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AGENCY

DEFINITION:

Contract whereby a person (agent) binds himself to render some service or to do something in
representation or on behalf of another (principal), with the consent or authority of the latter
(Art. 1868, NCC).

ELEMENTS OF AGENCY:

The essence of agency is representation. For a contract of agency to exist, it is essential that
the principal consents that the other party, the agent, shall act on its behalf, and the agent
consents so as to act. In the case of Yu Eng Cho v. Pan American World Airways, Inc., (328
SCRA 717) the Court had the occasion to set forth the 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.
4. Agent acts within the scope of his authority (Apex-Mining Co., Inc. v. Southeast Mindanao
Gold Mining Corp., 492 SCRA 355).

CHARACTERISTICS OF AGENCY CONTRACT:


 Preparatory
 Fiduciary
 Bilateral
 Onerous (generally)
 Representative Relation
 Nominate

DISTINGUISHED FROM ASSIGNMENT:

Agency is distinct from assignment. In agency, the agent acts not on his own but on behalf of
his principal. In assignment, however, there is a total transfer or relinquishment of right by the
assignor to the assignee. The assignee takes the place of the assignor and is no longer bound to
the latter (Apex-Mining Co., Inc. v. Southeast Mindanao Gold Mining Corp., 492 SCRA 355).

DISTINGUISHED FROM LEASE OF SERVICE:

1. In agency, the basis is representation; while in lease of service, it is employment.


2. In agency, the agent exercises discretionary powers; while in lease of service, the lessor
ordinarily performs only ministerial functions (Nielson & Co., Inc. v. Lepanto Consolidated
Mining Co., 26 SCRA 540).
3. In agency, three persons are involved: the principal, the agent and the third persons with
whom the agent has contracted; while in lease of service, only two persons are involved: the
lessor (master or employee) and the lessee (servant or employee).

ACTS WHICH MAY BE DELEGATED TO AN AGENT (SUBJECT MATTER OF AGENCY):

General Rule:
What may do in person, he may do thru another (Qui facit per alium facit per se).

Exceptions:
1. Peculiarly personal acts; and
2. Illegal acts

CREATION AND EXISTENCE OF AGENCY

IN GENERAL

General Rule:
Since agency is a contract, fundamentally, it comes into existence just as any other contract;
consent, subject matter and cause must concur in order that it may arise.
Exception
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There are, however, instances where, independently of the question whether or not an actual
agency has been created, persons are, by reason of their acts or conducts, deemed to sustain
the relation of principal and agent for the protection of third parties. In apparent or ostensible
agency, a person, whether authorized or not, appears to third persons, because of the
manifestations of another, to be authorized to act as agent for such other.

ACTUAL AGENCY

1. There must be consent: In the case of the principal, consent consists in the grant of
mandate or authority by him to the agent and, in the case of the agent, in his acceptance.
2. How mandate is manifested:
a. Expressly; or
b. Impliedly 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 (Art.1869, NCC).
3. Express Mandate: Form Required---
a. Rule: Agency may be oral, unless the law requires a specific form (Art. 1869, 2nd par.,
NCC).
b. Exception: 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 (Art. 1874,
NCC).
4. Implied Conferment of Mandate:
a. Implied from acts of the principal:
1) By actively holding out another as his agent or thereby investing him with apparent
or ostensible authority as agent.
2) By habit and course of dealing, as where the alleged principal has previously
employed the alleged agent as such in transactions of similar nature to the one in
question.
b. Implied from his silence, inaction or failure to repudiate; requisites: : (1) The principal
knew that another person is acting on his behalf without authority; and (2) he kept
silent, did not act or did not repudiate the agency.
5. How acceptance is manifested:
a. Expressly; or
b. Impliedly from the agent’s acts which carry out the agency, or from his silence or
inaction according to the circumstances (Art. 1870, NCC).
6. Implied acceptance by agent:
a. Implied from his acts which carry out the agency.
b. Implied from his silence or inaction:
1) Rule as between persons who are present: The acceptance of agency is implied if the
principal delivers his power of attorney to the agent and the latter receives it without
any objection (Art. 1871, NCC).
2) Rule as between persons who are absent: The acceptance of the agency cannot be
implied from the silence of the agent, except:
a) When the principal transmits his power of attorney to the agent, who receives it
without any objection.
b) 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
which he did not reply to the letter or telegram (Art. 1872, NCC).

APPARENT OR OSTENSIBLE AGENCY

1. Nature: An agency is apparent, or ostensible, where a person, whether authorized or not,


appears to third persons, because of the manifestations of another, to be authorized to as
agent for such other.
2. How it arises:
a. By special information: If a person specially informs another that he has given a power
of attorney to a third person, the latter becomes a duly authorized agent with respect to
the person who received the special information (Art. 1873, NCC).
b. By public advertisement: If a person states by public advertisement that he has given a
power of attorney to a third person, the latter becomes a duly authorized agent with
regard to any person (Art. 1873, NCC).
3. Termination of the agency: The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given (Art. 1873, 2nd par., NCC).

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AGENCY BY ESTOPPEL

1. Definition: There is agency by estoppel where a person, by words or conduct, represents or


permits it to be represented that another person is his agent. In such a case, he is estopped
to deny the agency as against third persons who have dealt, on the faith of such
representation, with the person so held out as agent, even if no agency existed in fact.

2. Elements:
a. Representation by the principal;
b. Reliance upon such representation by a third person; and
c. Change of position by such third person in reliance upon such representation.

3. Implied Agency and Agency by Estoppel:

IMPLIED AGENCY AGENCY BY ESTOPPEL


This is an acted agency and is a fact to be
This is limited to cases in which there is no
proved by deductions or inferences from
real agency.
other facts.
As to third persons: Although the
principal is equally liable in both, in here
the third person need have no knowledge
The agency by estoppel can be invoked only
of the principal’s acts nor have relied on
when the third person knew and relied on the
the same. The agent by implied authority
conduct of the principal.
being an actual agent, the principal is
liable for his acts the same as though the
authority had been express.
As between the principal and agent: An An agent by estoppel is no agent at all and,
agent by implied appointment is a real as against the principal, has none of the
agent with all his rights and liabilities. rights of an agent.

4. Agency by Estoppel and Apparent Agency:

AGENCY BY ESTOPPEL APPARENT AGENCY


Estoppel comprehends a detrimental
reliance by one, as a result of the
representations of fact by the other. The
liability of a principal on the ground of The presence of such reliance is unnecessary
estoppel therefore can be out only upon a to spell out an apparent authority.
showing that the third party has relied
upon the principal’s representations to the
third party’s detriment.
Apparent authority is not limited to cases in
This is limited to cases in which there is
which there is no real agency. It may be
no real agency.
actual as well as ostensible.

EXTENT OF AUTHORITY OF AGENT

WITH REFERENCE TO QUANTITY OF TRANSACTIONS COMPRISED (ART. 1876, NCC):

1. General Agency --- Comprises all the business of the principal.


2. Special Agency --- Comprises of one or more specific transactions.

WITH REFERENCE TO NATURE OF ACTS AUTHORIZED:

Agency Couched in General Terms

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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 (Art. 1877, NCC).

1. Distinguished from general agency:

GENERAL AGENCY AGENCY COUCHED IN GENERAL TERMS


Classification concerns the number of the Classification relates to the nature of the
acts or transactions conferred on the agent. juridical act which he can realize.
Hence, a general agency may be couched
not in general terms but in definite ones
authorizing particular juridical acts other
than mere administration.

2. Effect: The authority conferred in general terms is confined to acts of administration. They
are those that do not involve acts of dominion, such as alienations, except where these are
incidental to the authority to administer.

3. Not affected by other statements of principal: If the mandate conferred by the principal is
couched in general terms, the fact that the principal made the following statements will not
extend the authority beyond the performance of mere acts of administration: (1) he
withholds no power; (2) the agent may execute such acts as he may consider appropriate;
(3) that the mandate authorizes “a general and unlimited management.”

Agency couched in specific terms - One which explicitly indicates the particular
function/s which the agent is authorized to exercise, be it performance of mere acts of
administration or execution of definite acts of dominion.

CASES WHERE SPECIAL POWER IS NECESSARY (ART. 1878, NCC):


1. Making payments which are not usually considered as acts of administration.
2. Effecting novations putting an end to obligations already in existence at the time the agency
was constituted.
3. Compromise, Submission of questions to arbitration, Renunciation of right to appeal from a
judgment, Waiver of objections to venue of an action or Abandonment of prescription
already acquired.
4. Waiver of any obligation gratuitously.
5. Entering into any contract by which ownership of immovable is transmitted or acquired
either gratuitously or for a valuable consideration.
6. Making gifts, except customary ones for charity or those made to employees in the business
managed by the agent.
7. Lending or borrowing money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration.
8. Leasing any real property to another person for more than one year.
9. Binding the principal to render some service without compensation.
10. Binding the principal in a contract of partnership;.
11. Obligating the principal as a guarantor or surety.
12. Creation or conveyance of real rights over immovable property.
13. Accepting or repudiating an inheritance.
14. Ratification or recognition of obligations contracted before the agency.
15. Any other act of strict dominion.

POWERS NOT INCLUDED:

1. Special power to sell excludes the power to mortgage; and a special power to mortgage does
not include the power to sell (Art. 1879, NCC).
2. Special power to compromise does not authorize submission to arbitration (Art. 1880, NCC).

AGENCY COUCHED IN SPECIFIC TERMS AND SPECIAL AGENCY:

AGENCY COUCHED IN SPECIFIC TERMS SPECIAL AGENCY


Special power referred to in Article 1878 means Has reference to the number of
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mandate which explicitly indicates whether transactions the agency embraces.
expressly or impliedly, the particular functions or
transactions the agent is authorized to perform.

INCIDENTAL AUTHORITY:

Authority included - Unless contrary is expressed, a general or special power carries with it, by
implication, the incidental authority to perform:
1. Whatever acts necessary and proper to effectuate main authority;
2. Acts that are made appropriate attributes of main authority by some particular custom or
usage; and
3. Acts that are rendered essential by some special necessity or emergency.

AGENCY BY NECESSITY:
1. Important note: An agency can never be created by necessity; what is created is additional
authority in an agent appointed and authorized before the emergency arose.
2. Requisites: The existence of an emergency or other unusual condition may operate to invest
in an agent authority to meet the emergency, provided the following requisites exist:
a. Emergency really exist.
b. Agent is unable to communicate with the principal.
c. Agent’s enlarged power is exercised for the principal’s protection.
d. Means adopted are reasonable under the circumstances.

EXECUTION OF AGENCY

Requisites In Order to Bind Principal By Agent’s Acts:


1. Agent must act within the scope of his authority (Art. 1881, NCC); and
2. Agent must act in the name of the principal.

Acts Considered Still Within Scope of Agent’s Authority:


1. Acts that may be conducive to the accomplishment of purpose of the agency (Art. 1881,
NCC).
2. Acts which are performed in a manner more advantageous to the principal than that
specified by him (Art. 1882, NCC).

EFFECT OF ACTING BEYOND SCOPE OF AUTHORITY:

General Rule
Principal is not bound. A contract entered into by an agent who has acted beyond his powers is
unenforceable, unless it is ratified by the principal (Art. 1317 and 1403{1], NCC).

Exceptions
Principal is liable in the following situations even if the agent acted beyond the scope of his
authority -
1. When the principal ratifies the agent’s act, either expressly or impliedly (Art. 1910, NCC).
2. Principal is solidarily liable if he allowed the agent to act as though the latter had full
powers (Art. 1911, NCC).
3. If the limitations to the agent’s authority is known only between the agent and principal
and not to third persons (Art. 1900, NCC).
4. Where the principal placed in the hands of the agent instruments signed by him in blank.

Effect of Agent Acting In His Own Name:


1. Principal has no right of action against the third person with whom the agent has
contracted (Art. 1883, 1st par., NCC).
2. Third person has no right of action against the principal (Id.).
3. Agent is the one directly bound in favor of the third person with whom he has contracted
with as if the transaction were his own, except when the contract involves things belonging
to the principal (Art. 1883, 2nd par., NCC).

Delegation of Authority (Sub-Agent):

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1. When permissible: Agent may appoint a substitute if the principal has not prohibited him
from doing so (Art. 1892, NCC).

2. Effect as between principal and third person:


a. If substituted not prohibited: The acts of the substitute will produce the same effect
between the principal and third persons as if they were those of the agent himself.
b. If substitution prohibited: All acts of the substitute appointed against the prohibition of
the principal shall be void (Art. 1892, last par., NCC).

3. Effects as between principal and agent:


a. If agent not empowered to appoint a substitute but not prohibited: Agent shall be
responsible for the acts of the substitute (Art. 1892[1], NCC).
b. If agent is empowered:
1) But principal did not designate a particular person: Agent is responsible for the acts
of the substitute if the substitute appointed was notoriously incompetent or
insolvent (Art. 1892[2], NCC).
2) But principal designated a particular person: Substitution is the act of the principal
himself rather than of the agent. Consequently, the agent is totally and absolutely
exempt from responsibility for the acts of the sub-agent.
c. If agent is prohibited from appointing substitute: The agent acts beyond the scope of his
authority and shall be held liable for whatever damage that may result.

4. Effect as between principal and substitute: Both substitute and agent are directly and
personally liable to the principal for the acts of substitute if ---
a. Agent appoints a substitute although not empowered to do so; or
b. Even if empowered, agent selects a substitute notoriously incompetent or insolvent (Art.
1893, NCC).

OBLIGATIONS OF AGENT TO PRINCIPAL

If Agency Was Declined - In case a person declines an agency:

1. Such person is bound to observe the diligence of a good father of a family in the custody
and preservation of the goods forwarded to him by the owner until the latter should appoint
an agent or take charge of the goods (Art. 1885, NCC).
2. The owner, as soon as practicable, must either appoint an agent or take charge of the goods
(Art. 1885, NCC).

IF AGENCY WAS ACCEPTED:

OBLIGATION TO CARRY OUT AGENCY

What constitutes “carrying out” - it means to perform whatever acts may be necessary to
bring the business to conclusion.

Effect of principal’s death - Death of the principal extinguishes the agency (Art. 1919[3],
NCC). However, the agent is obligated to finish the business already begun on the death of the
principal, should delay entail any danger (Art. 1884, 2nd par., NCC).

Liability for damages in case of non-performance - Agent is liable for damages which,
through his non-performance, the principal may suffer (Art. 1884, 1st par., NCC). But if, after
non-performance, the principal confers a second mandate for the same purpose, this will bar
an action for damages as it constitutes a tacit assent to the conduct of the agent under the first
agency.

Cases when agent is not bound to carry out the agency - If its execution would manifestly
result in loss or damage to the principal (Art. 1888, NCC).

OBLIGATION TO ADVANCE FUNDS

General Rule
Agent is not bound to advance the necessary funds to carry out the agency.
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Exception
Unless there is a stipulation to that effect.

Exception to exception
Even if there is a stipulation that agent should advance the necessary funds, he is not obliged
to do so if the principal is insolvent (Art. 1886, NCC).

OBLIGATION TO OBEY INSTRUCTIONS

Rule
In the execution of the agency, the agent shall act in accordance with the instructions of the
principal (Art. 1887, NCC).

In default of instructions
Agent shall do all that a good father of a family would do, as required by the nature of the
business (Art. 1887, NCC).

OBLIGATION TO OBSERVE GOOD FAITH AND LOYALTY

In General
An agent is a fiduciary with respect to the matters within the scope of his agency.

Conflict of Interest
If, there being a conflict between his interests and those of the principal, he should prefer his
own, he shall be liable for damages (Art. 1889, NCC).

If authorized to borrow money


If the agent has been empowered to borrow money, he may himself be the lender at the current
rate of interest (Art. 1890, NCC).

If authorized to lend money


If he has been authorized to lend money at interest, he cannot borrow it without the consent of
the principal (Art. 1890, NCC).

Prohibition against buying property of principal


An agent cannot, without his principal’s consent purchase, whether directly or indirectly, and
even at public or judicial sale, property which he is authorized to sell or administer (Art. 1491,
NCC).

DUTY TO RENDER ACCOUNT

In General: Every agent is bound:


1. To render an account of his transactions; and
2. 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 (Art. 1891, NCC).

Effect of stipulation exempting agent


Every stipulation exempting the agent from the obligation to render an account shall be void
(Art. 1891, 2nd par., NCC).

OBLIGATION TO PAY INTEREST

The agent shall pay interest to the principal:


1. On sums he has applied to his own use from the day on which he did so; and
2. On those which he still owes after the extinguishment of the agency (Art. 1896, NCC).
OBLIGATION TO OBSERVE DILIGENCE

Observance of diligence:
1. Diligence required is bonus pater familias.
2. The agent is responsible not only for fraud, but also for negligence (Art. 1909, NCC).
3. The negligence of the agent shall be judged with more or less rigor by the courts, according
to whether the agency was or was not for a compensation (Art. 1909, NCC).

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Duty of Commission Agent (Factor):

Definition
One engaged in the purchase and sale for a principal of personal property, which for this
purpose, is placed in his possession and at his disposal.

Care and custody of goods:


1. 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. 1903,
NCC).
2. If the commission agent handles goods of the same kind and mark belonging to different
owners, he has the obligation to distinguish them by countermarks, and to designate the
merchandise respectively belonging to each principal (Art. 1904, NCC).

Care of cash: He is not the insurer of the safety of the money. But he must observe diligence of
a good father of a family.

AS TO AUTHORITY TO SELL ON CREDIT:

1. Duty not to sell on credit: A commission agent cannot, without the express or implied
consent of the principal, sell on credit (Art. 1905, NCC).

2. Effect of sale on credit:


a. If not authorized: 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, NCC).
b. If authorized: 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. 1906, NCC).

OBLIGATION TO COLLECT CREDITS:

1. Effect of failure to collect credits when due and demandable:


a. Commission agent becomes liable to principal for damages.
b. Unless: he proves that he exercised due diligence for that purpose (Art. 1908, NCC).
2. Del Credre Agent:
a. Definition: He is a commission agent who receives on sale a guaranty commission, in
addition to the ordinary commission. The guaranty commission is given in return for
the risk of collecting the credit.
b. Effects:
1) He guarantees the risk of collection and he shall pay the principal the proceeds of
the sale on the same terms agreed upon with the purchaser, if the latter is not able
to pay (Art. 1907, NCC).
2) Either the principal or the del credere agent may sue the purchaser and the suit of
one will bar the subsequent suit of the other.

“Doctrine of Procuring Cause”


If the agent is the procuring cause of the sale – that the measures employed by him and the
efforts he exerted resulted in the sale – he is entitled to the payment of the commission (Ramos
v. CA, G.R. No. 25463, April 4, 1975).

In Case of Two or More Agents (Joint Agents):


The responsibility of two or more agents, even though they have been appointed
simultaneously is merely joint and not solidary, unless solidarity has been expressly stipulated
(Art. 1894, NCC).

OBLIGATIONS OF PRINCIPAL TO AGENT

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OBLIGATION TO PAY COMPENSATION

General Rule:
Agency is presumed to be for compensation (Art. 1875, NCC).

Exception
Unless there is proof to the contrary (Art. 1875, NCC).

OBLIGATION TO ADVANCE FUNDS

Rule
Principal is obliged to advance funds necessary for the execution of the agency upon the
request of the agent (Art. 1912, NCC).

WHEN AGENT IS OBLIGED TO ADVANCE FUNDS


1. If there is a stipulation to that effect.
2. But notwithstanding such stipulation, he cannot be obliged to do so if the principal is
insolvent (Art. 1886, NCC).

Right of agent who made such advances:


1. He is entitled to be reimbursed, even if the business or undertaking was not successful,
provided the agent was free from all fault (Art. 1912, 2nd par., NCC).
2. Such reimbursement shall include interest on the sums advanced, from the day on which
the advance was made (Art. 1912, 3rd par., NCC).

Instances where principal is not liable for expenses incurred by agent:


1. If agent acted in contravention of principal’s instructions, unless the latter should wish
himself to avail himself of the benefits derived from the contract.
2. When expenses were due to fault of the agent.
3. When 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 (Art. 1918, NCC).

OBLIGATION TO INDEMNIFY AGENT FOR DAMAGES

Requisites:
1. Agent suffers damage as a result of the execution of agency.
2. The agent is free from fault or negligence (Art. 1913, NCC).

Agent’s Lien:
1. Agent may retain in pledge the things which are the object of the agency until the principal
effects the reimbursement and pays:
a. The advances made by the agent; and
b. The damages suffered by the agent in executing the agency (Art. 1914, NCC).
2. The enforcement of the lien is the same as that required in foreclosing a pledge.

If There Be Several Principals (Joint Principals)


If there be several principals who have appointed the agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the agency
(Art. 1915, NCC).

RIGHTS AND LIABILITIES AS BETWEEN


PRINCIPAL AND THIRD PERSON

FOR CONTRACTS CONTRACTED BY AGENT AS SUCH (IN BEHALF OF PRINCIPAL)

CONTRACT IS WITHIN SCOPE OF AGENT’S AUTHORITY:


1. Principal is bound. He must comply will the obligations which the agent may have
contracted (Art. 1910, NCC).

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2. Agent is not personally liable to third person with whom he contracts,, unless he expressly
binds himself (Art. 1897, NCC).
3. The cause of action of third person is against the principal, unless the agent expressly
binds himself.

WHEN AGENT DEEMED TO HAVE ACTED WITHIN SCOPE OF HIS AUTHORITY AS TO


THIRD PERSONS:

1. If authority is in writing -
a. Act is deemed to have been performed within the scope of the agent’s authority if the
same 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. 1900, NCC).
b. Private or secret orders and instructions of the principal do not prejudice third persons
who have relied upon the written power of attorney or instructions shown them (Art.
1902, NCC).
c. For this purpose, 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 (Art. 1902, NCC).

If authority is not in writing --- rule is that every person dealing with an assumed agent
is put upon inquiry and must discover upon his peril, if he would hold the principal liable,
not only upon the fact of the agency but the nature and extent of the authority of the agent.

CONTRACT IS BEYOND THE SCOPE OF AGENT’S AUTHORITY:

1. Principal is not bound except when he ratifies it expressly or tacitly (Art. 1910, 2nd par.,
NCC). The contract is unenforceable (Art. 1317 and 1403[1], NCC).
2. Exceptions: Principal is bound notwithstanding the fact that agent exceeded his authority -
a. If the limits of the agent’s authority is known only to the principal and agent and the
party with whom the agent contacted is not aware of the limits of the powers granted by
the principal (Art. 1898 and 1900, NCC).
b. If the principal allowed the agent to act as though the latter had full powers, in which
case, principal is solidarily liable with the agent (Art. 1911, NCC).
3. Agent is personally liable to the person he contracted with if ---
a. He exceeds his authority, without giving such party sufficient notice of his powers (Art.
1897, NCC).
b. He exceeds his authority and he undertook to secure the principal’s ratification (Art.
1898, NCC).

FOR CONTRACTS EXECUTED BY AGENT IN HIS OWN NAME

1. Principal has no right of action against the person with whom the agent has contracted,
except when the contract involves things belonging to principal (Art. 1883, NCC).
2. Such third person likewise has no cause of action against the principal, except when the
contract involves things belonging to principal (Art. 1883, NCC).
3. Agent is the one directly bound to the person whom he contracted with, except when the
contract involves things belonging to principal (Art. 1883, NCC).
4. The exception does not apply when the agent acted beyond the scope of his authority.
5. If the principal ratifies the contract or has signified his willingness to ratify the agent’s acts,
the same becomes enforceable between the parties and the third person with whom the
agent contacted with cannot set up the fact the agent exceed his powers (Art. 1901, NCC).

DOUBLE SALE BY PRINCIPAL AND AGENT

Situation
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.

Whose contract is preferred

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That of prior date shall be preferred, without prejudice to the provisions of Article 1544 on
double sale (Art. 1916, NCC).

Who is liable to the person whose contracted is rejected:


1. If the has agent acted in good faith, the principal is liable. The agent is not liable.
2. If the agent has acted in bad faith, only the agent is liable for damages. The principal is not
liable (Art. 1917, NCC).

Liability of Principal for Delict/Quasi-delict Committed by Agent: The principal may be


held liable if 2 conditions are present ---
1. Person sought to be held must stand in the relation of principal to the one committing the
act; and
2. Act of the agent must have been done within the scope of his authority.

MODES OF EXTINGUISHMENT OF AGENCY

1. Revocation by principal
2. Withdrawal of the agent
3. Death, civil interdiction, insanity or insolvency of the principal or of the agent
4. Dissolution of the firm or corporation which entrusted or accepted the agency
5. Accomplishment of the object or purpose of the agency
6. Expiration of the period for which the agency was constituted (Art. 1919, NCC).

REVOCATION OF AGENCY BY PRINCIPAL

Revocable at will
The principal may revoke the agency at will, and compel the agent to return the document
evidencing the agency (Art. 1920, NCC). 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. 1925, NCC).

Exceptions
The agency is not revocable at will if -
1. If a bilateral contract depends upon it.
2. If the agency is a means of fulfilling an obligation already contracted.
3. if a partner is appointed manager of partnership in the contract of partnership and his
removal from the management is unjustifiable (Art. 1927, NCC).

Manner of revocation:
Either express or implied (Art. 1920, NCC). There is implied revocation in the following
1. When a new agent is appointed for the same business or transaction (Art. 1923, NCC).
2. When the principal directly manages the business entrusted to the agent, dealing directly
with third persons (Art. 1924, NCC).
3. When a special power of attorney is granted to another, it revokes the general power of
attorney as regards the special matter involved in the general power (Art. 1926, NCC).

NECESSITY AND SUFFICIENCY OF NOTICE OF REVOCATION:

BETWEEN PRINCIPAL AND THIRD PERSON

IF AGENT HAD GENERAL POWERS:


1. Notice of revocation in a newspaper of general circulation is a sufficient warning to third
persons (Art. 1922, NCC).
2. Without such notice, revocation does not prejudice third persons who acted in good faith
and without knowledge of the revocation (Art. 1922, NCC).
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Handouts on the Law on Sales
Prepared by Atty. Prime Ramos
Pamantasan ng Lungsod ng Maynila
11
If Agency is for contracting with specified persons:
The specified persons are not prejudiced by the revocation unless they were given notice
thereof (Art. 1921, NCC).

BETWEEN PRINCIPAL AND AGENT


Agent must be notified.

WITHDRAWAL BY AGENT

Manner: By giving due notice to the principal (Art. 1928, NCC).

Liabilities of agent incident to withdrawal:


1. If the principal suffers damage by reason of withdrawal, agent is liable for damages unless
he based his withdrawal upon the impossibility of continuing the performance of the agency
without grave detriment to himself (Art. 1928, NCC).
2. If the withdrawal is for valid reason, agent must continue to act until principal has had
reasonable opportunity to take necessary steps to meet the situation (Art. 1929, NCC).

DEATH OF PRINCIPAL

Rule
Death of principal results in the extinguishment of agency (Art. 1919[3], NCC).

Exceptions:
1. It agency has been constituted in the common interest of both principal and agent.
2. If agency has been constituted in the interest of a third person who has accepted the
stipulation in his favor (Art. 1930, NCC).

Obligation of agent upon extinguishment of agency b y reason of death of principal:


He must finish the business already begun on the death of the principal, should delay entail
any danger (Art. 1884, 2nd par., NCC).

Acts done by agent prior to notice of death of principal or of any other cause which
extinguishes agency:
Considered valid and fully effective with respect to third persons who may have contracted with
the agent in good faith (Art. 1931, NCC).

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Handouts on the Law on Sales
Prepared by Atty. Prime Ramos
Pamantasan ng Lungsod ng Maynila
12