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behalf of the principal within the scope of the authority have the
same legal effects and consequences as though the principal had
been the one so acting in the given situation. This principle is
referred to as the doctrine of representation.
In Orient Air Service & Hotel Representatives v. Court of Appeals,
197 SCRA 645 (1991), the Court held that the purpose of every
contract of agency is the ability, by legal fiction, to extend the
personality of the principal through the facility of the agent; but that
the same can only be effected with the consent of the principal.
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court
held that It bears stressing that in an agent-principal relationship,
the personality of the principal is extended through the facility of
the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have
him do. Such a relationship can only be effected with the consent of
the principal, which must not, in any way, be compelled by law or
by any court. (at p. 223.)
In Doles v. Angeles , 492 SCRA 607 (2006), in response to the
legal argument that there could not have been an agency
relationship because the principal never confirmed personally to the
third parties the establishment of the agency, the Court held
The CA is incorrect when it considered the fact that the supposed
friends of [petitioners], the actual borrowers, did not present
themselves to [respondent] as evidence that negates the agency
relationshipit is sufficient that petitioner disclosed to respondent
that the former was acting in behalf of her principals, her friends
whom she referred to respondent. For an agency to arise, it is not
necessary that the principal personally encounter the third person
with whom the agent interacts. The law in fact contemplates, and to
a great degree, impersonal dealings where the principal need not
personally know or meet the third person with whom her agent
transacts; precisely, the purpose of agency is to extend the
personality of the principal through the facility of the agent. (at p.
622.)
the Agent
the person who acts for and in representation
of another (mandatario)
The other terms used for the position of agent are attorney-infact, proxy, delegate, or representative.
Although Article 1868 of the Civil Code defines agency in terms of
being a contract, it should also be considered as creating between
the principal and an agent an on-going legal relationship which
imposes personal obligations on both parties. This is in consonance
with the personal nature of every contract of agency.
Thus, Rallos held that out of the principle that no one may contract
in the name of another without being authorized by the latter,
sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante
), authorizes another, called the agent (mandatario), to act for and
in his behalf in transactions with third persons. (at p. 259.)
is
The last two elements included in the Rallos enumeration should not
be understood to be essential elements for the perfection and
validity of the contract of agency, for indeed they are matters that
do not go into perfection, but rather into the performance stage of
the agency relationship. The non-existence of the two purported
essential elements (i.e., that the agent acted for herself and/or the
agent acted beyond the scope of her authority), does not affect the
validity of the existing agency relationship, but rather the
enforceability of the contracts entered into by the agent on behalf of
the principal.
Thus, under Article 1883 of the Civil Code, If an agent acts in his
own name, the principal has no right of actions against the person
with whom the agent has contracted; neither have such persons
against the principal. Under Article 1898 of the Civil Code, If the
agent contracts in the name of the principal, exceeding the scope of
his authority, and the principal does not ratify the contract, it shall
be void as to the principal.
The last two elements added by Rallos, which are based on
specific provisions of law, are meant to emphasize that the
relationship of agency is set-up essentially to comply with the
basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the
latter, . . . A contract entered into in the name of another by one
who has no authority or legal representation . . . shall be
unenforceable, unless it is ratified, expressly or implied, by the
person on whose behalf it has been executed. (at p. 258.)
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efforts. It is the party who avers that the agency was gratuitous
that the agent agreed to serve gratuitouslywho has the burden of
proving such arrangement.
The old decision in Aguna v. Larena, 57 Phil 630 (1932), did not
reflect the principle that generally agency is for compensation,
which is now embodied in Article 1875 of the Civil Code.
In Aguna, although the agent had rendered service to the principal
covering collection of rentals from the various tenants of the
principal, and in spite of the agreement that principal would pay for
the agents service, nevertheless, the principal allowed the agent to
occupy one of his parcels of land and to build his house thereon.
The Court held that the service rendered by the agent was deemed
to be gratuitous, apart from the occupation of some of the house of
the deceased by the plaintiff and his family, for if it were true that
the agent and the deceased principal had an understanding to the
effect that the agent was to receive compensation aside from the
use and occupation of the houses of the deceased, it cannot be
explained how the agent could have rendered services as he did for
eight years without receiving and claiming any compensation from
the deceased. (at p. 632.)
If Aguna were decided under the New Civil Code, then under Article
1875, which mandates that every contract of agency is deemed to
be for compensation, the result would have been quite the opposite.
Recently, in De Castro v. Court of Appeals, 384 SCRA 607 (2002),
the Supreme Court upheld the obligatory force of a compensation
clause agreed upon in a contract of agency, thus
A contract of agency which is not contrary to law, public order,
public policy, morals or good custom is a valid contract, and
constitutes the law between the parties. The contract of agency
entered into by Constate with Artigo is the law between them and
both are bound to comply with its terms and conditions in good
faith.
The mere fact that other agents intervened in the consummation
of the sale and were paid their respective commissions could not
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provided with its own set of rules and legal consequences, that any
other arrangement that essentially falls within its terms shall be
considered as an agency arrangement and shall be governed by the
Law on Agency, notwithstanding any intention of the parties to the
contrary. After all, a contract is what the law says it is, and not
what the parties call it.
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that if an act
done by one person in behalf of another is in its essential nature
one of agency, the former is the agent of the latter notwithstanding
he or she is not so called it will be an agency whether the parties
understood the exact nature of the relation or not.
b. Consensual
Art. 1869. Agency may be express, or implied from
the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another
person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific
form. (1710a)
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. (n).
o
The contract of agency is perfected by mere consent, and is
therefore aconsensual contract. Under Article 1869 of the Civil
Code, an agency may be express or implied from the act of the
principal, from his silence or lack of action, or failure to repudiate
the agency; agency may be oral, unless the law requires a specific
form. See also Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
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Under Article 1870 of the Civil Code, acceptance by the agent may
also be express, or implied from his acts which carry out the
agency, of from his silence or inaction according to the
circumstances.
In other words, the contract of agency is essentially a consensual
contract, and that as a general rule no form or solemnity is required
in order to make it valid, binding and enforceable.
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The liabilities incurred shall pertain to the principal and not the
agent;
(b) Generally, all acts that the principal can do in person, he may do
through an agent, except those which under public policy are strictly
personal to the person of the principal.
(c) A suit against an agent in his personal capacity cannot, without
compelling
reasons,
be
considered
a
suit
against
the
principal. Philippine National Bank v. Ritratto Groups, Inc., 362
SCRA 216 (2001).
(d) Notice to the agent should always be construed as notice
binding on the principal, even when in fact the principal never
became aware thereof. Air France v. Court of Appeals, 126 SCRA
448 (1983).
(e) Knowledge of the agent is equivalent to knowledge of the
principal.
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Except Where:
(1) Agents interests are adverse to those of the principal;
(2) Agents duty is not to disclose the information, as where he is
informed by way of confidential information; and
(3) The person claiming the benefit of the rule colludes with the
agent to defraud the principal (De Leon & De Leon, at p.
367, citing Teller, at p. 150.)
Thus, in Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA
584 (2007), the Court held
Article 1897 reinforces the familiar doctrine that an agent, who acts
as such, is not personally liable to the party with whom he
contracts. The same provision, however, presents two instances
when an agent becomes personally liable to a third person. The first
is when he expressly binds himself to the obligation and the second
is when he exceeds his authority. In the last instance, the agent can
be held liable if he does not give the third party sufficient notice of
his powers. (at p. 593.)
In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court held that
the right of inspection given to a stockholder under the law can be
exercised either by himself or by any proper representative or
attorney in fact, and either with or without the attendance of the
stockholder. This is in conformity with the general rule that what a
man may do in person he may do through another.
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5. Kinds of Agency
a. Based on the Business or Transactions Covered
Under Article 1876 of the Civil Code, an agency is termed to be a
general agency when it encompasses all of the business of the
principal. As demonstrated in the discussions hereunder, the better
term for such an agency would be a universal agency, for the term
general agency is one that is addressed to the general public, and
not just a particular person or group of persons which whom the
agent is to transact. (Besides, the term universal agency is more
consistent with a similar coverage of universal partnership under
the Law on Partnerships.)
On the other hand, Article 1876 of the Civil Code defines a special
agency as one which covers only one or more specific transactions.
The better term for such an agency is particular agency; for
indeed, the term special agency has been used in decisions of the
Supreme Court to refer to one which is addressed to a particular
person or group of persons with whom the agent is to transact.
(Again, the use of the term particular agency is more consistent
with a similar coverage of particular partnership under the Law on
Partnerships.)
In Siasat v. Intermediate Appellate Court, 139 SCRA 238 (1985),
the Court held that a power of attorney which provides that This
is to formalize our agreement for you to represent United Flag
Industry to deal with any entity or organization, private or
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oranges a lower the price agreed upon with the purchaser which it
could not properly do if indeed it were merely acting as an agent;
(d) the local importing company charged the purchaser with a sales
tax, showing that the arrangement was indeed a sale; and (e) when
the losses occurred, the local importing company made claims
against the insurance company in its own name, indicating that he
imported the oranges as his own products, and not merely as agent
of the local purchaser.
In Pearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil. 789
(1957), the Supreme Court was unsure of its footing when it tried to
characterize a contract of sale (Contract of Purchase and Sale)
between the manufacturer of wax and its appointed distributor in
the Visayan area, as still being within a contract of agency in that
while providing for sale of Bee Wax from the plaintiff to Tong and
purchase of the same by Tong from the plaintiff, also designates
Tong as the sole distributor of the article within a certain territory.
(at p. 792) Such reasoning in Pearl Island is not sound, since as
early as in Quiroga v. Parson, the Court had already ruled that
appointing one as agent or distributor, when in fact such
appointee assumes the responsibilities of a buyer of the goods, does
not make the relationship one of agency, but that of sale. Perhaps
the best way to understand the ruling in Pearl Island was that the
suit was not between the buyer and seller, but by the seller against
the surety of the buyer who had secured the shipment of the wax to
the buyer, and the true characterization of the contract between the
buyer and seller was not the essential criteria by which to fix the
liability of the surety, thus
True, the contract (Exhibit A) is not entirely clear. It is in some
respects, even confusing. While it speaks of sale of Bee Wax to
Tong and his responsibility for the payment of the value of every
shipment so purchased, at the same time it appoints him sole
distributor within a certain area, the plaintiff undertaking is not to
appoint any other agent or distributor within the same area.
Anyway, it seems to have been the sole concern and interest of the
plaintiff to be sure that it was paid the value of all shipments of Bee
Wax to Tong and the Surety Company by its bond, guaranteed in
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unlike a sale contract which must comply with the Statute of Frauds
for enforceability, a contract of agency to sell is valid and
enforceable in whatever form it may be entered into.
In Victoria Milling Co., Inc. v. Court of Appeals, 333 SCRA 663
(2000), the Court held that an authorization given to the buyer of
goods to obtain them from the bailee for and in behalf of the
bailor-seller does not necessarily establish an agency, since the
intention of the parties was for the buyer to take possession and
ownership over the goods with the decisive language in the
authorization being sold and endorsed.
The old decision in National Rice and Corn Corp. v. Court of Appeals,
91 SCRA 437 (1979), presents an interesting situation where it is
possible for a party to enter into an arrangement, where a portion
thereof is as agent, and the other portion would be as buyer, and
still be able to distinguish and set apart to the two transactions to
determine the rights and liabilities of the parties.
In National Rice a formal contract was entered into between the
National Rice & Corn Corp. (NARIC) and the Davao Merchandising
Corp. (DAMERCO), where they agreed that DAMERCO would act as
an agent of NARIC in exporting the quantity and kind of corn and
rice mentioned in the contract (Exhibit A), as well as in
importing the collateral goods that will be imported thru barter on a
back to back letter of credit or no-dollar remittance basis; and with
DAMERCO agreeing to buy the aforementioned collateral goods.
Although the corn grains were duly exported, the Government had
issued rules banning the barter of goods from abroad. NARIC then
brought suit against DAMERCO seeking recovery of the price of the
exported grains. The Court ruled that insofar as the exporting of the
grains was concerned, DAMERCO acted merely as agent of NARIC
for which it cannot be held personally liable for the shortfall
considering that it had acted within the scope of its authority. The
Court had agreed that indeed the other half of the agreement
whereby DAMERCO bound itself as the purchaser of the collateral
goods to be imported from the proceeds of the sale of the corn and
rice, was a valid and binding contract of sale, but for which
DAMERCO could not be made to pay the purchase price, because
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agent of both parties. (19 Cyc., 186; Henderson vs. The State, 50
Ind., 234; Blacks Law Dictionary.) A broker is one whose
occupation it is to bring parties together to bargain, or to bargain
for them, in matters of trade, commerce or navigation. (Mechem on
Agency, sec. 13; Wharton on Agency, sec. 695). Judge Storey, in
his work on Agency, defines a broker as an agent employed to make
bargains and contracts between other persons, in matters of trade,
commerce or navigation, for compensation commonly called
brokerage. (Storey on Agency, sec. 28) (at p. 279-280.)
Behn, Meyer and Co., was a tax case where the Court needed to
define the coverage of the term broker to determine the liability of
a commercial enterprise for taxes and licenses as a broker. The
commercial enterprise itself was engaged in the business . . . of
buying and selling copra, hemp, and other native products of the
Islands, and in such business the aforesaid plaintiff advanced
money for the future delivery of copra and hemp, and took as
security for the future delivery of such copra and hemp so
contracted for a mortgage on the land upon which said copra or
hemp was produced, and charging a discount on the future
deliveries of said copra or hemp, which was in compensation for the
money so advanced. (at p. 277.) Based on the definition of a
broker (quoted above), the Court held that A real-estate broker
negotiates the purchase or sale of real property. He may also
procure loans on mortgaged security, collect rents, and attend to
the letting and leasing of houses and lands. (Bouviers Law
Dictionary.) A broker acts for another. In the present case the
plaintiff was acting for itself. Whatever was done with reference to
the taking of the mortgages in question was done as an incident of
its own business. By the contract of brokerage a person binds
himself to render some service or to do something in bhelaf of or at
the request of another person (Art. 1209, Civil Code.) (at p. 280.)
Note therefore that the term broker is considered to be a
commercial term for a person or entity engaged as a middleman to
bring parties together in matters pertaining to trade, commerce or
navigation. If the person has not been given the power to enter into
the contract or commerce in behalf of the parties, then he is a
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circumstance that the bill of lading was sent to the plaintiff does not
alter its character of being merely a broker, or constitute possession
by it of the sugar shipped, inasmuch as the same was sent to it for
the sole purpose of turning it over to the purchaser for the collection
of the price. The sugar did not come to its possession in any sense.
(at p. 402.)
Because of the recognition of the occupation of a commission
merchant (i.e., commission agent), since Pacific Commercial
Company, the Court had began to recognize that unless otherwise
so indicated the termbroker is meant to cover a commercial
broker acting not as an agent, but merely a middleman, who bears
no relation with the thing he has been retained to buy or to sell; he
is merely an intermediary between the purchaser and the vendor.
He acquires neither the custody nor the possession of the thing he
sells; his only office is to bring together the parties to the
transaction.
In Reyes v. Mosqueda, 99 Phil. 241 (1956), the Court held that
when a person has been engaged to negotiate with the owner of a
parcel of land only the lowest purchase price that could be
bargained for and in turn the owner set a final price and engaged
the same person to find a buyer who would buy at such a price,
such engagement was only as a broker, then in order to earn her
commission, it was not sufficient for her to find a prospective buyer
but to find onw who will actually buy the property on the terms and
conditions imposed by the owner. (at p. 245.)
The all-encompassive defintion of broker (which may include that
of a commission agent) in Bhen, Meyer & Co. was reiterated under
the new Civil Code in Schmid and Oberly, Inc. v. RJL Martinez, 166
SCRA 493 (1988), as one who is engaged, for others, on a
commission, negotiating contracts relative to property with the
custody of which he has no concern; the negotiator between other
parties, never acting in his own name but in the name of those who
employed him. . . . a broker is one whose occupation is to bring the
parties together, in matters of trade, commerce or navigation. (at
p. 501.) It should be noted, however, that Schmid & Oberly,
Inc.involved the issue of whether the breach of the implied
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In quite a number of decisions, the Supreme Court has held that the
determination of whether one is an agent or a broker constitutes
a critical factor of whether he would be entitled to the commission
stipulated in the contract.
The very terms broker or brokering are commercial terms
where the essence of the activity or occupation undertaken is to
earn a commission. Thus, in Reyes v. Rural Bank of San Miguel, 424
SCRA 135 (2004), the Court held that brokering clearly indicates
the peformance of certain acts for monetary consideration or
compensation, which it concluded from the following definitions of
brokering and broker, thus:
. . . Case law defines a broker as one who is engaged, for
others, on a commission, negotiating contracts relative to properyt
with custody of which he has no concern; the negotiation between
other parties, never acting in his own name but in the name of
those who employed him . . . a broker is one whose occupation is to
bring the parties together, in mattrs of trade, commerce or
navigation. According to Bouviers Law Dictionary, brokerage
refers to the trade or occupation of a broker; the commisons paid
to a broker for his services, while brokers are those who are
engaged for others on the negotiation of contracts relative to
property, with the custody of which they have no concern. (at p.
144.)
The other principle that should be kept in mind when determining
the proper rules on the entitlement of a broker to the commission
promised by the client is what was held in Abacus Securities Corp.
v. Ampil, 483 SCRA 315 (2006), that Since a brokerage
relationship is essentially a contract for the employment of an
agent, principles of contract law also govern the broker-principal
relationship. In other words, whether the relationship a a pure
broker-middleman one, or a broker-agency, the right of the broker
to the commission promised by the client-principle is primarily
govern by the terms and conditions agreed upon them at the time
of the perfection of the contract.
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cases are uniform in this respect. (Moses 147; Van Lien vs. Burns, 1
Hilt., 134.) (at pp. 139-141.)
In other words, there is only one form of service for which the
broker is entitled to his agreed compensation (unless otherwise
stipulated of course): that his services procured the buyer and
which eventually resulted into a perfected and consummated
contract of sale; when the services and efforts expended by the
broker were of such sufficient amount that they would have brought
about the sale, but that the principal terminated his services in bad
faith with every intention to proceed with the sale to the person
procured by the broker, then the latter would still be entitled to his
compensation under the principle of efficient or procuring cause.
On the other hand, Danon also discussed the American law principle
that held that every client has the power to terminate the brokerage
relationship, thus:
One other principle applicalbe to such a contract as existed in the
present case needs to be kept in view. Where no time for the
continuance of the contract is fixed by its terms either party is at
liberty to terminate it at will, subject only to the ordinary
requirements of good faith. Usually the broker is entitled to a fair
and reasonable opportunity to perform his obligation, subject of
course to the right of the seller to sell independently. But having
been granted him, the right of the principal to terminate his
authority is absolute andunrestricted, except only that he may not
do it in bad faith, and as a mere device to escape the payment of
the brokers commissions. Thus, if in the midst of negotiations
instituted by the broker, and which were plainly and evidently
approaching success, the seller should revoke the authority of the
broker, with the view of concluding the bargain without his aid, and
avoiding the payment of commissionabout to be earned, it might be
well said that the due performance his obligation by the broker was
purposely prevented by the principal. But if the latter acts in good
faith, not seeking to escape the payment of commissions, butmoved
fairly by a view of his own interest, he has the absolute right before
a bargain is made while negotiations remain unsuccessful, before
commissions are earned, to revoke the brokers authority, and the
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Hahn v. Court of Appeals, 266 SCRA 537 (1997), where the issue
was whether a foreign corporation was deemed doing business in
the Philippines through the appointment of a local distributor, and
the resolution thereof dependent on whetther the local distributor
acted merely as agent of the foreign corporation or was selling the
foreign corporations products for its own account and not in the
name of the foreign corporation. Although the Court was able to
conclude that the local distributor was acting as an agent of the
foreign corporation since it was entering into local transactions of
the products under the control of the foreign corporation,
nonetheless, the Court held in addition: Contrary to the appellate
courts conclusion, this arrangement shows an agency. An agent
receives a commission upon the successful conclusion of a sale. On
the other hand, a broker earns his pay merely by bringing the buyer
and the seller together, even if no sale is eventually made. (at p.
549.) The quoted portion of the decision does not cite autority for
such conclusion, and essentially was not consistent with the
established
jurisprudence
starting
with Dannon that
unless
otherwise stipulated by the parties, a broker earns his commission
only when through his services there is eventually a contract that is
perfected and consummated.
In Tan v. Gullas, 393 SCRA 334 (2002), where a real estate broker
was granted a special power of attorney to negotiate only the sale
of a parcel of land at certain rate (which meant that there was not
authority to enter into juridical acts in behalf of the owner of the
land), the broker had introduced a interested buyer, but eventually
the owner appointed another person to consummate the sale with
the same buyer. The Court quoted from Schmid & Oberly, Inc. v.
RJL Martinez Fishing Corp., 166 SCRA 493 (1988), it defining
a broker as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which
he has no concern; the negotiator between other parties, never
acting in his own name but in the name of those who employed
him. x x x a broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation. (at p. 339).
Although the Court never used the efficient or procuring cause
doctrine, it went carefully through the evidence to sustain the
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proposition that the broker had actually earned his right to the
commission.
Nonetheless,
it
quoted
from Hanh that
An agent receives a commission upon the succesful conclusion of a
sale. On the other hand, abroker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually
made. (at p. 341). Citing no other authority for such perplexing
doctrine, Tan v. Gullas begazn to perpetuate the myth started
in Hanh that a broker earns his commission merely by bringing the
buyer and the seller together, even if no sale is eventually made.
In Lim v. Saban, 447 SCRA 232 (2004), the Court invoked the
compensation rules covering brokers to be applicable to contracts of
agency, thus:
To deprive Saban of his commission subsequent to the sale which
was consummated through his efforts would be a breach of his
contract of agency with Ybanez which expressly states that Saban
would be entitled to any excess in the purchase price after
deducting the P200,000.00 due to Ybanez and the transfer taxes
and other incidental expenses of the sale.
In Macondray & Co. v. Sellner, [33 Phil. 370 (1916).], the Court
recognized the right of a broker to his commission for finding a
suitable buyer for the sellers property even though the
seller himself consummated the sale with the buyer.The Court held
that it would be in the height of injustice to permit the principal to
terminate the contract of agency to the prejudice of the broker
when he had already reaped the benefits of the brokers efforts.
In Infante v. Cunanan, et al., [93 Phil. 692 (1953).], the Court
upheld the right of the brokers to their commissions although the
seller revoked their authority to act in his behalf after they had
found a buyer for his properties and negotiated the sale directly
with the buyer whom he met through the brokers efforts. The Court
ruled that the sellers withdrawal in bad faith of the brokers
authority cannot unjustly deprive the brokers of their commissions
as the sellers duty constituted agents. (at pp. 239-240; emphasis
supplied.)
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Sale
Distinguished
from
Broker
Himself
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with an agent is put upon inquiry and must discover upon his peril
the authority of the agent. (at p. 382.)
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It may in fact be wrong to presume that the agent has accepted the
appointment, and bound himself to fiduciary duties of diligence and
fidelity, when having not accepted it expressly, he pursues the
transaction in his own name and precisely for his own behalf. There
can be no contract of agency unless both the purported principal
and the purported agent give their consent.
Secondly, there seems to be an indication in Article 1870 that there
is such a thing as implied acceptance of the appointment on the
part of the agent from his silence or inaction according to the
circumstances. Since a contract of agency is essentially a
preparatory contract, which has no commercial significance of its
own without juridical acts being pursued in the name of the
principal, it is hard to imagine that there is constituted a contract of
agency by the mere silence or inaction of the agent; in fact, the
proper interpretation of the silence or inaction of the designated
agent is that he has not accepted the appointment, and that is the
reason why he has not acted one way or the other in pursuance of
the terms of the purported agency. But if an agent says nothing at
the time he is appointed, and subsequently goes out into the world
and pursues the agency in the name of the principal, then rather
than being an implied acceptance, the juridical act entered into in
the name of the principal is an express acceptance.
However, the usefulness of providing presumptive rules of implied
acceptance on the part of the agent do serve some commercial end
in the sense that one who accepts an agency is from that time on
bound by the fiduciary duties of diligence and fidelity, such that if
the fails to act when the circumstances required that he should have
so acted to protect the interests of the principal, he can be made
liable for breach of duty, and cannot claim later on that he had not
accepted the designation. In the same, manner, it would be wrong
for an agent to take advantage of confidential information or trade
secrets relayed to him by the principal, and in order to avoid
liability, he should claim that he never accepted the appointment
since he enter into the transaction in his own name.
But such policy is not well-served under the broad and allencompassing provisions of Article 1870, since the better rule would
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discover upon his peril the authority of the agent. Since there was
no showing that the other co-owners consented to the act of one
co-owner nor authorized her to act on their behalf with regard to
her transaction with purported buyer. The most prudent thing the
purported buyer should have done was to ascertain the extent of
the authority said co-owner; being negligent in this regard, the
purported buyer cannot seek relief on the basis of a supposed
agency.
On the other hand, Article 1873 of the Civil Code provides that the
declaration of a person that he has appointed another as his agent
is deemed to have constituted the person alluded to as an agent
(even when the designated person is at that point unaware of his
designation as agent), insofar as the person to whom such
declaration has been made. What is clear therefore is that third
parties must never take the words or representation of the
purported agent at face value; they are mandated to apprise
themselves of the commission and extent of powers of the
purported agent. On the other hand, third parties (to the contract of
agency) can take the word, declaration and representation of the
purported principal with respect to the appointment of, and extent
of powers, of the purported agent. The principle is self-evident from
the nature of agency as a relation of representation that an agent
acts as though he were the principal and therefore if the principal
himself says so, then it is taken at face value as a contractual
commitment.
a. Agency by Estoppel
Art. 1873. If a person specially informs another or
states by public advertisement that the 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.
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the
agent
may
execute
acts
he
considers
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The rationale for the afore-quoted ruling no longer holds true under
Article 1877 of the Civil Code which provides that An agency
couched in general terms comprises only acts of administration,
even if the principal should state that he withholds no power or that
the agent may execute such acts as he may consider appropriate,
or even though the agency should authorize a general and unlimited
management. Today, the power to sue is considered a power of
strict ownership. In any event, the Germann & Co. decision did
find that the written instrument expressly authorized the agent to
exact the payment of sums of money by legal means, which was
construed to be an express power to sue. (at pp. 65-66.)
In Yu Chuck v. Kong Li Po, 46 Phil 608 (1924), it was held that an
officer who has control and management of the corporations
business, or a specific part thereof, is deemed to have power to
employ such agents and employees as are usual and necessary in
the conduct of the corporations business, except only where such
authority is expressly vested in the Board of Directors. Therefore,
the manager of the business enterprise does not need a special
power of attorney to validly employ personnel.
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there was indeed a contract of agency and the extent of the power
and authority of the agent is on the part of the person who
purports to act for and in behalf of a principal, and even then third
parties are directed to ensure the nature and extent of the agents
power.
When what was constituted was a general power of attorney, it
covers merely acts of administration, and therefore third parties
would be less wary that the contract or transaction they entered
into is not within the powers of the agent, especially when it is one
which is in the ordinary course of business. On the other hand,
when what was constituted was an oral special power of attorney,
then lacking the written evidence of what particular power of
ownership has been granted to the agent, the third party may only
reasonably presume that the agent is granted powers of
administration.
Article 1878 of the Civil Code provides that a special power of
attorney is necessary to confer power in the agency that would
constitute acts of ownership; ideally the agency contract must be in
writing. When therefore a special power of attorney, or the
conferment of powers to the agent to execute acts of strict
ownership on behalf of the principal, is done orally, the agency
relationship may be valid as between the principal and agent, but
that third parties who deal with him must require written evidence
of his power to execute acts of strict ownership, otherwise, they are
bound to enter into the contract at their own risk.
In Home Insurance Co. v. United States Lines Co., 21 SCRA 863
(1967), the Court held that Article 1878 does not state that the
special power of attorney be in writing; be that as it may, the same
must be duly established by evidence other than the self-serving
assertion of the party claiming that such authority was verbally
given him. In Home Insurance Co., in spite of counsels assurance
that he had verbal authority to enter into compromise for purpose
of pre-trial proceedings, the Rules of Court require for attorneys to
compromise the litigation of their clients a special authority (then
Section 23, Rule 138, Rules of Court):
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And while the same does not state that the special authority be in
writing, the court has every reason to expect that, if not in writing,
the same be duly established by evidence other than the selfserving assertion of counsel himself that such authority was verbally
given him. . . For authority to compromise cannot lightly be
presumed. And if, with good reason, the judge is not satisfied that
said authority exists, as in this case, dismissal of the suit for nonappearance of plaintiff in pre-trial is sanctioned by the Rules. (at p.
866.)
In Veloso v. Court of Appeals, 260 SCRA 593 (1996), the Court
ruled that although in Barretto v. Tuason, 59 Phil. 845 (1934), it
was held that there is no requirement that the power of attorney to
be valid and binding must be notarized or in a public instrument,
nonetheless, a notarized power of attorney carries the evidentiary
weight conferred upon it with respect to its due execution.
Therefore, outside of Article 1874 which renders the sale of a piece
of land void if the power of attorney is not in writing, every contract
entered into by the agent on behalf of the principal covering acts of
ownership made pursuant to a verbal special power of attorney
would not be void, but rather unenforceable, for the principal has
every authority to pursue the resulting contract, and the third-party
would be estopped from refusing to comply with a contract he
willingly entered into absent the written authority of the agent.
In Lian v. Puno, 31 Phil. 259 (1915), the Court laid down the
general rules on construction or interpretation of written contracts
of agency, thus:
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 to be determined from
the language used. The intention is to be gathered from the whole
instrument. In case of doubt resort must be had to the situation,
surroundings and relations of the parties. Whenever it is possible,
effect is to be given to every word and clause used by the parties. It
is to be presumed that the parties said what they intended to say
and that they used each word or clause with some purpose and that
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100
To Compromise
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contract for its sale, which sale contract may provide for settlement
of issues by arbitration. Under the present provisions of Article 1878
of the Civil Code, the power to enter into arbitration cannot be
implied anymore, but must clearly be specified. Nonetheless, that
portion of the decision in Robinson Fleming that even when the
power is not specified, the exercise thereof by the agent may be
validated or ratified by the principal on acts that show adoption of
the terms of the contract, thus: We are clearly of the opinion that
the contract in question is valid and binding upon the defendant
[principal], and that authority to make and enter into it for and on
behalf of the defendant [principal], but as a matter of fact the
contract was legally ratified and approved by the subsequent acts
and conducts of the defendant [principal]. (at p. 46).
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5. An agreement for the leasing for a longer period than one year,
or for the sale of real property, or of an interest therein, and such
agreement, if made by the agent of the party sought to be charged,
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spite of the clear language of Article 1874 since the decision was
rendered under the terms of the old Civil Code, and Article 1874 is
an entirely new provision in the New Civil Code. Likewise, apart
from the deed of sale effected by the agent in Gutierrez Hermanos,
the registered owner subsequently thereto affirmed the sale under
public documentation. The procedure is also possible under Article
1874, which means that if the agent enters into a sale of a piece of
land without written authority, indeed the sale would be void; but
that if the principal subsequently, enters directly again with the
same buyer into a formal deed of sale, then the second transactions
would be valid for it is no longer covered under Article 1874.
The Supreme Courts mood on the matter has changed and current
rule is best expressed in Raet v. Court of Appeals, 295 SCRA 677
(1998), where the Court held that Article 1874 of the Civil Code
requires for the validity of a sale involving land that the agent
should have an authorization in writing; otherwise any sale
concluded on the land is void. This principle has been reiterated
in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Yasuma v.
Heirs of Cecilio S. De Villa, 499 SCRA 466 (2006); and Gozun v.
Mercado511 SCRA 305 (2006).
Nonetheless, in Escueta v. Lim, 512 SCRA 411 (2007), the Court
affirmed the ruling in Gutierrez Hermanos. Escueta involved the sale
is parcels of land effected by the sub-agent appointed by the
attorney-in-fact of the owner, who claims that that the sub-agent
was not given any special power of attorney to sell the parcels of
land. The Court held
Even assuming that [the sub-agent] has no authority to sell the
subject properties, the contract she executed in favor of the
respondents is not void, but simply unenforceable, under the second
paragraph of Article 1317 of the Civil Code which reads . . . a
contract entered into in the name of another by one who has no
authority or legal representation, or who acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly,
by the persons on whose behalf it has been executed, before it is
revoked by the other contracting party. (at p. 424.)
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The Supreme Courts latest word on the matter is found in its recent
decision in Pahud v. Court of Appeals, 597 SCRA 13 (2009), where
the issue was raised squarely of the status of a sale by one co-heir
of the property ownedpro-indiviso where the authority that was
given by the other co-heirs was merely verbal in character. In
direct answer to the issue, and before discussing the jurisprudence
involved, the Court directly held: The focal issue to be resolved in
the status of the sale of the subject property by Eufemia and her
co-heirs to the Pahuds. We find the transaction to be valid and
enforceable. (at p. 21.)
The Court noted that Article 1874 plainly provides that when the
sale of a piece of land or any interest therin is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall
be void. In then referred to the similar provision contained in Article
1878 which provides that a special power of attorney is necessary
for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously
or for a valuable consideration, and held that Such stringent
statutory requirements has been explained in Cosmic Lumber
Corporation v. Court of Appeals: . . . [T]he authority of an agent to
execute a contract [of] sale of real estate must be conferred in
writing and must give him specific authority, . . . A special power
of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal to conver the
right upon an agent to sell real estate, a power of attorney must so
express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language so
used conveys such power, no such contruction shall be given the
docuemnt. (at p. 22) Then it summarized the doctrine then
prevailing:
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clear power to sell it. The Court ruled that there was no need to
execute a separate and special power of attorney for the agent to
effect the sale of the land in the name of the principal: The special
power of attorney can be included in the general power when it is
specified therein the act or transaction for which the special power
is required. (at p. 600).
In Cosmic Lumber Corp. v. Court of Appeals, 265 SCRA 168 (1996),
the Court summarized the rules pertaining to the various scenarios
involving the sale of a piece of land through an agent, thus
When the sale of a piece of land or any interest thereon is through
an agent, the authority of the latter shall be in writing; otherwise
the sale shall be void. Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A
special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that include a sale as a necessary ingredient of
the act mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When
there is any reasonable doubt that the language so used conveys
such power, no such construction shall be given the document. (at
p. 176.)
In City Lite Realty Inc. v. Court of Appeals, 325 SCRA 385 (2000),
where written letter issued by a landowner read: We will appreciate
Metro Drugs assistance in referring to us buyers for property.
Please proceed to hold preliminary negotiations with interested
buyers and endorse formal offers to us for our final evaluation and
appraisal, the Court held that the language of the letter did not
constitute written authority to sell the land, and the appointed
individual was only designated as a contact person or a broker with
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125
deed for the conveying any real or personal property and act and
deed delivery, any lease, release, bargain, sale, assignment,
conveyance or assurance, or any other deed for the conveying any
real or personal property], the Court held that such grant of power
will not be interpreted as giving the attorney-in-fact power to bind
the principal by a contract of independent guaranty or surety
unconnected with the conduct of the mercantile business. General
words contained in such power will not be so interpreted as to
extent the power to the making of a contract of suretyship, but will
be limited, under the well-know rule of construction indicated in the
express ion ejusdem generis, as applying to matters similar to those
particularly mentioned.
Sing Juco emphasized that In article 1827 of the Civil Code it is
declared that guaranty shall not be presumed; it must be expressed
and cannot be extended beyond its specified limits. By analogy a
power of attorney to execute a contract of guaranty should not be
inferred from vague or general words, especially when such words
have their origin and explanation in particular powers of a wholly
different nature. (at p. 213.)
BA Finance Corp. v. Court of Appeals, 211 SCRA 112 (1992), held
that a contract of guaranty or surety cannot be inferred from the
use of vague or general words of commitment. Thus, the authority
given by the corporation to its agent to approve a loan up to
P350,000 without any security requirement does not include the
authority to issue guarantees for any amount.
It should be recalled that under Article 1403[2][b] of the Civil Code,
a contract of guaranty is unenforceable unless it is made in writing.
Consequently, even when the agent has the requisite special power
of attorney to enter into a contract of guaranty in behalf of the
principal, the result contract would be unenforceable if not reduced
in writing.
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The power does not expressly state that the agent may sell the
boat, but a power so full and complete and authorizing the sale of
real property, must necessarily carry with it the right to sell a half
interest in a small boat. The record further shows the sale was
necessary in order to get money or a credit without which it would
be impossible to continue the business which was being conducted
in the name of Narciso L. Manzano and for his benefit. (at p. 585)
De Manzano is authority to show that although the power to sell
immovables must be contained in a special power of attorney, and
therefore always constitutes an act of strict ownership, the sale or
encumbrance of movables may constitute either acts of
administration or acts of strict ownership, depending on the
prevailing circumstances. Thus, in De Manzano, the grant of the
express power to manage the entire business affairs of the
principal, was deemed to include the power to sell co-ownership
interest in movable property, especially when the sale was
necessary to conduct the business of the principal.
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136
137
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144
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and is liable for the damages which the principal may suffer by
reason of its negligent act [Art. 1884, Civil Code]. Hence, the Court
of Appeals erred when it opined that BA, being the principal, had no
cause of action against PAL, its agent or sub-contractor. (at p. 463.)
The Court also noted in British Airways, that since the passenger
was seeking damages for breach of contract of carriage, its cause of
action was only against the principal airline (BA), and not PAL since
the latter was not a party to the contract; but that this is not to say
that PAL is relieved from any liability due to any of its negligent
acts. (at p. 464). The Court then affirmed that the procedural
remedy that BA took, that of filing a third-party complaint against
PAL, was correct, for the purpose of ultimately determining who
was primarily at fault as between them.
6. Duty of Loyalty
a. Duty of Loyalty in General
Art. 1889. The agent shall be liable for damages if,
there being a conflict between his interests and those of the
principal, he should prefer his own. (n)
Article 1889 of the Civil Code sets-out what in corporate parlance is
known as the duty of loyalty of an agent: The agent shall be
liable for damages if, there being a conflict between his interest and
those of the principal, he should prefer his own. Agency relation is
essentially fiduciary in character, which requires of the agent to
observe utmost good faith and loyalty to the principal.
When an agent violates his duty of loyalty, as where in a conflict-ofinterests situation, he prefers his own interest to the detriment of
the principal, Article 1899 does not declare the contract or
transaction he entered into to be void, but merely makes the agent
liable for the damages suffered by the principal. In Corporate Law,
when a director or officer violates his duty of loyalty to the
corporation, he is bound to disgorge to the corporation all the
profits and earnings he obtain from his breach of duty, even when
he used his own capital or funds for the contract or transaction
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the
Principal
Whatever
Under Article 1891 of the Civil Code, every agent is bound to deliver
to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal, and even
when given to him for his benefit.
In Ojinaga v. Estate of Perez, 9 Phil. 185 (1907), the Court held
that it matters now how fair the conduct of the agent may have
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been in a particular case, nor that the principal would have been no
better of if the agent had strictly pursued his power, nor that the
principal was not, in fact, injured by the intervention of the agent
for his own profit. The result in both cases is the same; the profits
shall still pertain to the principal.
The matter shall be discussed immediately hereunder in conjunction
with the duty of every agent to account.
d. Obligation of Agent to Render Account
Art. 1891. Every agent is bound to render an account
of his transactions and to deliver to the principal whatever
he may have received by virtue of the agency, even though it
may not be owing to the principal.
Every stipulation exempting the agent from the
obligation to render an account shall be void. (1720a)
Under 1891 of the Civil Code, Every agent is bound to render an
account of his transactions and to deliver to the principal whatever
he may have received by virtue of the agency, even though it may
not be owing to the principal. Every stipulation exempting the agent
from the obligation to render an account shall be void. The duty to
account and to turn over to the principal all profits and gains
received in the pursuit of the agency is an integral part of the
agents fiduciary duty of loyalty.
The Supreme Court explained in Domingo v. Domingo, 42 SCRA 131
(1971), the present version under Article 1891 was taken from
Article 1720 of the old Spanish Civil Code, with the first paragraph
consisting in changing the phrase to pay to to deliver, which
latter term is more comprehensive than the former. (at p. 137.)
Domingo also noted that the second paragraph of Article 1891
which declared void any stipulation seeking to exempt an agent
from the obligation to render an account, is a new addition
designed to stress the highest loyalty that is required to an agent
condemning as void any stipulation exempting the agent from the
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156
valuable services rendered by the agent, but the agent has only
himself to blame for that result.
x
The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs. Phipps (1911) 94
NE 260.
As a general rule, it is a breach of good faith and loyalty to his
principal for an agent, while the agency exists, so to deal with the
subject matter thereof, or with information acquired during the
course of the agency, as to make a profit out of it for himself in
excess of his lawful compensation: and if he does so he may be held
as a trustee and may be compelled to account to his principal for all
profits, advantages, rights, or privileges acquired, by him in such
dealings, whether in performance or in violation of his duties, and
be required to transfer them to his principal upon being reimbursed
for his expenditures for the same, unless the principal has
consented to or ratified the transaction knowing that benefit or
profit would accrue, or had accrued, to the agent, or unless with
such knowledge he has allowed the agent so as to change his
condition that he cannot be put in status quo. The application of this
rule is not affected by the fact that the principal did not suffer any
injury by reason of the agents dealings, or that he in fact obtained
better results; nor is it affected by the fact that there is a usage or
custom to the contrary, or that the agency is a gratuitous one. (at
pp. 138-140)
However, Domingo also held that the duty embodied in Article 1891
to account will not apply if the agent or broker had informed the
principal of the gift or bonus or profit he received from the
purchaser and his principal did not object thereto. (at p. 140)
The Court also held in Domingo that Paragraph 2 of Article 1891
(waiver of duty to account is void) is designed to stress the highest
loyalty that is required of an agent. Article 1891 (and Article 1909)
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Under Article 1914 of the Civil Code, the agent may retain in pledge
the things which are the object of the agency until the principal
effects the reimbursement and pays the indemnity provided in
Articles 1912 and 1913.
6. Specific Obligation Rules for Agents
a. Obligation of Agent to Advance Funds
Art. 1886. Should there be a stipulation that the
agent shall advance the necessary funds, he shall be bound
to do so except when the principal is insolvent. (n)
There is no common-law duty or obligation on the part of the agent
to advance his own funds in behalf of the principal; for indeed, one
of the distinguishing characteristic of every agency is that the agent
does not personally become liable for the contracts and transactions
pursued in behalf of the principal.
Under Article 1886 of the Civil Code, the only time that an agent is
legally bound to advance personal funds in the pursuit of the agency
is when such obligation has been expressly agreed upon in the
creation of the contract of agency. But even in such a case, the
agent may refuse to advance any personal funds when the principal
is insolvent. Indeed, under Article 1919(3) of the Civil Code,
insolvency of the principal extinguishes the agency.
b. Liability of Agent for Interest
Art. 1896. The agent owes interest on the sums he
has applied to his own use from the day on which he did so,
and on those which he still owes after the extinguishment of
the agency. (1724a)
Under Article 1896 of the Civil Code, the agent would owe interest
to the principal on the following items:
(a) On sums the agent applied to his own use from the time he used
them; and
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with whom the agent enters into juridical relations on behalf of the
principal.
Thus, under Article 1911 of the Civil Code, Even when the agent
has exceeded his authority, the principal remains solidarily liable
with the agent if the [principal] allowed the [agent] to act as though
he had full powers.
Under Article 1900 of the Civil Code, insofar as third persons are
concerned, an act is deemed to have been performed within the
scope of the agents authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact exceeded
the limits of his authority according to an understanding between
the principal and agent. In other words, as to third parties acting in
good faith, the written instructions of the principal are the binding
powers of the agent, and cannot be overcome by non-written
instructions of the principal not made known to them.
Thus, under the old Civil Code, where there was no counterpart of
what is now Article 1900, in Bank of P.I. v. De Coster, 47 Phil. 594
(1925), the Court held that the powers and duties of an agent are
confined and limited to those which are specified and defined in his
written power of attorney, which limitation is a notice to, and is
binding upon, the person dealing with such agent.
In effect, when the power of attorney of the agent has been
reduced in writing by the principal, it constitute, even as to third
parties dealing with the agent, the highest form of expression of the
extent and limitation of the powers of the agent, and third parties
should contract on the basis of such written instrument. Thus,
Article 1902 of the Civil Code provides that A third person with
whom the agent wishes to contract on behalf of the principal may
require the presentation of the power of attorney, or the
instructions as regards the agency. In addition, it provides that
Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney
or instruction shown them.
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of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to prove it.
This was reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
(2006).
In Yu Eng Cho v. Pan American World Airways, Inc., 328 SCRA 717
(2000), the Court held that the fact that one is dealing with an
agent, whether the agency be general or special, should be a
danger signal. The mere representation or declaration of one that
he is authorized to act on behalf of another cannot of itself serve as
proof of his authority to act as agent or of the extent of his
authority as agent.
The authority or extent of authority of an agent cannot be
established by his own representations out of court but upon the
basis of the manifestations of the principal himself. In case the fact
of agency or the extent of the authority of the agent is
controverted, the burden of proof is upon the third person to
establish it. Velasco v. La Urbana, 58 Phil. 681 (1933); BA Finance
Corp. v. Court of Appeals, 211 SCRA 112 (1992); Bacaltos Coal
Mines v. Court of Appeals, 245 SCRA 460 (1995); Safic Alcan & Cie
v.
Imperial
Vegetable
Oild
Co.,
Inc., 355
SCRA
559
(2001); Soriamont Steamship Agencies, Inc. v. Sprint Transport
Services, Inc., 592 SCRA 622 (2009).
Nonetheless, in spite of the fact that the purported agent acts
without authority or in excess of authority, under Article 1901 of the
Civil Code, a third person cannot set-up the fact that the agent has
exceeded his powers, if the principal has ratified, or has signified his
willingness to ratify the agents acts.
Recently, in Villegas v. Lingan, 526 SCRA 63 (2007), the Court held
that since, as a rule, the agency, as a contract, is binding only
between the contradicting parties, then only the parties, as well as
the third person who transacts with the parties themselves, may
question the validity of the agency or the violation of the terms and
conditions found therein.
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the Court ruled that the principals could recover their lost
investment from the agent: There is nothing in the record which
would indicate that the defendant failed to exercise reasonable care
and diligence n the performance of his duty as such agent, or that
he undertook to guarantee the vendors title to the land purchased
by direction of the plaintiffs. (at p. 566.)
In the same manner, in Esperanza and Bullo v. Catindig, 27 Phil.
397 (1914), an action brought in the name of the agent and not in
the name of the principal who is the real party in interest, must be
dismissed not upon the merits, but upon the ground that it has not
been properly instituted.
According to the Court in Eurotech Industrial Technologies, Inc. v.
Cuizon,521 SCRA 584 (2007), Article 1897 of the Civil Code
reinforces the well-established doctrine that an agent, who acts as
such, is not personally liable to the party with whom he contracts.
The basis of the rule set-out in Article 1897 finds its roots in
the principle of relativity in Contract Law which provides that a
contract is binding only as between the parties and their successorsin interest. Consequently, a person acting as a mere representative
of another acquires no rights whatsoever, nor does he incur any
liabilities arising from the said contract between his principal and
another party. Angeles v. Philippine National Railways (PNR), 500
SCRA 444 (2006). Chua v. Total Office Products and Services
(Topros), Inc., 471 SCRA 500 (2005); Tan v. Engineering
Services, 498 SCRA 93 (2006); Chong v. Court of Appeals, 527
SCRA 144 (2007).
In Bay View Hotel v. Ker & Co., 116 SCRA 327 (1982), where
admissions were made in a case filed by an agent prior to the
amendment of the petition which formally included the principal as a
party to the case, the Court denied the argument that since the
implied admission was made before the amendment of its
complaint, it cannot work to the benefit of the principal, thus
Moreover, since an agent may do such acts as may be conducive to
the accomplishment of the purpose of the agency, admissions
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secured by the agent within the scope of the agency ought to favor
the principal. This has to be the rule, for the act or declarations of
an agent of the party within the scope of the agency and during its
existence are considered and treated in turn as declarations, acts
and representations of his principal and may be given in evidence
against such party. (at pp. 332-333)
Caoile v. Court of Appeals, 226 SCRA 658 (1993), held that one who
signs a receipt as a witness with the word agent typed below his
signature, but never received the alleged amount or anything on
account of the subject transaction, is not personally liable.
In Uy v. Court of Appeals, 314 SCRA 69 (1999), agents who have
been authorized to sell parcels of land cannot claim personal
damages in the nature of unrealized commission by reason of the
act of the buyer is refusing to proceed with the sale: Petitioners
[agents] are not parties to the contract of sale between their
principals and NHA. They are mere agents of the owners of the land
subject of the sale. As agents, they only render some service or do
something in representation or on behalf of their principals. [Article
1868, Civil Code.] The rendering of such service did not make them
parties to the contracts of sale executed in behalf of the latter.
Since a contract may be violated only by the parties thereto as
against each other, the real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must, generally, either
be parties to said contract. (at p. 77, citing Marimperio Compania
Naviera, S.A. v. Court of Appeals, 156 SCRA 368 [1987]).
In Tan v. Engineering Services, 498 SCRA 93 (2006), the Court held
that the essence of agency being the representation of another, it is
evident that the obligations contracted are for and on behalf of the
principal a consequence of this representation is the liability of the
principal for the acts of his agent performed within the limits of his
authority that is equivalent to the performance by the principal
himself who should answer therefor.
An agent is not personally liable to the party with whom he
contracts unless he expressly binds himself or he exceeds the limits
of his authority without giving such party sufficient notice of his
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In Smith Bell v. Court of Appeals, 267 SCRA 530 (1997), the Court
held that the appointment by a foreign insurance company of a local
settling or claim agent, clothed with power to settle all the losses
and claims that may arise under the policies that may be issued by
or in behalf of the foreign company, does not amount to a
contractual acceptance of personal liability on the part of the local
settling or claim agent. An adjustment and settlement agent is no
different from any other agent from the point of view of his
responsibilities, for he also acts in a representative capacity.
[quoted from Salonga v. Warner, Barnes &Co., Ltd., 88 Phil. 125
(1951)]. In the same manner, a resident agent, as a representative
of the foreign insurance company, is tasked only to receive legal
processes on behalf of its principal and not to answer personally for
the any insurance claims.
Benguet v. BCI Employees, 23 SCRA 465 (1968), held that under
Article 1897 of the Civil Code, when the agent expressly binds
himself to the contract entered into on behalf of the principal, then
he become personally bound thereto to the same extent as the
principle. But the doctrine is not applicable viceversa, since
everything agreed upon by the principal to be binding on himself is
not legally binding personally on the agent. Thus when the previous
agent of the union bound itself personally liable on the contracts of
the union, the new agent is need deemed bound by the assumption
undertaken by the original agent.
(3) Exception: When Agent is Guilty of Fraud or Negligence
Art. 1909. The agent is responsible not only for fraud,
but also for negligence, which shall be judged with more or
less rigor by the courts, according to whether the agency
was or was not for a compensation. (1726)
When an agent, though acting within the scope of his authority, acts
with fraud or negligence, it affects two levels of legal relationships:
(a) that between the principal and the agent; and (b) insofar a third
parties are concerned, when they have entered into a contract with
the agent in the name of the principal. In other words, an agents
fraudulent or negligent acts produces two sets of liabilities for him,
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charterer, its local agent was sought to be the entity made liable for
the damage caused. The Court hel: The difficulty is that [the
principal charterer] has not been impleaded in theses cases and so
is beyond our jurisdiction. The liability imposable upon it cannot be
borne by [local counterpart] which, as a mere agent, is not
answerable for injury caused by its principal. It is a well-settled
principle that the agent shall be liable for the act or omission of the
principal only if the latter is undisclosed. (at p. 354.)
(4) Agent Has No Authority to Bring Suit in Contracts Entered
into In the Name of the Principal
In Uy v. Court of Appeals, 314 SCRA 69 (1999), the Court held that
the agents of the parties to a contract do not have the right to bring
an action based on said contract even if they rendered some service
on behalf of their principal: Petitioners are not parties to the
contract of sale between their principals and NHA. They are mere
agents of the owners of the land subject of the sale. As Agents, they
only render some service or do something in representation or on
behalf of their principals. The redenring of such service did not
make them parties to the contracts of sale executed in behalf of the
latter. Since a contract may be vi0lated only by the parties thereto
as against each other, the real parties-in-intrest, either as plaintiff
or defendant, in an action upon that contract must, generally, either
be parties to said contract. (at p. 77.) The doctrine was reiterated
in Ormoc Sugarcane Planters Association, Inc. (OSPA) v. Court of
Appeals, 596 SCRA 630 (2009).
b. Effects of Acts Done by Agent Without Authority or in
Excess of His Authority
Art. 1898. If the agent contracts in the name of the
principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the
party with whom the agent contracted is aware of the limits
of the powers granted by the principal. In this case,
however, the agent is liable if he undertook to secure the
principals ratification. (n)
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his power or authority, the principal cannot be held liable for the
acts of the agent. If the said third person is aware of the limits of
the authority, he is to blame, and is not entitled to recover damages
from the agent, unless the latter undertook to secure the principals
ratification. (at p. 31.)
In Borja, Sr. v. Sulyap, Inc., 399 SCRA 601 (2003), the Court held
that even when the agent, in this case the attorney-at-law who
represented the client in forging a compromise agreement, has
exceeded his authority in inserting penalty clause, the status of the
said clause is not void but merely voidable,i.e., capable of being
ratified. Indeed, the clients failure to question the inclusion of the
penalty in the judicial compromise despite several opportunities to
do so and with the representation of new counsel, was tantamount
to ratification; hence, the client was stopped from assailing the
validity thereof.
In Pineda v. Court of Appeals, 376 SCRA 222 (2002), where it was
admitted by the buyer of a parcel of land that at the time he
purchased respondents property from [the agent] Pineda, the
latter had no Special power of Attorney to sell the property, ruled
the contract of sale to be void for lack of consent, rather than
unenforceable for having been entered into the names of the
registered owner by one who was not duly authorized, thus:
Further, Article 1318 of the Civil Code lists the requisites of a valid
and perfected contract, namely: (1) consent of the contracting
parties; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established. Pineda
was not authorized to enter into a contract to sell the property. As
the consent of the real owner of the property was not obtained, no
contract was perfect. (at p. 229; emphasis supplied.).
It may be true that the resulting sale was void under the terms of
Article 1874 of the Civil Code that declares a sale void the sale of a
piece of land effected through an agent, when the authority of the
agent is not in writing, but it was wrong for the Court to reason out
as afore-quoted, that the sale is void when made in the name of the
real owner whenever the purported agent had in fact no authority,
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since it is clear under Article 1403 of the Civil Code, that such legal
infirmity does not render the sale void, but merely unenforceable.
In National Bank v. Welsh Fairchild, 44 Phil 780 (1923), the Court
held that while it is true that an agent who acts for a revealed
principal in the making of a contract does not become personally
bound to the other party in the sense that an action can ordinarily
be maintained upon such contract directly against the agent, yet
that rule does not control when the agent cannot intercept and
appropriate the thing which the principal is bound to deliver, and
thereby make the performance of the principal impossible. The
agent in any event must be precluded from doing any positive act
that could prevent performance on the part of his principal,
otherwise it becomes liable also on the contract.
In Zayco v. Serra, 49 Phil 985 (1925), it was held that when the
administration enters into a contract that are outside of the scope of
authority, the contract would nevertheless not be an absolute
nullity, but simply voidable at the instance of the parties who had
been improperly represented, and only such parties can assert the
nullity of said contracts as to them.
National Power Corp. v. National Merchandising Corp., 117 SCRA
789 (1982), clarified that the rule that a contract entered into by
one who has acted beyond his powers shall be unenforceable refers
to the unenforceability of the contract against the principal, and
does not apply where the action is against the agent himself for
contracting in excess of the limits of his authority.
In DBP v. Court of Appeals, 231 SCRA 370 (1994), the Court held
that the rule that the agent is liable when he acts without authority
is founded upon the supposition that there has been some wrong or
omission on his part either in misrepresenting, or in affirming, or
concealing the authority under which he assumes to act. Inasmuch
as the non-disclosure of the limits of the agency carries with it the
implication that a deception was perpetuated on the unsuspecting
client, the provisions of Articles 19, 20 and 21 of the Civil Code
come into play. In otherwise, the basis of the personal liability on
the part of the agent is tort.
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that in case of excess of authority, both the agent and the principal
are liable to the other contracting party.
In Commissioner of Public Highways v. San Diego, 31 SCRA 617
(1970), the Court held that in an expropriation proceeding, the
State cannot raise the alleged lack of authority of the counsel of the
owner of the property to bind his client in a compromise agreement
because such lack of authority may be questioned only by the
principal or client. This was so because it is within the right or
prerogative of the principal to ratify even the unauthorized acts of
the agent.
c.
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action against the persons with whom the agent has contracted;
neither have such persons against the principal. In such case the
agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal. In that case,
since the principals had caused their agent to enter into a charter
party in his own name and without disclosing that he acted for any
principal, then the principals have no standing to sue upon any
issue or cause of action arising from said charter party.
Lately, Gozun v. Mercado, 511 SCRA 305 (2006), reiterated the
general rule in the law agency that, in order to bind the principal by
a mortgage on real property executed by an agent, it must upon its
face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only.
(1) Exception: When the Property Involved in the Contract
Belongs to the Principal
The exception, as provided in Article 1883, is when the properties of
the principal are involved, in which case the principal is bound even
when the contract was entered into in the name of the agent. Gold
Star Mining Co., Inc. v. Lim-Jimena, 25 SCRA 597 (1968); which,
according to Philippine National Bank v. Agudelo , 58 Phil. 655
(1933), iis a rule necessary for the protection of third persons
against possible collusion between the agent and the principal.
Thus, in Sy-Juco v. Sy-Juco, 40 Phil 634 (1920), the Court held
that the fact that money used by the agent belonged to the principal
is covered by the exception.
Rural Bank of Bombon (Camarines Sur), Inc. v. Court of Appeals,
212 SCRA 25 (1992), it was argued that even though the real estate
mortgage was executed by the authorized agent in his own name,
nonetheless, the mortgage was binding on the principal under the
second paragraph of Article 1883 which would make the mortgage
binding on the principal because the contract involves things
belonging to the principal, (at p. 31). The Court held that for the
paragraph to apply, it is essential that the transactions undertaken
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were still for the account or interest of the principal, unlike in the
case at bar where the real estate mortgage was executed to secure
the personal loans of the agent, thus
The above provision of the Civil Code relied upon by the petitioner
Bank, is not applicable to the case at bar. Herein respondent Aquino
acted purportedly as an agent of Gallardo, but actually acted in his
personal capacity. Involved herein are properties titled in the name
of respondent Gallardo against which the Bank proposes to foreclose
the mortgage constituted by an agent (Aquino) acting in his
personal capacity. Under these circumstances, we hold, as we did in
Philippine sugar Estates Development co. vs. Poizat, supra, that
Gallardos property is not liable on the real estate mortgage: (at p.
31.)
(2) Remedy of the Principal Is to Recover Damages from the
Agent
Article 1883 of the Civil Code makes it clear that the foregoing rules
are without prejudice to actions between principal and agent.
Aivad v. Filma Mercantile Co., 49 Phil. 816 (1926), held that the
rule in this jurisdiction is that where the merchandise is purchased
from an agent with undisclosed principal and without knowledge on
the part of the purchaser that the vendor is merely an agent, the
purchaser take titles to the merchandise and the principal cannot an
actions against him for the recovery of the merchandise or even for
damages, but can only proceed against the agent.
In Phil. Bank of Commerce v. Aruego, 102 SCRA 530 (1981), A
party who signs a bill of exchange as an agent (as the President of
the company), but failed to disclose his principal becomes
personally liable for the drafts he accepted, even when he did so
expressly as an agent. Section 20 of the Negotiable Instruments
Law says provides expressly that when an agent signs in an
representative capacity, but does not indicate or disclose his
principal would incur personal liability on the bill of exchange.
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Under Article 1909 of the Civil Code , the agent is responsible to the
principal for the damages suffered for his fraud and his negligence,
which shall be judged with more or less rigor by the courts
according to whether the agency was or was not for a
compensation.
International Films v. Lyric Film Exchange, 63 Phil. 778 (1936), held
that the failure of the sub-agent who has custody of the film to
insure against loss by fire, where there was no instruction received
from the principal to so insure or that the insurance of the film was
not a part of the obligation imposed upon an agent by law, does not
constitute either negligence or fraud.
In Tan Tiong Teck v. SEC, 69 Phil. 425 (1940), where the client
order the broker to sell the shares giving a floor or minimum price,
and the broker did sell at the minimum price indicated even though
the prevailing ranging prices were much higher that they, the
broker was liable for the difference suffered by the principal because
the broker failed to exercise the prudence and tact of a good father
of a family which the law required of him.
In Philippine National Bank v. Bagamasbad and Ferrer, 89 Phil. 365
(1951), where the manager of the bank released the proceeds of an
unauthorized loan to unqualified borrower, the Court ruled that the
bank may recover both against the borrower and its manager, and
the suit could not be considered as the principal-bank ratifying the
unauthorized act of its agent-manager, but was merely seeking to
diminish as much as possible the loss to itself.
In Green Valley v. IAC, 133 SCRA 697 (1984), where the purported
agent refused to be held liable for merchandise received from the
principle on the ground that it was a mere agent to sell and the
ultimate buyers of the products should be the one made liable for
the purchase price, (whereas the purported principal insisted that it
was a sale arrangement), the Court ruled that whether the contract
between the parties be one of sale or agency to sell, there is no
doubt that the purported agent would be personally liable for the
price of the merchandise sold. Being a commission agent under its
authority, then pursuant to Article 1905, it should not have sold the
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respondents, Marife S. Nino, went to the bank to ask for the board
resolution, she was merely told to bring the receipts. The bank
failed to categorically declare that Tena had no authority.
As to the merits of the case, it is a well-established rule that one
who clothes another with apparent authority as his agent and holds
him out to the public as such cannot be permitted to deny the
authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith and in
the honest belief that he is what he appears to be (Mack, et al. v.
Camps, 7 Phil. 553 [1907]; Philippine National Bank v. Court of
Appeals, 94 SCRA 357 [1979]). From the facts and the evidence on
record, there is no doubt that this rule obtains. The petition must
therefore fail. (at pp. 107-109)
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that since
the basis of agency is representation, then the question of whether
an agency has been created is ordinarily a question which may be
established in the same way as any other fact, either by direct or
circumstantial evidence. It was held that though that fact or extent
of authority of the agents may not, as a general rules, be
established from the declarations of the agents alone, if one
professes to act as agent for another, she may be estopped to deny
her agency both as against the asserted principal and the third
persons interested in the transaction in which he or he is engaged.
Recently, in Pahud v. Court of Appeals, 597 SCRA 13 (2009), the
Court summarized the instances when the principal can be held
personally liable for his agents deceitful acts exercised on third
parties: It is a basic rule in the law of agency that a perincipal is
subject to liability for loss caused to another by the latters reliance
upon a deceitful represetnation by an agent in the course of his
employment (1) if the representation is authorized; (2) if it is within
the implied authority of the agent to make for the principal; or (3) if
it is apparently authorized, regardless of whether the agent was
authorized by him or not to make the representation. (at pp. 2425.)
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out to the plaintiff were not intended to lay the basis of any
contractual liability, and the law will not infer the existence of a
contract contrary to the revealed intention of the parties. (at p.
571.)
The clear implication in Albaledejo & Cia. is that under a contract of
sale, the relationship between the buyer and the seller is strictly at
arms length and unless expressly or implied contracted, one cannot
assume any liability arising beyond the terms of the meeting of the
minds of the party. On the other hand, if the relationship is one of
principal and agent, then equity demands, and Articles 1911 and
1913 of the Civil Code provides, that all expenses incurred and any
losses sustained, by the agent in pursuit of the business of the
principal and those undertaken upon instruction of the principal,
should be reimbursed by the principal to the agent.
(1) Right of Agent to Retain Object of Agency in Pledge for
Advances and Damages
Art. 1914. The agent may retain in pledge the things
which are the object of the agency until the principal effects
the reimbursement and pays the indemnity set forth in the
two preceding articles. (1730).
Under Article 1914 of the Civil Code, the agent is granted the power
to retain in pledge the things which are the object of the agency
until the principal effects the reimbursement and pays the
indemnity covering advances made and damages sustained.
This is an exception to the duty of the agent, expressed in Article
1891 of the Civil Code, to deliver to the principal everything he
received even if not due to the principal.
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Under Article 1915 of the Civil Code, if two or more persons have
appointed an agent for a common transaction or undertaking, they
shall be solidarily liable to the agent for all the consequences of the
agency.
In De Castro v. Court of Appeals, 384 SCRA 607 (2002), which
involved the issue on whether all the co-owners must be impleaded
as indispensable parties to a suit brought by the agent against one
of the co-owners who executed a special power of attorney, the
Court quotes from Tolentino to explain the significance of Article
1915, thus:
The rule in this article applies even when the appointments were
made by the principals in separate acts, provided that they are for
the same transaction. The solidarity arises from the common
interest of the principals, and not from the act of constituting the
agency. By virtue of this solidarity, the agent can recover from any
principal the whole compensation and indemnity owing to him by
the others.The parties, however, may, by express agreement,
negate this solidary responsibility. The solidarity does not disappear
by the mere partition effected by the principals after the
accomplishment of the agency.
If the undertaking is one in which several are interested, but only
some create the agency, only the latter are solidary liable, without
prejudice to the effects of negotiorum gestiowith respect to the
others. And if the power granted includes various transantions some
of which are common and others are not, nonly those interested in
each transaction shall be liable for it. (at p. 615, quoting from
Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. 5, pp. 428-429, 1992 ed.)
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oOo
5 EXTINGUISHMENT OF AGENCY
[Updated: 24 August 2010]
V. EXTINGUISHMENT OF AGENCY
1. How and When Agency Extinguished
Art. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of
the principal or of the agent;
(4) By the dissolution of the firm or corporation which
entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of the
agency;
(6) By the expiration of the period for which the agency was
constituted. (1732a)
Article 1919 of the Civil Code enumerates the modes by which an
agency contract is extinguished, thus:
(a)
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(b)
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shall not prejudice the latter if they were not given notice
thereof. (1734)
Art. 1922. If the agent had general powers,
revocation of the agency does not prejudice third persons
who acted in good faith and without knowledge of the
revocation. Notice of the revocation in a newspaper of
general circulation is a sufficient warning to third persons.
(n)
Under Article 1920 of the Civil Code, the principal may revoke the
agency at will, express or implied, and thereby compel the agent to
return the document evidencing the agency. This would ensure that
the document,i.e., written power of attorney, would not fall into the
hands of third parties who then would be acting in good faith in
entering into a contract in the name of the principal, believing there
is still existing agency relation.
If the agent fails or refuses to return the power of attorney, it is
incumbent upon the principal to give proper notice to the members
of the public who may be affected by the revocation. Under Article
1921 of the Civil Code, if the agency has been entrusted for the
purpose of contracting with specified persons, its revocation shall
not prejudice the latter if they were not given notice thereof. Under
Article 1922, if the agent had general powers (i.e., not directed
towards specific persons), notice of the revocation in a newspaper
of general circulation is a sufficient warning to third persons.
The rules are consistent with the one set in Article 1873 of the Civil
Code, which provides that 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. In addition, Article 1873 provides that The power
shall continue to be in full force until the notice is rescinded in the
same manner in which it was given.
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b. Implied Revocation
Art. 1923. The appointment of a new agent for the
same business or transaction revokes the previous agency
from the day on which notice thereof was given to the former
agent, without prejudice to the provisions of the two
preceding articles. (1735a)
Art. 1924. The agency is revoked if the principal
directly manages the business entrusted to the agent,
dealing directly with third persons. (n)
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Under Article 1924 of the Civil Code, the agency is revoked when
the principal directly manages the business entrusted to the agent,
dealing directly with third persons. The provision does not state
when the act of revocation takes place, and it can be presumed
therefore that the moment the principal directly manages the
business by dealing directly with third persons, the agency is
revoked. But that would only mean that the revocation of the
agency is only with respect to the third persons with whom the
principal deals directly; as to third parties who have previously
known of the power of attorney of the agent and who have not dealt
with the principal, the agency cannot be considered revoked. It is
also apparent that unless the agent is aware or given notice that the
principal has directly managed the business which is covered by his
power of attorney, then insofar as the agent is concerned there is as
yet no revocation of his powers.
It must be made clear that the continued involvement of the
principal in the management of the business or the property which
is the object of a power of attorney given to an agent does not
necessarily mean there is intent to revoke. For indeed, agency
arrangements are not meant to curtail the power of the principal to
execute acts of ownership and administration, but as a matter of
business sense, to allow the principal, by legal fiction, to extend his
personality through the facility of the agent (Orient Air Service &
Hotel Representatives v. Court of Appeals, 197 SCRA 645 [1991]).
In other words, the direct management of the business by the
principal and directly dealing with third parties shall be deemed to
produce the effect of revocation when such acts would be
inconsistent with the terms of the power of attorney previously
given to the agent.
Such principle is best illustrated in CMS Logging v. Court of Appeals,
211 SCRA 374 (1992), where the principal appointed the agent as
his sole and exclusive export sales agent with full authority . . .to
sell and export under a firm sales contract . . . all logs produced by
[the principal] for a period of five (5) years commencing upon the
execution of the agreement x x x [and for which the agent] shall
receive five (5%) per cent commission of the gross sales of logs of
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and his agent. The defendant refused to pay the said sum upon
demand of the plaintiffs, placing such refusal upon the ground that
at the time the said tobacco was received and sold by Collantes he
was acting personally and not as agent of the defendant. This action
was brought to recover said sum.
As is seen, the only question for our decision is whether or not the
plaintiffs, acting in good faith and without knowledge, having sent
produce to sell on commission to the former agent of the defendant,
can recover of the defendant under the circumstances above set
forth. We are of the opinion that the defendant is liable. Having
advertised the fact that Collantes was his agent and having given
special notice to the plaintiffs of that fact, and having given them a
special invitation to deal with such agent, it was the duty of the
defendant on the termination of the relationship of principal and
agent to give due and timely notice thereof to the plaintiffs. Failing
to do so, he is responsible to them for whatever goods may have
been in good faith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such
relationship. (at pp. 272-273.)
Lustan v. Court of Appeals, 266 SCRA 663 (1997), held that when
the special power of attorney duly authorized the agent to represent
and act on behalf of the principal, the power granted thereto can be
relied upon by third parties for whom specifically the authority was
issued, thus:
As far as third persons are concerned, an act is deemed to have
been performed within the scope of the agents authority if such is
within the terms of the power of attorney as written even if the
agent has in fact exceeded the limits of his authority according to
the understanding between the principal and the agent. The Special
Power of Attorney particularly provides that the same is good not
only for the principal loan but also for subsequent commercial,
industrial, agricultural loan or credit accommodation that the
attorney-in-fact may obtain and until the power of attorney is
revoked in a public instrument and a copy of which is furnished to
PNB. Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to
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act as though he had full powers (Article 1911, Civil Code). The
mortgage directly and immediately subjects the property upon
which it is imposed. The property of third persons which has been
expressly mortgaged to guarantee an obligation to which the said
persons are foreign, is directly and jointly liable for the fulfillment
thereof; it is therefore subject to execution and sale for the purpose
of paying the amount of the debt for which it is liable. However,
petitioner has an unquestionable right to demand proportional
indemnification from Parangan with respect to the sum paid to PNB
from the proceeds of the sale of her property in case the same is
sold to satisfy the unpaid debts. (at p. 676.)
Lustan holds that where the special power of attorney provides that
the same is good not only for the principal loan but also for
subsequent commercial, individual, agricultural loan or credit
accommodation that the attorney-in-fact may obtain and until the
power of attorney is revoked in a public instrument and a copy of
which is furnished to the bank, in the absence of any proof that the
bank had knowledge that the last three loans were without the
express authority of the principal, the bank cannot be prejudice.
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228
229
230
231
232
an
interest
and
441;emphasis supplied.)
not
partnership.
(at
p.
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234
needed funds for labor, materials and services; deal with the
suppliers and sub-c0ntractors; and in general and together with
PAULE, oversee the effective implmentation of the project. For this,
PAULE would receive as shis share three percent (3%) of the proejct
cost while the rest of th eprofits shall go to MENDOZA. (at p. 354.)
However, since only Paule had the accredited business enterprise to
qualify for the bid, no partnership arrangement was drawn-up, and
instead Paule executed a Special Power of Attorney in favor of
Mendoza To represent me (PAULE) in my capacity as General
Manager of the E.M. PAULE CONSTRUCTION AND TRADING, in all
meetings, conferences and transactions exclusively for the
contruction of the projects (at p. 347.) with NIA. When Paule had
received his 3% share in the project costs, and the rest of the
collections from the NIA project all pertained to MENDOZA, Paule
revoked the Special Power of Attorney, depriving Mendoza of the
legal means by which to collect the unpaid billings from NIA. One of
the issues raised is whether Paule could legal revoke the Special
Power of Attorney, and his liability to Mendoza for such revocation.
The Court held in Mendozaheld
There was no valid reason for PAULE to revoke MENDOZAs SPAs.
Since MENDOZA took care of the funding and sourcing of labor,
materials and equipment for the project, it is only logical that she
controls the finances, which means that the SPAs issued to her were
necessary for the proper performance of her role in the partnership,
and to discharge the obligations she had already contracted prior to
revocation. Without the SPA, she could not collect from NIA,
because as far as it is concerned, EMPCTand not the PAULEMENDOZA partnershipis the entity it had contracted with. Without
these payments from NIA, there would be no source of funds to
complete the project and to pay off obligations incurred. As
MENDOZA correctly argues, an agency cannot be revoked if a
bilateral contract depends upon it, or if it is the means of fulfilling
an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable.
235
Under Article 1928 of the Civil Code, the agent may withdrawal from
the agency by giving due notice to the principal. If the principal
should suffer any damage by reason of the withdrawal, the agent
must indemnify him therefore, unless the agent should base his
withdrawal upon the impossibility of continuing the performance of
the agency without grave detriment to himself.
Under Article 1929 of the Civil Code, even when the agent should
withdraw for a valid reason, must continue to act until the principal
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237
238
239
240
with him in good faith. It is obvious, that third parties who deal with
the agent in bad faith (i.e., knowing that the principal is dead)
would not be protected, and the contract would be void, not just
unenforceable, for lack of the essential element of consent.
In Buason v. Panuyas, 105 Phil 795 (1959), the Court applied the
provisions of Article 1931 in upholding the validity of the sale of the
land effected by the agent only after the death of the principal,
when no evidence was adduced to show that at the time of sale
both the agent and the buyers were unaware of the death of the
principal. (Reiterated in Herrera v. Uy Kim Guan, 1 SCRA 406
[1961]).
In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251
(1978), the Court emphasized that lack of knowledge of the death
of the principal must exist at the time of contract with both the
agent and the third parties for the provision of Article 1931 to apply,
thus
Article 1931 is the applicable law. Under this provision, an act done
by the agent after the death of his principal is valid and effective
only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal, and (2) that the third
person who contracted with the agent himself acted in good faith.
Good faith here means that the third son was not aware of the
death of the principal at the time he contracted with said agent.
These two requisites must concur: the absence of one will render
the act of the agent invalid unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon
Rallos, knew of the death of his principal at the time he sold the
latters share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings
filed by Simeon Rallos before the trial court. That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of
the court a quo and of respondent appellate court when the latter
stated that Simeon Rallos must have known of the death of his
sister, and yet he proceeded with the sale of the lot in the name of
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243
relationship between the principal and the agent, such that the
agency is extinguished by the death of the agent, and his rights and
obligations arising from the contract of agency are not transmittable
to his heirs.
However, under Article 1932 of the Civil Code, if the agent dies
during the term of the agency, his heirs must notify the principal
thereof, and in the meantime must adopt such measures as the
circumstances may demand in the interest of the principal. The
provision establishes a rare situation where an obligation is imposed
by law upon persons who are not parties to a contractual
relationship, and that in fact of one that has already been
extinguished by the death of the agent.
6. Dissolution of a Corporation
The dissolution of a corporation extinguishes its juridical personality
for every purpose that seeks to pursue new business (Alhambra
Cigar v. SEC, 24 SCRA 269 [1968]) or that of a going concern
(PNB v. Court of First Instance of Rizal, Pasig, Br. XXI, 209 SCRA
244