Agency - Last2

8/2/2019 Agency - Last2

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WHAT ARE THE OBLIGATIONS AND LIABILITIES OFAGENTS TO THIRD PARTIES?

A. AGENT ACTING WITHIN SCOPE OF AUTHORITY

Art. 1883. If an agent acts in hisown name, the principal has noright of action against thepersons with whom the agentcontracted; neither have suchpersons against the principal. Insuch case the agent is the onedirectly bound in favor of theperson with whom he hascontracted, as if the transactionwere his own, except when thecontract involves thingsbelonging to the principal. Theprovisions of this article shall beunderstood to be withoutprejudice to the actions betweenthe principal and agent.

Kinds of Principals:1.) Disclosed: if at the time ofthe transaction contracted bythe agent, the other partythereto has known that theagent is acting for a principaland has known the principalsidentity. 2.) Partially disclosed: ifthe other party knows or hasreason to know that the agent isor may be acting for a principalbut is unaware of the principalsidentity. The partially disclosed

principal may enforce againstthe 3rd person the contract of theagent like any disclosedprincipal. Similarly, the 3rd

person has a right of actionagainst the principal.

3.) Undisclosed: if the party hasno notice of the fact that theagent is acting as such for aprincipal.

General Rule in 1883: If the agent isauthorized to act on behalf of theprincipal but instead acts in his own

name, the agent is the one directlyliable to the person with whom hehad contracted as if the transactionwere his own. Exception: If thecontract involves somethingbelonging to the principal. Remedyof the Principal if this situationarises: He can demand from theagent damages for his failure tocomply with the agency. Remedy ofthe 3rd person with whom the agent

contracted in case the oblig is notcomplied with:

If the case falls under the generalrule, he can sue the agent. Butwhen the contract involves thingsbelonging to the principal, he cansue the principal. But if it cannot bedetermined w/o litigation who isliable, he can sue both.

Art. 1897. The agent who acts assuch is not personally liable tothe party with whom hecontracts, unless he expresslybinds himself or exceeds thelimits of his authority withoutgiving such party sufficient noticeof his powers.

Principal > Agent > 3rd Party(wrong party to complain if theprincipal doesnt complain of theagents acts)

General rule: an agent who acts

as such is not personally liable tothe party with whom hecontracts.

Reason for general rule: Becausean agent who acts as such withinthe scope of his authorityrepresents the principal so thathis contract is really theprincipals.

Exceptions:1.) When the agent bindshimself; or2.) When he exceeds the limits

of his authority without givingthe third party sufficient noticeof his powers.

Reasons for exceptions:1.) When the agent expressly binds himself, hethereby obligates himself personally and by hisown act.

2.) When the agent exceedshis authority, he really actswithout authority andtherefore, the contract isunenforceable against the

principal. The agent becomespersonally liable because y hiswrong or omission, he deprivesthe 3rd party with whom hecontracts of any remedyagainst the principal.

Art. 1899. If a duly authorizedagent acts in accordance with theorders of the principal, the lattercannot set up the ignorance ofthe agent as to circumstanceswhereof he himself was, or oughtto have been aware.


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This article refers to the liabilityof the principal towards 3rd

persons. What happens if theprincipal appoints an agent whois ignorant?

Then the fault is the principalsalone. Equity demands thatthe principal should be boundby the acts of the agent if the

latter acts within the scope ofhis authority and inaccordance with theinstructions of the former.

B. AGENT ACTING OUTSIDE OF AUTHORITY

Art. 1897. The agent who acts assuch is not personally liable tothe party with whom hecontracts, unless he expresslybinds himself or exceeds thelimits of his authority without

giving such party sufficient noticeof his powers.

Principal > Agent > 3rd Party(wrong party to complain if theprincipal doesnt complain of theagents acts)

General rule: an agent who actsas such is not personally liable tothe party with whom hecontracts.

Reason for general rule: Becausean agent who acts as such withinthe scope of his authority

represents the principal so thathis contract is really theprincipals.

Exceptions:1.) When the agent bindshimself; or2.) When he exceeds the limitsof his authority without givingthe third party sufficient noticeof his powers.

Reasons for exceptions:1.) When the agent expressly

binds himself, he therebyobligates himself personallyand by his own act.

2.) When the agent exceedshis authority, he really actswithout authority andtherefore, the contract isunenforceable against theprincipal. The agent becomespersonally liable because y hiswrong or omission, he deprivesthe 3rd party with whom hecontracts of any remedyagainst the principal.

Art. 1898. If the agent contractsin the name of the principal,

exceeding the scope of hisauthority, and the principal doesnot ratify the contract, it shall bevoid if the party with whom theagent contracted is aware of thelimits of the powers granted bythe principal. In this case,however, the agent is liable if heundertook to secure theprincipals ratification.

Art. 1911. Even when the agenthas exceeded his authority, theprincipal is solidarily liable withthe agent if the former allowedthe latter to act as though he hadfull powers.

o Estoppel: precludes a person

from denying or assertinganything contrary to that whichhas been established as thetruth by his own deed orrepresentation, either express orimplied.

Basis of article 1911:Principle of estoppel. Necessaryfor the protection of innocent 3rd

persons. Instance whensolidarity is imposed by law.

1. With notice to third parties


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Art. 1901. A third personcannot set up the fact that theagent has exceeded his powers, ifthe principal has ratified, or hassignified his willingness to ratifythe agents acts.

Effect of ratification by theprincipal: Ratification of a contractgives it the same effect as if the

principal had originally authorized it.Who must ratify the contract? Onlythe principal. But there must beknowledge on the part of theprincipal of the things he is going toratify.

When can the 3rd person repudiatethe contract? Before actualratification by the principal, or beforethe principal has signified hiswillingness to ratify the agents acts.

Effect of the principal receiving thebenefits of the transaction: He is

deemed to have ratified it. Aprincipal may not accept thebenefits of a transaction and at thesame time repudiate its burdens.

2. Without notice to third parties

C. AGENT ACTING IN HIS OWN NAME;EXCEPTION

Art. 1883. If an agent acts in hisown name, the principal has noright of action against thepersons with whom the agent

contracted; neither have suchpersons against the principal. Insuch case the agent is the onedirectly bound in favor of theperson with whom he hascontracted, as if the transactionwere his own, except when thecontract involves thingsbelonging to the principal. Theprovisions of this article shall beunderstood to be withoutprejudice to the actions betweenthe principal and agent.

Kinds of Principals:1.) Disclosed: if at the time of thetransaction contracted by theagent, the other party theretohas known that the agent isacting for a principal and hasknown the principals identity.2.) Partially disclosed: if the otherparty knows or has reason toknow that the agent is or may beacting for a principal but isunaware of the principals

identity. The partially disclosedprincipal may enforce against the3rd person the contract of theagent like any disclosed principalSimilarly, the 3rd person has aright of action against theprincipal.3.) Undisclosed: if the party hasno notice of the fact that theagent is acting as such for aprincipal.

General Rule in 1883: If the agentis authorized to act on behalf of theprincipal but instead acts in his ownname, the agent is the one directlyliable to the person with whom hehad contracted as if the transactionwere his own. Exception: If thecontract involves somethingbelonging to the principal. Remedy othe Principal if this situation arises:He can demand from the agent

damages for his failure to complywith the agency. Remedy of the 3rd

person with whom the agentcontracted in case the oblig is notcomplied with:

If the case falls under the generalrule, he can sue the agent. But whenthe contract involves thingsbelonging to the principal, he cansue the principal. But if it cannot bedetermined w/o litigation who isliable, he can sue both.

WHAT ARE THE OBLIGATIONS AND LIABILITIES OFPRINCIPALS TO AGENTS?

A. ADVABCE/REIMBURSE

Art. 1912. The principal mustadvance to the agent, should thelatter so request, the sumsnecessary for the execution of theagency. Should the agent haveadvanced them, the principal mustreimburse him therefor, even ifthe business or undertaking wasnot successful, provided the agent

is free from all fault. Thereimbursement shall includeinterest on the sums advanced,from the day on which theadvance was made.

Should the principal reimburse theagent for advances made by thelatter even if the agency wasunsuccessful? It depends. Yes, ifthe agent is free from fault. No, ifthe agent was with fault.


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Is a broker always entitled to acommission? A broker is entitled toa commission if the sale is effected,but not if there is no perfectedtransaction.

Art. 1914. The agent may retain inpledge the tings which are theobject of the agency until theprincipal effects thereimbursement and pays theindemnity set forth in the twopreceding articles.

What happens when the principalfails to reimburse or indemnify theagent for expenses set forth in arts.1912 and 1913? The agent has theright to retain in pledge the thingswhich are the object of the agency.

In case the agent sells the goodsfor more than his claim, is heentitled to the excess? No.

What is the nature of the agentsright of lien? Specific or particular.It is not general in the sense that itgives the agent a right to retain thegoods for claims disconnected withthe agency.

Art. 1918. The principal is notliable for the expenses incurred bythe agent in the following cases:[F*CKS]

1.) If the agent acted incontravention of the principalsinstructions, unless the latter

should wish to avail himself ofthe benefits derived from thecontract;2.) When the expenses weredue to the fault of the agent;3.) When the agent incurredthem with knowledge that anunfavorable result wouldensue, if the principal was notaware thereof;4.) When it was stipulated thatthe expenses would be borneby the agent, or that the latter

would be allowed only a certainsum.

Instances wherein the principal isnot liable for expenses incurred bythe agent? In the instancesenumerated under this article.

Reasons why the principal is notliable for the agents expenses:Under1.) To punish the agent, but whenthe principal has availed of thebenefits, he is deemed to haveimpliedly ratified the agents acts.

2.) Kasi, kasalanan niya, eh.3.) The agent is guilty of bad faithand lack of diligence;4.) An express stipulation which isnot contrary to law, morals, goodcustoms, public order or publicpolicy is binding between theparties.

B. INDEMNIFY

Art. 1913. The principal must alsoindemnify the agent for all thedamages which the executive ofthe agency may have caused thelatter, without fault or negligenceon his part.

Basis for the above rule:Equity. Since the principalreceives the benefits of theagency, and has a right todemand damages from theagent should the latter notperform the agency, he shouldanswer for the damagesresulting from the executionthereof without fault ornegligence on the part of theagent.

C. SOLIDARY LIABILITY

Art. 1915. If two or more personshave appointed an agent for acommon transaction orundertaking, they shall be

solidarily liable to the agent for allthe consequences of the agency.

Requisites for application ofthis article: [2C2]1.) There are 2 or more

principals;2.) The principals have allconcurred in the appointment ofthe same agent;3.) The agent is appointed for acommon transaction orundertaking.

Why is solidarity the rule?

Because of the commontransaction. Thus, even if theagent was appointedseparately, the rule shouldapply in the interest of justice.

D. COMPENSATION

Art. 1875. Agency is presumed tobe for a compensation, unlessthere is proof to the contrary.

Broker: One who in behalf ofothers, and for compensation or


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fee, negotiate contracts relative toproperty. He is the negotiatorbetween the parties, never actingin his own name, but in the nameof those who employ him. He isstrictly a middleman and for somepurposes, the agent of bothparties.

When is a broker entitled to

compensation? A broker is entitledto commission whenever he ringsto his principal a party who is ableand willing to take the property,and enter into a valid contractupon the terms named by theprincipal, although the particularsmay be arranged and the matternegotiated and completed betweenthe principal and the purchaserdirectly. A broker is never entitledto commission for unsuccessfulefforts.

Does the law allow doubleagency? Such agency isdisapproved by law for beingagainst public policy and soundmorality. The exception is wherethe agent acted with full knowledgeand free consent of the principals.

In case the agent assumes adouble agency, what is his right tocompensation?

1.)If with knowledge of bothprincipals recovery can behad from both.2.)If without knowledge of both agent can recover fromneither.3.)If with knowledge of onlyone as to the principal whoknew of that fact and as to theagent, they are in pari delictoand the courts shall leavethem as they were, thecontract between them beingvoid as against public polisyand good morals.

E. AGENTS LIEN

Art. 1914. The agent may retain inpledge the tings which are theobject of the agency until theprincipal effects thereimbursement and pays theindemnity set forth in the twopreceding articles.

What happens when the principalfails to reimburse or indemnify theagent for expenses set forth in arts.1912 and 1913? The agent has the

right to retain in pledge the thingswhich are the object of the agency.

In case the agent sells the goods formore than his claim, is he entitled tothe excess? No.

What is the nature of the agentsright of lien? Specific or particular. Itis not general in the sense that itgives the agent a right to retain the

goods for claims disconnected withthe agency.

WHAT ARE THE OBLIGATIONS OF PRINCIPALS TOTHIRD PARTIES

A. AGENT ACTING WITHIN SCOPE OF AUTHORITY

Art. 1883. If an agent acts in hisown name, the principal has noright of action against thepersons with whom the agentcontracted; neither have suchpersons against the principal. Insuch case the agent is the onedirectly bound in favor of theperson with whom he hascontracted, as if the transactionwere his own, except when thecontract involves thingsbelonging to the principal. Theprovisions of this article shall beunderstood to be withoutprejudice to the actions betweenthe principal and agent.

Kinds of Principals:

1.) Disclosed: if at the time ofthe transaction contracted bythe agent, the other partythereto has known that theagent is acting for a principaland has known the principalsidentity.2.) Partially disclosed: if theother party knows or has reasonto know that the agent is or maybe acting for a principal but isunaware of the principalsidentity. The partially disclosed

principal may enforce againstthe 3rd person the contract of theagent like any disclosedprincipal. Similarly, the 3rd

person has a right of actionagainst the principal.3.) Undisclosed: if the party hasno notice of the fact that theagent is acting as such for aprincipal.

General Rule in 1883: If the agent isauthorized to act on behalf of the


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principal but instead acts in his ownname, the agent is the one directlyliable to the person with whom he hadcontracted as if the transaction werehis own. Exception: If the contractinvolves something belonging to theprincipal. Remedy of the Principal if thissituation arises: He can demand fromthe agent damages for his failure tocomply with the agency. Remedy of the3rd person with whom the agentcontracted in case the oblig is notcomplied with:

If the case falls under the general rule,he can sue the agent. But when thecontract involves things belonging tothe principal, he can sue the principal.But if it cannot be determined w/olitigation who is liable, he can sue both.

Art. 1910. The principal mustcomply with all the obligations which

the agent may have contracted withinthe scope of his authority. As for anyobligation wherein the agent hasexceeded his power, the principal isnot bound except when he ratifies itexpressly or tacitly.

Where can the specificobligations and duties of theprincipal to the agent be found?Usually in the contract creating theagency.

Principal obligations of the

principal to the agent in theabsence of such agreement:1.) To comply with all theobligations which the agent mayhave contracted in his name andwithin the scope of his authority;2.) To advance should the agentso request sums necessary forthe execution of the agency;3.) To reimburse the agent forall advances made by himprovided the agent is free fromfault;4.) To indemnify the agent for allthe damages which theexecution of the agency mayhave caused the latter withoutfault or negligence on his part;and5.) To pay the agent thecompensation agreed upon orthe reasonable value of thelatters services.

Liability of the principle to3rd persons:

Where the relation of agencylegally exists, the principal will beliable to 3rd persons for all actscommitted by the agent in hisbehalf in the course and within theactual or apparent scope of hisauthority, and this is not altered ythe fact that the agent may also beliable, nor by the fact that some of

the acts are to the principalsadvantage while others are to hisdisadvantage.

Liability of the principal formismanagement of the business bythe agent:

Mismanagement of the businessof the principal by the agentdoes not relieve said principalfrom the responsibility that hehad contracted to 3rd persons.But where the agents acts bindthe principal, the latter may

seek recourse against the agent Liability of principal for a tort

committed by the agent:

The principal is civilly liable to3rd persons for torts of an agentcommitted at the principalsdirection or I the course andwithin the scope of the agentsemployment. The principalcannot escape liability whetherthe tort is committed willfully ornegligently so long as the tort iscommitted by the agent while

performing his duties infurtherance of the principalsbusiness. Nor is it a defense thatthe act which caused the tortwas unknown to him or eventhat it was in disobedience to hisinstructions.

Meaning of ratification in 2nd

paragraph:

Ratification is the adoptionor affirmance by a person of aprior act which did not bindhim, but which was done orprofessed to be done on hisaccount, thus giving effect tothe act as if originallyauthorized. The doctrineapplies to the ratification of theact of an agent in excess of hisauthority of the act of one whopurports to be an agent butwho is really not. It may beimplied from the acceptance ofbenefits by the principal undera contract entered in his name


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The authority created byratification is subsequent but itis equivalent to prior authority.

Conditions to ratification:[ICK-PEC]

1.) Intent to ratify;2.) Principal must have capacity& power to ratify;3.) He must have had knowledge

of material facts;4.) The act must be done inbehalf of the principal;5.) Principal must ratify acts in itsentirety;6.) The act must be capable ofratification.

Effects of ratification withrespect to the agent:

1.) Relieves the agent fromliability to the 3rd party to theunauthorized transaction; and

2.) To his principal for acting

without authority; and3.) He may recover compensationdue for performing the act whichhas been ratified.

Effects of ratification withrespect to the principal:

1.) He assumes responsibility forthe unauthorized act, as fully as ifthe agent had acted underoriginal authority; but2.) He is not liable for acts outsidethe authority approved by hisratification.

Effects of ratification withrespect to 3rd persons:

1.) 3rd person is bound byratification to the same extent ashe would have been bound if theratified act had been authorizedin the 1st instance; and2.) He cannot raise the questionof the agents authority to do theratified act.

Must ratification becommunicated to the agent or tothe 3rd party? No. To be effective,

ratification need not becommunicated or made known tothe agent or the 3rd party. The actor conduct of the principal ratherthan his communication is the key.But before ratification, the 3rd partyis free to revoke the unauthorizedcontract.

Art. 1917. In the case referred toin the preceding article, if theagent has acted in good faith, the

principal shall be liable indamages to the third personwhose contract must be rejected.If the agent acted in bad faith, healone shall be responsible.

Is the principal always liable fordamages caused by a 3rd person oris it the agent who is liable?Whether the principal or the agent

will be the one liable for damagesto the 3rd person who has beenprejudiced depends on whether theagent acted in bad faith or not. Ifthe agent acted in good faith andwithin the scope of his authority,the principal incurs liability. If theagent acted in bad faith, he aloneshall be responsible to such person

What is the extent of liabilitycovered under this article?Damages. What is good faithreferred to in this article? Good

faith here means that the agenthad no knowledge that theprincipal is dealing with a 3rd

person.*Note: If the contract is one of sale,article 1544 governs and not arts.1916 and 1917.

B. AGENT ACTING OUTSIDE SCOPE OFAUTHORITY

Art. 1900. So far as third persons areconcerned, an act is deemed to havebeen performed within the scope of the

agents authority, is such act is withinthe terms of the power of attorney, aswritten, even if the agent has in factexceeded the limits of his authorityaccording to an understanding betweenthe principal and the agent.

Requisite for article to apply:Authority to agent must be in writing.

Scope of agents authorityincludes:Not only the actualauthorization conferred upon theagent by the principal, but also thatwhich has apparently or impliedly

been delegated to him.

To hold the principal liable, a 3rd

person dealing with an agent must:Discover upon his peril not only thefact of agency but the nature andextent of authority of the agent. He isput on inquiry. He must also act withordinary prudence and reasonablediligence.

Fundamental principles wheninquiring whether authority exists:


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1.) The law indulges in no barepresumptions that an agency exists, itmust be proved and presumed fromfacts;2.) The agent cannot establish his ownauthority, either by his representationsor by assuming to exercise it;

3.) An authority cannot be establishedby mere rumor or general reputation;

4.) A general authority is not anunlimited one; and

5.) Every authority must find itsultimate source in some act or omissionof the principal.

In case the fact of agency or theextent of the authority of the agent iscontroverted, the burden of proof is on:

The 3rd person to establish the fact ofagency or the extent of authority of the

agent.

Does the 3rd person have to inquirefurther if the power of attorney iswritten? No. He is not required to inquirefurther than the terms of the writtenpower of attorney.

If there is a secret mutualunderstanding between the principal andthe agent, and such is not expressed inthe written power of attorney, does the3rd person have to inquire? No. As far as

he is concerned, an act of the agentwithin the terms of the power of attorneyas written, is within the scope of theagents apparent authoritynotwithstanding that the agent may haveexceeded the limits of his actualauthority according to a secretunderstanding between him and theprincipal. In such a case, the principal isestopped from claiming that the agentexceeded his authority.

Ways by which the agentsauthority may be broadened or restricted:

[Im-UNDEr]1.) Byimplication agents authorityextends not only to express requests, butalso to those acts and transactionsincidental thereto. It embraces all thenecessary and appropriate means toaccomplish the desired end.2.) Byusage and custom a.) An agents authority may not beenlarged through usage and custom in thefollowing cases: Where it is sought to

i.) Vary the terms of an expressauthorization;ii.) Dispense with a legal requirementenacted for the principals benefit;iii.) Change a rule of law or dispense witha formality required by law;

iv.) Vary an essential quality of theagency relationship.b.) General rule: principal must havenotice of the alleged custom, before theagents acts, in accordance therewith,may bind the principal. Exceptions:

i.) Where the principal and theagent reside in the samecommunity, the usage is definiteand well-known, and the agent hasno notice that he is to act to thecontrary;ii.) Where the agent is authorizedto deal in a particular place or in aparticular market exchange.

4.) Bynecessity the existence of anemergency or other unusual conditionsmay operate to invest in an agentauthority to meet the emergency,provided:

a.) Emergency really exists;b.) Agent is unable to communicate w/the principal;c.) Agents enlarged authority isexercised for the principals protection;andd.) The means adopted are reasonableunder the circumstances.

5.) By certain doctrines a.) Apparent authority

b.) Liability by estoppel;c.) Ratification.

6.) By the ejusdem generis rule suchthat where in an instrument of any kind,an enumeration of specific matters is


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followed by a general phrase is held to belimited in scope by the specific matters.

Responsibility of principal when agent acts w/improper motives: General rule: Motive ofagent in entering into a K w/ a 3rd person isimmaterial.

Exceptions:

1.) Where the 3rd person knew that the

agent was acting for his benefit, in w/ccase, the principal is not liable to the 3rd

person; and

2.) Where the owner is seeking recovery ofpersonal property of w/c he has beenunlawfully deprived.

Principals responsibility for an agentsmisrepresentation:

1.) Within the scope of theagents authority Principal issubject to liability for lass caused to

another by the 3

rd

persons relianceupon a deceitful representation of anagent in the course of hisemployment if:

a.) Representation is authorized;b.) Within the implied authority ofthe agent to make for theprincipal; orc.) Apparently authorized.

2.) Beyond the scope of the agentsauthority General rule: Principal is notbound. Exception: when the principaltakes advantage of a K made under the

false misrepresentation of his agent.3.) For the agents own benefit Principal is liable (motive of agentimmaterial).

Art. 1911. Even when the agenthas exceeded his authority, theprincipal is solidarily liable withthe agent if the former allowedthe latter to act as though he hadfull powers.

o Estoppel: precludes a personfrom denying or assertinganything contrary to that whichhas been established as thetruth by his own deed orrepresentation, either express orimplied.

Basis of article 1911:Principle of estoppel. Necessary forthe protection of innocent 3rd

persons. Instance when solidarity isimposed by law.

Art. 1916. When two personscontract with regard to the samething, one of them with the agentand the other with the principal,and the two contracts areincompatible with each other,that of prior date shall bepreferred, without prejudice to

the provisions of Article 1544. May 2 persons contract with regard

to the same thing, one with theagent and the other with theprincipal? Yes.

If this situation arises, which of thecontracts will be preferred? If thecontracts are compatible, they willboth be given effect. If they areincompatible, then the contract ofprior date shall be preferred.

Art. 1544: If the same thing shouldhave been sold to different

vendees, the ownership shall betransferred to the person who mayhave 1st taken possession thereof ingood faith if it should e movableproperty. Should it be immovableproperty, the ownership shallbelong to the person acquiring itwho in good faith 1st recorded it inthe Registry of Property. Shouldthere be no inscription, theownership shall pertain to theperson who in good faith was 1st inpossession; and in the absence

thereof, to the person who presentsthe oldest title, provided there isgood faith.

Art. 1917. In the case referredto in the preceding article, if theagent has acted in good faith,the principal shall be liable indamages to the third personwhose contract must berejected. If the agent acted inbad faith, he alone shall be

responsible.o Is the principal always liable

for damages caused by a 3rd

person or is it the agent who isliable? Whether the principal orthe agent will be the one liable fordamages to the 3rd person whohas been prejudiced depends onwhether the agent acted in badfaith or not. If the agent acted ingood faith and within the scope ofhis authority, the principal incursliability. If the agent acted in bad


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faith, he alone shall beresponsible to such person.

o What is the extent of

liability covered under thisarticle? Damages. What is goodfaith referred to in this article?Good faith here means that theagent had no knowledge that theprincipal is dealing with a 3rd

person.*Note: If the contract is one of sale,article 1544 governs and not arts.1916 and 1917.

C. FOR CRIMES; FOR TORTS

DUTY OF THIRD PARTIES DEALING WITH AGENT

Art. 1902. A third person with whomthe agent wishes to contract onbehalf of the principal may requirethe presentation of the power ofattorney, or the instructions asregards the agency. Private or secretorders and instructions of theprincipal do not prejudice thirdpersons who have relied upon thepower of attorney or instructionsshown them.

Duty of a 3rd person who deals w/an agent: 3rd person deals w/ an agentat his peril. He is bound to inquire asto the extent of the agents authority,and this is especially true where theact of the agent is of an unusualnature. Ignorance of the agentsauthority is no excuse. It is his duty torequire the agent to produce hispower of attorney to ascertain thescope of his authority. He may alsoask for the instructions of theprincipal.

Do secret orders or privateinstructions prejudice 3rd persons? No,he cannot be prejudiced by any secretunderstanding between the principaland the agent. Such secret orderscannot be invoked as against 3rd

parties if the agent had apparent

authority.HOW IS AGENCY EXTINGUISHED

A. REVOCATION; AGENCY COUPLED WITH ANINTEREST

Art. 1873. If a person specially informsanother or states by publicadvertisement that he has given apower of attorney to a third person, thelatter thereby becomes a dulyauthorized agent, in the former casewith respect to the person who received

the special information, and in the lattercase with regard to any person.

The power shall continue to be in fullforce until the notice is rescinded inthe same manner in which it wasgiven.

Agency by Estoppel: There is reallyno agency at all, but the alleged agentseemed to have apparent or ostensible

although no real authority to representanother.1.) Estoppel of Agent One professingto act as agent for another may beestopped to deny his agency both asagainst his asserted principal and the3rd persons interested in the transactionin which he is engaged.2.) Estoppel of Principal

a.)As to Agent One who knowsthat another is acting as his agentand fails to repudiate his acts, oraccept the benefits of them, will beestopped to deny the agency asagainst such other.b.)As to sub-agent To estop theprincipal from denying his liability toa 3rd person, he must have known orbe charged with knowledge of thefact of the transmission and theterms of the agreement between theagent and sub-agent.c.)As to 3rdpersons One whoknows that another is acting as hisagent or permitted another toappear as his agent, to the injury of3rd persons who have dealt with theapparent agent as such in good faithand in the exercise of reasonableprudence, is estopped to deny theagency.

3.) Estoppel of 3rdPersons A 3rd

person, having dealt with one as anagent may be estopped to deny theagency as against the principal, agentor 3rd persons in interest.4.) Estoppel of the govt The govt isneither estopped by the mistake orerror on the part of its agents. But itmay be estopped through affirmative

acts of its officers acting within thescope of their authority.

Art. 1919. Agency is extinguished: [WR-DEAD]

1.) By its revocation;2.) By the withdrawal of the

agent;3.) By the death, civil

interdiction, insanity orinsolvency of the principalor of the agent;


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4.) By the dissolution of thefirm or corporation whichentrusted or accepted theagency;

5.) By the accomplishment ofthe object or purpose ofthe agency;

6.) By the expiration of theperiod for which theagency was constituted.

Meaning of Presumption ofcontinuance of agency:

When once shown to haveexisted, an agency relation will bepresumed to have continued in theabsence of anything to show itstermination.

Who has the burden of proving therevocation/termination of agency? Theburden of proving a revocation or othertermination of agency is on the partyasserting it.

Note: Even if the reason forextinguishing the agency is not true,

the agent cant insist on reinstatement.The agent can only demand damages.

Modes of extinguishing an agency,generally: [ASO]

1.) Agreement;2.) Subsequent acts of theparties which may be either:a.)By the act of both parties or bymutual consent;b.)By the unilateral act of one ofthem.

3.) By operation of law. Modes of extinguishment, specifically: [WR-

DEAD]

1.) Withdrawal of the agent;2.) Revocation;3.) Death, civil interdiction,insanity or insolvency of the principalor of the agent;

4.) Expiration of the period forwhich the agency was constituted;

5.) Accomplishment of theobject or purpose of the agency; and

6.) Dissolution of the firm/corpwhich entrusted or accepted theagency;

Necessary characteristics of theparties for the continuance of theagency: [PCS]

1.) Present;2.) Capacitated;3.) Solvent.

Why is presence necessary?Because the general rule in art 1919 is

that death of any of the partiesextinguishes agency. However in thecase where you have several principalsand/or several agents, whether thedeath of one principal or of one agentterminates the agency would dependon the intention of the parties.Generally the death of one of severalprincipals does not revoke the agentsauthority nor does the death of one ofseveral agents put an end to theagency. The intention of the partiescontrols.

Why is capacity necessary? Forinstance, in the case of civilinterdiction, it deprives the offenderduring the period of his sentence of theright to manage his property anddispose of such property by any act orany conveyance inter vivos. A personunder civil interdiction hence, cannotvalidly give consent. Same is true forinsane people.

Why is solvency necessary? As byan act of insolvency, the principal losescontrol of the subject matter of theagency, the authority of the agent toact for his principal ceases by operationof law upon an adjudication of theprincipals insolvency. On the otherhand, the insolvency of the agent willordinarily put an end to the agency, atleast if it is in any way connected withthe agents business which has causedhis failure.

General rule as to death of theprincipal or agent: By reason of the

very nature of the relationship betweenthe principal and the agent (which isfiduciary argh!), agency isdistinguished ipso jure upon the deathof the principal.

Exceptions:1.) If the agency is coupled with aninterest;2.) If the act of the agent was executedwithout the knowledge of the death ofthe principal and the 3rd person who

contracted w/ the agent acted in goodfaith.

Why does dissolution of a firm orcorp extinguish the agency? Dissolutionof a corp extinguishes its juridicalexistence.

What happens when the object orthe purpose of the agency isaccomplished? As between the parties,the principal and the agent, thefulfillment of the purpose for which theagency was created ipso factoterminates the agency.


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What happens when the term forwhich the agency was supposed tocontinue expires? When an agency iscreated for a fixed period, theexpiration of such period ends theagency, even though the purpose forwhich the agency was created has notbeen accomplished.

What happens if no time is

specified? The agency terminates at theend of a reasonable period of time.

Can the period be implied? Yes,from1.) The terms of the agreement;2.) Purpose of the agency; and3.) The circumstances of the parties.

What happens if the subject matterof the agency is lost or destroyed? Inthe absence of any agreement by theparties to the contrary, the loss ordestruction of the subject matter of theagency terminates the agents

authority to deal with reference to it. Exceptions:1.) If it is possible to substitute othermaterial for that which was destroyedwithout substantial detriment to eitherparty, or2.) If the destroyed subject matter wasnot in fact essential to the contract; and3.) A partial loss or destruction.

Are the modes of extinguishmentsof agency exclusive? No. Art. 1919gives only those causes of extinctionwhich are particular to agency. But the

list is not exclusive. The general ruleactually is, an agency may beextinguished by the modes ofextinguishments of obligations ingeneral whenever they are applicable,like loss of the thing and novation (seeart. 1231).

Does war extinguish agency?During the existence of war, a contractof agency is inoperative if the agent orthe principal is an enemy alien. Butsince it is generally conceded that warsuspends all commercial intercourse

between the residents of 2 belligerentstates, the general rule is that agencyis terminated, as a matter of law, uponthe break of war.

Does legal impossibility terminateagency? Implied in every contract is theunderstanding that it shall be capableof being carried out legally at the timecalled for by the contract. An agencythen terminates if a change in the lawmakes the purpose of the agencyunlawful.

What happens if the principalsauthority terminates? A position whichflows from a trust relationship whetherdirectly or indirectly, terminates as amatter of law with the destruction ofthe trust. Consequently, a sub-agentsauthority terminates with thetermination of the principals authority.

In case of loss of the subject

matter, does the principal incur anyliability? It depends. If the loss wasbrought about by the principal as in thecase where the principal sells thesubject matter to another partynotwithstanding that an agency hadbeen constituted in reference to it, thenhe may be liable for damages for hiswrongful terminating act. But if thesubject matter is lost without the faultof the principal, no liability is assumedby him.

Will a change of conditions affect

the agency? General rule: When thereis a basic change in the circumstancessurrounding the transaction notcontemplated by the parties whichwould reasonably lead the agent tobelieve that the principal would notdesire him to act, authority of agent isterminated.

Exceptions:1.) If the original circumstances arerestored within a reasonable period oftime, the agents authority may berevived.

2.) Where the agent has reasonabledoubts as to whether the principalwould desire him to act, his authoritywill not be terminated if he actsreasonably. (But when in doubt, agentcould contract principal for instructionsif possible).3.) Where the principal and agent are inclose daily contact, the agentsauthority to act will not terminate upona change of circumstances if the agentknows the principal is aware of thechange and does not give him newinstructions.

Confidential information - It isdifficult to determine whetherinformation is confidential or not,because while the relation of principaland agent is confidential, not allknowledge acquired by the agent is of aconfidential nature. Some clearly is ofso general a nature that equity oughtnot attempt to restrict its subsequentuse.

Usually, what a court does isto determine 2 things:


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1.) Whether the knowledge orinformation is indeed confidential,and2.) Whether its subsequent useought to be prevented.

Principle behind enjoining an agentfrom using confidential information:

There is in the contract of servicesubsisting between the principal and

the agent an implied contract on thepart of the agent that he will not, afterthe service is terminated, useinformation which he has gained whilethe service has been subsisting to thedetriment of his former employer.

Art. 1920. The principal may revoke theagency at will, and compel the agent toreturn the document evidencing theagency. Such revocation may be expressor implied.

May an agency be terminated by a

subsequent act of the principal? Yes,when he does so, its called revocation.

May an agency be terminated by asubsequent act of the agent? Yes, itscalled withdrawal or renunciation.

Does it matter if the agency isgratuitous or with compensation whenwe speak of revocation by the principal?No, art 1920 makes no distinction.

Reasons:1.) Since the authority of the agentemanates from the principal, if theprincipal wishes to terminate the agency

the law must enable him to do so.2.) Confidence being the cardinal basis ofthe relation, it stands to reason that itshould cease when such confidencedisappears.3.) The principal-agent relationship isconsensual andpersonal in nature. Noone can nor should be forced to retainanother as his agent against his will.

In case a principal does revoke anagency, is there any way by which theagent can hold him liable for damages?

Yes. For instance,

1.) If the agency was constituted for afixed period, the principal shall be liablein damages occasioned by the wrongfuldischarge of the agent before theexpiration of the period fixed.2.) If the agent can prove that theprincipal acted in bad faith by revokingthe agency in order to avoid payment ofcommission about to be earned, theprincipal can be held liable for damages.

Reason for requiring agent toreturn the document evidencing the

agency: To prevent the agent frommaking use of the power of attorney andthus avoid liability to 3rd persons whomay subsequently deal with the agent onthe faith of the instrument.

Kinds of Revocation:1.) Express; or2.) Implied, e.g.:

a.) When the principal appoints a new

agent for the same business ortransaction, orb.) When the principal directlymanages the business entrusted tothe agent.

Is notice of revocation to the agentnecessary? Yes. A revocation withoutnotice to the agent will not render invalidan act done in pursuance of theauthority.

Is express notice of revocation tothe agent necessary? As between theprincipal and the agent, express notice

to the agent that the agency is revokedis not always necessary. If the party tobe notified actually knows, or has reasonto know, facts indicating that hisauthority has been terminated orsuspended, there is sufficient notice.

Is notice of revocation to 3rd

persons necessary? Yes.

What kind of notice should you give3rd persons?

1.) As to former customers, actualnotice must e given to them becausethey always assume the continuance

of the agency relationship.2.) As to other persons, notice bypublication is enough.

May the agent renounce theagency at will? Yes, but subject to thecontractual obligations owing theprincipal.

Reason: The essence of theprincipal-agent relationship is theconsent and willingness of the agent toact for the principal. The law cannotcompel the parties to continue anagency if they do not want to do so. (The

principal cannot even sue for affirmativespecific performance because that wouldlead to involuntary servitude!)

Form of renunciation: It is notalways necessary for the agent torenounce the agency expressly. He cando so impliedly, as for example

1.) Where he has conducted himself ina manner incompatible with his dutiesas agent; or2.) When he abandons the object ofhis agency and acts for himself in


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committing a fraud upon his principal;or3.) When he files a complaint againstthe principal and adopts anantagonistic attitude towards him.

Does a violation of the instructionsof the principal amount to arenunciation? No. Mere fact that agentviolates his instructions does not amount

to renunciation, and although he maythus render himself liable to theprincipal, he does not cease to becomean agent.

Art. 1921. If the agency has beenentrusted for the purpose of contractingwith specified persons, its revocationshall not prejudice the latter if theywere not given notice thereof.

What is the effect of revocation inrelation to 3rd persons if the agent wasauthorized to contract with specified

persons? If the agency is created for thepurpose of contracting with specifiedpersons, its revocation will not prejudicesuch 3rd persons until notice thereof isgiven them. The reason for this isobvious. Since 3rd persons have beenmade to believe by the principal that theagent is authorized to deal with them,they have a right to presume that therepresentation continues to exist in theabsence of notification by the principal.But of course, notice is not required if the3rd persons already know of the

revocation.

Art. 1922. If the agent had generalpowers, revocation of the agency doesnot prejudice third persons who acted ingood faith and without knowledge of therevocation. Notice of the revocation in anewspaper of general circulation is asufficient warning to third persons.

Effect of revocation in relation to 3rd personsif the agent was authorized to contract withthe public in general: In case the agent hasgeneral powers, innocent 3rd parties dealing

with the agent will not e prejudiced by therevocation before they had knowledgethereof. In this case, however, the fact thatthe revocation was advertised in anewspaper of general circulation would besufficient to 3rd persons for publicationconstitutes notice upon everybody and this istrue whether or not such 3rd persons haveread the newspaper concerned.

General rule: Special informationneeds special information of revocation

Except: If you can prove that the3rd person read the notice in thenewspaper.

Art. 1923. The appointment of a newagent for the same business ortransaction revokes the previous agencyfrom the day on which notice thereofwas given to the former agent, withoutprejudice to the provisions of the twopreceding articles.

What does this article mean?

There is implied revocation of theprevious agency when the principalappoints a new agent for the samebusiness or transaction if there is

incompatibility. But the revocationdoes not become effective as betweenthe principal and the agent unless it isin some way communicated to thelatter. Again, the rights of 3rd personswho acted in good faith and withoutknowledge of the revocation will notbe prejudiced thereby.

There is no implied revocationwhere the appointment of anotheragent is not incompatible with thecontinuation of like authority in the 1st

agent, or if the 1st agent is not given

notice of the appointment of the newagent.

Art. 1924. The agency is revoked if theprincipal directly manages the businessentrusted to the agent, dealing directlywith third persons.

What does the above articleprovide? It provides for another case ofimplied revocation.

Effect of direct management of thebusiness by the principal himself:Generally, it revokes the agency because

there would no longer be any basis forthe representation previously conferred.

Exception: when the only desire ofthe principal in doing so is for him andthe agent to manage the businesstogether.

Art. 1925. When two or more principalshave granted a power of attorney for acommon transaction, any one of themmay revoke the same without theconsent of the others.


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Rationale: Since the appointmentof an agent by 2 or more principals for acommon transaction or undertakingmakes them solidarilyliable to the agentfor all consequences of the agency, theneach one of the principals should begranted the right to revoke the power ofattorney even without the consent of theothers. Remember that in a solidary

obligation, the act of one is the act of all.

Art. 1926. A general power of attorneyis revoked by a special one granted toanother agent, as regards the specialmatter involved in the latter.

How many agents are involved inthis article? 2, one to whom a generalpower is previously granted. Another towhom a special power is given. (Notethat this can also apply if a special poweris subsequently given to the sameagent.)

Effect of the issuance of a specialpower as regards the general power:

The general power is impliedlyrevoked as to matters covered bythe special power because a specialpower naturally prevails over ageneral power.

Art. 1927. An agency cannot be revokedif a bilateral contract depends upon it,or if it is the means of fulfilling anobligation already contracted, or if apartner is appointed manager of a

partnership in the contract ofpartnership and his removal from themanagement is unjustifiable.

General rule: Principal may revokean agency at will since the essence ofagency is the agents duty of obedienceto the principal.

Exceptions: [BF=Partner]

When a bilateral contract dependson the agency;

When the agency is the means offulfilling an obligation already

contracted;When a partner is appointed asmanager of a partnership in thecontract of partnership and hisremoval from the management isunjustifiable.

Can an agency, coupled with aninterest, be terminated by the sole willof the principal? No.

Requisite for agency to beirrevocable for being coupled with ainterest:

Interest of the agent must be in thesubject matter of the powerconferred and not merely an interestin the exercise of the power.

Instances of an agency coupledwith an interest:

When the agent has partedwith value or incurred liability atthe principals request, and he is

looking to the exercise of thepower as the means ofreimbursement or indemnity.

When the interest in thething concerning which thepower is to be exercised arisesfrom an assignment, pledge orlien created by the principal withthe agent being given the powerto deal with the thing in order tomake the assignment, pledge orlien effectual.

If the contract of agency stipulates

that such will be irrevocable, is suchterminology controlling in all cases?No. Whether an interest will make anagency irrevocable exists in aparticular case is to be determinedfrom the entire agreement betweenthe parties and from the facts andcircumstances. The terminology isnot controlling. Even if an agency ismade in terms irrevocable, the factwill not prevent its revocation by theprincipal when the agency is not infact coupled with an interest.

If an agency is coupled with aninterest, does this mean that theprincipal can never ever revoke it?No. You can still revoke in extremesituations, e.g.:

Irrevocability can never beused as a shield for theperpetration of acts in ad faith,breach of confidence orbetrayal of trust. The law willnever permit the agent tocommit frauds against theprincipal.

When the interest is alreadyterminated.

Why is it said that agenciescoupled with interest are not trueagents? Because persons withproprietary interests in the subjectmatter of their agency are not trueagents at all. One of the hallmarks of theagency relation is the control of theprincipal over the acts of the agent andover the subject matter of the agency.An agency coupled with an interestremoves that control.


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B. WITHDRAWAL




interdiction, insanity orinsolvency of the principalor of the agent;

4.) By the dissolution of thefirm or corporation whichentrusted or accepted theagency;






Note: Even if the reason for

extinguishing the agency is not true,the agent cant insist on reinstatement.The agent can only demand damages.


1.) Agreement;2.) Subsequent acts of theparties which may be either:a.)By the act of both parties or bymutual consent;b.)By the unilateral act of one ofthem.


DEAD]







Why is presence necessary?Because the general rule in art 1919 isthat death of any of the partiesextinguishes agency. However in thecase where you have several principalsand/or several agents, whether thedeath of one principal or of one agentterminates the agency would dependon the intention of the parties.Generally the death of one of severalprincipals does not revoke the agentsauthority nor does the death of one ofseveral agents put an end to theagency. The intention of the partiescontrols.

Why is capacity necessary? Forinstance, in the case of civilinterdiction, it deprives the offenderduring the period of his sentence of theright to manage his property anddispose of such property by any act orany conveyance inter vivos. A personunder civil interdiction hence, cannotvalidly give consent. Same is true forinsane people.

Why is solvency necessary? As byan act of insolvency, the principal losescontrol of the subject matter of theagency, the authority of the agent toact for his principal ceases by operationof law upon an adjudication of theprincipals insolvency. On the otherhand, the insolvency of the agent willordinarily put an end to the agency, atleast if it is in any way connected withthe agents business which has causedhis failure.

General rule as to death of the

principal or agent: By reason of thevery nature of the relationship betweenthe principal and the agent (which isfiduciary argh!), agency isdistinguished ipso jure upon the deathof the principal.

Exceptions:1.) If the agency is coupled with aninterest;2.) If the act of the agent was executedwithout the knowledge of the death ofthe principal and the 3rd person who


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contracted w/ the agent acted in goodfaith.


What happens when the object orthe purpose of the agency isaccomplished? As between the parties,

the principal and the agent, thefulfillment of the purpose for which theagency was created ipso factoterminates the agency.


What happens if no time is

specified? The agency terminates at theend of a reasonable period of time.

Can the period be implied? Yes,from1.) The terms of the agreement;2.) Purpose of the agency; and3.) The circumstances of the parties.

What happens if the subject matterof the agency is lost or destroyed? Inthe absence of any agreement by theparties to the contrary, the loss ordestruction of the subject matter of theagency terminates the agents

authority to deal with reference to it. Exceptions:1.) If it is possible to substitute othermaterial for that which was destroyedwithout substantial detriment to eitherparty, or2.) If the destroyed subject matter wasnot in fact essential to the contract; and3.) A partial loss or destruction.

Are the modes of extinguishmentsof agency exclusive? No. Art. 1919gives only those causes of extinctionwhich are particular to agency. But the

list is not exclusive. The general ruleactually is, an agency may beextinguished by the modes ofextinguishments of obligations ingeneral whenever they are applicable,like loss of the thing and novation (seeart. 1231).

Does war extinguish agency?During the existence of war, a contractof agency is inoperative if the agent orthe principal is an enemy alien. Butsince it is generally conceded that war

suspends all commercial intercoursebetween the residents of 2 belligerentstates, the general rule is that agencyis terminated, as a matter of law, uponthe break of war.

Does legal impossibility terminateagency? Implied in every contract is theunderstanding that it shall be capableof being carried out legally at the time

called for by the contract. An agencythen terminates if a change in the lawmakes the purpose of the agencyunlawful.




Will a change of conditions affect

the agency? General rule: When thereis a basic change in the circumstancessurrounding the transaction notcontemplated by the parties whichwould reasonably lead the agent tobelieve that the principal would notdesire him to act, authority of agent isterminated.

Exceptions:1.) If the original circumstances arerestored within a reasonable period oftime, the agents authority may berevived.

2.) Where the agent has reasonabledoubts as to whether the principalwould desire him to act, his authoritywill not be terminated if he actsreasonably. (But when in doubt, agentcould contract principal for instructionsif possible).3.) Where the principal and agent are inclose daily contact, the agentsauthority to act will not terminate upona change of circumstances if the agentknows the principal is aware of the


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change and does not give him newinstructions.

Confidential information - It isdifficult to determine whetherinformation is confidential or not,because while the relation of principaland agent is confidential, not allknowledge acquired by the agent is of aconfidential nature. Some clearly is of

so general a nature that equity oughtnot attempt to restrict its subsequentuse.

Usually, what a court does isto determine 2 things:1.) Whether the knowledge orinformation is indeed confidential,and2.) Whether its subsequent useought to be prevented.


There is in the contract of service

subsisting between the principal andthe agent an implied contract on thepart of the agent that he will not, afterthe service is terminated, useinformation which he has gained whilethe service has been subsisting to thedetriment of his former employer.

Art. 1928. The agent may withdraw fromthe agency by giving due notice to theprincipal. If the latter suffer any damageby reason of the withdrawal, the agentmust indemnify him therefor, unless the

agent should base his withdrawal uponthe impossibility of continuing theperformance of the agency withoutgrave detriment to himself.

Does the agent have a right to renounce orwithdraw from the agency at any time? Yes.Even without the consent of the principal.But, in the latter case, he may be subject toliability for breach of contract or for tort.

Basis: Constitutional prohibition againstinvoluntary servitude.

Obligation of agent if he withdraws fromagency without just cause:

1.) Notify principal (even if w/ justcause); and2.) Indemnify the principal should thelatter suffer any damage by reason ofsuch withdrawal.

Reason for indemnity: To answer for lossesand damages occasioned by the non-fulfillment of his obligation as agent.

Is the agent liable for indemnity if thewithdrawal was for just cause? No. Agent

cannot be held liable if the agent withdrawsfor a valid reason as when:

1.) The withdrawal is based on theimpossibility of continuing the agencywithout grave detriment to himself; or

2.) Fortuitous event.

What happens when the agent sues theprincipal? Equivalent to withdrawal of theagent.

Art. 1929. The agent, even if heshould withdraw from the agency for avalid reason, must continue to act untilthe principal has had reasonableopportunity to take the necessary stepsto meet the situation.

Obligation of agent after withdrawal: Evenwhen withdrawal is for a valid reason, hemust continue to act until the principal hashad reasonable opportunity to take thenecessary steps like the appointment of anew agent to remedy the situation caused

by the withdrawal. This is to preventdamage or prejudice to the principal.C. DEATH; AGENCY COUPLED WITH AN

INTEREST




interdiction, insanity orinsolvency of the principal

or of the agent;4.) By the dissolution of thefirm or corporation whichentrusted or accepted theagency;






Note: Even if the reason forextinguishing the agency is not true,


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the agent cant insist on reinstatement.The agent can only demand damages.


1.) Agreement;2.) Subsequent acts of theparties which may be either:a.)By the act of both parties or bymutual consent;

b.)By the unilateral act of one ofthem.


DEAD]







Why is presence necessary?

Because the general rule in art 1919 isthat death of any of the partiesextinguishes agency. However in thecase where you have several principalsand/or several agents, whether thedeath of one principal or of one agentterminates the agency would dependon the intention of the parties.Generally the death of one of severalprincipals does not revoke the agentsauthority nor does the death of one ofseveral agents put an end to theagency. The intention of the parties

controls. Why is capacity necessary? Forinstance, in the case of civilinterdiction, it deprives the offenderduring the period of his sentence of theright to manage his property anddispose of such property by any act orany conveyance inter vivos. A personunder civil interdiction hence, cannotvalidly give consent. Same is true forinsane people.

Why is solvency necessary? As byan act of insolvency, the principal losescontrol of the subject matter of theagency, the authority of the agent toact for his principal ceases by operationof law upon an adjudication of theprincipals insolvency. On the otherhand, the insolvency of the agent willordinarily put an end to the agency, at

least if it is in any way connected withthe agents business which has causedhis failure.

General rule as to death of theprincipal or agent: By reason of thevery nature of the relationship betweenthe principal and the agent (which isfiduciary argh!), agency isdistinguished ipso jure upon the deathof the principal.

Exceptions:1.) If the agency is coupled with aninterest;

2.) If the act of the agent was executedwithout the knowledge of the death ofthe principal and the 3rd person whocontracted w/ the agent acted in goodfaith.


What happens when the object orthe purpose of the agency isaccomplished? As between the parties,the principal and the agent, the

fulfillment of the purpose for which theagency was created ipso factoterminates the agency.


What happens if no time isspecified? The agency terminates at the

end of a reasonable period of time. Can the period be implied? Yes,from1.) The terms of the agreement;2.) Purpose of the agency; and3.) The circumstances of the parties.

What happens if the subject matterof the agency is lost or destroyed? Inthe absence of any agreement by theparties to the contrary, the loss ordestruction of the subject matter of the


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agency terminates the agentsauthority to deal with reference to it.

Exceptions:1.) If it is possible to substitute othermaterial for that which was destroyedwithout substantial detriment to eitherparty, or2.) If the destroyed subject matter wasnot in fact essential to the contract; and

3.) A partial loss or destruction. Are the modes of extinguishmentsof agency exclusive? No. Art. 1919gives only those causes of extinctionwhich are particular to agency. But thelist is not exclusive. The general ruleactually is, an agency may beextinguished by the modes ofextinguishments of obligations ingeneral whenever they are applicable,like loss of the thing and novation (seeart. 1231).

Does war extinguish agency?

During the existence of war, a contractof agency is inoperative if the agent orthe principal is an enemy alien. Butsince it is generally conceded that warsuspends all commercial intercoursebetween the residents of 2 belligerentstates, the general rule is that agencyis terminated, as a matter of law, uponthe break of war.

Does legal impossibility terminateagency? Implied in every contract is theunderstanding that it shall be capableof being carried out legally at the time

called for by the contract. An agencythen terminates if a change in the lawmakes the purpose of the agencyunlawful.




Will a change of conditions affectthe agency? General rule: When thereis a basic change in the circumstancessurrounding the transaction notcontemplated by the parties whichwould reasonably lead the agent tobelieve that the principal would notdesire him to act, authority of agent isterminated.

Exceptions:1.) If the original circumstances arerestored within a reasonable period oftime, the agents authority may berevived.2.) Where the agent has reasonabledoubts as to whether the principalwould desire him to act, his authoritywill not be terminated if he actsreasonably. (But when in doubt, agentcould contract principal for instructionsif possible).3.) Where the principal and agent are in

close daily contact, the agentsauthority to act will not terminate upona change of circumstances if the agentknows the principal is aware of thechange and does not give him newinstructions.

Confidential information - It isdifficult to determine whetherinformation is confidential or not,because while the relation of principaland agent is confidential, not allknowledge acquired by the agent is of aconfidential nature. Some clearly is ofso general a nature that equity oughtnot attempt to restrict its subsequentuse.

Usually, what a court does isto determine 2 things:1.) Whether the knowledge orinformation is indeed confidential,and2.) Whether its subsequent useought to be prevented.


There is in the contract of service

subsisting between the principal andthe agent an implied contract on thepart of the agent that he will not, afterthe service is terminated, useinformation which he has gained whilethe service has been subsisting to thedetriment of his former employer.

Art. 1930. The agency shall remain infull force and effect even after thedeath of the principal, if it has beenconstituted in the common interest ofthe latter and of the agent, or in the


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interest of a third person who hasaccepted the stipulation in his favor.

If the agent dies, his heirs should tell theprincipal. However, if the principal dies, theprincipals heirs have no obligation to tell theagent.

General rule: Agency is terminated instantlyby the death of the principal.

Rationale: Agency, being based on

representation, there is no one to erepresented where the principal is alreadydead.

Exceptions:1.) If the agency has been constituted inthe common interest of the principal andthe agent; and2.) If the agency has been constituted inthe interest of a 3rd person who hasaccepted the stipulation in his favor.

Art. 1931. Anything done by the agent,without knowledge of the death of the

principal or of any other cause whichextinguishes the agency, is valid andshall be fully effective with respect tothird persons who may have contractedwith him in good faith.

What does this article provide? It providesthat the death of the principal or any otherlike cause, extinguishes the agency. But inthe same way that revocation of the agencydoes not prejudice 3rd persons who have dealtwith the agent in good faith without notice ofrevocation, such 3rd persons are alsoprotected where it is not shown that the

agent had knowledge of the termination ofthe agency because of the death of theprincipal or any other like cause whichextinguishes the agency.

Does this article only require the agent to bein good faith? No, both agent and 3rd personmust be.

Art. 1932. If the agent dies, his heirsmust notify the principal thereof, and inthe meantime adopt such measures asthe circumstances may demand in theinterest of the latter.

In case of death of agent, what must theheirs do?

1.) Notify the principal to enable thelatter reasonable opportunity to takesuch steps as may be necessary to meetthe situation; and2.) Adopt such measures as thecircumstances may demand in theinterest of the principal.

Can the heirs continue the agency? Generalrule: No, since an agency calls for personalservices on the part of the agent

Exceptions:1.) Agency by operation of law, or apresumed or tacit agency;2.) Agency is coupled with an interest inthe subject matter of the agency.

D. DISSOLUTION OF THE FIRM/CORPORATION

E. ACCOMPLISHMENT OF THE OBJECT/PURPOSE

F. EXPIRATION OF THE PERIOD

G. CIVIL INTERDICTION, INSANITITY,INSOLVENCY

Documents

Agency - Last2