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Civil Law Summer Reviewer

ATENEOCENTRAL BAROPERATIONS2008

LAW ON AGENCY

CHAPTER 1: NATURE, FORM AND KINDS OFAGENCY

CONTRACT OF AGENCY is a contract whereby a

person binds himself to render some service or todo something in representation or on behalf ofanother, with the consent or authority of the latter.(Art. 1868)

Characteristics:1. Consensual2. Nominate3. Preparatory4. Principal5. Unilateral;

Bilateral (if agency is for compensation)

Nature: Since it is a contract there must be a

meeting of the minds as to consent, object, andcause.Exception to contractual nature:

- When the agency is created by operationof lawEx: Agency by Estoppel

Basis: RepresentationThe acts of the agent on behalf of the principalwithin the scope of his authority produce the samelegal and binding effects as if they were personallydone by the principal.

Hence, the distinguishing features of agency are

its representative character & its derivativeauthority.

Purpose: Extend the personality of the principalthrough the facility of the agent

Capacity of the Parties:1. Principal

a. He may be a natural or a juridicalperson

b. He must be capacitated. The rule is if aperson is capacitated to act for himselfor his own right, he can act through anagent.

- The agent is not liable where he wasignorant of the principals incapacity

2. Agenta. Insofar as the third persons areconcerned, it is enough that theprincipal is capacitated.b. Insofar as his obligations to hisprincipal are concerned, the agent mustbe able to bind himself.

c. But as an agent, some mentalcapacity is necessary, so, those who are

absolutely incapacitated (ex. Insanepersons) cannot be agents.

ESSENTIAL ELEMENTS

1. Consent of the parties to establish therelationship;

2. Object of the contract is the execution ofa juridical act in relation to third persons;3. Agent acts as a representative and not for

himself; and

4. Agent acts within the scope of hisauthority.

Orient Air Services v. CA G.R. No. 76931, May29, 1991

An illegal termination of agency does not justifyreinstatement of the agent as such. The agencycannot be compelled by the courts to be reinstatedbecause such relationship can only be effected withthe consent of theprincipal.

Acts That Cannot Be Done By Agent:Personal Acts ex. Making of a willCriminal or Illegal Acts

Nature of Relationship between Principal andAgent:

- Fiduciary based on trust &confidence

1. Agent is estopped from asserting interestadverse to his principal

2. Agent must not act as an adverse party3. Agent must not act for an adverse party

4. Agent must not use or disclose secretinformation

5. Agent must give notice of material facts

GR: Knowledge of the agent is imputed to theprincipal even though the agent nevercommunicated it to his principal

Exceptions:a. Where the interests of the agent are

adverse to those of the principal;b. Where the person claiming the benefit

of the rule colludes with the agent todefraud the principal.

DISTINCTION BETWEEN AGENCY & LEASE OFSERVICE

AGENCY LEASE OF SERVICE

Representation Employment

Agent exercisesdiscretionary powers

Lessor ordinarilyperforms onlyministerial functions

3 persons are involved:principal, agent and the3rd person with whomthe agent contracts

2 persons are involved:lessor and lessee

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Relates to commercialor businesstransactions

Relates more to thematters of meremanual or mechanicalexecution

DISTINCTION BETWEEN AGENCY &

GUARDIANSHIPAGENCY GUARDIANSHIP

Agent represents acapacitated person

A guardian representsan incapacitatedperson.

Agent is appointed bythe principal and canbe removed by thelatter.

Guardian is appointedby the court andstands in loco parentis.

Agent is subject to thedirections of theprincipal.

Guardian is not subjectto the directions of theward but must act forthe benefit of the latter

Agent can make the

principal personallyliable.

Guardian has no power

to impose personalliability on the ward.

DISTINCTION BETWEEN AGENCY & LEASE OF

PROPERTY

AGENCY LEASE OF PROPERTY

Agent is controlled bythe principal.

Lessee is not controlledby the lessor.

Agency may involvethings other thanproperty.

Lease of propertyinvolves property.

Agent can bind theprincipal.

Lessee cannot bind thelessor.

DISTINCTION BETWEEN AGENCY TO SELL &SALE

AGENCY TO SELL SALE

Agent receives thegoods as the principalsgoods

Buyer receives thegoods as owner

Agent delivers theproceeds of the sale

Buyer pays the price

Agent can return theobject in case he isunable to sell the sameto a third person

Buyer, as a general rule,cannot return the objectsold

Agent in dealing with

the thing received isbound to act accordingto the instructions of hisprincipal

Buyer can deal with the

thing as he pleases,being the owner

DISTINCTION BETWEEN AGENT &CONTRACTOR

AGENT INDEPENDENTCONTRACTOR

Represents his principal Employed by theemployer

Acts under theprincipals control andinstruction

Acts according to hisown method

Principal is liable for

torts committed by theagent within the scopeof his authority

Employer not liable for

torts committed by theindependent contractor.

DISTINCTION BETWEEN AGENCY ANDPARTNERSHIP

AGENCY PARTNERSHIP

An agent must submit tothe principals right tocontrol

A co-partner is notsubject to co-partnersright to control, unlessthere is an agreement tothat effect

The agent assumes nopersonal liability wherehe acts within the scopeof his authority

The partner binds notonly the firm membersbut himself as well

The agent takes hisagreed share of profitsnot as owner but as anagreed measure ofcompensation for his

services

The profits belong to allthe partners as commonproprietors in agreedproportions

Art. 1869.Agency may be express, or impliedfrom the acts of the principal, from his silence orlack of action, or his failure to repudiate theagency, knowing that another person is acting onhis behalf without authority.Agency may be oral, unless the law requires a

specific form.

Classifications of Agency1. As to manner of creation

a. Express agent has been actually

authorized by the principal, eitherorally or in writing

b. Implied agency is implied from

the acts of the principal, from hissilence or lack of action or hisfailure to repudiate the agencyknowing that another person isacting on his behalf without

authority, or from the acts of theagent which carry out the agency,or from his silence or inactionaccording to the circumstances

2. As to character

a. Gratuitous agent receives no

compensation for his services

b. Onerous agent receives

compensation for his services3. As to extent of business of the principal

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a. General agency comprises all the

business of the principal

b. Special agency comprises one or

more specific transactions4. As to authority conferred

a. Couched in general terms

agency is created in general termsand is deemed to comprise onlyacts in the name and representationof the principal.

b. Simple or Commission agent

acts in his own name but for theaccount of the principal.

Forms of Agency:GR: Appointment of an agent may be oral or

written; no formal requirementsException: When the law requires a specific form

(ex. agents sale of real property orany interest therein)

Art. 1875. Agency is presumed to be for acompensation, unless there is proof to the contrary.

The agent does not have to prove that theagency is for compensation.

But, the prima facie presumption that the

agency is for a compensation may becontradicted by contrary evidence

Broker - negotiate contracts relative to property inbehalf of others and for a compensation/fee

When Broker Entitled to Compensation: Whenever he brings to his principal a

party who is able and willing to take theproperty, and enter into a valid contract uponthe terms named by the principal, althoughthe particulars may be arranged and thematter negotiated and completed between theprincipal and the purchaser directly

However, a broker is never entitled tocommission for unsuccessful efforts.

Manotoc Brothers, Inc. v. CA 221 SCRA 224(1993)

The broker should be paid his commission where he

is the efficient procuring cause in bringing thesale.

Efficient procuring cause: when there is a closeproximate and causal connection between theefforts and labor of the agent and the principalssale of property.

LAW ON DOUBLE AGENCY

Disapproved by law for being against

public policy and sound morality EXCEPT

where the agent acted with full knowledge andconsent of the principals

Right of agent to compensation in case ofdouble agency:

1. With knowledge of both principals -

recovery can be had from both principals

2. Without the knowledge of both

principals - the agent can recover fromneither

3. With knowledge of one principal - as to

the principal who knew of that fact and asto the agent, they are in pari delicto andthe courts shall leave them as they were,the contract between them being void asagainst public policy and good morals

Art. 1870.Acceptance by the agent may also beexpress, or implied from his acts which carry outthe agency, or from his silence or inaction

according to the circumstances.

Art. 1871. Between persons who are present, theacceptance of the agency may also be implied if theprincipal delivers his power of attorney to the agentand the latter receives it without any objection.

Art. 1872. Between persons who are absent, theacceptance of the agency cannot be implied fromthe silence of the agent, except:

1. When the principal transmits his power ofattorney to the agent, who receives itwithout any objection;

2. When the principal entrusts to him by letteror telegram a power of attorney withrespect to the business in which he ishabitually engaged as an agent, and he didnot reply tothe letter or telegram.

Forms of Acceptance by Agent:

1. Express - when it is oral or written

2. Implied -when it can be inferred from the

acts of the agent which carry out theagency, or from his silence of inactionaccording to the circumstances

a. Between persons who are

present implied acceptance if theprincipal delivers his power ofattorney to the agent and the latterreceives it without any objection

b. Between persons who are

absent acceptance not deemedimplied from the silence of the

agent.Exceptions:i. When the principal transmits his

power of attorney to the agent

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ATENEOCENTRAL BAROPERATIONS2008who receives it without anyobjection

ii. When the principal entrusts tohim by letter or telegram apower of attorney with respectto the business in which he is

habitually engaged as an agent,

and he did not reply to theletter or telegram

What is meant by present?Generally, face to face, but includes peopleconversing directly through technology (ex. overthe telephone).

Power of Attorney - Instrument in writing bywhich one person, as principal, appoints another ashis agent and confers upon him the authority toperform certain specified acts or kinds of acts onbehalf of the principal; primary purpose is toevidence agents authority to third parties within

whom the agent deals

Construction of Power of Attorney:GR: Strictly construed and strictly pursued;held to

grant only those specified powersException: when strict construction will destroy

the very purpose of the power

Art. 1873.If a person specially informs another orstates by public advertisement that he has given apower of attorney to a third person, the latterthereby becomes a duly authorized agent, in theformer case with respect to the person whoreceived the special information, and in the lattercase with regard to any person.

The power shall continue to be in full forceuntil the notice is rescinded in the same manner inwhich it was given. (n)

Way of Giving Notice of Agency & Its Effect:

1. By special information - the personappointed as agent is considered such withrespect to the person to whom it was given.

2. By public advertisement - the agent is

considered such with regard to any person

How do you revoke an agency?In the same manner as it was constituted.However, constitution by Special Information maybe revoked by notice in a daily newspaper, providedit can be proven that 3rd persons in question readthe revocation

AGENCY BY ESTOPPELThere is really no agency at all, but the alleged

agent seemed to have apparent or ostensible,although no real authority to represent another.

DISTINCTION BETWEEN AGENCY BYESTOPPEL AND IMPLIED AGENCY

BASIS AGENCY BYESTOPPEL

IMPLIEDAGENCY

Existenceof actualagency

No agency at allThere is an actual

agency

Reliance by3rdpersons

Can be invokedonly by a 3rd

person who ingood faith reliedon the conduct of

the principal inholding theagent out as

being authorized

Such reliance innot needed, sincethe agent is a real

agent

Nature ofAuthority

An agent byestoppel hasnone of therights of an

agent, exceptwhere theprincipals

conduct are such

that the agentreasonably

believed that theprincipal

intended him toact as an agent

An agent byimplied

appointment hasall the rights andliabilities of anagent, i.e. hasactual authority

to act on behalf ofthe principal

Art. 1874.When a sale of a piece of land or anyinterest therein is through an agent, the authorityof the latter shall be in writing; otherwise, the saleshall be void. (n)

Art. 1876.An agency is either general or special.The former comprises all the business of theprincipal. The latter, one or more specifictransactions. (1712)

Art. 1877.An agency couched in general termscomprises only acts of administration, even if theprincipal should state that he withholds no power orthat the agent may execute such acts as he mayconsider appropriate, or even though the agencyshould authorize a general and unlimitedmanagement. (n)

Will an authority embodied in a letter besufficient?Yes. (Jimenez v. Rabot, 38 Phil 387 (1918))

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ATENEOCENTRAL BAROPERATIONS2008Attorney-In-Fact

One who is given authority by his principalto do a particular act not of a legalcharacter

The term is, in loose language, used toinclude agents of all kinds, but in its strictsense, it means an agent having a special

authority created by a deed.

DISTINCTIONS BETWEEN A GENERAL AGENTAND A SPECIAL AGENT

BASIS GENERALAGENT

SPECIAL AGENT

Scope ofAuthority

All actsconnected withthe business oremployment in

which he isengaged

Specific acts inpursuance of

particularinstructions or

with restrictionsnecessarily

implied from theact to be done

Nature ofServiceAuthorized

Involvescontinuity of

service

No continuity ofservice

Extent toWhich AgentMay Bindthe Principal

May bind hisprincipal by anact within thescope of his

authorityalthough it maybe contrary to

the lattersspecial

instructions

Can not bind hisprincipal in a

manner beyondor outside thespecific actswhich he is

authorized toperform

Terminationof Authority

Apparentauthority doesnot terminate by

the mererevocation of hisauthority without

notice to thethird party

Duty imposedupon the thirdparty to inquire

makestermination of

the relationshipas between theprincipal and

agent effective asto such third

party unless theagency has beenentrusted for the

purpose of

contracting withsuch third party

Construction

of PrincipalsInstructions

Merely advisory

in nature

Strictly construed

as they limit theagents authority

Agency Couched in General Terms:Covers onlyMERE ACTS OF ADMINISTRATION even if:

a. The principal should state that he withholdsno power

b. The agent may execute such acts as hemay consider appropriate

c. The agency should authorize a general andunlimited management

How are contracts of agency construed?

Contracts of agency, as well as general

powers of attorney, must be interpreted inaccordance with the language used by theparties.

The real intention of the parties is primarilydetermined from the language used andgathered from the whole instrument.

In case of doubt, resort must be had to the

situation, surroundings ad relations of theparties. The intention of the parties mustbe sustained rather than defeated.

So if the contract be open to constructions,one of which would uphold the intentionwhile the other would overthrow it, theformer is to be chosen.

Art. 1878. Special powers of attorney arenecessary in the following cases:(PECWAM-LLB-BOCARO)

1. To make suchpayments as are not usuallyconsidered as acts of administration;

2. To effect novations which put an end toobligations already in existence at the timethe agency was constituted;

3. To compromise , to submit questions toarbitration, to renounce the right to appealfrom a judgment, to waive objections to the

venue of an action or to abandon aprescription already acquired;

4. To waive any obligation gratuitously;

5. To enter into any contract by which theownership of an immovable is transmittedor acquired either gratuitously or for avaluable consideration;

6. To make gifts , except customary ones forcharity or those made to employees in thebusiness managed by the agent;

7. To loan or borrow money, unless the latteract be urgent and indispensable for thepreservation of the things which are under

administration;

8. To lease any real property to anotherperson for more than one year;

9. To bind the principal to render some servicewithout compensation;

10. To bind the principal in a contract ofpartnership;

11. To obligate the principal as a guarantor orsurety;

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12. To create or convey real rights overimmovable property;

13. To accept or repudiate an inheritance;

14. To ratify or recognize obligations contractedbefore the agency;

15.Anyother act of strict dominion.

Art. 1879.A special power to sell excludes thepower to mortgage; and a special power tomortgage does not include the power to sell.

Art. 1880.A special power to compromise doesnot authorize submission to arbitration.

Special Power of Attorney - an instrument inwriting by which one person, as principal, appointsanother as his agent and confers upon him theauthority to perform certain specified acts or kindsof acts on behalf of the principal.

The special power of attorney can beincluded in the general power when itspecifies therein the act or transaction forwhich the special power is required.

Powers Not Included in the Power to Mortgage1. To sell2. To execute a second mortgage

3. To mortgage for the agents or any3rd persons benefit, UNLESS clearlyindicated

Powers Not Included in the Power to

CompromiseSubmission to Arbitration

Rationale:

A principal may authorize his agent tocompromise because of absolute confidencein the latters judgment and discretion toprotect the formers rights and obtain forhim the best bargain in the transaction.

If the transaction would be left in the handsof an arbitrator, said arbitrator may notenjoy the trust of the principal.

Art. 1881.The agent must act within the scope ofhis authority. He may do such acts as may be

conducive to the accomplishment of the purpose ofthe agency.

Art. 1882.The limits of the agent's authority shallnot be considered exceeded should it have beenperformed in a manner more advantageous to theprincipal than that specified by him.

Art. 1883. If an agent acts in his own name, theprincipal has no right of action against the personswith whom the agent has contracted; neither have

such persons against the principal.In such case the agent is the one directly bound infavor of the person with whom he has contracted,as if the transaction were his own, except when thecontract involves things belonging to the principal.The provisions of this article shall be understood tobe without prejudice to the actions between the

principal and agent.

Requisites for Principal to be Bound by Act ofAgent:

1. The agent must act in behalf of the principal2. The agent must act within the scope of his

authority

When a principal NOT BOUND by act of agent:1. The latter acts without or beyondthe scope of his authority in the formersnameExceptions:

a.Where the acts of the principal have

contributed to deceive a 3rd personin good faith;

b. Where the limitations upon thepower created by the principal couldnot have been known by the 3rd

person;c. Where the principal has placed in

the hands of the agent instrumentssigned by him in blank;

d. Where the principal has ratified theacts of the agent

2. The latter acts within the scope of

his authority but in his own name, EXCEPTwhen the transaction involves thingsbelonging to the principal

NOTE: The agent is not deemed to have exceededthe limits of his authority should he perform

the agency in a manner more advantageousto the principal than that indicated by him,since he is authorized to do such acts asmay be conducive to the accomplishment ofthe purpose of the agency.

Eurotech Industrial Technologies, Inc. v.Cuizon G.R. No. 167552, April 23, 2007

The powers of an agent are particularly broad inthe case of one acting as a general agent or

manager; such a position presupposes a degree ofconfidence reposed and investiture with liberalpowers for the exercise of judgment and discretionin transactions and concerns which are incidental orappurtenant to the business entrusted to his careand management. In the absence of an agreementto the contrary, a managing agent may enter intocontracts that he deems reasonably necessary orrequisite for the protection of the interests of his

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principal entrusted to his management.

CHAPTER 2: OBLIGATIONS OF THE AGENT

Art. 1884.The agent is bound by his acceptance tocarry out the agency, and is liable for the damageswhich, through his non-performance, the principalmay suffer.He must also finish the business already begun onthe death of the principal, should delay entail any

danger.

Art. 1885.In case a person declines an agency, heis bound to observe the diligence of a good fatherof a family in the custody and preservation of thegoods forwarded to him by the owner until thelatter should appoint an agent or take charge of thegoods.

Art. 1886. Should there be a stipulation that theagent shall advance the necessary funds, he shallbe bound to do so except when the principal isinsolvent.

Art. 1887. In the execution of the agency, theagent shall act in accordance with the instructionsof the principal.In default thereof, he shall do all that a good fatherof a family would do, as required by the nature ofthe business.

Art. 1888.An agent shall not carry out an agency

if its execution would manifestly result in loss ordamage to the principal.

Art. 1889.The agent shall be liable for damages if,there being a conflict between his interests andthose of the principal, he should prefer his own.

Art. 1890. If the agent has been empowered toborrow money, he may himself be the lender at thecurrent rate of interest. If he has been authorizedto lend money at interest, he cannot borrow itwithout the consent of the principal.

Art. 1891. Every agent is bound to render an

account of his transactions and to deliver to theprincipal whatever he may have received by virtueof the agency, even though it may not be owing tothe principal.Every stipulation exempting the agent from theobligation to render an account shall be void.

Art. 1896.The agent owes interest on the sums hehas applied to his own use from the day on whichhe did so, and on those which he still owes after theextinguishment of the agency.

Art. 1897. The agent who acts as such is not

personally liable to the party with whom hecontracts, unless he expressly binds himself orexceeds the limits of his authority without givingsuch party sufficient notice of his powers.

OBLIGATIONS OF THE AGENT TOTHE PRINCIPAL

1. General: (GOC)a. Act with utmost good faith & loyalty for

the furtherance of principals interests

b. Obey principals instructions

c. Exercise reasonable care

2. Specific: (FADI CALAMARI)

a. Carry out the agency

b. Answer for damages which through his

non-performance the principal maysuffer

c. Finish the business already begun onthe death of the principal should delayentail any danger (exception to the rulethat death extinguishes agency)

d. Observe the diligence of a good fatherin the custody and preservation of thegoods forwarded to him by the owner incase he declines an agency, until anagent is appointed

e. Advance necessary funds if there be astipulation to do so (except when theprincipal is insolvent)

f. Act in accordance with the instructionsof the principal, and in default thereof,to do all that a good father of a familywould doExceptions(to the rule that the agentmust not depart from the instructionsof principal):

1. Theres a sudden emergency2. If the instructions are

ambiguous3. If the departure is so

insubstantial that it does notaffect the result and the

principal suffers no damagethereby

g. Not to carry out the agency if it wouldmanifestly result in loss or damage tothe principal

h. Answer for damages if there being aconflict between his & principalsinterests, he prefers his own

i. Not to loan to himself if he has beenauthorized to loan money at interest

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j. Render an account of his transactionsand deliver to the principal whatever hemay have received by virtue of theagency (If the agent fails to deliver andinstead converts or appropriates for hisown use the money or propertybelonging to his principal, he may becharged with ESTAFA.)

k. Be responsible in certain cases for theact of the substitute appointed by him

l. Pay interest on funds he has applied tohis own use

DISTINCTIONS BETWEEN AUTHORITY ANDTHE PRINCIPALS INSTRUCTIONS

AUTHORITY INSTRUCTIONS

Sum total of the powers

committed to the agentby the principal

Contemplates only a

private rule of guidanceto the agent;independent and distinct

in characterRelates to thesubject/business withwhich the agent isempowered to deal oract

Refers to the manner ormode of agents action

Limitations of authorityare operative as againstthose who have/chargedwith knowledge of them

Without significance asagainst those withneither knowledge nornotice of them

Contemplated to bemade known to thirdpersons dealing with theagent

Not expected to bemade known to thosewith whom the agentdeals

When agent has a right to disobey theprincipals instructions:

1. When the instruction calls for theperformance of illegal acts

2. Where he is privileged to do so to protecthis security in the subject matter of theagency

When obligation to account not applicable:1. If the agent acted only as a middleman with

the task of merely bringing together thevendor and the vendees.

2. If the agent had informed the principal ofthe gift/bonus/profit he received from thepurchaser and his principal did not objectthereto.

3. Where a right of lien exists in favor of theagent.

When agent may incur personal liability1. When the agent expressly binds himself2. When the agent exceeds his authority3. When an agent by his act prevents

performance on the part of the principal

4. When a person acts as an agent withoutauthority or without a principal

5. A person who purports to act as agents ofan incapacitated principal

Art. 1892.The agent may appoint a substitute ifthe principal has not prohibited him from doing so;

but he shall be responsible for the acts of thesubstitute:

1. When he was not given the power toappoint one;

2. When he was given such power, but withoutdesignating the person, and the personappointed was notoriously incompetent orinsolvent.

All acts of the substitute appointed against theprohibition of the principal shall be void.

Art. 1893.In the cases mentioned in Nos. 1 and 2of the preceding article, the principal mayfurthermore bring an action against the substitute

with respect to the obligations which the latter hascontracted under the substitution.

Appointment of Sub-agent:

1. If the principal has not prohibited the agentfrom appointing a substitute, he will be liableto 3rd persons for the acts of the sub-agentwithin the scope of his authority

2. If there is a prohibition but nevertheless theagent appoints a subagent, all the subagentsacts are void as to the principal.

3. If there is authority to appoint and subagent isnot designated by the principal, the agent will

be liable for all the acts of the subagent if thesubagent is notoriously incompetent orinsolvent.

4. If there is authority to appoint and subagent isdesignated by the principal, the agent isreleased from any liability from the acts of the

subagent.5. If the appointment of a sub-agent is not

authorized but not prohibited, it shall be valid ifit is beneficial to the principal. But, should theprincipal incur damage due to suchappointment, the agent shall be primarilyresponsible for the acts of the substitute.

Art. 1894. The responsibility of two or moreagents, even though they have been appointedsimultaneously, is not solidary, if solidarity has notbeen expressly stipulated.

Art. 1895.If solidarity has been agreed upon, eachof the agents is responsible for the non-fulfillmentof agency, and for the fault or negligence of hisfellow agents, except in the latter case when thefellow agents acted beyond the scope of theirauthority.

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Responsibility of 2 or More Agents AppointedSimultaneously:GR: Liable jointlyException: Solidarity has been expressly

stipulated; each of the agents

becomes solidarily liable for (1) the

non-fulfillment of the agency; of for(2) the fault or negligence of hisfellow agent(s)

Exception to the exception: when one ofthe other agent/s acts beyond the scope ofhis authority innocent agent is NOT liable

Art. 1898. If the agent contracts in the name ofthe principal, exceeding the scope of his authority,and the principal does not ratify the contract, itshall be void if the party with whom the agent

contracted is aware of the limits of the powersgranted by theprincipal. In this case, however, theagent is liable if he undertook to secure the

principal's ratification.

Art. 1899. If a duly authorized agent acts inaccordance with the orders of the principal, thelatter cannot set up the ignorance of the agent asto circumstances whereof he himself was, or oughtto have been, aware.

Art. 1900.So far as third persons are concerned,an act is deemed to have been performed withinthe scope of the agent's authority, if such act iswithin the terms of the power of attorney, aswritten, even if the agent has in fact exceeded thelimits of his authority according to anunderstanding between the principal and the agent.

Art. 1901.A third person cannot set up the factthat the agent has exceeded his powers, if theprincipal has ratified, or has signified his willingnessto ratify the agent's acts.

Art. 1902.A third person with whom the agentwishes to contract on behalf of the principal mayrequire the presentation of the power of attorney,or the instructions as regards the agency. Private orsecret orders and instructions of the principal donot prejudice third persons who have relied uponthe power of attorney or instructions shown them.

Art. 1909. The agent is responsible not only forfraud, but also for negligence, which shall bejudged with more or less rigor by the courts,according to whether the agency was or was not for

a compensation.

Effect where 3rd person aware of limits ofagents power: If the agent exceeds his authority,it shall be VOID unless the principal ratifies it.

DOCTRINE OF AGENCY BY NECESSITYActually, an agency can never be created bynecessity; what is created is additional authority inan agent appointed and authorized before theemergency arose.

The existence of emergency or other unusual

conditions may operate to invest in an agentauthority to meet the emergency, provided:(PURE)

1. The agents enlarged authority is exercisedfor the principals protection

2. The agent is unable to communicate withprincipal;

3. The means adopted are reasonable underthe circumstances;

4. The emergency really exists;

When 3rd person repudiate the contract

Before actual ratification by the principal, or

before the principal has signified his willingnessto ratify the agents acts.

Effect of the principal receiving the benefits of

the transaction:

He is deemed to have ratified it. A principalmay not accept the benefits of a transactionand at the same time repudiate its burdens

Conditions for Ratification1. The principal must have capacity and power

to ratify

2. He must have had knowledge of materialfacts

3. He must ratify the acts in its entirety4. The act must be capable of ratification5. The act must be done in behalf of the

principal

To be effective, ratification need notbe communicated or made known to

the agent or the third party. The act orconduct of the principal rather than hiscommunication is the key. But beforeratification, the third party is free torevoke the unauthorized contract.

Effects of Ratification

1. With respect to agent - relieves the agentfrom liability to the third party for theunauthorized transaction, and to his principalfor acting without authority; may recovercompensation

2. With respect to principal - assumesresponsibility for the unauthorized act, as fullyas if the agent had acted under originalauthority but not liable for acts outside theauthority approved by his ratification

3. With respect to 3rd persons - bound by

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ATENEOCENTRAL BAROPERATIONS2008ratification to the same extent as if the ratifiedact had been authorized; cannot raise thequestion of the agents authority to do theratified act

Robinson v. Borse

Ratification is spelled out when the principal bringslegal proceedings to enforce the contract enteredinto by the unauthorized agent, subject toqualification, however, that the bringing of legalproceedings is not deemed ratification where theprincipals action is undertaken to avert a greaterloss rather than to assert a gain.

NOTE: Agent always liable for fraud but not fornegligence, which shall be judged with moreor less rigor by the courts, according towhether the agency was or was not forcompensation.

ACTS OF THE AGENT EFFECT EXCEPTION(S)

In behalf of the principal,within the scope of authority

1. Binds principal;2. Agent not personally liable

Agent liable if he:1. Expressly makes himself liable2. Exceeds the limits of his authority

without giving the parties sufficient

notice of his powers

Without or beyond scope ofauthority

Contract is unenforceable asagainst the principal but binds theagent to the third person

Binding on the principal when:1. Ratified or2. The principal allowed the agent to act

as though he had full powers

Within the scope of authoritybut in the agents name

1. Not binding on the principal;

2. Principal has no cause of actionagainst the 3rd parties and viceversa

When the transaction involves thingsbelonging to the principal:1. Remedy of the principal - damages for

agents failure to comply with theagency

2. Remedies of the third person

If the case falls under the generalrule, he can sue the agent.

But when the contract involves things

belonging to the principal, he can suethe principal.

But if it cannot be determined withoutlitigation who is liable, he can sueboth.

Within the scope of thewritten power of attorneybut agent has actuallyexceeded his authorityaccording to anunderstanding between him& the principal

1. Insofar as 3rd persons areconcerned (not required toinquire further than the termsof the written power, agentacted within scope of his

authority;2. Principal estopped

With improper motives Motive is immaterial; as long aswithin the scope of authority, valid

1. Third person knew agent was actingfor his own benefit: principal is notliable to 3rd third person

2. Owner is seeking recovery of personalproperty of which he has beenunlawfully deprived

With misrepresentations by

the agent

1. Authorized - principal still liable2. Beyond the scope of the

agents authority

GR: Principal not liable Exception: principal takes

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advantage of a contract orreceives benefits madeunder false representation ofhis agent

3. For the agents own benefit principal still liable; agents motiveimmaterial

Mismanagement of thebusiness by the agent

1. Principal still responsible for theacts contracted by the agentwith respect to 3rd persons;

2. Principal, however, may seekrecourse from the agent

Tort committed by the agentPrincipal civilly liable so long as thetort is committed by the agentwhile performing his duties infurtherance of the principalsbusiness

Agent in good faith butprejudices 3rd parties

Principal is liable for damages

Agent in bad faith and

prejudices 3rd

persons

Only the agent is liable for

damages

Art. 1903. The commission agent shall beresponsible for the goods received by him in theterms and conditions and as described in the

consignment, unless upon receiving them heshould make a written statement of the damageand deterioration suffered by the same.

Art. 1904. The commission agent who handlesgoods of the same kind and mark, which belong todifferent owners, shall distinguish them bycountermarks, and designate the merchandiserespectively belonging to each principal.

Art. 1905.The commission agent cannot, withoutthe express or implied consent of the principal, sellon credit. Should he do so, the principal maydemand from him payment in cash, but thecommission agent shall be entitled to any interestor benefit, which may result from such sale.

Art. 1906. Should the commission agent, withauthority of the principal, sell on credit, he shall soinform the principal, with a statement of the namesof the buyers. Should he fail to do so, the sale shallbe deemed to have been made for cash insofar asthe principal is concerned.

Art. 1907. Should the commission agent receiveon a sale, in addition to the ordinary commission,

another called a guarantee commission; he shallbear the risk of collection and shall pay theprincipal the proceeds of the sale on the sameterms agreed upon with the purchaser.

Art. 1908. The commission agent who does notcollect the credits of his principal at the time whenthey become due and demandable shall be liable

for damages, unless he proves that he exerciseddue diligence for that purpose.

Commission Agent - one whose business is toreceive and sell goods for a commission and who isentrusted by the principal with the possession ofgoods to be sold, and usually selling in his ownname.

DISTINCTION BETWEEN ORDINARY AGENT &COMMISSION AGENT

Ordinary Agent Commission AgentActs for and in behalf ofhis principal

May act in his own nameor in that of the principal

Need not havepossession of theprincipals goods

Must be in possession ofthe thing he disposes

DISTINCTIONS BETWEEN COMMISSIONAGENT & BROKER

Commission Agent Broker

Engaged in the purchaseand sale for a principalof personal property

which has to be placedin his possession anddisposal

No custody orpossession of the thinghe disposes; merely a

go-between, anintermediary betweenthe seller and the buyer

Has a relation withprincipal, buyer orseller, and propertywhich is the object ofthe transaction

Maintains no relationwith the thing which hepurchases or sells

Obligations of a Commission

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ATENEOCENTRAL BAROPERATIONS2008Agent: (RMB)

1. Responsible for the goods received by him,as described in the consignment, UNLESS- upon receiving them he should make a

written statement of the damage anddeterioration suffered by the same

2. If goods are of the same kind and mark butbelonging to different owners, make adistinction by counter marks and designatethe merchandise respectively belonging toeach principal cannot, without consent of theprincipal, sell on credit; should he do,principal may demand payment in cash, butthe commission agent entitled to anyinterest/benefit which may result from suchsale

3. If an agent receiving guarantee commission(a del credere agent), bears the risk ofcollection and pay the principal the proceedsof the sale on the same terms agreed upon

with the purchaser liable for damages ifagent does not collect the credits of hisprincipal at the time when they become dueand demandable, UNLESS he proves, that heexercised due diligence for that purpose.

CHAPTER 3: OBLIGATIONS OF THE PRINCIPAL

(CARI)

Art. 1910.The principal mustcomply with all theobligations which the agent may have contractedwithin the scope of his authority.As for any obligation wherein the agent hasexceeded his power, the principal is not boundexcept when he ratifies it expressly or tacitly.

Art. 1912. The principal must advance to theagent, should the latter so request, the sumsnecessary for the execution of the agency.Should the agent have advanced them, theprincipal must reimburse him therefor, even if thebusiness or undertaking was not successful,provided the agent is free from all fault.The reimbursement shall include interest on thesums advanced, from the day on which the advancewas made.

Art. 1913. The principal must also indemnify theagent for all the damages which the execution ofthe agency may have caused the latter, without

fault or negligence on his part.

Art. 1915. If two or more persons have appointedan agent for a common transaction or undertaking,they shall be solidarily liable to the agent for all theconsequences of the agency.

Art. 1916.When two persons contract with regard

to the same thing, one of them with the agent andthe other with the principal, and the two contractsare incompatible with each other, that of prior dateshall be preferred, without prejudice to theprovisions of Article 1544.

Art. 1917.In the case referred to in the preceding

article, if the agent has acted in good faith, theprincipal shall be liable in damages to the thirdperson whose contract must be rejected. If theagent acted in bad faith, he alone shall beresponsible.

Obligations of the Principal to theAgent: (CARIP)

1. Comply with all the obligations agentcontracted in representation of the principal

2. Advance sums necessary for the executionof the agency, when agent so requests;liable for reimbursement regardless of the

undertakings success whenever agent hadadvanced & has no fault; includes interest

3. Reimburse the agent for all advances madeby him provided the agent is free from fault

4. Indemnify the agent for all the damageswhich the execution of the agency mayhave caused the latter without fault ornegligence on his part

5. Pay the agent the compensation agreedupon or the reasonable value of the lattersservices

Liability of 3rd persons to the Principal

1. In Contract a 3rd person is liable to theprincipal upon contracts entered into by hisagent, as if the contract has been entered intoby the principal.

2. In Tort the 3rd persons tort liability to theprincipal, insofar as the agent is involved in thetort, arises in 3 situations:

a. Where the 3rd person damages orinjures property or interest of the principalin the possession of the agent

b. Where the 3rd person colludes with theagent to injure/defraud the principal

c. Where the 3rd person induces theagent to violate his contract with theprincipal to betray the trust reposed uponhim by the principal.

Requisites for solidary liability of principals1. There are 2 or more principals2. The principals have all concurred in the

appointment of the same agent3. The agent is appointed for a common

transaction or undertaking

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ATENEOCENTRAL BAROPERATIONS2008NOTE: The rule in Art. 1915 applies even when the

appointments were made by the principals inseparate acts, provided that they are for thesame transaction. The solidarity arises fromthe common interest of the principals andnot from the act of constituting the agency.

Rule where 2 persons contract separately withagent and principalTwo persons may contract separately with theagent and the principal with regard to the samething. If the two contracts are incompatible witheach other, the one of prior date shall be preferred.This is subject, however, to the rules under Article1544 of the Civil Code (Double Sale).1

Art. 1914. The agent may retain in pledge thethings which are the object of the agency until the

principal effects the reimbursement and pays theindemnity set forth in the two preceding articles.

Agents Right of Retention:1. Specific (only for those goods connected

with the agency) and2. Until the principal effects the

reimbursement and pays the indemnity

Art. 1918. The principal is not liable for theexpenses incurred by the agent in the followingcases:

1. If the agent acted in contravention of theprincipal's instructions, unless the lattershould wish to avail himself of the benefitsderived from the contract;

2. When the expenses were due to the fault ofthe agent;

3. When the agent incurred them withknowledge that an unfavorable result wouldensue, if the principal was not awarethereof;

4. When it was stipulated that the expenseswould be borne by the agent, or that thelatter would be allowed only a certain sum.

PRINCIPALS LIABILITIES FOR EXPENSESGR: Principal is liable for the expenses incurred by

the agent

1Art. 1544. If the same thing should have been sold todifferent vendees, the ownership shall be transferred to theperson who may have first taken possession thereof ingood faith, if it should be a movable property.Should it be immovable property, the ownership shallbelong to the person acquiring it who in good faith firstrecorded it in the Registry of Property.Should there be no inscription, the ownership shall pertainto the person who in good faith was first in the possession;and, in the absence thereof, to the person who presentsthe oldest title, provided there is good faith.

Exceptions: (AFUS)

a. If the agent acted in contravention ofthe principal's instructions, unlessprincipal derives benefits from thecontract

b. When the expenses were due to the

fault of the agentc. When the agent incurred them with

knowledge that an unfavorable resultwould ensue, if the principal was notaware thereof

d. When it was stipulated that theexpenses would be borne by the agent,or that the latter would be allowed onlya certain sum

Art. 1911.Even when the agent has exceeded hisauthority, the principal is solidarily liable with the

agent if the former allowed the latter to act asthough he had full powers.

Who can be estopped to deny agency?

1. Estoppel of Agent- one professing to act as

agent estopped to deny his agency both asagainst his asserted principal and the thirdpersons interested in the transaction in whichhe is engaged

2. Estoppel by the Principal

a. As to agent one knowing another isacting as his agent and fails torepudiate his acts, or accept thebenefits of them, will be estopped todeny the agency as against such other

b. As to sub-agent for the principal to beestopped from denying his liability to athird person, he must have known or becharged with knowledge of thetransaction and the terms of theagreement between the agent and sub-agent

c. As to third persons one who knowsthat another is acting as his agent orpermitted another to appear as hisagent, to the injury of third personswho have dealt with the apparent agentas such in good faith and in the exerciseof reasonable prudence, is estopped to

deny the agency3. Estoppel of Third Persons a third person,

having dealt with one as an agent may beestopped to deny the agency as against theprincipal, agent or 3rd persons in interest

4. Estoppel of the Government - governmentneither estopped by the mistake/error of its

agents; may be estopped through affirmativeacts of its officers acting within the scope oftheir authority

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ATENEOCENTRAL BAROPERATIONS2008DISTINCTION BETWEEN RATIFICATION ANDESTOPPEL

Ratification Estoppel

Rests on intention Rests on prejudice

Affects the entiretransaction from thebeginning

Affects only relevantparts of the transaction

Substance of ratificationis confirmation of anauthorized acts orconduct after it has beendone

Substance of estoppel isthe principalsinducement to anotherto act to his prejudice

DISTINCTION BETWEEN APPARENT

AUTHORITY & AUTHORITY BY ESTOPPEL

Apparent Authority Authority by Estoppel

Though not actuallygranted, principalknowingly permits/holdsout the agent as

possessing thenecessary powers to actin a certain way

Where the principal, byhis negligence, permitshis agent to exercisepowers not granted to

him, even though theprincipal may have nonotice or knowledge ofthe conduct of the agent

CHAPTER 4: MODES OF EXTINGUISHINGAGENCY

Agency is Extinguished: (EDWARD)

1. By the expiration of the period for whichthe agency was constituted.

2. By the death, civil interdiction, insanity orinsolvency of the principal or of the agent;

3. By the withdrawal of the agent;4. By the accomplishment of the object orpurpose of the agency;

5. By its revocation ;

6. By the dissolution of the firm or corporationwhich entrusted or accepted the agency(Art. 1919)

The list not exclusive; causes particularonly to

agency; may be extinguished by the modes ofextinguishment of obligations in generalwhenever they are applicable, like loss of thething and novation

Agency is TERMINATED, as a matter of law,upon the outbreak of war.

Presumption of Continuance of Agency

It means that when once shown to haveexisted, an agency relation will be presumed tohave continued, in the absence of anything toshow its termination.Continuance of Agency

Parties must be1. Present,

2. Capacitated and3. Solvent

Modes of extinguishing an agency, generally:1. Agreement2. Subsequent acts of the parties which may

be either:

a. By the act of both parties or bymutual consent

b. By the unilateral act of one of them3. By operation of law

NOTE: Even if the reason for extinguishing theagency is not true, the agent cannot insiston reinstatement. The agent can onlydemand damages.

What happens of the subject matter of theagency is lost or destroyed?In the absence of any agreement by the parties tothe contrary, the loss or destruction of the subject

matter of the agency terminates the agentsauthority to deal with reference to it

Exceptions:1. if it is possible to substitute other

material for that which was destroyedwithout substantial detriment to eitherparty

2. if the destroyed subject matter was notin fact essential to the contract

3. a partial loss or destruction

Form of renunciationIt is not always necessary for the agent to renounce

the agency expressly. He can do so impliedly, suchas:

1. where he has conducted himself in amanner incompatible with his duties asagent

2. when he abandons the object of his agencyand acts for himself in committing a fraud

upon his principals3. when he files a complaint against the

principal and adopts an antagonisticattitude towards him

Art. 1930. The agency shall remain in full forceand effect even after the death of the principal, if ithas been constituted in the common interest of thelatter and of the agent, or in the interest of a thirdperson who has accepted the stipulation in hisfavor.

Art. 1931.Anything done by the agent, withoutknowledge of the death of the principal or of anyother cause which extinguishes the agency, is validand shall be fully effective with respect to thirdpersons who may have contracted with him in goodfaith.

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Exceptions to Extinguishment byDeath (CKID)

1. If the agency is coupled with an interest

2. If the act of the agent was executed withoutthe knowledge of the death of the principal

and the third person who contracted withthe agent acted in good faith

3. To avoid damage

4. If it has been constituted in the commoninterest of the principal and of the agent, orin the interest of a third person who hasaccepted the stipulation in his favor

Art. 1932.If the agent dies, his heirs must notifythe principal thereof, and in the meantime adoptsuch measures as the circumstances may demandin the interest of the latter.

Can the heirs continue theagency?

GR: agency calls for personal services on the partof the agent; rights & obligations are nottransmissible

Exceptions:a. Agency by operation of law, or a

presumed or tacit agency

b. Agency is coupled with an interestin the subject matter of the agency(ex. power of sale in a mortgage).

Exceptions to Extinguishment Upon Loss orDestruction of Subject Matter

1) If it is possible to substitute other material forthat which was destroyed without substantialdetriment to either party or if the destroyedsubject matter was not in fact essential to thecontract;

2) A partial loss or destruction does not alwaysresult in a complete termination of the agency,and under such circumstances, while theagency may be ended in so far as the destroyedproperty is concerned, it may continue inexistence as to other property not affected

i) If the loss brought about by theprincipal (ex.. principal sells subjectmatter to another party even if an

agent has been constituted in referenceto it), principal liable for damages forhis wrongful terminating act; if subjectmatter is lost without principals fault,no liability assumed by him

Change of Circumstance:GR: when there is a basic change in the

circumstances surrounding the transaction,which as not contemplated by the parties andwhich would reasonably lead the agent to

believe that the principal would not desirehim to act, the authority of the agent isterminated

Exceptions:a. If the original circumstances are

restored within a reasonable period of

time, the agent's authority may be

revivedb. Where the agent has reasonable doubts

as to whether the principal would desirehim to act, his authority will not beterminated if he acts reasonably

c. Where the principal and agent are inclose daily contact, the agent'sauthority to act will not terminate upona change of circumstances if the agentknows the principal is aware of thechange and does not give him newinstructions

Art. 1920.The principal may revoke the agency at

will, and compel the agent to return the documentevidencing the agency. Such revocation may beexpress or implied.

Art. 1921. If the agency has been entrusted forthe purpose of contracting with specified persons,its revocation shall not prejudice the latter if theywere not given notice thereof.

Art. 1922. If the agent had general powers,revocation of the agency does not prejudice thirdpersons who acted in good faith and withoutknowledge of the revocation. Notice of therevocation in a newspaper of general circulation is asufficient warning to third persons.

Art. 1923.The appointment of a new agent for thesame business or transaction revokes the previousagency from the day on which notice thereof wasgiven to the former agent, without prejudice to theprovisions of the two preceding articles.

Art. 1924. The agency is revoked if the principaldirectly manages the business entrusted to theagent, dealing directly with third persons.

Art. 1925. When two or more principals havegranted a power of attorney for a commontransaction, any one of them may revoke the samewithout the consent of the others.

Art. 1926.A general power of attorney is revokedby a special one granted to another agent, as

regards the special matter involved in the latter.

Art. 1927.An agency cannot be revoked if abilateral contract depends upon it, or if it is themeans of fulfilling an obligation already contracted,or if a partner is appointed manager of a

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partnership in the contract of partnership and hisremoval from the management is unjustifiable.

Art. 1928. The agent may withdraw from theagency by giving due notice to the principal. If thelatter should suffer any damage by reason of thewithdrawal, the agent must indemnify him therefor,

unless the agent should base his withdrawal uponthe impossibility of continuing the performance ofthe agency without grave detriment to himself.

Art. 1929.The agent, even if he should withdrawfrom the agency for a valid reason, must continueto act until the principal has had reasonableopportunity to take the necessary steps to meet thesituation.

Revocation - termination of the agency by thesubsequent act of the principal

Renunciation/Withdrawal - termination of theagency by the subsequent act of the agent

May the agency be extinguishedat will?

A. AGENT may do so but subject to thecontractual obligations owing the principal (i.e.fixed period of time for the agency or purposenot yet accomplished);1. Expressly or impliedly

a. conducted himself in a mannerincompatible with his duties;

b. abandons the object of agency and acts

for himself in committing a fraud uponhis principal;c. he files a complaint against the principal

and adopts an antagonistic attitudetowards him

with just cause - give due

notice

without just cause - liable for

damages if agent suffersdamages thereby UNLESS theagent should base hiswithdrawal upon theimpossibility of continuing theperformance of the agencywithout grave detriment tohimself

2. The mere fact that the agent violates hisinstructions does not amount torenunciation, and although he may thus

render himself liable to the principal, hedoes not cease to become an agent.

B. PRINCIPAL may also revoke the agency at willException: agency coupled with interest

a. When a bilateral contract dependsupon the agency

b. When the agency is the means offulfilling an obligation alreadycontracted

c. When a partner is appointed as

manager of a partnership in the

contract of partnership and hisremoval from the management isunjustifiable.

Exception to the exception: when theagent acts to defraud the principal

Implied Revocation of AgencyPrincipal appoints a new agent for the same

business or transaction, only if there isincompatibility); effective as between theprincipal and the agent only if communicated tothe agent; does not prejudice rights of thirdpersons acting in good faith without knowledgeof the revocation

Principal directly manages the business entrusted tothe agent, dealing directly with 3rd persons

Effect of Issuance of a Special Power ofAttorney:

The general power is impliedly revoked as tomatters covered by the special power because aspecial power naturally prevails over a generalpower.

Principals Liability for Damagesdespite Revocation

1. If the agency was constituted for a fixedperiod, the principal shall be liable for

damages occasioned by the wrongfuldischarge of the agent before the expirationof the period fixed

2. Even if there was no time fixed for thecontinuance of the agency, but the agentcan prove that the principal acted in badfaith by revoking the agency in order toavoid the payment of commission about tobe earned, the principal can be held liablefor damages

Necessity of Notice of Revocation

1. As to the agent - express notice always

necessary; sufficient notice if the party to benotified actually knows, or has reason to know,a fact indicating that his authority has beenterminated/suspended; revocation withoutnotice to the agent will not render invalid an actdone in pursuance of the authority

2. As to 3rd persons express notice necessary

3. As to former customers - actual notice must

be given to them because they always assumethe continuance of the agency relationship

4. As to other persons - notice by publication is

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ATENEOCENTRAL BAROPERATIONS2008enough

Effect of Extinguishment Without Notice

Act of agent deemed valid insofar as 3 rd parties

acting in good faith and without knowledge ofrevocation

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