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special) exclude from the agent the power to execute all other
acts of administration? fhe answer seems to be in the affirmative
under the principle that if the principal decides to detail the powers
he grants to the agent, then he means to exclude all other powers
of administration other than those that are incidental to those
specifically granted.

Pineda v. Court of Appeals,:r f[g5 covered the principle that

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.

Pineda held that where the instrument which grants to the

agent the power "To follow-up, ask, demand, collect and receipt for
my benefit indemnities or sum due me relative to the sinking of M.V.
NEMOS in the vicinity of El Jadida, Casablanca, Morocco on the
evening of February 17, 1986," which is a special power of attorney
(r.e., particular agency), excluded any intent to grant a general power
of attorney or to constitute a universal agency. Being special powers
of attorney, they must be strictly construed. The instrument cannot be
read to give power to the attorney-in-fact "to obtain, receive, receipt
from" the insurance company the proceeds arising from the death
of the seaman-insured, especially when the commercial practice for
group insurance of this nature is that it is the employer-policyholder
who took out the policy who is empowered to collect the proceeds
on behalf of the covered insured or their beneficiaries.

-oOo-

Guepren 3

POWER & AUTHORTTY DUTTES &

OBLIGATIONS, AND THE RIGHTS OF
THE AGENT
GEnrRel Oelroeror.r oF AGENT Wno Acceprs rHE Aoerucy

Anr. 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)

Under Article 1BB4 of the New Civil Code, when an agent

accepts the appointment of the principal, a contract of agency
arises, and at that point the agent is legally bound to carry out the
terms of the agency; otheruvise, if he fails or refuses to carry on
the agency, he shall be liable for damages suffered by the principal
by reason of his nonfeasance or non-performance. The article
emphasizes the principle that once the agent accepts the principal's
appointment, the agent is bound to comply with his duty of diligence
or care.

Article 1BB4 also expresses in the realm of Agency Law the

contract law principles of consensuality, mutuality and obligatory
force expressed in Articles 1159 and 1315 of the New Civil Code,
which provide that "Obligations arising from contracts have the
force of law between the contracting parties and should be complied
131

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NON.COI]POF]ATE MEDIA OF DOING L]USINESS

with in good faith," and that "Contracts are perfected by mere

consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping
with good faith, usage and law." Likewise, Article 1356 of the New
civil code provides that "contracts shall be obligatory, in whatever
form they may have been entered into, provided all the essential
requisites for their validity are present." Finally, Article 1308 provides

POWEI] & AUTHORITY DUTIES & OBLIGATIONS, I33

AND THE RIGHTS OF THE AGENT

1.

Measure of Damage for Agent's

Non.Performance of Obligation

that the "contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.',

We begin with the principle enunciated early in Heredia v.

Salina,l construing the original version of Article 1884,2 where the
Supreme Court held that 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; mere
allegation without substantiation is not enough to make the agent
personally liable.

Despite the obligatory nature of every contract of agency, note

that Article 1BB4 emphasizes that when an agent refuses to comply

ln Philippine National Bank v. Manila Surety,3 where the holder

of an exclusive and irrevocable power of attorney to make collections,

with his obligations, 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. The liability of an agent for damages
when he fails to carry out his obligations is consistent with the terms
of Article 11 70 of the New civil code which provides that "Those who
in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof,
are liable for damages." This same principle is expressed in Article

1909 of the Law on Agency, which provides that,,The agent is

responsible not only for fraud, but also for negligence, which shall be
adjudged with more or less rigor by the courts, according to whether
the agency was or was not for a compensation.,'

Although a contract of agency is terminated ipso jure upon the

death of the principal, nonetheless, Article 1Bg4 of the New civil
code expressly provides that the agent must finish the business
already begun upon death of principal should delay entail any
danger. ln other words, the obligatory force of the duty of the agent
to act with diligence exceeds the formal termination of the agency
relationship, which automatically comes about by the death of the
principal. The provision emphasizes the characteristic of agency as
a preparatory contract: that it is constituted not for its own sake,
but primarily to be the basis by which the agent may enter into
juridical acts on behalf of the principal with respect to third parties.
consequently, even when the agency relation is terminated upon the
death of the principal, the comrnenced but unfinished contracts and
transactions then pending must be fulfilled by the agent on behalf
of the decedent, when continuation of representation is necessary.

failed to collect the sums owed to the principal and thereby allowed
the allotted funds to be exhausted by other creditors, such agent
was adjudged to have failed to act with the care of a good father
of a family required under Article 1BB7 of the New Civil Code and
became personally liable for the damages which the principal
suffered through his non-performance.
ln BA Finance v. Court of Appeals,a the finance company was
constituted under the deed of chattel mortgage as an attorney-infact for the mortgagors with full power and authority to file, follow-up,
prosecute, compromise or settle insurance claims; to sign, execute,
and deliver the corresponding papers, receipts and documents to
the insurance company as may be necessary to prove the claim,
and to collect from the latter the proceeds of insurance to the extent
of its interests, in the event that the mortgaged car suffers any loss
or damage, the grant of power constituted the finance company as
the agent of the mortgagors.
When the mortgaged motor vehicle figured in an accident that
would have allowed recovery for total loss on the insurance claim,
and the mortgagors had instructed the finance company to make
such claim, but instead it opted to have the motor vehicle repaired,
the Court decreed that the failure and refusal of the finance
company to seek total loss claims against the insurance company,
constituted negligence and not outright refusal to comply with the
110 Phit.157 (1908).
2Article 1718 of the old Civil Code.
314 scRA 776 (1965).
4201 scRA 157 (1991)

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t,()w[] ft & AUTI-tontTy DUTIES &

OBL|GATtoNS,

135

AND THE RIGHTS OF THE AGENT

instructions of the principals, and rendered it liable for damages.

It held that underArticle 1BB4 of the New Civil Code, the finance
company was bound by its acceptance to carry out the agency,
and is liable for damages which, through its non-performance, the
principals-mortgagors may suffer. The Court held that the finance
company could no longer collect on the unpaid balance of the
promissory note secured by the chattel mortgage by reason of the
loss suffered by the principals-borrowers.

OauoffioN

Ttre provisions of Articles 1BB5 and 1929 constitute rare

rrurl;rnces where a duty of diligence is owed by a person to another
orrh;ide of an existing contractual bond.

Gexrnll Rulr

ou Aoenr's Powen AND AurHoRtry

Anr. 1881. The agent must act within the scope

of his authority. He may do such acts as may be

oF AcENT WHo DeclrNEs AcENcy

conducive to the accomplishment of the purpose of

the agency. (71aal

Anr. 1885. ln case a person declines -an agency,

he 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. (n)

Anr- 1882. The Iimits of the agent's authority

shall not be considered exceeded should it have
been performed in a manner more advantageous to
the principalthan that specified by him. (1715)

Anr. 1887. In the execution of the agency, the

agent shall act in accordance with the instructions of
the principal.

When a person declines the offer to make him an agent, no

contract of agency arises and thereby no obligation is assumed by
such person to the offeror based on the absence of privity. However,
Article 1BB5 of the New Civil Code provides for the following
exceptions (i.e., when the offeree, in spite of his refusal to accept
the appointment, assumes certain liabilities), thus: "he 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 duty of care over goods given to
his custody can only cover a "reasonable period," because the same
article provides that "The owner shall as soon as practicable either
appoint an agent ortake charge of the goods."
i,, ,,. . 1,.,r ii,,i
i.,.-,
,_r1ii

We should compare the obligations of a person who declines

an agency, from one who withdraws from an agency he previously
accepted. UnderArticle 1929, even if an agent withdraws from the
agency for a valid reason, "he must continue to act until the principal
has had reasonable opportunity to take the necessary steps to meet
the situation."

ln default thereof, he shall do all that a good

father of a family would do, as required by the nature
of the business. ('17'l9l
Anr. 1888. An agent shall not carry out an agency

if its execution would manifestly result in loss or

damage to the principal. (n)

Anr. 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)

Anr. 1899. lf a duly authorized agent acts in

accordance with the orders of the principal, the
Iatter cannot set up the ignorance of the gent as to
circumstances whereof he himself was, or ought to
have been, aware. (n)

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PoWEt] & AUIFIOIII IY, DU'IIES & OI]LIGAI

IONS,

137

AND THE RIGHTS OF THE AGENT

1.

Statutory Measures of Gompliance by the Agent of His

Fiduciary Duties of Obedience and Diligence

Article 1BB7 of the New Civil Code provides succinctly the

twin measures of how an agent qhould act "ln the execution of the
agency," which ought to be ag follows:

'
!

{a)

Agent must act "in accordance with the instructions

of the principal," which embody the "duty of
obedience."

(b)

ln 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," which embody the
"duty of diligence."

The twin duties of obedience and diligence of the agent in

the execution of the agency can be summarized in the Agency
Law doctrine embodied in Article 1BB1 of the New Civil Code that
"The agent must act within the scope of his authority;' ln Corporate
Law parlance, that same concept in covered by the terms "duty of
obedience" and "duty of diligence."

Durv or OseoreNce

On the first level, the duty to act in accordance with the

instructions of the principal lies as the heart of the principal agency
relations, and best encapsulized in the lerm "duty of ohedience."
Since by definition under Article 1868 of the New Civil Code, the
agent assumes the obligation to represent the principal, then the
foremost duty of every agent so appointed must be to follow the
instructions of the principal. Thus, in Victorias Milling Co. v. Court
of Appeals,5 in trying to distill the essence of what distinguishes a
contract of agency from a contract of agency to sell, the Supreme
Court held
1'[,,
\
It is clear from Article 1868 that the basis of agency is

representation.

r.t{r

..

ii

ii

One factor which mos_[cleaqly distinguishes

agency from other legal concepts is @onfrol;_pne person the agent - agrees to act under the bontioi or direction of
5333

another - the principal. lndeed, the very word "agency" has

come to connote control by the principal.6

Another way of looking at the same principle is to consider

that since the essence of every contract of agency is for the agent
to enter into contractual or juridical relationships in the name of the
principal, then in order for the principal to be bound by the contracts
or transactions entered into by his agent with third parties, it is
essential under Contract Law principle of consensuality, that it is
the principal's consent that is given by the agent to the contract
or transaction; otherwise, the principal cannot be held liable for a
contract or transaction to which he never gave his consent. Article
1BB1 of the New Civil Code provides that the agent must act "within
the scope of his authority," which means that since the agent acts in
representation of the principal, he must enter into juridical relations
on behalf of the principal and representing the will or consent of the
principal, and not his (agent's)own will.

One of the clearest examples that the agent has given the
consent of the principal to a contract or a transaction, is when he
acts in accordance with the instructions of the principal. There is
no doubt that when an agent complies with the instructions of his
principal, he is acting within the scope of his authority.
Nonetheless, the underlying obligation of the agent to follow
the instructions of the principal, is still a personal obligation "to do,"
and the expression of the principal's will depends much on how the
agent obeys his instructions. ln the event that the agent refuses to
follow the instructions of the principal, then the obligatory nature of
the agency relationship is preserved by three legal consequences
mandated by law:
l !. {, ur.,. t , ; ; .(,li,,i ill''ilitr'r i,:( '.tFrrst, the agent becomes personally liable for damages arising
from a breach of his duty of obedience to the principal.
Second, since the agent had not given the principal's 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.

6lbid, at pp. 675-676

scRA 663 (2ooo)

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POWER & AUTHORITY DUTIES & OBLIGATIONS, 'I39

AND THE RIGHTS OF THE AGENT

Third, it would then be the agent who may become personally

liable for the contract or transaction.

him; as well asrincidental powers i\ecessary in order to achieve the

purpose for which the agency was constituted.

Thus, Article 1B9B of the New Civil Code provides "lf 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. ln this case, however, the agent
is liable if he undertook to secure the principal's ratification."

ln Tan Tiong Teck v. SEC,? it was held that the agent is not
deemed to have exceeded his authority should he perform the
agency in a manner more advantageous to the principal than that
indicated by the principal. Thus, when the agent sold the car of the
principal for more than the amount indicated by the principal, then
he had not exceeded his authority because a higher price was more
advantageous to the principal.

Dury or Dulceruce
Often, an agency relation is entered into mainly for business
or commercial ventures, and it is not expected that the principal can
cover all contingencies with specific instructions, or that every act
of the agenl must be based on detailed instructions of the principal.
The agent is expected to use his business discretion as the principal
would or could, if personally present. Therefore, we should consider
the principal's instructions as the limit of an agent's power; and that
in the absence of limiting instructions, it is expected that the agent
uses his best judgment to stay within the scope of the principal's
authority granted to him. This is part of the "duty of diligence" of
every agent who accepts an agency designation. Thus, Article 1887
of the New Civil Code provides that in default of the principal's
instructions, the agent "shall do all that a good father of a family
would do, as required by the nature of the business."

This is not to say that when the principal has given detailed
instructions to the agent, that the agent is no longer bound to
exercise due cliligence, for indeed every agent is a party to a contract
of agency, not a mere robot, who is expected to exercise prudence
in following the instructions of the principal.
This principle is also expressed underArticle 1BB1 of the New
Civil Code, which provides that the agent "may do such acts as may
be conducive to the accomplishment of the purpose of the agency."
Likewise, Article 1BB2 provides that "The limits of the agent's authority
shall not be considered exceeded should it have been performed in
a manner more advantageous to the principal than that specified
by him." ln other words, an agent not only naqf.ipieEi powiirs-;l Out
, also implied powers emanating from the eipress fowers granied to

The principle was reiterated in the syllabus of the published

decision in Olaguer v. Purugganan, Jr.,8 where it is written that under
Article 1BB2 of the New Civil Code the limits of an agent's authority
shall not be considered exceeded should it have been performed

in a manner advantageous to the principal than that specified by

him. ln that decision, the manner by which the attorney-in-fact
pursued the sale of the shares of the principal, and the payment of
the consideration so as not to reveal that he owned such shares as
requested by the principal, were all deemed to have been executed
by the agent within the scope of his authority.

ln Hernandez-Nievera v. Hernandez,e it was held that

the

power expressly conferred on the agent to sell "for such price or

amount" was broad enough to cover the exchange contemplated in
the Deed of Assignment and Conveyance between the properties
and the corresponding corporate shares in a corporation, with the
latter replacing the cash equivalent of the option money initially
agreed to be paid by the said corporation under the Memorandum
of Agreement. The Court held that a special power of attorney to
sell is sufficient to enable the agent to make a binding commitment
under the Deed ofAssignment and Conveyance.
ln essence, the duty of diligence requires of the agent to act on
behalf of the principal exercising the due diligence of a good father
of a family; and he is in breach of such fiduciary duty when he acts

in fraud or in negligence, even when he pursues the business of

the principal. Articles 1BB7 and 1909 of the New Civil Code confirm
769 Phit. 425 (1940).
8515 SCRA460 (2007).
e642

scRA646 (2011).

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NON-CORPORATE MEDIA OF DOING BUSINESS

uowEFr & AUTI-toFilTY DUTTES & OBLIGATIONS,

141

AND THE RIGHTS OF THE AGENT

the truism that in the pursuit of the agency, it is expected that the
agent would have to act based on his own assessment of what is
necessary under the situation when it is not covered by an express
instruction from the principal. The agent is supposed lo exercise the
business judgment expected from the principal when entering into
juridical relations with third parties or pursuing the business under
his management.

As a matter of guideline of what is within his power, Article

1888 provides that the agent "shall not carry out an agency if its
eiecution would manifestly result in loss or damage to the principal."
Notice that the article covers only acts that would "manifesfly" lead
to losses; in other words, the agent cannot be a guarantor that the
principal would suffer no loss or damage in the pursuit of the agency;
human nature as it is, the sustaining of losses due to human error
is part of the risk of every owner or principal assumes, even when
he himself carries on the business. The obligation of the agent is to
avoid losses which are clearly avoidable from the exercise of due
diligence of a good father of a family.

1.

Measure of Liability for Breach of Duty of Diligence

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.
It should be emphasized however, that when the agent acts in

accordance with the instructions of the principal, the agent cannot

be deemed to have acted in fraud against the principal or to have
acted negligently, even when damage was caused to the principal.
Thus, Article '1899 provides that "lf a duly authorized agent acts in
accordance with the orders of the principal, the [principal] cannot
set up the ignorance of the agent as to circumstances whereof he
himself was, or ought to have been aware."

2.

Responsibility for Fraud or Negligence

whether the agency was or was not for a compensation.

(1726)

Article 1909 of the New Civil Code provides that "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."
Domingo v. Domingo,l0 in noting that "Article 1909 of the New
Civil Code is essentially a reinstatement of Article 1726 of the old
Spanish Civil Code"11 held that the provisions of Article '1909

. demand the utmost good faith, fidelity,

honesty,

candor and fairness on the part of the agent, the real estate
broker in this case, to his principal, the vendor. The law

imposes upon the agent the absolute obligation to make a

full disclosure or complete account to his principal of all his
transactions and other material facts relevant to the agency,
so much so that the law as amended does not countenance
any stipulation exempting the agent from such an obligation
and considers such an exdmption as void. The duty of an
agent is likened to that of a trustee. This is not a technical
or arbitrary rule but a rule founded on the highest and truest
principle of morality as well as of the strictest justice.12

The provisions of Article 1909 are an implementation of the

duty of diligence expressed in Article 1BB7 which provides that in the
execution of the agency, the agent shall act in accordance with the
instructions of the principal, and in default of instructions, the agent
"shall do all that a good father of a family would do, as required by
the nature of the business;" and Article 1BBB, which provides that an
agent "shall not carry out an agency if its execution would manifestly
result in loss or damage to the principal."
On the other hand, an agent cannot be held personally liable

by the principal for damages caused where, as provided under

Article 1899, the "agent acts in accordance with the orders of the
Anr. 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

'042 SCRA 131 (1971)

11lbid, at p. 137
12lbid, at p. 137.
.

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POWEFI & AUTHOBITY DUTIES & OBLIGATIONS,

AND THE HIGHTS OF THE AGENT

NON-CORPORATE MEDIA OF DOING BUSINESS

r43

contract.'

ln Philippine National Bank v. Bagamasbad and Ferrer,l6

where the manager of the bank released the proceeds of an
unauthorized loan to an unqualified borrower, the Court ruled that
the bank may recover both against the borrower and its manager,
and the suit could not be considered as the principal-bank ratifying
the unauthorized act of its agent-manager, but was merely seeking
to diminish as much as possible the loss to itself.

Article 1909 is also the legal basis by which an agent becomes

personally liable to third parties who are injured by his act of fraud
or negligence.

ln Metrobank v. Court of Appeals,lT the Court brushed aside

the contention that since it was merely acting as collecting bank,
it was the drawee bank that should be held liable for the loss of a

principal, the principal cannot set-up the ignorance of the agent as

to circumstances whereof he himselfiwas, or ought to have been,

aware." This refers to the liability incurred by the principal as to third
parties: having appointed an ignoramus for an agent, who acts in
accordance with the principal's instruction (r.e., does not use good
judgment), the principal cannot avoid his obligations arising from the

ln Cadwallader v. Smith

where the agent by means of

misrepresentation of the condition of the market induces his principal
to sell to him the property consigned to his custody, at a price less
than that for whibh he has already contracted to sell part of it, and
who thereafter disposed of the whole at an advance, was held liable
to principal for the difference. The Court held that such conduct on
the part of the agent constituted fraud, entitling the principal to annul
the contract of sale. Although commission earned by the agent on
the fraudulent sale may be disallowed, nonetheless commission
earned from other transactions which were not tainted with fraud
should be allowed the agent.
Bell,13

lnternationat Fitms v. Lyric Film Exchange,la held that the failure

of the sub-agent who has custody of the film to insure against loss
by fire, where there was no instruction received from the principal
to so insure or that the insurance of the film was not a part of the
obligation imposed upon an agent by law, does not constitute either
negligence or fraud.

ln Tan Tiong Teck y. SEC,15 the client ordered the broker to sell
the shares giving a floor or minimum price, and the broker did sell
at the minimum price indicated even though the prevailing ranging
prices were much higher. The broker was liable for the difference
suffered by the principal because the broker failed to exercise the
prudence and tact of a good father of a family which the law required
of him.

depositor: "ln stressing that it was acting only as a collecting agent

for Golden Savings, Metrobank seems to be suggesting that as a
mere agent it cannot be liable to the principal. This is not exactly
true. On the contrary, Article 1909 of the New Civil Code clearly
provides that" the agent is responsible not only for fraud, but also
for negligence.

ln British Airways v. Court of Appeals,ls in overturning the ruling

of the appellate court that a principal airline company which is made

to pay damages to one of its passengers, had no cause of action

to recover the amount paid from its agent airline company which it
accused of causing the negligent act, the Supreme Court held that
Parenthetically, the Court of Appeals should have
been cognizant of the well-settled rule that an agent is also
responsible for any negligence in the performance of its
function [Art. 1909, Civil Code] and is liable for the damages
which the principal may suffer by reason of its negligent act
[Art. 1884, Civil Code]. Hence, the Court of Appeals erred
when it opined that BA, being the principal, had no cause of
action against PAL, its agent or sub-contractor.ls
The Court also noted in British Airways, that since the passenger
was seeking damages for breach of contract of carriage, its cause
of action was only against the principal airline (BA), and not PAL
since the latter was not a party to the contract; but that "this is not to
1689

137

Phit. 461 (1907).

1463 Phit. 77s (1936)
1569 Phit. 428 (1940).

Phit.365 (1951

17'194

18285
1e/brcr,

).

scRA 169 (1991).

scRA4so (1998).
at p. 463.

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AND THE BIGHTS OF THE AGENT

say that PAL is relieved from any liability due to any of its negligent
acts."2o The Court then affirmed that the procedural remedy that BA

took, that of filing a third-party complaint against PAL, was correct,

"for the purpose of ultimately determining who was primarily at fault
as between them."

Durv or Loynlry

1.

Duty of Loyalty in General

Anr. 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)
Article 1BB9 of the New Civil Code sets-out what in corporate
parlance is known as the "duty of loyaltf' as it pertains to an agent:
"The agent shall be liable for damages if, there being a conflict
between his interest and those of the principal, he should prefer
his own." Agency relation is essentially fiduciary in character, which
requires of the agent to observe utmost good faith and loyalty to the
principal.

When an agent violates his duty of loyalty, as where in a

conflicGof-interests situation he prefers his own interest to the
detriment of the principal, Article l Bgg does not declare the contract
or transaction he entered into to be void, but merely makes the
agent liable for the damages suffered by the principal. ln Corporate
Law, when a director or officer violates his duty of loyalty to the
corporation, he is bound to disgorge to the corporation all the profits
and earnings he obtained from his breach of duty, even when he
used his own capital or funds for the contract or transaction.2l The
'-claw-back doctrinie" is applicable in Agency Law.

a.

Measure of Damages Due to the Principal

When Agent Violates His Duty of Loyalty

Article 1891 of the New Civil Code provides that the agent "is
bound to render an account of his transactions and to deliver to the
2albitl,

atp.464.

21Secs. 31 and 34, Corporation

Code

principal whatever he may have received by virtue of the agency,

even though it may not be owing to the principal." The principal
therefore has the right to demand that the agent should turnover to
him whatever contract, property or business has been acquired by
the agent in breach of his duty of loyalty.
Sing Juco and Sing Bengco v. Sunyantong and Llorente,22 held

that a confidential employee who, knowing that his principal was

negotiating with the owner of some land for the purchase thereof,
surreptitiously bought the land in the name of his wife, committed
an act of disloyalty to his principal, whereby he became liable for,
among other things, the damages caused, which meant to transfer
the property back to the principal under the terms and conditions
offered to the original owner.
ln Sevedno v. Severino,23 the Court reiterated the rule that the
relations of an agent to his principal are fiduciary and in regard to the
property forming the subject matter of the agency, he is estopped
from acquiring or asserting a title adverse to that of the principal.
Consequently, an action in pergonam will lie against an agent to
compel him to return or retransfer to his principal, or the latter's
estate, the real property committed to his custody as such agent and
also to execute the necessary documents of conveyance to effect
such retransfer.
Aboitiz v. De Silva,2a held that an agent cannot represent both
himself and his principal in a transaction involving the shifting to
another person of the agent's liability for a debt to the principal. The
agent was held to remain liable for the account to the principal.
ln jurisprudence, 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.25

ln Criminal Law, the agent who refuses or fails to return to

the principal the funds or property received may be held liable for
estafa.26

2243 Phit. sgg (1s22).

2344Ph1t.343 (1923).
2445Pht. BB3 (1924).
25U.5. v. Reyes, 36 Phn.792 (1917), Domingo v. Domingo,42 SCRA 131 (1971).
26U.5. v.

Kiene,T Phil.736 ('1907).

I4G

NON-COFIPOHAIE MEDIA OI- DOING t]I]SINF.SJS

b.

When Agent Contracts in His Own Name on a Matter

that Falls Within the Scope of the Agency
Article 1883 of the New civil code provides that ,,lf an agent
acts in his own name, the principal has no right of action against
the person with whom the agent has contracted; neither have such
persons against the principal." ln such a case, it is the agent
who
"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.,,

lf the matters entered into by the agent in his own name

pertain to the business of the principal, there would be no
doubt
that the agent has breached his fiduciary duty of loyalty, by having
preferred his own interests to that of the principalL. whether
tne
agent has used his own funds or property, or those of the principa|s,
he would still be in breach of this fiduciary duty, and under Article
1891 of the New civil code, he "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." ln either case, therefore, the principil has the right
to demand that the agent should turnover to him whatever contract,
property or business has been acquired by the agent in breach
of
his duty of loyalty.
ln Slrong v. Guiterrez Repide,zT the U.S. Supreme Court,
in reversing a decision of the philippine supreme court during

the American colonization era, held that the director and general
manager of the stock corporation, who arso was the majority
stockholder, and was designated to be the main negotiator for the
company with the Government for the sale of its largL tract of land,
having special knowledge of commercial information that would
increase the value of the shares in relation to the sale of the parcels
of land to the Government, courd.regaily be treated as being an
agent of the stockholders of the company, with a fiduciary obligation
to reveal to the other stockholders such special information before
proceeding to purchase from the other stockholders their
shares of
stock. consequenfly, since such director purchased the shares of a
stockholder without having disclosed important facts or to render
the
appropriate report on the expected increase in value of the company,

POWEI-] & AU'THOFII]Y, DUTIES & OIJLIGATIONS, 147

AND THE BIGHTS OF THE AGENT

tlrere was fraud committed for which the director was held liable for
the earnings earned against the stockholder on the sale of shares"
ln Miguel v. Court of Appeals,2s the Court held that

. . . a fiduciary relation arises where one man assumes

to act as agent for another and the other reposes confidence
in him, although there is no written contract or no contract at
all. lf the agent violates his duty as fiduciary, a constructive
trust arises. lt is immaterial that there was no antecedent
fiduciary relation and that it arose contemporaneously with
the particular transaction.2e

lf the agent had used the funds belonging to the

principal,
"owes
interest on the
under Article 1896 of the New Civil Code he
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." The provisions of this article presumes that the property or
business acquired by the agent for his own in violation of his fiduciary
duty is one that the principal is not demanding to be delivered to
him. This is clear from Article 1918 of the New Civil Code which
provides that "The principal is not liable for the expenses incurred by
the agent . . . [i]f the agent acted in contravention of the principal's
instructions, unless the latter should wish to avail himself of the
benefits derived from the contract." ln other words, if the contract
or business acquired by the agent in breach of his duty of loyalty is
demanded by the principal to be turned over to him, then the use
of the principal's sum to acquire such business would be deemed
to have been ratified, and the agent is not personally liable for the
interests due on said amount.

ln addition, Article 1455 of the New Civil Code (on implied

trusts), provides that "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."

2829

2741

pht.947 (1909)

scRA 760 (1969).

atp.777, citing Scott on Trusts, 3rd.ed., Vol. V,

2slbid,

85 N.J"

p 2544, citing Harrop v. Cole,

Eq.32,95A. 37B,atf'd 86 N.J. Ea.250,98A. 1085.

148

NON-COFPOFATE MEDIA OF DOING BIJSINESS

c.

(1)

Particular Rules on Conflict-of-lnterests Situations

Purchase of Principat's Froperty
Anr. 1491. The following persons cannot acquire

by purchase, even at a public or judicial auction,

either in person or through the mediation of another:

xxx
(2) Agents, the property whose administration
or sale may have been entrusted to them, unless the
consent of the principal has been given;

xxx

149

incapable of buying the properties of his principal connotes the idea

of trust and "confidence; and so where the relationship does not
involve considerations of good faith and integrity the prohibition
should not and does not apply. To come under the prohibition, the
agent must be in a fiduciary relation with his principal."32

Olaguer v. Purugganan, Jr.,33 recognized that the prohibition

against agents purchasing property in their hands for sale or
management is clearly not absolute; when so authorized by the
principal, the agent is not disqualified from purchasing the property
he holds under a contract of agency to sell.

(2)

When Agent Empowered to Borrow or Lend Money

(1459a)

Anr. 1492. The prohibitions in the two preceding

articles are applicable to sates in legal redemption,
compromises and renunciation. (n)
Article 1491(2) of the New civil code provides for any conflictof-interest situation when it provides that an agent is prohibited from
buying property entrusted to him for administration or management,
without the principal's 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.
ln BarTon v. Leyte Asphart,o, where the prevailing statutory rule
was then Article 267 of the code of commerce which declared that
no agent shall purchase for himself or for another that which he has
been ordered to sell, the court held that a sale by a broker to himself
without the consent of the principai would be void and ineffectual

whether the broker has been guilty of fraudulent conduct or not.

consequently, such broker is not entifled to receive any commission
under the contract, much less any reimbursement of expenses
incurred in pursuing and closing such sales.

Araneta, lnc. v. Del paterno,3l held that the prohibition in

Article 1491(2) of the New civil code which renders an agent legally
3046 Phit.
3191 Phit.

AUTHOBITY DUTIES & OBLIGATIONS,

AND THE BIGHTS OF THE AGENT

TJOWER &

938 (1924).
786 (19s2).

Anr. 1890. lf 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 interebt, he cannot borrow it without
the consent of the principal. (n)
Article 1890 provides that when the agent is empowered to
borrow or lend money by the principal, then:

(a) lf empowered to borrow money, he may be the

lender at current interest; and

(b) lf empowered to lend money at interest, he cannot

borrow without principal's consent.

(i)

What Happens When the AgentViolates His

Obligations under Article 1890?

ln the case 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. lf the agent borrows for himself
without the principal's 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
32lbid, at p. Bo4.
33515

scRA460 (2007).

NON.CORPORATE MEDIA OF DOING BUSINESS

F'OWI'I] & AUTHONITY, DUTIES & OBLIGATIONS,

AND THE FIIGHTS OF THE AGENT

party, he would also be liable for damages that the principal may

ln Ojinaga v" Estate of Perez,36 the Court held that it matters

not how fair the conduct of the agent may have been in a particular
case, nor that the principal would have been no better of if the agent
had strictly pursued his power, nor that the principal was not, in fact,
injured by the intervention of the agent for his own profit. The result
in both cases is the same; the profits shall still pertain to the principal.

150

have

suffered.

ln Hodges rz Sa/as and Sa/as,3i the Court held that when the
power granted to the agent was only to borrow money and mortgage
principal's property to secure the loan, it cannot be interpreted to
include the authority to mortgage the properties to support the
agent's personal loans and use the proceeds thereof for his own
benefit. The lender who lends money to the agent knowing that is
was for personal purpose and not for the principal,s account, is a
mortgagee in bad faith and cannot foreclose on the mortgage thus
constituted for the account of the agent. In addition, the court ruled
that "ln cases like the present one, it should be understood that the
agent was obligated to turn over the money to the principals, or, at
least place it at their disposll."es

d.

Obligation of Agent to Render an Account and to

Turn-Over to the Principal Whatever Received by
Virtue of the Agency

ln Domingo v. Domingo,3T the Supreme Court explained the

present version under Article 1891 was taken from Article 1720 o'f
the old Spanish New Civil Code, with the first paragraph consisting
"in changing the phrase 'to pay'to 'to deliver,'which latter term is
more comprehensive than the former. lt also noted that the second
paragraph ofArticle 1891 which declared void any stipulation seeking
to exempt an agent from the obligation to render an account, "is a
new addition designed to stress the highest loyalty that is required
condemning as void any stipulation exempting the
to an agent
agent from the duty and liability imposed on him in paragraph one
thereof."3B

Domingo discussed the legal consequences when the duty of

fidelity is breached by an agent, thus

Anr. 1891. Every agent is bound to render an

account of his transactions and to detiver 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. {1720a1
Under 1891 of the New Civil Code, ,,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.,, The
duty to account and to turn over to the principal all profits and gains
received in the pursuit of the agency is an integral part of the agent's
fiduciary duty of loyalty.
3463 Phit.
567
35/b,d,
p.

at

Hence, an agent who takes a secret profit in the nature

bonus, gratuity or personal benefit from the vendee,

of a
without revealing the same to his principal, the vendor, is
guilty of a breach of his loyalty to the principal and forfeits
his right to collect the commission from his principal, even
if the principal does not suffer any injury by reason of such
breach of fidelity, or that he obtained better results or that
the agency is a gratuitous one, or that usage or customs
allows it; because the rule is to prevent the possibility of any
wrong, not to remedy or repair an actual damage. By taking
such profit or bonus or gift or propina from the vendee, the
agent thereby assumes a position wholly inconsistent with
that of being an agent for his principal, who has a right to
treat him, insofar as his commission is concerned, as if no
agency had existed. The fact that the principal may have
been benefited by the valuable services of the said agent
369

Phit. 185 (1907).

scRA 121 (1971).
38lbid, at p. 137.
3742

(i936).

578.

151

152

NON-CORPOBATE MEDIA OF DOING I]USINESS

does not excurpate the agent who has onry himserf to brame
for such a result by reason of his treachery or perfidy.3s

The court then went on to cite cases under the ord spanish
civil code where a rigorous application of Article 1720 was made:

In U.S. y. Kiene,ao an insurance agent was convicted

of estafa for his failure to deliver sums of money paid

to him as an insurance agent for the account of his

employer;

ln Ojinaga v. Estate of perez,al an administrator of

an estate was made liable under Article 1720 for
failure to render an account of his administration to
the heirs unless the heiirs consented thereto or are

estopped by having accepted the correctness of his

account previously rendered;

.
.

ln U.S. v. Reyes,a2 an agent was made liable for

failure to deliver to his principal the total amount
collected by him in behalf of his principal and could
not retain the commission pertaining to him by
subtracting the same from his collection;
ln ln Re: Bamberger,a3 a lawyer was made liable

under Article 1720 when he failed to deliver to his

client allthe money and property received by him for
his client despite his attorney's lien; and

ln Duhaft v. Macias,aa the duty of a commission

agent to render a full account of his operations to his
principal was reiterated.

Domingo also cited American jurisprudence that apply the

doctrine underArticle 18g1, thus:
Where

principal has paid an agent or broker a

commission whire ignorant of the fact that the ratter has been
3slbid,

at pp. '137-138
407 Phit.
736 (1907).
419 Phit.
1Bs (i907).
4236
Phit. 792 (i917)
4349 phit.
962 (1927).
4454 phit.
513 (1930).

POWER & AUT}]OBITY DUTIES & OBLIGAI IONS,

AND THE FIIGHTS OF THE AGENT

unfaithful, the principal may recover back the commission

paid, since an agent or brokerwho has been unfaithful is not
entitled to any compensation.

xxx
. . .lf the agent does not conduct himself with entire
fidelity towards his principal, but is guilty of taking a secret
profit or commission in regard the matter in which he is
employed, he loses his right to compensation on the ground
that he has taken a position wholly inconsistent with that of
agent for his employer, and which gives his employer, upon
discovering it, the right to treat him so far as compensation,
at least, is concerned as if no agency had existed. This
may operate to give to the principal the benefit of valuable
services rendered by the agent, but the agent has only
himself to blame for that result.

xx

The intent with which the agent took a secret profit has
been held immaterial where the agent has in fact entered
into a relationship inconsistent with his agency, since the
law condemns the corrupting tendency of the inconsistent
relationship. .
.

As a general rule, it is a breach of good faith and loyalty

to his principal for an agent, while the agency exists, so to deal

with the subject matter thereof, or with information acquired

during the course of the agency, as to make a profit out of
it for himself in excess of his lawful compensation: and if he
does so he may be held as a trustee and may be compelled
to account to his principal for all profits, advantages, rights,
or priviteges acquired, by him in such dealings, whether in
performance or in violation of his duties, and be required
to transfer them to his principal upon being reimbursed
for his expenditures for the same, unless the principal has
consented to or ratified the transaction knowing that benefit

or profit would accrue, or had accrued, to the agent, or

unless with such knowledge he has allawed the agent so as
to change his condition that he cannot be put in status quo.
The application of this rule is not affected by the fact that the
principal did not suffer any iniury by reason of the agent's

dealings, or that he in fact obtained better results; nor is it

153

154

POWER & AUTHORITY, DUTIES & OBLIGATIONS,

AND THE RIGHTS OF THE AGENT

affected by the fact that there is a usage or custom to the

contrary, or that the agency is a gratuitous one.as

lrirn and the principal, and he may not set up his right of possession
as against that of the principal until the agency is terminated.
Therefore, when the agent enters into a contract that should pertain
to ilre princlpal, but in his own name, it would be a violation of his
duty of loyalty to the principal, and as between the principal and the
agent, the latter must account to the principal for all profits earned
from the transaction.

However, Domingo arso herd that the duty embodied in Articre

1891 to account will hot 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.',a6
Finally, the courl herd in Domingo that Article 1Bg1(2) (waiver
of duty to account is void) is designed to stress the highest loyalty
that is required of an agent. Article 1991 (and Article r o6o1 imposed
upon the agent the absolute obligation to make a full disclosure
or
complete account to his principal of all his transactions and other
material facts relevant to the agency, so much so that the law does
not countenance any stipulation exempting the agent from such
obligation and condemns as void such stipulation.-tne duty of an
agent is likened to that of a trustee. This is not a technical or aibitrary
rule but a rule founded on the highest and truest principle of morality
as well as of the strictest justice.

ln Dumaguin v. Reynolds,a7 the court herd that it is immateriar

whether such money or property is the resurt of the performance
or violation of the agent's duty, if it be the fruit of the agency, it
must be accounted for and turned over to the principal. tr-his outy
is strictly performed, the resurting profit accrues to the principar
as
the legitimate consequence of the relation; if profit accrues from his
violation of duty while executing the agency, that likewise belongs
to the principal, not only because the principal has to assume the
responsibility of the transaction, but also beciuse the agent cannot
be permitted to derive advantage from his own default.
ln Guzman v. Court of Appeats,as it was held that an agent,
unlike a servant or messenger, has both the physicar and juridicar
possession of the goods received in agency, or the pioceeds
thereof, which take the place of the goods after their saie by the
agent. His duty to turn over the proceeds of the agency depends
upon his discharge as well as the result of the accounting beiween
45lbid, at pp.
138-140
46lbid, at p.

140.

4792pht.66 (1952).
4899

t55

NON-COBPOBATE MEDIA OF DOING BUSINESS

Phit. 703 (19s6).

(i)

When Agent May Legally Withhold Property from the

Principal

UnderArticle 1914 of the New CivilCode, the agent may retain

pledge
the things which are the object of the agency until the
in
principal effects the reimbursement and pays the indemnity provided
in Articles 1912 and 1913.

Sprcrnc OaLlcnrloN Rules on Furuos

1-

Obligation to Advance Funds

Anr. 1886. Should there be a stipulation that the
agent shall advance the necessary funds, he shall be
bound to do so exceptwhen the principal is insolvent.
(n)

There is no common-law duty or obligation on the part of the

agent to advance his own funds in behalf of the principal; for indeed,
one of the distinguishing characteristics of every agency is that
the agent does not personally become liable for the contracts and
transactions pursued in behalf of the principal.
Under Article 1886 of thej New Civil Code, 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. But even in such a
case, the agent may refuse to advance any personal funds when the
principal is insolvent. lndeed, under Article 1919(3) of the New civil
Code, insolvency of the principal extinguishes the agency'

r5(;

NON.COI]POIIAI E MEDIA

O[

DOING UIJSINF]SS

l,()wl ll

&

AtilHolll

ANIJ

Liability of Agent for lnterest

2.

THT-

I Y. DUIII'-s & otsLlGAI IONS,

RIGHTS OF THE AGENT

15/

(1) When he was not given the power to appoint

one;

Anr. 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. (1724a1

Under Articre 18g6 of the New civir code, the agent wourd
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

When he was given such power, but without

designating the person, and the person appointed
was notoriously incompetent or insolvent-

(21

All acts of the substitute appointed against the

prohibition of the principal shall be void. (1721)
Anr. 1893. ln 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. (1722a1

(b) On sums owing the

principal which remain

outstanding at the time of extinguishment of the
agency, with interest to run from the time of such
extinguishment.

ln ojinaga v. Estate of perez,as Mendezona v. vda. De

Goitia,so
and A.L. Ammen Transportation Co. v. De Margalto,sl
the Supreme

court recognized the two distinct cases covered underArticle

1896.
ln Borja v. De Borja,s2 the court ruled that there is no interest

due on sums owed by the agent to the principar which

have not been
the result of the agent's conversion to his own use, such
agent wourd
be liable for interests to run from the date the agency is
exiinguished
until he pays such sums.

Powen or Aeerur ro Apporrur a Suesnrure

Anr. 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 thI

substitute:
4e9

phit. 185 (1907).

5s7 (1930)
s154 phit.
s7o (1930)
5258 phit
811 (i933).
5054 phit.

Article 1892 0f the New civil code sets the default rule that the
;rgent may appoint a substitute if the principal has not prohibited him
trom doing so. This has reversed the rule under the old civil code
that without express power to do so, an agent is without authority to
appoint a substitute.

ln Del Rosario v. La Badenla,s3 the principal was held liable

upon a sub-agency contract entered into by its selling agent in the
name of the principal, where it appears that the general agent was
r:tothed with such broad powers as to justify the inference that he
was authorized to execute contracts of this kind, and it not appearing
trom the record what limitations, if any, were placed upon his powers
to act for his principal, and more so when the principal had previously
acknowledged the transactions of the sub-agent.

Therefore, Baltazar v. Ombudsmansa erroneously expressed

the old rule when it held that "Th'e legal maxim pofesfas delegate non
delegare potest;a power once delegated cannot be re-delegated,
while applied primarily in political law to the exercise of legislative
of the
[)ower, is a principle of agency for another, a re-delegation
agent
second
principal
the
as
to
the
ilgency would be detrimental
lr:rs no privity of contract with the former."ss
r':r33 Phit. 316 (1916).

:45'10 SCRA 74 (2006)

r'r'/bril, at p" 85.

NON-COTIPOHAIE MI-DIA

{r8

OI

TJOIN(i TJUSINL.SIJ

The prevailing rule is better expressed in Escuela v. Lim,s6

where the father who had given her daughter a special power of

attorney to sell real properties, was held incapable of legally seeking

the declaration of nuility of the sate effected by the suoititjte agent:
"Applying [Article 1892 ot the New civil code] to the special power

of attorney executed by [the father] in favor of his daughter . . .,

it is clear that she is not prohibited from appointing a substitute.
By authorizing [the sub-agent] to seil the subject properties,

[the
daughterl merely acted within the limits of the authority given by her
father, but she will have to be 'responsible for the actJof the subagent,'among which is precisely the sale of the subject properties in
favor of respondents."sz

Although the last paragraph of Article 1892 provides that "AIl

acts of the substitute appointed againstthe prohibition of the principal

shall be void," the contracts are really unenforceable insofar as the

principal is concerned and subjectto his ratification. Thus, in Escueta,
the court held that in a situation where the special power of attorney
to sell a piece of land contains a prohibition to appoint a substitute,
but nevertheless the agent appoints a substitute who executes the
deed of sale in the name of the principal, while it may be true that
the agent may have acted outside the scope of his authority, that
did not make the sale void, but merely unenforceable under the
second paragraph of Article 1317 of the New civil code. Although
the principal denied the sale, his acceptance of the proceeds thereof
were tantamount to ratification thereof.

Lyric

lnternational Fitms (china)v.

held that a sub-agent
cannot be held at greater liability than the main agent, and when the
sub-agent has not received any special instructions from the agent

to insure the object of the agency, the sub-agent cannot be held

liable for the loss of the thing from fire, which was shown to be truly
a force majeure.

1.

Effects When Agent Appoints a Substitute

a. When the Sub-Agent Appointed pursuant to the
lnstructions of the principat
56512

& Ar-ll I lolllTY, DU tlES & ouLlGAIlONS,

AND IHE BIGHIS OF THE AGENT

t,()wt n

Wlren the agent appoints a substitute agent in accordance with

tlrr: instructions of the principal, cleafly the sub-agent is really an

aqent 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

prirrt;ipal is deemed the act of the principal.
ln addition, the agent does not bear personal responsibility for
fraud
or negligence of the sub-agent, for the agent merely acted
llrc
wittrin the scope of his authority or in accordance with the instructions
o[ the principal when he appointed the sub-agent. The exception
Io this rule of course is that provided under Article 1892(2), "When
lllre agentl has been given the power, but without [the principal]
rlcsignating the person, and the person appointed was notoriously
rr rcompetent or insolvent."

b.

When the Sub-Agent Not Prohibited by Principal

Under the terms of Article 1892, 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, thus:

(a)
(b)

he was not given power to appoint one; or

he was given such power without designating the

person and substitute is notoriously incompetent or
insolvent.

ln either case, underArticle 1893, the principal may furthermore

bring an action against the substitute with respect to the obligations

which the latter have contracted under the substitution.

ln Vitta v. Garcia Gosgue,5e a sub-agent appointed by the agent

to collect the deferred installments from the sale of property made
by an attorney-in-fact was held to be without authority to enter into
a new contract with the transferee by modifying the terms of the
sale and releasing the solidary sureties in the original contract.
The release were deemed to be invalid insofar as the principal was
concerned.

scRA 4'l 1 (zoo7)

5t

tbid, at pp. 423-424.

5863 Phit.
778 (1936)"

r59

5e49 Phit. 126 (1920)

160

NON.COHPOI tAIE MI.;Dln OF LtOtNC BUsitNt SS

l'( )\/Vl ll & AtJ Il lotll lY DU I lESj & OBL ltlAl l(-,[ll;,
ANll I l-lli I-tl(;U IS Cr[ l-HF AGi:hl l

ln Serona v. Couft of Appeals.60 the Court held that if the

appointment of a sub-agent, which was neither prohibited
or
authorized, has occasioned the incurring of Oamage.
Oy tf,"
principal, the agent shall be primarily responsible
for the acts of the
substitute, in accordance with the piovisions of
Articre ragiill.

c.

CorusroeRnnoN oF tHe Froucrany Dunes

oF THE Aceur AS To Ttrno panles

Anr. 1900. So far as third persons are concerned,

an act is deemed to have been performed within
the
scope of the agent,s 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 principai
and the agent. (n)

Anr. 1901. A third person cannot set up the

fact that the agent has exceeded his powers, h tn"
principal has ratified, or haq signified tris wiltingness
to ratify the agent's acts. (n)
60392

Anr" 1902. A third person with whom the agent

wishes to contract on behalf of the principal may
require 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)

When the Sub-Agent Appointed Against the

Principal,s prohibition

The clear imprication under Articre 1892, is that when

the
principal has prohibited the agent from appointing
a substitute,
and yet the agent goes..ahead and appoints one,
Ihen the agent
is personally riabre for the acts of the substitute, as though
the
contracts of the substitute were his own. rn addition,
Rrticte tagz
provides that in such a case "Ail acts of
the substitutu ,ppoint"o
against the prohibition of the principal shall be void.,,
The imprication from the ranguage used in Articre 1Bg3
specifically referring only to case
under prrrgopl_,, 1l;
"oueied
and (2)of Articre'rBg2, is thatthe principarwourd
have ni cause of
action against the substitute.

scRA 3s (2002)

l6r

Anr. 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 terms of Article 1BB7 of the New Civil Code, which
olkrr;tively states that when an agent acts contrary to the instructions
ol lris principal he is deemed to have acted without or in excess of
lrrthority, is a rule that governs the relationship of the principal and
;rtlcnt; it is not a rule that addresses the interests of third parties
with whom the agent enters into juridical relations on behalf of the
1rr

nrcipal.

Thus, under Article 1911 of the New Civil Code, "Even u,rhr;nr
llxr agent has exceeded his authorityr, the pnincipalrer-nains solidariiu
h;rhlc witl-r the agent if the [principall allowed the [agentl tn act an
llrouqh he had full powers."
Under Article 1900 of the New Civil Code, insofar as third
lx)rsons are concerned, "an act is deemed to have been pertorrned
wilhirr the scope of the agent's authority, if such act is within the
terms of the power of attorney, as written, even if the agent has in facl
exr:eeded the limits of his authority according to an understanding
between the principal and agent." ln other words, as to third parties
;rr;ting in good faith, the written instructions of the principal are the
trinding powers of the agent, and cannot be overcome by non-rruritten
irrstructions of the principal not made known to them.
"l"hus,

under the old Civil Code, where there was no counterpart

of what is now Article 1900, the Court held in Bank of P.l" v. De

(,'os/er,61 that the powers and duties of an agent are confined and
(jr47

Phit. 594 (1925).

NON'COfll'OllAl

162

t:r

Mt Dln

Ol

DOINC LIUSlNl-SS

limited to thr:se which are specifiecJ and defined in his written power
of attorney, which limitation is a notice to, and is binding upon, the
person dealing with such agent.

ln effect, when the power of attorney of the agent has been

reduced in writing by the principal, it constitutes, even as to third
parties dealing with the agent, the l-righest form of expression of the
extent and limitation of the powers of the agent, and third parties
should contract on the basis of such wnitten instrument. Thus, Article
1902 of the New Civil Code provides that "A third person with whom
the agent wishes to contract on behalf of the principal may require the
presentation of the power of attorney, clr the instructions as regards
the agency." ln addition, it provides that "Private or secret orders
and instructions of the principal do not prejudice third persons who
have relied upon the po\uer of attorney or instruction shown them."

the Court held that as far

as third persons are concerned, an act is deemed to have been

ln Eugenio v. Court of

Appeals,62

performed within the scope of the agent's authority, if such 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 his agent.

Outside of the written power of attorney of an agent, third

parties who deal wrth such agent are not supposed to presume that
the agent is fully authorizecl. J"he rule has always been that every
person dealing with an assumed agent is put upon an inquiry and
must discover upon his peril, if he would hold the principal liable, not
only the fact of the agency but the nature ancl extent of the authority
of the agent.63

The authority or extent of authority of an agent cannot be

established by his own representations out of court but upon the
basis of the manifestatir:ns of the principal himself. ln case the fact
of agency or the extent of the authority of tlre agent is controverted,
the burden of proof is upon the third person to establish it.64
62239

scRA2oT (1994).

63Slrong v. Gutierrez Repide,6 Phil. 680 (1960); Deen v. Pacific Commercial Co.,42
Phil. 738 (1922):, Veloso v. La urbana,58 Phil. 681 (1933); Toyota Shaw, lnc. v. Courl of

Appeals,244 SCRA 320 (1995)

,avelasco v. La lJrbana,5S Phil. 681 (1933); B,A Firtance Corp. v. Courl of Appgals,
211 SCRA 112 (1992); Bacaltos Coal Mirrcs v Court of Appeals, 2a5 SCRA 460 (1995);
Safic Alcan & Cie v. tmperial VeEetable Oild Cn., /nc., 355 SCRA 559 (20O1\; Soriamont

Pr)wFli

& AtJIr-loBtrY DUTTES & OBL|GAT|ONS,

AND THE RIGHTS OF THE AGENT

t63

ln Bacaltos Coal Mines v. Court of Appeals,65 the Court held

llrat every person dealing with an agent is put upon inquiry and must
tliscover upon his peril the authority of the agent. lf he does not
make such inquiry, he is chargeable with knowledge of the agent's
:ruthority, and his ignorance of that authority will not be any excuse.
f)ersons dealing with an assumed agent, whether the assumed
:rgency be a general or special one, are bound at their peril, if they
would hold the principal, to ascertain not only the fact of the agency
lrut also the nature and extent of the authority, and in case either is
r;ontroverted, the burden of proof is upon them to establish it.66
ln Litonjua v. Fernandez,GT the Court held that a person dealing

with a known agent is not authorized, under any circumstances,

trlindly to trust the agents; statements as to the extent of his powers;

:;uch person must not act negligently but must use reasonable
rliligence and prudence to ascertain whether the agent acts within
ll're scope of his authorit!. The settled rule is that, persons dealing
with an assumed agent are bound at their peril, and if they would
lrold the principal liable, to ascertain not only the fact of agency
lrut also the nature and extent of authority, and in case either is
r;ontroverted, the burden of proof is upon them to prove it.68
ln Yu Eng Cho v. Pan American World Airways, lnc.,6s the Court
lreld that the fact that one is dealing with an agent, whether the
irgency be general or special, should be a danger signal. The mere
rt,'presentation or declaration of one that he is authorized to act on
lx-.half of another cannot of itself serve as proof of his authority to act
; rs agent or of the extent of his authority as agent.
Nonetheless, in spite of the fact that the purported agent acts
without authority or in excess of authority, under Article 1901 of the
New Civil Code, a third person cannot set-up the fact that the agent
lras exceeded his powers, if the principal has ratified, or has signified
Iris willingness to ratify the agent's acts.

';lt::ttrrship Agencies, lnc. v- Sprint Transport Servlces, |nc.,592 SCRA 622 (2009)
(t5245
SCRA460 (1995).
66
Reiterated in Escueta v. Lim, 512 SCRA 41 1, 420 (2007).
';/427 S?RA TB (2004).
{inReiterated in Litonjua, Jr. v. Eternit Corp.,49O SCRA 204 (2006).
""328 scRA 717 (2ooo).

NON-COBPOFIATE MEDIA OF DOING BUSINESS

POWEN & AUTHORITY, DUTIES & OBLIGATIONS,

AND THE RIGHTS OF THE AGENT

Recently, in Villegas v. Lingan,To the Court held that since,

as a rule, the agency, as a contract, is binding only between the
contradicting parties, then only the parties, as well as the third

well-established doctrine that an agent, who acts as such, is not

personally liable to the party with whom he contracts.

164

person who transacts with the parties themselves, may question the
validity of the agency or the violation of the terms and conditions
found therein.

1.

Effects on the Agent of Contracts Entered

lnto Within the Scope of His Authority

Anr. 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. 117251

Anr. 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 bound except when he
ratifies it expressly or tacitly. (17271

a.

General Rule: Agent Is Not Personally

Liable to Third Parties

Article 1897 of the New Civil Code expressly provides that

"The agent who acts as such is not personally liable to the party
with whom he contracts," and this is supplemented by Article
1910, which provides that "The principal must comply with all the
obligations which the agent may have contracted within the scope
of his authority."
According to the Court in Eurotech lndustrial Technologies,
lnc. v. Cuizon,71 Article 1897 of the New Civil Code reinforces the

The basis of the rule set out in Article 1897 finds its roots in the
principle of relativity in Contract Law which provides that a contract
is binding only as between the parties and their successors-in
interest. Consequently, a person acting as a mere representative
of another acquires no rights whatsoever, nor does he incur any
liabilities arising from the said contract between his principal and
another party."
ln Ang v. Fulton Fire lnsurance Co.,73 the Court held that 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.
ln Nepomuceno v. Heredia,Ta where, pursuant to the instructions

of the principals, the agent purchased a piece of land in their names

using the sums given to him by the principals, and that after the
fact of purchase the principals had ratified the transaction and even
received profits arising from the investment in the land, but that
eventually a defect in the title to the land arose, the Court ruled that
the principals could not recover their losses from the agent: "There is
nothing in the record which would indicate that the defendant failed
to exercise reasonable care and diligence in the performance of his
duty as such agent, or that he undertook to guarantee the vendor's
title to the land purchased by direction of the plaintiffs."T5
ln the same manner, in Esperanza and Bullo v. Catindig,T6 an
action brought in the name of the agent and not in the name of the
principal who is the real party in interest, was dismissed not upon the
merits, but upon the ground that it has not been properly instituted.

T2Angeles v. Philippine National Raitways (PNR), 500 SCRA 444 (2006); Chua

747
71521

scRA 63 (2007).
scRAsB4(2007).

v.

Total Office Products and Services (Topros), lnc., 471 SCRA 500 (2005); Tan v. Engineering Services,49B SCRA 93 (2006); Chong v. Couri of Appeals, 527 SCRA 144 (2007).
?32

70526

165

scRA945 (1961).

Phit.563 (1907).
75/bd, at p. 566.
7622 Pht.397 (1914).

y DUT|ES & OBL|GAT|ONS,

AND THE RIGHTS OF THE AGENT

t,owEFr & AUTHORll

NON-CORPOBATE MEDIA OF DOING BTJSINESS

166

ln Bay View Hotel v. Ker & Co.,7't where admissions were made
in a case filed by an agent prior to the amendment of the petition
which formally included the principal as a party to the case, the
Court denied the argument that since the implied admission was
made before the amendment of its complaint, it cannot work to the
benefit of the principal, thus Moreover, since an agent may do such acts as may
be conducive to the accomplishment of the purpose of the
agency, admissions secured by the agent within the scope
of the agency ought to favor the principal. This has to be
the rule, for the act or declarations of an agent of the party
within the scope of the agency and during its existence are
considered and treated in turn as declarations, acts and
representations of his principal and may be given in evidence
against such party.T8

Caoile v. Couri of Appeals,Te held that one who signs a receipt

as a witness with the word agent typed below his signature, but
never received the alleged amount or anything on account of the
subject transaction, is not personally liable.
ln Uy v. Court of Appeals,80 agents who have been authorized to
sell parcels of land cannot claim personal damages in the nature of
unrealized commission by reason of the act of the buyer is refusing
to proceed with the sale: "Petitioners [agents] are not parties to the
contract of sale between their principals and NHA. They are mere
agents of the owners of the land subject of the sale. As agents,
they only render some service or do something in representation
or on behalf of their principals. [Article 1868, New Civil Code.] The
rendering of such service did not make them parties to the contracts
of sale executed in behalf of the latter. Since a contract may be
violated only by the parties thereto as against each other, the real
parties-in-interest, either as plaintiff or defendant, in an action upon
that contract must, generally, either be parties to said contract."Bl

771't6

scRA 327 (1982)

78lbid, al pp. 332-333.

7s226 scRA 658 (i993).
80314

scRA 69 (1999).
81lbid, al p. 77 citing Marimperio Compania Naviera, S.A. v. Court of Appeals, 156
,
scRA 368 (1987).

167

ln Tan v. Engineering Services,s2 the Court held that the

essence of agency being the representation of another, it is evident
that the obligations contracted are for and on behalf of the principal.
A consequence of this representation is 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.
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.83

Only recently, in Soriamont Steamship Agencies, lnc. v. Sprint

Transport Seruices, lnc.,8a the Court held that the principle embodied
in Article 1897 would require that if the principal seeks to avoid
liability on the principle that the agent acted beyond the scope of his
authority as ernbodied in the instrument, then the burden falls upon
the principal to prove its affirmative allegations.

b.

Exception: When the Agent Expressly Makes

Himself Personally Liable

UnderArticle 1897 of the New Civil Code, an agent can be

held personally liable on a contract entered into in the name of
the principal and within the scope of authority, when such agent
"expressly binds himself." Thus, the personal liability of the agent
arises from voluntary contractual commitment. ln such an instance,
unless otherwise indicated in the contract, the liability of the agent
with the principal is merely joint, and not solidary.

Early on, Tuason v. Orozco,8s held that when the agent

expressly binds himself, he thereby obligates himself personally by
his own act, but that does not relieve the principal from his obligation
to pay the debt incurred for his benefit.

8,498 scRA 93 (2006).

s3zialcita-Yuseco v. Simmons, 97 Phil. 487 (1955); Banque Generale Belge v. Wal-

ter,Bull &Co., lnc.,84Phil. 164(1949); Salmon&PacificCommercial Co.v.TanCueco,

36 Phir. 556 (1917).
84592 scRA 622 (2009).
855 Phit. 596 (1906).

t,owHt

& AU ll]oHllY, DU I IES & OuLlGn I lON.'j,

AND THE RIGH IS OI= THE AGEN T

NON COT]POI]AI [: ML:DIA OF DOIN(] I]I. ISINI:SS

168

ln E. Macias and Co. v. Warner Barnes,B6 and in Salonga

v-

Warner Barnes,87 the Court held that since the scope and extent of
the functions of an ad.iustment and settlement agent are merely to
settle and adjust claims in behalf of his principal, the same cannot
be taken to mean that it includes the assumption of personal liability.
Thus, if claims are disapproved by the principal, the agent does not
assume any personal liability, and the recourse of the insured is to
press his claim against the principal.

ln Smith Bell v. Couri of Appeals,B8 the Court held that the

appointment by a toreigrr insurance company of a local settling or
claim agent, clothed with power to settle all the losses and claims
that may arise under the policies that rnay be issued by or in behalf of
the foreign company, does not amount to a contractual acceptance
of personal liability on the part of the local settling or claim agent:
"An adjustment and settlement agent is no different from any other
agent from the point of view of his responsibilities, for he also acts in
a representative capacity." ln the same manner, a resident agent, as
a representative of the foreign insurance company, is tasked only to
receive legal processes on behalf of its principal and not to answer
personally for the any insurance claims"
Benguet v. BCI Employees,Be held that under Article 1897,
when the agent expressly binds himself to the contract entered into
oir behalf of the principal, then he become personally bound theret<:
to the same extent as the principle. But the doctrine is not applicable.:
wce-versa, srnce everything agreed upon by the principal tu be

brnding orr himseif is not legaliy binding personally on the agent.

the previous agent of the union bound itself personally
liable on the contracts of the union, the new agent is not bound by
the assumption undertaken by the original agent.
T"hus when

c.

Exception: When Agent is Guilty of Fraud or

Negligence

for
8643
BTBB

Anr. 1909. The agent is responsible not only

fraud, but also for negligence, which shall

Phit. 15s (1922)

Phit. 125 (19s1)

88267

scRA53o (1997).

8e?3 sCrRA 4.6s

(i 960)"

r69

be iudqed with more or less riqor by the courts"

according to whether the agency was or was not for a
compensation. (1726)
When an agent, though acting within the scope

of

his

rruthority, acts with fraud or negligence, it affects two levels of legal

relationships: (a) that between the principal and the'a$6htl"and (b)
insofar as third parties are concerned, when they have entered
into a contract with the agent in the name of the principal. ln other
words, an agent's 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.

Article 1909 of the New Civil Code provides that "The agent is
responsil:le not only for fraud, but also for negligence, which shall
tre judged with rnore or less rigor by the courts, according to whether
lhe agency was or was not for a compensation."

ln National Bank v. lMelch, Fairchild & Co.,e0 the Court held

lhat while it is true that an agent who acts for a revealed principal in
lhe making of a contract does not become personally bound to the
other party in the sense that an action can ordinarily be maintained
upon such contract directly against the agent, yet that rule does not
r;ontrol wtren the agent intercepts and apprnpriates the thing which
the principal is bound to deliver, and thereby make the performance
of the principal impossible. The agent in any event must be precluded
l'rom doing any positive act that could prevent pertbrmance on the
part of his principal, otherwise the agent becomes liable also on the
contract.

ln the same manner, in National Power Corp. v National

the Court held that an agent Ltecomes

Atlerchandising Corp.,s1

personally liable when by his wrong or omission, he t.leprirres the

third person with whom he contracts of any remedy agaittst the
principal; otherwise, the third person would be defrauded if he woultj
rrot be allowed to recover from the agent^

It should be noted that the provisions of Article 1909 shoultl

rrot be read to conclude that because the ngent l.recornes liable
eo44 Phit.

780 (1923).

,11"t7 SCRA789 (1982).

170

NON-CORPOBATE MEDIA OF DOING BUSINESS

POWEU & AU l"l-lolil lY, DUTIES & OtlLlOATlONli,

AND THE RIGHTS OF THE AGENT

personally on a contract entered into or pursued in the name of the

principal tainted with fraud or negligence, the principal is therefore
exempted from liability on the contract. On the contrary, Article 190g
presumes that the fraudulent or negligent acts of the agent were in
pursuit of the business or affairs of the principal, and since the acts

rc:;ponsibility towards off-loading the cargo from the vessel and

rlirrrrage was caused thereto due to the acts of the charterer, its
krr;;rl agent was sought to be the entity made liable for the damage
r;irtrsed. The Court held: "The difficulty is that [the principal
t:lrurterer] has not been impleaded in these cases and so is beyond
otrr jurisdiction. The liability imposable upon it cannot be borne by
llocal counterpartl which, as a mere agent, is not answerable for
irrjury caused by its principal. lt is a well-settled principle that the
;rr;ent shall be liable for the act or omission of the principal only if
tlro latter is undisclosed."eT

of the agent are by law those of the principal, it means that both
the principal and the agent are deemed joint tortfeasors, 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 agent's fraudulent or negligent acts.
Thus, in Lopez v. Alvendia,s2 the petitioners had issued a check
in payment of the judgment debt and made arrangements with the
bank for the latter to allow the encashment thereof; but the check
was dishonored by the bank which increased the amount of the
judgment debt. When the petitioners sought not to be made liable
for the increased amount of the judgment debt on the ground that
the alleged "oversight" was on the part of the bank, the Court denied
such defense on the ground that "The principal is responsible for
the acts of the agent, done within the scope of his authority, and
should bear the damages caused upon third parties."s3 The Court
also noted that if indeed "the fault (oversight) lies on the agent bank,
the petitioners are free to sue said bank for damages occasioned
thereby."ea

Likewise, in British Airways v. Court of Appeals,es it was held

that when one airline company (British Airways) subcontracts a leg
of the international trip of its passenger to another airline company
(PAL), the contract of air transportation was exclusively between
passenger and BA, with PAL merely acting as its agent on the
Manila to Hong Kong leg of the journey. The well-setfled rule is that
an agent is also responsible for any negligence in the performance
of its function and is liable for damages which the principal may
suffer by reason of the agent's negligent act.

d.

Agent Has No Authority to Bring Suit in Gontracts

Entered lnto in the Name of the Principal

ln lJy v. CourT of Appeals,e8 the Court held that the agents of the
lrarties to a contract do not have the right to bring an action based

on said contract even if they rendered some service on behalf of

llreir principal: "Petitioners are not parties to the contract of sale
tretween their principals and NHA. They are mere agents of the
owners of the land subject of the sale. As agents, they only render
:rcrme service or do something in representation or on behalf of
their principals. The rendering of such service did not make them
prarties to the contracts of sale executed in behalf of the latter.
Since a contract may be violated only by the parties thereto as
against each other, the real parties-in-interest, either as plaintiff or
riefendant, in an action upon that contract must, generally, either
be parties to said contract."ee

2.

Effects of Acts Done by Agent Without Authority or in

Excess of His Authority

Anr. 1898. lf 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. ln this

ln Maritime Agencies & Securities, lnc. v. Court of Appeals,eo

in a charter party where the charterer had expressly assumed
e212

171

scRA634 (1964).

s3lbid, at p.
641
s4lbid, at p.641
e5285

et
.

lbid, at p. 354.

1'8314
.

scRA45o (1998)

s6187 SCRA346 (1990).

SCRA69 (1999).

setbid,alp.77. Reiterated in Ormoc Sugarcane Planters'Association, lnc. (OSPA)

ooutl of Appeals, 596 SCRA 630 (2009).

v.

NON,CORPORATE MEDIA OF DOING BUSINESS

172

POWER & AU I-I_IORITY, DUTIES & OBLIGATIONS,

AND THE RIGHTS OF THE AGENT

case, however, the agent is liable if he undertook to

secure the principal's ratification. (n)

a.

General Rule: The Principa! ls Not Liable;

Agent May Be Liable

The general rule is set underArticle 1317 of the New Civil Code
that "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 party."
The rules underArticle 1317 are supported underArticle 1403,
which includes among those classified an "unenforceable contracts,"
"(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 power."
Specifically, in the Law on Agency, Article lBgB provides that
"lf 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. ln this case,
however, the agent is liable if he undertook to secure the principal's
ratification." The following consequences shall flow in situations
where the agent has acted without or in excess of his authority:
I

I (a) 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;
(b)

ln such case, the agent would be liable personally

to such third party, if he undertook to secure the
principal's ratification

(c)

lf the agent did not undertake to secure the principal's

ratification, the agent does not become liable on the

173

contract since the third party has no one to blame but

himself, knowing fully well the limits to the agent's
authority.

Thus,

in Safic Alcan v. lmperial Vegetable,1oo and DBP v.

Court of Appeals,1o1 the Court held that 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 agent's 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 agent's powers. The resulting contract
would be void even as between the agent and the third person, and
consequently not legally binding as between them. However, if the
agent promised or undertook to secure the principal's ratification
and failed, he is personally liable. lf the ratification is obtained, then
the principal becomes.liable.
ln Eurotech lndustrialTechnologies, /nc. v. Cuizon,lo2 the Court
noted a claim interposed underArticle 1898 would not allow the third
party to recover against both the principal and the agent, thus: "We
likewise take note of the fact that in this case, petitioner is seeking to
recover both from respondents ERWIN, the principal, and EDWIN,
the agent. lt is well to state here that Article 189[B] of the New Civil
Code upon which petitioner anchors its claim against respondent
EDWIN does not hold that in case of excess of authority, both the
agent and the principal are liable to the other contracting party."103
Although Article 1B9B describes the contract entered into by the
agent in the name of the principal without or in excess of authority
as being "void," if the party with whom the agent contract is unaware
of the limits of the powers granted by the principal, the contract is
unenforceable under Article 1403(1 ) of the New Civil Code.

ln Cervantes v. Court of Appeals,104 the Court held the effects

under Article 1B9B of the New Civil Code when the agent acts
beyond the scope of his authority, thus:
1oo35b

scRA 559 (2001)

101231

scRA3To (1994)
scRA 584 (2007)

102521

103/b/d, at p. 595.
104304 SCRA 25 (1999).

174

POWFR & n

NON-CORPORATE MEDIA OF DOING BUSINESS

Under Article 1B9B of the New Civil Code, the acts

of an agent beyond the scope of his authority do not bind
the principal, unless the latter ratifies the same expressly
or impliedly. Furthermore, when the third person . . . knows
that the agent was acting beyond his power or authority, the
principal cannot be held liable for the acts of the agent. lf the
said third person is aware of the limits of the authority, he is
to blame, and is not entitled to recover damages from the
agent, unless the latter undertook to secure the principal's
ratification.l05

ln Borja, Sr. v. Sulyap, lnc.,1oo the Court held that even when
the agent, in this case the attorney-at-law who represented the client
in forging a compromise agreement, had exceeded his authority in
inserting a penalty clause, the status of the said clause was not
void but merely voidable, i.e., capable of being ratified. lndeed,
the client's failure to question the inclusion of the penalty in the
judicial compromise despite several opportunities to do so and with
the representation of new counsel, was tantamount to ratification;
hence, the client was estopped from assailing the validity thereof.
ln Pineda v. Court of Appeals,1o7 where it was admitted by the
buyer of a parcel of land that at the time he 'purchased' respondents'
property from [the agent] Pineda, the latter had no Special Power of
Attorney to sell the property, ruled the contract of sale to be void for
lack of consent, rather than unenforceable for having been entered
into the names of the registered owner by one who was not duly
authorized, thus:
Further, Article 1318 of the New Civil Code lists the
a valid and perfected contract, namely: "(1)
consent of the contracting parties; (2) object certain which is
the subject matter of the contract; (3) cause of the obligation

requisites of

which is established." Pineda was not authorized to enter

into a contract to sell the property. As the consent of the
real owner of the property was not obtained, no contract was
perfect.los
los

lbid, al p. 31

LJ

I't

totlt tY.

DtJ I il,fr & OBI l(;Al IONS,

AND THF: lllGlll S OF ll-lE

175

l\Gl--N"1"

It may be true that the resurlting sale was void under the terms
of Article 1874 o'f the New Civil Code that declares void the sale
of a piece of land effected through an agent, when the authority of
the agent is not in writing, but it was wrong to reason out as aforequoted, that the sale was void when made in the name of the real
owner whenever the purported agent had in fact no authority, since
it is clear underArticle 1403 of the New Civil Code, that such legal
infirmity does not render the sale void, but merely unenforceable.

ln Zayco v. Serra,10e it was held that when the administrator

enters into a contract that is outside of the scope of authority, the
contract would nevertheless not be an ahrsolute nullity, but simply
voidable at the instance of the parties who had been improperly
represented, and only such parties can assert the nullity of said
contracts as to them.
National Power Corp. v. National Merchandising Corp.,110
clarified that the rule that a contract entered into by one who has
acted beyond his powers shall be unenforceable refers to the
unenforceability of the contract against the principal, and does not
apply where the action is against the agent himself for contracting in
excess of the limits of his authority.
ln DBP v. Court of Appeals,11l the Court held that the rule that
the agent is liable when he acts without authority is founded upon
the supposition that there has been some wrong or omission on
his part either in misrepresenting, or in affirming, or concealing the
authority under which he assumes to act. Inasmuch as the nondisclosure of the limits of the agency carries with it the implication
that a deception was perpetuated on the unsuspecting client, the
provisions of Articles 19,20 and 21 of the New Civil Code come into
play. ln otherwise, the basis of the personal liability on the part of
the agent is tort.

b.

Exceptions: When the Principal May Be Bound

ln the following cases, even though the agent acts without or

in excess of his authority, he would not be personally liable for the
contracts or transactions he entered into in the name of the principal:

106399

scRA60l

107376

scRA 222 (2002).

loBlbid, at p. zzg.

(2003).

Phit. g8s (1925).

scRA 789 (1982)
11123't scRA 370 (1994)
10e49

110117

176
ll
'

,.t'

. I r 1/ ,

:'.1 (a)

I'OWFR & AIJTI-IOHIIY, DUTIES & OBLIGATIONS, 177

AND THE RIGHTS OF THE AGENT

NON-CORPORATE MEDIA OF DOING BUSINESS

,..

,r

When the principal ratifies the contractortransactions

(Arts. 1B9B and 1910);

As to third parties who relied upon the

terms of the
,(Ol
1r
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 (Arts. 1900 and 1903);

Article 1898 of the New Civil Code acknowledges that the

contract may be "validated" if the principal ratifies or acknowledges
the contracts entered into without or in excess of authority of
the agent. This principle is reiterated in the second paragraph of
Article 1910 of the New Civil Code, which provides that ,,As for any
r:bligation wherein the agent has exceeded his power, the principal
is not bound except when he ratifies it expressly or tacifly.,,nz

ln Cason v. Richards,113 where money was received as a

deposit by an agent, and that money is turned over by the agent
lo the principal, with notice that it is the money of the depositor,
the principal was held bound to deliver to the depositor, even if his
agent was not authorized to receive such deposit, since there was,
in effect, ratification of the unauthorized act of the agent.
UnderArticle 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 agent's act. Thus, in phit.
Froducfs co. v. Primateria Pour Le commerce Exterieur: primaterial
[Phil.], lnc.,11a the Court held that when agent exceeds his authority,
the rnatter can be raised only by the principal, and when not so raised,
recovery can be made by the third party only against the principal.
Article 1897 does not hold that in case of excess of authority, both
the agent and the principal are liable to the other contracting party.
ln Commissionerof Public Highways y. San Diego,11b the Court
held that in an expropriation proceeding, the state cannot raise the
ulleged lack of authority of the counsel of the owner of the property
{qr bind his client in a compromise agreement because such lack
llzCountry Bankers lnsurance
Corp.
rr3s Fhit. 611 (1906).
1141s

scRA 301 (1965).

r1531

scRA617 (1970).

Reppel Cebu Shipyard, 673 SCRA427 (201p).

,rl authority may be questioned only by the principal or client; for

rl is within the right or prerogative of the principal to ratify even the
rrrreruthorized acts of the agent.

3.

Consequences When Agent Acts in His Own Name

Anr. 1883. lf 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.
ln 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.
The provisions of this article shall be understood

to be without prejudice to the actions between the

principal and agent. {17171
UnderArticle 1883 of the New Civil Code, if an agent acts in his
own name, the principal has no right of action against the persons
with whom the agent has contracted; and neither such persons have
a right or cause of action against the principal.
the Supreme
Code
of
the
1883
Article
current
of
the
provision that was the equivalent
New Civil Code, thus:
ln Philippine Sugar Esfafes Dev. Cor.

v" Poizat,116

Court discussed the meaning and effect of the old Civil

It is a general rule in the law of agency that, in order to

bind the principal by a mortgage on real property executed
by an agent, it must upon its face purport to be made, signed
and sealed in the name of the principal, otherwise, it will bind
the agent only. lt is not enough merely that the agent was in
fact authorized to make the mortgage, if he has not acted in
the name of the principal. Neither is it ordinarily sufficient

that in the mortgage the agent describes himself as

11648

Phit. 536 (1925)

178

NON-CORPORATE MEDIA OF DOING BUSINESS

acting by virtue of a power of attorney, if in fact the agent

has acted in his own name and has sef his own hand
and seal to the mortgage. This is especially true where the
agent himself is a party to the instrument. However clearly
the body of the moftgage may show and intend that it shatt
be the act of the principal, yet, unless in fact it is executed
by the agent for and on behalf of his principal and as the act
and deed of the principal, it is not valid as to the principal.117
The ruling was reiteratedin Rural Bank of Bombon (camarines
sur), lnc. v. courr of Appears,lrs where the court held: "rn view of this
rule, Aquino's act of signing the Deed of Real Estate Mortgage in his
name alone as mortgagor, without any indication that he waJsigning
for and in behalf of the property owner, Ederlinda Gallardo, bound
himself alone in his personal capacity as debtor of the petitioner
bank and not as the agent or attorney-in-fact o16r;;rr6o."irs

ln Marimperio Compania Naviera, S.A. v. Court of Appeals,lzo

the court held that underArticle 1Bg3 of the New civil code, if an
agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contratted; neither
have such persons against the principal. 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. ln that case,
since the principals had caused their agent to enter into a charter
party in his own name and without disclosing that he acted for any
principal, then the principals have no standing to sue upon any issue
or cause of action arising from said charter party.
Lately, Gozun v- Mercado,l2i reiterated the generar rure in the
Law on Agency that, in order to bind the principar by a mortgage on
real property executed by an agent, it must upon its face purport to
be made, signed and sealed in the name of the principal, otherwise,
it will bind the agent only.

POWER & AU I-HORII Y, DUTIES & OIJLIGAIIONS,

AND THE TIIGH TS OF THE AGENT

a.

Also, in Sy-Juco v. Sy-Juco,12a the Court held that the fact that
money used by the agent belonged to the principal is covered by
the exception.

ln Rural Bank of Bombon (Camarines Sur), lnc. v. Court of

the real estate mortgage
was executed by the authorized agent in his own name, nonetheless,
the mortgage was binding on the principal under the second
paragraph of Article 1BB3 which would make the mortgage binding
on the principal because "the contract involves things belonging to
the principal."126 Refusing the argument, the Court held that for the
paragraph to apply, it is essential that the transactions undertaken
were still for the account or interest of the principal, unlike in the
case at bar where the real estate mortgage was executed to secure
the personal loans of the agent, thus *
Appeals,125 it was argued that even though

The above provision of the Civil Code relied upon by

the petitioner Bank, is not applicable to the case at bar.
Herein respondent Aquino acted purportedly as an agent of
Gallardo, but actually acted in his personal capacity. lnvolved
herein are properties titled in the name of respondent
Gallardo against which the Bank proposes to foreclose the

mortgage constituted by an agent (Aquino) acting in his

personal capacity. Under these circumstances, we hold,
as we did in Philippine Sugar Estates Development Co. v.

117

12225
12358

120156
121s11

scRA 368 (1987).

scRA 305 (2006).

Exception: When the Property lnvolved in the

Contract Belongs to the Principal

ln Go/d Star Mining Co", lnc. v. Lim-Jimena,122 the Court

held that the exception, as provided in Article 1883, is when the
properties of the principal are involved, in which case the principal is
bound even when the contract was entered into in the name of the
agent, which, according lo Philippine National Bank v. Agudelo,123 is
a rule necessary for the protection of third persons against possible
collusion between the agent and the principal.

118212

tbid,at p. 538; emphasis supp/led.

scRA2s (1992).
l1s/bld,
at p. 30.

179

scRA 597 (1968).

Phit. 6s5 (1933).

Phit. 634 (1920).
125212 SCRA25 (1992).
126lbid, at p. 31
12440

lBO

NON-CORPORATE MEDIA OF DOING BUSINESS

POWER & AUTI_IOI]I'TY, DUTIES & OBLIGATIONS,

AND TI-IE RIGHTS OF THE AGENT

Poizat, supra, that Gallardo's property is not liable on the

own name to transport the grains of NFA on a vessel owned by a

real estate mortgage:"127

shipping company, NFA could not claim it is not liable to the shipping

b.

Remedy of the Principal ls to Recover

Damages from the Agent

Article 1BB3 of the New Civil Code makes it clear that the
foregoing rules are without prejudice to actions between principal

oompany under Article 1BB3 of the New Civil Code "since it had
no knowledge of the fact of agency between respondent Superior
Shipping and Medalla at the time when the contract was entered
into between them (NFA and Medalla)."132 The Court further held Petitioner submits that "(A)n undisclosed principal
cannot maintain an action upon a contract made by his
agent unless such principal was disclosed in such contract.
One who deals with an agent acquires no right against the

and agent.

Aivad v. Filma Mercantile Co.,,r, held that the rule in this

jurisdiction is that where the merchandise is purchased from an
agent with undisclosed principal and without knowledge on the part
of the purchaser that the vendor is merely an agent, the purchaser
take titles to the merchandise and the principal cannot file an
action against him for the recovery of the merchandise or even for
damages, but can only proceed against the agent.

undisclosed principal."

Petitioner NFAs contention holds no water.

bar. xxx

failed to disclose his principal and was held personally liable for the
drafts he accepted, even when he did so expressly as an agent.
Section 20 of the Negotiable lnstruments Law provides expressly
that when an agent signs in a representative capacity, but does not
indicate or disclose his principalwould incur personal liability on the
bill of exchange.

National Food Authority v. lntermediate Appellate Court,i31 held

that when a commission agent enters into a shipping contract in his
127

tbid, at p. 31 .
12849 Phit.
816 (1926).
12e102 scRA
(19s1

530

13041

Consequently, when things belong to the principal (in

this case, Superior Shipping Corporation) are dealt with, the
agent is bound to the principal although he does not assume
the character of such agent and appears acting in his own
name. ln other words, the agent' apparent representation
yields to the principal's true representation and that, in reality
and in effect, the contract must be considered as entered
into between the principal and the third person (Sy Juco and
Viardo v. Sy Juco,40 Phil" 634). Corollarily, if the principal
can be obliged to perform his duties under the contract, then
it can also demand the enforcement of its rights arising from

the contract.l33

4.
.

When Wvo or More Agents Appointed by

the Same Principal

Article 1894 provides for the rule of responsibility (liability) of

two or more agents serving the same principal, even when they
have been appointed simultaneously:

).

Phit. 670 (1921).

131184 scRA
166 (i990).

lt is an

undisputed fact that Gil Medalla was a commission agent of

respondent Superior Shipping Corporation which owned the
vessel "MV Sga Runner" that transported the sacks of rice
belonging to petitioner NFA. The context of the law is clear
[under]Art. 1883, which is the applicable law in the case at

ln Phil. Bank of Commerce v. Aruego,l2e the party who signed

a bill of exchange as an agent (as the President of the company)

ln Beaumontv. Prieto,l3o the Court held that 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, when the rights
and obligations which are the subject matter of the litigation cannot
be legally and juridically determined without hearing both of them.

181

132lbid,

alp. 168.

t33lbid, at pp. 168-169.

182

NON-CORPORATE MEDIA OF DOING BUSINESS

(a)
.,

.(b)

the goods of his principal, while the commission agent must be in

Solidary, only when so stipulated.

;lossession.l35

Compare the rule in Article 1894 with the general rule of

solidary liability underArticle 1915:when the agent is serving two or
more principals, the liability of the principals is solidary.
ln Municipal Councilof lloilo v. Evangelista,l3a the Court set the
general rule: when a person appoints two agents independently, the
consent of one will not be required to validate the acts of the other,
unless that appears positively to have been the principal's intention.

When Third Party Liable to the Agent Himself

ln the following cases, a third party would be directly liable to

the agent himself even on contracts entered into pursuant to the
agency arrangement, thus:

(a) Where the agent contracts in his own name, on a

matter that is within the scope of the agency (Art.
1BB3);

(b) Where the agent possesses a beneficial interest in

the subject matter of the agency, such as a factor
selling under a del credere commission (Art. 1907);

(c)

Where a third party commits a tort against the agent.

Specrnc OeLrcenoil Rules ron Gorurulsstot Acerurs

1.

Nature of Factor or Commission Agent

A commission agent is one whose business it is to receive and

goods
sell
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
1345s

183

Joint, when nothing is stipulated; and

Under Article 1895, when 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 case when the fellow agents acted beyond the scope of
their authority.

5.

POWER & AUTHORITY DUTIES & OBLIGATIONS,

AND T1IE RIGHTS OF THE AGENT

Phit. 290 (1930)

2.

Specific Obligations of a Commission Agent

a.

Take Custody of Goods

Under Article 1903 of the New Civil Code, a commission

agent is responsible for the goods received by him in the terms
and conditions and as described in the consignment, unless upon
receiving them he should make a written statement of the damage
and deterioration suffered by the same.

b.

Not to Commingle Similar Goods Belonging to

Different Principals

Under Article 1904 of the New Civil Code, a 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. ln other words, the default rule is that the commission
agent cannot commingle goods of the same kind belonging to
different principals.
Distinguish this default rule in the case of a contract of deposit,
which underArticle 1976, the depositary is allowed to commingle

grain or other articles of similar nature and quality (Contract of

Deposit): "Depositary may commingle grain or other articles of
similar nature and quality, and the resultwould be pro-rata ownership
among the owners thereof."

c.

Cannot Sell on Credit Without Principal's

Authorization

Under Article 1905 of the New Civil Code, 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.
ln Green Valley v. lAC,136 the purported agent refused to be held
liable for merchandise received from the principle on the ground that
135De

LeoN,

136133

atp.544.

scRA 697 (1984).

184

NON_COFIPOBATE MEDIA OF DOING BUSINESS

it.was a mere agent to seil and the urtimate buyers of the products
should be the one made riabre for the purchase price, (whereas
the purported principar insisted that it was a sare arrangement).
The court ruled that whether the contract between the plrties
be
one of sare or agency to seil, there is no doubt that the purported
agent would be personally liable for the price of the meichandise
sold. Being a commission agent under its authority, then pursuant
toArticle 1905, it should not have sold the merchandise on credit.
under Article 1905, the commission agent cannot, without
the

express or implied consent of the principar, sell on credit;

and shourd
he do so, the principar may demand from him payment in
cash.

d.

To lnform the principal of Every pre-Authorized

Sale on Credit
Under

Articre 1906, shourd the agent seil on credit with the

authority of the principar, then the agent snart so inform the principar
with a statement of the names of the buyers. rf he fairs to do
so, the

sale shall be deemed to have been made for cash insofar

as the
principal is concerned.

e.

Shall Bear the Risk of Collection under Del

Credere Commission Set-up

UnderArticre 1908, shourd the commission agent receive on

orQ.i1ary commission, aiother called a
gr?r?n]gg commission, then: (g) He shail bear the risk
of coilection;
an{ (b) He shall pay the prini:ipar the proceeds of sare on same
terms agreed with purchaser.

a sale, in addition to the

f.

To Collect Credits of the principal

Under Articre 1908, a commission agent who does not coilect

the credits of his principal at the time when they become
due and
demandable shalr be riabre for damages, unress he proves
that he
exercised due diligence for that purpose.

g.

Responsibility to Return Goods Unsold

Austria v. court of Appears,137 herd that in consignment of

goods for sale, as a form of agency, the consignee-agentis

rerieved
13739

scRAs2T (1971).

POWEFI & AUTHORTTY DUTIES & OtsLlGAl

AND I-HE RIGHTS OF THE AGENT

loNS,

1Bs

from his liability to return the goods received from the consignorprincipal when it is shown by preponderance of evidence in the
civil case brought that the goods were taken from the custody of
the consignee by robbery, and no separate conviction of robbery is
necessary to avail of the exempting provisions underArticle 1174 o',l
the New Civil Code for force maieure.

-oOo-