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Chapter 1

Nature, Form and Kinds of Agency

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Agency: A relationship which implies a power in an agent to rd contract with a 3 person on behalf of a principal. The basis is representation not form of service or employment. Phrase for or in our behalf does not necessarily establish an agency. What is decisive is the intention of the parties. Kind of Contract: It is a preparatory contract. It is a contract entered not for its own end but to be able to enter into other contracts. Essential Elements of Agency: 1.) Consent, express or implied; 2.) Object of the contract is the execution of a rd juridical act in relation to 3 persons; 3.) The agent acts as a representative and not for himself; 4.) The agent acts within the scope of his authority.

8.) Representative Relation: not a personal one in relation to third person Basis: Representation-The acts of the agent on behalf of the principal within the scope of his authority produce the same legal and binding effects as if the principal personally did them. Distinguishing Features: 1.) Representative character; and 2.) Derivative authority. Purpose: To extend the personality of the principal through the facility of the agent (constructive representation) Parties: 1.) Principal the party represented 2.) Agent the party who represents the principal 3.) Sub-agent agent of the agent; the contract of agency may prohibit the agent from appointing a sub-agent Who can be principal? The principal may be a natural person or a juridical person. He must be capacitated. The rule is if a person is capacitated to act for himself or in his own right, he can act through an agent. Must the agent have capacity?

Characteristics: 1.) Consensual: perfected by mere consent; 2.) Nominate: it has its own name; 3.) Principal: does not depend on another contract for its existence and validity; 4.) Preparatory: entered into as a means to an end; 5.) Unilateral/Bilateral: a.) Unilateral: if contract is gratuitous, it creates obligations for only one of the parties, i.e. agent. b.) Bilateral: if for compensation, it gives rise to reciprocal rights and obligations. 6.) Generally Onerous (Art. 1875) 7.) Fiduciary : as it is based on trust and confidence Insofar as 3 persons are concerned, it is enough that the principal is capacitated; but insofar as his obligations to his principal are concerned, the agent must be able to bind himself. Acts that cannot be done through an agent: 1.) Personal acts: if personal performance is required by law or public policy or agreement; 2.) Criminal or illegal acts: attempt to delegate another authority to do an act which, if done by the principal would be illegal, is void.

Agency v. Lease of Work or Service Agency Basis is representation. Lease of Work/Service Basis is employment

Agency v. Partnership Agent Acts for the principal nor for himself Partner Acts for himself, the firm and co-partners. Partnership is a branch on the law on agency

Agent exercises Lessor only performs discretionary powers. ministerial functions. 3 persons are involved: Only 2 persons rd involved: lessor and principal, agent & 3 lessee person. Commercial or business Matters of mere transactions. manual or mechanical execution.

Agency v. Negotiorium Gestio There is meeting of the minds Agent is under the control of the principal Created by agreement No meeting of the minds Acts according to his own sound discretion Created by law

Agency v. Trust Agency v. Guardianship Arises from contract Agency Agent represents capacitated person. Guardianship a Guardian represents an incapacitated person. May be generated by contract or not, or by law Trustee may hold title over the property Terminated upon the accomplishment of the purpose to which it was formed or established

Agent appointed by Guardian appointed by principal and can be court and stands in removed by him. loco parentis. Agent subject to Guardian not subject to directions of principal. directions of ward but must act for his benefit. Agent can make Guardian has no power principal personally to impose personal liable. liability on his ward. Agency to Sell v. Sale Agency to sell Agent receives the goods as the goods of the principal. Agent delivers proceeds of the sale. Agent can return object in case he is unable to rd sell to a 3 person. Agent in dealing with the thing received is bound to act accdg to the instructions of his principal Sale Buyer receives goods as owner. Buyer pays the price. Generally, buyer cannot return the object sold. Buyer can deal with the thing as he pleases, being the owner.

Agent holds no title over the property May be revoked anytime

Art. 1869. Agency must be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Agency may be oral, unless the law requires a specific form.


Classifications of Agency: as to 1.) Manner of Creation: a.) Express: actually authorized, either (i.) orally or in ( ii. )writing. b.) Implied: implied from (i.) acts of principal,(ii.) from his silence or lack of action or (iii.) his failure to repudiate the agency knowing that another person is acting on his behalf w/o authority. The enumeration is not exclusive, there may be other situation of implied agency 2.) Character or Consideration: a.) Gratuitous: agent receives compensation for his services. no

Agent v. Independent Contractor Agent Represents the principal. Acts under the control and instructions of the principal Principal liable for torts committed by agent w/in scope of authority. Independent Contractor Employed by employer. Acts according to his own method. Employer not liable for torts committed by independent contractor.


Onerous: agent does receive compensation.

3.) Extent of business covered: a.) General: comprises all the business of the principal. b.) Special: comprises one or more specific transactions. 4.) Authority conferred or Management a.) Couched in general terms: deemed to comprise only acts of administration. b.) Couched in specific terms: authorizes only the performance of a specific act/s.

where he cannot refuse the creation of the agency because the law dictates. Form of Acceptance by Agent: Acceptance may be express or implied; express when it is oral or written; implied when it can be inferred from the acts of the agent which carry out the agency, or from his silence or inaction according to the circumstances. Art. 1871. Between persons who are present, the acceptance of the agency may also be implied if the principal delivers his power of attorney to the agent and the latter receives it without any objection. Between 2 persons who are present, when it acceptance deemed implied? When the agent receives a power of attorney from the principal himself personally without objection. Is this presumption conclusive? NO, it can be rebutted by contrary proof. Power of attorney: An instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the principal. Its primary purpose is to rd evidence the authority of the agent to 3 parties w/ whom the agent deals. Construction: A power of attorney is strictly construed and strictly pursued. The instrument will be held to grant only those powers which are specified, and the agent may neither go beyond nor deviate from the power of atty. The only exception is when strict construction will destroy the very purpose of the power. Except as may be required by statute, a power of attorney is valid although no notary public intervened in its execution (Lim Pin v. Liao Tan, 115 SCRA 296) Art. 1872. Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the agent, except: 1.) When the principal transmits his power of attorney to the agent, who receives it without any objection; 2.) When the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram.

5.) Nature and effects: a.) Representative: agent acts in name and representation of principal. c.) Simple/Commission: agent acts in his own name but for the account of the principal. d.) Conventional: created by agreement of the parties e.) Legal: formed by operation of law (Art. 1803, 1884 par 2, 1885, 1929 and 1932) 6.) As to manner of Appointment a.) Direct: the principal appointed the agent directly b.) Indirect: appointment is through another person (Art. 381)

Can agency be presumed? Generally NO. Because the relationship between the principal and agent must exist as a fact. The only exceptions to this rule are when agency arises by operation of law or agency is presumed to prevent unjust enrichment. Form: Generally NO formal requirements. Agents authority may be oral or written; it may be in public or private writings. The only exception is when the law requires a specific form (e.g. sale of real property or any interest therein by an agent.) Art. 1870. Acceptance by the agent may also be express, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances. Acceptance: A person has a right to represent or reject his appointment as an agent. It is only in legal agency

Distinction between Article 1871 and 1872 Basis Condition of creation 1871 Both the principal and agent are present The Power of attorney is personally delivered by the principal to the agent 1872 Both the principal and the agent are absent The Power of Attorney is not personally delivered. There is transmission by messenger, letter or telephone

2.) Estoppel of Principal a.) As to Agent One who knows that another is acting as his agent and fails to repudiate his acts, or accept the benefits of them, will be estopped to deny the agency as against such other. b.) As to sub-agent To estop the principal from denying his liability to rd a 3 person, he must have known or be charged with knowledge of the fact of the transmission and the terms of the agreement between the agent and sub-agent. c.) As to 3 persons One who knows that another is acting as his agent or permitted another to appear as his rd agent, to the injury of 3 persons who have dealt with the apparent agent as such in good faith and in the exercise of reasonable prudence, is estopped to deny the agency. 3.) Estoppel of 3 Persons A 3 person, having dealt with one as an agent may be estopped to deny the agency as against the rd principal, agent or 3 persons in interest. 4.) Estoppel of the government The government is neither estopped by the mistake or error on the part of its agents. But it may be estopped through affirmative acts of its officers acting within the scope of their authority.
rd rd rd

Manner of delivery

Art. 1873. If a person specially informs another or states by public advertisement that he has given a power of attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who received the special information, and in the latter case with regard to any person. The power shall continue to be in full force until the notice is rescinded in the same manner in which it was given. 2 Ways of Giving Notice of Agency 1.) By special information; or 2.) By public advertisement. Effects: 1.) Special information: the person appointed as agent is considered such with respect to the person to whom it was given. 2.) Public advertisement: Agent is considered such with regard to any person. Revocation An agency is revoked in the same manner as it was given. General rule: Special information needs special information of revocation. Except: if you can prove that the 3 person read the notice in the newspaper. Agency by Estoppel: There is really no agency at all, but the alleged agent seemed to have apparent or ostensible, although no real authority to represent another. 1.) Estoppel of Agent One professing to act as agent for another may be estopped to deny his agency both as against his rd asserted principal and the 3 persons interested in the transaction in which he is engaged.

Distinction between Implied agency and Agency by estoppel

Implied Agency There is actual agency. Hence, he has rights and duties as agent The principal is liable alone, not the agent

Agency by Estoppel There is no actual agency. Hence, he has no rights and duties as an agent The one who caused (either the principal or agent) is the one responsible. In both cases, the third person must have acted in good faith.

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.

Sale, How effected: 1.) Through the owner himself: if not made in writing the contract of sale is unenforceable not void. It is however subject to ratification. 2.) Through an agent of the owner: if not in writing the contract of sale is not unenforceable but void. It is not therefore subject to ratification. The authority of the agent to sell must be in writing, otherwise the sale is void. A letter is sufficient authorization to an agent [Jimenez v. Rabot]. Is Repurchase Included Contemplation of Law? Within the

Furthermore, the transaction need not only be perfected but also consummated to justify brokers or agents commission. By stipulation, the compensation may be contingent or dependent upon the realization of profit for the principal (Feige v. Smith et.al, 43 Phil. 113) Measure of Compensation Compensation depends upon the specific stipulation of the parties. In the absence of such, compensation shall be based on quantum meruit basis. Efficient Procuring Cause The broker must be the efficient agent. The means employed by him must result in the sale. He must find the purchaser and the sale must proceed from his efforts acting as a broker. Does the law allow double agency? Double Agency: when the agent is acting simultaneously for both the seller and the buyer.

The law speaks of Sale. Repurchase, however, through an agent, partakes of the nature of sale, which when effected through an agent, the agency should be in writing to be valid (Fernandez v. Rabot, 4 CAR 221)

Art. 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary. The presumption is rebuttable. Gratuitous Agency: when the service rendered is undertaken to be gratuitous, the law does not raise an implied promise to pay therefor, though the service be valuable (Robinson v. Lincoln Trust, 95 NJL 445) When is an Agent Entitled to Compensation? In the absence of a specific agreement, an agent is entitled to compensation only after he has completely or substantially completed his obligation as an agent. Broker: One who in behalf of others, and for compensation or fee, negotiate contracts relative to property. He is the negotiator between the parties, never acting in his own name, but in the name of those who employ him. He is strictly a middleman and for some purposes, the agent of both parties. When is a broker entitled to compensation? A broker is entitled to commission whenever he rings to his principal a party who is able and willing to take the property, and enter into a valid contract upon the terms named by the principal, although the particulars may be arranged and the matter negotiated and completed between the principal and the purchaser directly. A broker is never entitled to commission for unsuccessful efforts. It is only after the transaction has been concluded that the broker acquires vested interest in or right to his commission.

Such agency is disapproved by law for being against public policy and sound morality. The exception is where the agent acted with full knowledge and free consent of the principals. In case the agent assumes a double agency, what is his right to compensation? 1.) If with knowledge of both principals recovery can be had from both. 2.) If without knowledge of both agent can recover from neither. 3.) If with knowledge of only one as to the principal who knew of that fact and as to the agent, they are in pari delicto and the courts shall leave them as they were, the contract between them being void as against public policy and good morals. Art. 1876. An agency is either general or special. The former comprises all the business of the principal. The latter, one or more specific transactions. Classification of Agents: 1.) Universal agent: One employed to do all acts that the principal may personally do, and which the principal can lawfully delegate to another the power of doing. 2.) General agent: One employed to transact all the business of his principal, or all business of a particular kind or in a particular place, or in other words, to do all acts connected with a particular trade, business, or employment.

3.) Special/Particular agent: One authorized to act in one or more specific transactions, or to do one or more specific acts, or to act upon a particular occasion. e.g.: a.) Attorney at law: One whose business is to represent clients in legal proceedings. b.) Auctioneer: One whose business is to sell property for others to the highest bidder at a public sale. c.) Broker: One whose business is to act as intermediary between 2 other parties. d.) Factor: One whose business is to receive and sell goods for a commission, being entrusted with the possession of the goods involved in the transaction. f.) Attorney-in-fact: One who is given authority by his principal to do a particular act not of a legal character.

instructions of principal


Limits the authority of agent.

Art. 1877. An agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general or unlimited management. Agency couched in general terms covers only acts of administration. A general power permits an agent to do all acts for which the law does not require a special power (Dominion Insurance Corp v. CA, 376 SCRA 244). Examples of acts of mere administration: 1.) To sue for collection of debts; 2.) To employ workers or servants and employees needed for the conduct of business; 3.) To engage counsel to preserve the ownership and possession of the principals property; 4.) To lease real property to another person for 1 year or less, provided the lease is not registered; 5.) To make customary gifts for charity or to employees in the business managed by the agent 6.) To borrow money if it be urgent and indispensable for the preservation of the things under administration. Exception: power of managing partner, he may perform acts affecting the ownership if the same are necessary to promote or accomplish a declared object of the partnership. How are contracts of agency construed? Contracts of agency as well as general powers of attorney must be interpreted in accordance with the language used by the parties. The real intention of the parties is primarily determined from the language used and gathered from the whole instrument. In case of doubt, resort must be had to the situation, surroundings and relations of the parties. The intention of the parties must be sustained rather than defeated. So if the contract be open to 2 constructions, one of which would uphold the intention while the other would overthrow it, the former is to be chosen.

General Agent v. Special Agent As to General agent Special agent Only one or more specific acts in pursuance of particular instructions or w/ restrictions necessarily implied from the act to be done. Single transaction or a series of transactions not involving continuity of service. Cannot in a manner beyond or outside the specific acts w/c he is authorized to perform. Termination effective as to rd 3 party unless agency was for purpose of contracting w/ rd that 3 party. Strictly construed.

Scope of authority

All acts connected w/ the business in which he is engaged.

Nature of service authorized

Series a transactions involving a continuity of service. By an act within the scope of his authority although it may be contrary to his special instructions. Apparent authority does not terminate by mere revocation of authority w/o rd notice to 3 parties. Merely

Extent to which agent may bind principal

Termination of authority

Construction of

Art. 1878. Special powers of attorney are necessary in the following cases: 1.) To make such payments as are not usually considered as acts of administration; 2.) To effect novations which put an end to obligations already in existence at the time the agency was constituted; 3.) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired; 4.) To waive any obligation gratuitously;

Special power can be included in a general power, either by giving authority for all acts of a particular character or by specifying therein the act or transaction for which a special power is needed. Scope of General Authority to Purchase Where an agents power to purchase is general and unrestricted, he has implied authority to do whatever is usual and necessary in the exercise of such power. He may: 1.) Determine the usual and necessary details of the contract, 2.) agree upon the price, 3.) modify or rescind the contract of purchase, 4.) accept delivery for his principal,

5.) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration; 6.) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent; 7.) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration; 8.) To lease any real property to another person for more than one year; 9.) To bind the principal to render some service without compensation; 10.) To bind the principal in a contract of partnership; 11.) To obligate the principal as a guarantor or surety; 12.) To create or convey real rights over immovable property; 13.) To accept or repudiate an inheritance; 14.) To ratify or recognize obligations contracted before the agency;

5.) give directions for the delivery of the property purchased, and 6.) may borrow money to pay for the care and preservation of the property purchased. But he has no special power to 1.) Settle a contest between the principal and a rd 3 person regarding the ownership of goods purchased, or 2.) Agree to an account stated, or 3.) Do anything not usual or necessary to the exercise of such authority. Scope of Special Authority to Purchase Where the agency is a special one, or is restricted to purchases upon certain terms and conditions, the agent has no authority to 1.) Purchase upon different terms conditions from those authorized, or and

2.) Modify or rescind a contract of purchase made by the principal. Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell. The power to sell is different from the power to mortgage in same way that the latter is different from the power to contract loans. The following are included in a Power to Sell: The power to: 1.) Find a purchaser or to sell directly; 2.) Deliver the property; 3.) Make the usual representation and warranty; 4.) Execute the necessary transfer documents;

15.) Any other act of strict dominion. Special Power of Attorney It is an authority granted by the principal to the agent where the act for which it is drawn is expressly mentioned. General Power of Attorney It is an authority granted to the agent to do all acts of a particular character.

5.) Fix the terms of the sale unless there be set conditions stipulated by the principal; 6.) Sell only for cash; 7.) Receive the price unless he was authorized only to solicit orders. The following are not included in a Power to Mortgage The power to: 1.) Sell; 2.) Execute a 2 mortgage; 3.) Mortgage for the agents personal benefit or rd for the benefit of any 3 person, unless the contrary has been clearly indicated. Does the principal have the power to revoke a contract giving an agent exclusive authority to sell? YES. But he may not have the right to use such power if he has agreed not to exercise such power during a certain period. In case he fails to comply with this obligation-not-todo, he will be liable for damages. Art. 1880. A special power to compromise does not authorize submission to arbitration. Rationale: A principal may authorize his agent to compromise because of absolute confidence in the latters judgment and discretion to protect the formers rights and obtain for him the best bargain in the transaction. If the transaction would be left in the hands of an arbitrator, said arbitrator may not enjoy the trust of the principal. What happens if the agent is specifically authorized to submit to arbitration? Then the arbitration award binds the principal, provided, of course, that the agent acted within the scope of his authority. Art. 1881. The agent must act within the scope of his authority. He may do such acts as may be conducive to the accomplishment of the purpose of the agency. Authority: The power of the agent to affect the legal relations of the principal by acts done in accordance with the principals manifestation of consent to him. It is the power of the agent to act within the scope of his assignment on behalf of his principal with binding effect on the latter. The authority of the agent is the very essence sine qua non of the principal and agent

relationship. This authority, unless it is otherwise agreed, includes only the authority to act for the benefit of the principal, and the source of the authority is the principal and never the agent. Kinds of Authority: 1.) Actual: when it is actually granted, and it may be express or implied. It results from what the principal indicates to the agent. 2.) Express: when it is directly conferred by words. 3.) Implied: when it is incidental to the transaction or reasonably necessary to accomplish the purpose of the agency, and therefore, the principal is deemed to have actually intended the agent to possess. 4.) Apparent or Ostensible: when it is conferred by words, conduct or even by the silence of rd the principal which causes a 3 person reasonably to believe that a particular person, who may or may not be the principals agent, has actual authority to act for the principal. Ostensible authority is another name for authority by estoppel. 5.) General: when it refers to all the business of the principal. 6.) Special: when it is limited only to one or more specific transactions. 7.) By necessity or by operation of law: when it is demanded by virtue of the existence of an emergency; it terminates when the emergency has passed. Requisites of Agency by necessity: a.) An emergency actually exist b.) Agent cannot timely communicate with the principal c.) Exercise of additional authority is for principals own protection d.) Adoption of reasonable means to cope with the situation e.) Stoppage of authority from the moment the emergency ceases Requisites for Principal to be Bound by Act of Agent: 1.) The agent must act in behalf of the principal; 3.) The agent must act within the scope of his authority.

When is a principal not bound by the act of his agent? When the agent acts without or beyond the scope of his authority; or when the agent acts within the scope of his authority but in his own name except when the transaction involves things belonging to the principal. Technical difference between Authority and Power Authority is the cause, while power is the effect. The former springs from the principal and is delegated to the agent and by reason thereof, the agent is empowered to perform the act authorized to be done. Authority? With authority With authority Without Without Who to sue? In case the agent acts in the name of the principal and within his scope of authority, you must name the principal as the defendant. Note: The authority to look for buyers does not carry with it the authority to sell. Special prohibited acts in Agency 1. The agent is prohibited from buying, even at a public or judicial auction, property entrusted to him by the principal for sale or administration, without the consent of the principal. 2. The agent cannot be a lessee of said property 3. By analogy, he cannot also be a mortgagee of the principals property. Art. 1882. The limits of the agents authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified by him. What happens if the agent exceeds his authority but he performs the agency in a manner more advantageous to the principal? It will be as if he did not exceed the limits of his authority since he must do such acts as may be conducive to the accomplishment of the purpose of the agency. Article 1882 presupposes sufficient authority to fulfil the agency. Whose behalf? Principals Own Principals Own Status of Transaction Valid Depends. [1883 ] Unenforceable Valid

Test: Would transaction?






Example: the agent is authorized to sell cell phones by instalment, but he was able to sell it in cash. Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shall be understood to be without prejudice to the actions between the principal and agent. Kinds of Principals: 1.) Disclosed: if at the time of the transaction contracted by the agent, the other party thereto has known that the agent is acting for a principal and has known the principals identity. 2.) Partially disclosed: if the other party knows or has reason to know that the agent is or may be acting for a principal but is unaware of the principals identity. The partially disclosed principal may enforce against the rd 3 person the contract of the agent like any rd disclosed principal. Similarly, the 3 person has a right of action against the principal. 3.) Undisclosed: if the party has no notice of the fact that the agent is acting as such for a principal. General Rule in 1883: If the agent is authorized to act on behalf of the principal but instead acts in his own name, the agent is the one directly liable to the person with whom he had contracted as if the transaction were his own. Reason why the agent is personally liable: 1.) He did not act within the scope of his authority 2.) He act in his own name not in the name or representation of the principal Exception: If the contract involves something belonging to the principal. This exception applies only when the agent has in fact been authorized by the principal. Remedy of the Principal if this situation arises:

He can demand from the agent damages for his failure to comply with the agency. May the agent who is directly bound sue on his own name? When the agent transact business in his own name for the benefit of an undisclosed principal, he may sue or be sued, in his individual capacity there being no action for or against the undisclosed principal. When the principal is disclosed, action must be filed by or against him An action on behalf and for the benefit of the principal cannot be brought in the name of the agent or attorney-in-fact. It must brought in the name of the real party in interest. Remedy of the 3 person with whom the agent contracted in case the obligation is not complied with: If the case falls under the general rule, he can sue the agent. But when the contract involves things belonging to the principal, he can sue the principal. But if it cannot be determined w/o litigation who is liable, he can sue both. Remedy of 3rd person in case authority of the agent is doubtful The agent should be included in the case as party defendant. This is a suit against alternative defendants. Effects when an agent becomes the assignee The agent may in his own behalf bring an action founded on a contract made for his principal, as an assignee of such contract.

Prepared by: Lizglen L. Gliponeo Group 6