ATENEO DE MANILA LAW SCHOOL

OUTLINE ON AGENCY, TRUSTS, ATTY. CESAR L. VILLANUEVA PARTNERSHIPS AND JOINT VENTURES1 ATTY. JOSE COCHINGYAN III

First Semester, SY 2012-13

A. LAW ON AGENCY

I. NATURE AND OBJECT OF AGENCY

1. Definition (Art. 1868); Parties in an Agency Relationship

Under Article 1868 of the Civil Code, a contract of agency as one 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.2

The Spanish term for principal is mandante. Among the terms used for agent are mandatario, attorney-in-fact, proxy, delegate or representative.

2. Root and Objectives of Agency (Arts. 1317 and 1403[1])

The right of inspection given to a stockholder under the law can be exercised either by himself or by any proper representative or attorney-in-fact, and either with or without the attendance of the stockholder. This is in conformity with the general rule that what a man may do in person he may do through another. Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919).

The purpose of every contract of agency is the ability, by legal fiction, to extend the personality of the principal through the facility of the agent; but the same can only be effected with the consent of the principal. Orient Air Service & Hotel Representatives v. Court of Appeals, 197 SCRA 645 (1991).

3. Elements of the Contract of Agency

Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978): The following are the essential elements of the contract of agency:

(a) Consent, express or implied, of the parties to establish the relationship;

(b) Object, is the execution of a juridical act in relation to third parties;

(c) The agent acts as a representative and not for himself; and

(d) The agent acts within the scope of his authority.3

Whether or not an agency has been created is determined by the fact that one is representing and acting for another. The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it. Urban Bank, Inc. v. Pea, G.R. No. 145817, 19 October 2011.

a. Consent (Arts. 1317 and 1403[1])

The basis for agency is representation. On the part of the principal, there must be an actual intention to appoint

or an intention naturally inferable from his words or actions; and on the part of the

agent, there must be an intention to accept the appointment and act on it, and in the absence of such

intent, there is generally no agency. Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002); Loadmasters Customs Services, Inc. v. Glodel Brokerage Corp., 639 SCRA 69 (2011).

b. Object or Subject Matter: Execution of Juridical Acts in Behalf of Principal (Service)

In an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of

1

Unless otherwise indicated, all references to articles pertain to the New Civil Code of the Philippines. 2See Chemphil Export v. Court of Appeals, 251 SCRA 217 (1995); Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239

(2002); Republic v. Evangelista, 466 SCRA 544 (2005); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).

3Reiterated in Yu Eng Cho v. Pan American World Airways, Inc., 328 SCRA 717 (2000); Manila Memorial Park Cemetery, Inc. v.

Linsangan, 443 SCRA 377 (2004); Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).

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the principal, which must not, in any way, be compelled by law or by any court. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

c. Consideration: Agency Presumed to Be for Compensation, Unless There Is Proof to the Contrary (Art. 1875)

Old Civil Code Rule: The service rendered by the agent was deemed to be gratuitous, apart from

the occupation of some of the house of the deceased by the plaintiff and his family. . . . for if it were true that the agent and the deceased principal had an understanding to the effect that the agent was to receive compensation aside from the use and occupation of the houses of the deceased, it cannot be explained how the agent could have rendered services as he did for eight years without receiving and claiming any compensation from the deceased. xAgua v. Larena, 57 Phil 630 (1932)

Prescinding from the principle that the terms of the contract of agency constituted the law between the principal and the agent, then the mere fact that other agents intervened in the consummation of the sale and were paid their respective commissions could not vary the terms of the contract of agency with the plaintiff of a 5% commission based on the selling price. De Castro v. Court of Appeals, 384 SCRA 607 (2002).

Agency is presumed to be for compensation. Unless the contrary intent is shown, a person who acts as an agent does so with the expectation of payment according to the agreement and to the services rendered or results effected When an agent performs services for a principal at the latter's request, the law will normally imply a promise on the part of the principal to pay for the reasonable worth of those services. The intent of a principal to compensate the agent for services performed on behalf of the former will be inferred from the principal's request for the agents. Urban Bank, Inc. v. Pea [G.R. No. 145817, 19 October 19, 2011.

4. Essential Characteristics of Agency

a. Nominate and Principal

If an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is not so called it will be an agency whether the parties understood the exact nature of the relation or not. Doles v. Angeles, 492 SCRA 607 (2006).

Even when it is provided under the Agreement that the agency manager is considered an independent contractor and not an agent, nonetheless when the terms thereof authorized the agency manager to solicit and remit offers to purchase interments spaces, it covers an agency arrangement since the agency manager represented the interest of the memorial company, and the latter in turn had authorized her to represent in dealings with its clients/prospective buyers. Manila Memorial Park Cemetery, Inc. v. Linsangan, 443 SCRA 377 (2004).

b. Unilateral4 and Primarily Onerous

c. Consensual (Arts. 1869 and 1870)

An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or failure to repudiate the agency. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of Deganos or authorized him to act on her behalf, much less with respect to the particular transactions involved. Petitioners' attempt to foist liability on respondent spouses through the supposed agency relation with Deganos is groundless and ill-advised. Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value without requiring a written authorization from his alleged principal. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.

Bordador v. Luz, 283 SCRA 374 (1997).

A co-owner does not become an agent of the other co-owners, and therefore, any exercise of an option to buy a piece of land transacted with one co-owner does not bind the other co-owners of the land. The basis for agency is representation and a person dealing with an agent is put upon inquiry

4A unilateral contract has been defined as A contract in which one party makes a promise or undertakes a performance. Thus, it was

observed that [M]any unilateral contacts are in reality gratuitous promises enforced for good reason with no element of bargain. [BLACKS LAW DICTIONARY 326 (1990)] It is perhaps in this sense that agency is unilateral because it is the agent who undertakes the performance of the agency. However, one must not forget that agency is still a contract with a bilateral character. Manresa explains: As regards whether the agency has a unilateral or bilateral character, it is evident, in our considered opinion, from the point of view of the Code, that the totality of cases involving agency will always be bilateral, not because, as one ordinarily supposes, there will be obligations exclusively for the agent and rights exclusively for the principal. It is clear that at times it happens this way, but what is common in agency with other contracts is the mutuality and the reciprocity that arises from the existence of an obligation against another obligation, a right against another right. 11 MANRESA. COMENTARIOS AL CODIGO CIVIL ESPAOL 443 (1950)

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and must discover upon his peril the authority of the agent. Since there was no showing that the other co-owners consented to the act of one co-owner nor authorized her to act on their behalf with regard to her transaction with purported buyer. The most prudent thing the purported buyer should have done was to ascertain the extent of the authority said co-owner; being negligent in this regard, the purported buyer cannot seek relief on the basis of a supposed agency. Dizon v. Court of Appeals, 302 SCRA 288 (1999).

d. Preparatory and Representative

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit per se. He who acts through another acts himself. Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978).

The essence of agency being the representation of another, it is evident that the obligations contracted are for and on behalf of the principala consequence of this representation is the liability of the principal for the acts of his agent performed within the limits of his authority that is equivalent to the performance by the principal himself who should answer therefor. Tan v. Engineering Services, 498 SCRA 93 (2006).

The other consequence of the doctrine of representation are:

When an agent purchases the property in bad faith, the principal should also be deemed a purchaser in bad faith. Caram, Jr. v. Laureta, 103 SCRA 7 (1981).

Notice to the agent is notice to the principal. Air France v. Court of Appeals, 126 SCRA 448 (1983).

The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. Safic Alcan & Cie v. Imperial Vegetable Oil Co., Inc., 355 SCRA 559 (2001).

It is clear from Article 1868 that the basis of agency is representation. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions; and on the part of the agent, there must be an intention to accept the appointment and act on it, and in the absence of such intent, there is generally no agency. One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal. Victorias Milling Co. v. Court Appeals, 333 SCRA 663 (2000).5

In a situation where two agents enter into a contract of behalf of their principals, even if the principals do not actually and personally know each other, such ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to extent the personality of the principal through the facility of the agent. Doles v. Angeles, 492 SCRA 607 (2006).

(i) Principles Flowing from Agency Characteristics of Preparatory and Representative (Art. 1897)

It is said that the basis of agency is representation, that is, the agent acts for and on behalf of

the principal on matters within the scope of his authority and said acts have the same legal effect

as if they were personally executed by the principal. By this legal fiction, the actual or real

absence of the principal is converted into his legal or juridical presence qui facit per alium facit per se. Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007)

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).

Notice to the agent should always be construed as notice binding on the principal, even when in fact the principal never became aware thereof. Air France v. Court of Appeals, 126 SCRA 448 (1983).

e. Personal, Fiduciary and Revocable

The relations of an agent to his principal are fiduciary and in regard to the property forming the subject matter of the agency, he is estopped from acquiring or asserting a title adverse to that of the principal. Severino v. Severino, 44 Phil. 343 (1923).

5Amon Trading Corp. v. Court of Appeals, 477 SCRA 552 (2005).

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By reason of the personal, representative and derivative nature of agency, agency is extinguished by the death of the principal or agent. Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978).

A contract of agency is generally revocable as it is a personal contract of representation based on trust and confidence reposed by the principal on his agent. As the power of the agent to act depends on the will and license of the principal he represents, the power of the agent ceases when the will or permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the principal at will. Republic v. Evangelista, 466 SCRA 544 (2005).

In an agency, the principals personality is extended through the facility of the agentthe 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. The Agreement itself between the parties states that either party may terminate the Agreement without cause by giving the other 30 days notice by letter, telegram or cable. Orient Air Services v. Court of Appeals, 197 SCRA 645 (1991).6

5. Distinguished from Other Similar Contracts:

a. From Employment Contract

The relationship between the corporation which owns and operates a theatre, and the individual it hires as a security guard to maintain the peace and order at the entrance of the theatre is not that of principal and agent, because the principle of representation was in no way involved. The security guard was not employed to represent the defendant corporation in its dealings with third parties; he was a mere employee hired to perform a certain specific duty or task, that of acting as special guard and staying at the main entrance of the movie house to stop gate crashers and to maintain peace and order within the premises. Dela Cruz v. Northern Theatrical Enterprises, 95 Phil 739 (1954).

But to set the record straight, the concept of a single person having the dual role of agent and employee while doing the same task is a novel one in our jurisprudence, which must be viewed with caution especially when it is devoid of any jurisprudential support or precedent. All these,

read without any clear understanding of fine legal distinctions, appear to speak of control by the insurance company over its agents. They are, however, controls aimed only at specific results in undertaking an insurance agency, and are, in fact, parameters set by law in defining an insurance agency and the attendant duties and responsibilities an insurance agent must observe and undertake. They do not reach the level of control into the means and manner of doing an assigned task that invariably characterizes an employment relationship as defined by labor law. Tongko v. The Manufacturers Life Insurance Co. (Phils.), Inc., 640 SCRA 395 (2011).

b. From Contract for a Piece-of-Work

Taking into consideration the facts that the operator owed his position to the company and the latter could remove him or terminate his services at will; that the service station belonged to the company and bore its tradename and the operator sold only the products of the company; that the equipment used by the operator belonged to the company and were just loaned to the operator and the company took charge of their repair and maintenance; that an employee of the company supervised the operator and conducted periodic inspection of the company's gasoline and service station; that the price of the products sold by the operator was fixed by the company and not by the operator; and that he was a mere agent, the finding of the Court of Appeals that the operator was an agent of the company and not an independent contractor should not be disturbed. Shell v. Firemens Ins. Co., 100 Phil 757 (1957).

c. From Broker

The question as to what constitutes a sale so as to entitle a real estate broker to his commissions is extensively annotated in the case of Lunney vs. Healey (Nebraska) . . . 44 Law Rep. Ann. 593 , and the long line of authorities there cited support the following rule: # The business of a real estate broker or agent, generally, is only to find a purchaser, and the settled rule as stated by the courts is that, in the absence of an express contract between broker and his principal, the implication generally is that the broker becomes entitled to the usual commissions whenever he brings to his principal a party who is able and willing to take the property and enter into a valid contract upon the terms then named by the principal, although the particulars may be arranged and the matter negotiated and completed between the principal and the purchaser directly. Macondray & Co. v. Sellner, 33 Phil. 370 (1916).

The duties and liability of a broker to his employer are essentially those which an agent owes to his principal. Consequently, the decisive legal provisions on determining whether a broker is mandated to give to the employer the propina or gift received from the buyer would be Articles 1891

6Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006). Formatted: French (France)

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and 1909 of the Civil Code. (Yet the facts did indicate clearly that the real estate broker was appointed as an exclusive agent.) Domingo v. Domingo, 42 SCRA 131 (1971).

Where the purported agent was orally given authority to follow up the purchase of the fire truck with the municipal government, there is no authority to sell nor has the purported agent been empowered to make a sale for and in behalf of the seller. Guardex v. NLRC, 191 SCRA 487 (1990).

When the terms of the agency arrangement is to the effect that entitlement to the commission was contingent on the purchase by a customer of a fire truck, the implicit condition being that the agent would earn the commission if he was instrumental in bringing the sale about. Since the agent had nothing to do with the sale of the fire truck, and is not therefore entitled to any commission at all. Guardex v. NLRC, 191 SCRA 487 (1990).

A broker is one who is engaged, for others, on a commission, negotiating contracts relative to

property with the custody of which he has no concern; the negotiator between the other parties, never acting in his own name but in the name of those who employed him. His occupation is to bring the parties together, in matter of trade, commerce or navigation. Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988). An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made. Tan v. Gullas, 393 SCRA 334 (2002).

In relation thereto, we have held that the term procuring cause in describing a brokers activity, refers to a cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime objective of the employment of the brokerproducing a purchaser ready, willing and able to buy on the owners terms. To be regarded as the procuring cause of a sale as to be entitled to a commission, a brokers efforts must have been the foundation on which the negotiations resulting in a sale began. Medrano v. Court of Appeals, 452 SCRA 77 (2005).7

A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

Since brokerage relationship is necessary a contract for the employment of an agent, principles of contract law also govern the broker-principal relationship. xAbacus Securities Corp. v. Ampil, 483

SCRA 315 (2006).

Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made. (Obiter the issue was whether it was an independent distributor of BMW cars in the Philippines) xHahn v. Court of Appeals, 266 SCRA 537 (1997).

d. From Sale

When the terms of the agreement compels the purported agent to pay for the products received from the purported principal within the stipulated period, even when there has been no sale thereof to the public, the underlying relationship is not one of contract of agency to sell, but one of actual sale. A real agent does not assume personal responsibility for the payment of the price of the object of the agency; his obligation is merely to turn-over to the principal the proceeds of the sale once he receives them from the buyer. Consequently, since the underlying agreement is not an agency agreement, it cannot be revoked except for cause. Quiroga v. Parsons, 38 Phil 502 (1918).

When under the agreement the purported agent becomes responsible for any changes in the acquisition cost of the object he has been authorized to purchase from a supplier in the United States, the underlying agreement is not an contract of agency to buy, since a true agent does not bear any risk relating to the subject matter or the price. Being a contract of sale and not agency, any profits realized by the purported agent from discounts received from the American supplier pertained to it with no obligation to account for it, much less to turn it over, to the purported principal. Gonzalo Puyat v. Arco, 72 Phil. 402 (1941).

The distinctions between a sale and an agency are not difficult to discern and this Court, as early as 1970, had already formulated the guidelines that would aid in differentiating the two (2) contracts. that the primordial differentiating consideration between the two (2) contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains ownership and control over the property and the agent merely acts on the principal's behalf and under his instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may do with

7Reiterated in Phil. Health-care Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008).

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the property as he pleases. Spouses Viloria v. Continental Airlines, Inc., G.R. No. 188288. 16 January 2012.

II. FORMS AND KINDS OF AGENCY

1. How Agency May Be Constituted (Art. 1869)

There are some provisions of law which require certain formalities for particular contracts: the first is when the form is required for the validity of the contract; the second is when it is required to make the contract effective as against third parties; and the third is when the form is required for the purpose of proving the existence of the contract. A contract of agency to sell on commission basis does not belong to any of these three categories, hence it is valid and enforceable in whatever form in may be entered into. Consequently, when the agent signs her signature on any face of the receipt showing that she receives the jewelry for her to sell on commission, she is bound to the obligations of an agent. The exact position of the agents signature in the receipt (in this case near the description of the goods and not on top of her printed name) is immaterial. Lim v. Court of Appeals, 254 SCRA 170 (1996).

a. From Side of the Principal (Art. 1869)

When the buyers-a-retro failed for several years to clear their title to the property purchased and allowed the seller-a-retro to remain in possession in spite of the expiration of the period of

redemption, then the execution of the memorandum of repurchase by the buyers son-in-law, which stood unrepudiated for many years, constituted an implied agency under Article 1869 of the Civil Code, from their silence or lack of action, or their failure to repudiate the agency. Conde v. Court of Appeals, 119 SCRA 245 (1982).

Where the principal has acquiesced in the act of his agent for a long period of time, and has received and appropriated to his own use the benefits result in from the acts of his agent, courts should be slow in declaring the acts of the agent null and void. Linan v. Puno, 31 Phil. 259 (1915).

b. From Side of the Agent (Arts. 1870, 1871 and 1872)

c. From Side of Third Parties/Public (Arts. 1873 and 1408; 1921 and 1922)

A long-standing client, acting in good faith and without knowledge, having sent goods to sell on commission to the former agent of the defendant, can recover of the defendant, when no previous notice of the termination of agency was given said client. Having advertised the fact that Collantes was his agent and having given special notice to the plaintiff of that fact, and having given them a special invitation to deal with such agent, it was the duty of the defendant on the termination of the relationship of principal and agent to give due and timely notice thereof to the plaintiffs. Failing to do so, he is responsible to them for whatever goods may have been in good faith and without negligence sent to the agent without knowledge, actual or constructive, of the termination of such relationship. Rallos v. Yangco, 20 Phil 269 (1911)

When the owner of a hotel/caf business allows a person to use the title managing agent and during his prolonged absences allows such person to take charge of the business, performing the duties usually entrusted to managing agent, then such owner is bound by the act of such person. One who clothes another apparent authority as his agent, and holds him out to the public as such, can not be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in the following pre-assumptions or deductions, which the law expressly directs to be made from particular facts, are deemed conclusive. The hotel owner is bound by the contracts entered into by said managing agent that are within the scope of authority pertinent to such position, including the purchasing such reasonable quantities of supplies as might from time to time be necessary in carrying on the business of hotel bar. Macke v. Camps, 7 Phil 522 (1907).

When the law firm has allowed for quite a period the messenger of another office to receive mails and correspondence on their behalf, an implied agency had been duly constituted, specially when there is no showing that counsel had objected to such practice or took step to put a stop to it. Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001).

2. Kinds of Agency

a. Based on Business or Transactions Encompassed (Art. 1876)

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(1) General or Universal Agency

An agent may be (1) universal; (2) general, or (3) special. A universal agent is one authorized to do all acts for his principal which can lawfully be delegated to an agent. So far as such a condition is possible, such an agent may be said to have universal authority. A general agent is

one authorized to do all acts pertaining to a business of a certain kind or at a particular place, or all acts pertaining to a business of a particular class or series. He has usually authority either expressly conferred in general terms or in effect made general by the usages, customs or nature of the business which he is authorized to transact. An agent, therefore, who is empowered to transact all the business of his principal of a particular kind or in a particular place, would for this reason, be ordinarily deemed a general agent. A special agent is one authorized to do some particular act or

to act upon some particular occasion. He acts usually in accordance with specific instructions or under limitations necessarily implied from the nature of the act to be done. Siasat v. IAC, 139 SCRA 238 (1985).

(2) Special or Particular Agency

The right of an agent to indorse commercial paper (checks) is a very responsible power and will not be lightly inferred. A salesman with 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 the consequence if the agent who indorses the same is without authority. Insular Drug v. PNB, 58 Phil.

684 (1933).

b. Whether It Covers Legal Matters

(1) Attorney-at-Law

Only the employee, not his counsel, can impugn the consideration of the compromise as being unconscionable. The relation of attorney and client is in many respects one of agency, and the general rules of agency apply to such relationthe circumstances of this case indicate that the employees counsel acted beyond the scope of his authority in questioning the compromise agreement. That a client has undoubtedly the right to compromise a suit without the intervention of his lawyer cannot be gainsaid, the only qualification being that if such compromise is entered into with the intent of defrauding the lawyer of the fees justly due him, the compromise must be subject to the said fees. J-Phil Marine, Inc. v. NLRC, 561 SCRA 675 (2008).

An attorney cannot, without a clients authorization, settle the action or subject matter of the litigation even when he believes that such a settlement will best serve his clients interest. Philippine Aluminum Wheels, Inc. v. FASGI Enterprises, Inc., 342 SCRA 722 (2000).

(2) Attorney-in-Fact

The relationship of attorney and client is in many respects one of agency, and the general rules of agency apply to such relation. The acts of an agent are deemed the acts of the principal only if the agent acts within the scope of his authority. Thus, when the lawyer files an opposition to the compromise agreement that has been validly entered into by his client, he is acting beyond the scope of his authority. TJ-Phil. Marine, Inc. v. NLRC, 561 SCRA 675 (2008).

c. Whether It Covers Acts of Administration or Acts of Dominion: Powers of Attorney

(1) Form of Powers of Attorney

In a case involving authority to act in baranggay conciliation cases covering an ejectment for failure to pay rentals: A power of attorney is an instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the principal. The written authorization itself is the power of attorney, and this is clearly indicated by the fact that it has also been called a letter of attorney. Wee v. De Castro, 562 SCRA 695, 712 (2008).

The Letter dated January 16, 1996 relied upon by the petitioners was signed by respondent Fernandez alone, without any authority from the respondents-owners. There is no actuation of respondent Fernandez in connection with her dealings with the petitioners. As such, said letter is not binding on the respondents as owners of the subject properties. Litonjua v. Fernandez, 427 SCRA 478 (2004).

(2) General Power of Attorney (Art. 1877)

A power of attorney is an instrument in writing by which one person, as principal, appoints another as his agent and confers upon his the authority to perform certain acts or kinds of acts on behalf of the principal. Wee v. De Castro, 562 SCRA 695 (2008).

Nonetheless, we stress that the power of administration does not include acts of disposition or encumbrance, which are acts of strict ownership. As such, an authority to dispose cannot proceed from an authority to administer, and vice versa, for the two powers may only be exercised by an

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agent by following the provisions on agency of the Civil Code (from Article 1876 to Article 1878). Aggabao v. Parulan Jr., 629 SCRA 562 (2010).

(3) Special Power of Attorney

Even if a document is designated as a general power of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the performance of the act. Estate of Lino Olaquer v. Ongjoco, 563 SCRA 373 (2008).

It is a general rule that a power of attorney must be strictly construed; the instrument will be held to grant only those powers that are specified, and the agent may neither go beyond nor deviate from the power of attorney. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007).

Although a Special Power of Attorney was issued by the insurance company to its agency manager, it wordings show that it sought only to establish an agency that comprises all the business of the principal within the designated locality, but couched in general terms, and consequently was limited only to acts of administration. A general power permits the agent to do all acts for which the law does not require a special power. Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney (i.e., really a general power of attorney) did not require a special power of attorney, and could only cover acts of administration. Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002).

Even when the title given to a deed is as a General Power of Attorney, but its operative clause contains an authority to sell, it constituted the requisite special power of attorney to sell a piece of land. Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required. Veloso v. Court of Appeals, 260 SCRA 593 (1996).

When an agent has been given general control and management of the business, he is deemed to have power to employ such agents and employees as are usual and necessary in the conduct of the business, and needs no special power of attorney for such purpose. Yu Chuck v. Kong Li Po, 46 Phil. 608 (1924).

An attorney-in-fact empowered to pay the debts of the principal and to employ legal counsel to defend the principals interest, has certainly the implied power to pay on behalf of the principal the attorneys fees charged by the lawyer. Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).

A co-owner who is made an attorney-in-fact, with the same power and authority to deal with the property which the principal might or could have had if personally present, may adopt the usual legal means to accomplish the object, including acceptance of service and engaging of legal counsel to preserve the ownership and possession of the principals property. Government of PI v. Wagner, 54 Phil. 132 (1929).

Contracts of agency, as well as a general power of attorney, must be interpreted in accordance with the language used by the parties. The real intention of the parties is primarily to be determined from the language used. The intention is to be gathered from the whole instrument. In case of doubt, resort must be had to the situation, surroundings, and relations of the parties. Whenever it is possible, effect is to be given to every word or clause used by the parties. It is to be presumed that the parties said what they intended to say and that they used each word or clause with sole purpose, and that purpose is, if possible, to be ascertained and enforced. If the contract be open to two constructions, one of which would while the other would overthrow it, the former is to be chosen. If by one construction the contract would be illegal, and by another equally permissible construction would be lawful, the latter must be adopted. The acts of the parties will be presumed to be done in conformity with and not contrary to the intent of the contract. The meaning of general words must be construed with reference to the specific object to be accomplished and limited by the recitals made in reference to such object. Linan v. Puno, 31 Phil. 259 (1915).

(4) Express Power of Attorney Excludes Powers of Administration (e.g., General Power of Attorney)

The instrument which grants to the agent the power To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum due me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida, Casablanca, Morocco on the evening of February 17, 1986, is a special power of attorney, excludes any intent to grant a general power of attorney or to constitute a universal agency. Being special powers of attorney, they must be strictly construed. The instrument cannot be read to give power to the attorney-in-fact to obtain, receive, receipt from the insurance company the proceeds arising from the death of the seaman-insured, especially when the commercial practice for group insurance of this nature is that it is the employer-

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policyholder who took out the policy who is empowered to collect the proceeds on behalf of the covered insured or their beneficiaries. Pineda v. Court of Appeals, 226 SCRA 754 (1993).

d. Cases Where Special Powers of Attorney Are Necessary (Art. 1878)

(1) To Make Payments As Are Not Usually Considered as Acts of Administration

In the case of the area manager of an insurance company, it was held that the payment of claims is not an act of administration, and that since the settlement of claims was not included among the acts enumerated in the Special Power of Attorney issued by the insurance company, nor is of a character similar to the acts enumerated therein, then a special power of attorney was required before such area manager could settle the insurance claims of the insured. Consequently, the amounts paid by the area manager to settle such claims cannot be reimbursed from the principal insurance company. Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002).

(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

The power to compromise excludes the power to submit to arbitration. It would also be reasonable to conclude that the power to submit to arbitration does not carry with it the power to compromise. (Art. 1880)

When an agent has been empowered to sell hemp in a foreign country, that express power carries with it the implied power to make and enter into the usual and customary contract for its sale, which sale contract may provide for settlement of issues by arbitration. We are clearly of the opinion that the contract in question is valid and binding upon the defendant [principal], and that authority to make and enter into it for and on behalf of the defendant [principal], but as a matter of fact the contract was legally ratified and approved by the subsequent acts and conducts of the defendant [principal]. Robinson Fleming v. Cruz, 49 Phil 42 (1926).

True, said counsel asserted that he had verbal authority to compromise the case. The Rules, however, require, for attorneys to compromise the litigation of their clients, a special authority (Section 23, Rule 138, Rules of Court). And while the same does not state that the special authority be in writing, the court has every reason to expect, that, if not in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself that such authority was verbally given to him. For, authority to compromise cannot lightly be presumed. Home Insurance Co. v. USL, 21 SCRA 863 (1967).

Old Civil Code: The power to bring suit in order to collect sums of money accruing in the ordinary course of business as properly belonging to the class of acts described in article 1713 of the Civil Code as acts of strict ownership. It seems rather to be something which is necessarily a part of the mere administration of such a business as that described in the instrument in question and only incidentally, if at all, involving a power to dispose of the title to property. [In any event, the provision to exact the payment of sums of money by legal means was construed to be express power to sue.] Germann v. Donaldson, 1 Phil 63 (1901).

(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

Also, under Article 1878 of the Civil Code, a special power of attorney is necessary for an agent to enter into a contract by which the ownership of an immovable property is transmitted or acquired, either gratuitously or for a valuable consideration. Pahud v. Court of Appeals, 597 SCRA 13 (2009).

According to the provisions of Article 1874 on Agency, when the sale of a piece of land or any interest therein is made through an agent, the authority of the latter shall be in writing. Absent this requirement, the sale shall be void. Also, under Article 1878, a special power of attorney is necessary in order for an agent to enter into a contract by which the ownership of an immovable property is transmitted or acquired, either gratuitously or for a valuable consideration. Estate of Lino Olaguer v. Ongjoco, 563 SCRA 373, 393-394 (2008).

While the law requires a special power of attorney, the general power of attorney was sufficient in this case, as Olaguer was expressly empowered to sell any of Virgilios properties; and to sign, execute, acknowledge and delivery any agreement therefor. Even if a document is designated as a general power of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the performance of the act. [Bravo-Guerrero v. Bravo, 465 SCRA 244 (2005)]. The special power of attorney can be included

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in the general power when the act or transaction for which the special power is required is specified therein. Estate of Lino Olaguer v. Ongjoco, 563 SCRA 373 (2008).

(5-A) Sale of a Piece of Land or Interest Therein (Art. 1874; City- Lite Realty Inc. v. Court of Appeals, 325 SCRA 385 [2000]).

Absence of a written authority to sell a piece of land is ipso jure void, precisely to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another. Pahud v. Court of Appeals, 597 SCRA 13 (2009).

Under Article 1874, when a sale of a piece of land or any interest therein is through an agent, the authority of the agent shall be in writing, otherwise the sale shall be void. [See Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).] Notice that the article does not declare the agency to be void, but the resulting contract of sale effected by the agent. Is the agency itself void?

Agency may be oral unless the law requires a specific form. However, to create or convey real rights over immovable property, a special power of attorney is necessary. Thus, when a sale of a piece of land or any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

The Civil Code provides that in the sale of a parcel of land or any interest therein made through an agent, a special power of attorney is essential. [Article 1878]. This authority must be in writing, otherwise the sale shall be void. [Article 1874] Pineda v. Court of Appeals, 376 SCRA 222, 228 (2002).

Where in the special power of attorney the agent was primarily empowered by the corporation to bring an ejectment case against the occupant and also to compromise . . . so far as it shall protect the rights and interest of the corporation in the aforementioned lots, and that the agent did execute a compromise in the legal proceedings filed which sold the lots to the occupant, the compromise agreement that effected a sale of the lots is void for the power to sale by way of compromise could not be implied to protect the interests of the principal to secure possession of the properties. Cosmic Lumber v. Court of Appeals, 265 SCRA 168 (1996).

The express mandate required by Article 1874 to enable an appointee of an agency couched in general terms to sell must be one that expressly mentions a sale of a piece of land or that includes a sale as a necessary ingredient of the act mentioned. The power of attorney need not contain a specific description of the land to be sold, such that giving the agent the power to sell any or all tracts, lots, or parcels of land belonging to the principal is adequate. Domingo v. Domingo, 42 SCRA 131 (1971).

When no particular formality is required by law, rules or regulation, then the principal may appoint his agent in any form which might suit his convenience or that of the agent, in this case a letter addressed to the agent requesting him to file a protest in behalf of the principal with the Collector of Customs against the appraisement of the merchandise imported into the country by the principal. Kuenzle and Streiff v. Collector of Customs, 31 Phil 646 (1915).

Where the nephew in his own name sold a parcel of land with a masonry house constructed thereon to the company, when in fact it was property owned by the uncle, but in the estafa case filed by the company against the nephew, the uncle swore under oath that he had authorized his nephew to sell the property, the uncle can be compelled in the civil action to execute the deed of sale covering the property. It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same way by selling the said property. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the scope of his authority. (Arts. 1709, 1710 and 1727) Gutierrez Hermanos v. Orense, 28 Phil. 572 (1914).

Under Sec. 335 of the Code of Civil Procedure, an agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein, is invalid if made by the agent unless the authority of the agent be in writing and subscribed by the party sought to be charged. Rio y Olabbarrieta v.Yutec, 49 Phil 276 (1926).

A power of attorney to convey real property need not be in a public document, it need only be in writing, since a private document is competent to create, transmit, modify, or extinguish a right in real property. Jimenez v. Rabot, 38 Phil 378 (1918).

(i) Corporate Sale of Land

When the 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. City-lite Realty Corporation v. Court of Appeals, 325 SCRA 385 (2000).

When the corporations primary purpose is to market, distribute, export and import merchandise, the sale of land is not within the actual or apparent authority of the corporation acting through its officers, much less when acting through the treasurer. Likewise Articles 1874

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and 1878 of Civil Code requires that when land is sold through an agent, the agents authority must be in writing, otherwise the sale is void. San Juan Structural v. CA, 296 SCRA 631 (1998).

8

(5-B) Agents Cannot Buy Property of Principal Unless Authorized (Art. 1491[2])

The prohibition against agents purchasing property in their hands for sale or management is, however, clearly, not absolute. When so authorized by the principal, the agent is not disqualified from purchasing the property he holds under a contract of agency to sell. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007).

(6) To Lease Real Property for More Than One Year

Article 1878 of the Civil Code expresses that a special power of attorney is necessary to lease any real property to another person for more than one year. The lease of real property for more than one year is considered not merely an act of administration but an act of strict dominion or of ownership. A special power of attorney is thus necessary for its execution through an agent. Shoppers Paradise Realty v. Roque, 419 SCRA 93 (2004).

Where the lease contract involves the lease of real property for a period of more than one year, and it was entered into by the agent of the lessor and not the lessor herself, in such a case, Article 1878 of the Civil Code requires that the agent be armed with a special power of attorney to lease the premises. Consequently, the provisions of the contract of lease, including the grant therein of an option to purchase to the lessee, would be unenforceable. Vda. De Chua v. IAC, 229 SCRA 99 (1994).

When the attorney-in-fact was empowered by his principal to make an assignment of credits, rights, and interests, in payment of debts for professional serviced rendered by laws, and the hiring of lawyers to take charge of any actions necessary or expedient for the interests of his principal, and to defend suits brought against the principal, such powers necessarily implies the authority to pay for the professional services thus engaged, which includes assignment of the judgment secured for the principal in settlement of outstanding professional fees. Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).

(7) To Create or Convey Real Rights over Immovable Property

There is no documentary evidence on record that the respondents-owners specifically authorized respondent Fernandez to sell their properties to another, including the petitioners. Article 1878 of the New Civil Code provides that a special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration, or to create or convey real rights over immovable property, or for any other act of strict dominion. Any sale of real property by one purporting to be the agent of the registered owner without any authority therefore in writing from the said owner is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of her authority. Litonjua v. Fernandez, 427 SCRA 478, 493 (2004).

(8) To Make Gifts

(9) To Loan or Borrow Money

Except: The agent may borrow money when it s urgent and indispensable for the

preservation of the things which are under administration.

Power to Sell Excludes Power to Mortgage and Vice Versa (Art. 1879)

A special power of attorney is necessary for an agent to borrow money, unless it be urgent and indispensable for the preservation of the things which are under administration. Yasuma v. Heirs of Cecilio S. De Villa, 499 SCRA 466 (2006).

9

It is a general rule in the law agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. Gozun v. Mercado

511 SCRA 305 (2006).

A power of attorney, like any other instrument, is to be construed according to the natural import of its language; and the authority which the principal has conferred upon his agent is not to be extended by implication beyond the natural and ordinary significance of the terms in which that authority has been given. The attorney has only such authority as the principal has chosen to confer upon him, and one dealing with him must ascertain at his own risk whether his acts will bind the principal. Thus, where the power of attorney which vested the agent with authority for me and in my name to sign, seal and execute, and as my act and deed, delivery any lease, any other deed for conveying any real or personal property or any other deed for

8AF Realty & Dev., Inc. v. Dieselman Freight Services Co., 373 SCRA 385 (2002); Firme v. Bukal Enterprises and Dev. Corp., 414

SCRA 190 (2003). 9Gozun v. Mercado 511 SCRA 305 (2006). Formatted: English (U.S.)

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the conveying of any real or personal property, it does not carry with it or imply that the agent for and on behalf of his principal has the power to execute a promissory note or a mortgage to secure its payment. National Bank v. Tan Ong Sze, 53 Phil. 451 (1929).

Where the power of attorney executed by the principal authorized the agent By means of a mortgage of my real property, to borrow and lend sums in cash, at such interest and for such periods and conditions as he may deem property and to collect or to pay the principal and interest thereon when due, while it did not authorize the agent to execute deeds of sale with right of repurchase over the property of the principal, nonetheless would validate the main contract of loan entered into with the deed of sale with right of repurchase constituting merely an equitable mortgage, both contracts of which were within the scope of authority of the agent to enter into in the name of the principal. Rodriguez v. Pamintuan and De Jesus, 37 Phil 876 (1918).

A special power of attorney to mortgage real estate is limited to such authority to mortgage and does not bind the grantor personally to other obligations contracted by the grantee (in this case the personal loan obtained by the agent in his own name from the PNB) 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. Philippine National Bank v. Sta. Maria, 29 SCRA 303 (1969).

In other words, the power to mortgage does not include the power to obtain loans, especially when the grantors allege that they had no benefit at all from the proceeds of the loan taken by the agent in his own name from the bank. 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, but the grant of such authority does not extend to assuming personal liability, much less solidary liability, for any loan secured by the grantee in the absence of express authority so given by the grantor. Philippine National Bank v. Sta. Maria, 29 SCRA 303, 310 (1969).

Where the power of attorney given to the husband by the wife was limited to a grant of authority to mortgage a parcel of land titled in the wifes name, the wife may not be held liable for the payment of the mortgage debt contracted by the husband, as the authority to mortgage does not carry with it the authority to contract obligation. De Villa v. Fabricante, 105 Phil. 672 (1959).

(10) To Bind the Principal to Render Some Service Without Compensation

(11) To Bind the Principal in a Contract of Partnership

(12) To Obligate the Principal as a Guarantor or Surety

Where a power of attorney is executed primarily to enable the attorney-in-fact, as manager of a mercantile business, to conduct its affairs for and on behalf of the principal, who is the owner of the business, and to this end the attorney-in-fact is authorized to execute contracts relating to the principals property [act and deed delivery, any lease, or any other deed for the conveying any real or personal property and act and deed delivery, any lease, release, bargain, sale, assignment, conveyance or assurance, or any other deed for the conveying any real or personal property] , such power will not be interpreted as giving the attorney-in-fact power to bind the principal by a contract of independent guaranty or surety unconnected with the conduct of the mercantile business. General words contained in such power will not be interpreted to extend power to the making of a contract of suretyship, but will be limited, under the well-know rule of construction indicated in the express in ejusdem generis, as applying to matters similar to those particularly mentioned. Director v. Sing Juco, 53 Phil 205 (1929).

(13) To Accept or Repudiate an Inheritance

(14) To Ratify or Recognize Obligations Contracted Before the Agency

Where it appears that a wife gave her husband a power of attorney to loan and borrow money and to mortgage her property, that fact does not carry with it or imply that he has a legal right to sign her name to a promissory note which would make her liable for the payment of a pre-existing debt of the husband or that of his firm, for which she was not previously liable, or to mortgage her property to secure the pre-existing debt. Bank of P.I. v. De Coster, 47 Phil 594 (1925).

Where the terms of the power granted to the substituted attorney-in-fact was to the end that the principal-seller may be able to collect the balance of the selling price of the printing establishment sold, such substitute agent had no power to enter into new sales arrangements with the buyer, or to novate the terms of the original sale. Villa v. Garcia Bosque, 49 Phil 126

(1926).

e. Notarized Power of Attorney

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A notarized power of attorney carries with it the evidentiary weight conferred upon it with respect to its due exectuion. Velso v. Court of Appeals, 260 SCRA 593 (1996).

When the document under scrutiny is a special power of attorney that is duly notarized, the notarial acknowledgment is prima facie evidence of the fact of its due executiona buyer has every reason to rely on a persons authority to sell a particular property owned by a corporation on the basis of a notarized board resolutionundeniably the buyer is an innocent purchaser for value in good faith. St. Marys Farm, Inc. v. Prima Real Properties, Inc., 560 SCRA 704 (2008).

III. POWER AND OBLIGATIONS OF THE AGENT

1. General Obligation of Agent Who Accepts the Agency (Art. 1884)

a. Upon Acceptance of Appointment: Agent Is Bound to Carry on Agency to Its Completion and for the Benefit of Principal

OTHERWISE: Agent Will Be Liable for Damages which Through His Non-Performance the Principal May Suffer Damages

b. In Event of Death of Principal: Agent Must Finish Business Already Begun Should Delay Entail Any Danger (BUT SEE: Art. 1919(3) - Death Extinguishes Agency)

In construing the original version of Article 1884 (Article 1718 of the old Civil Code), the Supreme Court held that the burden is on the person who seeks to make an agent liable to show that the losses and damage caused were occasioned by the fault or negligence of the agent; mere allegation without substantiation is not enough to make the agent personally liable. Heredia v. Salina, 10 Phil

157 (1908).

Where the holder of an exclusive and irrevocable power of attorney to make collections, failed to collect the sums due to the principal and thereby allowed the allotted funds to be exhausted by other creditors, such agent was adjudged to have failed to act with the care of a good father of a family required under Article 1887 and became personally liable for the damages which the principal may suffer through his non-performance. PNB v. Manila Surety, 14 SCRA 776 (1965).

Where the prevailing statutory rule then was Article 267 of the Code of Commerce which declared that no agent shall purchase for himself or for another that which he has been ordered to sell, the Court held that a sale by a broker to himself without the consent of the principal would be void and ineffectual whether the broker has been guilty of fraudulent conduct or not. Consequently, such broker is not entitled to receive any commission under the contract, much less any reimbursement of expenses incurred in pursuing and closing such sales. The same prohibition is now contained in Article 1491(1) of the Civil Code. Barton v. Leyte Asphalt, 46 Phil 938 (1924).

When the finance company executes a mortgage contract that contains a provision that in the event of accident or loss, it shall make a proper claim against the insurance company, was in effect an agency relation, and that under Article 1884, the finance company was bound by its acceptance to carry out the agency, and in spite of the instructions of the borrowers to make such claims instead insisted on having the vehicle repaired but eventually resulting in loss of the insurance coverage, the finance company had breached its duty of diligence, and must assume the damages suffered by the borrowers, and consequently can no longer collect on the balance of the mortgage loan secured thereby. BA Finance v. Court of Appeals, 201 SCRA 157 (1991).

The well-settled rule is that an agent is also responsible for any negligence in the performance of its function (Art. 1909) and is liable for the damages which the principal may suffer by reason of its negligent act. (Art. 1884). British Airways v. Court of Appeals, 285 SCRA 450 (1998).

2. Obligation of Agent Who Declines Agency (Art. 1885)

a. If Goods Are Forwarded to Him: Observe diligence of a good father of a family in

custody and preservation of goods until new agent appointed

b. Compare with Art. 1929 Obligation of an agent who withdraws form an agency he must continue to act until principal takes necessary steps to meet situation

3. General Rule on Exercise of Power

a. Agent Must Act Within the Scope of His Authority (Art. 1881)

(1) Meaning of Performance Within the Scope of Authority (Art. 1900)

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(2) He May Perform Acts Conducive to Accomplishment of Agency Purpose

Under Article 1881 of the Civil Code, the agent must act within the scope of his authority to bind his principal. So long as the agent has authority, express or implied, the principal is bound by the acts of the agent on his behalf, whether or not the third person dealing with the agent believes that the agent has actual authority. Thus, all signatories in a contract should be clothed with authority to bind the parties they represent. Sargasso Construction & Development Corporation/Pick & Shovel, Inc.,/Atlantic Erectors, Inc. (Joint Venture) v. Philippine Ports Authority, 623 SCRA 260 (2010).

Article 1881 of the Civil Code provides that "the agent must act within the scope of his authority." Pursuant to the authority given by the principal, the agent is granted the right "to affect the legal relations of his principal by the performance of acts effectuated in accordance with the principal's manifestation of consent." Pacific Rehouse Corp. v. EIB Securities, Inc., 633 SCRA 214 (2010).

b. Compare with Art. 1887 Agent Must Follow Instructions of the Principal

c. Authority of Agent Not Deemed Exceeded If Performed in a Manner More Advantageous to Principal (Art. 1882)

(1) Compare: Agent Should Not Act If It Would Manifestly Result in Loss or Damage to Principal (Art. 1888).

Article 1882 of the Civil Code provides that the limits of an agents authority shall not be considered exceeded should it have been performed in a manner advantageous to the principal than that specified by him. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007).

The admissions obtained by the agent from the adverse party prior to the formal amendment of the complaint that included the principal as a party to the suit, can be availed of by the principal since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency, admissions secured by the agent within the scope of the agency ought to favor the principal. This has to be the rule, for the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and treated in turn as declarations, acts and representations of his principal and may be given in evidence against such party Bay View Hotel v. Ker & Co., 116 SCRA 327 (1982).

d. Effects of Non-Ratified Acts Done by Agent in Excess of His Authority: Unenforceable, Not Void (Arts. 1317, 1403, and 1898)

When money is received as a deposit by an agent, and that money is turned over by the agent to the principal, with notice that it is the money of the depositor, the principal is bound to deliver to the depositor, even if his agent was not authorized to receive such deposit. [There has, in effect, ratification of the unauthorized act of the agent, thereby binding the principal]. Cason v. Rickards, 5 Phil 639 (1906).

When the administrator enters into a contract that are outside of the scope of authority, the contract would nevertheless not be an absolute nullity, but simply voidable [unenforceable] at the instance of the parties who had been improperly represented, and only such parties can assert the nullity of said contracts as to them. Zayco v. Serra, 49 Phil 985 (1925).

Under Article 1898 of the New Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person . . . knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware of the limits of the authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principals ratification. Cervantes v. Court of Appeals, 304 SCRA 25 (1999); Safic Alcan v. Imperial Vegetable, 355 SCRA 559 (2001).

Even when the agent, in this case the attorney-at-law who represented the client in forging a compromise agreement, has exceeded his authority in inserting penalty clause, the status of the said clause is not void but merely voidable, i.e., capable of being ratified. Indeed, the clients failure to question the inclusion of the penalty in the judicial compromise despite several opportunities to do so and with the representation of new counsel, was tantamount to ratification. Hence, the client is stopped from assailing the validity thereof.Borja, Sr. v. Sulyap, Inc., 399 SCRA 601 (2003).

Contracts 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 are classified as unauthorized contracts and are unenforceable, unless they are ratified. Gozun v. Mercado 511 SCRA 305 (2006).

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e. Consequences When Agent Acts in His Own Name (Art. 1883)

(1) Principal Has No Right Against Third Person If Agent Acts in His Own Name

Article 1717 of the [old] Civil Code provides that When an agent acts in his own name, the principal shall have no action against the persons with whom the agent has contracted, nor the said persons against the principal. Article 246 of the Code of Commerce provides that When an agent transacts business in his own name, it shall not be necessary for him to state who is the principal, and he shall be directly liable as if the business were for his own account, to the persons with whom he transacts the same, said person not having any right of action against the principal, nor the latter against the former, the liabilities of the principal and the agent to each other always reserved. It being established by a preponderance of the evidence that the agent acted in his own name in selling the merchandise to the defendants, and that the defendants fully believed that they were dealing with the said agent, without any knowledge of the fact that he was the agent of the plaintiffs, and having paid him in full for the merchandise purchased, they are not liable to the plaintiffs, for said merchandise. This is true whether the transaction is covered by the provisions of the Civil Code or by the provisions of the Commercial Code. Lim Tiu v. Ruiz & Rementeria, 15 Phil. 367, 370 (1910).

When an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted, or such persons against the principal. In such case, the agent is directly liable to the person with whom he has contracted, as if the transactions were his own. Smith Bell v. Sotelo Matti, 44 Phil. 874 (1922).

Even when the agent has a special power of attorney to mortgage the property of the principal, when such agent nevertheless executed the real estate mortgage in his own name, then it is not valid and binding on the principal pursuant to the provisions of Article 1883 of the Civil Code. Philippine Sugar Estates Dev. Corp. v. Poizat, 48 Phil. 536 (1925); Rural Bank of Bombon v. Court of Appeals, 212 SCRA 25 (1992).

Under Article 1883 of the Civil Code, if an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. Since the principals have caused their agent to enter into a charter party in his own name and without disclosing that he acts for any principal, then such principals have no standing to sue upon any issue or cause of action arising from said charter party. Marimperio Compania Naviera, S.A. v. Court of Appeals, 156 SCRA 368 (1987).

(2) Agent Is Directly Bound to Third Person as If the Transaction Were His Own

When the agent executes a contract in his personal capacity, the fact that he is described in the contract as the agent of the principal and the properties mortgaged pertain to the principal, may not be taken to mean that he enters into the contract in the name of the principal. A mortgage on real property of the principal not made and signed in the name of the principal is not valid as to the principal. National Bank v. Palma Gil, 55 Phil. 639 (1931); National Bank v. Agudelo, 58 Phil 655 (1933).

A party who signs a bill of exchange as an agent (as the President of the company), but failed to disclose his principal becomes personally liable for the drafts he accepted, even when he did so expressly as an agent. Section 20 of the Negotiable Instruments Law says provides expressly that when an agent signs in an representative capacity, but does not indicate or disclose his principal would incur personal liability on the bill of exchange. Phil. Bank of Commerce v. Aruego, 102 SCRA 530 (1981).

EXCEPTION: When Contract Involves Things Belonging to Principal

Even when the agent has written authority to convey real property on behalf of the principal, nevertheless when the deed of sale was executed by the agent in her own name without showing the capacity in which she acted, although the act was doubtless irregular, the deed operated to bind the principal who had authorized the sale. Jimenez v. Rabot, 38 Phil. 378 (1918).

Where the plaintiffs appointed the defendant to purchase a vessel and giving him money for that purpose, but the agent purchased the boat and placed it in his own name, he has breached his fiduciary obligation and is obliged to transfer the same to the plaintiffs, or the plaintiffs have a right to be subrogated. According to the exception under Art. 1717 of the old Civil Code (when things belonging to the principal are dealt with) the agent is bound to the principal although he does not assume the character of such agent and appears acting in his own name. The money with which the launch was bought having come from the plaintiff, the

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exception established in Art. 1717 is applicable to the instant case. Sy-Juco v. Sy-Juco, 40 Phil. 634 (1920).

Where a co-owner transfers the entirety of the mining claim to the buyer, where the buyer knew that it included the one-half share pro-indiviso of the other co-owner, then the transaction may be considered as one where the disposing co-owner acted as agent of the other co-owner. Consequently, under Article 1883 of the Civil Code, such other co-owner may sue the person with whom the agent dealt with in his (agents) own name, when the transaction involves things belong to the principal. Goldstar v. Lim, 25 SCRA 597 (1968).

When a commission agent enters into a shipping contract in his own name to transport the grains of NFA on a vessel owned by a shipping company, NFA cannot claim it is not liable to the shipping company under Article 1883 when things belong to the principal are dealt with, the agent is bound to the principal although he does not assume the character of such agent and appears acting in his own name. In other words, the agent apparent representation yields to the principals true representation and that, in reality and in effect, the contract must be considered as entered into between the principal and the third person Corollarily, if the principal can be obliged to perform his duties under the contract, then it can also demand the enforcement of its rights arising from the contract. National Food Authority v. IAC, 184 SCRA 166 (1990).

(3) Provisions Are Without Prejudice to Actions Between Principal and Agent [See discussions below on breach by agent of his duty of loyalty]

4. Specific Obligation Rules for Agents

a. No Obligation of Agent to Advance Funds (Art. 1886):

It is Principals obligation to advance the funds, but Principal to pay interest on advances made by Agent from day he advances the money (Art. 1912).

EXCEPT: (1) If Stipulated in the Agency Agreement

(2) Where principal is insolvent (See Art. 1919[3]: Insolvency extinguishes an agency)

b. Agent Should Carry Out Agency in Accordance with Principals Instructions (Art. 1887)

(1) If agent followed instructions, principal cannot set up agents ignorance or circumstance which principal was, or ought to have been, aware of (Art. 1899)

Pursuant to the instructions of the principals, the agent purchased a piece of land in their names and in the sums given to him by the principal, and that after the fact of purchase the principals had ratified the transaction and even received profits arising from the investment in the land, but that eventually a defect in the title to the land arose, the said principals cannot recover their lost investment from the agent. There is nothing in the record which would indicate that the defendant failed to exercise reasonable care and diligence in the performance of his duty as such agent, or that he undertook to guarantee the vendors title to the land purchased by direction of the plaintiffs. Nepomuceno v. Heredia, 7 Phil 563, 566 (1907).

When an agent in executing the orders and commissions of his principal carries out the instructions he has received from his principal, and does not appear to have exceeded his authority or to have acted with negligence, deceit or fraud, he cannot be held responsible for the failure of his principal to accomplish the object of the agency. Agents, although they act in representation of the principal, are not guarantors for the success of the business enterprise they are asked to manage. Guiterrez Hermanos v. Oria Hermanos, 30 Phil. 491 (1915).

c. Obligation Not Carry Out Agency If Execution Would Manifestly Result in Loss or Damage to Principal (Art. 1888)

While it is true that an agent who acts for a revealed principal in the making of a contract does not become personally bound to the other party in the sense that an action can ordinarily be maintained upon such contract directly against the agent, yet that rule does not control when the agent cannot intercept and appropriate the thing which the principal is bound to deliver, and thereby make the performance of the principal impossible. The agent in any event must be precluded from doing any positive act that could prevent performance on the part of his principal, otherwise the agent becomes liable also on the contract. National Bank v. Welsh Fairchild, 44 Phil 780 (1923).

d. DUTY OF LOYALTY: Obligation in a Conflict of Interest Situation (Art. 1889)

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(1) Agent shall be liable to the principal for damages sustained by the latter where in case of conflict of interest situation, and agent preferred his own interest.

(2) Agent prohibited from buying property entrusted to him for administration or sale without principals consent (Art. 1491[2]).

An agent cannot represent both himself and his principal in a transaction involving the shifting to another person of the agents liability for a debt to the principal. Aboitiz v. De Silva, 45 Phil 883 (1924).

The director and general manager of the stock corporation, who also was the majority stockholder, and was designated to be the main negotiator for the company with the Government for the sale of its large tract of land, having special knowledge of commercial information that would increase the value of the shares in relation to the sale of the parcels of land to the Government, can be treated legally as being an agent of the stockholders of the company, with a fiduciary obligation to reveal to the other stockholders such special information before proceeding to purchase from the other stockholders their shares of stock. If such director obtains the purchase of the shares of a stockholder without having disclosed important facts or to render the appropriate report on the expected increase in value of the company, there was fraud committed for which the director shall be liable for the earnings earned against the stockholder on the sale of shares. Strong v. Guiterrez Repide, 41 Phil. 947 (1909).

A confidential employee who, knowing that his principal was negotiating with the owner of some land for the purchase thereof, surreptitiously succeeds in buying it in the name of his wife, commits an act of disloyalty and infidelity to his principal, whereby he becomes liable, among other things, for the damages caused, which meant to transfer the property back to the principal under the terms and conditions offered to the original owner. Sing Juco and Sing Bengco v. Sunyantong and Llorente, 43 Phil 589 (1922).

Where an uncle who was acting as agent or administrator of property belonging to a niece had procured a Torrens title in his own name to said property, he is deemed to be a trustee, and he must surrender the property to the niece and transfer title to her. The relations of an agent to his principal are fiduciary and in regard to the property forming the subject-matter of the agency, he is estopped from acquiring or asserting a title adverse to that of the principal. Consequently, an action in personam will lie against an agent to compel him to return or retransfer to his

principal, or the latters estate, the real property committed to his custody as such agent and also to execute the necessary documents of conveyance to effect such retransfer. Severino v. Severino, 44 Phil. 343 (1923).

e. Rule If Agent Is Empowered to Borrow/Lend Money (Art. 1890)

(1) If empowered to borrow money, he may be the lender at current interest;

(2) If empowered to lend money at interest, he cannot borrow without principals consent.

When power granted to agent was only to borrow money and mortgage principals property to secure the loan, it cannot be interpreted to include the authority to mortgage the properties to support the agents personal loans and use the proceeds thereof for his own benefit. The lender who lends money to the agent knowing that is was for personal purpose and not for the principals account, is a mortgagee in bad faith and cannot foreclose on the mortgage thus constituted for the account of the agent. Hodges v. Salas and Salas, 63 Phil. 567 (1936).

f. Obligation of Agent to Render Account (Art. 1891)

(1) Agent Must Render Account to Principal

An administrator of an estate was made liable under Article 1720 (now Art. 1891) for failure to render an account of his administration to the heirs, unless the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered. Ojinaga v. Estate of Perez, 9 Phil 185 (1907).

As a necessary consequence of such breach of trust, an agent must then forfeit his right to the commission and must return the part of the commission he received from his principal. Domingo v. Domingo, 42 SCRA 131 (1971).

Petitioner was the administrator of respondent's properties for 18 years, and four letters within 18 years can hardly be considered as sufficient to keep the principal informed and updated of the condition and status of the latter's properties. Sazon v. Vasquez-Menancio, G.R. No. 192085, 22 February 2012.

(2) Deliver to Principal Whatever Is Received by Virtue of Agency

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Why include those not due the principal? Because legally, it is the principal who receives them and therefore agent has to account for them

The possession of an agent of the money or property of his principal is termed juridical possession which means a possession which gives the transferee a right over the thing which the transferee may set up even against the owner. Chua-Burce v. Court of Appeals, 331 SCRA 1 (2000). Consequently:

An insurance agent may be convicted of estafa for his failure to deliver sums of money paid to him as an insurance agent for the account of his employer. Where nothing to the contrary appears, the provisions of article 1720 of the Civil Code impose upon an agent the obligation to deliver to his principal all funds collected on his account. U.S. v. Kiene, 7 Phil 736 (1907)

A travelling sales agent who misappropriated or failed to return to his principal the proceeds of the things or goods he was commissioned or authorized to sell, is liable for estafa. Guzman v. Court of Appeals, 99 Phil. 703 (1956).

Whereas, a bank teller or cash custodian, being merely an employee of the bank, cannot be held liable for estafa, but rather for theft. Chua-Burce v. Court of Appeals, 331 SCRA 1 (2000).

The relation of an agent to his principal is fiduciary and it is elementary that in regard to property subject matter of the agency, an agent is estopped from acquiring or asserting a title adverse to that of the principal. His position is analogous to that of a trustee and he cannot, consistently with the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal or cestui que trust. Hernandez v. Hernandez, 645 SCRA 24 (2011).

(3) Obligation Arises and Becomes Demandable at Agencys End

(4) Stipulation Exempting Agent from Obligation to Render an Accounting Is Void

When accounts of the agent to the principal are once approved by the principal, the latter has no right to ask afterwards for a revision of the same or for a detailed account of the business, unless he can show that there was fraud, deceit, error or mistake in the approval of the accountsfacts not proven in this case. Guiterrez Hermanos v. Oria Hermanos, 30 Phil. 491, 505 (1915), quoting from Pastor v. Nicasio, 6 Phil. 152 (1906).

g. Liability of Agent for Interest (Art. 1896)

(1) Agent Is Liable for Interest:

(a) On Sums He Applied to His Own Use (from the Time He Used Them)

(b) On Sums Owing the Principal (from the Time Agency Is Extinguished)

As to the interest imposed in the judgment on the amounts received by the agent which were not turned over to the principal, it is sufficient to cite aarticle 1724 of the Civil Code, which provides that an agent shall be liable for interest upon any sums he may have applied to his own use, from the day on which he did so, and upon those which he still owes, after the expiration of the agency, from the time of his default. Mendezonna v. Vda. De Goitia, 54 Phil 557, 570 (1930).

The successor-in-interest of the principal is not entitled to collect interest from the agent of the father for sums loaned to and collected by the agent from various persons for the deceased principal. In all the aforementioned transactions, the defendant acted in his capacity as attorney-in-fact of the deceased father, and there being no evidence showing that he converted the money entrusted to him to his own use, he is not liable for interest thereon, in accordance with the provisions of Aart. icle 1724 of the Civil Code. De Borja v. De Borja, 58 Phil 811 (1933).

h. DUTY OF DILIGENCE: Agent Liable for Fraud and Negligence (Arts. 1884 and 1909)

(1) What Shall Aggravate or Mitigate Liability Arising Out of Negligence Whether Agency Was for a Compensation or Was Gratuitous

Where the agent by means of misrepresentation of the condition of the market induces his principal to sell to him the property consigned to his custody at a price less than that for which he has already contracted to sell part of it, and who thereafter disposes of the whole at an advance, is liable to principal for the difference. Such conduct on the part of the agent constituted fraud, entitlin