APTNotes.Prelims.NikkiSia.
WLC Law2018
AGENCY
I. NATURE AND OBJECT OF AGENCY
ART. 1868. Concept of agency
GENERAL PRINCIPLES
Article 1868. By the contract of agency a person binds himself to
render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
Situation: The security guards check if you have your ID, if you are
following the dress code. Can they be considered agents of the
school?
ANS: No. Under the NCC, by the contract of agency, a person binds
himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter.
Situation: Aren’t the security guards authorized by the head guards
or even the school to impose the “NO ID, NO ENTRY” policy? Is that
not giving authority to the guards?
ANS: No. There must be a creation of relationship, an establishment
of a juridical relationship in behalf of somebody else - to bind the
latter. That is what the definition of the law missed, although that is
what it wanted to say. In this case, there is no agency because the
guard cannot transact to bind the school, neither is he authorized to
do so.
DEFINITION: by a contract of agency, a person (“agent”) binds
himself to render some service or to do something in
representation or on behalf of another (“principal”) with the
consent or authority of the latter.
(Art. 1868) NCC ; Parties in an Agency Relationship
Under Article 1868 of the Civil Code, a contract of agency
as one whereby “a person binds himself to render some service
or to do something in representation or on behalf of another,
with the consent or authority of the latter.”
1. Principal – one whom the agent represents and from whom he
derives his authority; the person represented
2. Agent – one who acts for and represents another; person
acting in a representative capacity
TN: The essence of agency is REPRESENTATION.
✓ for a contract of agency to exist, it is essential that the PRINCIPAL
consents that the other party (agent) shall act on its behalf, ad
the agent consents so as to act.
✓ The purpose of every contract of agency is the ability, by legal
fiction, to extend the personality of the principal through the
facility of the agent; but the same can only be effected with the
consent of the principal.
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QUESTION: if my cousin would not be able to attend a wedding
and ask me to go to such in his behalf, was there a contract of
agency?
ANSWER: No. The definition is so broad as to cover
representations not contemplated by the Code Commission. The
object or the purpose of the contract is to execution of a juridical
act. As such, not all kinds of representations would not be an
agency if it would not involve a juridical act.
A juridical act is an act which would either create, modify or
extinguish a legal relationship. Not social and political relationship.
Example of a juridical act: act of buying. Where an agent is hired to
buy something in behalf of the principal and the act of buying
creates a legal relationship between the seller and the principal
(not the agent). The act of the agent of paying for the thing sold,
would extinguish the legal obligation of the principal, the act of
paying is likewise a juridical act.
“with the consent or representation of the latter”: redundancy
because the beginning of the definition already mentions a
contract.
Consensual: perfected by mere consent and does not require
delivery or a certain form to be valid.
Elements of the Contract of Agency Commented [1]:
✓ Rallos v. Felix Go Chan & Sons Realty Corp., 81
SCRA 251 (1978):
The following are the essential elements of the contract of
agency: (CORA)
(a) Consent, express or implied, of the parties
to establish the relationship;
(b) Object, is the execution of a juridical act in
relation to third parties;
(c) The agent acts as a representative and not
for himself; and
(d) The agent acts within the scope of his
authority.
Whether or not an agency has been created is determined
by the fact that one is representing and acting for another.
The law makes no presumption of agency; proving its
existence, nature and extent is incumbent upon the person
alleging it.
a. Consent (Arts. 1317 and 1403[1]) Commented [2]:
The basis for agency is representation. On the part of
the principal, there must be an actual intention to appoint or
an intention naturally inferable from his words or actions;
and on the part of the agent, there must be an intention to
accept the appointment and act on it, and in the absence of
such intent, there is generally no agency.
EXCEPTION: agency by estoppel
(please do not forget this kay balik2 ni bring up ni Judge)
Capacity of the parties:
 APTNotes.Prelims.NikkiSia.WLC Law2018
GR: As in other contracts, the parties are required to have
capacities to contract. The principal may either be a natural
or juridical person.
Effect of incapacity: Contract of Agency is:
VOIDABLE: if either the P or A is incapable of giving
consent thereto
UNENFORECEABLE: if both parties are incapable of
giving consent
What if?
PRINCIPAL is INCAPACITATED: Contract is
VOIDABLE and subject to ANNULMENT since the same
is entered into in behalf of the principal.
AGENT is INCAPACITATED: The rule is that the agent
may bind the principal inasmuch as the agent is only an
instrument if the principal acting in a representative
capacity and exercising a derivative authority.
b. Object or Subject Matter: Execution of Juridical Acts in
Behalf of Principal (Service)
In an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have
him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be
compelled by law or by any court.
✓ Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006)
• GENERAL RULE: What a man may do in person, he
may do through another.
• EXCEPTIONS:
• Peculiarly personal acts that may not be delegated
(marriage ceremony, mechanical act of drafting a
holographic will, or making of a will)
• Illegal or unlawful acts may not be validly delegated.
c. Consideration: Agency Presumed to Be for Compensation,
Unless There Is Proof to the Contrary (Art. 1875)
Agency is presumed to be for compensation. Unless the
contrary intent is shown, a person who acts as an agent does
so with the expectation of payment according to the
agreement and to the services rendered or results effected…
When an agent performs services for a principal at the
latter's request, the law will normally imply a promise on
the part of the principal to pay for the reasonable worth of
those services. The intent of a principal to compensate the
agent for services performed on behalf of the former will be
inferred from the principal's request for the agents.
✓ Urban Bank, Inc. v. Peña [G.R. No. 145817, 19
October 19, 2011
Essential Characteristics of Agency
a. Nominate
b. Principal
If an act done by one person in behalf of another is in its
essential nature one of agency, the former is the agent of the
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latter notwithstanding he or she is not so called – it will be
an agency whether the parties understood the exact nature
of the relation or not.
c. Unilateral if gratuitous, bilateral if for compensation
d. Preparatory and Representative
Agency is basically personal, representative, and
derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal;
his act is the act of the principal if done within the scope of
the authority. Qui facit per alium facit per se. “He who acts
through another acts himself.” ✓ Rallos v. Felix Go Chan
& Sons Realty Corp., 81 SCRA 251 (1978)
• Entered into as a means to an end.
• 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 Commented [3]:
himself who should answer therefor.
• TN: Principles Flowing from Agency Characteristics of
“Preparatory and Representative” (Art. 1897)
Article 1897 reinforces the familiar doctrine that an
agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision,
however, presents two instances when an agent
becomes personally liable to a third person. The first is
when he expressly binds himself to the obligation and
the second is when he exceeds his authority. In the last
instance, the agent can be held liable if he does not give
the third party sufficient notice of his powers.
Notice to the agent should always be construed as
notice binding on the principal, even when in fact the
principal never became aware thereof. Commented [6]:
e. Consensual (Arts. 1869 and 1870)
An agency may be expressed or implied from the act of
the principal, from his silence or lack of action, or failure to
repudiate the agency.
Commented [4]:
✓ Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006)
PLEASE TAKE NOTE OF THIS: (kay balik2 baya gyud ni
emohasize ni Judge)
AGENCY is Personal, Fiduciary and Revocable Commented [7]:
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.
By reason of the personal, representative and derivative
nature of agency, agency is extinguished by the death of the
principal or agent.
A contract of agency is generally revocable as it is a
personal contract of representation based on trust and Commented [5]:
confidence reposed by the principal on his agent. As the
power of the agent to act depends on the will and license of
the principal he represents, the power of the agent ceases
when the will or permission is withdrawn by the principal.
Thus, generally, the agency may be revoked by the
principal at will.
 APTNotes.Prelims.NikkiSia.WLC Law2018
In an agency, the principal’s personality is extended
through the facility of the agent—the agent, by legal fiction,
becomes the principal, authorized to perform all acts which
the latter would have him do. Such a relationship can only
be effected with the consent of the principal, which must
not, in any way, be compelled by law or by any court.
Distinguished from Other Similar Contracts:
DISTINCTION FROM EMPLOYMENT CONTRACT:
Example: The relationship between the corporation which owns
and operates an establishment, and the individual it hires as an
employee is not that of principal and agent, because the principle of
representation was in no way involved.
The employee is not primarily employed to represent a
corporation in its dealings with third parties; as a mere employee
hired to perform a certain specific duty or task.
DISTINCTION FROM LEASE (or SALE):
The cause in agency is presumed to be onerous, but it may be
gratuitous. Lease or sale is essentially onerous.
Who would have the burden of proof that an agency is gratuitous?
Anyone who would claim that it is gratuitous since the law already
presumes it to be with compensation.
Why agent? Under Art. 1909, if the agent caused damaged to the
principal, the liability may be mitigated if the agency is gratuitous.
The distinctions between a sale and an agency are not difficult to
discern and this Court, as early as 1970, had already formulated the
guidelines that would aid in differentiating the two (2) contracts. …
that the primordial differentiating consideration between the two (2)
contracts is the transfer of ownership or title over the property subject
of the contract. In an agency, the principal retains ownership and
control over the property and the agent merely acts on the principal's
behalf and under his instructions in furtherance of the objectives for
which the agency was established. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the property
will effect a relinquishment of title, control and ownership in such a
way that the recipient may do with the property as he pleases.
✓ Spouses Viloria v. Continental Airlines, Inc., G.R. No.
188288. 16 January 2012.
DISTINCTION WITH LEASE OF SERVICE:
in agency, there is right of representation.
DISTINCTION WITH NEGOTIORUM GESTIO:
there is right of representation in both,
but the manner of creation is different: in agency, it is created by
contact; in negotiorum gestio, it is created by law.
Moreover, agency is fiduciary in character while negotiorum gestio
is not.
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DISTINCTION WITH AGENCY TO SELL: Commented [12]:
effect of delivery of the thing from one thing to another: if there
will be tranasfer of ownership at the time of delivery – sale; if there
will not be a transfer of ownership, but only possession and right
to sell – agency to sell.
DISTINCTION WITH CONTRACT FOR A PIECE OF WORK: Commented [13]:
Extent of control: in a contract for a piece of work, the control
aspect is only as to the end result and does not include the manner Commented [8]:
the contractor will perform his obligation.
DISTINCTION FROM BROKER: Commented [14]:
“The business of a real estate broker or agent, generally,
is only to find a purchaser, and the settled rule as stated by
the courts is that, in the absence of an express contract
between broker and his principal, the implication generally
is that the broker becomes entitled to the usual commissions
whenever he brings to his principal a party who is able and Commented [9]:
willing to take the property and enter into a valid contract
upon the terms then named by the principal, although the
particulars may be arranged and the matter negotiated and
completed between the principal and the purchaser directly.”
A broker is one who is engaged, for others, on a
commission, negotiating contracts relative to property
with the custody of which he has no concern; the
negotiator between the other parties, never acting in his
own name but in the name of those who employed him.
His occupation is to bring the parties together, in matter
of trade, commerce or navigation.
An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his
pay merely by bringing the buyer and the seller together,
even if no sale is eventually made.
A real estate broker is one who negotiates the sale of
real properties. His business, generally speaking, is only to
find a purchaser who is willing to buy the land upon terms
fixed by the owner. He has no authority to bind the
principal by signing a contract of sale. Indeed, an authority
to find a purchaser of real property does not include an
authority to sell. ✓Litonjua, Jr. v. Eternit Corp., 490
SCRA 204 (2006).
AS TO TERMINATION: just like any other contract involving trust
and confidence, this may be terminated by the unilateral act of
one of the parties without prejudice to the liability of the party
who caused the termination: as to principal – revocation; as to
Commented [10]:
agent – withdrawal.
Article 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate
the agency, knowing that another person is acting on his behalf
Commented [11]:
without authority.
Agency may be oral, unless the law requires a specific form.
Can you presume an agency?
 APTNotes.Prelims.NikkiSia.WLC Law2018

No. You can never presume that someone is authorizing you. It’s Because of the silence, inaction, and failure to repudiate, the law
very dangerous. presumes by operation of law that it creates an agency.

Important: There is an implied agency but there is no presumed This can be established from: (AS-IF)
agency. Agency cannot be presumed, although it can be implied. (a) Acts of the principal
(b) Silence
(c) Lack of action (inaction)
Presumption v. implication (d) Failure to repudiate the agency, knowing that another
person is acting on his behalf without authority.
Presumption Implication express grant of mandate; formalities:
Even if no fact is established, There must be an act or
RULE: No form is required. Agency may be oral or in writing,
inaction which will establish
there is already a certain state the EXCEPT: When the law requires a certain form, such as
sale of a piece of land where authority is required to be written, OW
presumed (Automatic) fact that will give rise to the
the sale shall be VOID.
implication

When the parties are present or absent:

Situation: If Atty. Joy will ask Sir Paul to sell the former’s watch, can 1. Parties are both present: one of them delivered a SPA
Sir Paul sell it? and the same was accepted without any objections, an
agency is created by mere silence.
ANS: Yes, he is expressly authorized to do so.
2. Parties are absent: A sent an email to B for the
Situation: Without saying anything, Atty. Joy just gives Sir Paul his creation of agency, B did not reply, is there an
watch, can he sell it? agency? If the subject of the contract is a business he
is habitually engaged in, yes.
ANS: No, you cannot presume authority. Probably, it was just given
for him to see and appreciate.
Agency by Estoppel Implied Agency
Situation: What if Atty. Joy accepted the proceeds of the sale of his
watch? Agency NONE, but the one ACTUAL
assuming to act has
apparent or ostensible,
ART. 1869. Kinds of agency although not real,
authority to represent
another.
ANS: There is implied agency. Her acceptance of the proceeds
affirmed the authority she has given unto Sir Paul. There is Liability PRINCIPAL; only PRINCIPAL; 3rd
ratification of the agent’s act. when 3rd person knew person is not
and relied on the required to have
conduct of the knowledge of the
principal principal’s acts or
KINDS OF AGENCY: have relied on the
same.
IN GENERAL: the relevance of this classification
Character No agent at all. Real agent with all
of Agent his rights and
1. Actual Agency: An A-P relationship ACTUALLY exists. liabilities Commented [15]:

P: consent consists in the grant of mandate or authority by

him to the agent Agency by Estoppel Apparent Authority

A: consent consists in his acceptance of such mandate

Agency NONE, but the one Not limited to cases
Manner of Creation/Conferment: assuming to act has in which there is no
apparent or ostensible, real agency. It may
although not real, be actual as well as
authority to represent ostensible.
1. express: in express agency, the principal made actions that Commented [16]:
clearly points out that the person is the agent. He appoints another.
the agent and grants authority either in writing or orally.
These are expressly done.
2. Apparent or Ostensible – Art. 1873 Commented [18]:
2. implied (by the mere silence of one of the parties, where Commented [17]:
the principal did not repudiate the acts of the agent after Art. 1873. If a person specifically informs another or states by
knowing of the representation that the latter is acting as public advertisement that he has given a power of attorney to
such). a third person, the latter thereby becomes a duly authorized
agent, in the former case with respect to the person who

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 APTNotes.Prelims.NikkiSia.WLC Law2018
received the special information, and in the latter case with
regard to any person.
The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given. (n)
PROBLEM: A company wrote a circular letter to its customers
introducing a certain X as its duly authorized agent. One
customer then dealt with the company thru X. One day, X’s
authority was revoked, but the customer continued to deal
thru X since it never was informed by circular or otherwise of
the revocation. Is the Company still liable for X’s acts even
after the revocation of the agency?
ANSWER: Yes, for the customer was in good faith, not having
been informed by circular or otherwise, of the revocation.
FAVORITE!!
Agency by Estoppel: a person may be held as a principal
despite the lack of proof of the existence of agency if he
clothed another person as if he had full powers as an agent,
the principal would not, later on, be allowed to deny such, to
the prejudice of a third person who relied on his conduct or
representations.
CONCEPT: There is agency by estoppel where a person, by
words or conduct, represents or permits it to be represented
that another person is his agent in which cade, he is estopped
to deny the agency as against third persons who have dealt,
on the faith of such representation, with the person so held
out as agent, even if no agency existed in fact,
PURPOSE: To bind the PRINCIPAL, even if there is no actual
agency.
REQUISITES:
a. the principal manifested a representation of the agent’s
authority or knowingly allowed the agent to assume such
authority
b. the third person, in good faith, relied upon such
representation
c. relying upon such representation, such third person has
changed his position to his detriment
Art. 1431. Through estoppel an admission or representation
is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon.
AGENCY BY OPERATION OF LAW
This is also called “Agency by Necessity.” This connotes an
emergency.
Situation: Jay-r saw a person hit by a car and brought the victim to
the hospital. Then the hospital billed the parents for the medical
expenses. The parents then claim that Jay-r had no authority to
bring her to the hospital. Can the parents refuse to pay the hospital
by saying that Jay-r had no authority?
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ANS: No. This is agency by necessity (emergency). If you leave that
person, you can be held liable (abandonment of person in need).
Is this now an instance when agency can be presumed?
No. It’s still not a presumed agency. It’s agency by operation of law.
By operation of law, you have the authority.
Important: Agency can never be presumed. There must be basis for
performing that act. Authority may be express, implied and by
operation of law.
Article 1870. Acceptance by the agent may also be express, or
implied from his acts which carry out the agency, or from his silence
or inaction according to the circumstances.
Article 1871. Between persons who are present, the acceptance of
the agency may also be implied if the principal delivers his power of
attorney to the agent and the latter receives it without any
objection. Commented [19]:
Article 1872. Between persons who are absent, the acceptance of
the agency cannot be implied from the silence of the agent, except:
(1) When the principal transmits his power of attorney to the
agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or telegram a
power of attorney with respect to the business in which he is
habitually engaged as an agent, and he did not reply to the
letter or telegram.
Acceptance of the agency
1. Express
2. Implied
Important: To be able to bind the agent in a contract of agency,
the agent must accept the agency.
Implied acceptance of agency
1. Between persons who are present – There is implied acceptance
if the principal delivers his power of attorney to the agent and
the latter receives it without any objection.
2. Between persons who are absent – The general rules is that
acceptance cannot be implied from the silence of the agent
except:
(a) When the principal transmits his power of attorney to the
agent, who receives it without any objection;
(b) When the principal entrusts to him by letter or telegram a
power of attorney with respect to the business in which he
is habitually engaged as an agent, and he did not reply to
the letter or telegram. Commented [20]:
TN: Since telegrams are no longer existing, acceptance through a
text message or e-mail as communication is valid acceptance. They
are now official means of communication. One can save that as
proof of communication.
AGENT MUST ACT WITHIN THE AUTHORITY GIVEN Commented [21]:
 APTNotes.Prelims.NikkiSia.WLC Law2018

Sale of land through agent in writing

When a sale of a piece of land or any interest therein is through an
Whenever a person is appointed as an agent, he must perform acts agent, the authority of the latter shall be in writing; otherwise, the
strictly within the authority given. sale shall be void.

TN: This is an exception to the rule that a contract of agency is

ART. 1870. Form of acceptance by agent consensual in nature.
Article 1875. Agency is presumed to be for a compensation, unless
there is proof to the contrary.
Situation: You were authorized to borrow from the bank 50,000.
Can you borrow 60,000? Agency is presumed onerous or for compensation in the absence
of agreement.
ANS: No, you can only borrow 50,000.

Situation: What if you borrow 60,000 (when in fact you are only
Nothing is free. Otherwise, it will become a sort of “involuntary
authorized to borrow 50,000), can the bank demand 60,000 from
servitude”. Whenever you render service, you are entitled to
the principal?
compensation.
ANS: No. You cannot compel the principal to pay more since
Situation: Zaki is authorized in writing to sell the land of his
borrowing of the sum was done by the agent in excess of the
principal. Price has been fixed. His compensation is fixed at 10% of
authority given.
the proceeds. He started selling the property. He wakes up at 5AM
and comes home at 12 midnight, every day for 10 months. However,
Article 1873. If a person specially informs another or states by public
he was unable to sell the land. Because they have agreed on the
advertisement that he has given a power of attorney to a third
compensation, can he demand to have the agreed compensation?
person, the latter thereby becomes a duly authorized agent, in the
former case with respect to the person who received the special
ANS: No. The agent cannot demand for the compensation. He may
information, and in the latter case with regard to any person.

The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given.
Appointments by special notices
1. By special information (letter) – the person appointed as agent
is considered such with respect to the person to whom it was
given; only those who knew the agency will be bound
2. By public advertisement – agent is considered as such with
regard to any person; fact of agency is binding to the whole
world
TN: This is common in big companies abroad. They appoint agents
in the Philippines through newspaper publication, usually in one
ART. 1873. Communication of existence of agency
only do so once he is able to sell the property.
Situation: Being the new authorized agent, Batucan was able to sell
the property within 24 hours. Can he demand to have the agreed
compensation?
ANS: Yes. He can already demand to have the compensation having
sold the land within 24 hours.
Situation: Can Zaki complain for not being entitled to his
compensation despite his efforts of selling the property for 10
months while Batucan was able to collect in just 24 hours?

ART. 1876. General and special agencies

whole page.
ART. 1877. Agency couched in general terms
“We are proud to announce the appointment of Ms. Jadina as our
general agent in the Philippines to sell all our products.” Here,
everybody is bound.” ANS: No. He cannot complain. The principal is only bound to give the
agent’s compensation once he is able to sell the land.
Manner of Revocation of Agency
Rules:
Revocation may be done in the same manner in which it was given.
If appointment is done through publication, then it must be revoked 1. If there is no stipulation as to compensation, the agent is
in the same manner. presumed to be entitled to compensation.

“We regret to inform the public that Ms. Jadina is no longer
connected with us. Any transaction she may enter in our behalf will
not be ours. As a matter of fact, Criminal Case No…..”
Article 1874. When a sale of a piece of land or any interest therein
is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
2. If there is a stipulation, the agent is entitled to compensation
upon fulfilment of the obligation imposed unto him.
NO success, NO compensation.
The agent is only entitled to compensation when he is successful in
fulfilling his obligation.

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 APTNotes.Prelims.NikkiSia.WLC Law2018
Article 1876. An agency is either general or special. The former
comprises all the business of the principal. The latter, one or more
ART. 1874. Sale of land through agent
specific transactions.
ART. 1875. Agency presumed to be with compensation
General agency v. special agency
1. General agency = covers all acts connected with the business
2. Special agency = covers specific acts in pursuance of a
particular instructions or with restrictions necessarily implied
from the act to be done
Situation: If Zaki is authorized to sell 10 parcels of land all in Ormoc,
must the principal constitute a general or special agency for him?
ANS: Special agency, regardless of the number of properties to be
sold. Whether it will be all the properties, it is still special because
he is specially designated to sell the following parcels of land 1-10.
Situation: However if he is authorized to sell all the parcels of land
in Ormoc, will that be special or general?
ANS: It is a general agency. There is no specification on what
properties to sell. To effect transfer of all properties, they must be
specifically listed, with all descriptions, locations and land areas.
Without specifications, his authority is only a general agency.
Article 1877. An agency couched in general terms comprises only
acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should
authorize a general and unlimited management.
Situation: If Zaki is authorized to look after all properties in Ormoc,
with full authority to do whatever he wants with all the properties,
what is the extent of his authority?
ANS: It only covers acts of administration. This is authority couched
in general terms. An agency couched in general terms comprises
only acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should
authorize a general and unlimited management.
TN: This should not be taken as an authority to dispose any interest
or right over the property.
EXTENT AND KINDS OF AGENCY
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a. Based on Business or Transactions Encompassed (Art. 1876)
(1) General or Universal Agency Commented [23]:
• one which comprises all the business of the principal; agent is
given authority to look after all the business of the principal;
extent is wide
An agent may be:
(1) universal; one authorized to do all acts for his
principal which can lawfully be delegated to an agent.
So far as such a condition is possible, such an agent
may be said to have universal authority.
(2) general; one authorized to do all acts pertaining
to a business of a certain kind or at a particular place,
or all acts pertaining to a business of a particular class
or series. He has usually authority either expressly
conferred in general terms or in effect made general
by the usages, customs or nature of the business which
he is authorized to transact. An agent, therefore, who
is empowered to transact all the business of his
principal of a particular kind or in a particular place,
would for this reason, be ordinarily deemed a general
agent.
(3) special; one authorized to do some particular act
or to act upon some particular occasion. He acts
usually in accordance with specific instructions or
under limitations necessarily implied from the nature
of the act to be done.
(2) Special or Particular Agency Commented [24]:
• one which comprises one or more specific transactions; subject
matter of authority is a specific transaction, specific business or
specific property
b. Based on Nature of Acts Authorized
(1) Agency couched in general terms Commented [25]:
• It comprises only of acts of administration, even if the P should
state that he withholds no power or that the agent may execute
such acts as he may consider appropriate, or even though the
agency should authorize a general and unlimited management
(2) Agency couched in explicit or specific terms Commented [26]:
• Indicates the particular function/s which the agent is authorized to
exercise, whether the same be acts of administration or acts of
dominion
SCOPE OF AUTHORITY OF AN AGENT:
1. Mere Administration
2. Act of Strict Dominion
QUESTION: Geoff, as principal, appointed Apple as his agent,
granting her general and unlimited management over Geoff’s
properties, stating that Geoff withholds no power from Apple, and
that the agent may execute acts as she may deem appropriate.
Accordingly, Apple leased Geoff’s parcel of land in Isabel to Ganzo
for four years at P60,000 per year, payable annually in advance. Commented [22]:
 APTNotes.Prelims.NikkiSia.WLC Law2018
Also, Apple leased Geoff’s land in Osmena to Mikel without a fixed
term for P3,000 per month, payable annually.
All these contracts are entered into by Apple while Geoff was in
the hospital due to illness in OSPA-FMC.
Rule on the validity of the above contracts upon Geoff, the
principal.
ANSWER: Despite the stipulation that the principal withholds no
ART. 1878. When special powers are necessary
power from the agent, the agent’s power is limited only to acts of
administration under Art. 1877 since the contract is couched in
general terms.
The lease contract to Ganzo: contract of lease involving a real
property for more than 1 year – act of ownership. There being no
Special Power of Attorney, this contract of lease is not binding, it
is unenforceable upon Geoff.
The lease contract to Mikel: contract of lease involving a real
property with no period. Since the contract did not state a term,
and the subject being an urban land (being situtated in Osmena),
the law fixes the term to be on a month-to-month basis since the
payment of the rent is monthly. As such, the period of the lease is
only one month. Therefore, it is merely an act of administration
that does not require a Special Power of Attorney. The contract is
binding upon the principal.
FORM: does not pertain to the agency itself, since no particular
form is required for its VALIDITY. Under Art. 1869, a contract of
agency may be oral, UNLESS THE LAW REQUIRES A SPECIFIC FORM.
Here, the SPECIFIC FORM does not affect validity, but
enforceability, if it is not to be performed within one year, it will
be covered by the Statute of Frauds.
Contracts entered into by the agent: may require specific form to
be binding upon the principal.
GENERAL RULE: no form is required.
Except:
1. Art. 1874: sale of a piece of land or any interest therein: the
authority of the agent shall be IN WRITING, otherwise the
contract of sale shall be void.
Agency is not void, only the contract of sale.
Note that the above provision covers a “piece or parcel of
land.” Not immovable. As such, sale of condo, house or
building is not covered by the provision. Sale of such without
the agent’s authority in writing, will make it unenforceable
upon the principal, not void.
EXAMPLE: Paul Tan sold a parcel of land representing his
daughter Isabel. The authority of the father was not put in
writing.
HELD: By express provision of the law, the agent’s authority to
sell the land must be in writing. As such, the sale of land is void.
QUESTION: Nikki, Karina and Sean inherited from their
parents a 500 sqm lot which they leased to Jun for 3 years.
Page 8 of 19
One year after, Nikki claiming to have the authority from her
siblings Karina and Sean offered to sell the leased property to
Pam which the latter accepted. The sale was not reduced into
writing, but Pam made partial payments which Nikki accepted
and acknowledged. After giving full payment, Pam demanded
the execution of a Deed of Absolute Sale which Karina and
Sean refused to do. Worse, Pam learned that the siblings sold
the same property to Erwin. Pam filed a complaint for
annulment of the sale with specific performance and
damages. Decide.
ANSWER: The sale to Pam was only valid as to Nikki’s share.
Nikki’s authority did not have her authority in writing to sell
in behalf of her siblings. The sale did not bind the siblings, the
sale of their share being void.
Article 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually considered as acts
of administration;
(2) To effect novations which put an end to obligations already in
existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for
a valuable consideration;
(6) To make gifts, except customary ones for charity or those
made to employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are
under administration;
(8) To lease any real property to another person for more than one
year;
(9) To bind the principal to render some service without
compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the
agency;
(15) Any other act of strict dominion.
Special power of attorney
One can be an attorney by executing a special power of attorney.
When special powers are necessary
(Please see Art. 1878) All of these are acts of strict dominion
therefore special power of attorney is needed.
SPA is valid even if not notarized
Special power of attorney does not need to be notarized to make it
a valid authorization. However, there are offices which require SPAs
to be notarized and we cannot prevent them from requiring such.
A notarized power of attorney carries the evidentiary weight
conferred upon it with respect to its due execution.
 APTNotes.Prelims.NikkiSia.WLC Law2018

Situation: If Nyl is authorized to pay the property, does he have an ART. 1879. Authority to sell or mortgage
authority to buy it? If the property is paid by the agent and delivered
to the principal, is that delivery proper?

ANS: Yes. Buying the property is incidental to the act of paying for
it.
Situation: Nyl was authorized to go the bank and borrow 10 million.
When he passed by the billing clerk of the hospital, he was told that
his principal still owes the hospital 5 million. He paid for the debt. Is
the payment proper?
ANS: No. Authority to borrow does not carry with it the authority
to pay.
11. To obligate the principal as a guarantor or surety;
• Among those that should be contained in a special power
of attorney is when the agent obligates the principal as a
guarantor or surety.
• Similarity
•
• Guaranty and Suretyship are accessory contracts
whereby the guarantor or surety secures the payment
or obligation of the principal.

• Difference
• Guarantor - Subsidiarily liable
Art. 1878: Instances requiring a Special Power of Attorney. •
Commented [27]:
• Surety - Solidarily liable
Art. 1878. Special power of attorney are necessary in the
following cases: 12. To create or convey real rights over immovable
property;
1. To make such payments as are not usually considered
as acts of administration; 13. To accept or repudiate an inheritance;

14. To ratify or recognize obligations contracted before the

• Payment in the ordinary course of management or
business is a mere act of administration. agency;

2. To effect novations which put an end to obligations 15. Any other act of strict dominion.
already in existence at the time the agency was constituted;
ART. 1880. To compromise/submit to arbitration
3. To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
• But a special power to compromise DOES NOT
authorize submission to arbitration

4. To waive any obligation gratuitously;

5. To enter into any contract by which the ownership of an

immovable is transmitted or acquired either gratuitously
or for a valuable consideration;

6. To make gifts, except customary ones for charity or

those made to employees in the business managed by the
agent;
ART. 1881-1882. Authority of an agent
• Said authority need not be in writing, but the donation
must comply with the formalities required by law

7. To loan or borrow money, unless the latter act be urgent

and indispensable for the preservation of the things which
are under administration;
8. To lease any real property to another person for more
than one year;
• Leasing of property for more than one year is not
considered an act of administration but an act of strict
dominion or ownership
• Authority need not be in writing but the contract of lease
of real property for more than one year is covered by the
Statute of Frauds and must, therefore, be in writing, OW
contract is UNENFORCEABLE
9. To bind the principal to render some service without
compensation;
10. To bind the principal in a contract of partnership;
Article 1879. A special power to sell excludes the power to
mortgage; and a special power to mortgage does not include the
power to sell.
Situation: Kerly was authorized to sell the property of the principal.
He was looking for a buyer and he passed by a bank. He asked if the
bank was willing to lend 10 million to his principal with mortgage
over the principal’s land. The bank agreed. Cheung reported to the
principal that he was able to get the 10 million and had the property
mortgaged, instead of being sold. And as a consequence, the
principal retains ownership of the land. Was he authorized to
mortgage such property?

Page 9 of 19
 APTNotes.Prelims.NikkiSia.WLC Law2018
ANS: No. The authority given was only to sell. Under the law, the
authority to sell the property does not carry with it the authority to
mortgage the property and vice versa.
Mortgage is not more advantageous than sale.
There is a risk. In mortgage, the principal becomes a debtor. If he is
unable to pay for his obligations, his property will be foreclosed and
sold in a public auction. It’s possible that his property will be sold
only for 5 million to the highest bidder so he still owes the bank 5
million. He now loses his property and is liable for the deficiency.
Article 1880. A special power to compromise does not authorize
submission to arbitration.
Situation: You were authorized to enter into a compromise. Can you
submit the case to arbitration?
ANS: No. Authority to enter into compromise does not carry with it
the power to submit into arbitration.
Important: The reason is that the main consideration is the trust
bestowed upon the agent. The principal might trust the agent but
not the arbitrator.
Article 1881. The agent must act within the scope of his authority.
He may do such acts as may be conducive to the accomplishment of
the purpose of the agency.
Article 1882. 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.
Kinds of authority
1. Actual – When it is actually granted; maybe express or
implied.
2. Express – When it is directly conferred by words, either orally
or in writing.
3. Implied – When it is incidental to the transaction or
reasonably necessary to accomplish the main purpose of
agency.
4. Apparent or Ostensible – When there is estoppel on the part
of the principal. By his acts or declarations, 3rd persons are led
to believe that indeed he granted authority to another person.
5. General – When it refers to all business of the principal.
6. Special – When it is limited only to one or more specific
instructions.
7. Authority by Necessity (operation of law) – While there is no
express or implied authority given to the agent, authority is
granted by operation of law; when demanded by necessity.
Situation: Kerly was authorized to sell property for 10 million but he
sold it for 9 million. Allowed?
ANS: No, he exceeded the authority given to him. An agent must act
within the scope of his authority.
Situation: In same situation, what if he sold it for 15 million?
ANS: This is allowed even if it exceeded the agent’s authority since
it redounds to the benefit of the principal.
Page 10 of 19
ART. 1883. Agency with disclosed or undisclosed principal
ART. 1883. Agency with disclosed or undisclosed principal
Agent cannot exceed the authority given to him.
The exception to this rule is if agent performed the agency in a
manner more advantageous to the principal than that indicated by
him.
Rules if the agent exceeds his authority
1. Principal is not bound by the agent’s acts or
2. If he be bound, he can make the agent liable for damages.
Instances when agent will not be liable even if he exceeded his
authority:
1. Performance of action is more advantageous to principal
2. Ratification of the act by the principal (if the principal
disregards the violation and ratifies)
3. Authority by necessity/ emergency
4. Principal is guilty of estoppel (defrauding 3rd persons)
5. Third parties did not know there was limitation to authority
6. Principal gives an instrument signed by him in blank
Situation: Kerly issued a check to Jessa. He signed the check and told
her to fill it up to 5,000. But Jessa added one 0 so it became
“50,000”. The moment Jessa goes to bank, how much will the bank
pay to her?
ANS: The bank will pay Jessa 50,000. Cheung cannot compel the
bank to refund him with 45,000 because of his negligence. Jessa may
be partly negligent but Kerly is mainly to be blamed. Without Kerly’s
negligence, Jessa could have not done what she did. However, Kerly
can hold Jessa liable for damages.
Article 1883. If an agent acts in his own name, the principal has no
right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
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.
The provisions of this article shall be understood to be without
prejudice to the actions between the principal and agent.
Requisites of authority
1. Agent must have authority.
2. Agent acts within the authority given.
3. Agent must indicate that he acts as an agent.
4. Agent must disclose the name of the principal.
Important: Absent one of the requisites, the principal will not be
bound.
Two things the agent is declaring
 APTNotes.Prelims.NikkiSia.WLC Law2018

That he is acting in behalf of the principal

OBLIGATIONS OF AN and the name of the
AGENT 4. To observe the diligence of a good father of a family in the
principal. custody and preservation of the goods forwarded to him by the
owner until the latter should appoint an agent or take charge of
the goods
ART. 1884. Obligations of the agent to the principal

OBLIGATIONS OF AN AGENT:

Situation: Paul, the principal, authorized Apple as an agent to sell
the car of Paul. Benedick bought the car from Apple. Apple did not
indicate or disclose the principal. After that Benedick paid Apple.
Because A ppledid not remit the amount to Paul, Paul now goes to
the buyer. Can Paul compel the buyer to pay him again?
ANS: Paul is already bound by the sale. Paul cannot compel Benedick
to pay again because the thing sold belongs to the principal.
Situation: Apple carnapped that car and went to Benedick to sell it.
Benedick bought it. He paid 1.5 million. The following day, the
owner saw his car in the possession of Benedick and demanded it
back. He refused stating that it was sold to him. Can the owner take
back the car?
1. Agent must act within the scope of his authority How to
determine scope of authority:
1. The power of attorney itself: third person may demand the
presentation of the power of attorney. Failure to do so, the
third person dealing with the agent may be held negligent.
Case: the agent was authoried to sell properties of the
principal and was able to do so. Thereafter, the principal does
not want to recognize the transactions covering properties
acquired after constitution of the agency. SC: the power of
attorney contained a phrase “which might belong”. As such,
the scope of the authority of the agent covers after acquired
proeprties.

ANS: Yes, the owner can take back the car. The owner never “sell, buy, lease, let in relation to the good administration of
authorized the sale; lacks requisite. the land”

If the carnapper indicated the owner, the owner can get it back
because the thing was sold without authority.
Situation: Mikel authorized Bonita to buy 1 truckload of ripe
mangoes. She was given the money to buy the same. So Bonita
bought the mangoes and never disclosed the principal. She was able
to get it on credit even if she had the money of the Mikel. The
following day, seller asked payment from Mikel. Mikel said he had
already given the money to the agent. Can seller compel Mikel to
pay?
– the right to sell and buy does not pertain to the land itself
since the power of the agent is qualified by the “good
administration”. If the agent was authorized to sell the land
itself, then there is no more land to administer. It must be
interpreted as to pertain to selling the fruits of the land,
buying the necessaries for the cultivation thereof, etc.
1. The law:
1. The power to sell does not include the power to
mortgage. (Art. 1879)

ANS: No. The agent did not disclose his principal. Only the agent is
liable. If agent disclosed his principal, then the three requisites
would be present. Consequently, the principal is liable.

ART. 1885. Obligation of person who declines agency

Article 1884. The agent is bound by his acceptance to carry out the
agency, and is liable for the damages

He must also finish the business already begun on the death of the
principal, should delay entail any danger.

Specific obligations of agent to principal

1. Carry out the agency which he accepted
2. To answer for damages which, through his non-performance,
the principal may suffer
3. Finish the business already begun on the death of the principal,
should delay entail any danger
Page 11 of 19
 APTNotes.Prelims.NikkiSia.WLC Law2018

2. Acts as may be necessary conducive to the
accomplishment of the purpose of the agency.
(Art. 1881)
3. Acts performed in a manner more advantageous to
the principal than that specified by him. (Art. 1882)
Situation: The following day, he texted Betty and told her that he
can’t sell the mangoes. Still no reply. What should Alan do now?
ANS: Alan still has an obligation to preserve. This obligation extends
until such time that Pearl can appoint a new agent.
How can you preserve?

ANS: By exerting your best efforts; employing reasonable means.

QUESTION: GGC Land Corporation appointed Richard as the
exclusive agent in the sale of lots of its newly developed
subdivision. GGC told Richard that he could not receive payments
from the buyers. Richard was able to sell 10 lots to Winnie and to
collect DPs from said lots which was not turned over to GGC. Who
shall bear the loss for Richard’s failure to turn over the money?
GGC or Winnie?
Article 1886. Should there be a stipulation that the agent shall
advance the necessary funds, he shall be bound to do so except
when the principal is insolvent.
Article 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.

In default thereof, he shall do all that a good father of a family would

ART. 1886. Obligation to advance necessary funds do, as required by the nature of the business.

ANSWER: If it is clear in the power of attorney that Richard does Situation: Mike was authorized to attend to Nikki’s store.
not have authority to collect and Winnie did not demand for a copy
of the power of attorney, Winnie will bear the loss. Instruction was to observe store hours: Open in the morning, close
during lunch, open again in the afternoon, then close in the evening.
Effect, if agent did not act within the scope of his authority:
1. As to the principal: as a rule, the contract is unenforceable Which is the instruction? Which is the authority? What is the
and will not bind the principal, EXCEPT: difference?
1. If the principal ratifies;
ANS:
2. The principal is estopped as when he led the third person
to believe that the agent had full powers – under Art. 1911,
Authority Instruction
principal and agent are solidarily liable.
Private directions which the
3. If the limitation could not have been known by the third
person. If the authority is in writing and the third person principal may give the agent in
relied on such. As a rule, the third person is not required to
inquire into the scope of authority of the agent beyond the Total of powers regard with the manner of
power of attorney as written. (Art. 1900)
committed or permitted
to performing his duties but of
2. As to the third person: he may hold the agent liable,
EXCEPT: the agent by the principal which a third party is ignorant
1. If the principal ratifies; or In

2. The 3rd person is aware that the agent exceeded his so far as third parties are
authority. However, the agent may still be held liable if he
undertook to secure the ratification of the principal. (Art. concerned, they have nothing to
1898) do. They are not bound

Article 1885. In case a person declines an agency, he is bound to

observe the diligence of a good father of a family in the custody and In the example: To open at
preservation of the goods forwarded to him by the owner until the
In the example: To look
latter should appoint an agent or take charge of the goods.
opening hours, close at closing

Situation: BETTY authorized Alan to sell her 1 truckload of ripe after the store
mangoes tomorrow for she is leaving tonight for Baybay. “Sell it for
P25/piece only”. hours

Agent may deviate from

Since Alan was busy, he said he did not have time. Betty was already
on board the airplane, leaving for Baybay (no more communication). Agent cannot deviate from
Meanwhile, the mangoes were in Alan's residence. What are his
obligations? instructions if:

ANS: He must exercise the diligence of a good father of the family in authority. Agent must
preserving the goods forwarded to him.
1. Sudden emergency

always act w/in the 2. Ambiguous instruction

Page 12 of 19
 APTNotes.Prelims.NikkiSia.WLC Law2018

ART.
1888.
When
authority given to him
agent
shall not
3. Insubstantial departure carry out
agency

Article 1888. An agent

When departure from principal’s instructions justified shall not carry out an
1. Sudden emergency agency if its execution
2. Ambiguous instruction would manifestly Agent may himself
3. Insubstantial departure from the instructions which does not be the lender at
the
affect the result
result in loss or damage to
the principal.
current rate of
interest.

Article 1889. The agent

shall be liable for damages
if, there being a conflict
between his No danger of the
principal suffering
any
interests and those of the
principal, he should prefer
his own.
damage since the
Author current rate of
ized to interest

borro would have to be

w paid in any case if
money the loan

were obtained
from a third
Conflict between person. If the
agent’s interests and
principal’s interests
agent lends at a
rate higher than
the current

rate, then there is

Situation: Maimai was a violation of
authorized to sell the fiduciary trust
second-hand car of her
principal.

and confidence.
At home, Maimai’s
husband asked her if she
wanted to own the car and
she said yes.

Maimai then got her money

and paid for the car.

Is that allowed? Agent cannot

borrow money
without the

consent of the
ANS: No, there is conflict of principal.
interest between the
principal and agent.

In cases where there is a

conflict of interest, agent
can never buy that car.
Rules SHe has Agent may prove
to be bad debtor.
There is a

Page 13 of 19
 APTNotes.Prelims.NikkiSia.WLC Law2018

an obligation not to prefer o

her own interest to those u
of her possible conflict of nt
interest. The risk
principal.
in lending

is with the agent, Situation: Kathy is Article agent is bound to

and not with the authorized by her friend 1891. render an account
principal. to sell the latter’s Every of his

Author The legal rate of truckload of mangoes. At

ized to interest remains the same time, Kathy had
lend the same her own truckload transactions and to deliver to
What is the conflict the principal whatever he may
here? have

(they will be bound of mangoes. One morning, received by virtue of the agency,
money at by the current both trucks were side by even though it may not be owing
interest rate.) If the side. The buyer to
As buyer she wants a lower
price and as seller she came and wanted to buy the
wants a higher price. only 1/2 truckload of principa
agent exceeds the
current rate of mangoes. Which shall l.
There is a conflict of
interest,
interest since the agent is
Kathy sell?
acting as the seller and the
buyer. that would be a Every stipulation exempting the
violation of agent from the obligation to
fiduciary trust and render an
As a consequence, should
she prefer her own ANS: She shall sell the account
interest, she principal’s truckload of shall be
mangoes. If there is a void.
confidence.

will be liable for damages. conflict of interest between

agent’s interest and that of
the principal’s,
The law says that
there must be the agent has to choose
Situation: Maimai is now consent from the principal’s interest over
authorized to buy. The her own. Otherwise, Since all of these involve
same evening, her accounting, what is required
the principal, and
the agent must not of the
husband told her that they impose she will be liable to the
have to buy a new car so principal.
they need to sell
an excessive rate – agent?
which is not higher
their old car. Can she buy than
the car on behalf of the The agent is required to render
principal? accounting for all he has
received as a
the legal/current
rate. AR
T.
ANS: No. There is still a 18
conflict because it will be 90.
the same situation. Ob
lig
In doing so, Maimai, as the ati
seller, may want to sell at a on
higher price. no
t
A to
R loa
T. n
1 to
8 hi result
9 ms of
1. elf agency.
O
bl Article 1890. If the agent
ig has been empowered to
at borrow money, he
io Situation: If agent was asked
n to sell the property at 10 million
to but he
may himself be the lender
re at the current rate of
n interest. If he has been
d
was able to sell at 12 million,
But, as a buyer, she wants er
to buy it at the lowest a who keeps the excess?
price. cc

Page 14 of 19
 APTNotes.Prelims.NikkiSia.WLC Law2018

authorized to lend money

at interest, he cannot
borrow it without the

consent of the principal.

ANS: The principal will keep the

excess.

If you were authorized Situation: They agreed that

to lend the money of the agent is entitled to 10%
the principal, can commission.

He sold the property at 1 million.

you borrow the money? How much should he remit?

ANS: No. The agent cannot

borrow the money unless
with the consent ANS: The agent should remit the
entire 1 million. However, he is
of the principal entitled

to the 10% commission.

On the other hand, if

agent is authorized to
borrow, can he
Effect of the failure to remit
lend? the entire amount

There is misappropriation. The

agent should remit the entire
amount
ANS: Yes, he can lend at
current rate of interest.
first; and only then can he
demand for the commission.

QUESTION: AC executed a special power of attorney authorizing

DC to secure a loan from any Bank and to mortgage his property
covered by the owner’s copy of the certificate of title. In securing
a loan from XXX Bank, DC did not specify that he was acting for AC
in the transaction with said bank. Can XXX Bank hold AC liable?

1. Agent must act in representation of the Principal ANSWER: No. When DC did not specify that he was acting in behalf
of AC, the Bank allowed him to borrow money on his own, since
Page 15 of 19
 APTNotes.Prelims.NikkiSia.WLC Law2018
the Bank had no knowledge that he was merely acting as an agent.
The agent must act not only within his scope, but also in
representation of the principal.
Under Art. 1883, if the agent did not act in representation of the
principal, the latter and the third person would have no cause of
action against each other. The transaction is deemed to be only
between DC and XXX Bank.
Even though there was property in the problem belonging to the
principal, the same is not the object of the loan, which is the
transaction entered into by the agent. Moreover, it does not
appear that the principal’s property was mortgaged. Furthermore,
even if the property was indeed mortgaged, DY acting as the
owner thereof, the mortgage would have been invalid not being
the absolute owner of the property. On the other hand, if he
mortgaged it as an agent, the mortgage would still not bind the
principal, because the authority of the agent is to mortgage the
property to secure the principal’s obligation not his own. As such,
the rule applies that AC and the Bank will have no cause of action
against each other.
Article 1892. The agent may appoint a substitute if the principal has
not prohibited him from doing so; but he shall be responsible for the
acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent
or insolvent.
All acts of the substitute appointed against the prohibition of the
principal shall be void.
ART. 1892-1893. Substitution of an agent
Article 1893. In the cases mentioned in Nos. 1 and 2 of the preceding
article, the principal may furthermore bring an action against the
substitute with respect to the obligations which the latter has
contracted under the substitution.
Sub-agent
Person employed or appointed by an agent as his agent, to assist
him in the performance of an act for the principal which the agent
has been empowered to do so.
What happens to the liabilities of an agent in the presence of a
sub- agent?
Agent will be free from liability; the sub-agent will be held
liable, Instances when an agent is not liable
1. Principal gives power to agent to appoint a sub-agent, and
principal himself appoints a sub-agent (name of sub-agent
specified by the principal)
2. Principal gives power to agent to appoint, but principal did not
specify the sub-agent, and agent appoints someone who is not
notoriously incompetent or insolvent.
What is more important in so far as the law is concerned? Law
gives more emphasis on financial capacity; emphasis on economics
because this is a business. It is important that the sub agent is
someone who is not notoriously incompetent or insolvent.
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Priests, not good substitutes
Because of their vow of poverty, they can’t be good substitutes
unless he belongs to a rich family.
When agent is liable
1. Agent was not given authority by principal to appoint a sub-
agent, and he appointed one
2. Agent was given the power to appoint, but name of sub-agent
to be appointed was not specified by the principal, and agent
chose someone who is notoriously incompetent or insolvent
3. Principal prohibited agent from appointing, and he appointed a
sub- agent
Notoriously insolvent; meaning
Publicly known insolvent
Status of the agent if it was the principal who appointed the sub-
agent
The agent will be free from liability since it is the sub-agent who will
be directly answerable to principal; hence, he becomes the agent.
A new relationship is formed between the sub-agent and the
principal. So there are 2 relationships now existing, between the
principal and the agent, and the principal and the sub-agent.
TN: So long as these are expressly allowed by the principal.
What if at the time the property is being managed by the
substitute losses were incurred by the principal. Can the principal
hold the agent or substitute liable? Even if there is no privity of
contract, Art. 1893, provides the principal a cause of action. As
such, the principal MAY hold the substitute liable, if the cause of
the loss was due to his fault. However, he may not be held liable if
he acted within his scope of authority, in good faith and diligently.
This is because the agent is not the insurer of the principal’s
success.
Agent is liable:
1. When he appointed a substitute if prohibited;
2. When the agent was not prohibited, he shall be responsible for
the acts of the substitute if he was not given the power to
appoint one – the liability attaches only when the substitute
acted in bad faith, outside the scope of his authority or was
negligent;
3. When he was given the power to appoint a specific person but
appointed another one;
4. When he was given the power to appoint a substitute without
specifying the person, but the person he appointed was
notoriously incompetent or insolvent.
If the sub-agent was appointed by agent with express authority of
principal, not notoriously incompetent or insolvent, who is liable?
Agent is liable. Principal cannot be liable for the appointed sub-
agent, because he is not privy to the contract between sub-agent
and agent.
Atty. E: It will create some confusion: Will the agent be liable
because he was the one who appointed the sub-agent? Or should
the sub-agent be liable because the agent is now released from
liability?
If you were the principal, against whom will you pursue? Against
the agent whom he appointed because it is only the agent to
 APTNotes.Prelims.NikkiSia.WLC Law2018
whom he is privy with. However, if the agent cannot be located or
is freed from liability, the principal can go after the sub-agent.
But did we not say there’s no privy of contract between principal
and sub-agent?
This is one of the exceptions to the principle of privity of contracts.
Even though the principal is not privy with the sub-agent, he can still
go after the agent.
Article 1894. The responsibility of two or more agents, even though
they have been appointed simultaneously, is not solidary, if
solidarity has not been expressly stipulated.
Article 1895. If solidarity has been agreed upon, each of the agents
is responsible for the non-fulfillment of agency, and for the fault or
negligence of his fellows agents, except in the latter case when the
fellow agents acted beyond the scope of their authority.
Nature of liability of two or more agents to their principal
Joint liability except if expressly stipulated that they will be solidarily
liable
Effect of solidary liability: Liability of one agent is liability of all
ART. 1894. Responsibility of two or more agents
Article 1896. The agent owes interest on the sums he has applied to
his own use from the day on which he did so, and on those which he
still owes after the extinguishment of the agency.
Article 1897. The agent who acts as such is not personally liable to
the party with whom he contracts, unless he expressly binds himself
or exceeds the limits of his authority without giving such party
sufficient notice of his powers.
ART. 1896. Liability of agent for interest
ART. 1900. Scope of agent’s authority as to 3rd persons
Nature of liability of an agent
Not personally liable to the party with whom he contracts; he is
acting on behalf of the principal; principal is bound except:
1. Expressly binds himself
2. Exceeds limits of his authority without giving sufficient
notice of his powers
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3. Prevents performance on the part of principal
4. Acts as agent without authority or without a principal
5. Purports to act as an agent of an incapacitated principal
6. Example: Principal is in a mental hospital
ART. 1898. Third person aware of the limit of agent’s
power
Article 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not
ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook
to secure the principal's ratification.
What is the status of a contract in which an agent enters into in
behalf of his principal if he exceeds his authority? What will be the
nature of his liability?
Unenforceable.
The contract is void if entered into by an agent if:
1. The agent exceeded his authority
2. The principal did not ratify the act
3. The third person is aware of the limits of the powers granted
by the principal
XPN: If the agent undertook to secure principal’s ratification.
In agency, the act of the agent is the act of the principal.
The negligence of the agent is the negligence of the principal if the
agent acted within the authority granted to him by the principal.
ART. 1899. Ignorance of the agent
Article 1899. If a duly authorized agent acts in accordance with the
orders of the principal, the latter cannot set up the ignorance of the
agent as to circumstances whereof he himself was, or ought to have
been, aware.
Ignorance of the agent
This cannot be set up as a defense by the principal.
It is enough that the agent acts within the scope of his authority and
in accordance with the instructions of the principal. If the principal
appoints an agent who is ignorant, the fault is his alone. The law
presumes that the agent knew all the circumstances and facts
necessary for the act.
TN: Ignorance of the agent is ignorance of the principal.
Article 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 principal and the agent.
Effect if the authority is in writing
It is conclusive upon the agent and the principal.
Written Authority; no need to inquire regarding the authority of
the agent
 APTNotes.Prelims.NikkiSia.WLC Law2018
There is no need for the third party to inquire regarding the
authority of the agent because it has already been reduced in
writing. There is no need to verify.
Verbal Authority; need to inquire arises
On the other hand, there is a need to inquire regarding the authority
of the agent if it has only been granted by the principal verbally.
Situation: Patricia was authorized in writing to sell Felix’s parcel of
land for such price and under such terms and conditions as she
deems fair and reasonable.
Patricia sold the land at 9,000/m2 despite a verbal instruction from
Felix not to sell the land at a rate lower than 10,000/m2. Can Patricia
sell the land?
ANS: Yes. So far as third persons are concerned, the act is deemed
to have been performed within the scope of the agent’s authority.
Felix can recover damages from Patricia for any losses he may have
suffered due to the sale, but the sale remains valid.
Situation: Felix wanted to test Patricia’s integrity and asked her to
sell another parcel of land, under the same terms and conditions.
The same verbal instruction was given to sell the land at a rate not
lower than 10,000/m2. Patricia sold the land at 12,000/m2. Did
Patricia violate anything?
ANS: Patricia violated the instructions of her principal but it was
acceptable because it was beneficial to the principal.
Situation: Patricia was authorized in writing to receive payments.
When she received the payment, the buyer asked for a receipt.
Despite not being explicitly authorized to issue receipts, Patricia
issued a receipt. Did she exceed the authority given to her by the
principal?
ANS: No, she did not exceed the authority given to her. The issuance
of receipts is incidental to the authority to receive payments. It is
considered part of the authority granted to her.
Under the Doctrine of Necessary Implication, agents authorized to
perform a certain tasked are given the authority to perform
incidental tasks necessary to accomplish the authorized task.
Article 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 acts.
Situation: Another lot of Felix, which is beside the one sold at
9,000/m2, was sold at 5,000/m2. The buyer learned that the
instruction of Felix was actually to sell the land at 10,000/m2. Hence
Patricia the agent, actually exceeded the authority granted to her by
her principal soART.
the 1904.
buyer Obligation not to commingle
wanted to rescind the sale. May the buyer
return the property and get her payment back on account of Patricia
exceeding her authority?
ANS: No. The sale cannot be revoked. A third person cannot set up
the fact that the agent has exceeded her authority if the principal
has ratified the act. In this case, since Felix already received and
accepted the payment, Felix is deemed to have ratified the sale.
Situation: If the buyer revokes the sale before the money was
accepted by the principal, can the buyer get back the money?
ANS: Yes, there was no act of ratification yet.
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Can a third person set up the fact that the agent has exceeded his
powers?
1. Before principal ratifies / signifies willingness to ratify – Yes.
Buyer may rescind sale.
2. After principal ratifies / signifies willingness to ratify – No.
Article 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.
Article 1903. The commission agent shall be 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.
Commission agent
One whose business is to receive and sell goods for a commission
and who is entrusted by the principal with possession of goods to
be sold.
Commission agent vs. Ordinary agent
Commission Agent Ordinary Agent
May act in his own name Acts in behalf of the principal
Need not have possession
Has possession of the goods
of the
goods
May or may not have
ART. 1902. Presentation of power of attorney
Always receives compensation
compensation
Situation: Patricia authorizes Brigoli to sell all her jewelries. The
jewelries areART.
now1901.
in theRatification
possession ofofBrigoli.
the principal
What must Brigoli tell
Patricia?
ANS: Brigoli must ask about the price of the jewelries to be sold and
how much is her commission. Brigoli must account all the goods in
her possession to avoid liability in case of future damages.
Article 1904. The commission agent who handles goods of the same
kind and mark, which belong to different owners, shall distinguish
them by countermarks, and designate the merchandise
respectively belonging to each principal.
Situation: When Brigoli was about to sell the jewelries, she met
Chibeh who also asked Brigoli to sell her jewelries. So, there are
now 2 principals. What should Brigoli do?
ANS: Brigoli should not comingle the goods. She must segregate the
jewelries of Patricia and the jewelries of Chibeh.
 APTNotes.Prelims.NikkiSia.WLC Law2018

Guarantee commission agent

Situation: The goods that were presented to Brigoli for sale were One who guarantees the performance of an obligation in exchange
rice from Mindanao, rice from Laguna and rice from Negros. All of an additional or increased commission.
these rice dealers ask Brigoli to sell the rice. What should Brigoli do?
Liability for damages
ANS:
Commission Agent Guaranty Commission Agent
If the goods presented are of same kind:
1. She may comingle the goods.
Always liable if he failed to
2. She must account in proportion to what each principal
deposited to her possession. Liable if he failed to collect the collect the credits of the

If these goods are of different kind: (e.g. Ganador and Ivory) credits of the principal unless he principal, regardless if he has
1. She must not comingle the goods; must segregate.
proves he exercised due diligence exercised due diligence in the
2. She must account each separately.
for that purpose collection or not; because he
Important: No comingling, unless of the same kind.
has guaranteed the fulfillment

of the agency
Article 1905. The commission agent cannot, without the express
or implied consent of the principal, sell on credit. Should he do so,
the principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit, COMMISSION AGENT: DEFENSE: as long as the agent performed
which may result from such sale. his duties with the diligence required. As such, even if he was not
able to comply with his obligation, say to sell the products of the
Article 1906. Should the commission agent, with authority of the
principal, he will not be liable. Note that the agent is not the
principal, sell on credit, he shall so inform the principal, with a
insurer of the business of the principal.
statement of the names of the buyers. Should he fail to do so, the
sale shall be deemed to have been made for cash insofar as the Guaranty Commission Agent: receives a guaranty commission,
principal is concerned. and as such, he bears the risk of collection. Accordingly, failure to
collect from the buyers, he shall be liable to the principal.
Right of principal if agent allowed sale on credit without the
principal knowing
Principal may demand from the agent payment in cash

Payment must be in cash

General rule is that payment should be in cash.

XPN: The principal allows (with express or implied consent) the

agent to sell on credit. Provided, the agent must present a
statement of the names of the buyers.

Purpose of statement or list of the names of the buyers

This is to avoid fraud. The agent might say that the goods were sold
on credit but it was really made for cash.

Right of principal when there is no submission of list of buyers

Principal may ask commission agent to pay on cash even if
commission agent was authorized to sell on credit.
For failure to submit list, sale shall be deemed to have been made
for cash insofar as the principal is concerned.
ART. for
Can the principal demand 1905-6 Sale on Credit
the interest?
ANS: No, it is the commission agent who is entitled to any interest
or benefit which may result from such sale.

ART. 1907. Guarantee commission agent

Article 1907. Should the commission agent receive on a sale, in

addition to the ordinary commission, another called a guarantee
commission, he shall bear the risk of collection and shall pay the
principal the proceeds of the sale on the same terms agreed upon
with the purchaser.

Article 1908. The commission agent who does not collect the
credits of his principal at the time when they become due and
demandable shall be liable for damages, unless he proves that he
exercised due diligence for that purpose.

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