grant only those powers that are
c.

specified, and the agent may neither go beyond nor deviate from
the power of attorney.
d.
Cases Where Special Powers of Attorney Are Necessary

Art. 1878. Special powers of attorney are necessary in the following
cases:
a. To make such payments as are not usually considered as
acts of administration
Payment of insurance claims was an act of strict dominion

and cannot be deemed with the powers of administration of
the area manage
b.
To effect novations which put an end to obligations already

in existence at the time the agency was constituted
If the obligation was created only during the agency

relationship, the power to create such obligation granted to
the agent includes with it the implied power to novate it
c.
To compromise, to submit questions to arbitrations, 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
Compromise is a contract whereby the parties, by making

reciprocal concessions, avoid a litigation or put an end to
one already commenced.
Confession of judgment
Arbitration as a voluntary dispute resolution process in

which one or more arbitrators appointed in accordance with
the agreement of the parties, or rules promulgated pursuant
to this Act, resolve a dispute by rendering an award.
The power to compromise excludes the power to submit to

arbitration.
A judgment based on a compromise entered into by an

attorney without specific authority from the client is
unenforceable.
Power to enter into arbitration cannot be implied anymore,

but must clearly be specified
d.
To waive any obligation gratuitously
Condonation or remission of the debt
It requires the acceptance by the obligor
In the absence of a special power of attorney, an agent

cannot condone or remit the obligations owing to the
principal; and if he does so, the act is unenforceable.
The power to waive an obligation owed to the principal

gratuitously can only arise as an express power, but not
implied or incidental power of an agent.
e.
Every agent does not necessarily have the power to

waive
the
principals
obligation
for
valuable
consideration outside of authority to do so; what it means is
that when within the scope of authority of the agents
authority he may do so as an implied or incidental power.
To enter into any contract by which the ownership of an

immovable is transmitted or acquired either gratuitously or
for a valuable consideration
Covers only immovable property
There can never be an implied power on the part of the

agent to transmit or acquire ownership over immovable
property, whether by onerous or gratuitous title; if such
power shall be deemed to exist is must be expressly
granted
(a) Whereas in the sale of a piece of land it is required that the
special power of attorney has to be in writing for the sale to
be valid, in the case of the purchase of a piece of land, the
special power of attorney does not render the purchase void
when the agency is not in writing;
(b) In all other immovables, other than land or any interest
therein, the fact that the special power of attorney to sell or to
purchase is not in writing, would not render the contract of sale
or contract of purchase (depending on how one looks at it) to be
void, but merely unenforceable.
A power of attorney to convey real property need not be in a

public document, it need only be in writing, since a
private document is competent to create, transmit, modify, or
extinguish a right in real property.
(5-A) Sale of a Piece of Land Through an Agent
Art. 1874. When a sale of a piece of land or any interest therein
is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Article 1874 does not cover an agency to purchase

a piece of land or an interest therein; and that if the
special power of the agent who acts for the buyer is
not in writing, the resulting sale would be valid
Oral contract of Agency to Sell a parcel of land is in

itself Void
The sale of a piece of land made pursuant to oral

special power to sell really void
(5-B) Agent Cannot Validly Purchase Property of Principal
Unless so expressly authorized, an agent cannot

purchase the property of his principal; and if he does
so, the sale would be void.

f.
g.
Even when the agent has been granted a special power

of attorney to sell a piece of land or any interest in it,
such power does not include by implication the power to
sell to himself
h.
To lease any real property to another person for more than

one year;
Lease of real property for more than one year is considered

not merely an act of administration but an act of strict
dominion or of ownership. A special power of attorney is thus
necessary for its execution through an agent.
Article 1878(8) also does not cover leases of personal

property
o
When it comes to personal property, a lease for
more than one year may or may not be an act of
administration, or may be in the ordinary course of
business, depending of the circumstances
involved, or the nature of the business given to the
agent for administration and management
Under Article 1403(2) of the Civil Code, an agreement for the

leasing of real property for a period longer than one year is
unenforceable unless made in writing.
o
Even when the agency possess a special power of
attorney to lease real property, when the lease
itself for more than a year is not in writing, the
resulting contract would still be unenforceable.
i.
To bind the principal to render some service without

compensation
j.
To bind the principal in a contract of partnership
Under Article 1878(10), every agreement by the agent on

behalf of the principal which has the effect of obliging the
principal to contribute money or industry to a common fund
with the intention of deriving profits therefrom would be
unenforceable without a special power of attorney
k.
To obligate the principal as guarantor or surety
No contract of guaranty or surety is enforceable against the

principal when it has been entered into by an agent who
possesses no special power of attorney to do so
Under Article 1403[2][b] of the Civil Code, a contract of

guaranty is unenforceable unless it is made in writing
l.
To create or convey real rights over immovable property
Covers dealings on immovable property outside of the sale

of a piece of land or any interest therein
Contracts as mortgages, usufruct, easement, etc.
m.
To accept or repudiate an inheritance
n.
To ratify or recognize obligations contracted before the

agency
The act of ratifying or cleansing a defect contract that

therefore could validly be enforced against the principal is an
To make gifts, except customary ones for charity or those

made to employees in the business managed by the agent;
For an agent to have the power to make gifts or donations on

behalf of the principal would require the same to be in the
form of a special power of attorney, except:
(a) Customary ones for charity; or
(b) Those made to employees in the business managed by
the agent.
A gift made by an agent not covered by an SPA does not

become void for failure to comply with these requirement in
Agency Law but rather it is void or not depending on whether
it complies with the formalities required under the Law on
Donation.
If it is not covered by an SPA, it is merely unenforceable.

To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are to
under administration;
When the power granted to the agent was only to borrow

money and mortgage principals property to secure the
loan, it cannot be interpreted to include the authority to
mortgage the properties to support the agents personal
loans and use the proceeds thereof for his own benefit.
Does not include purchasing of goods on credit on behalf of

the principal
Special authority to borrow money for the principal is not to

be implied from the special power of attorney to mortgage
real estate, especially when the power was granted only to
make the principal an accommodation or third-party
mortgagor.
A creditor should require the execution of a power of

attorney in order that one may be understood to have
granted another the authority to borrow on behalf of the
former.
Where the authority of the purported agent was only to follow

up of the principals loan application with the bank, it cannot
be presumed that he was also granted authority to borrow on
behalf of the principal.
If the agent has been empowered to borrow money, then

he can be the lender himself at the current rate of interest.
On the other hand, the article also provides that if the agent
has been empowered to lend money at interest, he
cannot borrow it without the consent of the principal.

act of strict ownership, and cannot be effected by the agent

without special power of attorney.
o.
Any other act of strict dominion. (n)
Power to sue
Obligatory force of contracts of agency

When an agent refuses to comply with the obligations he accepted as an
agent, the remedy of the principal is to sue him for damages, since an
action for specific performance is not available for personal obligations to
do.
a.
Art. 1879. A special power to sell excludes the power to mortgage;

and a special power to mortgage does not include the power to sell. (n)
Art. 1880. A special power to compromise does not authorize
submission to arbitration.
e.
Doctrine of Implied Powers Flowing from Express Powers
The grant of express powers or special power of attorney

must necessarily include all power implied or incidental to
such express powers, even if they amount to acts of
ownership or strict dominion.
f.
Express Power of Attorney Excludes Powers of Administration

(e.g., General Power of Attorney)
When an agent has been granted an express power of

attorney, then the agent cannot execute any other act,
whether it be an act of administration or an act of ownership
outside the language of the power of attorney.
g.
Express Grant of Special Power of Attorney Must Exclude the

Power to Exercise Acts of Administration (i.e., General Power of
Attorney)
Art. 1926. A general power of attorney is revoked by a special one
granted to another agent, as regards the special matter involved in the
latter. (n)
Under Article 1926 of the Civil Code, A general power of attorney is
revoked by a special one granted to another agent, as regards the
special matter involved in the latter.
III.
AUTHORITY & POWER, DUTIES & OBLIGATIONS, AND RIGHTS OF THE

AGENT
1.
General Obligation of Agent Who Accepts the Agency

Art. 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. (1718).
10
Measure of Damage for an Agents Non-Performance of

Obligation
The burden is on the person who seeks to make an agent liable to

show that the losses and damage caused were occasioned by the
fault or negligence of the agent
Damages is measured by the losses the principal incurred

because of the non-performance of the agent
2.
Obligation of Agent Who Declines Agency
When a person declines the offer to make him an agent, generally no

contract of agency arises and thereby no obligation is assumed by such
person.
Exception:
He shall act as an agent until the owner appoints an agent
If he fails to do so, he is liable for damages arising from Art. 19 of the Civil
Code on Abuse of Right, not arising from a contract
Autonomy of Contracts
3.
General Rule on Agents Power and Authority

Art. 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. (1714a)
Art. 1882. The limits of the agents authority shall not be considered
exceeded should it have been performed in a manner more advantageous
to the principal than that specified by him. (1715)
Art. 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. (1719)
Art. 1888. An agent shall not carry out an agency if its execution would
manifestly result in loss or damage to the principal (n)
Art. 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.
a.
Statutory Measures of Compliance by the Agent of His Fiduciary

Duties of Obedience and Diligence
Agent must act in accordance with the instructions of the principal

4.
5.
Duty of Obedience
Duty to act in accordance with the instructions of the principal
Follow the instructions of the principal
Element of Control: The agent acts under the control or direction of

the principal.
Agent must also act within the scope of his authority.
Otherwise:
The agent becomes personally liable for damages arising

from a breach of his duty of obedience to the principal.
Since the agent had not given the principals consent to the
contract or transaction entered into with a third party, the
principal is not personally bound by the terms of such contract
or transactions
It would then be the agent who may become personally liable

for the contract or transaction.
Duty of Diligence
Diligence of a good father of a family
The agent is expected to use his business discretion as that of the

principal would or could, if personally present
The principals instructions are the limits of the agents power.
agent may do such acts as may be conducive to the accomplishment

of the purpose of the agency.
The limits of the agents authority shall not be considered exceeded

should it have been performed in a manner more advantageous to
the principal than that specified by him.
An agent not only has express powers, but also implied powers
emanating from the express powers granted to him; as well as
incidental powers necessary in order to achieve the purpose for
which the agency was constituted.
Negligence and fraud: Breach of fiduciary duty = damages
The agent shall not carry out an agency if its execution would
manifestly result in loss or damage to the principal
When an agent violates his duty of diligence, he becomes

personally liable to the principal for the damages caused to the
principal by reason of his fraud or negligence.
(1)
6.
11
In default of guiding instructions, the agent shall do all that a

good father of a family would do, as required by the nature of the
business
When Agent Is Guilty of Fraud or Negligence

Art. 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.
Duty of Loyalty
a. Duty of Loyalty in General
Art. 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. (n)
When an agent violates his duty of loyalty, and in a conflict-of-interests

situation, he prefers his own interest to the detriment of the principal, the
contract or transaction he entered into is not void, but merely makes the
agent liable for the damages suffered by the principal
Measure of damages: the principal has the right to demand that the agent
should turn-over to him whatever contract, property or business has
been acquired by the agent in breach of his duty of loyalty.
A guilty agent is made to forfeit the commission that otherwise should be
due to him, as penalty for violation of his duty of loyalty
The agent who refuses or fails to return to the principal the funds or property
received may be held liable for estafa.
b.
When Agent Enters into a Contract in His Own Name on a Matter that
Falls With the Scope of the Agency
If the matters entered into by the agent in his own name are
matters that are within the scope of his authority or those
pertaining to matters that should pertain to the business of
the principal, the agent has breached his fiduciary duty of loyalty.
Regardless the agent has used his own funds or property, or

those of the principals.
If the agent had used the funds belonging to the principal, he

owes interest on the sums he has applied to his own use from
the day on which he did so, and on those which he still owes after
the extinguishment of the agency.
Implied Trust: When any trustee, guardian or other person holding

a fiduciary relationship uses trust funds for the purchase of
property and causes the conveyance to be made to him or to a
third person, a trust is established by operation of law in favor of
the person to whom the funds belong.
c.
Particular Rules on Conflict of Interests Situations

(1) Purchase of Principals Property
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
Art. 1492. The prohibitions in the two preceding articles are applicable to
sales in legal redemption, compromises and renunciation.
An agent is prohibited from buying property entrusted to him for

administration or management, without the principals consent.

Even when an agent is authorized to sell the property, and he sells

it to himself for valuable consideration but without the consent of
the principal, the sale would be void.
Art. 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. (n)
The only time that an agent is legally bound to advance personal

funds in the pursuit of the agency is when such obligation has
been expressly agreed upon in the creation of the contract of
agency.
(2) When Agent Empowered to Borrow or Lend Money

Art. 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. (n)
When the agent is empowered to borrow or lend money by the

principal, then:
(i) If empowered to borrow money, he may be the lender at current
interest; and
(ii) If empowered to lend money at interest, he cannot borrow without

principals consent.
Where the agent was the lender to the principal and charged interest
higher than the current rate, the difference would have to be
returned to the principal.
If the agent borrows for himself without the principals the money which
the principal has authorized him to lend out, he would not only be liable
for the current interest that the principal would have earned had it been
lent out to a third party, he would also be liable for damages that the
principal may have suffered.
(3) Obligation To Turn-Over to the Principal Whatever Received by

Virtue of the Agency
Under Article 1891 of the Civil Code, every agent is bound 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, and even when given
to him for his benefit.
d.
Obligation of Agent to Render Account

Art. 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. (1720a)
Otherwise, he will forfeit his commission
He may also be held liable for estafa.
Duty to account will not apply if the agent or broker had informed the
principal of the gift or bonus or profit he received from the purchaser
and his principal did not object thereto.
6.
a.
12
Specific Obligation Rules for Agents

Obligation of Agent to Advance Funds
b.
Liability of Agent for Interest

Art. 1896. The agent owes interest on the sums he has applied to his
own use from the day on which he did so, and on those which he still
owes after the extinguishment of the agency. (1724a)
The agent would owe interest to the principal on the following

items:
(a) On sums the agent applied to his own use from the time he
used them; and
(b) On sums owing the principal which remain outstanding at the
time of extinguishment of the agency, interest to run from the time
of such extinguishment.
7.
Power of Agent to Appoint a Substitute

Art. 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. (1721)
Art. 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. (1722a)
Default rule: The agent may appoint a substitute if the principal

has not prohibited him from doing so.
Effects When Agent Appoints a Substitute

(1) When the Sub-agent Has Been Appointed Pursuant to the
Instructions of the Principal
When the agent appoints a substitute agent in accordance

with the instructions of the principal, clearly the sub-agent is

(2)
really an agent of the principal as well, and privity exists

between the principal and the sub-agent.
Any act done by the agent or the substitute in behalf of the
principal is deemed the act of the principal.
The agent does not bear personal responsibility for the
fraud or negligence of the sub-agent
o
Exception: The person appointed was notoriously
incompetent or insolvent.
When the Sub-agent Has Not Been Prohibited by the

Principal, and the Agent Appoints a Substitute
Rule: When there is no prohibition on the part of the

principal on the matter, then every agent has the power to
appoint a sub-agent, but in such a case, the agent is
responsible for acts of substitute
(i) he was not given power to appoint one; or
(ii) he was given such power without designating the person
and substitute is notoriously incompetent or insolvent.
(3)
8.
The principal may furthermore bring an action against the

substitute with respect to the obligations which the latter has
contracted under the substitution
When the Agent Appoints a Substitute Against the

Principals Prohibition
When the principal has prohibited the agent from

appointing a substitute, and yet the agent appoints one,
then the agent is personally liable for the acts of the
substitute
All acts of the substitute appointed against the

prohibition of the principal shall be void.
Art. 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. (n)
The powers and duties of an agent are confined and limited to those
which are specified and defined in his written power of attorney, which
limitation is a notice to, and is binding upon, the person dealing with
such agent.
When the power of attorney of the agent has been reduced in writing
by the principal, it constitute, even as to third parties dealing with the
agent, the highest form of expression of the extent and limitation of the
powers of the agent, and third parties should contract on the basis of
such written instrument
Outside of the written power of attorney of an agent, third parties who

deal with such agent are not supposed to presume that the agent is
fully authorized.
a.
Effects on the Agent of Contracts Entered Into Within the Scope

of His Authority
Art. 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. (1725)
Art. 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 exceeded his power, the
principal is not bout except when he ratifies it expressly or tacitly.
(1727)
(1)
General Rule: Agent Is Not Personally Liable to Third Parties
The liability of the principal for the acts of his agent

performed within the limits of his authority that is equivalent
to the performance by the principal himself who should
answer therefor.
When the agent has acted within the scope of his

authority, the action on the contract must be brought
against the principal and not against the agent, since in
such an instance the agent is not a party to the contract sued
upon, and the party suing has no cause of action against the
agent.
An agent is not personally liable to the party with whom

he contracts unless he expressly binds himself or he
exceeds the limits of his authority without giving such party
sufficient notice of his powers
(2)
Exception: When the Agent Expressly Makes Himself

Personally Liable
Consideration of the Fiduciary Duties of the Agent as to Third Parties

Art. 1900. So far as third persons are concerned, an act is deemed to have
been performed within the scope of the agents authority, if such act is
within the terms of the power of attorney, as written, even if the agent has in
fact exceeded the limits of his authority, according to an understanding
between the principal and the agent. (n)
Art. 1901. A third person cannot set up the fact that the agent has
exceeded his powers, if the principal has ratified, or has signified his
willingness to ratify the agents acts. (n)
Art.
1902. A third person with whom the agent wishes to contract on

behalf of the principal may required the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret orders
and instructions of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown them. (n)
13

(3)
Exception: When Agent is Guilty of Fraud or Negligence

Art. 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.
An agents fraudulent or negligent acts produces two sets of

liabilities for him, one insofar as the principal is concerned, the
other insofar as third parties are concerned.
In such a case, both the principal and the agent are deemed
joint torfeasors, and are deemed liable solidarily insofar as third
parties are concerned. The remedy of the principal is to sue
the agent for damages sustained due to agents fradulent or
negligent acts.
b.
not legally binding as between them. However, if the agent

promised or undertook to secure the principals
ratification and failed, he is personally liable. If the
ratification is obtained, then the principal becomes
liable.
Agent is personally liable when such agent expressly binds

himself.
The personal liability of the agent arises from voluntary
contractual commitment.
(2) Exceptions: When the Principal May Be Bound

(a) When the principal ratifies the contract or transactions
(b) As to third parties who relied upon the terms of the power of
attorney as written, even if in fact the agent had exceeded the
limits of his authority according to an understanding between the
principal and the agent
c.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the
principal.
Effects of Acts Done by Agent Without Authority or in Excess of

His Authority
The provisions of this article shall be understood to be without

prejudice to the actions between the principal and agent. (1717)
Art. 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 principals ratification.
(1) General Rule: The Principal Is Not Liable; Agent May Be Liable
The contract entered into in the name of the principal

shall be void as to the principal and the third party, if such
third party with whom the agent contracted was aware of the
limits of the powers granted by the principal;
In such case, the agent would be liable personally to

such third party, if he undertook to secure the
principals ratification;
If the agent did not undertake to secure the principals

ratification, the agent does not become liable on the
contract since the third party has no one to blame but
himself, knowing fully well the limits to the agents authority
The liability of an agent who exceeds the scope of his

authority depends upon whether the third person was
aware of the limits of the agents power. The agent is not
bound nor liable for damages in case he gave notice of
his power to the person with whom he has contracted, nor
in case such person is aware of the limits of the agents
powers. The resulting contract would be void even as
between the agent and the third person, and consequently
14
Consequences When Agent Acts in His Own Name

Art. 1883. If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has contracted;
neither have such persons against the principal.
(1) Exception: When the Property Involved in the Contract

Belongs to the Principal
(2) Remedy of the Principal Is to Recover Damages from the
Agent
When the agent acts in his own name he is not personally

liable to the person with whom he enters into a contract
when things belonging to the principal are the subject
thereof; yet such third person has a right of action not only
against the principal but also against the agent
9.
d.
Rule on Liability When Two or More Agents Appointed by the

Same Principal
Joint, when nothing is stipulated
Solidary, when stipulated.
e.
Instances When Third Party Liable to the Agent Himself

(a) Where the agent contracts in his own name, on a matter that it
within the scope of the agency (Art. 1883);
(b) Where the agent possesses a beneficial interest in the
subject matter of the agency
(c) Where a third party commits a tort against the agent.
Specific Obligation Rules for Commission Agents

a.
b.
Nature of Factor or Commission Agent
A commission agent is one whose business it is to receive and sell

goods for a commission, and who is entrusted by the principal with the
possession of the goods to be sold, and usually selling in his own
name. An ordinary agent need not have possession of the goods of his
principal, while the commission agent must be in possession.
Specific Obligations of a Commission Agent
1. Take Custody of Goods
2.
3.
IV.
Not to Commingle Similar Goods Belong to Different Principal

Cannot Sell on Credit without Principals Authorization
If the commission agent sells on credit, the principal may still

demand from his payment in cash, but the agent shall be entitled
to any interest or benefit which may result from such sale.
4.
To Inform the Principal of Every Pre-Authorized Sale on Credit
If the agent sell on credit with the authority of the principal, then
the agent shall so inform the principal with a statement of the
names of the buyers. If he fails to do so, the sale shall be deemed
to have been made for cash insofar as the principal is concerned.
5.
Shall Bear the Risk of Collection under Del Credere Commission

Set-up
Should the commission agent receive on a sale, in addition to the

ordinary commission, another called a guarantee commission,
then:
(i) He shall bear the risk of collection; and
(ii) He shall pay the principal the proceeds of sale on same
terms agreed with purchaser
6.
To Collect Credits of the Principal
A 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 exercise
due diligence for that purpose.
7.
Shall Be Responsible for His Fraud and Negligence
Art. 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. (1727)
Art. 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. (1725)
a.
Principal Not Bound by Contracts Made by the Agent Without or

Outside the Scope of His Authority
Any obligation wherein the agent has exceeded his power, or acts
done by the agent outside of the scope of his authority, even when
entered into in the name of the principal, would not bind the principal,
and would thus not be void, but merely unenforceable
A person with whom an agent has contracted in the name and for the
account of his principal, has a right of action against the purported
principal, even when the latter denies the commission or authority of
the agent, in which case the party suing has the burden of proving
the existence of the agency
b.
When Principal Is Bound By the Act of Agent Outside the Scope of

Authority
Art. 1910. x x x As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it expressly or
tacitly. (1727)
OBLIGATIONS OF THE PRINCIPAL

1.
2.
15
Binding Effect of the Terms of the Contract of Agency
A contract of agency which is not contrary to law, public order, public policy,
morals or good custom is a valid contract, and constitutes the law between
the parties. The contract of agency entered into [by the principal and the
agent] is the law between them and both are bound to comply with its terms
and conditions in good faith.
Principal is Bound by the Contracts Made by the Agent in His Behalf
Doctrine of Representation: All contracts and transactions entered into by

the agent on behalf of the principal within the scope of his authority are
binding on the principal as though he himself had entered into them directly
The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
General rule: The principal is responsible for the acts of its agent done
within the scope of its authority, and should bear the damage caused to
third persons.
Exception: When the agent exceeds his authority, the agent

becomes personally liable for the damage. But even when the agent
exceeds his authority, the principal is still solidarily liable together with
the agent if the principal allowed the agent to act as though the agent
had full powers.
Art. 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. (n)
The principal would still be bound personally for the acts of an agent in the
name of the principal, but outside of the scope of his authority:

(a)
When the principal ratifies such contract, expressly or tacitly (Art. 1910,
Civil Code);
(b)
When the principal has allowed the purported agent to act as though
he had full powers (Art. 1911, Civil Code); and
Art. 1918. The principal is not liable for the expenses incurred by the
agent in the following cases:
(1) If the agent acted in contravention of the principals instructions,
unless the latter should wish to avail himself of the benefit derived from
the contract;
(2) When the expenses were due to the fault of the agent;
(c)
3.
4.
When the principal has revoked the agency, but the third party have
acted in good faith without notice of such revocation.
Agency by estoppel or Doctrine of Apparent Authority
(3)When the agent incurred them with knowledge that an

unfavorable result would ensure, if the principal was not aware thereof;
(4) When it was stipulated that the expenses would be borne by the
agent, or that the latter would be allowed only a certain sum. (n)
Liability of the Principal for the Torts of the Agent
General rule: The principal is liable to injured third parties for the torts
committed by the agent at the principals direction or in the course and
within the scope of the agents authority.
Since the act of negligence was that of the agent, he also becomes
civilly liable to the injured parties, even when he acts in representation of
the principal.
d.
(1) Right of Agent to Retain Object of Agency in Pledge for

Advances and Damages
Art. 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.
(1730).
Obligations of the Principal to the Agent

a. Obligation of Principal to Pay Agents Compensation
The obligation of the principal to pay the agent shall be in

accordance with the terms agreed upon when the agency
was constituted. If no particular formula has been agreed upon
on the agents compensation, then the following rules should
apply:
(i)
The principal shall pay the agents commission only on
the legal basis that the agent has complied with his
obligations with the principal; and
(ii)
The principal shall be liable to the agent for the reasonable
value of the agents services.
When the revocation of the agency was effected by the principal

in bad faith, and for which the principal can be held liable for
damages including the payment of full commissions earned by
the agent at the time of the revocation of the agency
b.
Obligation to Advance Sums Requested for Execution of Agency

Art. 1912. The principal must advance to the agent, should the latter so
request, the sums necessary for the execution of the agency.
5.
Obligation of Two or More Principals to Agent Appointed for Common

Transactions
Art. 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. (1731)
6.
Rights of Persons When Faced With Conflicting Contracts

Art. 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 prior date shall be preferred, without
prejudice to the provisions of Article 1544. (n)
Art. 1917. In the case referred to in the preceding article, if the agent has acted
in good faith, the principal shall be liable in damages to the third person whose
contract must be rejected. If the agent acted in bad faith, he alone shall be
responsible. (n)
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 all fault.
The reimbursement shall include interest on the sums advanced,
from the day on which the advance was made. (1728)
V.
EXTINGUISHMENT OF AGENCY
1.
c.
16
When Principal Not Liable for Agents Expenses
Principal Liable to Indemnify Agent for the Damages Sustained

Art. 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. (1729)
How and When Agency Extinguished

Art. 1919. Agency is extinguished:

(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or

of the agent;
(4) By the dissolution of the firm or corporation which entrusted or

accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted.
2.
Other modes of extinguishment of an agency would be mutual

withdrawal, by supervening event that makes illegal or impossible the
objective or purpose for which the agency is constituted, like the
destruction of the subject matter which is the object of the agency.
Principals Revocation of the Agency

Art. 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. (1733a)
b.
Implied Revocation
Art. 1923. The appointment of a new agent for the same business or
transaction revokes the previous agency from the day on which notice
thereof was given to the former agent, without prejudice to the
provisions of the two preceding articles. (1735a)
Art. 1924. The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third persons.
Art. 1926. A general power of attorney is revoked by a special one
granted to another agent, as regards the special matter involved in the
latter. (n)
(1)
Appointment of New Agent for Same Business
The agency is revoked is from the day on which notice

thereof was given to the former agent.
The effect of revocation is without prejudice to the rights

of third parties who were not aware of or notified of such
situation.
(2)
When Principal Directly Manages the Business
The moment the principal directly manages the business

by dealing directly with third persons, the agency is
revoked.
The revocation of the agency is only with respect to the

third persons with whom the principal deals directly; as
to third parties who have previously known of the power of
attorney of the agent and who have not dealt with the
principal, the agency cannot be considered revoked.
Unless the agent is aware or given notice that the principal

has directly managed the business which is covered by
his power of attorney, then insofar as the agent is
concerned there is as yet no revocation of his powers.
The continued involvement of the principal in the

management of the business or the property which is the
object of a power of attorney given to an agent does not
necessarily mean there is intent to revoke.
The direct management of the business by the principal and

directly dealing with third parties shall be deemed to
produce the effect of revocation when such acts would
Art. 1925. When two or more principals have granted a power of attorney
for a common transaction, any one of them may revoke the same without
the consent of the others. (n)
a.
General Rule: Principal has a power to revoke the contract of

agency at any time provided that it is done in good faith.
o
Exception: Agency coupled with interest
Basis: Breach of trust
Agency contracts are based on trust and loyalty.
If the agency contract was for a stipulated period, the principal
still has the power to revoke, and when he does so revoke, the
agency is terminated, but he would be liable to the agent for
the damages caused if the revocation was done in bad faith.
Express Revocation
Art. 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. (1734)
Art. 1922. If the agent had general powers, revocation of the agency
does not prejudice third persons who acted in good faith and without
knowledge of the revocation. Notice of the revocation in a newspaper
of general circulation is a sufficient warning to third persons. (n)
17
If the agent fails or refuses to return the power of attorney, it is

incumbent upon the principal to give proper notice to the
members of the public who may be affected by the revocation.
Special Agency: Notice of revocation should be given to the third
person
General Agency: Notice of the revocation in a newspaper of
general circulation is a sufficient warning to third persons.

(3)
c.
a.
revocation in a newspaper of general circulation is a

sufficient warning to third persons.
(3)
b.
Special Power of Attorney Revokes a General Power of

Attorney
The appointment of a new agent for the same business or

transaction revokes the previous agency from the day on
which notice thereof was given to the former agent.
The making and accepting of a new power of attorney,

whether it enlarges or decreases the power of the agent
under a prior power of attorney, must be held to supplant
and revoke the latter when the two are inconsistent.
Revocation on the Basis of Breach of Trust
When no period has been fixed in his commission and so

long as the confidence reposed in him by the principal
exist; but as soon as this confidence disappears the
principal has a right to revoke the power he conferred upon
the agent, especially when the latter has resigned his
position for good reasons.
Even an agency coupled with interest may indeed be

revoked on the ground of fraud committed by the agent,
which is really an act of rescission, the same must be clearly
be proven.
Effects of Revocation on Third Parties
(1) When It Affects Dealings with Specified Third Parties
It is the duty of the principal on the termination of the

relationship of principal and agent to give due and
timely notice thereof to the third persons. Failing to do
so, he is responsible to them for whatever goods may have
been in good faith and without negligence sent to the agent
without knowledge, actual or constructive, of the termination
of such relationship
(2)
18
be inconsistent with the terms of the power of attorney

previously given to the agent.
If the purpose of the principal in dealing directly with the
purchaser and himself effecting the sale of the principals
property is to avoid payment of his agents commission,
the implied revocation is deemed made in bad faith and
cannot be sanctioned without according to the agent the
commission which is due him.
If it is the principal himself, through his own efforts, who
is able to effect the transaction contemplated by the agency
arrangement, then the agent would not be entitled to
receive any commission.
Revocation of General Powers of Agency
If the agent had general powers, revocation of the agency

does not prejudice third persons who acted in good faith
and without knowledge of the revocation. Notice of the
Revocation of Special Powers of Attorney
Revocation of a special power of attorney to mortgage a

parcel of land, embodied in a private writing, is valid and
binding between the parties
Cases of Irrevocable Agencies

Art. 1927. An agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an obligation already
contracted, or if a partner is appointed manager of a partnership in the
contract of partnership and his removal from the management is
unjustifiable.
General Rule: An agency coupled with interest cannot be revoked at
the will of the principal.
An agency cannot be revoked when:
A bilateral contract depends upon the agency for its fulfillment;
It is the means of fulfilling an obligation already contract
A partner is appointed manager of a partnership in the contract of

partnership and the removal from management is unjustifiable.
3.
The agency becomes part of another obligation or agreement. It is not

solely the rights of the principal but also that of the agent and third
persons which are affected.
It is not stipulation of irrevocability that makes an agency coupled with
an interest, but by the fact that the contract of agency has been
entered into upon which the fulfillment of the another contract is
dependent.
Withdrawal of the Agent from the Agency

Art. 1928. The agent may withdraw from the agency by giving due notice to
the principal. If the latter should suffer any damage by reason of the
withdrawal, the agent must indemnify him therefor, unless the agent should
base his withdrawal upon the impossibility of continuing the performance of
the agency without grave detriment to himself. (1736a)
Art. 1929. The agent, even if he should withdraw from the agency for a
valid reason, must continue to act until the principal has had reasonable
opportunity to take the necessary steps to meet the situation. (1737a)
Example: An agent instituted an action against his principal for the

recovery of the balance in his favor resulting from the liquidation of the
accounts between them arising from the agency, and rendered a final
account of his operations, was equivalent to an express renunciation of
the agency

4.
Death, Incapacity or Insolvency of the Principal

a. When the Agency Continues Despite Death of Principal
Art. 1930. The agency shall remain in full force and effect even after
the death of the principal, if it has been constituted in the common
interest of the latter and of the agent, or in the interest of a third person
who has accepted the stipulation his favor. (n)
b.
Effect of Acts Done by Agent Without Knowledge of Principals

Death
Art. 1931. 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. (1738)
An act done by the agent after the death of his principal is valid and
effective only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal, and (2) that the third person
who contracted with the agent himself acted in good faith.
No duty on the heirs of the principal to notify the agent of the death of
the principal.
5.
Death, Incapacity or Insolvency of the Agent

Art. 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. (1739).
a.
6.
7.
19
In case of Multiple Agents
In case of an agency where there are several agents constituted

for the same business or property, the death of one or more, but
not all of them would not extinguish the agency, with respect
to those who remain living.
If the common agents were intended to be considered as

having capacity as a group and not individually, then the
death, legal incapacity, or insolvency of one would legally
terminate the agency
Dissolution of a Corporation
Obligations of the Agent Even When the Agency is Extinguished
Even when the agency relation is terminated, the agent is bound to

keep confidential such matters and information which he learned in the
course of the agency when the nature of such matter or information is
confidential, such as business secrets


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AGENCY

NATURE & OBJECTIVE, AND KINDS OF CONTRACTS OF AGENCY

AGENCY: By the contract of agency a person binds himself to render some

Definition and Objectives of Agency

A contract entered into in the name of another by one who has no

Doctrine of representation: When an agency relationship is established, and

Purpose of Agency: ability, by legal fiction, to extend the personality of the

For an agency to arise, it is not necessary that the principal personally

Parties to a Contract of Agency

Elements of the Contract of Agency

On the part of the principal, there must be an actual intention to

Exception to this rule is the principle of agency by estoppel.

Capacity of the Parties

Principal must have capacity to contract

Principal may either be a natural or juridical person

Object, which is the execution of a juridical act in relation to third parties;

The object of every contract of agency is service, which particularly is

The cause or consideration in agency is the compensation or

There can be a valid agency contract which is supported by

The compensation that the principal agrees to pay to the agent is

The extent and manner by which the agent would be entitled to

On the other hand, if the nature of the service to be compensated

Agency, Trusts, Partnerships and Joint Ventures

rendering of service without achievement of the results

The basis of agency is representation.

Principles Flowing from Agency Characteristics of Personal,

The liabilities incurred shall pertain to the principal

The agent has neither rights or obligations from the

The agent has no legal standing to sue upon said

The agent who acts as such is not personality liable

Agent acts as a representative and not for himself; and

Essential Characteristics of Agency

Specifically named as such under the Civil Code

Provided with its own set of rules and legal consequences

It is a principal contract because it can stand on its own without need

Whatever the parties name the contractual relationship, when it has

The contract of agency is perfected by mere consent,

An agency may be express or implied from the act of the principal,

No form or solemnity is required in order to make it valid, binding and

Unilateral and Primarily Onerous

An agency is onerous in nature, where the agency expects

However, an agency may be supported by pure liberality, and thus

Even when it is supported by a valuable consideration (i.e.,

Personal, Representative and Derivative

Fiduciary and Revocable

Because it is fiduciary in nature, it is essentially revocable: neither the

Agency, Trusts, Partnerships and Joint Ventures

As regards property forming the subject matter of the

In a conflict-of-interest situation, the agent cannot choose

The agent cannot purchase for herself the property of

Preparatory and Progressive

A contract of agency does not exist for its own purpose; it is a

merely a tool or medium resorted to achieve a greater objective of

the object [of every relationship of agency] is the execution of a

Attorney-in-fact: all agents appointed by a principal to act on

Whether It Covers Acts of Administration or Acts of Ownership

An agency couched in general terms comprises only acts of

Agency Distinguished from Similar Contracts

One authorized to do all acts pertaining to a business of a certain

one authorized to do some particular act or to act upon some

enter into juridical relationship

Whether or Not It Covers Litigation Matters

Agent would be practicing law and would have to be a licensed