agency expanded syllabus 2011-2012 dionne sanchez

7/28/2019 Agency Expanded Syllabus 2011-2012 Dionne Sanchez

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The Law on Agency

I. Introduction

A. Definition

Art. 1868. By the contract ofagencya person binds himselfto render some service or to do something in representationor on behalf of another, with the consent or authority of the latter. (1709a)

Agency: A relationship which implies a power in an agent to contract with a 3rd

person on behalf of aprincipal.

Kind of Contract: It is a preparatory contract. It is a contract entered not for its own end but to be able to

enter into other contracts.

Characteristics:

1.) Consensual: perfected by mere consent;

2.) Nominate: it has its own name;3.) Principal: does not depend on another contract for its existence and validity;

4.) Preparatory: entered into as a means to an end;

5.) Unilateral/Bilateral:a.) Unilateral: if contract is gratuitous, it creates obligations for only one of the parties, i.e. agent.

b.) Bilateral: if for compensation, it gives rise to reciprocal rights and obligs.

Basis: Representation.

The acts of the agent on behalf of the principal within the scope of his authority produce the same legal andbinding effects as if the principal personally did them.

Distinguishing Features:1.) Representative character; and2.) Derivative authority.

Purpose: To extend the personality of the principal through the facility of the agent.

Essential Elements of Agency:1.) Consent, express or implied;

2.) Objectof the contract is the execution of a juridical act in relation to 3rd

persons;

3.) The agent acts as a representative and not for himself;4.) The agent acts within the scope of his authority.

Acts that cannot be done through an agent:

1.) Personal acts: if personal performance is required by law or public policy or agreement;2.) Criminal or illegal acts: attempt to delegate another authority to do an act which, if done by the principal

would be illegal, is void

Nature of Relation between Principal and Agent:Fiduciary, based on trust and confidence

1. Consent

Art. 1869. Agency may be express, or impliedfrom the acts of the principal, from his silence or lack of action, or hisfailure to repudiate the agency, knowing that another person is acting on his behalf without authority.

Agency may be oral, unless the law requires a specific form. (1710a)Art. 1870. Acceptance by the agent may also be express, or implied from his acts which carry out the agency, or

from his silence or inaction according to the circumstances. (n)Art. 1871. Between persons who are present, the acceptance of the agency may also be implied if the principaldelivers his power of attorney to the agentand the latter receives it without any objection. (n)

Power of attorney: An instrument in writing by which one person, as principal, appoints another as his agentand confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the

principal. Its primary purpose is to evidence the authority of the agent to 3rd

parties w/ whom the agent

deals.

Construction: A power of atty is strictly construed and strictly pursued. The instrument will be held to grant

only those powers which are specified, and the agent may neither go beyond nor deviate from the power ofatty. The only exception is when strict construction will destroy the very purpose of the power.

Not limited to face-to-face encounters. 2 persons conversing on the phone are also considered as bothpresent

Art. 1872. Betweenpersons 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. (n)

2 Ways of Giving Notice of Agency

1.) By special information

2.) By public advertisement

Effects:


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1.) Special information: the person appointed as agent is considered such with respect to the person to

whom it was given.

2.) Public advertisement: Agent is considered such with regard to any person.

Revocation An agency is revoked in the same manner as it was given.

General rule: Special information needs special information of revocation.

Except: if you can prove that the 3rd

person read the notice in the newspaperArt. 1898. If the agentcontracts in the name of the principal, exceeding the scope of his authority, and theprincipaldoes not ratifythe 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 ifhe undertook to secure the principal's

ratification. (n)

Art. 1901. A third person cannot set up the fact that the agent has exceeded his powers, if the principalhas ratified,

or has signified his willingness to ratify the agent's acts. (n)

Effect of ratification by the principal: Ratification of a contract gives it the same effect as if the principal had

originally authorized it.

Who must ratify the contract?Only the principal. But there must be knowledge on the part of the principal ofthe things he is going to ratify.

When can the 3rd

person repudiate the contract? Before actual ratification by the principal, or before the

principal has signified his willingness to ratify the agents acts.

Effect of the principal receiving the benefits of the transaction: He is deemed to have ratified it. A principalmay not accept the benefits of a transaction and at the same time repudiate its burdens.

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within thescope 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 hasacted 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. (1259a)

Art. 1403. The following contracts are unenforceable, unless they are ratified:(1) Those entered into in the name of another person by one who has been given no authority or legal

representation, or who has acted beyond his powers;a. Express; ratification- actually authorized, either orally or in writingb. Implied; ratification- implied from acts of principal, from his silence or lack of action or his failure to

repudiate the agency knowing that another person is acting on his behalf w/o authority2. Object- execution of a juridical act in relation to 3rd persons3. Consideration

Art. 1875. Agency ispresumed to be for a compensation, unless there is proof to the contrary. (n)

Broker: One who in behalf of others, and for compensation or fee, negotiate contracts relative to property.

He is the negotiator between the parties, never acting in his own name, but in the name of those who employ

him. He is strictly a middleman and for some purposes, the agent of both parties. When is a broker entitled to compensation?

A broker is entitled to commission whenever he brings to his principal a party who is able andwilling to take the property, and enter into a valid contract upon the terms named by the principal, although

the particulars may be arranged and the matter negotiated and completed between the principal and the

purchaser directly. A broker is never entitled to commission for unsuccessful efforts.

Does the law allow double agency?

Such agency is disapproved by law for being against public policy and sound morality. The exception is

where the agent acted with full knowledge and free consent of the principals.In case the agent assumes a double agency, what is his right to compensation?

1.) If with knowledge of both principals recovery can be had from both.2.) If without knowledge of both agent can recover from neither.3.) If with knowledge of only one as to the principal who knew of that fact and as to the agent, they are in

pari delicto and the courts shall leave them as they were, the contract between them being void as against

public policy and good morals.

B. Parties to the contract of agency Principal- may be a natural person or a juridical person

Agent

C. Must the parties be capacitated?

Principal must be capacitated. The rule is if a person is capacitated to act for himself or in his own right, he

can act through an agent.

Insofar as 3rd

persons are concerned, it is enough that the principal is capacitated; but insofar as hisobligations to his principal are concerned, the agent must be able to bind himself.


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Rallos v.Felix Go Chan

Facts: Two sisters executed SPOA in favor of their brother Simeon to sell for and in their behalf a parcel of land. After one of the

sisters died, Simeon sold the undivided shares of both sisters to Felix Go Chan. The administrator of the intestate estate of thedeceased sister filed a complaint to have the sale declared unenforceable.Doctrine: Agencya contract whereby one party, called the principal (mandante), authorizes another, called the agent

(mandatoria), to act for and in his behalf in transactions with third persons.Essential elements of agency:1. Consent, express or implied, of the parties to establish the relationship;

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

4. Agent acts within the scope of his authority.Important feature of agency: representation based on consent (agent as an extension of the principal)

Orient Air Services v. CA

Facts: American Air, as principal, and Orient Air, as agent, entered into a General Sales Agency Agreement. However, AmericanAir terminated the agreement due to Orient Airs alleged failure to comply with its obligation to remit commissions. TC ruled in

favor of Orient Air. American Air was ordered to reinstate Orient Air as its general sales agent. CA affirmed.

Doctrine: Ordering American Air to reinstate Orient Air as its general sales agent for passenger transportation is in effectcompelling American Air to extend its personality to Orient Air. This is violative of the principles and essence of agency.

Agencya contract whereby 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.In an agent-principal relationship, the personality of the principal is extended through the facility of the agent. Hence,

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

Facts: A series of Deeds of Absolute Sale covering 8 parcels of land were executed by NHA and agents authorized to sell saidlands. However, only 5 were paid for by NHA because of a report that the other 3 are not suitable for development into a

housing project. NHA offered P1.225M as danos perjuicios to the landowners. The agents filed a complaint for damages against

NHA. RTC awarded damages to the agents but the CA reversed, holding that they were not the real parties-in-interestDoctrine: An agent of the seller is not a party to the contract of sale between his principal and the buyer. As agents, they only

render some service or do something in representation or on behalf of their principals. The rendering of such service did not

make them parties to the contracts of sale executed in behalf of the latter.An agent does not have such an interest in a contract as to entitle him to maintain an action at law upon it in his own namemerely because he is entitled to a portion of the proceeds as compensation for making it or because he is liable for its breach.

Since a contract may be violated only by the parties thereto as against each other, the real parties-in-interest must, generally, bethe parties to said contract. Two exceptions to this rule are heirs and assignees where the rights and obligations arising from

the contract are transmissible by their nature, by stipulation, or by provision of law. Another exception is the beneficiary of a

stipulation pour autrui.

Macke v. Camps

Prudential Bank v. CA

Litonjua v. Eternit Corp

Facts: A member of the Board of Directors engaged the services of a realtor/broker for the sale of 8 parcels of land, without anywritten authority. The Litonjuas offered to buy the properties. However, the General Manager through the Regional Director for

Asia eventually decided not to sell.Doctrine: The general principles of agency govern the relation between the corporation and its officers or agents, subject to thearticles of incorporation, by-laws, or relevant provisions of law. 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 void. Consent of both principal and

agent is necessary to create an agency. The principal must intend that the agent shall act for him; the agent must intend to

accept the authority and act on it, and the intention of the parties must find expression either in words or conduct betweenthem.

An agency may be express or implied from the act of the principal, from his silence or lack of action, or his failure to repudiatethe agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may be express, or

implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances. However, to

create or convey real rights over immovable property, a SPOA is necessary.A real estate broker is one who negotiates the sale of real properties. His business is only to find a purchaser who is willing to

buy the land upon terms fixed by the owner. An authority to find a purchaser of real property does not include an

authority to sell


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II. What is the form of the contract of agency?

Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure

to repudiate the agency, knowing that another person is acting on his behalf without authority.Agency may be oral, unless the law requires a specific form. (1710a)

Art. 1874. When a sale of a piece of landor any interest therein is through an agent, the authorityof the latter shall be in

writing; otherwise, the sale shall be void. (n)

A letter is sufficientA. Oral

B. Written

Angeles v. Phil. National Railways

Jimenez v. Rabot

City-lite v. CA

Doctrine: Roy and/or Metro Drug was only to assist FP Holdings in looking for buyers and referring to them possible prospectswhom 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. In other words, Roy and/or Metro Drug was only a contact person with no authority to

conclude a sale of the property involved. For lack of a written authority to sell the property, the sale should be declared void.

Cosmic Lumber v. CA

San Juan Structural Steel v. CA

Facts: SJSS entered into an agreement with Motorich for the transfer to it of a parcel of land. However, only the signature of the

treasurer of Motorich appeared on the contract. The President and Chairman of Motorich did not sign anything.

Doctrine: A corporate officer or agent may represent and bind the corporation in transactions with third persons to the exten tthat the authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and

also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers

intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and suchapparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when

these officers exceed their authority, their actions cannot bind the corporation, unless it has ratified such acts or is estoppedfrom disclaiming them. However, the absence of a written authorization to sell a parcel of land renders the sale void. Being

inexistent from the beginning, such a contract cannot be ratified.

Delos Reyes v. CA

AF Realty v. Dieselman Freight

Facts: A member of the Board of Dieselman issued a letter denominated as Authority to Sell Real Estate to a real estate broker.

In turn, the real estate broker authorized Mimi to sell the same lot. Mimi found AF Realty, who expressed its intention to buy

the lot. However, the president of Dieselman later terminated the offer to sell.Doctrine: Contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly

authorized by the board. Absent such valid authorization, the declarations of an individual relating to the affairs of the

corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held notbinding on the corporation. Considering that the member of the Board, the real estate broker and Mimi were not

authorized by Dieselman, the supposed contract is void and cannot be ratified.

III. Who has the obligation to determine existence and scope of agency?

Keeler Electric Co. v. Rodriguez

Facts: Keeler told Montelibano that he would be paid a 10% commission for any Matthews plant that he could sell. Montelibanowas able to sell to Rodriguez. Without the knowledge of Keeler, Rodriguez paid the purchase price toMontelibano.

Doctrine: Mechem on Agency:

1. The law indulges in no bare presumptions that an agency exists.

2. Agency must be proved or presumed from facts.3. The agent cannot establish his own authority, either by his representations or by assuming to exercise it.

4. An authority cannot be established by mere rumor or general reputation.5. Even a general authority is not an unlimited one.

6. Every authority must find its ultimate source in some act or omission of the principal.

Persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, ifthey would 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. Not only must the person dealing with the agent

ascertain the existence of conditions, but he must also be able to trace the source of his reliance to some word or act of theprincipal himself if the latter is to be held responsible.


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Yu Eng Cho v. Pan American

IV. Agency distinguished from other contracts/relationships

A. Master-servant

Art. 1689. Household service shall always be reasonably compensated. Any stipulation that household service iswithout compensation shall be void. Such compensation shall be in addition to the house helper's lodging, food, andmedical attendance.

Art. 1690. The head of the family shall furnish, free of charge, to the house helper, suitable and sanitary quarters aswell 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 thehouse helper for at least elementary education. The cost of such education shall be a part of the house helper'scompensation, 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 physicalviolence be used upon the house helper.

Art. 1695. House helper 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 househelper 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 cause. If the house helper is unjustlydismissed, 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-employeeArt. 1700. The relations 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 laborand similar subjects.

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. (1544a)

Agency Lease of service

Basis is representation Basis is employment

Agent has discretionary powers Only performs ministerial functions

3rd persons are involved Only 2 persons involved: lessor and lessee

Commercial or business transactions Matters of mere manual or mechanical execution

D. Independent contractorArt. 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 alsofurnish the material. (1588a)

Agency Independent contractor

Represents principal Employed by employer

Acts under control and direction of principal Acts according to his own method

Principal liable for tort committed by agent acting within

scope of authority

Employer not liable for tort committed by IC


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E. Trust

Art. 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regardsproperty 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 obligates himself to transfer the ownership and to

deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.A contract of sale may be absolute or conditional. (1445a)

Agency SaleAgent receives goods as goods of principal Buyer receives goods as owner

Agent delivers proceeds of sale Buyer pays price

Agent can return object in case he failed to sell the same

to 3rd person

Generally, buyer cannot return the object sold

Agent bound to act according to instructions of his

principal

Buyer can deal with the thing as he pleases, being the

owner

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. (1665a)

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 doesnot arise in 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 shall govern.In the second case, the rules on agency in Title X of this Book shall be applicable. (1888a)

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 undermanagement.

The courts may, however, increase or moderate the indemnity according to the circumstances of each case. (1889a)I. Judicial administrator

Agency GuardianshipAgent represents capacitated person Guardianship represents incapacitated person

Agent appointed by principal and can be removed by him Guardian appointed by court and stands in loco parentis

Agent subject to directions of principal Guardian not subject to direction of ward but must act forhis benefit

Agent can make principal personally liable Guardian has no power to impose personal liability on his

ward

J. Broker

Agent Broker

Has a relation to principal, buyers or sellers, and the

property itself.

No relation w/ the thing w/c he purchases or sells.

Merely a go-between.

Sevilla v. CA

Facts: Sevilla, manager of Tourist World, bound herself solidarily liable with it for the prompt payment of monthly rental of itsleased premises. When Tourist World received information that Sevilla was connected with a rival firm, it issued two

resolutions, one of which abolished the office of the manager

Doctrine: There was no existing employer-employee relationship because Sevilla was not subject to control by Tourist World.First, Sevilla bound herself in solidum as and for rental payments of the contract of lease covering Tourist Worlds office.

Second, Sevilla relied on her own gifts and capabilities in running the business. Third, Sevilla was not in the companys payroll.

When Sevilla agreed to man Tourist Worlds branch office, she did so pursuant to a contract of agency, the essence of which isthat the agent renders services in representation or on behalf of another. Unlike simple grants of a POA, the agency established

here cannot be revoked at will because it is coupled with an interest.


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Shell v. Firemens Insurance

Facts: A Plymouth car was brought to the Shell gas station for washing. While the car was on a hydraulic lifter for greasing, itfell to the ground from a height of 6 ft. The insurance company brought an action against Shell

Doctrine: The operator of the Shell gas station was an agent of the company, not an independent contractor, as evidenced by the

following facts:1. He owed his position to the company and the latter could remove him or terminate his services at will;2. Service station belonged to the company and bore its trade name and the operator sold only the products of the company;

3. The equipment used by the operator belonged to the company and were just loaned to the operator;4. An employee of the company supervised the operator and conducted periodic inspection of the companys gas and service

station;5. The price of the products sold by the operator was fixed by the company; and6. The receipts signed by the operator indicated that he was a mere agent.

To determine the nature of a contract, courts rely upon the way the contracting parties do their respective obligations. Should

such performance conflict with the name or title given the contract by the parties, the former must prevail over the latter.

Dela Cruz v. Northern Theatrical Enterprises

Nielson v. Lepanto Consolidated

Facts: Nielson had agreed to explore, develop and operate the mining claims of Lepanto for a period of 5 years, renewable for

another 5. Nielson also undertook to min ore as may be found in the mining claims and to market the metallic productsrecovered which may prove to be marketable, as well as to render for Lepanto other services specified in the contract.Doctrine:

Agency Lease of Services

Basis is representation Basis is employment Preparatory contract

Juridical acts (creation, modification, extinction of relations w/ 3rd parties Non-juridical acts/ material acts

Nielson was not acting as an agent of Lepanto, but as one who was performing material acts for an employer (i.e. operation and

development of the mine).

Quiroga v. Parsons Hardware

Facts: Quiroga granted Parsons Hardware the exclusive authority to sell Quiroga beds in the Visayas. However, Quiroga later on

filed a complaint against Parsons Hardware for alleged violations of the contract.

Doctrine: Under the contract between the parties, there was the obligation on the part of the plaintiff to supply the beds, and,on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell

whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price

he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it.

Commission on sales = discount on invoice priceAgency = Parsons was the only one that could sell Quiroga beds in Visayas

Gonzalo Puyat v. Arco Amusement

Lim v. People

Facts: Ayroso authorized Lim to sell 615 kgs. of her tobacco with the agreement that the proceeds will be given to Ayroso assoon as the tobacco was sold. However, out of the total value of P799.50, Lim paid Ayroso only P240.

Doctrine: Lim is an agent of Ayroso based on the foregoing circumstances:

1. Lim asked Ayroso to be her agent in selling tobacco;2. Lim admitted that there was an agreement that upon the sale of the tobacco she would be given something; and

3. Lim received the tobacco to be sold and the proceeds to be given to Ayroso as soon as it was sold, negating the transfer of

ownership of goods to Lim.The agreement constituted Lim as an agent with the obligation to return the tobacco if the same was not sold.

Pacific Commercial v. Yatco

Ker v. Lingad

Hahn v. CA

Facts: Hahn executed a deed of assignment with SPOA in favor of BMW in exchange for the exclusive dealership of BMW carsand products. However, he was informed that BMW was arranging to grant such exclusive authority to CMC.


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Doctrine: Hahn and BMW entered into a contract of agency. An agent receives a commission upon the successful conclusion of a

sale. On the other hand, a broker earns his pay merely by brining the buyer and the seller together, even if no sale is eventually

made. The fact that a person invested his own money to put service centers and showrooms does not necessarily prove that heis not an agent of a car manufacturer.

V. Some classes of agents- see Mechem, Secs. 11-14; 76-77; 560-569

A. Attorneys-at-law- One whose business is to represent clients in legal proceedingB. Auctioneers- One whose business is to sell property for others to the highest bidder at a public sale.C. Brokers- One whose business is to act as intermediary between 2 other parties.D. Factors; commission merchants- One whose business is to receive and sell goods for a commission, being entrusted

with the possession of the goods involved in the transaction

Art. 1903. The commission agent shall be responsible for the goods received by him in the terms and conditions andas described in the consignment, unless upon receiving them he should make a written statement of the damage anddeterioration suffered by the same. (n)

Commission agent: One whose business is to receive and sell goods for a commission and who is entrusted by the

principal with the possession of goods to be sold, and usually selling in his own name.

Ordinary agent Commission agent

Acts for and behalf of principal May act in his own name or in that of the principal

Need not have possession of the goods of his principal Must be in possession

Commission agent Broker

Has a relation to principal, buyers or sellers, and theproperty itself

No relation with the thing which he purchases or sells.Merely a go-between

Liability of commission agent as to goods received:If the commission agent received goods consigned to him, he is responsible for any damage or deterioration suffered

by the same in the terms and conditions and as described in the consignment.Presumption established in this article:

Damage in the merchandise were suffered while in the possession and custody of the agent.What the commission agent must do to avoid liability:

Make a written statement of the damage and deterioration if the goods received by him do not agree w/ the

description in the consignment.

Agent Depositary

Cannot commingle goods of the same kind Can commit goods of the same kind

Art. 1904. The commission agent who handles goods of the same kind and mark, which belong to different owners,shall distinguish them by countermarks, and designate the merchandise respectively belonging to each principal. (n)

Purpose of this provision:

Prevent any possible confusion or deception.

Art. 1904 gives the general rule. Exceptions:1.) By custom;

2.) Collecting banks.

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 anyinterest or benefit, which may result from such sale. (n)

Rule given in this article:

Commission agent can sell on credit only with the express or implied consent of the principal.Right of the principal in case the commission agent sold goods on credit without authority: [CR]

2 alternatives:

1.) He may require payment in cash, in w/c case, any interest or benefit from the sale on credit shall belong to theagent since the principal cannot be allowed to enrich himself at the agents expense; or

2.) He may ratify the sale on credit, in w/c case it will have all the risks and advantages to him.

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. (n)Obligation of the commission agent where a sale on credit was authorized:

An authorized sale on credit shall be deemed to have been on a cash basis insofar as the principal is concerned if theagent fails to inform the principal of such sale on credit with a statement of the names of the buyers.

Reason for this article: Prevent the agent from stating that the same was on credit when in fact it was made for cash.


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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. (n)Guarantee commission: One where, in consideration of an increased commission, the commission agent guarantees to

the principal the payment of debts arising through his agency.

Purpose of guarantee commission: To compensate the agent for the risks he will have to bear in the collection of thecredit due to the principal.Nature of liability of guarantee commission agent:

Liable to principal if the buyer fails to pay or is incapable of paying. But he is not primarily the debtorOn the contrary, the principal may sue the buyers in his own name. In such a case, the agent amounts to no more than

a guaranty. Liability is a contingent pecuniary liability.Can the agent with a guarantee commission put up the defense of insolvency of the debtor?

No. an agent receiving a guarantee commission cannot put up the defense that the debtor-3rd

person possesses no

property since this is precisely the risk the commission agent assumes.

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. (n)

Obligation of the commission agent under this article:

The commission agent who has made an authorized sale on credit must collect the credits due the principal at thetime they become due and demandable. If he fails to do so, he shall be liable for damages unless he can show that the

credit could not be collected notwithstanding the exercise of due diligence on his part. In such a case, the principalsremedy is to proceed against the debtor.Does this article apply to a case where there is a guarantee commission?

No, because the agent already assumed the risks of collection by accepting the guarantee commission.

VI. Classifications of agency contractsA. Express agency- actually authorized, either orally or in writing

Implied agency- implied from acts of principal, from his silence or lack of action or his failure to repudiate the agency

knowing that another person is acting on his behalf w/o authority.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 factexceeded the limits of his authority according to an understanding between the principal and the agent. (n)

Requisite for article to apply:

Authority to agent must be in writing.Scope of agents authority includes:Not only the actual authorization conferred upon the agent by the principal, but also that which has apparently or

impliedly been delegated to him.

To hold the principal liable, a 3rd

person dealing with an agent must:

Discover upon his peril not only the fact of agency but the nature and extent of authority of the agent. He is put oninquiry. He must also act with ordinary prudence and reasonable diligence.

Fundamental principles when inquiring whether authority exists:1.) The law indulges in no bare presumptions that an agency exists, it must be proved and presumed from facts;

2.) The agent cannot establish his own authority, either by his representations or by assuming to exercise it;

3.) An authority cannot be established by mere rumor or general reputation;4.) A general authority is not an unlimited one; and

5.) Every authority must find its ultimate source in some act or omission of the principal.

In case the fact of agency or the extent of the authority of the agent is controverted, the burden of proof is on:

The 3rd

person to establish the fact of agency or the extent of authority of the agent.

Does the 3rd

person have to inquire further if the power of attorney is written?No. He is not required to inquire further than the terms of the written power of attorney.

If there is a secret mutual understanding between the principal and the agent, and such is not expressed in the written

power of attorney, does the 3rd

person have to inquire?

No. As far as he is concerned, an act of the agent within the terms of the power of attorney as written, is within thescope of the agents apparent authority notwithstanding that the agent may have exceeded the limits of his actualauthority according to a secret understanding between him and the principal. In such a case, the principal is estopped

from claiming that the agent exceeded his authority.

Ways by which the agents authority may be broadened or restricted: [Im-UNDEr]1.) Byimplication agents authority extends not only to express requests, but also to those acts and transactions

incidental thereto. It embraces all the necessary and appropriate means to accomplish the desired end.

2.) Byusage and custom


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a.) An agents authority may not be enlarged through usage and custom in the following cases: Where it is sought

to

i.) Vary the terms of an express authorization;ii.) Dispense with a legal requirement enacted for the principals benefit;

iii.) Change a rule of law or dispense with a formality required by law;

iv.) Vary an essential quality of the agency relationship.b.) General rule: principal must have notice of the alleged custom, before the agents acts, in accordancetherewith, may bind the principal. Exceptions:

i.) Where the principal and the agent reside in the same community, the usage is definite and well-known,and the agent has no notice that he is to act to the contrary;

ii.) Where the agent is authorized to deal in a particular place or in a particular market exchange.4.) Bynecessity the existence of an emergency or other unusual conditions may operate to invest in an agentauthority to meet the emergency, provided:

a.) Emergency really exists;

b.) Agent is unable to communicate w/ the principal;c.) Agents enlarged authority is exercised for the principals protection; and

d.) The means adopted are reasonable under the circumstances.5.) By certain doctrines

a.) Apparent authority

b.) Liability by estoppel;

c.) Ratification.6.) By the ejusdem generis rule such that where in an instrument of any kind, an enumeration of specific matters isfollowed by a general phrase is held to be limited in scope by the specific matters.

Responsibility of principal when agent acts w/ improper motives:

General rule: Motive of agent in entering into a K w/ a 3rd

person is immaterial.Exceptions:

1.) Where the 3rd

person knew that the agent was acting for his benefit, in w/c case, the principal is not liable

to the 3rd

person; and2.) Where the owner is seeking recovery of personal property of w/c he has been unlawfully deprived.

Principals responsibility for an agents misrepresentation:

1.) Within the scope of the agents authority

Principal is subject to liability for lass caused to another by the 3rd

persons reliance upon a deceitful representation ofan agent in the course of his employment if

a.) Representation is authorized;

b.) Within the implied authority of the agent to make for the principal; orc.) Apparently authorized.

2.) Beyond the scope of the agents authority General rule: Principal is not bound. Exception: when the principal takes

advantage of a K made under the false misrepresentation of his agent.

3.) For the agents own benefit Principal is liable (motive of agent immaterial).

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if theformer allowed the latter to act as though he had full powers. (n)

Estoppel: precludes a person from denying or asserting anything contrary to that which has been established as

the truth by his own deed or representation, either express or implied.

Ratification Estoppel

Rests on intention Rests on prejudice

Affects entire transaction from the beginning Affects only relevantparts of transaction

Substance is confirmation of unauthorized act orconduct after it has been done

Substance is the principals inducement to another toact to his prejudice

Apparent authority Authority by estoppel

That which though not actually granted, the principal

knowingly permits the agent to exercise or holds himout as possessing

Arises in cases where the principal, by his negligence,

permits the agent to exercise powers not granted tohim, even though the principal may have no notice or

knowledge of the conduct of the agent

Basis of article 1911:

Principle of estoppel. Necessary for the protection of innocent 3rd

persons. Instance when solidarity is imposed bylaw.

Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shallnot prejudice the latter if they were not given notice thereof. (1734)


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What is the effect of revocation in relation to 3rd

persons if the agent was authorized to contract with specified

persons?

If the agency is created for the purpose of contracting with specified persons, its revocation will not prejudice such 3rd

persons until notice thereof is given them. The reason for this is obvious. Since 3rd

persons have been made to believe

by the principal that the agent is authorized to deal with them, they have a right to presume that the representation

continues to exist in the absence of notification by the principal. But of course, notice is not required if the 3rd

persons

already know of the revocation.

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 asufficient warning to third persons. (n)

Effect of revocation in relation to 3rd

persons if the agent was authorized to contract with the public in general:

In case the agent has general powers, innocent 3rd

parties dealing with the agent will not e prejudiced by therevocation before they had knowledge thereof. In this case, however, the fact that the revocation was advertised in a

newspaper of general circulation would be sufficient to 3rd

persons for publication constitutes notice upon everybody

and this is true whether or not such 3rd

persons have read the newspaper concerned.

Notice required:

Art. 1921 Art. 1922

Must be personal May be personal

Revocation must be known to 3rd person informed of

appointment

Even if 3rd person doesnt know, as long as there is

publication in a newspaper of general circulation

General rule: Special information needs special information of revocation.

Except: If you can prove that the 3rd person read the notice in the newspaper.Yun Kwan Byung v. Phil. Amusement Gambling Corp

Implied agency, being an actual agency, is a fact to be proved by deductions or inferences from other facts

Agency by estoppel- there is no agency at all, but the one assuming to act as agent has apparent or ostensible, although not real,

authority to represent another

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 hisfailure to repudiate the agency, knowing that another person is acting on his behalf without authority.

Agency may be oral, unless the law requires a specific form. (1710a)

Art. 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. (1718)

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 acceptedthe stipulation in his favor. (n)

If the agent dies, his heirs should tell the principal. However, if the principal dies, the principals heirs have no

obligation to tell the agent.

General rule: Agency is terminated instantly by the death of the principal.

Rationale: Agency, being based on representation, there is no one to e represented where the principal is alreadydead.

Exceptions:1.) If the agency has been constituted in the common interest of the principal and the agent; and

2.) If the agency has been constituted in the interest of a 3rd

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 contractedwith him in good faith. (1738)What does this article provide?

It provides that the death of the principal or any other like cause, extinguishes the agency. But in the same way that

revocation of the agency does not prejudice 3rd

persons who have dealt with the agent in good faith without notice of

revocation, such 3rd

persons are also protected where it is not shown that the agent had knowledge of the termination

of the agency because of the death of the principal or any other like cause which extinguishes the agency.

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

person must be.D. Universal, general and special


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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. (1712)

Universal agent: One employed to do all acts that the principal may personally do, and which the principal canlawfully delegate to another the power of doing.

General agent: One employed to transact all the business of his principal, or all business of a particular kind or in

a particular place, or in other words, to do all acts connected with a particular trade, business, or employment.

Special/Particular agent: One authorized to act in one or more specific transactions, or to do one or more specificacts, or to act upon a particular occasion:

a.)Atty at law: One whose business is to represent clients in legal proceedings.b.)Auctioneer: One whose business is to sell property for others to the highest bidder at a public sale.

c.) Broker: One whose business is to act as intermediary between 2 other parties.d.) Factor: One whose business is to receive and sell goods for a commission, being entrusted with the possessionof the goods involved in the transaction.

Attorney-in-fact: One who is given authority by his principal to do a particular act not of a legal character. In strict

legal sense: An agent having a special authority created by deed.

General Agent Special Agent

Scope of authority All acts connected with the

business in which he is engaged

Only one or more specific acts in

pursuance of particular

instructions or with restrictionsnecessarily implied from the act to

be done

Nature of service authorized Series of transactions involving

continuity of service

Single transaction or a series of

transactions not involvingcontinuity of service

Extent to which agent may bindprincipal

By an act within the scope of hisauthority although it may be

contrary to his special instructions

Cannot in a manner beyond oroutside the specific acts which he is

authorized to perform

Termination of authority Apparent authority does not

terminate by mere revocation ofauthority without notice to 3rd

parties

Termination effective as to 3rd

party unless agency was for thepurpose of contracting with that 3rd

party

Construction of instructions of

principal

Merely advisory Strictly construed. Limits the

authority of agent

E. Durable agency

Art. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has beenconstituted in the common interest of the latter and of the agent, or in the interest of a third person who has acceptedthe stipulation in his favor. (n)

Siasat v. IAC

Dominion Insurance v. CA

F. Couched in general terms; courched 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 agencyshould authorize a general and unlimited management. (n)

Examples of acts of mere administration:

1.) To sue for collection of debts;2.) To employ workers or servants and employees needed for the conduct of business;

3.) To engage counsel to preserve the ownership and possession of the principals property;

4.) To lease real property to another person for 1 year or less, provided the lease is not registered;5.) To make customary gifts for charity or to employees in the business managed by the agent6.) To borrow money if it be urgent and indispensable for the preservation of the things under administration.

How are contracts of agency construed?Contracts of agency as well as general powers of attorney must be interpreted in accordance with the language used by t he

parties. The real intention of the parties is primarily determined from the language used and gathered from the whole

instrument. In case of doubt, resort must be had to the situation, surroundings and relations of the parties. The intention ofthe parties must be sustained rather than defeated. So if the contract be open to 2 constructions, one of which would

uphold the intention while the other would overthrow it, the former is to be chosen.

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;


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(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. (n)

Scope of General Authority to PurchaseWhere an agents power to purchase is general and unrestricted, he has implied authority to do whatever is usual and

necessary in the exercise of such power. He may:

1.) Determine the usual and necessary details of the contract,2.) agree upon the price,3.) modify or rescind the contract of purchase,

4.) accept delivery for his principal,

5.) give directions for the delivery of the property purchased, and6.) may borrow money to pay for the care and preservation of the property purchased.

But he has no special power to

1.) Settle a contest between the principal and a 3rd

person regarding the ownership of goods purchased, or

2.) Agree to an account stated, or

3.) Do anything not usual or necessary to the exercise of such authority.

Scope of Special Authority to Purchase

Where the agency is a special one, or is restricted to purchases upon certain terms and conditions, the agent has no

authority to1.) Purchase upon different terms and conditions from those authorized, or

2.) Modify or rescind a contract of purchase made by the principal.

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

power to sell. (n)

The ff are included in a Power to Sell:The power to:

1.) Find a purchaser or to sell directly;

2.) Deliver the property;3.) Make the usual representation and warranty;

4.) Execute the necessary transfer documents;

5.) Fix the terms of the sale unless there be set conditions stipulated by the principal;6.) Sell only for cash;

7.) Receive the price unless he was authorized only to solicit orders.The ff are notincluded in a Power to Mortgage

The power to:

1.) Sell;

2.) Execute a 2nd

mortgage;

3.) Mortgage for the agents personal benefit or for the benefit of any 3rd person, unless the contrary has been clearlyindicated.

Does the principal have the power to revoke a contract giving an agent exclusive authority to sell?

YES. But he may not have the right to use such power if he has agreed not to exercise such power during a certain period.In case he fails to comply with this obligation-not-to-do, he will be liable for damages.

Art. 1880. A special power to compromise does not authorize submission to arbitration. (1713a)Rationale:


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A principal may authorize his agent to compromise because of absolute confidence in the latters judgment and discretion

to protect the formers rights and obtain for him the best bargain in the transaction. If the transaction would be left in the

hands of an arbitrator, said arbitrator may not enjoy the trust of the principal.What happens if the agent is specifically authorized to submit to arbitration?

Then the arbitration award binds the principal, provided, of course, that the agent acted within the scope of his authority.

1. Mortgage

Art. 1878 (12). Special powers of attorney are necessary in the following cases: To create or convey real rights over

immovable propertyPNB v. Sta. Maria

Sta. Maria obtained sugar crop loans on the strength of two SPOA executed by his siblings. He executed two chattel mortgagesin his own name. The first SPOA, signed by 6 of them, authorized Sta. Maria to mortgage a parcel of land jointly owned by them. Thesecond SPOA, signed by Valeriana only, authorized Sta. Maria to b orrow money and mortgage any real estate owned by her.

Where in an instrument powers and duties are specified and defined, all of such powers and duties are limited and confined to

those which are specified and defined, and all other powers and duties are excluded. A special power of attorney to mortgage real estateis limited to such authority to mortgage and does not carry with it the authority to contract obligation, unless the contrary is shown.

The grantor of a SPOA to mortgage a real estate is liable only to the extent that the real estate authorized by him to be mortgaged would

be subject to foreclosure and sale to respond for the obligations contracted by the grantee of the power. However, he cannot be heldpersonally liable for the payment of such obligations, 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. Ratification by the grantor or estoppel consisting in

benefiting from the loan must be expressly shown and proven during the trial in order to hold the grantor liable for the loans contractedby the grantee of the SPOA.

Where a person expressly authorized another to mortgage and borrow money for and in his name, the liability of the two to the

creditor is only joint, not solidary. There is solidary liability only when the obligation expressly so states, or when the l aw or the nature

of the obligation requires solidarity.Why loans and mortgages are in different pars. in A. 1878: It is not unusual in family and business circles that one would allow

his property or an undivided share in real estate to be mortgaged by another as security, either as an accommodation or for valuable

consideration.Bank of PI v. De Coster

The husband, acting as an agent of his wife, made a joint and several promissory note to cover his preexisting debt. Upon his

failure to pay the debt, the bank filed an action against him. Under the POA, the husband had no authority for and on behalf of the wife toexecute a joint and several note or to make her liable as an accommodation maker. The husband had power only to loan his wifes money

and to borrow money for or on account of his wife as her agent. That does not imply that he had the legal right to make his wife liable as

a surety for the preexisting debt of a third person.Where in an instrument powers and duties are specified and defined, all of such powers and duties are limited and confined to

those which are specified and defined. All other powers and duties are excluded. This limitation is a notice to, and is binding upon, the

person dealing with such agent.2. Loan/borrow

Art. 1878 (7). Special powers of attorney are necessary in the following cases: To loan or borrow money, unless the

latter act be urgent and indispensable for the preservation of the things which are under administrationHodges v. Salas

The Salas sisters executed an SPOA in favor of Yulo, their brother-in-law to enable him to obtain a loan and secure it with a

mortgage on their property. However, the proceeds were not delivered to the Salas sisters but were instead applied to the payment ofYulos personal debts to the creditor.

A special power of attorney authorizing the agent to obtain a loan and secure it with the principals real property cannot be

interpreted as also authorizing the agent to dispose of the money as he pleased, particularly when it does not appear that such was the

intention of the principals. The agent was obliged to turn over the money to the principals or, at least, place it at their disposal. There wasalso no ratification of the agents act of employing part of the loan to pay his personal debts. In the letter of the Salas s isters, they

confined themselves to stating that they would notify their agent of the maturity of the obligation contracted by him. They said nothingabout whether or not their agent was authorized to use the funds obtained by him in the payment of his personal obligations.

3. Sell

Art. 1878(5) Special powers of attorney are necessary in the following cases: To enter into any contract by which the

ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration

Strong v. Gutierrez

Katigbak v. Tai Hung Co.: The power is general and authorizes Gabino to sell any kind of realty belonging to the principal. Theuse of the subjunctive pertenezcan (might belong) and not the indicative pertenecen (belong), means that Po Tecsi meant

not only the property he had at the time of the execution of the power, but also such as he might afterwards have during the

time it was in force

4. Lease

Art. 1878(8) Special powers of attorney are necessary in the following cases: To lease any real property to anotherperson for more than one year


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Chua v. IAC

5. Compromise

Art. 1878(3) Special powers of attorney are necessary in the following cases: 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 acquiredDungo v. Lopena

Lopena instituted an action for foreclosure against Dungo and Gonzales. Before the case could be tried, the parties entered into

a compromise agreement signed by Lopena and Gonzales for himself and Dungo. Dungos counsel of record was also present.Subsequently, the parties entered into a triparty agreement signed by Lopena, Gonzales and Dungo.

Although the Civil Code expressly requires a SPOA in order than one may compromise an interest of another, it is incorrect toconclude that its absence renders the compromise agreement void. In such a case, the compromise is merely unenforceable. Hence, it issubject to ratification. The ratification of the compromise agreement was conclusively established by the tri-party agreement which

referred itself to the court order approving the earlier compromise agreement. When it appears that the client, on becoming aware of the

compromise and the judgment thereon, fails to repudiate promptly the action of his attorney, he will not afterwards be heard to contestits validity.

Vicente v. Geraldez

6. Other acts of strict dominion

Art. 1878(12) Special powers of attorney are necessary in the following cases: To create or convey real rights over

immovable propertyInsular Drug Co. v. National Bank

Foerster was a salesman and collector of Insular Drug. Instead of depositing the checks he collected to the credit of the drug

company as instructed, he deposited the checks in his personal account. The bank did not know that Foerster was misappropriating the

funds of his principal.The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. A salesman wi th

authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. Any

person taking checks made payable to a corporation, which can act only by agents, does so at his peril and must abide by theconsequences if the agent who indorses the same is without authority.

VII. Obligations and liabilities of agents to their principals

A. 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. (n)The ff are included in a Power to Sell:The power to:

1.) Find a purchaser or to sell directly;2.) Deliver the property;

3.) Make the usual representation and warranty;

4.) Execute the necessary transfer documents;5.) Fix the terms of the sale unless there be set conditions stipulated by the principal;

6.) Sell only for cash;

7.) Receive the price unless he was authorized only to solicit orders.The ff are notincluded in a Power to Mortgage

The power to:

1.) Sell;

2.) Execute a 2nd

mortgage;

3.) Mortgage for the agents personal benefit or for the benefit of any 3rd

person, unless the contrary has been clearly indicated.

Does the principal have the power to revoke a contract giving an agent exclusive authority to sell?YES. But he may not have the right to use such power if he has agreed not to exercise such power during a certain period. Incase he fails to comply with this obligation-not-to-do, he will be liable for damages.

Art. 1880. A special power to compromise does not authorize submission to arbitration. (1713a)

Rationale:

A principal may authorize his agent to compromise because of absolute confidence in the latters judgment and discretion toprotect the formers rights and obtain for him the best bargain in the transaction. If the transaction would be left in the hands of

an arbitrator, said arbitrator may not enjoy the trust of the principal.What happens if the agent is specifically authorized to submit to arbitration?

Then the arbitration award binds the principal, provided, of course, that the agent acted within the scope of his a uthority.Art. 1881. The agent must act within the scope of his authority. He may do such acts as may be conducive to theaccomplishment of the purpose of the agency. (1714a)

Authority: The power of the agent to affect the legal relations of the principal by acts done in accordance with the principals

manifestation of consent to him. The authority of the agent is the very essence sine qua non of the principal and agent


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relationship. This authority, unless it is otherwise agreed, includes only the authority to act for the benefit of the principal, and

the source of the authority is the principal and never the agent.

Kinds of Authority:1.)Actual: when it is actually granted, and it may be express or implied. It results from what the principal indicates to the agent.

2.) Express: when it is directly conferred by words.

3.) Implied: when it is incidental to the transaction or reasonably necessary to accomplish the purpose of the agency, andtherefore, theprincipal is deemed to have actually intended the agent to possess.

4.)Apparent or Ostensible: when it is conferred by words, conduct or even by the silence of the principal which causes a 3rd

person reasonably to believe that a particular person, who may or may not be the principals agent, has actual authority to a ct

for the principal. Ostensible authority is another name for authority by estoppel.

5.) General: when it refers to all the business of the principal.6.) Special: when it is limited only to one or more specific transactions.

7.) By necessity or by operation of law: when it is demanded by virtue of the existence of an emergency; it terminates when the

emergency has passed.Requisites for Principal to be Bound by Act of Agent:

1.) The agent must act in behalf of the principal;

2.) The agent must act within the scope of his authority.

When is a principal notbound by the act of his agent?

When the agent acts without or beyondthe scope of his authority; or when the

agent acts within the scope of his

authority but in his own name exceptwhen the transaction involves things

belonging to the principal.Authority?

Whose behalf? Status of K

With authority Principals Valid

With authority Own Depends. [1883]

Without Principals Unenforceable

Without Own Valid

Art. 1882. The limits of the agent's authority shall not be considered exceeded should it have been performed in a mannermore advantageous to the principal than that specified by him. (1715)

What happens if the agent exceeds his authority but he performs the agency in a manner more advantageous to the principal?

It will e as if he did not exceed the limits of his authority since he must do such acts as may be conducive to the accomplis hmentof the purpose of the agency.Test: Would the principal enter into this transaction?

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)

Instructions: Private directions which the principal may give the agent in regard to the manner of performing his duties as suchagent.

Authority v. InstructionsAuthority Instructions

Sum total of powers committed or permitted to

the agent by the principal.

Direct the manner of transacting the authorized business and

contemplates only a private rule of guidance to the agent.

Relates to the subject with which the agent is

empowered to deal or the kinds of business ortransactions upon which he is powered to act.

Refers to the manner or mode of his action with respect to matters

which in their substance are within the scope of permitted action.

Limitations of authority are operative as againstthose who have or are charged with knowledge of

them.

Without significance as against those dealing with the agent withneither knowledge nor notice of them.

Contemplated to be made known to the 3rd

person

dealing w/ the agent.

Not expected to be made known to those w/ whom the agent deals.

1.) When the instruction calls for the performance of illegal acts; or2.) Where he is privileged to do so to protect his security/interest in the subject matter of the agency.

B. Carry out the agency

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. (1718)General Obligations of an Agent to his Principal:1.) To act with the utmost good faith and loyalty for the furtherance and advancement of the interests of the principal.


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2.) To obey the principals instructions.

3.) To exercise reasonable care.

Specific Obligations:1.) To carry out the agency he has accepted.

2.) To answer for damages which through his non-performance the principal may suffer.

3.) To finish the business already begun on the death of the principal should delay entail danger.4.) To observe the diligence of a good father or a family in the custody and preservation of the goods forwarded to him by theowner in case he declines an agency, until an agent is appointed.

5.) To advance the necessary funds should there be a stipulation to do so.6.) To act in accordance with the instructions of the principal, and in default thereof, to do all that a good father of a family

would do.7.) Not to carry out the agency if its execution would manifestly result in loss or damage to the principal.8.) To answer for damages if there be a conflict between his interests and those of the principal, he should prefer his own.

9.) Not to loan to himself if he has been authorized to lend money at interest.

10.) Not to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of theagency.

11.) To be responsible in certain cases for the act of the substitute appointed by him.

12.) To pay interest on funds he has applied to his own use.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. (1736a)Does the agent have a right to renounce or withdraw from the agency at any time?Yes. Even without the consent of the principal. But, in the latter case, he may be subject to liability for breach of contract or for

tort.

Basis: Constitutional prohibition against involuntary servitude.Obligation of agent if he withdraws from agency without just cause:

1.) Notify principal (even if w/ just cause); and

2.) Indemnify the principal should the latter suffer any damage by reason of such withdrawal.Reason for indemnity: To answer for losses and damages occasioned by the non-fulfillment of his obligation as agent.

Is the agent liable for indemnity if the withdrawal was for just cause? No. Agent cannot be held liable if the agent withdraws for

a valid reason as when:1.) The withdrawal is based on the impossibility of continuing the agency without grave detriment to himself; or

2.) Fortuitous event.What happens when the agent sues the principal?

Equivalent to withdrawal of the agent.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. (1737a)Obligation of agent after withdrawal:

Even when withdrawal is for a valid reason, he must continue to act until the principal has had reasonable opportunity to take

the necessary steps like the appointment of a new agent to remedy the situation caused by the withdrawal. This is to preventdamage or prejudice to the principal.

C. 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. (n)Rationale: The duty of the agent who is merely an extension of the personality of the principal is to render service for the

benefit of the principal and not to act to his detriment. Furthermore, the agent must exercise due diligence in ca rrying out the

agency.D. Loyalty

Art. 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he

should prefer his own. (n)Note: This provision applies to both onerous and gratuitous transactions. The law does not distinguish so neither should we.

Rationale: An agent occupies a fiduciary position and therefore is bound to exercise loyalty, obedience, and diligence with

respect to the interest of the principal.

If the agent follows the principals instructions yet his acts still result in damage to 3rd

persons, who is liable?

General rule: The agent is NOTliable.Except: if before acting that way, it is obvious that the act will result to damage, then the agent is liable.

Art. 1890. If the agent has been empowered to borrow money, he may himself be the lender at the current rate of interest. If hehas been authorized to lend money at interest, he cannot borrow it without the consent of the principal. (n)

Rationale: The agent can lend money to the principal using the agents own funds at the current rate of interest and NOT at a

higher interest rate because the agent is supposed to act for the principals benefit.

If the agent is authorized to lend the principals money, with interest, to 3rd

persons, the agent cant be the borrower without

the consent of the principal because the agent may not be a good borrower or he may be insolvent or he may not be a good risk.

There is a danger here that the interest of the principal would be jeopardized.


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This would also seem to be the case if the agent is authorized to lend money w/o interest because of the same reason.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;

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has

been given;(3) Executors and administrators, the property of the estate under administration;(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or

controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply tojudges and government experts who, in any manner whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connectedwith the administration of justice, the property and rights in litigation or levied upon an execution before the court withinwhose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by

assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in

which they may take part by virtue of their profession.(6) Any others specially disqualified by law. (1459a)

E. Diligence

Art. 1885. In case a person declines an agency, he is bound to observe the diligence of a good father of a family in the custodyand preservation of the goods forwarded to him by the owner until the latter should appoint an agent or take charge of the

goods. (n)What is the rule if a person declines agency?

In the event a person declines an agency, he is bound to observe the diligence of a good father of a family in the custody a ndpreservation of the goods forwarded to him by the owner.

Duty of Owner in case an Agency is Declined:

He must act as soon as possible by appointing an agent or by taking 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. (1719)

Instructions: Private directions which the principal may give the agent in regard to the manner of performing his duties as suchagent.

Authority v. InstructionsAuthority Instructions

Sum total of powers committed orpermitted to the agent by the principal.

Direct the manner of transacting the authorized business and contemplatesonly a private rule of guidance to the agent.

Relates to the subject with which the agent

is empowered to deal or the kinds of

business or transactions upon which he ispowered to act.

Refers to the manner or mode of his action with respect to matters which in

their substance are within the scope of permitted action.

Limitations of authority are operative asagainst those who have or are charged

with knowledge of them.

Without significance as against those dealing with the agent with neitherknowledge nor notice of them.

Contemplated to be made known to the 3rd

person dealing w/ the agent.

Not expected to be made known to those w/ whom the agent deals.

1.) When the instruction calls for the performance of illegal acts; or

2.) Where he is privileged to do so to protect his security/interest in the subject matter of the agency.

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by

the courts, according to whether the agency was or was not for a compensation. (1726)Is the agent liable for fraud? Yes, in all cases.

For negligence? Yes, but this shall be adjudged with rigor by the courts.

Why does the court have to take into consideration whether the agency was gratuitous or for compensation?In order to fix the liability of the agent for negligence only (not fraud).

F. Account/deliver

Art. 1891 . Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may havereceived by virtue of the agency, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be void. (1720a)

Rationale: Contrary to public policy as it would encourage fraud. It is in the nature of a waiver of an action for future fraud w/cis void.If the agent fails to deliver and instead converts or appropriates for his own use the money or property belonging to his

principal, with what can he be charged?

ESTAFA.G. Solidary liability


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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. (1723)

If solidarity is not stipulated, what is the liability to 2 or more agents? JOINT.Each is liable only for proportionate part of debt.

Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment of agency, and for the

fault or negligence of his fellows agents, except in the latter case when the fellow agents acted beyond the scope of theirauthority. (n)What happens if solidarity has been agreed upon?

Then each of the agents becomes solidarily liable for:1.) The non-fulfillment of the agency; or

2.) The fault or negligence of the fellow agent provided the latter acted within the scope of his authority.But the innocent agent has a right later on to recover from the guilty or negligent agent.What happens if the fellow agent acted beyond the scope of his authority?

Then the innocent agent cannot be liable at all to the principal even if solidarity had been agreed upon.H. 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. (1724a)I. Fraud; negligence

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by

the courts, according to whether the agency was or was not for a compensation. (1726)

Is the agent liable for fraud? Yes, in all cases.For negligence? Yes, but this shall be adjudged with rigor by the courts.Why does the court have to take into consideration whether the agency was gratuitous or for compensation?

In order to fix the liability of the agent for negligence only (not fraud).

J. Specific obligations of commission agentsArt. 1903.

agency expanded syllabus 2011-2012 dionne sanchez

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