AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
 Jurisprudence clarified that representation is the
I. INTRODUCTION
A. HOW IS AGENCY DEFINED ?
Art. 1868. By the contract of agency a person binds himself to
render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter.
 Agency – derived from the Latin verb ago, agere; the noun
agens, agentis
 Art. 1868 refers to “agency” as a type of contract.
 Art. 1869 refers to it in two different senses:
1. May be express or implied (manner by which
relationship is established)
2. May be oral (manner by which authorization or
acceptance is made)
 The term can also be used to refer to the business itself.
 As a juridical concept, “agency” can refer to a legal
relationship or a contract.
a. Legal relationship
 ”Legal relation” pertains to the connection in law between
one person or entity and another. Agency, as such, is the
connection between principal and agent
 Agency is a legal relation, founded upon the express or
implied contract of the parties, or created by law, by virtue
of which one party (agent) is employed and authorized to
represent and act for the other (principal) in business
dealings with third persons. (Mechem)
 The relationship of agency is one 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. (Rallos v Felix Go Chan)
 Agency is a fiduciary relationship. (Restatement; American
Jurisprudence; Severino v Severino)
 As fiduciary, the agent is obliged to act primarily for the
benefit of his principal in matters related to his agency.
b. Contract
 Being a contract, agency requires the essential elements of
consent, subject matter and cause.
1. Consent.
 GR: no consent, no contract of agency
 XPN: when the legal relationship of agency is created
by law, in which case, the consent of either principal
or agent need not be present
2. Subject matter
 The performance of acts by the agent in
representation of the principal.
juridical basis of agency. The mere rendering of
service does not create agency.
3. Cause.
 Agency is presumed to be for compensation.
 A person may also request appointment as an agent
to protect his interests.
Purpose
 To allow a person to act on behalf of another.
a. accomplishment of more tasks
b. multiple and simultaneous areas of activity
c. improved performance
d. multiple businesses
Elements
 Two elements under Art. 1868:
1. A person must bind himself to render some service or to
do something in representation or on behalf of another
person; and
2. With the consent of the other person.
 However, the Court has enumerated four elements:
1. Consent;
2. Object;
3. Agent acts as a representative and not for himself; and
4. Agent acts within the scope of his authority (Rallos v
Felix Go Chan)
CASIS: Elements #3 and #4 are consequences of the agency
relationship and not conditions for its existence. Thus, while
some cases list four elements of a contract of agency, in reality,
there are only two: 1) consent on the part of the principal and
agent to establish an agency relationship and 2) the purpose of
the contract is representation.
Effect: Integration and Extension
 The establishment of an agency relationship results in:
1. Integration of the personality of the principal into that of
the agent
2. Extension of the personality of the principal through the
agent
 Consequences/Effects:
1. The agent, by legal fiction, becomes the principal, and
is authorized to perform all acts which the latter would
have him do.
2. Agent is not a real party-in-interest in the contract with a
third person.
 Angeles v PNR: The legal situation is different where
an agent is constituted as an assignee. In such a case,
the agent may, in his own behalf, sue on a contract
made for his principal, as an assignee of such contract.
3. Notice to the agent is notice to the principal, but notice
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to the principal does not mean notice to the agent.
 GR: the principal is chargeable with and bound by the
knowledge of or notice to his agent (Cosmic Lumber v
CA)
 XPN: where the conduct and dealings of the agent
are such as to raise a clear presumption that he will
not communicate to the principal the facts in
controversy.
4. Bad faith of the agent is bad faith of the principal.
1. Consent
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.
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.
Art. 1871. Between persons who are present, the acceptance
of the agency may also be implied if the principal delivers his
power of attorney to the agent and the latter receives it
without any objection.
Art. 1872. Between persons who are absent, the acceptance of
the agency cannot be implied from the silence of the agent,
except:
1. When the principal transmits his power of attorney to the
agent, who receives it without any objection;
2. When the principal entrusts to him by letter or telegram a
power of attorney with respect to the business in which he
is habitually engaged as an agent, and he did not reply to
the letter or telegram.
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 power
granted by the principal. In this case, however, the agent is
liable if he undertook to secure the principal’s ratification.
Art. 1901. A third person cannot set up the fact that the agent
has exceeded his powers, if the principal has ratified, or has
signified his willingness to ratify the agent’s acts.
Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.
Art. 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law a right
to represent him.
A contract entered into in the name of another by one who has
no authority or legal representation, or who has acted beyond
his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting
party.
Art. 1403. The following contracts are unenforceable unless
they are ratified:
1. Those entered into the name of another person by one
who has been given no authority or legal representation,
or who has acted beyond his powers;
2. xxx
 Absent any showing of consent on the part of the alleged
principal for the alleged agent to act on her behalf, no
agency relationship was established. (Bordador v Luz)
 Mere closeness of relationship does not mean that an
agency relationship exists absent consent of the parties.
 There must be, on the part of the principal, an actual
intention to appoint, an intention naturally inferable from the
principal’s words or actions. In the same manner, there must
be an intention on the part of the agent to accept the
appointment and act upon it. (Tuazon v Heirs of Ramos)
 The fact that the parties intended an agency relationship will
not necessarily prevent the Court from ruling that another
type of contract existed if it believes that the necessary
elements of such contract exists.
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EXPRESS

AGENCY From:
1. Acts of the principal
IMPLIED 2. Silence, lack of action, or failure to repudiate the agency

Note: Principal must know that another person is acting on his

behalf without his authority

EXPRESS If principal delivers his

power of attorney to the
Between persons agent and the latter
ACCEPTANCE
who are present accepts it without
BY AGENT From:
objection
1. Agent’s acts which
IMPLIED carry out the agency
2. Silence or inaction
GR: Acceptance cannot
according to the
be implied from silence
circumstances Between persons
of agent
who are absent
XPN:
1. Principal transmits
POA to agent and the
latter receives it
without objection
2. When principal
entrusts to agent by
letter or telegram a
POA with respect to
the business in which
he is habitually
engaged as an agent,
and he did not reply

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
2. Object – the execution of a juridical act in
relation to a third person
 The subject matter and basis of agency is representation.
 It is not necessary that the third person with whom the agent
is to transact be identified nor is it required that the specific
juridical relation be specified upon establishment of the
agency.
 In an ER-EE relationship, for as long as an employee has the
power to represent his employer and enter into binding
transactions, he is both an employee and an agent.
3. Consideration
Art. 1875. Agency is assumed to be for compensation, unless
there is proof to the contrary.
B. WHO ARE THE PARTIES TO THE CONTRACT OF
AGENCY ?
1. Principal – one whom the agent represents and from
whom he derives his authority; and
2. Agent – one who acts for and represents the principal,
having derivative authority in carrying out the business of
the latter.
 Other terms: “attorney-in-fact”, “proxy”, “delegate”, or
“representative”
 Juridical persons such as corporations and partnerships
can be principals and agents (Art. 1919(4)).
C. MUST THE PARTIES BE CAPACITATED ?
 The principal must have capacity to contract (Arts. 1327 and
1329), and may either be a natural or juridical person (Art.
1919[4]).
 Since a contract of agency is first and foremost a contract in
itself, the parties (both principal and agent) must have legal
capacities to validly enter into an agency. However, if one of
the parties has no legal capacity to contract, then the
contract of agency is not void, but merely voidable.
 A voidable agency will produce legal consequences, when it
is pursued to enter into juridical relations with third parties. If
the principal is the one who has no legal capacity to contract,
and his agent enters into a contractual relationship in the
principal’s name with a third party, the resulting contract is
voidable and subject to annulment. On the other hand, if the
principal has legal capacity, and it is the agent that has no
legal capacity to contract, the underlying agency
relationship is voidable; and when the incapacitated agent
enters into a contract with a third party, the resulting
contract would be valid, for the agent’s incapacity is
irrelevant, the contract having been entered into, for and in
behalf of the principal, who has full legal capacity.
 If during the term of the agency, the principal or agent dies,
is placed under civil interdiction, or becomes insane or
insolvent, the agency is ipso jure extinguished (Art. 1919(3),
CC).
 It is therefore only logical to conclude that if the loss of
legal capacity of the agent extinguishes the agency, then
necessarily any of those cause that have the effect of
removing legal capacity on either or both the principal
and agent at the time of perfection would not bring about
a contract of agency.
Legal capacity
Principal Agent Underlying Resulting
agency contract with
relationship third parties
✓ ✓ Valid Valid
✓ Voidable Valid
✓ Voidable Voidable
Cases:
Rallos v Felix Go Chan (1978)
Brief Facts: Simeon, the attorney-in-fact of his sisters
Concepcion and Gerundia, sold the parcel of land he was
previously authorized to sell despite knowing that Concepcion
already died. Concepcion’s administrator went to court to have
the sale declared unenforceable and to recover the disposed
share. The trial court granted the relief prayed for, but on
appeal, the Court of Appeals upheld the validity of the sale
and dismissed the complaint.
Doctrine: The sale was null and void because, although the
buyer may have been a purchaser in good faith, said sale was
made with the agent's knowledge of his principal's death. The
general rule is that death of the principal or the agent
extinguishes the agency and this case does not fall under any
of the exceptions to the general rule.
Orient Air Services v CA (1991)
Brief Facts: American Airlines, Inc, an air carrier offering
passenger and air cargo transportation in the Philippines, and
Orient Air Services and Hotel Representatives entered into a
General Sales Agency Agreement whereby AA authorized
Orient to act as its exclusive general sales agent within PH for
the sale of air passenger transportation. Alleging that Orient
had reneged on its obligations under the Agreement by failing
to remit the net proceeds of sale in the amount of USD 254,400,
AA undertook the collection of the proceeds of tickets sold
originally by Orient and terminated the Agreement. TC
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ordered AA to reinstate Orient as its general sales agent.
Doctrine: 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.
Uy v CA (1999)
Brief Facts: Agents of landowners are suing the NHA because
NHA decided not to buy 3 out of 8 parcels of land negotiated
by the parties. Apparently, the land was at a landslide area and
not suitable for housing. SC ruled that the agents were not the
real parties-in-interest so the landowners would have to be
impleaded as plaintiffs. Moreover, the cancellation of the
contract was justified as the cause of NHA for buying the land
was negated.
Doctrine: Agents Uy and Roxas are not parties, heirs, assignees,
or beneficiaries of a stipulation pour autrui under the contracts
of sale, and because of this, they do not possess the right they
seek to enforce and are not the real parties-in-interest in the
case.
Macke v Camps (1907)
Brief Facts: Macke and Chandler delivered goods to Camps’
business. Camps refused to pay for the balance of the goods
so he was sued. The goods were ordered and received by
Ricardo Flores, representing himself to be the agent of Camps.
SC ruled that evidence is sufficient to sustain a finding that
Flores was an agent with authority to bind Camps for the
payment of goods.
Doctrine: One who clothes another 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.
Prudential Bank v CA (1993)
Brief Facts: Aurora Cruz is suing Prudential Bank because it
would not release to her the 200K which she deposited.
Prudential is insisting that Cruz had already withdrawn the
amount from her account. Through the assistance of bank
personnel Susan Quimbo, Cruz signed a withdrawal slip
thinking it was required for the process of renewing an
investment she made with the bank.
Doctrine: A banking corporation is liable to innocent third
persons where the representation is made in the course of its
business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person, for his own
ultimate benefit.
Litonjua, Jr v Eternit Corp (2006)
Brief Facts: The sale of 8 parcels of land between Litonjuas and
EC were cancelled. The Litonjuas are suing because there was
a perfected contract of sale and that they are entitled to
damages. SC ruled that the Litonjuas failed to discharge the
burden of proving that EC empowered the agents to act for
them. Absent a board resolution, the contract is void.
Doctrine: Any sale of real property of a corporation by a
person purporting to be an agent thereof but without written
authority from the corporation is null and void. When a sale of
a piece of land or any portion thereof is through an agent, the
authority of the latter shall be in writing, otherwise, the sale
shall be void.
Spouses Viloria v Continental Airlines (2012)
Brief Facts: Sps. Viloria, relying on the alleged
misrepresentation of Holiday’s Travel’s employee that there
were no available seats at Amtrak, purchased 2 round-trip
tickets on board Continental Airlines from Holiday Travel. Sps.
Viloria filed a complaint against CAI, claiming that they are
entitled to a refund in view of the misrepresentation made by
Holiday’s employee. The spouses claim that a principal-agent
relationship exists between CAI and Holiday.
Doctrine: Art. 1869 provides that agency may be 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. Since CAI
never refuted that it gave Holiday the power and authority to
conclude contracts of carriage on its behalf prior to the Sps
Viloria’s filing of a complaint, it is now estopped from denying
that Holiday is its agent.
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When should the authorization of the agent be in writing?

II. WHAT IS THE FORM OF THE 1. When the power vested in the agent involves the sale of a
CONTRACT OF AGENCY? piece of land
2. When the power vested in the agent involves the sale of
any interest on a piece of land (e.g. usufruct, mortgage)
A. ORAL
What if the authority of the agent to sell land is not in writing?
The contract is void. However, this does not mean that the
Art. 1869. Agency may be express, or implied from the acts of
agency relationship does not exist or that the agency contract
the principal, from his silence or lack of action, or his failure to
is invalid. The effect of absence of written authority only goes
repudiate the agency, knowing that another person is acting
into the validity of the sale.
on his behalf without authority.
 Note: While the rule requiring a written authorization admits
no exception, in Pahud v CA (2009), the SC upheld a deed of
Agency may be oral, unless the law requires a specific form.
sale even if the agent did not have any written authority on
the following grounds:
 Simplicity of agency relationship is demonstrated by the
 Admission by the principals regarding the sale of the
case of Air France v CA (1983)
property
 Brief Facts: Gana sought Teresita’s assistance for the
 Failure of the principals to assail the validity of the
extension of the validity of the former’s tickets, which were
transaction
due to expire on May 8, 1971. Teresita enlisted the help of
 Apparent authority given by the principals to the agent by
Ella, Manager of the Philippine Travel Bureau. Ella warned
reason of the former’s continued silence
Teresita of the expiration of said tickets. Notwithstanding
 Justice Carpio-Morales’ dissent: Estoppel, being a principle
the warnings, the Ganas still departed for Osaka on board
in equity, cannot be applied in the presence of a law clearly
Air France. The tickets expired and the Ganas had to
applicable to the case. Rationale behind the requirement of
purchase new ones. Air France refused to honor the
written authority:
tickets as the same could not be extended beyond the
1. To safeguard the interest of an unsuspecting owner
period of their validity without paying the fare differentials
from being prejudiced by the unauthorized act of
and additional travel taxes.
another
 SC: The Ganas cannot contend lack of knowledge of the
2. To caution the buyer to assure himself of the specific
said rules since Teresita was duly informed by Ella. For all
authorization of the putative agent
legal intents and purposes, Teresita was the agent of the
 CASIS: Even assuming that an implied agency or an agency
Ganas and notice to her of the rejection of the request for
by estoppel was created, the contract would still be void
extension of the validity of the tickets was notice to the
because what is required is a written authority to sell. The
Ganas, her principals. Based on this case, a simple request
mere existence of an agency relationship is not sufficient to
for assistance made by one which was accepted by
validate the sale.
another may be enough under circumstances to constitute
an agency relationship.
Form of the authority in writing
 GR: an agency relationship may be constituted orally.
 Art. 1874 does not prescribe a particular form. As such, it
However, the difficulty is in proving the existence of an oral
should be sufficient that the authority in writing should
agreement establishing an agency.
reflect the identity of the agent, a proper description of the
 If either party disputes the agency relationship orally
land, and terms of sale, if any. In effect, such an instrument
constituted, the acts of the parties contemporaneous with
would be a special power of attorney.
or subsequent to the alleged agreement would have to be
 However, in the case where the principal is a corporation,
considered.
jurisprudence explains that the written authorization
generally must be in the form of a board resolution.
B. WRITTEN

Art. 1874. When a sale of a piece of land or any interest therein

is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void.

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Cases:
Angeles v Philippine National Railways (2006)
Brief facts: Lizette Angeles, Laureano’s wife, was authorized by
Gaudencio Romualdez to be his representative in the
withdrawal of scrap rails awarded to him in a contract of sale
with PNR. When the hauling of said rails were suspended due
to documentary discrepancies and reported pilferages,
Angeles demanded a refund which PNR refused. Lizette and
Laureano sued PNR. The TC and CA dismissed the complaint
holding that the spouses were not the real parties-in-interest
as Lizette was merely a representative of Romualdez and not
an assignee to the latter’s rights with respect to the award.
Laureano maintains that the authorization letter was not in the
form of a special power of attorney, implying that Romualdez
had not intended to merely authorize his wife to perform an
act (haul the rails) for him.
Doctrine: A valid power of attorney is an instrument in writing
by which a person, as principal, appoints another as his agent
and confers upon him the authority to perform certain
specified acts on behalf of the principal. In the absence of a
statute, no form or method of execution is required for its
validity. It may be in any form clearly showing on its face the
agent’s authority.
Jimenez v Rabot (1918)
Brief Facts: Gregorio owned three properties assigned to him
as one of the heirs in the division of the estate of his father.
While he was in Vigan, he wrote to Nicolasa that he was
pressed for money and requested her to sell one of the parcels
of land and send the proceeds to pay for his debts. The sister
sold the land to Pedro Rabot. Gregorio now claims that his
sister did not have valid authority to sell the parcel of land.
Doctrine: Where the owner of real property desires to confer
upon an attorney-in-fact authority to sell the same, it is
necessary that the authority should be expressed in writing. It
is not required that the property to be sold should be precisely
as described, only that the authority should be so expressed as
to determine without doubt the limits of the agent’s authority.
City-Lite Realty Corporation v CA (2000)
Brief Facts: FP holdings owned a property with a total lot area
of 71,754 m2. A portion of which measuring 9,192 m2 was sold
through Metro Drug to City Lite. F.P. Holdings refused to sell it
to City-Lite as it only requested Metro Drug’s assistance in
finding buyers for the property.
Doctrine: The authority to sell a piece of land or any interest
therein through an agent should be in writing; otherwise, the
sale shall be void.
Cosmic Lumber v CA (1996)
Brief Facts: Agent exceeded authority of SPA, which did not
include any specific authority allowing her to alienate/sell
principal’s property.
Doctrine:
 Art 1874: 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.
 Said power of attorney must also express the powers of the
agent in clear and unmistakable language.
San Juan Structural Steel v CA (1998)
Brief Facts: San Juan entered into a sale agreement of a parcel
of land with Nenita Gruenberg (Mrs. Gruenberg), treasurer of
Motorich. San Juan already paid P100k as earnest money.
However, the sale did not push through. San Juan then wants
to compel Motorich to sell the land to them.
Doctrine: A corporate treasurer, by herself and without any
authorization from the board of directors, CANNOT validly sell
a parcel of land owned by the corporation. A written SPA is
required in order for an agent to be allowed to sell a piece of
land or any interest therein (Art 1874 & 1878).
Delos Reyes v CA (1999)
Brief facts: Renato orally sold a portion of his father’s property
to Delos Reyes (one of the lessees). When his father learned
about the sale, an action was immediately filed to recover it.
Doctrine: An oral contract of sale is void ab initio. Moreover,
there is said to be no consent, and consequently, no contract
when the agreement is entered into by one in behalf of
another who has never given him authorization therefor unless
he has by law a right to represent the latter.
AF Realty v Dieselman Freight (2002)
Brief Facts: Cruz Jr. as a member of Dieselman’s BOD, but
without a written authority from Dieselman, issued an Authority
to Sell Real Estate to Polintan who later authorized Noble to
sell a parcel of Dieselman’s lot. Noble offered to sell it to AF
Realty and the latter partially paid. Cruz, Sr. (president of
Dieselman) however terminated the contract. AF Realty then
filed a case for specific performance. Dieselman subsequently
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executed a Deed of Absolute Sale with Midas for said property.

Midas filed a Motion to Intervene in the case between AF
Realty and Dieselman.

Doctrine: The sale of land through an agent without any

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

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to buy certain materials they needed for their business. A

III.WHO HAS THE complaint for damages was then filed by the Spouses Yu
OBLIGATION TO against Pan-Am, Tagunicar and a certain Canilao.

DETERMINE EXISTENCE Doctrine: It is a settled rule that persons dealing with an

assumed agent are bound at their peril, if they would hold the
AND SCOPE OF AGENCY? principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is
 The person dealing with the agent must act with ordinary
controverted, the burden of proof is upon them to establish it.
prudence and reasonable diligence. Obviously, if he knows
or has good reason to believe that the agent is exceeding
his authority, he cannot claim protection [Keeler Electric v
Rodriguez (1922)].
 GR: Agency must exist as a fact. The law makes no
presumption thereof. The person alleging it has the burden
of proof to show, not only the fact of its existence, but also
its nature and extent [People v Yabut (1977)].

Cases:

Keeler Electric Co. v Rodriguez (1922)

Brief Facts: Keeler delivered and installed a plant (through it’s

employee Cenar) at Iloilo where it was tested and approved by
Rodriguez. Cenar gave a statement of account to Rodriguez
before he went back to Manila. Keeler requested payment
from Rodriguez for which Rodriguez replied that he already
paid to Montelibano (also an employee of Keeler) assuming
that he was authorized to collect payment for the plant.

Doctrine: Persons dealing with an assumed agent, whether the

assumed be a general or special one, are bound at their peril,
if they hold the principal, to ascertain not only the fact of the
agency but the nature and extent of the authority, and in case
either is controverted, the burden of proof is upon them to
establish it. It is, moreover, in any case entirely within the
power of the person dealing with the agent to satisfy himself
that the agent has authority he assumes to exercise, or to
decline to its relations with him.

Yu Eng Cho v Pan American (2000)

Brief Facts: Spouses Yu booked two round-trip tickets for their

business trip from Pan-Am through Claudia Tagunicar so that
they can go to San Francisco from Manila with Hongkong and
Tokyo as their stop-overs. However when they reached Tokyo
Pan-Am informed them that their names were not in the
manifest forcing them to buy tickets to Taipei instead. When
they reached Taipei there were no flights available for San
Francisco within the next 72 hours constraining them to go
back to Manila. Because they did not arrive in San Francisco on
the required date, their business partner cancelled their option

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
IV. HOW IS AGENCY
DISTINGUISHED FROM
OTHER CONTRACTS/
RELATIONSHIPS?
In General
 The need to distinguish should not be interpreted to mean
that once a contract is determined to be an agency contract,
it could not be also another type of contract.
1. Determined by acts
 The manner by which parties refer to their contract or to
themselves in relation to the contract does not determine
the nature of the contract.
 What is determinative is the nature of the acts performed by
the parties or the nature of the relationship between the
parties.
 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. The
question is to be determined by the fact that one represents
and is acting for another, and if relations exist which will
constitute an agency, it will be an agency whether the
parties understood the exact nature of their relation or not.
(Doles v Angeles (2006))
2. The element of control
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business.
 Victorias Milling v CA: One factor which most clearly
distinguishes agency from other legal concepts is control;
one person – the agent – agrees to act under the control or
direction of another – the principal.
 American Jurisprudence: a prime element of an agency
relationship is the existence of some degree of control by
the principal over the conduct and activities of the agent.
 Casis: It is not accurate to say that control is the main
distinguishing factor. It would be more accurate to say that
representation is the distinguishing factor.
 Victorias Milling: It is clear from Art. 1868 that the basis of
agency is representation… The question of whether a
contract is one of… agency depends on the intention of
the parties as gathered from the whole scope and effect
TIMELESS REVIEWERS | PROF. RYAN OLIVA | BLOCK B 2017
of the language employed.
 The rule requiring the consideration of intent of the
parties should temper the earlier quoted statement in the
same case, that control is the distinguishing factor in a
contract of agency.
A. MASTER -SERVANT
Art. 1689. Household service shall always be reasonably
compensated. Any stipulation that household service is without
compensation shall be void. Such compensation shall be in
addition to the house helper’s lodging, food, and medical
attendance.
Art. 1690. The head of the family shall furnish, free of charge,
to the house helper, suitable and sanitary quarters as well as
adequate food and medical attendance.
Art. 1691. If the house helper is under the age of eighteen
years, the head of the family shall give an opportunity to the
house helper for at least elementary education. The cost of
such education shall be a part of the house helper’s
compensation, unless there is a stipulation to the contrary.
Art. 1692. No contract for household service shall last for more
than two years. However, such contract may be renewed from
year to year.
Art. 1693. The house helper’s clothes shall be subject to
stipulation. However, any contract for household service shall
be void if thereby the house helper cannot afford to acquire
suitable clothing.
Art. 1694. The head of the family shall treat the house helper in
a just and humane manner. In no case shall physical violence
be used upon the house helper.
Art. 1695. House helpers shall not be required to work more
than ten hours a day. Every house helper shall be allowed four
days vacation each month with pay.
Art. 1696. In case of death of the house helper, the head of the
family shall bear the funeral expenses if the house helper has
no relatives in the place where the head of the family lives, with
sufficient means therefor.
Art. 1697. If the period for household service is fixed neither
the head of the family nor the house helper may terminate the
contract before the expiration of the term, except for a just
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cause. If the house helper is unjustly dismissed, he shall be
paid the compensation already earned plus that for fifteen
days by way of indemnity. If the house helper leaves without
justifiable reason, he shall forfeit any salary due him and
unpaid, for not exceeding fifteen days.
Art. 1698. If the duration of the household service is not
determined either by stipulation or by the nature of the
service, the head of the family or the house helper may give
notice to put an end to the service relation, according to the
following rules:
1. If the compensation is paid by the day, notice may be
given on any day that the service shall end at the close of
the following day;
2. If the compensation is paid by the week, notice may be
given, at the latest, on the first business day of the week,
that the service shall be terminated at the end of the
seventh day from the beginning of the week;
3. If the compensation is paid by the month, notice may be
given, at the latest, on the fifth day of the month, that the
service shall cease at the end of the month.
Art. 1699. Upon the extinguishment of the service relation, the
house helper may demand from the head of the family a
written statement on the nature and duration of the service
and the efficiency and conduct of the house helper.
B. EMPLOYER -EMPLOYEE
Art. 1700. The relation between capital and labor are not
merely contractual. They are so impressed with public interest
that labor contracts must yield to the common good.
Therefore, such contracts are subject to the special laws on
labor unions, collective bargaining, strikes and lockouts, closed
shop, wages, working conditions, hours of labor and similar
subjects.
Sevilla v CA (1988)
Brief Facts: Lina Sevilla agreed to man Tourist World Service’s
Ermita office. She received 4% commission whenever she
solicited airline fares. When Tourist found out she was working
for a competitor, they terminated the lease contract they had
with Noguera, disconnected the telephone lines, and
padlocked the branch. Sevilla says their relationship was a joint
business venture while Tourist maintains it was merely
employer-employee so Sevilla was bound by her employer’s
acts.
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Doctrine: The parties had contemplated a principal-agent
relationship, rather than a joint management or a partnership.
Sevilla solicited airline fares, but she did so for and on behalf of
her principal, Tourist World. Sevilla is entitled to damages
because the agency created is compatible with the intent of
the parties, and cannot be revoked at will. The reason is that it
is one coupled with an interest, the agency having been
created for the mutual interest of the agent and the principal.
Dela Cruz v Northern Theatrical Enterprises Inc (1954)
Brief Facts: The guard employed by Northern Theatrical
figured in a shooting incident and incurred expenses during
the litigation filed against him. The employee wants to recover
from the employer invoking the concept of agency.
Doctrine: The relationship between the movie corporation and
the guard was not that of principal and agent because the
principle of representation was in no way involved.
C. LEASE OF SERVICE
Art. 1644. In the lease of work or service, one of the parties
binds himself to execute a piece of work or to render to the
other some service for a price certain, but the relation of
principal and agent does not exist between them.
Distinguished from service providers
 A lessor of work or services cannot be an agent.
 Since the essence of agency is representation, this
implies that a lessor of work or services cannot perform
juridical acts which bind the principal.
 If, while performing his services, legal injury is suffered by
another, then the lessee may be held liable. But the lessor
cannot transact business or enter into contracts on behalf
of the lessee.
Nielson & Co v Lepanto (1968)
Brief Facts: Lepanto owned the mining properties that are
operated and maintained by Neilson. The war broke out and
mining was suspended. Mining resumed it operation only in
1948. Lepanto claims that the contract already expired in 1947.
The question WON the contract of management is in fact a
contract of agency arose in order to determine the validity of
the termination of contract.
Doctrine: In both agency and lease of services, one of the
parties binds himself to render some service to the other party.
Agency, however, is distinguished from lease of work or
services in that the basis of agency is representation, while in
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the lease of work or services the basis is employment. The
lessor of services does not represent his employer, while the
agent represents his principal. There is another obvious
distinction between agency and lease of services. Agency is a
preparatory contract, as agency “does not stop with the
agency because the purpose is to enter into other contracts.”
D. INDEPENDENT CONTRACTOR
Art. 1713. By the contract for a piece of work the contractor
binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also
furnish the material.
Fressel v Mariano Uy Chaco Sons & Co. (1916)
Doctrine: There was no principal-agent relationship. The
contractor was authorized to do work according to his own
method and without being subject to the defendant’s control,
except as to the result of the work. The contractor could also
purchase his materials and supplies from whom he pleased
and at such prices as he desired to pay.
Shell v Firemen’s Insurance (1957)
Brief Facts: Sison’s car fell from a hydraulic lift while it was
being greased in a Shell station. The car insurers and Sison are
suing Shell and the Shell operator for damages incurred.
Doctrine: Only Shell was made liable because the operator of a
gasoline and service station owed his position to the company
and the latter could remove him or terminate his services at will.
Therefore, he is an agent of the company and not an
independent contractor.
Manila Memorial v Linsangan (2004)
Doctrine: The alleged agent was an independent contractor
because the person was authorized to solicit and remit to
Manila Memorial offers to purchase interment spaces
belonging to and sold by the latter, and that such person was
authorized to solicit orders solely for and in behalf of MM. The
person was an agent “having represented the interest of the
latter, and having been allowed by MM to represent it in
dealings with clients/buyers.
Nogales v Capitol Medical (2007)
GR: A hospital is not liable for the negligence of an
independent contractor-physician.
XPN: When physician is the ostensible agent of the hospital.
TIMELESS REVIEWERS | PROF. RYAN OLIVA | BLOCK B 2017
E. TRUST
Art. 1440. A person who establishes a trust is called the trustor;
one in whom confidence is reposed as regards property for the
benefit of another person is known as the trustee; and the
person for whose benefit the trust has been created is referred
to as the beneficiary.
F. SALE
Art. 1458. By the contract of sale, one of the contracting parties
obligated himself to transfer the ownership of and to deliver a
determinate thing and the other to pay therefor a price certain
in money or its equivalent.
 The question of whether a contract is one of sale or of
agency depends on the intention of the parties. (Tuazon v
Heirs of Ramos (2005))
Quiroga v Parsons Hardware Co. (1918)
Brief Facts: Quiroga and Parsons entered into a contract where
the former granted the latter the exclusive right to sell his beds
in Visayas. Quiroga sued Parsons alleging noncompliance with
obligations which were not written in the contract. He claimed
that Parsons was his agent and argued that said obligations are
implied in a contract of commercial agency.
Doctrine: To classify a contract, due regard must be given to
its essential clauses. 1In an agency, the agent receives the thing
to sell it. He does not pay its price, but delivers to the principal
the price he obtains from the sale of the thing to a third person.
If he does not succeed in selling the thing, he returns it.
Casis’ comments: It was found that the alleged buyer returned
beds it couldn’t sell (implies an agency relationship). Other
facts imply intention to create agency relationship:
1. Corporate officer testified that the purpose of the contract
was for the Parsons to be an agent for the beds and to
collect a commission on sales.
2. Terms of contract:
a. Quiroga granted Parsons exclusive right to sell his beds;
b. Parsons was entitled to 25% commission;
1
In Chua Ngo v Universal Trading (1950), the Court looked at the
essential clauses of the contract as well as the surrounding
circumstances in order to determine whether the contract was one of
sale or agency. The Court held that it was a sale. In American Rubber v
CIR (1975), meanwhile, the Court took notice of the acts of the parties
and held that there was a contract of agency. (See Week 2 reviewer for
the digests.)
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c. Parsons bound himself not to sell any other kind of bed
except the bed of Quiroga;
d. Parsons may sell, or establish branches of his agency for
the sale of Quiroga beds in all other towns where there
are no exclusive agents.
 The Court itself said that in order to classify a contract, due
regard must be given to its essential clauses, but it ignored
such clauses and ruled that none of the clauses conveys the
idea of agency.
 The Court implies that a hierarchy exists between contracts
of sales and agency such that if the basic elements of a sale
are present, it is a contract of sale even if features of a
contract of agency are present.
Ker & Co., Ltd. v Lingad (1971)
Brief Facts: Ker and Co. had an agreement with US Rubber
International whereby the former is to sell the products of the
latter. The said products were to remain under the ownership
of US Rubber until sold to third parties and that US Rubber
would control the manner of the sales by Ker and Co. Ker and
Co. was later taxed as a broker which the former opposed. The
CTA agreed with the Commissioner of Internal Revenue that
Ker and Co. is a broker.
Doctrine: The difference between an a contract of sale and of
agency is that in the former, the ownership of the goods is
transferred and the vendor has no control over how the
vendee manages and sells the goods while in agency, the
principal retains ownership of the goods despite delivery to
the agent and the manner by which the agent manages and
sells the goods is under the control of the principal.
Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company
(1941)
Brief Facts: Puyat, on behalf of Arco, ordered sound
reproducing equipment and machinery from Starr Piano
Company. The former agreed to pay 10% commission plus all
other incidental expenses. Years later, Arco discovered that
the price quoted to them by Puyat was not the net price, but
rather the list price, and that latter obtained a discount from
Starr. Arco sued Puyat to obtain reimbursement. The TC
absolved Puyat and held that the contract was one of purchase
and sale. The CA held that the contract was that of an agency
and ordered Puyat to reimburse the overpayment.
Doctrine: There can be no agency where the person is both
the agent of the vendor and the purchaser.
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Lim v People (1984)
Brief Facts: An agreement is reached where Lim would sell
Ayroso’s tobacco, and the proceeds will be given to the latter
upon sale. Only P240 of the total value of P799.50 was remitted.
Ayroso sues for estafa.
 Lim: the agreement is not of agency but a sale, hence there
can be no estafa.
 SC: agreement is of agency; Lim guilty as charged.
Doctrine: The determination of whether an agreement is of a
sale or of an agency to sell is a question of fact.
G. PARTNERSHIP
Art. 1767. By the contract of partnership two or more persons
bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits
among themselves.
Two or more persons may also form a partnership for the
exercise of a profession.
Distinguished from partnership
 Partnership and agency are distinct contracts. The overlap
exists in the nature of the relationship between the partners
and between the partnership and the partners, which is one
of agency.
 There is mutual agency among the partners.
 See Sevilla v CA (1988), p. 10
H. NEGOTIORUM GESTIO /QUASI -CONTRACT
Art. 2144. Whoever voluntarily takes charge of the agency or
management of the business or property of another, without
any power from the latter, is obliged to continue the same until
the termination of the affair and its incidents, or to require the
person concerned to substitute him, if the owner is in a
position to do so. This juridical relation does not arise n either
of these instances:
1) When the property or business is not neglected or
abandoned;
2) If in fact the manager has been tacitly authorized by the
owner
In the first case, the provisions of Articles 1317, 1403, No. 1,
and 1404 regarding unauthorized contracts govern.
In the second case, the rules on agency in Title X of this Book
shall be applicable.
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Doctrine: A commission merchant is one engaged in the

Art. 2145. The officious manager shall perform his duties with
all the diligence of a good father of a family, and pay the
damages which through his fault or negligence may be
suffered by the owner of the property or business under
management.
The courts may, however, increase or moderate the indemnity
according to the circumstances of each case. (1889a)
I. JUDICIAL ADMINISTRATOR
 Bouvier’s Law Dictionary: An administrator is a person
lawfully appointed, with his assent, by an officer having
jurisdiction, to manage and settle the estate of a deceased
person who has left no executor, or one who is for the time
incompetent or unable to act.2
J. BROKER
 City Lite, p. 39: This obviously meant that Meldin Al G. Roy
and/or Metro Drug was only to assist FP Holdings in looking
for buyers and referring to them possible prospects whom
they were supposed to endorse to FP Holdings. But the final
evaluation, appraisal and acceptance of the transaction
could be made only by FP Holdings
purchase or sale for another of personal property which, for
this purpose, is placed in his possession and at his disposal. On
the other hand, the broker, unlike the commission merchant,
has no relation with the thing he sells or buys. He is merely an
intermediary between the purchaser and the vendor. He
acquires neither the possession nor the custody of the things
sold.
Hahn v Court of Appeals (1997)
Brief Facts: Hahn is the exclusive dealer of BMW in the
Philippines. However, due to his poor performance, BMW had
to find another dealer which Hahn did not agree to and thus
filed for specific performance with other remedies. Summons
were issued to BMW via the DTI and BMW later filed a motion
to dismiss questioning the jurisdiction of the QC RTC over its
person alleging that it was not doing business in the
Philippines. RTC deferred the motion to dismiss and the CA
later ruled that the RTC gravely abused its discretion.
Doctrine: The difference between an agent and a broker is that
an agent receives a commission upon the successful
conclusion of a sale while a broker earns his pay merely by
bringing the buyer and the seller together, even if no sale is
eventually made.

Distinguished from Brokerage

 Reyes v Rural Bank: A broker is “one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between 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.”
 Bouvier’s Law Dictionary: Brokerage refers to “the trade or
occupation of a broker.

Pacific Commercial v Yatco (1939)

Brief facts: Pacific was taxed from the sale of sugar. It was
alleged that there was double taxation because Victorias, for
whom they sold the sugar, was already taxed in its capacity as
manufacturer and owner of the sugar. SC held that there was
no double taxation; the 2nd tax was for industry or occupation.
Also, it ruled that PCC acted as commission merchant, and as
broker in its different ways of selling the sugar.

2
I don’t remember how this was defined in class so I just looked for the
definition of “administrator”. Hehe. -Mitch

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
V. SOME CLASSES OF
AGENTS
Three relationships dealt with in the law of Agency (Mechem)
1. Principal and agent (§12)
 Agent – represents his principal contractually
 If properly authorized, agent makes contracts or other
negotiations of a business nature on behalf of his principal
and by which his principal is bound
 The principal is normally not liable for torts committed by
the agent, although the agent at the moment was working
on the principal’s business
2. Master and servant (§13)
 Servant – one who works physically for another, subject to
the control of that other, who is called the master
 Servant has no power to bind the master in contract
 Note: a person can be employed in a capacity where he is
simultaneously a servant and an agent
3. Employer and independent contractor (§14)
 Independent contractor – one who performs services for
the constituent, but neither as a servant nor as an agent
 Function of the independent contractor is to do a job for
the price. The finished job must meet certain
specifications but the manner and control of doing it is up
to the contractor.
 Independent contractor has no power to represent the
principal contractually and has no power to create tort or
contract obligations against the latter
A. ATTORNEYS -AT -LAW
 An attorney-at-law is one whose business is to represent
clients in legal proceedings.
 The attorney at law is an officer of the court in which he
practices, and is, in some sense, an officer of the state. The
relationship of the attorney to his client, however, is largely
governed by the law of Agency. (§76)
 No formal authorization is ordinarily necessary. The
attorney’s authority may be shown by the same kind of
evidence which would suffice in other cases (may be inferred
from conduct subsequent ratification may cure lack of
precedent authorization)
 When a duly admitted attorney appears for a party, the
law presumes that his appearance was authorized.
 An attorney has authority “to do all acts in or out of court
necessary or incidental to the prosecution or management
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of the suit, and which affect the remedy only, and not the
cause of action.” (§77)
B. AUCTIONEERS
 An auctioneer is one whose business is to sell property for
others to the highest bidder at a public sale.
C. BROKERS
 A broker is one whose business is to act as intermediary
between two other parties such as insurance broker and real
estate broker.
 The real estate broker barely qualifies as being technically
an agent at all; his real position is more that of one to whom
an offer is made which the broker tries to accept (§560)
 Offer: to pay a commission on the performance of a
certain service
 The broker has ordinarily no power to contract on behalf
of the owner (§563)
 The broker’s right to commission is in many states limited
by one or both of two types of statutes (§561):
1. Statute of frauds
 requires that contracts to pay a broker’s commission
shall not be valid unless in writing
2. Statute providing for the qualification and licensing of
brokers and prohibits unlicensed brokers from carrying on
business
 The commission will be earned if, and only if, the broker
produces a buyer ready, able and willing to buy on the
owner’s terms before the offer is revoked or the land is sold
by the owner or another broker (§563)
 The owner may refuse to contract with the prospective
buyer, but he will remain bound to pay the commission if
the broker has tendered proper performance.
 The broker’s right to a commission is not affected even if
the asking price is not obtained in a situation where the
owner, as a result of dickering with the prospective buyer,
finally sells to the latter for less or on different terms than
those originally specified (§564, qualifying §563)
o Exception to qualification: if it is stipulated in the
listing contract that the amount of the broker’s
commission may be affected by the price actually paid
 Limitation to owner’s power to revoke: he may not “in
bad faith” revoke the broker’s authority and then proceed to
sell to a buyer discovered by the broker and with whom the
broker is negotiating. (§565)
 “exclusive agency” v “exclusive sale” (§568)
 Exclusive agency – owner retains the right to sell himself,
though not by another agent
 Exclusive right of sale – owner relinquishes for the
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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER

duration of the listing the right to sell even without the

intervention of another agent

D. FACTORS ; COMMISSION MERCHANTS

Art. 1903. The commission agent shall be responsible for the

goods received by him in the terms and conditions and as
described in the consignment, unless upon receiving them he
should make a written statement of the damage and
deterioration suffered by the same.

Art. 1904. The commission agent who handles goods of the

same kind and mark, which belong to different owners, shall
distinguish them by counter-marks, and designate the
merchandise respectively belonging to each principal.

Art. 1905. The commission agent cannot, without the express

or implied consent of the principal, sell on credit. Should he do
so, the principal may demand from him payment in cash, but
the commission agent shall be entitled to any interest or
benefit, which may result from such sale.

Art. 1906. Should the commission agent, with authority of the

principal, sell on credit, he shall so inform the principal, with a
statement of the names of the buyers. Should he fail to do so,
the sale shall be deemed to have been made for cash insofar
as the principal is concerned.

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

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

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

 A factor or commission merchant is one whose business is to

receive and sell goods for a commission, being entrusted
with the possession of the goods involved in the transaction.

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
VI. WHAT ARE THE
CLASSIFICATIONS OF
AGENCY CONTRACTS?
A. EXPRESS AGENCY ; IMPLIED AGENCY
1. Express Agency
 Created by the express act of the principal authorizing
the agent to act on his behalf and by the express act of the
agent accepting such authority → usual manner by which an
agency is established.
2. Implied Agency
a. Implied from acts of principal
 Manifested by either: (1) silence, (2) lack of action or (3)
failure to repudiate the agency knowing that another person
on his behalf without authority. (See p. 3)
 That a person is not authorized may mean either that
there is no contract of agency or that the act performed is
beyond the scope of the contract.
 Requisites for implied agency to be established:
a. Alleged principal should be aware of the acts of the
alleged agent.
b. Alleged principal has had reasonable opportunity under
the circumstances to repudiate the acts of the alleged
agent.
c. A third party has transacted with the alleged agent
without being made aware of the alleged agent’s lack of
authority.
d. There were no facts/circumstances that should have raised
any suspicion on the part of the third person that the
agent was not authorized.
 Uniland Resources v DBP: Art. 1869 does not apply when
both principal and agent knew that there’s no contract of
agency and no third person was prejudiced by the non-
recognition of the agency.
b. Implied from acts of agent
 Art. 1870 applies only to situations wherein the principal
expressly appoints the agent but the latter only impliedly
accepts.
 Implied agency is established through silence or inaction
of the agent if the latter does not inform the principal of his
rejection of the agency:
a. within a reasonable amount of time under the
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circumstances; and
b. prior to the principal suffering damage as a result of the
delay on the part of the agent in informing the principal of
such rejection of the agency relationship.
Art. 1871. Between persons who are present, the acceptance
of the agency may also be implied if the principal delivers his
power of attorney to the agent and the latter receives it
without any objection.
Art. 1872. Between persons who are absent, the acceptance of
the agency cannot be implied from the silence of the agent,
except:
1) When the principal transmits his power of attorney to the
agent, who receives it without any objection;
2) When the principal entrusts to him by letter or telegram a
power of attorney with respect to the business in which he
is habitually engaged as an agent, and he did not reply to
the letter or telegram.
 Difference between the two:
 1871: the agent impliedly accepts the agency in the
presence of the principal
 1872: indicates that the GR is that an acceptance cannot
be implied if the non-objection of the agent is not made in
the presence of the principal
 Note:
 1871: To be reasonable, the agent must be aware of the
contents of the document.
 1872: In case of transmittal – it is not required that the
power of attorney should pertain to a business that the
agent is habitually engaged in
B. AGENCY BY ESTOPPEL ; NO CONSENT
Art. 1900. So far as third persons are concerned, an act is
deemed to have been performed within the scope of the
agent’s authority, if such act is within the terms of the power of
attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between
the principal and the agent.
Art. 1911. Even when thee agent has exceeded his authority,
the principal is solidarily liable with the agent if the former
allowed the later to act as though he had full powers.
Art. 1921. 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.
Art. 1922. If the agent had general powers, revocation of the
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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.
1. Based on Statute
 Implied Agency vs Agency by Estoppel: in the former, an
actual agency exists (with consent of the parties). In the latter,
agency only exists with respect to a third person who relied
on the representations of the alleged principal/agent.
 Agency by estoppel is created to protect the interests of
a third person against an alleged principal.
 Agency by estoppel may be transformed into an implied
agency when:
 The agent carries out the agency, in which case the
situation falls under Art 1870 CC; or
 The alleged agent is made aware of the specific
information/advertisement and he is silent/fails to act
according to the circumstances.
 There is no rule in case a person claims that he is an
agent of another either by specific info or public
advertisement BUT
 An implied agency under Art. 1869 may be created if the
principal finds out and does nothing
 If the principal is completely unaware, the 3rd person has
no recourse against him.
2. Based on Jurisprudence
 Pahud v CA: Despite the absence of written authority,
they are barred from questioning the authority of their
alleged agent because they clothed him with authority by
3
their silence. The court here applied Art 1431 CC.
 Requisites (Litonjua vs Eternit)
a. MANIFESTATION: The principal manifested a He must also finish the business already begun on the death of
representation of the agent’s authority or knowingly
allowed the agent to assume such authority.
b. REPRESENTATION: Third person, in good faith, relied
upon such representation.
c. DETRIMENT: Third person changed his position to his
detriment.
 Similar to doctrine of apparent authority (based on US
jurisprudence) which requires proof of reliance upon the
representations and that the representations predated the
actions taken in reliance.
Liability of hospitals for negligence of independent contractor-
physician (Nogales v Capitol Medical Center (2006))
3
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon.
TIMELESS REVIEWERS | PROF. RYAN OLIVA | BLOCK B 2017
 GR: a hospital is not liable for the negligence of an
independent contractor-physician
 XPN: doctrine of apparent authority
 For a hospital to be liable under the doctrine of apparent
authority, a plaintiff must prove the following:
1. The hospital, or its agent, acted in a manner that would
lead a reasonable person to conclude that the individual
who was alleged to be negligent was an employee or
agent of the hospital;
2. Where the acts of the agent create the appearance of
authority, the plaintiff must also prove that the hospital
had knowledge of and acquiesced to them; and
3. The plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care and
prudence. (Gilbert v Sycamore Municipal Hospital)
 Requisites to create an agency by estoppel against hospitals
in relation to independent contractor-physician:
1. Manifestation
2. Reliance
C. AGENCY BY OPERATION OF LAW
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.
Art. 1884. The agent is bound by his acceptance to carry out
the agency and is liable for the damages which, through his
non-performance, the principal may suffer.
the principal, should delay entail any danger.
Art. 1930. The agency shall remain in full force and effect even
after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the
interest of a third person who has accepted the stipulation in
his favor.
Art. 1931. Anything done by the agent, without knowledge of
the death of the principal or of any other cause which
extinguished the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with
him in good faith.
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D. UNIVERSAL , GENERAL , SPECIAL
Art. 1876. An agency is either general or special.
The former comprises all the business of the principal. The
latter, one or more specific transactions.
1. Distinguishing “General Agency” and “Agency
Couched in General Terms”
 General agency – refers to scope of business covered.
 Agency couched in general terms – refers to type of
authority conferred on the agent.
a. As to scope: General Agency
 Comprises all the business of the principal.
 Two ways of interpreting “business of a principal”:
1. If a principal owns several businesses, a general agent
would manage all of them.
2. The general agent is one who manages the entirety of a
particular business of the principal.
 US Law: a general agent is authorized to do all acts
connected with the business or employment in which he or
she is engaged. But what is determinative of his general
agency is his continuity of service rather than extent of
responsibility.
b. As to authority: Agency Couched in General
Terms
 Only grants the agent the authority to perform 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 authorized a general and unlimited management.
 It is an act of administration if the nature of the business
requires the agent to perform certain acts repeatedly and
without need of express authorization from the principal for
each transaction.
2. Distinguishing Special Agency and Agency
Couched in Specific Terms
a. As to scope: Special Agency
 Comprises one or more specific transactions.
 The agent does not handle all of the business of the
principal, but specific aspects of his business. Otherwise he
would be a general agent.
b. As to authority: Special Power of Attorney
i. Transactions covered
 A special power of attorney is not the name of a
document, but a description of the nature of the power
granted to the agent. If the authority granted to the agent is
a power involving strict dominion, then it is SPA.
TIMELESS REVIEWERS | PROF. RYAN OLIVA | BLOCK B 2017
(demonstrated in Veloso v CA (1996))
 To be authorized to perform any of these transactions,
agent must be specifically authorized to do so. Authority
must be ‘couched in specific terms’.
ii. Effect of absence of specific authorization
 Art. 1878 does not provide for the consequence for
failure to comply with the requirement for a specific
authorization but only states that a special power of attorney
is “necessary” in the listed cases.
Art. 1878. Special powers of attorney are necessary in the
following cases:
1) To make such payments as are not usually considered as
acts of administration;
2) To effect novations which put an end to obligations
already in existence at the time the agency was
constituted;
3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
4) To waive any obligation gratuitously;
5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously
or for a valuable consideration;
6) To make gifts, except customary ones for charity or
those made to employees in the business managed by
the agent;
7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
8) To lease any real property to another person for more
than one year;
9) To bind the principal to render some service without
compensation;
10) To bind the principal in a contract of partnership;
11) To obligate the principal as a guarantor or surety;
12) To create or convey real rights over immovable
property;
13) To accept or repudiate an inheritance;
14) To ratify or recognize obligations contracted before the
agency;
15) Any other act of strict dominion.
 Dungo v Lopena (1962): A third person cannot bind another
to a compromise agreement unless he has obtained a SPA
for that purpose from the party intended to be bound. But
although the CC expressly requires a SPA in order that one
may compromise an interest of another, it is not correct to
conclude that its absence renders the compromise
agreement void. Since the compromise agreement is a
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contract, it must be governed by the rules and the law
merely states that it is merely unenforceable.
 Vicente v Geraldez (1973): Attorneys have authority to bind
their clients in any case by any agreement in relation thereto
made in writing, and in taking appeals, and in all matters of
ordinary judicial procedure, but they cannot, without special
authority, compromise their clients’ litigation.
 Cosmic Lumber v CA (1996): 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 is
void.
 Mercado v Allied Banking Corp. (2007): A power of attorney
must be strictly construed and pursued. The instrument will
be held to grant only those powers which are specified
therein, and the agent may neither go beyond nor deviate
from the power of attorney.
3. Clarifying the terms
 An instrument or power of attorney cannot create a
general and special agency at the same time.
 In contrast, it is possible for a single instrument or power
of attorney to embody both general and special powers of
attorney.
 It may be best to limit the use of “general agency” and
“special agency” as referring to the mutually exclusive terms
referring to the scope of transactions covered by agency.
Siasat v IAC (1985)
Brief Facts: Nacianceno was authorized by the Siasats to
represent the United Flag Industry to deal with any entity or
organization in connection with the marketing of the latter’s
products for a commission of 30%. When Nacianceno did not
get a commission for the second delivery made by UFI to the
Department of Education and Culture, the former filed an
action to recover against the Siasats. The Siasats claimed that
Nacianceno has no capacity to represent UFI in the transaction
with the DEC as there was no specific authorization for the sale
of the Philippine flags to the said department.
Doctrine: Where general words were employed in an
agreement that no restrictions were intended as to the manner
the agency was to be carried out or in the place where it was to
be executed, a general agency is constituted.
CASIS: The justification does not seem to correspond to the
code’s definition of a general agency but seems to be
describing an agency couched in general terms.
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Dominion Insurance v CA (2002)
Brief Facts: Acting as agent for Dominion, Guevarra paid
P156,473.90 in settling the claims of several insured clients of
petitioner out of his personal money. Guevarra thereafter filed
a civil case for sum of money to recover said amount.
Doctrine: The principal is not liable for expenses incurred by
the agent who acted in contravention of the principal's
instructions. However, while the law on agency prohibits
reimbursement in such case, the agent’s right to recover may
still be justified under Art. 1236, par. 2 of the Civil Code. Under
this provision, the agent may demand reimbursement from the
principal to the extent the payment has been beneficial to the
latter.
E. DURABLE AGENCY
Art. 1930. The agency shall remain in full force and effect even
after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the
interest of a third person who has accepted the stipulation in
his favor.
F. COUCHED IN GENERAL TERMS ; COUCHED IN
SPECIFIC TERMS
Art. 1877. An agency couched in general terms comprises only
acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as
he may consider appropriate, or even though the agency
should authorize a general and unlimited management. (n)
Art. 1878. Special powers of attorney are necessary in the
following cases:
1) To make such payments as are not usually considered as
acts of administration;
2) To effect novations which put an end to obligations
already in existence at the time the agency was
constituted;
3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
4) To waive any obligation gratuitously;
5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously
or for a valuable consideration;
6) To make gifts, except customary ones for charity or
those made to employees in the business managed by
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the agent;
7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
8) To lease any real property to another person for more
than one year;
9) To bind the principal to render some service without
compensation;
10) To bind the principal in a contract of partnership;
11) To obligate the principal as a guarantor or surety;
12) To create or convey real rights over immovable
property;
13) To accept or repudiate an inheritance;
14) To ratify or recognize obligations contracted before the
agency;
15) Any other act of strict dominion.
Art. 1879. A special power to sell excludes the power to
mortgage; and a special power to mortgage does not include
the power to sell. (n)
Art. 1880. A special power to compromise does not authorize
submission to arbitration. (1713a)
1. Mortgage
Art. 1878. Special powers of attorney are necessary in the
following cases:
(12) To create or convey real rights over immovable property;
PNB v Sta. Maria (1969)
Brief Facts: 6 siblings of Maximo Sta Maria granted him an SPA
to mortgage a16-hectare parcel of land in Bataan jointly
owned by all of them. In addition, Valeriana, Maximo’s sister,
granted him authority to borrow money. Maximo obtained 2
sugar crop loans from PNB secured by the land jointly owned
by them. PNB sued Maximo, his siblings and Associated
Insurance for the collection of unpaid balance on sugar crop
loans. RTC held them jointly and severally liable to PNB. The
siblings appealed.
Doctrine: An SPA to mortgage real estate is limited to such
authority to mortgage and does not bind the grantor
personally to other obligations contracted by the grantee, in
the absence of any ratification or other similar act that would
estop the grantor from questioning or disowning such other
obligations contracted by the grantee.
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Bank of PI v De Coster (1925)
Brief Facts: Wife issued power of atty to husband. Husband
then signed promissory note with BPI and executed chattel
and real estate mortgages in bank’s favor. Note became due
and unpaid so bank filed action. CFI ruled in bank’s favor.
Spouses did not pay for the judgment so BPI went to court
again asking for foreclosure of property mortgaged and
auction to settle debt. Wife assailed that husband had no
authority to make her liable as surety on the debt of a third
person and that debt was exclusively made by husband and his
firm. SC agreed with wife.
Doctrine: Where in an instrument powers and duties are
specified and defined, that all of such powers and duties are
limited and confined to those which are specified and defined,
and that all other powers and duties are excluded.
2. Loan/borrow
Art. 1878. Special powers of attorney are necessary in the
following cases:
(7) To loan or borrow money, unless the latter act be urgent
and indispensable for the preservation of the things
which are under administration;
Hodges v Salas (1936)
Brief Facts: Yulo was authorized to contract a loan and execute
a real estate mortage on behalf of the principals but used part
of the loan to pay off his debts. The creditor (plaintiff) filed a
petition for a foreclosure of mortgage but the CFI ruled that
the defendants are not liable for the full amount of the loan.
Doctrine: The obligation of an agent who was authorized to
procure a loan is to turn over the money to the principals or, at
least, place it at their disposal. In case, the full amount was not
delivered to the principals, the principals would be liable only
as to the amount that was actually placed at their disposal.
3. Sell
Art. 1878. Special powers of attorney are necessary in the
following cases:
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously
or for a valuable consideration;
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Strong v Gutierrez Repide (1906)
Brief Facts: Mrs. Strong’s shares in a company were sold by his
general agent. There was no specific authority granted to him
in writing.
Doctrine: There is no sufficient proof of an effective power
given to Jones to dispose of this stock. Acts of agents, beyond
the limitation of their power, are null. Power to sell should have
been expressly made and never assumed. The buyer should’ve
also inquired as to the extent of the power of the agent.
Katigbak v Tai Hing Co. (1928)
Brief Facts: Gabino, as attorney-in-fact of Po Tecsi, sold the
land to Katgbak. After said sale, Po Tecsi leased the property
sold, from Gabino, who administered it in the name of Jose M.
Katigbak, at a rental of P1,500 per month, payable in advance,
leaving unpaid the rents accrued from that date until his death
which occurred on November 26, 1926, having paid the
accrued rents up to October 22, 1925. From November 26,
1926, the defendants Po Sun Suy and Po Ching leased said
land for the sum of P1,500 per month. On Feb 11, 1927, Po Sun
Suy was appointed administrator of the estate of his father Po
Tecsi, and filed with the court an inventory of said estate
including the land in question. On May 23,1927, Katigbak sold
the same property to Po Sun Boo.
Doctrine: The power of attorney given by the principal
authorizing the agent to sell any kind of realty that "might
belong" to the principal. The use of the subjunctive
"pertenezcan" (might belong) and not the indicative
"pertenecen" (belong) means that the authority given by the
principal referred not only to the property he had at the time
the power was conferred, but also to such as he might
afterwards have during the time it was in force. While it is true
that a power of attorney not recorded in the registry of deeds
is ineffective in order that an agent or attorney-in-fact may
validly perform acts in the name of his principal, and that any
act performed by the agent by virtue of said power with
respect to the land is ineffective against a third person who, in
good faith, may have acquired a right thereto, it does, however,
bind the principal to acknowledge the acts performed by his
attorney-in-fact regarding said property.
4. Lease
Art. 1878. Special powers of attorney are necessary in the
following cases:
(8) To lease any real property to another person for more
than one year;
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Chua v IAC (1994)
Brief Facts: Herrera and On executed a lease contract over a
parcel of land and On subsequently built a house over it. On
sold the house to Bok. Bok and Herrera thru Reynes (w/out
SPA), executed a new lease contract (5 years) with a right of
first refusal. After expiration of the lease, Bok's successors-in-
interest continued to occupy. Herrera sold the lot to the Sps.
Go who sought to eject the Chuas.
Doctrine: An agent must have a special power of atty. in order
to execute a lease which covers a period of more than 1 year.
5. Compromise
Art. 1878. Special powers of attorney are necessary in the
following cases:
(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
Dungo v Lopena (1962)
Brief Facts: Dungo purchased land from Lopena and Ramos.
He and a co-debtor defaulted on payment so the property was
foreclosed. A compromise agreement and tri-party agreement
was then executed but Dungo still failed to pay. Dungo now
assails the compromise agreement because he did not sign
the same.
Doctrine: Under Article 1878 of the Civil Code, a third person
cannot bind another to a compromise agreement unless the
third person has obtained a special power of attorney for that
purpose from the party intended to be bound. However,
although the Civil Code expressly requires a special power of
attorney in order that one may compromise an interest of
another, it is neither accurate nor correct to conclude that its
absence renders the compromise agreement void. In such a
case, the compromise is merely unenforceable. This results
from its nature as a contract.
Vicente v Geraldez (1973)
Brief Facts: Hi Cement had a mining claim over lands owned
by Vicente, Angeles and Bernabe. Lawyers of Hi Cement
executed a compromise agreement wherein Hi Cement will
buy the land from the owners. LC denied the motion for
execution because of Hi Cement’s allegation that the
compromise agreement was void for want of a special
authority of the Hi Cement lawyers to enter into the agreement.
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Doctrine: As a general rule an officer or agent of the

corporation has no power to compromise or settle a claim by
or against the corporation, except to the extent that such
power is given to him either expressly or by reasonable
implication from the circumstances.

6. Other acts of Strict dominion

Art. 1878. Special powers of attorney are necessary in the

following cases:
(12) To create or convey real rights over immovable
property;

Insular Drug Co. v National Bank (1933)

Brief Facts: Foerster was a salesman and collector of Insular

Drug. He subsequently indorsed all checks made out in the
name of the Insular Drug. Foerster and his wife withdrew the
amount. After the company discovered the anomaly, Foerster
comitted suicide. The company sued the bank for the amount
withdrawn by Foerster.

Doctrine: Salesman with authority to collect money belonging

to his principal does not have the implied authority to indorse
checks received in payment.

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
VII. WHAT ARE THE
OBLIGATIONS AND LIABILITIES
OF AGENTS TO THEIR
PRINCIPALS?
A. Rights of Agents
1. Compensation
Article 1875. Agency is presumed to be for a compensation,
unless there is proof to the contrary. (n)
Article 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)
- Agent does not need to prove that he accepted the agency
for a fee.
- Principal must prove if he disputes that agency is not for
compensation.
- As to compensation: agent may need to prove the amount
agreed upon.
o Otherwise, customary rate given to agents under
similar circumstances or transactions may be applied
- Art. 1875 also implies that agency may exist without
compensation to the agent. Thus, compensation is not an
element of the contract of agency.
- Advantage of an agent without a fee: may be adjudged
with less rigor for liability for fraud or negligence pursuant
to Art. 1909.
a. Procuring Cause
In Danon v Brimo & Co. (1921):
Antonio Brimo asked Julio Danon to sell his factory (Holland
American Oil Co.) for P1.2M with the promise to pay s 5%
commission. Danon was also informed that there was another
broker, Sellner, who was trying to find the factory. Sellner
found a purchaser for the same property who bought it for
P1.3M. Court held that, all that was proven was that Danon
found a person who might have bought the factory if Brimo
had not sold it to someone else. The evidence did not show
that the Prieto had definitely decided to buy the property at
the fixed price. Danon’s services did not contribute towards
bringing about the sale of the factory and was therefore not
the efficient agent or procuring cause of the sale. Although
Danon could have effected the sale had it not been sold to
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someone else, he is not entitled to the commission because he
had no hand in the sale in question.
DOCTRINE: The agent must be the efficient procuring cause
of a sale in order to be entitled to commission.
In Hahn v. CA (1997)
DOCTRINE: The distinction between an agent and a broker as
regards entitlement to commission:
- An agent receives a commission upon the successful
conclusion of a sale.
- A broker earns his pay merely by bringing the buyer
and seller together, even if no sale is eventually made.
CASIS: Based on this ruling, in the earlier case of Danon, he
may have a reason for asking for a commission if he was merely
a broker. Note that in that case, Danon was referred to as a
broker.
In Tan v. Gullas (2002):
Sps. Eduardo & Norma Gullas executed an SPA authorizing
Manuel Tan and his associates to negotiate for the sale of their
land at P550/m2 at a commission of 3% of the gross price. Tan
contacted the Sisters of Mary of Banneaux, Inc., a religious
organization interested in acquiring the property. The spouses
Gullas agreed to sell the land to the Sisters and subsequently
executed an SPA in favor of Eufemia Cañete, giving her the
special authority to sell, transfer and convey the land for
P200/m2. Tan went to see Eduardo to claim broker’s fee but he
refused alleging that another group of agents, Pacana, was
responsible for the sale to the Sisters. Court held that, Tan et al
were brokers which entitled them to a commission regardless
of whether the sale was concluded through their efforts
because it is sufficient that they “set the sale in motion.” Tan et
al., were brokers given that they were authorized by the
spouses to negotiate the sale of their land within one month.
At the very least, Tan et al. set the sale in motion. They were
not able to participate in its consummation only because they
were prevented from doing so. Therefore, as brokers, Tan et
al., should be entitled to the commission whether or not the
sale of the property was concluded through their efforts.
DOCTRINE: Brokers are entitled to commission regardless of
whether the sale was concluded through their efforts as long as
they set the sale in motion.
In Philippine Health-Care Providers, Inc. (Maxicare) v. Estrada
(2008): Maxicare allegedly contracted the services of Carmela
Estrada to promote and sell a health care delivery program
called “Maxicare Plan” with the position of Independent
Account Executive. Estrada submitted proposals and made
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representations to Meralco regarding the Maxicare Plan.
However, when Meralco decided to subscribe, Maxicare
directly negotiated with it and left Estrada out of the discussion
of the terms and conditions of the agreement. Meralco
eventually subscribed to Maxicare and signed a Service
Agreement directly with it. Estrada demanded from Maxicare
her commission for the Meralco account which the latter
denied. Court held that, Estrada penetrated the Meralco
market and laid down the groundwork for a business
relationship. The only reason she was not able to participate in
the collection and remittance of premium dues was because
she was prevented from doing so by Maxicare. Estrada was
instrumental in the sale of the Maxicare plan to Meralco.
Without her intervention, no sale could have been
consummated.
DOCTRINE: To be regarded as the “procuring cause” of a sale
as to be entitled to a commission, a broker’s efforts must have
been the foundation on which the negotiations resulting in a
sale began.
CASIS: In this case, it seems to have been established a
different standard for determining whether a broker is a
procuring cause of a sale.
- It is sufficient that the broker set in motion a series of
events which produced a buyer wiling and able to buy
on the seller’s terms.
- The broker’s efforts must be the foundation of the
negotiations.
While it seems that Tan v. Gullas and Philippine Health-Care
Providers v. Estrada appear to lower the requirements in the
case of brokers, note that in both a sale was consummated.
- Theoretically, even if the brokers in these cases were
considered agents, they would have also been
entitled to commissions.
In Sanchez v. Medicard (2005):Medicard appointed Carlos
Sanchez as its special corporate agent. Through his efforts,
Medicard and Unilab executed a Health Cate Program
Contract, pursuant to which the latter paid the former a fixed
monthly premium for the health insurance of its personnel. This
contract was renewed for another year also through Sanchez’s
initiative. Prior expiration, Sanchez proposed to Unilab an
increase of the premium for the next year. This was rejected for
the reason that it was too high. President of Medicard, Dr.
Montoya, requested Sanchez to reduce his commission, but
the latter refused. Unilab negotiated directly with Dr. Montoya
and other officers to discuss ways to continue insurance
coverage of those personnel. Unilab and Medicard entered
into a new agreement. Sanchez filed a complaint for his
commission under the new agreement. Court held that, for an
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agent to be entitled to a commission, he must be the
procuring cause of the sale. The measures he employed and
the efforts he exerted must result in a sale. An agent receives
commission only upon the successful conclusion of a sale.
Sanchez did not render services to Medicard to entitle him to a
commission.
DOCTRINE: For an agent to be entitled to a commission, he
must be the procuring cause of the sale. The measures he
employed and the efforts he exerted must result in a sale. An
agent receives commission only upon the successful
conclusion of a sale.
CASIS: Notwithstanding this ruling, the agent who is a
procuring cause of the sale may be entitled to commission,
even if the sale was concluded after the termination of the
agency relationship under certain conditions.
In Infante v. Cunanan (1953): Consejo Infante contracted Jose
Cunanan and Juan Mijares to sell her property. Consejo also
agreed to pay 5% commission of the purchase price plus
whatever overprice they may obtain for the property. When Pio
(purchaser) was introduced to Consejo, the latter said that she
was no longer willing to sell the property. Consejo also made
Jose and Juan sign a document stating that the written
authority she had given them was cancelled. However, Consejo
dealt directly with Pio and sold the property to him. Jose and
Juan demanded payment of their commission, but Consejo
refused. Court held that, Consejo took advantage of the
services rendered by Jose and Juan, but believing that she
could evade payment of their commission, she made use of a
ruse by inducing them to sign the deed of cancellation. This
act of bad faith cannot sanctioned and cannot serve as basis
for Consejo to escape payment of the commission agreed
upon. The agent may be entitled to commission even if the
sale is consummated after the revocation of his authority, if
such was done in bad faith by the principal to avoid payment
of commission.
DOCTRINE: The agent may be entitled to commission even if
the sale is consummated after the revocation of his authority, if
such was done in bad faith by the principal to avoid payment
of commission.
In Lim v. Saban (2004): Eduardo Ybañez issued an instrument to
Florencio Saban, authorizing the latter to look for a buyer of
the former’s 1K m2 lot in Cebu. Through Saban’s efforts,
Ybañez was able to sell the lot to Genevieve Lim and the
spouses Benjamin and Lourdes Lim. After the sale, Lim paid
Saban the taxes due on the transaction and broker’s
commissioin. He also issued four postdated checks.
Subsequently, Ybañez sent a letter to Lim asking him to cancel
all the checks issued to Saban and extend another partial
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payment for the lot in his favor. Saban filed a complaint for
collection of sum of money and damages against Ybañez and
Lim. Court held that, att the time Ybañez requested Lim to
cancel the checks issued to Saban, Saban had already
performed his obligation as Ybañez’s agent: through his efforts,
a deed of sale was executed. To deprive Saban of his
commission subsequent to the sale which was consummated
through his efforts would be a breach of the contract of agency.
DOCTRINE: An agent is entitled to commission when he is the
procuring cause of the sale even if the agency is subsequently
revoked. Provided that a sale is consummated between his
principal and the buyer he produced.
b. Prats Doctrine and Manotok Test
GR: In case of a sale, an agent must be the procuring cause in
order to be entitled to compensation.
XPN: Certain cases provide in jurisprudence (e.g. Prats and
Manotok).
In Prats v. CA (1978): Alfonso Doronila offered his 300-hectare
property to the SSS at P4/m2. SSS counter offer was P3.25/m2
which Doronila accepted. Nothing happened to this
transaction so in the following year, Doronila granted Antonio
Prats authority to sell the same property in 60 days. Prats
began communicating with SSS. After the end of 60 days, he
was given an extension of 45 days but Doronila received no
offer of purchase. Later, Doronila again offered the property to
SSS for P4/m2. SSS gave a counter offer of P3.25/m2 which
Doronila accepted. Doronila agreed and a Deed of Absolute
Sale was executed. Prats filed an action for a sum of money to
recover his commission. Court held that Prats was not the
efficient procuring cause in bringing about the sale
prescinding from the fact of expiration of his exclusive
authority. However, Prats is still awarded P100K on the basis of
equity as he diligently took steps to bring back together
Doronila and SSS for the consummation of their transaction.
DOCTRINE: An agent who was not the procuring cause of the
sale may nevertheless be awarded a sum of money if he were
somehow instrumental in bringing the parties together again
and finally consummating the transaction.
In Manotok Brothers v. CA (1993): Manotok Brothers, Inc.
authorized Salvador Saligumba in writing to negotiate with the
City of Manila the sale of its property. Manotok agreed to pay
Saligumba a 5% commission in the event the sale is finally
consummated and paid. Finally, the City passed an ordinance
appropriating P410,816 for the purchase of the property.
Saligumba did not receive his commission so he filed a
complaint against Manotok. Court held that Saligumba was the
efficient procuring cause so he is entitled to his commission
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even if the sale was consummated after his authority’s
expiration. The Court did not merely rely on the Prats doctrine
and created a new test to determine if an agent is entitled to
commission:
- When there is a close, proximate and causal connection
between the agent’s efforts and the principal’s sale of
his
property, the agent is entitled to commission.
DOCTRINE: When there is a close, proximate and causal
connection between the agent’s efforts and the principal’s sale
of his property, the agent is entitled to commission
CASIS: Manotok is the proper test in determining if an agent is
entitled to commission. The characterization of the agent as
procuring cause of the sale should be based on the effect of
the agent’s efforts on the sale, not on whether the sale is
consummated within the period of authority of the agent.
In Uniland Resources v. DBP (1991): Marinduque Mining
Corporation (MMC) obtained a loan from DBP and mortgaged
certain properties including two lots. The lots were previously
mortgaged to Caltex. The one in favor of DBP was entered as
a second mortgage. Eventually, DBP approved the sale of the
warehouse lot to Clarges. The office building lot was later sold
by DBP in a negotiated sale to the Bank of P.I. as trustee for
the “Perpetual Care Fund of the Manila Memorial Park.” DBP
admittedly paid the 5% broker’s fee on this sale to the DBP
Management Corporation, which acted as broker for said
negotiated sale. After the sale, Uniland Resources asked for
the payment of its broker’s fee in instrumenting the sale of its
warehouse lot to Clarges which was denied. Court held that for
equity considerations, not because of the existence of an
agency relationship. Uniland from the very beginning knew
that it had no express authority from DBP to find buyers of its
properties however, it was the one which advised Glaxo,
Philippines of the availability of the warehouse lot and aroused
its interest over the same. DBP was directly informed of the
existence of an interested buyer. Uniland’s persistence in
communicating with DBP reinforced the seriousness of the
offer. In equity, the Court recognizes the efforts of Uniland in
bringing together DBP and an interested and financially-able
buyer.
DOCTRINE: Although circumstances do not meet the
minimum legal standards required for the existence of an
agency relationship, commission/fee may be collected based
on equity considerations.
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c. Forfeiture of a Right
GR: Agent entitled to commission for successful transactions.
XPN: This right may be forfeited for the agents’ acts inimical to
the interest of his principal.
Domingo v. Domingo (1971):
DOCTRINE: The mere receipt of any gift from the third party to
the transaction may disqualify the agent from receiving his
commission.
2. Lend Money to/ Borrow Money from the Agency
Article 1890. If the agent has been empowered to borrow
money, he may himself be the lender at the current rate of
interest. If he has been authorized to lend money at interest,
he cannot borrow it without the consent of the principal. (n)
- The law allows agents to lend money to the agency, if
as agent, he is authorized to borrow money on behalf of
his principal.
- The agent is in effect lending money to his principal
because the agency has no separate juridical personality.
- The loan must be subject to the current interest rate.
- The language employed by the article does not allow for
an exception for stipulations to the contrary.
o Thus, even if an agent, is authorized to borrow
money at a higher rate, the agent can only lend to
the agency at the current rate of interest.
- The same article also allows the agent to borrow money
from the agency if as agent, he was authorized to lend
money on behalf of the principal at interest.
o Principal’s consent is required.
3. Appoint Substitute
Art. 1892. The agent may appoint a substitute if the principal
has not prohibited him from doing so; but he shall be
responsible for the acts of the substitute:
1) When he was not given the power to appoint one;
2) When he was given such power, but without designating
the person, and the person appointed was notoriously
incompetent or insolvent.
All acts of the substitute appointed against the prohibition of
the principal shall be void. (1721)
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the
preceding article, the principal may furthermore bring an
action against the substitute with respect to the obligations
which the latter has contracted under the substitution. (1722a)
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a. When Allowed
 As long as the principal does not prohibit it.
 The law presumes that the agent is authorized to appoint a
substitute. If the principal does not want any other person
acting on his behalf, he must prohibit the agent from doing
so.
b. Responsibility for Acts of Substitute
 GR: If the agent validly appoints a substitute, the principal
will be responsible for the substitute’s acts. Substitute
becomes the agent of the principal.
 EX: Two scenarios where it is the agent, and not the
principal, who is responsible for the acts of the substitute:
1. When the agent appoints a substitute although “he was
not given the power to appoint one”
 Interpretation #1: The agent becomes responsible for
the acts of the substitute when he appoints one despite
the prohibition of the principal.
 Interpretation #2: The agent becomes responsible for
the acts of the substitute when he appoints one without
express authority of the principal.
 Casis: Two considerations support Interpretation #2.
1. The first scenario pertains to a situation where there is
no express power given to the agent.
2. Interpreting the first scenario as covering a situation
where an agent did not have express authority to
appoint a substitute, protects the principal from the
possible harmful effects of an appointment without
his knowledge.
2. When the agent is given the power to appoint a substitute,
without designating the person who he can appoint, yet
he appoints as substitute someone who is notoriously
incompetent or insolvent
 Requisites:
1. The agents is given power to appoint “but without
designating the person to appoint”; and
2. The agent appoints as substitute someone who is
notoriously incompetent or insolvent.
c. Validity of Acts of Substitute
 If the principal prohibits the appointment of a substitute, all
acts of a substitute are void.
 Who can third persons dealing with the substitute sue? Art.
1892 does not provide for a rule. Casis: other rules of agency
may govern.
 The substitute is in effect a person acting as an agent but
is not authorized to do so by the principal.
 If the principal is aware that a substitute is acting on his
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behalf without authority and he fails to repudiate the said
acts, then an implied agency may be established. Act of
the substitute will not be void.
 If the principal was not aware of the acts of the substitute
or once aware of them, he repudiates them, then the third
person’s recourse may be against the agent and/or the
substitute.
 If the principal expressly gives the agent the power to
appoint a substitute, then the acts of the substitute are
valid and binding on the principal.
d. Substitute Agent: Alternate Not Delegate
 What Art. 1892 allows is a substitute to the agent. Therefore,
the substitute is an agent of the principal, not an agent of
the agent. (Clarified in Baltazar v Ombudsman)
In Baltazar v Ombudsman (2006): Paciencia Regala owned a
fishpond. Lapid is the leasee while Lopez is a sub-leasee.
Lapid hired Ernesto Salenga as fishpond watchman and Lopez
re-hired Salenga. Salenga sent a demand letter to Lopez and
Lourdes Lapid for unpaid salaries and non-payment of the 10%
share in the harvest. Salenga filed a Complaint before the
Provincial Agrarian Reform Adjudication Board. While the
agrarian case was pending, Antonio Baltazar, an alleged
nephew of Mercado filed a Complaint-Affidavit with the Office
of the Ombudsman against Eulogio Mariano, Jose Jimenez, Jr.
(Legal Officer of DAR – Reg III), Toribio Ilao, Jr. (Provincial
Adjudicator of DARAB) and Salenga for violation of RA 3019.
Court held that Baltazar does not have the authority to file a
case before the Ombudsman. The SPA was not sufficient
authorization. Baltazar’s principal, Mercado, is an agent himself
and as such cannot further delegate his agency to another.
While the legal maxim potestas delegate non delegare potest
is applied primarily in political law to the exercise of legislative
power, it is a principle of agency.
 Why is there a confusion regarding the term “sub-agent”?
Because of the improper application of the US common law
concept of “sub agent”4
4
American Jurisprudence: A subagent is a person employed by the
agent to assist him or her in conducting the principal’s affairs.
Once a third party is validly appointed as subagent, the principal is
liable for the subagent’s actions. The agent’s authority to appoint a
subagent may be inferred from those powers, customs, and usages
positively established, but if the agent has no authority, express or
implied, to make the person so appointed the agent of the principal,
that person is simply the agent of the agent, and not of the principal.
Also, if an agent, who has undertaken to do the business of the
principal, employs another person on the agent’s own account to assist
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 Under US law, a sub-agent can either be the agent of the
principal of just the agent of the agent. Difference lies in
whether the agent was authorized to appoint a sub-agent.
 Sub-agent may be a functional equivalent of the substitute
agent under CC provided that what is referred to is not a
delegation of the agency. Appointment of a substitute is
more akin to the designation of an alternate agent rather
than a delegation of the agency.
 In Serona v People, the Court employed the term “sub-
agent” when referring to the “substitute” under Art. 1892.
In Serona v People (2002): Leonida Quilatan delivered pieces
of jewelry to Virgie Serona to be sold on commission basis.
Because of Serona’s failure to pay, Quilatan required her to
execute an acknowledgment receipt indicating their
agreement and the total amount due. Unknown to Quilatan,
Serona had earlier entrusted the jewelry to Marichu Labrador
for the latter to sell on commission basis. Serona failed to pay
her obligation to Quilatan because the former was not able to
collect payment from Labrador. An Information for estafa
under Art. 315, par 1(B) of the RPC was then filed against
Serona. Court held that Serona is acquitted because the
second element of misappropriation or conversion appeared
to be lacking. Serona did not ipso facto commit estafa through
conversion or misappropriation by delivering the jewelry to a
sub-agent for sale on commission basis. The law on agency in
our jurisdiction allows the appointment by an agent of a
substitute or sub-agent in the absence of an express
agreement to the contrary between the agent and the
principal. The appointment of Labrador as Serona’s sub-agent
was not expressly prohibited by Quilatan. Neither does it
appear that Serona was verbally forbidden by Quilatan from
passing on the jewelry to another person. The present case
must be distinguished from People v Flores and US v Panes
(cases cited by LCs to justify the conviction).
 In Flores, the accused received a ring to sell under the
condition that she would return it the following day if not
sold and without authority to retain the ring or to give it to
a sub-agent.
 In Panes, the accused was obliged to return the jewelry eh
received upon demand, but passed on the same to a sub-
agent even after demand for its return had already been
made.
CASIS: The agreement between Serona and Labrador can be
interpreted as Serona designating an alternate and not
delegation of the agency.
 While the practical effect of designating an alternate agent
in the agent’s undertakings, the person so appointed is an agent of the
agent.
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and delegating the agency might be the same (both the
designee and the delegate are authorized to act as the
agent acted), the distinction is important at least as far as
privity of contract is concerned.
4. Retain in Pledge Objects of Agency
Art. 1912. The principal must advance to the agent, should the
latter so request, the sums necessary for the execution of the
agency.
Should the agent have advanced them, the principal must
reimburse him therefor, even if the business or undertaking
was not successful, provided the agent is free from all fault.
The reimbursement shall include interest on the sums
advanced, from the day on which the advance was made.
(1728)
Art. 1913. The principal must also indemnify the agent for all
the damages which the execution of the agency may have
caused the latter, without fault or negligence on his part. (1729)
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)
Two grounds by which an agent may lawfully retain in pledge
the objects of the agency until the principal reimburses funds
advanced or pays indemnity:
1. If the agent advances funds for the execution of the
agency; or
2. If the agent has suffered injury caused by the
execution of the agency.
B. Obligations of Agent
1. Act Within Scope of Authority
Art. 1879. A special power to sell excludes the power to
mortgage; and a special power to mortgage does not include
the power to sell.
Art. 1880. A special power to compromise does not authorize
submission to arbitration.
Art. 1881. The agent must act within the scope of his authority.
He may do such acts as may be conducive to the
accomplishment of the purpose of the agency.
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Art. 1882. The limits of the agent’s authority shall not be
considered exceeded should it have been performed in a
manner more advantageous to the principal than that specified
by him.
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business.
a. In General
 An agency is established so that an agent may act on behalf
of a principal. But the agent’s ability to bind his principal is
limited by the authority granted to him.
 Art. 1881, CC provides that the agent must act within the
scope of his authority and that he may do such acts as may
be conducive to the accomplishment of the purpose of the
agency.
 Woodchild v Roxas demonstrates a strict application of the
rule that the agent must act within the scope of his authority.
In Woodchild v Roxas (2004): The agent was authorized by his
principal to sell a lot “at a price and under such terms and
conditions which he deemed most reasonable and
advantageous” to his principal. Principal denied authorizing
the agent to grant the right of way and the option to purchase
in the board resolution in favor of the agent. Court held that
the agent was not specifically authorized to grant a right of
way or to agree to sell to a portion thereof. The authority of
the agent, under the resolution, did not include the authority
to sell a portion of the adjacent lot, or to create or convey real
rights thereon. Neither may such authority be implied from the
authority granted to Roxas to sell “on such terms and
conditions which he deems most reasonable and
advantageous.” If the act of the agent is one which requires
authority in writing, those dealing with him are charged with
notice of that fact.
 Par 12, Art 1878, CC requires a SPA to convey real rights
over immovable property
 Art 1358, CC requires that contracts which have for their
object the creation of real rights over immovable property
must appear in a public document
“Powers of attorney are generally construed strictly and courts
will not infer or presume broad powers from deeds which do
not sufficiently include property or subject under which the
agent is to deal. The general rule is that the power of attorney
must be pursued within legal strictures, and the agent can
neither go beyond it; nor beside it. The act done must be
legally identical with that authorized to be done.”
i. Conducive Acts
 Pursuant to Art 1881, it is not necessary that the power of
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attorney granted to the agent specifically describe the act
performed. The article considers acts “conducive to the
accomplishment of the purpose of the agency” as falling
within the scope of the agent’s authority.
 As long as the acts meet the standard of “conduciveness”,
these acts will be considered as performed within the scope
of the agent’s authority.
ii. Advantageous Acts
 Art 1882 considers it within the scope of the agent’s
authority to perform acts more advantageous to the
principal than what is indicated in the power of attorney.
Note:
 Despite the foregoing, the allowance for conducive and
advantageous act must not be considered as plenary
authority on the part of the agent to perform any act for as
long as it is conducive to the purposes of the establishment
of the agency or that it is more advantageous to the
principal.
 Arts 1881 and 1882 must be read together with other
provisions, which prescribe limits to the agent’s authority.
 Woodchild v Roxas demonstrated that a transaction
requiring a SPA under Art 1878 may not be performed
without the relevant specific authority being granted on
the grounds that it is conducive to the accomplishment of
the purpose of the agency or that it is more advantageous
to the principal.
 In addition to conducive and advantageous acts, there is
authority for the view that certain collateral acts are impliedly
within the authority of the agent
In Guinhawa v People (2005): Case law has it that wherever the
doing of a certain act or the transaction of a given affair, or the
performance of certain business is confided to an agent, the
authority to so act will, in accordance with a general rule often
referred to, carry with it by implication the authority to do all of
the collateral acts which are the natural and ordinary incidents
of the main act or business authorized.
 As with conducive and advantageous acts, the validity of
collateral acts is without prejudice to the specific
requirements for particular transactions
b. As Regards Third Persons
Art. 1900. So far as third persons are concerned, an act is
deemed to have been performed within the scope of the
agent’s authority, if such act is within the terms of the power of
attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between
the principal and the agent. (n)
 Art 1900 contemplates a situation wherein the principal
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provided limitations to the authority of the agent orally or in
some other document apart from the written power of
attorney.
c. Authority of Corporate Officers
In Board of Liquidators v Heirs of Maximo Kalaw (1967):
Maximo Kalaw was the general manager and board chairman
of the National Coconut Corporation (NACOCO). Due to
several devastating typhoons, NACOCO was deterred from
fulfilling the said contracts. When it became clear that the
contracts would be unprofitable, Kalaw submitted the
contracts to NACOCO’s board for approval. NACOCO
approved the contracts. NACOCO was only able to partially
comply with its contracts; one of the buyers sued. Suit ended
in an out-of-court settlement. NACOCO then filed suit to
recover from Kalaw and the directors the sum equivalent to
what it paid for the settlement. Court held that Kalaw has
authority. When, in the usual course of business of a
corporation, an officer has been allowed in his official capacity
to manage its affairs, his authority may be implied from the
manner in which he has been permitted by the directors to
manage its business.
 Rule: a corporate officer “intrusted with the general
management and control of its business, has implied
authority to make any contract or do any other act which is
necessary or appropriate to the conduct of the ordinary
business of the corporation.”
 As such officer, “he may, without any special authority from
the Board of Directors, perform all acts of an ordinary nature,
which by usage or necessity are incident to his office, and
may bind the corporation by contracts in matters arising in
the usual course of business.”
 Also, settled jurisprudence has it that where similar acts have
been approved by the directors as a matter of general
practice, custom, and policy, the general manager may bind
the company without formal authorization of the board of
directors
 Existence of authority is established 1) by proof of the
course of business, 2) the usages and practices of the
company and 3) by the knowledge which the board of
directors has, or must be presumed to have, of acts and
doings of its subordinates
 Authority to act for and bind a corporation may be
presumed from acts of recognition in other instances
where the power was in fact exercised
CASIS: A problem arises when the by-laws of the corporation
require prior board approval for such acts. Should general
practice supersede the written by-laws?
 In Board of Liquidators, the answer was in the affirmative
because in that case, the by-laws limited the authority of the
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corporate officer “(b) To perform or execute on behalf of the
Corporation upon prior approval of the Board, all contracts
necessary and essential to the proper accomplishment for
which the Corporation was organized.”
 In said case, the Court made much of the fact that the board
of directors was fully aware of what its corporate officer was
doing. There was no finding of ratification on the part of the
corporation.
In San Juan v CA (1998): San Juan Structural and Steel
Fabricators entered into an agreement with Motorich Sales
Corporation allegedly represented by its treasurer Nenita Lee
Gruenberg for purchase of a parcel of land. San Juan paid the
P100K downpayment with the balance to be paid on or before
3/2/89. On that date, San Juan was ready with the amount but
Gruenberg did not appear. San Juan filed a complaint for
damages. Court held that Gruenberg does not have authority.
There was nothing in the articles of incorporation, bylaws or
board resolutions, which would indicate that the treasurer had
the authority. Also, selling is obviously foreign to a corporate
treasurer’s function.
 Because the corporation has a separate juridical
personality distinct from its stockholders, the property of
the corporation is not the property of the stockholders
and may not be sold without express authorization from
the board of directors.
 Sec 23, Corporation Code. The Board of Directors or
Trustees. – Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this
Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the
board of directors or trustees to be elected from among
the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold
office for one year and until their successors are elected
and qualified.
 A corporation may act only through its board of directors
or, when authorized either by its bylaws or by its board
resolution, through its officers or agents in the normal
course of business.
In AF Realty v Dieselman (2002): A member of the board of
directors of the corporation issued a letter authorizing a real
estate broker to look for buyers and negotiate the sale of a
parcel of land owned by the corporation.
DOCTRINE: The director had no written authority from the
board to sell to negotiate the sale of the lot much less to
appoint other persons for the same purpose. Absent a valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of
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authorized duties of such director, are held not binding on the
corporation.
In Francisco v GSIS (1963): Trinidad Francisco, in consideration
of a P400K loan, mortgaged in favor of GSIS a parcel of land
payable within 10 years. GSIS extrajudicially foreclosed the
mortgage. Trinidad’s father sent a letter to the general
manager of GSIS, offering to pay P30K in consideration of
setting aside the foreclosure. He then received a telegram
from general manager of GSIS, stating that the GSIS Board
approved the former’s request. He then remitted a check for
P30K; GSIS received the amount and issued an official receipt;
subsequent payments were made to GSIS. GSIS sent three
letters to Trinidad, asking for a proposal for the payment of her
indebtedness because the one-year period for redemption
had expired. The father protested and invited attention to the
concluded contract generated by his offer and its acceptance
by telegram, as well as the compliance of the terms of the offer.
Francisco filed suit for specific performance and damages.
Court held that GSIS was bound by the acceptance. There was
nothing in the telegram that hinted at any anomaly, or gave
ground to suspect its veracity, and the plaintiff, therefore,
cannot be blamed for relying upon it. There is no denying that
the telegram was within Andal’s (aforementioned corporate
officer) apparent authority.
 Ramirez v Orientalist Co.: If a corporation knowingly permits
one if its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to
the public as possessing power to do those acts, the
corporation will, as against anyone who has in good faith
dealt with the corporation through such agent, be estopped
from denying his authority.
2. Act in Accordance with Instructions
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business. (1719)
 The principal may indicate to his agent the way he wants his
transactions handled.
 If the principal does not provide instructions, the rule is that
the diligence of a good father of a family is expected and
such diligence is determined by the nature of the business.
The same diligence is required in cases where the person
who was supposed to be the agent refuses the agency.
 Note, however, that the owner of the goods must as soon
as practicable either appoint an agent or take charge of
the goods.
 Under Art. 1899, if the agent acts in accordance with the
AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
orders of the principal, the latter cannot set up the
ignorance of the agent as to the circumstances whereof he
himself was, or ought to have been, aware.
3. Carry out the agency
a. In general
Art. 1884. The agent is bound by his acceptance to carry
out the agency and is liable for the damages which,
through his non-performance, the principal may suffer.
He must also finish the business already begun on the
death of the principal, should delay entail any danger.
In British Airways v. CA (1998): Gop Mahtani bought airline
tickets from British Airways for his flight from Manila to
Bombay. Because British Airways (BA) had no direct flights
from Manila to Bomay, he had to take a flight to Hongkong via
Philippine Airlines (PAL). He checked in at PAL counter in
Manila his two pieces of luggage. Upon reaching Bombay, he
found out that his luggage was missing. He filed a complaint
for damages and attorney’s fees against BA when he returned
to the Philippines. Court held that the contract of air
transportation was exclusively between Mahtani and BA, the
latter merely endorsing the Manila to HK leg of the former’s
journey to PAL, as its subcontractor or agent. An agent is also
responsible for any negligence in the performance of its
function and is liable for damages which the principal may
suffer by reason of its negligent act.
b. Continuing business
 What exactly is meant by “business already begun”?
 Example: The business involves selling the principal’s 10
cars and the agent was able to sell 5 of them before the
death of the principal.
 The agent must continue until the completion of the sixth
sale if the other element (delay will entail any danger) is
present.
 The agent must continue carrying out duties which were
pending when the principal died if non-continuation on his
part will cause economic prejudice to the interest of his
principal.
 As to the extent of work the agent is obliged to complete,
it should only be to the extent necessary to avoid the
danger contemplated.
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c. In case of withdrawal
Art. 1928. The agent may withdraw from the agency by giving
due notice to the principal. If the latter should suffer any
damage by reason of the withdrawal, the agent must indemnify
him therefor, unless the agent should base his withdrawal upon
the impossibility of continuing the performance of the agency
without grave detriment to himself.
Art. 1929. The agent, even if he should withdraw from the
agency for a valid reason, must continue to act until the
principal has had reasonable opportunity to take the
necessary steps to meet the situation.
 The obligation to carry out the agency does not
immediately end if the agent withdraws.
 To determine whether there has been ‘reasonable
opportunity’ depends on what are the ‘necessary steps to
meet the situation’.
 Old Civil Code: The agent is required to continue to act as
agent “until the principal is able to take the necessary
measures to fill his place.”
 New Civil Code: The current language is perhaps more
advantageous to the agent because he does not have to
wait until he is replaced.
o It is sufficient that the principal has had
opportunity to take measures necessary to
protect his interest whether this is in the form of
appointing a new agent or some other measure.
d. When not required to carry out (Not to carry out the agency)
Art. 1888. An agent shall not carry out an agency if its
execution would manifestly result in loss or damage to the
principal.
 An agent who fails to carry out the agency may use this
provision as a defense.
 But he must prove that carrying out the agency would
manifestly result in loss or damage to the principal.
 Example: Price of the product sold by the principal
through an agent is expected to rise exponentially in a few
months, or the items, which the principal wishes to buy,
will decrease tremendously in a few weeks.
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4. Advance funds
Art. 1886. Should there be a stipulation that the agent shall
advance the necessary funds, he shall bound to do so
except when the principal is insolvent.
 The rule therefore is that the agent is only obligated to
advance funds for the agency if two conditions are met:
1. There must be a stipulation that the agent must
advance funds; and,
2. The principal is solvent.
 The first condition seems to imply that there must be a
written power of attorney. But it is entirely possible for a
stipulation to be made orally as well.
 The problem is in cases where the authorization or
appointment of the agent is required to be in written form.
 If it is proven that such stipulation was in fact made when it
should be binding on the agent whether or not such
stipulation was made in writing or not.
o But in order to constitute notice to third persons,
the latter must be made in the written power of
attorney or such third person must be aware of
such the stipulation if made orally.
5. Prefer interest of principal over personal interest (Loyalty)
a. 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.
 The reason behind Art. 1889 is that an agency is a fiduciary
relationship.
 The article does not state that the agency is dissolved or
the contract is invalidated if the agent prefers his own
interest.
Art. 1890. If the agent has been empowered to borrow money,
he may himself be the lender at the current rate of interest. If
he has been authorized to lend money at interest, he cannot
borrow it without the consent of the principal.
Art. 1491. The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through
the mediation of another:
1. The guardian, the property of the person or persons
who may be under his guardianship;
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2. Agents, the property whose administration or sale
may have been entrusted to them, unless the
consent of the principal has been given;
xxx xxx xxxx
b. Property administered
In Araneta, Inc. v. De Paterno (1952) : “The agent’s incapacity
to buy his principal’s property rests in the fact that the agent
and the principal form one juridical person. In this connection,
Scaevola observes that the fear that greed might get the
better of the sentiments of loyalty and disinterestedness which
should animate an administrator or agent, is the reason
underlying the various classes of incapacity enumerated in Art.
1459. And as American courts commenting on similar
prohibition at common law put it, the law does not trust human
nature to resist the temptations likely to arise out of
antagonism between the interest of the seller and the buyer.”
c. Double sales
Art. 1917. In the case referred to in the preceding article, if
the agent has acted in good faith, the principal shall be
liable in damages to the third person whose contract must
be rejected. If the agent acted in bad faith, he alone shall
be responsible.
Art. 1916. When two persons contract with regard to the
same thing, one of them with the agent and the other with
the principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without
prejudice to the provisions of article 1544.
The situation contemplated by the provisions above involves a
case where the principal and agent contract with different
persons for the same thing and the contracts are incompatible.
 The rule is that the contract “of prior date” will prevail. But
this is subject to the provisions of Art. 1544.
 The rule on Art. 1916 will only apply in the following cases:
1. None of the buyers had obtained possession
over the movable; or
2. None of the buyers had recorded, possessed or
has title over the immovable.
 If the agent was in good faith in entering into his contract
with a third person, the principal is liable for damages to
the person whose contract would have to be rejected
based on the said rules.
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 If the agent was in bad faith, he will be liable for damages
to such third person. Under Art. 1889, he would also be
liable to the principal for damages.
6. Diligence
Art. 1885. In case a person declines an agency, he is bound to
observe the diligence of a good father of the family in the
custody and preservation of the goods forwarded to him by
the owner until the latter should appoint an agent. The owner
shall as soon as practicable either appoint an agent or take
charge of the goods.
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business.
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.
7. Render Account/Deliver
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.
 If an agent receives a gift from a client he must report it
and deliver it to his principal.
 This discourages agents from soliciting or accepting gifts
from third persons he deals with on behalf of the principal
because he is bound to turn this over to the principal.
In Murao v. People (2005): Pablito Murao, the sole owner of
Lorna Murao Industrial Commercial Enterprises (LMICE)
entered into a Dealership Agreement with Chito Federico for
the marketing, distribution and refilling of fire extinguishers.
Federico facilitated a transaction with the City Government of
Puerto Princesa for the refill of 202 fire extinguishers. City
Government requested that the transaction be split into two
purchase orders. When Federico was refused his commission,
he filed a complaint for estafa against Murao and Huertazuela.
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Court held that M and H are not guilty because two essential
elements of estafa by misappropriation/conversion are not
missing. Federico’s right to commission does not make him a
joint owner of the money paid to LMICE, but merely
establishes a relation of agent and principal. All profits made
and any advantage gained by an agent in the execution of his
agency should belong to the principal. Federico may claim
commission (allegedly 50% of the payment) based on his right
to just compensation under his agency contract, but NOT as
an automatic owner of such 50% portion.
CASIS’ comments:
 What the Court is saying here is that because “all profits
made and any advantage gained by an agent in the
execution of his agency should belong to the principal”
the principal was entitled even to the portion of the
payment of the client which would have comprised the
agent’s commission.
 There was no estafa because the funds belonged to the
principal and there was therefore no conversion or
misappropriation.
8. Solidary liability
Art. 1894. The responsibility of two or more agents, even
though they have been appointed simultaneously, is not
solidary, if solidarity has not been expressly stipulated.
Art. 1895. If solidarity has been agreed upon, each of the
agents is responsible for the non-fulfillment of the agency, and
for the fault or negligence of his fellow agents, except in the
latter case when the fellow agents acted beyond the scope of
their authority.
9. Pay 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.
 Obligation to pay interest pertains to funds the agent
applied to personal use.
 This may seem to imply that the agent from time to time
use agency funds for personal purposes, but these
transactions are considered loans for which he must pay
interest.
 Art. 1890 provides that an agent is only entitled to borrow
funds from the agency if the agent is authorized to lend
money at interest.
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 But if the agent does use agency funds for personal use,
there is no reason why the agent should not be required
to pay interest apart from other penalties arising from
using agency funds despite lack of authorization.
10. Responsible for 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.
In Metropolitan Bank v. CA (1991): Eduardo Gomez opened an
account with Golden Savings and Loan Association and
deposited over a period of two months 38 treasury
warrants.They were then sent for clearing by the branch office
to the principal office of Metrobank, which forwarded them to
the Bureau of Treasury. Castillo went to the Calapan branch
several times to ask whether the warrants had been cleared,
and was told to wait. Later, Metrobank finally decided to allow
Golden to withdraw from the proceeds of the warrant. Golden
allowed Gomez to make withdrawals from his own account.
After all withdrawals had been made, Metrobank informed
Golden that 32 of the warrants had been dishonoured by the
Bureau and demanded the refund by Golden. Court held that
Metrobank was negligent in giving Golden the impression that
the treasury warrants had been cleared or else Golden would
not have allowed the withdrawals. Golden relied on Metrobank
to determine the validity of the warrants because Golden has
no clearing facilities of its own. It was only when Metrobank
gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account. It is clear that
Golden acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.
Metrobank exhibited extraordinary carelessness. The Court
rejected Metrobank’s argument that “being a mere collecting
agent it cannot be liable to its principal citing Art. 1909.
CASIS’ comments: The Court applied Art. 1909 where the
agent’s own negligence caused damage to itself. The
application of Art. 1909 in this case was to prevent recovery by
the agent from his principal.
 Art. 1909 also provides that the agent’s liability for fraud or
negligence shall be judged with more or less rigor by the
courts, according to whether the agency was or was not
for compensation.
o Implies that if the agent was compensated for his
services, the amount of damages he is liable for
in case of fraud or negligence may be more as
compared to if he rendered his services
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gratuitously.
 The provision may also be interpreted to mean that the
agent who is paid is required to exercise a higher degree
of diligence than an agent who is not.
11. Specific obligations of commission agents
Art. 1903. The commission agent shall be responsible for the
goods received by him in the terms and conditions and as
described in the consignment, unless upon receiving them he
should make a written statement of the damage and
deterioration suffered by the same.
Art. 1904. The commission agent who handles goods of the
same kind and mark, which belong to different owners, shall
distinguish them by counter-marks, and designate the
merchandise respectively belonging to each principal.
Art. 1905. The commission agent cannot, without the express
or implied consent of the principal, sell on credit. Should he do
so, the principal may demand from him payment in cash, but
the commission agent shall be entitled to any interest or
benefit, which may result from such sale.
Art. 1906. Should the commission agent, with authority of the
principal, sell on credit, he shall so inform the principal, with a
statement of the names of the buyers. Should he fail to do so,
the sale shall be deemed to have been made for cash insofar
as the principal is concerned.
Art. 1907. Should the commission agent receive on a sale, in
addition to the ordinary commission, another called a
guarantee commission, he shall bear the risk of collection and
shall pay the principal the proceeds of the sale on the same
terms agreed upon with the purchaser.
Art. 1908. The commission agent who does not collect the
credits of his principal at the time when they become due and
demandable shall be liable for damages, unless he proves that
he exercised due diligence for that purpose.
 Commission agent (aka “factor”) – an agent entitled to
the possession of the goods of the principal.
o Mechem: A factor is one whose business it is to
receive and sell goods for a commission. He is
often called a commission merchant. If he
guarantees payment for the goods he sells, he is
said to act under a del credere commission.
When authorize to sell a cargo which he
accompanies on the voyage, he is called a super-
cargo.
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In Lindstrom v. Baybank (1993):
 SC of Massachusetts defined factor as “a commercial
agent, employed by a principal to sell merchandise
consigned to him for that purpose, for and in behalf of the
principal, but usually in his own name, being entrusted
with the possession and control of the goods and being
remunerated by a commission, commonly called
factorage.”
 Thus a commission agent is one who receives goods from
his principal, for sale to third persons. For this service the
agent is entitled to commission for goods sold.
Obligations of commission agents
1. They are responsible for the goods received in the terms
and conditions and as described in the consignment, unless
upon receiving them they should make a written statement of
the damage and deterioration suffered by the same. (Art. 1903)
 The agent is estopped from claiming that the goods he
received were not as described in the consignment.
 If there is damage or deterioration, the agent should have
made a written statement of the same. If he does not, he
cannot later on return the goods to his principal on the
ground of such defect or damage.
 Agent’s failure to issue the written statement may give rise
to a presumption that the goods deteriorated or were
damaged while under the agent’s custody.
 The rule may be applied to a case where a third party
returns the goods on the ground of deterioration or
damage through no fault of the third party. The agent may
have to bear the loss.
 The rule was adopted from Art. 265 of the Code of
Commerce: “The agent shall be liable for the goods and
merchandise he may receive, in the terms and with the
conditions and descriptions he has been informed of in
the consignments, unless he proves, in receiving the same,
the averages and deterioration it has suffered, comparing
its condition with the contents of the bill of lading or
charter or of the instructions received from the principal.”
2. If handling goods of the same kind and mark, which belong
to different owners the commission agent must:
1. distinguish them by countermarks, and
2. designate the merchandise respectively
belonging to each principal. (Art. 1904)
 The commission agent is prohibited from commingling
goods belonging to different owners.
 That the goods be “of the same kind and mark” implies
that the rule applies when the goods appear to be
identical although belonging to different owners.
 This rule was adopted from Art. 268 of the Code of
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Commerce: “Agents cannot handle goods of the same
kind belonging to different parties, bearing the same mark,
without distinguishing them by a countermark, in order to
avoid confusion and for the purpose of designating the
respective property of each principal.”
3. The commission agent cannot sell on credit without the
consent of the principal. If he sells on credit without consent,
the principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit,
which may result from such sale. (Art. 1905)
 There must be an express authority form the principal for
the commission agent to sell on credit.
 This rule was adopted from Art. 270 of the Code of
Commerce: “An agent cannot, without authority from the
principal, loan or sell on credit or on time, the principal
being permitted in such cases to require cash payment of
the agent, leaving him any interest, profit, or advantage
which may arise form said credit on time.”
4. If he sells on credit with the authority of the principal he shall
so inform the principal, with a statement of the names of the
buyers. If he does not inform the principal, the sale shall be
deemed to have been made for cash insofar as the principal is
concerned. (Art. 1906)
 The rule is adopted from Art. 271 of the Code of
Commerce: “If an agent, with the due authority, sells on
time, he must so state it in the account or in the
communication to the principal, informing him of the
names of the purchasers; and should he not do so, the
sale shall be considered as made for cash, in so far as the
principal is concerned.”
5. If the commission agent receives on a sale, in addition to the
ordinary commission, a guarantee commission, he shall:
1. bear the risk of collection; and
2. pay the principal the proceeds of the sale on the
same terms agreed upon with the purchaser.
 The additional commission justifies the additional risk on
the part of the commission agent.
 Agent becomes a guarantor of the payment of debts of
purchasers.
 The rule implies that ordinarily, a commission agent does
not guaranty such debts.
 This rule is adopted from Art. 272 of the Code of
Commerce: “If an agent receives for a sale, besides the
ordinary commission, another one called a guaranty
commission, the risks of the collection shall be for his
account, being obliged to pay the principal the proceeds
of the sale at the same periods as agreed upon with the
purchaser.”
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6. If the commission agent does not collect the credits of his

principal at the time when they become due and demandable
he is liable for damages except when he proves that he
exercised due diligence for that purpose. (Art. 1908)
 The commission agent has a duty to collect credits
when they become due.
 This rule is adopted from Art. 273 of the Code of
Commerce: “An agent who does not make the
collection of the credits of his principal at the period
they are demandable, shall be liable for the losses
arising from his negligence or delay unless he proves
that he at the proper time made use of the legal
remedies to recover the payment.”

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER

exemption, it is not necessary that the persons responsible for

the occurrence should be found or punished. It would only be
VIII. RESPONSIBILITY FOR ACTS sufficient that the unforeseeable event (robbery) did take place
OF SUBSTITUTE without any concurrent/contributory fault/negligence on the
debtor’s part which can be proven by preponderance. This is
apparent in the language of Art. 1170.
 GR: If the agent validly appoints a substitute, the principal
will be responsible for the substitute’s acts. Substitute
PNB v. Manila Surety (1965)
becomes the agent of the principal.
 EX: Two scenarios where it is the agent, and not the
Brief facts: PNB extended a credit to ATACO which was
principal, who is responsible for the acts of the substitute:
secured by Manila Surety. As additional security to the loan,
ATACO constituted PNB as its assignee and attorney-in-fact to
When the agent appoints a substitute although “he was not
collect from the Bureau of Public Works the amount
given the power to appoint one”
receivables by ATACO. PNB collected from the Bureau for
 Interpretation #1: The agent becomes responsible for
some time but eventually stopped in its collection. PNB found
the acts of the substitute when he appoints one despite
that there was still balance on the debt of ATACO, so the
the prohibition of the principal.
former demanded from ATACO and Manila Surety its payment.
 Interpretation #2: The agent becomes responsible for
the acts of the substitute when he appoints one without
Doctrine: An agent is required to act with the care of a good
express authority of the principal.
father of a family (Art. 1887 CC) and becomes liable for the
 Casis: Two considerations support Interpretation #2.
damages which the principal may suffer through his non-
1. The first scenario pertains to a situation where there is
performance (Art. 1884 CC)
no express power given to the agent.
2. Interpreting the first scenario as covering a situation
Domingo v. Domingo (1971)
where an agent did not have express authority to
appoint a substitute, protects the principal from the
Brief facts: Vicente authorized Gregorio to sell his land for
possible harmful effects of an appointment without his
P2/sqm. A buyer (Oscar) gifted Gregorio P1,000 to sell to him
knowledge.
at a lower price. Gregorio accepted the gift without knowledge
of his principal and convinced his principal to sell at only
When the agent is given the power to appoint a substitute,
P1.20/sqm.
without designating the person who he can appoint, yet he
appoints as substitute someone who is notoriously
Doctrine: The law imposes upon the agent the absolute
incompetent or insolvent
obligation to make a full disclosure to his principal of all his
 Requisites:
transactions and other material facts relevant to the agency. An
1. The agents is given power to appoint “but without
agent who takes a secret profit in the nature of a bonus from
designating the person to appoint”; and
the vendee, without revealing the same to his principal, is
2. The agent appoints as substitute someone who is
guilty of a breach of his loyalty and forfeits his right to collect
notoriously incompetent or insolvent.
the commission from his principal. The rule is to prevent the
possibility of any wrong, not to remedy or repair an actual
Cases:
damage.

Austria v. CA (1971)
Severino v. Severino (1923)

Brief facts: Abad received a pendant with diamonds from

Brief facts: Guillermo (brother of Melecio) is the administrator
Austria to be sold on commission basis or to be returned on
of Melecio’s property. Melecio died. Guillermo continued to
demand (consignment of goods for sale). The pendant was
be in possession of Melecio’s property. Cadastral proceedings
taken from Abad when she fell victim to a robbery. Austria
took place that ended with Guillermo obtaining legal title to
sued for the return of the pendant or its value. Abad’s defense
the said property. The Administratrix of Melecio’s property
was one for fortuitous event.
now goes to court asking that the said land be reverted back
to Melecio’s estate.
Doctrine: The emphasis of Art. 1174 is on the EVENTS, and not
on the agents or factors responsible for them. To avail of the
Doctrine: The relations of an agent to his principal are
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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER

fiduciary. An agent is not only estopped from denying his
principal's title to the property, but he is also disabled from
acquiring interests therein adverse to those of his principal
during the term of the agency. His position is analogous to that
of a trustee and he cannot consistently, with the principle of
good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust
(beneficiary of a trust).
Green Valley Poultry v. IAC (1984)
Brief facts: A contract was entered into between Squibb and
Green Valley, the latter being awarded non-exclusive
distributorship. When Green Valley failed to pay for products
bought, Squibb filed a collection case.
Doctrine: If it is an agency to sell, then it is liable because it
sold on credit without authority from the principal, as provided
under Art 1905 NCC.
Municipal Council of Iloilo v. Evangelista (1930)
Doctrine: An agent who is not given any limitations as to his
power, may employ other persons to aid him to fulfill the
purpose given to the agent by his principal. In line with this,
any liability admitted by the general agent would be binding
on the principal.
International Films v. Lyric Film Exchange (1936)
Brief Facts: International, thru Gabelman, leased a film to Lyric
where Lyric is to be responsible for the loss of the film for any
cause. After the period of the lease has elapsed, the film was
offered to be returned but Gabelman entered into a verbal
contract for Lyric where Lyric would continue to show the film
and Gabelman to be responsible for it. Gabelman's successor
agreed to let Lyric to continually use the film. Lyric's bodega
burned down along with the film.
Doctrine: A subagent is not obliged to fulfill more than the
contents of the mandate and to answer for the damages
caused to the principal by his failure to do so

Brief Facts: Tan Ong filed a case to recover sums from the
Municipality of Iloilo and the TC recognized that there has
been an assignment of the sums to be recovered to Atty.
Soriano by Tan Ong’s agent Tan Boon Tiong.

Doctrine: The power of an agent to employ counsel for the

principal necessarily implies the authority to pay for the
professional services thus engaged

Abacus Securities v. Ampil (2006)

Brief Facts: Ampil opened a regular account with Abacus to

buy and sell securities. Petitioner bought and sold securities
and advanced sums for Ampil. Ampil subsequently demanded
the proceeds o said stock transactions.

Doctrine: Brokers have the obligation to advance payments for

the trades of its principal and thus have a right to be
reimbursed for sums advanced by them with the express or
implied authorization of the principal

Del Rosario v. La Badenia (1916)

Brief Facts: La Badenia assigned Aragon as its agent to assist

in an extensive sale campaign. Aragon sought the assistance of
the petitioners in selling the goods. After all of the transactions
have finished, the petitioners were entitled to a balance. The
company refused to pay them on asserting that they were
independent merchants.

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
IX. WHAT ARE THE OBLIGATIONS
AND LIABILITIES OF AGENTS TO
THIRD PARTIES?
Liability of Agents
 An agent should not be personally liable for acts he
performed agent since he is merely representing his
principal.
A. Agent acting within the scope of authority
Art. 1883. If an agent acts in his own name, the principal has no
right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case, the agent is the one directly bound in favour of
the person with whom he has contracted, as if the transaction
were his own, except when the contract involves things
belonging to the principal.
The provisions of this article shall be understood to be without
prejudice to the actions between the principal and agent.
Art. 1897. The agent who acts as such is not personally liable to
the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers.
Art. 1899. If a duly authorized agent acts in accordance with
the orders of the principal, the latter cannot set up the
ignorance of the agents as to circumstances whereof he
himself was, or ought to have been, aware.
B. Agent acting outside of authority
Art. 1897. The agent who acts as such is not personally liable to
the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers.
Art. 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does
not ratify the contract, it shall be void if the party with whom
the agent contracted is aware of the limits of the powers
granted by the principal. In this case, however, the agent is
liable if he undertook to secure the principal’s ratification.
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Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed
the latter to act as though he had full powers.
Instances when an agent becomes liable:
1. When solidary
Art. 1895. If solidarity has been agreed upon, each of the
Art. 1894.
agents The responsibility
is responsible for the of two or moreofagents,
non-fulfilment even
the agency,
though they have been appointed simultaneously, is
and for the fault or negligence of his fellow agents, except not
solidary, if solidarity has not been expressly stipulated.
in the latter case when the fellow agents acted beyond the
scope of their authority.
 The simultaneous appointment of agents is similar to the
appointment of joint agents under US Law.
o AmJur: “An agency conferred on two or more
persons by a single act of authorization is
presumptively joint, in the absence of a clear
showing of a contrary intent, and must be
exercised only by the unanimous action of the
designated agents. In such case, the principal is
deemed to have bargained for and desired the
combined personal ability, experience, judgment,
integrity, and other personal qualities of the
agents. However, the presumption will give way
to a clearly expressed intention that the agents
will have the power to act severally. Moreover,
one of two or more joints may be delegated the
task of conducting the formalities or ministerial
acts in connection with the duties of the agency.”
 Thus, if there is a joint agency, agency acts are performed
by unanimous action by the designated agents unless
otherwise stipulated.
o There is no such requirement for agents
appointed simultaneously under the code.
2. When personally liable
A. Expressly bound or in excess of authority
Art. 1897. The agent who acts as such is not personally liable to
the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers.
Art. 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
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granted by the principal. In this case, however, the agent is
liable if he undertook to secure the principal’s ratification.
GR: When the agent transacts as an agent, he is not personally
liable for the obligation entered into.
XPN: An agent can be held liable for obligations he entered
into as an agent in the following cases:
1. When the agent expressly binds himself;
2. When the agent exceeds the limits of his authority
without giving the person he is transacting with
sufficient notice of his powers;
3. When the following elements are present:
a. The person transacting with the agent is
aware of the limits of the agent’s authority;
b. The agent exceeded the scope of his
authority;
c. The agent undertook to secure the
principal’s ratification; and,
d. The principal does not ratify the contract.
In Eurotech v. Cuizon (2007): The Court said (explaining Art.
1897): “Art. 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.”The Court
ruled here that the agent in this case acted within his authority,
which made Art. 1897 inapplicable. The Court said: “The first
part of Art. 1897 declares that the principal is liable in cases
when the agent acted within the bounds of his authority. Under
this, the agent is completely absolved of any liability. The
second part of the said provision presents the situations when
the agent himself becomes liable to a third party when he
expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person.
However it must be pointed out that in case of excess of
authority by the agent, the law does not say that a third person
can recover from both the principal and the agent.”
In DBP v. CA (1994): Juan Dans, 76 years old, applied for a loan
with the DBP. He was advised by DBP to obtain a mortgage
redemption insurance (MRI) with the DBP MRI Pool. The MRI
Premium of Dans, less the service fee of 10% was credited to
the savings account of the DBP MRI Pool. The DBP MRI Pool
was advised of the credit. Dans died of cardiac arrest. DBP MRI
Pool notified DBP that Dans was not eligible for MRI coverage,
being over the acceptance age limit of 60 years at the time of
application. Dans’ estate filed a complaint against DBP and the
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insurance pool for collection of sum of money with damages.
The Court ruled against DBP. In dealing with Dans, DBP was
wearing two legal hats: as lender, and as an insurance agent.
Art. 1897 was applicable. Knowing all the while that Dans was
ineligible for MRI coverage, DBP exceeded the scope of its
authority when in accepted Dans’ application for MRI by
collecting the insurance premium, and deducting its agent’s
commission and service fee. The liability of an agent who
exceeds the scope of his authority depends upon whether the
third person is aware of the limits of the agent’s powers. 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.
a) With notice to third parties
Art. 1901. A third person cannot set up the fact that the agent
has exceeded his powers, if the principal has ratified, or has
signified is willingness to ratify the agent’s acts.
b) Without notice to third parties
C. Agent acting in his own name; exception
Art. 1883. If an agent acts in his own name, the principal
has no right of action against the persons with whom the
agent has contracted; neither have such persons against
the principal.
In such case, the agent is the one directly bound in favour
of the person with whom he has contracted, as if the
transaction were his own, except when the contract
involves things belonging to the principal.
The provisions of this article shall be understood to be
without prejudice to the actions between the principal and
agent.
 An agent “acts in his own name” when he enters into a
contract covering the subject matter of the agency without
notice to the third party that he was acting as an agent.
o The third person believes in good faith that he is
dealing with the agent only.
o Often referred to as an agency with an
undisclosed principal.
o Agent is directly bound as a party to the contract.
o The principal and the contracting party have no
right of action against each other because the
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contract is deemed between the agent and the
third person.
 Second paragraph of Art. 1883: Agent is directly bound
“except when the contract involves things belonging to
the principal.”
o This does not mean that if the agent acts in his
own name using property belonging to his
principal he is no longer liable.
o Agent remains liable to both the principal and
third person. Otherwise, agents who use the
property of their principals for personal contracts
would be able to escape liability. This exception
is merely to bind the principal to the contract
even if he was not a party.
In Beaumont v. Prieto (1916): The agent issued a note whereby
he granted a prospective buyer of a parcel of land belonging
to his principal, an option to purchase the said property. He
signed the note in his own name. The buyer accepted the offer.
The buyer sued both the agent and the principal for failure to
provide documents pertaining to the proposed sale. Court
held that there was no misjoinder because the exception
“does not say that such person does not have, and cannot
bring an action against the agent also.”
Cases:
Philippine National Bank v. Agudelo (1933)
Brief Facts: Paz and Amparo authorized Mauro to sell, alienate
and mortgage their properties. Mauro mortgaged the said
properties under his own name and subsequently executed
promissory notes secured by such mortgages under his own
name.
Doctrine: When an agent negotiates a loan in his personal
capacity and executes a promissory note under his own
signature, without express authority from his principal, giving
as security therefor real estate belonging to the letter, also in
his own name and not in the name and representation of the
said principal, the obligation constituted by him is personal
and does not bind his aforesaid principal.
Philippine Products Co. v. Primateria (1965)
Brief Facts: Pimateri Zurich, a foreign juridical entity, entered
into a contract through Alexander Baylin. Under the agreement,
PPC was to ship copra products abroad. Apparently, Primateria
Zurich was not licensed by the SEC to do business in the
Philippines. Primateria Zurich also failed to pay its obligations
amounting to P31,009.71. PPC sued Primateria Zurich and it
impleaded Baylin, Primateria Philippines, and one Jose Crame,
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the latter three being impleaded as agents of Primateria Zurich.
TC ruled in favor of PPC but absolved the alleged agents.
Doctrine: PPC was not able to prove that Primateria Zurich, a
sociedad anonima, is a foreign corporation. And as a sociedad
anonima, Primateria Zurich is not a corporation under our
Corporation Law. As such, Sections 68 and 69 cannot be
invoked in order to make the alleged agents of Primateria
Zurich be liable.
National Power Corp. v. National Merchandising Corporation
and Domestic Insurance Co. (1982)
Brief Facts: Namerco, the agent of a New York-based principal,
entered into a contract of sale with the NPC without disclosing
the limits of its powers and, contrary to its principal’s prior
cabled instructions that the sale should be subject to
availability of a steamer, it agreed that non-availability of a
steamer was not a justification for nonpayment of the
liquidated damages.
Doctrine: Namerco is liable for damages because under Article
1897 of the Civil Code the agent who exceeds the limits of his
authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party.
The contract entered into by an agent who acted beyond his
powers is unenforceable only as against the principal but not
against the agent and its surety. The rule that every person
dealing with an agent is put upon an inquiry and must discover
upon his peril the authority of the agent is not applicable
where the agent, not the principal, is sought to be held liable
on the contract.
Philippine National Bank v. Welch, Fairchild & Co. Inc. (1923)
Brief Facts: La Compañía applied to PNB for a loan to
purchase a ship situated in US. The ship was covered by an
insurance policy. WF&C requested PNB to release the funds
without providing for the bill of sale and insurance policy.
However, WF&C promised to PNB that La Compania would
deliver the documents, which the company later on confirmed.
The ship sank and WF&C was able to recover the proceeds
from the insurance company. PNB withheld the amount
credited to WF&C.
Doctrine: An agent who obligates his principal to deliver
specific property to a third party may thereafter, to the
prejudice of such third party, appropriate and apply the same
property, or its proceeds, to the payment of debts owing by
the principal to the agent. The fact that the principal assents to
such application of the property does not alter the case.
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Tuason v. Orozco (1906)
Brief facts: Vargas executed power of attorney to authorize
Enrique to take out a loan on his behalf and mortgage his
property. Enrique and Dolores, wife of Vargas, obtained a loan
from Tuason and the property was mortgaged as a security. In
the instrument, Enrique stated that he assume the entire
liability. Tuason instituted the case to foreclose the mortgaged
property as payment for the debt against Dolores.
Doctrine: Under the provisions of article 1727 of the Civil Code
the principal is directly liable to the creditor for the payment of
a debt incurred by his agent acting within the scope of his
authority. Irrespective of such liability on the part of the
principal, the agent may bind himself personally to the
payment of the debt incurred for the benefit and in behalf of
his principal. In such a case the liability expressly incurred by
the agent does not preclude the personal liability of the
principal but constitutes a further security in favor of the
creditor. Where a debt is secured by a mortgage upon
property belonging to the principal, duly recorded in the
Registry of Property, the creditor may bring his action directly
against the mortgaged property, notwithstanding the liability
personally incurred by the agent and the fact the agent
delivered to the creditor certain shares of stock as security for
the liability incurred by himself. A mortgage directly subjects
the encumbered property, whoever its possessor may be, to
the fulfillment of the obligation for the security of which it was
created.
Cervantes v. CA (1999)
Brief facts: Philippine Air Lines, Inc. (PAL) issued to Nicholas
Cervantes a round trip plane ticket for Manila-Honolulu-Los
Angeles-Honolulu-Manila, which ticket expressly provided an
expiry date of one year from issuance (Mar 27, 1990). On March
23, 1990, the petitioner used it. Upon his arrival in Los Angeles
on the same day, he immediately booked his Los Angeles-
Manila return ticket with the PAL office, and it was confirmed
for the April 2, 1990 flight. However, upon learning that the
same PAL plane would make a stop-over in San Francisco, and
considering that he would be there on April 2, 1990, petitioner
made arrangements with PAL for him to board the flight in San
Francisco instead of boarding in Los Angeles. When the
petitioner checked in at the PAL counter in San Francisco, he
was not allowed to board by the PAL personnel due to the
expiration of validity of his ticket. Thus, Cervantes filed a
Complaint for Damages for breach of contract of carriage. He
claimed that the act of the PAL agents in confirming his ticket
extended its period of validity.
Doctrine: Under Article 1898, the acts of an agent beyond the
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scope of his authority do not bind the principal, unless the
latter ratifies the same expressly or impliedly. Furthermore,
when the third person knows that the agent was acting beyond
his power or authority, the principal cannot be held liable for
the acts of the agent. If the said third person is aware of such
limits of authority, he is to blame, and is not entitled to recover
damages from the agent, unless the latter undertook to secure
the principal's ratification.
Smith Bell v Sotelo (1922)
Brief Facts: During the world war, Smith sold to Sotelo tanks,
expellers and motors. When the goods arrived, Sotelo refused
to receive it. Smith sued Sotelo and Sotelo answered alleging
that it entered the contract as a manager of Manila Oil and
because of this, Manila Oil suffered damages.
Doctrine: When an agent (Sotelo) acts in his own name, the
principal (Manila Oil) has no right of action against the persons
with whom the agent has contracted (Smith), or such persons
against the principal. In such case, the agent is directly liable to
the person with whom he has contracted, as if the transaction
were his own.
Rural Bank of Bombom v CA (1992)
Brief Facts: Gallardo executed an SPA in favor of Aquino.
Aquino mortgaged Gallardo’s properties to the bank. Bank
wishes to foreclose the properties but Gallardo alleges that the
property was mortgaged to pay personal loans obtained by
Aquino from the Bank solely for his personal use and benefit.
Doctrine: 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.
Sy Juco v Sy Juco (1920)
Brief Facts: Parents sued their son who acted as their
administrator. Son does not want to return the launch, casco
and automobile because he bought them for himself and with
his own money.
Doctrine:
1. By virtue of the agency, agent is bound to transfer to
principal all the rights which he received from the
vendor, and principal has the right to be subrogated
in all the effects of the sale.
2. Applying the exception (when things belonging to the
principal are dealt with) in Art 1717, the agent's
apparent representation yields to the principal's true
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representation and that, in reality and in effect, the

contract must be considered as entered into between
the principal and the third person.

NFA v IAC (1990)

Brief Facts: Medalla entered into contract of shipment with

NFA. Superior, the principal, asks NFA to be the one to receive
the payment but NFA paid Medalla instead because Superior
was an undisclosed principal and NFA did not know about the
agency between them.

Doctrine: Agent's apparent representation yields to the

principal's true representation and that, in reality and in effect,
the contract must be considered as entered into between the
principal and the third person. Corollarily, if the principal can
be obliged to perform his duties under the contract, then it
can also demand the enforcement of its rights arising from the
contract.

Gold Star Mining v Lim Jimenez (1968)

Brief Facts: Lincallo leased his and Jimena’s mining claims to

Gold Star. Gold Star refused to give royalties to Jimena
because there was no privity of contract between Gold Star
and Jimena as Lincallo was the only one who transacted.

Doctrine: Principal (Jimena) may sue the person (Gold Star)

with whom the agent (Lincallo) dealt with in his agent's name,
when the transaction "involves things belonging to the
principal."

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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
X. WHAT ARE THE OBLIGATIONS
AND LIABILITIES OF PRINCIPALS
TO AGENTS?
OBLIGATIONS OF THE PRINCIPAL
1. Comply with obligations
Art. 1910. The principal must comply with all the
obligations which the agent may have contracted within the
scope of his authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
a. Acts within the scope of authority
Art. 1881. The agent must act within the scope of his
authority. He may do such acts as may be conducive to the
accomplishment of the purpose of the agency.
Art. 1882. The limits of the agent’s authority shall not be
considered exceeded should it have been performed in a
manner more advantageous to the principal than that
specified by him.
Art. 1900. So far as third persons are concerned, an act is
deemed to have been performed within the scope of the
agent’s authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an
understanding between the principal and the agent.
 The following acts are deemed within the scope of agent’s
authority:
1. Conducive acts (Art. 1881)
2. Advantageous acts (Art. 1882)
3. Collateral acts which are natural and ordinary
incidents of the main act or business authorized
(Guinhawa v. People)
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 The fact that the agent’s acts are conducive or
advantageous will not cure the defect if the law requires
that the authority for such be expressly or specifically
conferred.
b. Ratified acts
Art. 1901. A third person cannot set up the fact that the
agent has exceeded his powers, if the principal has ratified,
or has signified his willingness to ratify the agent’s acts.
 The principal can bind the third person to the
unauthorized act of his agent by simply signifying his
willingness to ratify, without actually ratifying it.
 Art. 1901 gives binding effect to the unauthorized act even
prior to actual ratification.
 If a principal’s willingness to ratify the unauthorized act
binds a third person, certainly it should bind him as well.
 Ratification in agency is the adoption or confirmation by
one person of an act performed on his behalf by another
without authority.
In Filipinas Life v. Pedroso (2008): Teresita Pedroso was a policy
holder of a 20-year endowment life insurance issued by
Filipinas Life Assurance Company. Since 1972, Renato Valle
was the insurance agent who collected her monthly premiums.
Valle told her that Filipinas Life Escolta Office was holding a
promotional investment program offering 8% prepaid interest
a month for certain amounts deposited on a monthly basis.
Pedroso invested. Pedroso confirmed the existence of the
promotion with the branch manager Angel Apetrior. Apetrior
confirmed that there was such promotion. Pedroso’s
investment of P10,000 was returned to her after she made a
written request for its refund. She made 7-8 more investments,
totalling P37,000 but at a lower rate of 5% prepaid interest a
month. When Pedroso tried to withdraw her investment, Valle
did not want to return some P17,000 worth of it. Palacio
(another insured) also tried to withdraw hers but FL despite
demands refused to return her money. Pedroso et al filed an
action for the recovery of a sum of money. FL claimed that the
investment scheme offered by its agents was outside the
scope of their authority. Court held that FL ratified the acts of
its agent by benefitting from the alleged unauthorized
investments. Valle’s authority to solicit and receive investments
was established by the parties. When Pedroso sought
confirmation, Alcantara, holding supervisory position, and
Apetrior, the branch manager, confirmed that Valle had
authority. FL, as the principal, is liable for obligations
contracted by its agent Valle.
 The general rule is that the principal is responsible for the
acts of its agent done within the scope of its authority.
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When the agent exceeds his authority the agent becomes
personally liable for the damage.
 But even when the agent exceeds his authority, the
principal is still solidarily liable together with the agent if
the principal allowed the agent to act as though the agent
had full powers.
 The acts of an agent beyond the scope of his authority do
not bind the principal, unless the principal ratifies them,
expressly or impliedly.
 Ratification in agency is the adoption or confirmation by
one person of an act performed on his behalf by another
without authority.
 Qui per alium facit per seipsum facere videtur. “He who
does a thing by an agent is considered as doing it
himself.”
In Francisco v. GSIS (1963): The corporate principal wanted to
invalidate the agent’s acceptance of an offer of compromise by
alleging that the telegram wherein the acceptance was made
was sent not by the agent but by his secretary and that there
was a mistake in couching the correct wording. Court held that
here was nothing in the telegram that hinted at any anomaly or
gave ground to suspect its veracity. The third person should
not be blamed for relying on it. The principal accepted the
remitted amount from the third person and kept silent about
the telegram not being in accordance with the true facts as it
later alleged in court. “This silence, taken together with the
unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a binding
ratification of the original agreement.”
- In some cases, the Court considered the mere acceptance of
benefits from a disputed contract as NOT sufficient basis for
ratification.
In Manila Memorial v. Linsangan (2004): Florencia Baluyot
offered Atty. Pedro Linsangan a lot at the Holy Cross Memorial
Park owned by Manila Memorial Park Cemetery Inc. Linsangan
agreed and gave Baluyot the amount to be reimbursed to the
original buyer and to complete the down payment. Later
Baluyot verbally advised Linsangan that the contract was
cancelled for reasons the former could not explain, and
presented him another proposal for the purchase of an
equivalent property. Atty. Linsangan filed a complaint for
Breach of Contract and Damages against Manila Memorial.
Court held that the contract entered into by Linsangan and
Baluyot is outside of the latter’s authority. Manila Memorial’s
acts of accepting and encashing the checks as well as allowing
Baluyot to receive checks drawn in the name of Manila
Memorial DO NOT confirm and ratify the contract of agency.
 The principal must have full knowledge at the time of
ratification of all the material facts and circumstances
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relating to the unauthorized act of the person who
assumed to act as agent.
 If material facts are suppressed or unknown, there can be
no valid ratification.
 This principle does not apply if the principal’s ignorance of
the material facts and circumstances was willful, or that the
principal chooses to act in ignorance of the facts.
 But in the absence of circumstances putting a reasonably
prudent man on inquiry, ratification cannot be implied as
against the principal who is ignorant of the facts.
In Woodchild v. Roxas (2004): The principal questioned the
validity of terms and conditions included in a Deed of Absolute
Sale over a lot executed by its agent by arguing that the agent
was not specifically authorized to agree to such terms. The
controversial provisions involved the grant of a right of way
and sale of a portion of another lot should the right of way not
be sufficient. The Court ruled in favour of the principal pointing
out that the agent was not specifically authorized to agree to
the controverted terms nor could such authority be implied
from the authority granted to the agent to sell the lot “on such
terms and conditions which he deems most reasonable and
advantageous.” The controversial terms involved real rights
over immovable property which under Art. 1878 requires SPA.
The third person cannot feign ignorance of the need for
specific authorization on the part of the agent because “the
rule is that if the act of the agent is one which requires
authority in writing, those dealing with him are charged with
notice of that fact.” Absent estoppel or ratification, apparent
authority cannot remedy the lack of written power.
 “For an act of the principal to be considered as an
implied ratification of an unauthorized act of an agent,
such act must be inconsistent with any other hypothesis
than that he approved and intended to adopt what had
been done in his name.”
 “Ratification cannot be inferred from acts that a principal
has a right to do independently of the unauthorized act of
the agent.”
 “If a writing is required to grant an authority to do a
particular act, ratification of that act must also be in
writing.”
CASIS’ comments:
 There may have been ratification in this case.
o The principal was not forced to accept the Deed
of Absolute Sale or to receive payment. It could
have at any time rejected the provisions
regarding the right of way and the option to
purchase.
o The DOAS was not the first time the said
provisions were brought to the attention of the
principal. The third person sent a letter offering
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to purchase the said property which included the
terms in question.
o The rule that “notice to the agent is notice to the
principal” should not be overlooked. But despite
the knowledge of these provisions the principal
allowed the agent to execute the contract.
 The Court argued that there was a sale and the principal
had the right to retain the purchase price because the
buyer took possession.
o But the question arises: Is the principal’s right to
retain independent of the act of agent?
o Isn’t it precisely because there was a sale that the
seller had the right to payment and the buyer,
the right to the property under the terms and
conditions set for in the DOAS? The “sale”
involved not merely the transfer of ownership
over the lot but also the terms and conditions set
forth in the contract.
 The buyer was made to believe that the principal agreed
to everything in the DOAS. At no point prior to the
acceptance of the payment did the seller object to the
questioned provisions.
o To belatedly inform the buyer that the seller does
not intend to honor the entire contract is bad
faith on the part of the principal.
 The Court required that the acceptance and retention of
purchase price be inconsistent with any other hypothesis
than the intention to ratify. But what is the other possible
valid reason for the acceptance and retention if not
acceptance of the terms of the DOAS?
o The court simply said that the land was sold and
the buyer had taken possession of the property.
As such the seller had the right to retain the
purchase price of the property.
 If the amount accepted by the principal is not in the
concept of payment and therefore acceptance of the
terms of the Deed of Sale, why was it accepted?
o The only other possibility was that it was some
form of security for the principal because the
buyer was given possession over the lot.
o If that was the case then the Court should have
ordered the buyer to return the lot and the
principal to return the purchase price. But it
would not be just for the seller to reap the
benefits of the sale and not honor his obligations
to the buyer.
c. When Estopped
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed
the latter to act as though he had full powers. (n)
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 In this case, there is an actual agency relationship except
that the power exercised by the agent is in excess of his
authority.
 Not a case of agency by estoppel because there is an
actual agency.
 The agency is not necessarily implied because the rule will
apply even with an express agency in place.
 What the rule covers is not the existence of an agency but
the absence of express authority. Despite the absence of
express authority, the principal is solidarily liable because he
allowed the agent to act as if he had authority.
 Act of the principal may be characterized as a failure to
repudiate which indicates an implied authority.
In Rural Bank of Milaor v. Ocfemia (2000): Felicisimo and
Juanita Ocfemia mortgaged 7 parcels of land to the bank.
They were unable to redeem the properties. Mortgage was
foreclosed and ownership transferred to the bank. The bank
sold 5 parcels of land to Renato and Juanita Ocfemia. The
Deed of Sale named Fe Tena (the bank manager) as the
representative of the bank. To register the transfer, the
Ocfemias needed a board resolution. The bank refused to
issue a board resolution. Ocfemias filed an action for
mandamus and damages. Court held that Tena was authorized
to enter into the contract of sale. In failing to file its answer
specifically denying under oath the Deed of Sale, the bank
admitted the due execution of the said contract. Such
admission means that it acknowledged that Tena was
authorized to sign the Deed of Sale on its behalf. The bank
acknowledged, by its own acts or failure to act, the authority of
Tena to enter into binding contracts.
DOCTRINE: A bank is liable to innocent third persons where
representation is made in the course of its normal business by
an agent, even though such agent is abusing her authority.
 Board of Liquidators v Kalaw: When, in the usual course of
business of a corporation, an officer has been allowed in his
official capacity to manage its affairs, his authority to
represent the corporation may be implied from the manner
in which he has been permitted by the directors to manage
its business.
 Francisco v GSIS, citing Ramirez v Orientalist Co.: If a
corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing
power to do those acts, the corporation will, as against
anyone who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority.
 The bank is now estopped from questioning the authority of
the bank manager to enter into the contract of sale.
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CASIS:
 The transaction involved is a sale of a parcel of land.
Pursuant to Art. 1874, when a sale of a piece of land or any
interest therein is through an agent, the authority of the
agent must be in writing.
 While the bank may be estopped to deny the apparent
authority it granted to its agent, there is no escaping the
clear requirement under the Civil Code.
 It would be a different matter if the Article and By-Laws of
the bank or a previous board resolution authorized the bank
manager to execute deeds of sale of land owned by the
bank.
In Cuison v CA (1993): Kae Cuison was a sole proprietorship
with stores in Baesa, QC and Sto. Cristo, Binondo. Valiant
Investment Associates delivered various kinds of paper
products to Lilian Tan of LT trading allegedly pursuant to
orders made by Tiu Huy Tiac who was employed in the Sto.
Cristo branch of Cuison. In payment, Tiac issued checks which
were later dishonored. Valiant demanded payment from
Cuison who denied involvement in the transaction. Court held
that Tiu Huy Tiac had the authority to enter into the
transaction because of Cuison’s representations. Cuison is
estopped from disclaiming liability for the transaction entered
into by Tiac on his behalf. Cuison held out Tiu Huy Tiac to the
public as the manager of his store in Sto. Cristo, Binondo. It
did not matter whether the representations were intentional or
merely negligent so long as innocent third persons relied upon
such representations in good faith and for value. By Cuison’s
own representations and manifestations, Tiu Huy Tiac became
an agent of the former by estoppel. Cuison is liable for the
transaction entered into by Tiu Huy Tiac on his behalf.
1. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers.
DOCTRINE: 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.
 Rationale behind Art. 1911 according to Manila Remnant Co.,
Inc. v CA: It is intended to protect the rights of innocent
persons. In such a situation, both the principal and the agent
may be considered as joint tort feasors whose liability is joint
and solidary.
CASIS: Two observations may be made about this case:
1. Court’s discussion focused on the existence of an agency
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relationship between Cuison and Tiu Huy Tiac which is
different from the existence of authority on the part of the
latter to enter into the transaction.
 Tiu Huy Tiac may be the agent of Cuison but it did not
necessarily follow that his agency involved the transactions
in question.
2. The Court characterized the relationship between Cuison
and Tiu Huy Tiac as an agency by estoppel.
 While the facts as found by the Court may support the
existence of an agency by estoppel, there appears to be
an implied agency and not merely an agency by estoppel.
 Agency may be implied from the principal’s silence, lack
of action or failure to repudiate the agency knowing that
another rperson is acting on his behalf without authority.
Agency may also be implied from the acts of the agent
which carry out the agency. Both are present in this case.
SPECIFIC OBLIGATIONS (IN CIVIL CODE)
A. Advance/ Reimburse
Art. 1912. The principal must advance to the agent, should the
latter request, the sums necessary for the execution of the
agency.
Should the agent have advanced them, the principal must
reimburse him therefor, even if the business or undertaking
was not successful, provided the agent is free from all fault.
The reimbursement shall include interest on the sum
advanced, from the day on which the advance was made.
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.
Art. 1918. The principal is not liable for the expenses incurred
by the agent in the following cases:
1. If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
2. When the expenses were due to the fault of the agent;
3. When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was not aware
thereof;
4. When it was stipulated that the expenses would be borne by
the agent, or that the latter would be allowed only a certain
sum.
 Item 4) should not mean that the principal is exempt from
reimbursement in all cases where there is a stipulation that
the agent is only allowed a certain sum for expenses. A
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reasonable interpretation of the provision is that the
principal is exempted from reimbursing expenses beyond
the stipulated amount.
B. Indemnify
Art. 1913. The principal must also indemnify the agent for all
the damages which the executive of the agency may have
caused the latter, without fault or negligence on his part.
 The provision appears to contemplate a situation where the
agent suffered damage as a result of performing his duties
as an agent. Damage must not be the result of the agent’s
fault or negligence.
 Two questions can arise from the application of this
provision:
1. Should the damage be a direct consequence of the
execution of the agency or is it sufficient that such
damage is incurred during the execution of the agency?
 Casis: Equity would seem to dictate that the latter
should be the rule provided that the damage would not
have arisen had the agent not been performing his
duties.
2. If the damage is caused by fault or negligence of a third
person, can the principal refuse to indemnify?
 Casis: The use of the term “must” seems to imply that
this refusal would not be valid.
C. Solidary liability
Art. 1915. 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.
D. Compensation
Art. 1875. Agency is presumed to be for a compensation,
unless there is proof to the contrary.
- The principal has the obligation to compensate the agent
even if not specified in the power of attorney because under
the CC, agency is presumed to be for compensation.
- Rules on circumstances for agent to be entitled to
compensation (according to jurisprudence):
o Determine whether person is an agent or a
broker
 In sales, an agent is generally required to be
the procuring agent while the broker is generally
required only to bring the parties together.
o If the person is an agent, it must be determined if
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he has completed the task required of him.
 There are cases where the Court granted an
agent compensation even if transaction was not
completed within the period of agency.
 Also even where an agent’s authority has
expired, the agent is granted his commission if
there is a close, proximate connection between
the agent’s efforts and the sale.
E. Agent’s lien
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.
Cases:
Dela Cruz v. Northern Theatrical Enterprises Inc (1954)
Brief Facts: The guard employed by Northern Theatrical
figured in a shooting incident and incurred expenses during
the litigation filed against him. The employee wants to recover
from the employer invoking the concept of agency.
Doctrine: the relationship between the movie corporation and
the guard was not that of principal and agent because the
principle of representation was in no way involved.
Macondray v Sellner (1916)
Brief Facts: Macondray wished to sell its land through Sellner.
Sellner found a buyer, Barretto, but Macondray gave a
deadline for the sale. If the confirmation of the sale went
beyond the deadline, it would be considered cancelled.
Macondray filed an action to recover damages from Sellner
because it sold the property even after the authority had been
revoked from it.
Doctrine: There can be no question as to the liability of the
principal to the agent for the amount of the commission which
it agreed to pay him should he find a purchaser for the land at
the price agreed upon in his agency contract.
Danon v Brim (1921)
Brief Facts: Brimo employed Danon to look for a buyer of its
factory. Brimo sold it to the buyer of another agent, Sellner. LC
awarded Danon the value of his services as a broker for Brimo.
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Doctrine: The principal violates no right of the broker by selling
to the first party who offers the price asked, and it matters not
that sale is to the very party with whom the broker had been
negotiating. He failed to find or produce a purchaser upon the
terms prescribed in his employment, and the principal was
under no obligation to wait longer that he might make further
efforts.
Rocha v. Prats (1922)
Brief Facts: Rocha, as the agent of Prats & Co, negotiated with
madrigal to sell a building and lot owned by the company.
Rocha was authorized in writing to sell the property for
P165,000. P100,000 was to be paid within a year, provided that
it is secured by a bank credit. Rocha alleged that Brimo waived
the security condition. The sale did not push through because
Brimo insisted that the condition be complied with.
Doctrine: Agent cannot recover compensation if he did not
succeed in bringing the minds of the buyer and seller to an
agreement as to the price and terms.
Inland Realty Investment Service, Inc. v. CA (1997)
Brief Facts: Gregorio Araneta gave Inland the authority to sell
its shares for P1,500/share. Inland negotiated with Stanford but
failed to consume the sale because Stanford insisted on
buying at the price of P1,000/share. 1 year and 5 months after
the expiration of Inland’s authority to sell, Gregorio Araneta
finally sold the shares to Stanford. Inland’s claiming for broker’s
commission but Gregorio declined.
Doctrine: Where the agent is not the the efficient procuring
cause in bringing about the sale in question, it is therefore, not
entitled to the stipulated broker's commission.
Infante v. Cunanan (1953)
Brief facts: Cunanan and Mijares were authorized by Infante to
find a buyer for her property. Infante would pay them 5%
commission. The two eventually found a buyer, Pio Noche.
Infante then said that she was no longer interested to push
through with the sale and made the two execute a deed of
cancellation of authority to find a buyer. Later on, Infante sold
the property to Noche. Cunanan and Mijares now demand
payment of their commission.
Doctrine: If the principal changes his mind on selling a certain
property after the agent has found a buyer for it, the principal
would not be forced to sell his property or give the agent his
commission. But if the principal cancels the sale in bad faith,
then the principal would not be allowed to evade payment of
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the commission agreed upon.
Prats v. CA (1978)
Brief facts: Doronila was owner of a 300 hectare lot. He offered
to sell it to SSS but upon failure of negotiations, he gave
exclusive authority to negotiate its sale to Prats. The latter tried
to bring Doronila and SSS together, however, the acceptance
of the offer to sell was done after the expiration of such
authority.
Doctrine: The principal has the obligation to pay commissions
to his agent, subject to the limitations of the stipulations in the
agency. Based on equity, in this case, it is but proper to give
compensation to the efforts of the agent which was
instrumental in bringing the parties back together to
consummate a contract of sale.
Uniland Resources v. DBP (1991)
Brief Facts: Marinduque mortgaged its real properties to
Caltex then to DBP. Caltex then proceeded to foreclose the
property which DBP redeemed by virtue of its acquisition of
Marinduque's right to redemption. DBP then decided to resell
the properties and Uniland requested accredition from DBP to
act as its broker and volunteered Glaxo as a buyer.
Doctrine: An entity which acts as a broker without any
authoruty from the principal is not entitled to broker's fees.
However, for equity considerations, the Court may grant
minimal fees to compensate the broker if indeed the broker
was instrumental in bringing together the parties to the
contract.
Domingo v. Domingo (1971)
Brief facts: Vicente authorized Gregorio to sell his land for
P2/sqm. A buyer (Oscar) gifted Gregorio P1,000 to sell to him
at a lower price. Gregorio accepted the gift without knowledge
of his principal and convinced his principal to sell at only
P1.20/sqm.
Doctrine: The law imposes upon the agent the absolute
obligation to make a full disclosure to his principal of all his
transactions and other material facts relevant to the agency. An
agent who takes a secret profit in the nature of a bonus from
the vendee, without revealing the same to his principal, is
guilty of a breach of his loyalty and forfeits his right to collect
the commission from his principal. The rule is to prevent the
possibility of any wrong, not to remedy or repair an actual
damage.
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XI. WHAT ARE THE OBLIGATIONS
OF PRINCIPALS TO THIRD
PARTIES?
LIABILITIES OF THE PRINCIPAL
- Principal is liable for the valid acts of the agent, including:
o Acts within the scope of the latter’s authority
o Those he ratified
o Those he is estopped to deny
- CC provides for specific rules on the nature and scope of
the principal’s liability in relation to his agent.
1. Be Solidarily Liable
Art. 1911. Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers. (n)
- Principal can be held solidarily liable with the agent in
cases where the agent has exceeded his authority if the
former allowed the latter to act as if he had full powers.
o This may appear to be a form of implied agency.
However, in an implied agency, the principal is liable
for the contract and not the agent.
o Under this provision, the provision, the principal is
solidarily liable with his agent.
Art. 1915. 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.
(1731)
- Principal may be solidarily liable with another or others as
principals if they appointed the agent for a common
transaction or undertaking.
In De Castro v. CA (2002): One of the four co-owners issued to
the agent a handwritten note authorizing him to sell the
properties. The agent sued only two co-owners of a parcel of
land to recover his unpaid commission for the sale of two
parcels of land. The defendants argued that the complaint
should have been dismissed for failure to implead the other
co-owners of the lots. The Court held that the defendants
could not seek the dismissal for failure to implead the other
principals as indispensable parties. The co-owners admitted
that they were solidarily liable. The co-owner signed the note
as owner and as representative of the other co-owners. This
means that that all the four were the agent’s principals.
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DOCTRINE: In a case where the undertaking is the sale of a
parcel of land owned in common by several individuals, only
those who authorize the agent to sell can be solidarily liable
under Art. 1915.
The Court cited Tolentino who wrote that (obiter):
- Article 1915 applies even when the appointments were
made by the principals in separate acts, provided that they
are for the same transaction.
- Rules as to the manner of appointment required by Art.
1915.
o Solidarity arises from the common interest of the
principals, not from the act of constituting the agency.
o If the undertaking is one in which several are
interested, but only some create the agency, only the
latter are solidarily liable.
2. Contract Involves Things Belonging to Principal
Art. 1883. If an agent acts in his own name, the principal has
no right of action against the persons with whom the agent
has contracted; neither have such persons against the
principal.
In such case the agent is the one directly bound in favor of
the person with whom he has contracted, as if the transaction
were his own, except when the contract involves things
belonging to the principal.
The provisions of this article shall be understood to be
without prejudice to the actions between the principal and
agent. (1717)
GR: The principal is not bound when the agent acts in his own
name.
XPN: Agency with an undisclosed principal (Art. 1883)
- This is not an exception to the liability of agents but to the
non-liability of principals for contracts entered into by
agents in their own name.
Rules regarding this exception (according to jurisprudence)
1. Principal and third persons have a right of action against
each other.
o Principal is considered a party to the contract
even if agent entered into it in his own name.
o Principal can enforce rights under the contract
though he is not a party.
o Principal is entitled to the benefit of the
transaction.
In Syjuco v. Syjuco (1920): The agent was the administrator of
the properties of his principals and used their funds to acquire
property in his own name. Court held that the agent must
 AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
transfer ownership over the property to his principals. Under
the exception “the agent is bound to the principal although he
does not assume the character of an agent and appears acting
in his own name.” The agent’s apparent representation yields
to the principal’s true representation and that, in reality and in
effect, the contract must be considered as entered into
between the principal and the third person.
In Gold Star Mining v. Lim-Jimena (1968): Ananias Lincallo
bound himself to turn over to Victor Jimena ½ of the proceeds
from all mining claims that he would purchase with the money
to be advanced by the latter. Instead of turning over part of
the claims to Jimena, Lincallo assigned mining rights over part
of the claims to Gold Star Mining Co., Inc. Subsequently, the
mining claims in question were made subject matter of
contracts entered into by Lincallo in his own name and for his
benefit alone without any intimation of Jimena’s interests.
Jimena repeatedly apprised Gold Star and Marinduque of his
interests over the mining claims and demanded recognition
and payment of his ½ share in all the royalties allocated and
paid and thereafter be paid. Jimena commenced a suit against
Lincallo for recovery of his advances and his ½ share in the
royalties. Court ruled that Lincallo, in transferring the mining
claims to Gold Star, acted as Jimena’s agent with respect to
Jimena’s share of the claims. Under such condition, Jimena has
an action against Gold Star pursuant to Article 1883 which
provides that the principal may sue the person with whom the
agent dealt with in his (agent’s) own name when the
transaction ‘involves things belonging to the principal.’
2. The principal is not bound by the contract if the act is
beyond the scope of an agent’s authority.
 The exception under Article 1883 does not apply in all
cases involving the property of the principal but only if
the act of agent is within the scope of his authority.
In PNB v. Agudelo (1933): Two principals executed special
powers of attorney on two different occasions to authorize the
agent to sell, alienate, and mortgage all their real estate.
Nothing in the powers expressly authorized the agent to
contract any loan nor to constitute a mortgage on the
principal’s properties to secure his obligations. The agent, on
two separate occasions executed in favor of PNB mortgages
on the lot in the name of the principals to secure the payment
of credits, loans, commercial overdrafts, which he might obtain.
The mortgage deeds and promissory notes were executed in
the agent’s own name and signed by him in his personal
capacity. Court ruled that the agent executed the promissory
notes under his own signature without authority from his
principals, and therefore not binding upon the latter. There
was nothing to show that he executed the promissory notes for
the account and at the request of his principals. The exception
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only applied if the agent acted within the scope of authority. In
this case, the agent was not authorized to execute promissory
notes even in the name of his principal nor to constitute a
mortgage on the real properties to secure such promissory
notes.
DOCTRINE: The exception only applied if the agent acted
within the scope of authority.
CASIS: In this case, the court carved out an exception to the
exception or provided a condition for the application of the
exception. The Court is saying that even if property of the
principal is involved, the contract entered into by the agent in
his own name will not bind the principal if the agent exceeded
the scope of his authority.
SPECIFIC OBLIGATIONS (IN CIVIL CODE)
A. Agent acting within the scope of authority
Art. 1883. If an agent acts in his own name, the principal has no
right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
Art. 1917. In the case referred to in the preceding article, if the
agent has acted in good faith, the principal shall be liable in
damages to the third person whose contract must be rejected.
If the agent acted in bad faith, he alone shall be responsible.
Art. 1916. When two persons contract with regard to the same
thing, one of them with the agent and the other with the
principal, and the two contracts are incompatible with each
other, that of prior date shall be preferred, without prejudice
to the provisions of Article 1544.
Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong
to the person acquiring it who in good faith first recorded it in
the Registry of Property.
Should there be no inscription, the ownership shall pertain to
the person who in good faith was first in the possession; and,
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in the absence thereof, to the person who presents the oldest
title, provided there is good faith.
B. Agent acting outside the scope of authority
Art. 1900. So far as third persons are concerned, an act is
deemed to have been performed within the scope of agent’s
authority, if such act is within the terms of the power of
attorney, as written, even if the agent has n fact exceeded the
limits of his authority according to an understanding between
the principal and the agent.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed
the latter to act as though he had full powers.
Art. 1916. When two persons contract with regard to the same
thing, one of them with the agent and the other with the
principal, and the two contracts are incompatible with each
other, that of prior date shall be preferred, without prejudice
to the provisions of Article 1544.
property as payment for the debt against Dolores.
Doctrine: Under the provisions of article 1727 of the Civil Code
the principal is directly liable to the creditor for the payment of
a debt incurred by his agent acting within the scope of his
authority. Irrespective of such liability on the part of the
principal, the agent may bind himself personally to the
payment of the debt incurred for the benefit and in behalf of
his principal. In such a case the liability expressly incurred by
the agent does not preclude the personal liability of the
principal but constitutes a further security in favor of the
creditor. Where a debt is secured by a mortgage upon
property belonging to the principal, duly recorded in the
Registry of Property, the creditor may bring his action directly
against the mortgaged property, notwithstanding the liability
personally incurred by the agent and the fact the agent
delivered to the creditor certain shares of stock as security for
the liability incurred by himself. A mortgage directly subjects
the encumbered property, whoever its possessor may be, to
the fulfillment of the obligation for the security of which it was
created.

Art. 1917. In the case referred to in the preceding article, if the

agent has acted in good faith, the principal shall be liable in
damages to the third person whose contract must be rejected.
If the agent acted in bad faith, he alone shall be responsible.

C. For crimes; for torts

Cases:

Gonzales and Gomez v. Haberer (1925)

Brief Facts: Gomez, as agent of his wife Gonzales sold a parcel

of land to Haberer with a duty of the former to place the latter
in possession. Haberer was not able to take possession.
Gomez and Gonzales sued Haberer to claim the unpaid
balance of the purchase price.

Doctrine: The principal, having accepted the benefits of the

misrepresentations of her agent, is deemed to be liable for
such misrepresentations.

Tuason v. Orozco (1906)

Brief facts: Vargas executed power of attorney to authorize

Enrique to take out a loan on his behalf and mortgage his
property. Enrique and Dolores, wife of Vargas, obtained a loan
from Tuason and the property was mortgaged as a security. In
the instrument, Enrique stated that he assume the entire
liability. Tuason instituted the case to foreclose the mortgaged
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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
XII. DUTY OF THIRD PARTIES
DEALING WITH AGENT
Art. 1902. A third person with whom the agent wishes to
contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions as
regards the agency. Private or secret orders and instructions of
the principal do not prejudice third persons who have relied
upon the power of attorney or instructions shown them.
Art. 1873. If a person specially informs another or states by
public advertisement that he has given a power of attorney to
a third person, the latter thereby becomes a duly authorized
agent, in the former case with respect to the person who
received the special information, and in the latter case with
regard to any person.
The power shall continue to be in full force until notice is
rescinded in the same manner in which it was given.
Art. 1900. So far as third persons are concerned, an act is
deemed to have been performed within the scope of the
agent’s authority, if such act is within the terms of the power of
attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between
the principal and the agent.
DUTIES RIGHTS
To inquire as to existence of Demand presentation of
agency relationship, as well as authority or instructions
the nature and extent of
authority
Exercise ordinary prudence Reliance on such
and reasonable diligence in representation
dealing with an agent
Has the burden of proving
such nature and extent of
authority
1. The Keeler Rules
Although Art. 1902 gives the party dealing with an agent the
right to demand presentation of authority and instructions,
there is a body of jurisprudence providing among other things,
a duty on the part of the person dealing with the agent to
ascertain the authority of the agent.
In Keeler Electric v. Rodriguez , the court ruled that the person
dealing with the agent must act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good
reason to believe that the agent is exceeding his authority, he
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cannot claim protection.
CASIS’ Comments: The rules in this case should only apply if
there is in fact an agency relationship but there is a dispute as
to the authority of the agent.
a. Fundamental principles (in determining whether an authority
assumed by an agent exists)--Mechem
1. The law indulges in no bare presumptions that an
agency exists: it must be proved or presumed from
facts.
2. The agent cannot establish his own authority, either
by the representations or by assuming to exercise it.
3. An authority cannot be established by mere rumor or
general reputation.
4. Even a general authority is not an unlimited one.
5. Every authority must find its ultimate source in some
act or omission of the principal.
In Tuazon v. Heirs of Ramos (2005) “The law makes no
presumption of agency; proving its existence, nature and
extent is incumbent upon the person alleging it.”
In BA Finance v. CA (1992) “The sole allegation of the credit
administrator in the absence of any other proof that he is
authorized to bind petitioner in a contract of guaranty with
third persons should NOT be given weight. The representation
of one who acts as agent cannot by itself serve as proof of his
authority to act as agent or of the extent of his authority as
agent.
In Doles v. Angeles (2006) “While as far as a third person is
concerned, an agency cannot be established by the mere
statements of an agent, said agent may be estopped to deny
such statements as far as the third person or principal is
concerned. But such estoppel does not bind the principal”.
b. Duty to inquire
Three things a third party is required to inquire into when
dealing with an agent:
1. The fact that an agency relationship actually exists;
2. The nature of the agency or authority granted to the
agent; and
3. The extent of the authority granted to the agent.
CASIS’ comments: Jurisprudence does not impose upon the
principal the duty to inform the third party of the agent’s
authority. It is up to the person dealing with the agent to find
out for himself. But if such third person asks about the agent’s
authority, the principal has a duty to disclose. But the third
party must first ask or inquire.
In National Power Corp. v. National Merchandising (1982), the
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rule that “every person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the
agent” would only apply if the principal is sought to be held
liable on the contract entered into by the agent. In this case, it
was the gaent who was sought to be liable. Agent who
exceeded its authority cannot escape liability.
c. Burden of Proof - the third party dealing with such agent has
the burden of proving such nature and extent of authority BUT
general rule is still that the burden of proving the existence of
an agency relationship rests on the person making the
allegation.
d. Standard of care - Act with ordinary prudence and
reasonable diligence.
 Third party cannot claim protection when:
1. Suggestions of probable limitations be of such
clear and reasonable quality; or
2. The character assumed by the agent is of such a
suspicious or unreasonable nature; or
3. The authority which he seeks to exercise is of
such an unusual or improbable character, as
would suffice to put an ordinarily prudent man
upon his guard.
the agent. The third party was negligent in its failure to verify if
the principal owned a vessel. It should have required the
presentation of documentary proof of ownership of the vessel
to be chartered. Mere opinion of an agent as to the extent of
his powers, or his mere assumption of authority without the
foundation, will NOT bind the principal; and a third person
dealing with a known agent must bear the burden of
determining for himself, by the exercise of reasonable
diligence and prudence, the existence of agent’s authority to
act in the premises. Whether the agency is general or special,
the third person is bound to ascertain not only the fact of
agency, but the nature and extent of authority.
In Eternit v. Litonjua (2006), A person dealing with a known
agent is not authorized, under any circumstances, to blindly
trust the agents. In this case, petitioners failed to discharge
their burden; hence petitioners are not entitled to damages
from Eternit.

JURISPRUDENCE:

In Apex Mining Co. Inc. v. Southeast Mindanao Gold Mining

Corp. (2006), court held “the existence of the elements of
agency is a factual matter that needs to be established or
proven by evidence. The burden of proving that agency is
extant in a certain case rests in the party who sets forth such
allegation. This is based on the principle that he who alleges a
fat has the burden of proving it. The evidence to prove this fact
must be clear, positive and convincing.”

In San Juan Structural v. CA (1998), the Court held that the

buyer had the burden of proving that the corporate officer
involved was in fact authorized. The fact that the agent was a
treasurer of the corporation does not free the buyer from the
responsibility of ascertaining her authority to represent the
corporation. The buyer could not assume that the agent by
virtue of her position had authority to sell since selling is
foreign to the corporate treasurer’s function.

In Bacaltos Coal Mines v. CA (1995), court held that had the

third party dealing with the agent exercised due diligence and
prudence, it should have known that there is nothing on the
face of the documents that confers upon the agent the
authority to enter into a Trip Charter Party. Because the powers
granted to the agent under the power of attorney was based
on another contract, the third party should have required its
presentation to determine what it is and how it may be used by
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AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
XIII. HOW IS AGENCY
EXTINGUISHED?
A. Revocation; agency coupled with an interest
Art. 1873. If a person specially informs another or states by
public advertisement that he has given a power of attorney to
a third person, the latter thereby becomes a duly authorized
agent, in the former case with respect to the person who
received the special information, and in the latter case with
regard to any person.
The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given.
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.
Art. 1920. The principal may revoke the agency at will, and
compel the agent to return the document evidencing the
agency. Such revocation may be express or implied.
Art. 1921. 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.
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.
Art. 1923. The appointment of a new agent for the same
business or transaction revokes the previous agency from the
day on which the notice thereof was given to the former agent,
without prejudice to the provisions of the two preceding
articles.
Art. 1924. The agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly
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with third persons.
Art. 1925. When two or more principals have granted a power
of attorney for a common transaction, any one of them may
revoke the same without the consent of the others.
Art. 1926. A general power of attorney is revoked by a special
one granted to another agent, as regards the special matter
involved in the latter.
Art. 1927. 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 and his removal from the management is
unjustifiable.
The modes of extinguishment may be classified into three:
(1) By agreement (Nos. 5 and 6);
(2) By subsequent acts of the parties:
(a) By the act of both parties or by mutual consent; or
(b) By the unilateral act of one of them (Nos. 1 and 2);
(3) By operation of law (Nos. 3 and 4).
In General
 Revocation may be availed of even if the period fixed in
the contract of agency has not yet expired.
 Since the principal has an absolute right to revoke the
agency, the agent cannot object or claim damages arising
from such revocation unless it is shown that such was done in
order to evade the payment of agent’s commission.
 The return of the written power of attorney is not
required for the revocation to become effective.
 If there is more than one principal, any one of them may
revoke the agency without consent of the others.
EXAMPLES OF IMPLIED REVOCATION:
1. Appointment of New Agent -=does not take effect upon the
appointment of the new agent but upon notification of the old
agent.
2. Direct Management by the Principal- Accdg. To Prof Casis,
the mere act of a principal dealing with customers does not
directly constitute a revocation because the same act may
simply be interpreted as the principal engaging in his own
business.
Requisites:
1. Principal believes that the agent is in breach of its contract
of agency
2. as a result of which decides to deal with customers directly
3. Instituting suit against the agent
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4 When Not Binding on Third Persons
a. When Notice is Required
 In addition to revocation, there must be notice to third
persons for whom the agency was established in the first
place.
In Lustan v CA (1997), “Special Powers of Attorney are a
continuing one and absent a valid revocation duly furnished to
the mortgagee, the same continues to have force and effect as
against third persons who had no knowledge of such lack of
authority.”
b. Third Person in Good Faith without Knowledge of
Revocation
 The meaning of an “agent with general powers” can be
construed in a number of ways but according to Prof Casis, it
is most probable that the intention of the framers would be
for it to mean as an agent authorized to transact with the
general public, considering Art 1921 and 1922.
Cases:
Barretto v. Sta. Marina (1913)
Brief facts: Barretto (agent) filed a suit against Sta. Marina
(principal) for allegedly violating their contract of agency by
summarily and arbitrarily dispensing with his services and
refusing to pay his compensation. He was praying for the
award of damages which the lower court denied. Evidence
showed that he exceeded his authority, was negligent in his
duties, and actually resigned.
Doctrine: The contract of agency can subsist only so long as
the principal has confidence in his agent, because, from the
moment such confidence disappears and although there be a
fixed period for the excercise of the office of agent, a
circumstance that does not appear in the present case the
principal has a perfect right to revoke the power that he had
conferred upon the agent owing to the confidence he had in
him and which for sound reasons had ceased to exist.
Diolosa v. CA (1984)
Brief facts: Baterna is a licensed real estate broker and was
under the agreement to sell, transfer and convey certain lots
owned by the spouses Diolosa. It was stated in the contract
that the petitioner is engaged as an agent until all the subject
property as subdivided is fully disposed of. The spouses then
rescinded the agency contract because it wanted to reserve
the remaining unsold lots for their six grandchildren.
Doctrine: A valid contract of agency can be rescinded for
grounds specified in Articles 1381 and 1382 of the Civil Code.
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New Manila Lumber Company, Inc. v. Republic of the
Philippines (1960)
Brief facts: The contractor made New Manila its agent for the
collection of the amounts due to the contractor for the
construction of school buildings from the Republic. However,
the Republic dealt directly with the contractor. New Manila
sued the Republic.
Doctrine: A contract of agency is deemed revoked if the
principal deals directly with the third person to whom the
agent was supposed to deal with under the said contract.
Dy Buncio v Ong Guan (1934)
Brief Facts: Dy Buncio claims the rice mill and camarin is
owned by OGC so these are subject to the execution which
had been levied by Dy Buncio as creditor of OGC. Juan Tong
claims that he is the owner because it was sold to him by
OGC’s agent, OGCJr.
Doctrine: The making and accepting of a new power of
attorney, whether it enlarges or decreases the power of the
agent under a prior power of attorney, must be held to
supplant and revoke the prior power when the two are
inconsistent.
Garcia v De Manzano (1919)
Brief Facts: Narciso gave 2 general powers of atty to his son
and his wife. Son sold father’s interest on the vessel San
Nicolas to Juan Garcia. Wife, as administratrix of the estate of
Narciso, is suing for the return of the interest on the vessel as
the power of atty of the son was revoked because of her
appointment as the new agent.
Doctrine: A second power of attorney revokes the first one
only after notice given to first agent.
Rallos v Yangco (1911)
Brief Facts: Yangco wrote to Rallos and invited him to do
business with him. He introduced his agent, Collantes. Rallos
sent bundles of tobacco to Collantes to be sold on
commission but the money received was appropriated by
Collantes. Rallos seeks to recover from the principal, Yangco.
Yangco terminated his agency relationship with Collantes at
that time.
Doctrine: The general rule is that, when the relationship of
principal and agent is established, and the principal gives
notice of the agency and holds out the agent as his authorized
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representative, upon the termination of the agency, it is the
duty of the principal to give due and timely notice thereof,
otherwise, he will be held liable to third parties acting in good
faith and properly relying upon such agency.
La Compañia General De Tabacos De Filipinas v. Diaba (1911)
Brief Facts: La Campania sold goods to Diaba through its
agent, Gutierrez. When asked to pay, Gutierrez refused
claiming that he sold abaca and other agricultural materials to
Gutierrez amounting to P1,308.80 (invoking legal
compensation), and in fact there is still a balance due him. La
Campania alleged that it already revoked Gutierrez’ authority
hence it cannot be asked to pay for the abaca nor apply the
concept of legal compensation.
Doctrine: Revocation of the authority vested in the agent must
be sufficiently proven in order that the principal may avoid
liability arising from the alleged acts of the agent in
representation of the principal.
Coleongco v. Claparols (1964)
Brief Facts: Claparols executed a POA in favor of Coleongco.
However, Coleongco committed acts of disloyalty. He was
dismissed as assistant manager and the POA was revoked.
Coleongco claims that the POA cannot be revoked because it
was coupled with interest.
Doctrine: A POA is not deemed coupled with interest if the
agent’s interest is already protected under a different
instrument. A POA coupled with an interest can be made
irrevocable only in the sense that the principal may not recall it
at his pleasure. It can be revoked for a just cause regardless of
whether it was coupled with an interest or not. Irrevocability
may not be used to shield the perpetration of acts in bad faith,
breach of confidence, or betrayal of trust by the agent for this
would amount to a waiver of future fraud, which is prohibited
by the Civil Code.
In CMS Logging v CA (1992), “The principal may revoke a
contract of agency at will, and such revocation may be express,
or implied, and may be availed of even if the period fixed in
the contract of agency has not yet expired. As the principal has
this absolute right to revoke the agency, the agent can not
object thereto; neither may he claim damages arising from
such revocation, unless it is shown that such was done in order
to evade the payment of agent’s commission. There is implied
revocation when the principal sold its logs directly to several
Japanese firms.
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5. Special Authority Revokes General Authority in Part
 The general agency is not completely revoked but only
the part that is now covered by the special agency.
 “general power of attorney” and “special power of
attorney” in Art. 1926 refers to “general agency” and
“special agency”.
 This rule has no application with an agency couched in
general terms and a subsequent SPA as there is no authority
in the agency couched in general terms which conflicts with
the SPA.
 An agency couched in general terms covers only acts of
administration while a special power of attorney covers
acts of strict dominion.
 It is however possible to apply the rule in a certain case
involving a general agency and a special power of attorney.
 If the general agency granted to the first agent included
acts of strict dominion, then a special power of attorney
granted to another agent covering the same acts will
revoke the prior authority given to the first agent.
 However, in this case, there actually two SPAS. The first
SPA was granted to the first agent as part of his general
agency and the second SPA was given to another agent.
→ not squarely the case contemplated by Art. 1926.
 It is more reasonable to interpret Art. 1926 as referring to
a situation where there is a general agency created by a
principal followed by a special agency created by the same
principal.
6. When Agency Cannot be Revoked
Art. 1930. The agency shall remain in full force and effect even
after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the
interest of a third person who has accepted the stipulation in
his favor. (n)
 Jurisprudence refers to both provisions as defining an
agency coupled with an interest.
Based on Lim v Saban (2004):
1. An agency coupled with an interest is one where there is
mutual benefit on the part of:
a. The principal and agent; or
b. The principal and third persons.
2. The agency coupled with an interest cannot be revoked
for as long as the interest of the agent or third person exists.
3. The agent’s interest “must be in the subject matter of the
power conferred and not merely an interest in the exercise
of the power because it entitles him to compensation.”
4. If the agent’s interest is confined to compensation then it
is not an agency coupled with an interest.
AGENCY AND PARTNERSHIP MIDTERMS REVIEWER
In Valenzuela v CA (1990), Court held that once the agency
coupled with an interest, it should not be freely revocable at
the unilateral will of the principal. In this case, the agent had an
interest in the continuation of the agency when it was
unceremoniously terminated not only because of the
commissions he should continue to receive from the insurance
business he has solicited and procured but also for the fact
that by the very acts of the principal, he was made liable to
them in the event the insured fail to pay the premiums due.
In Republic v Evangelista (2005), the treasure that may be
found in the land is the subject matter of the agency and that
under the SPA, Gutierrez can enter into contract for the legal
services of Atty/ Adaza. Thus, Gutierrez and Atty. Adaza have
an interest in the subject matter of the agency, i.e., in the
treasures that may be found in the land. The court held that
this bilateral contract depends on the agency and thus renders
it as one coupled with interest, irrevocable at the sole will of
the principal Legaspi. When an agency is constituted as a
clause in a bilateral contract, that is, when the agency is
inserted in another agreement, the agency ceases to be
revocable at the pleasure of the principal as the agency shall
now follow the condition of the bilateral agreement.
CASIS: Both agent and lawyer would be entitled to a
percentage of such treasures as part of their compensation. It
does not appear to be an interest apart from compensation. As
discussed in Lim v Saban, an agent’s interest “must be in the
subject matter of the power conferred and not merely an
interest in the exercise of the power because it entitles him to
compensation.”
B. Withdrawal
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.
Art. 1928. The agent may withdraw from the agency by giving
due notice to the principal. If the latter should suffer any
damage by reason of the withdrawal, the agent must indemnify
him therefor, unless the agent should base his withdrawal upon
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the impossibility of continuing the performance of the agency
without grave detriment to himself.
Art. 1929. The agent, even if he should withdraw from the
agency for a valid reason, must continue to act until the
principal has had reasonable opportunity to take the necessary
steps to meet the situation.
 If the principal can revoke the agency, the agent can
withdraw from the agency.
C. Death; agency coupled with an interest
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.
Art. 1930. The agency shall remain in full force and effect even
after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the
interest of a third person who has accepted the stipulation in
his favor.
Art. 1931. Anything done by the agent, without knowledge of
the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with
him in good faith.
Art. 1932. If the agent dies, his heirs must notify the principal
thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter.
1. Agency Coupled with an Interest
GR:: Death extinguishes agency.
XPNs::
(1) The agency remains in full force and effect even after the
death of the principal, if it has been constituted:
(a) In the common interest of the principal and agent; or
(b) In the interest of a third person who has accepted the
stipulation in his favor [Art. 1930].
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(2) Anything done by the agent, without knowledge of the
death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted
with him in good faith [Art. 1931].
(3) The agent must finish business already begun on the
death of the principal, should delay entail any danger [Art.
1884].
If the agent dies, his heirs must:
(1) Notify the principal thereof; and
(2) In the meantime adopt such measures as the
circumstances may demand in the interest of the latter [Art.
1932].
Conditions [Rallos v Felix Go Chan]:
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.
 The same rule would apply even if the cause of the
extinguishment of the agency was something other than the
death of the principal.
 However, in interpreting this provision, the Court stated
that because Art. 1931 is an exception to the general rule, it
should be strictly construed.
D. Dissolution of the firm/corporation
E. Accomplishment of the object/purpose
The fulfillment of the purpose for which agency was created
ipso facto terminates agency even though it was expressly
made irrevocable. If the purpose has not been accomplished,
the agency continues indefinitely for as long as the intent to
continue is manifested through words or actions of the parties.
F. Expiration of the period
1. If created for fixed period, expiration of the period
extinguishes agency even if the purpose was not
accomplished.
2. If no time is specified, the courts may fix the period as
under the circumstances have been probably
contemplated by the parties [Art. 1197]. Otherwise,
the agency terminates at the end of a reasonable
period of time. Either party can terminate the
relationship at will by giving notice to the other [De
Leon (2010)].
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3. The period contemplated may be implied from terms
of agreement, purpose of agency, and the
circumstances of the parties.
G. Civil interdiction, insanity, insolvency
Cases:
Valera v. Velasco (1928)
Brief facts: Federico appointed Miguel as his agent to manage
the former’s usufruct of real property. Miguel brought suit
against Federico because of a misunderstanding after the
latter apparently owed the former P1,000. Miguel later on
bought the right of usufruct in a public auction after it was
levied to satisfy his claim when judgment was rendered in his
favor. Salvador, who was involved in a different case against
Federico, levied upon Federico’s right of redemption over the
usufruct after judgment was rendered in Salvador’s favor. After
buying the right of redemption, he transferred it to Miguel.
Federico assailed the sale of the right of usufruct to Miguel.
Doctrine: Disagreements between an agent and his principal
with respect to the agency, and the filing of a civil action by the
former against the latter for the collection of the balance in
favor of the agent, resulting from a liquidation of the agency
accounts, are facts showing a rupture of relations, and the
complaint is equivalent to an express renunciation of the
agency, and is more expressive than if the agent had merely
said, "I renounce the agency."
Pasno v. Ravina (1930)
Brief facts: Labitoria mortgaged her property for her
indebtedness to PNB. The mortgage authorized PNB to sell
the property in case of failure to comply with the obligation.
She died. An administrator for her estate was appointed. PNB
sought to foreclose the mortgage. The lower court denied.
The SC ruled that the power to foreclose subsisted but must
be temporarily suspended until the settlement of the estate of
the deceased.
Doctrine: The power of sale, which is coupled with an interest,
survives the death of the grantor.
Ramos v. Caoibes (1954)
Brief Facts: Concepcion applied for a claim with the Phil. War
Commission. Concepcion executed two documents, one which
is a special power of atty. in favor of Caoibes and the other
granting him certain sums. Concepcion subsequently died and
Caoibes claimed the proceeds of Concepcion's claim.
Consolacion subsequently discovered said act of Caoibes and
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prayed for the recovery of the sums.

Doctrine: A contract of agency is terminated with the death of

the principal, hence any acts of the agent after the death of
such principal can be assailed.

Herrera v. Luy Kim Guan(1961)

Brief Facts: Herrera, the owner of 3 lots, before going to China

executed a power of atty. in favor of Luy Kim. Luy Kim
subsequently sold these properties which ended in the
possession of himself, Lino Bangayan and Carlos Eijansantos.
Natividad filed a case to recover the 3 lots.

Doctrine: The acts of an agent before the death of his principal

are valid even assuming that the principal died before such
acts as long as the agent had no knowledge of his principal's
death.

Rallos v. Felix (1978)

Brief Facts: Simeon, the attorney-in-fact of his sisters

Concepcion and Gerundia, sold the parcel of land he was
previously authorized to sell despite knowing that Concepcion
already died. Concepcion’s administrator went to court to have
the sale declared unenforceable and to recover the disposed
share. The trial court granted the relief prayed for, but on
appeal, the Court of Appeals upheld the validity of the sale
and dismissed the complaint.

Doctrine: The sale was null and void because, although the
buyer may have been a purchaser in good faith, said sale was
made with the agent's knowledge of his principal's death. The
general rule is that death of the principal or the agent
extinguishes the agency and this case does not fall under any
of the exceptions to the general rule.

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