Kim Uy Agency Reviewer

7/27/2019 Kim Uy Agency Reviewer

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Kim Raisa O. UyAteneo Law School 2012

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Title X. - AGENCY

CHAPTER 1

NATURE, FORM AND KINDS OF AGENCY

Art. 1868. By the contract of agency a person binds himself to rendersome service or to do something in representation or on behalf of

another, with the consent or authority of the latter. (1709a)

Art. 1869. Agency may be express, or implied from the acts of the

principal, from his silence or lack of action, or his failure to repudiate

the agency, knowing that another person is acting on his behalf without

authority.

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

Art. 1870. Acceptance by the agent may also be express, or implied

from his acts which carry out the agency, or from his silence or inactionaccording to the circumstances. (n)

Art. 1871. Between persons who are present, the acceptance of the

agency may also be implied if the principal delivers his power of

attorney to the agent and the latter receives it without any objection.

(n)

Art. 1872. Between persons who are absent, the acceptance of the

agency cannot be implied from the silence of the agent, except:

(1) When the principal transmits his power of attorney to theagent, who receives it without any objection;

(2) When the principal entrusts to him by letter or telegram a

power of attorney with respect to the business in which he is

habitually engaged as an agent, and he did not reply to the

letter or telegram. (n)

Art. 1873. If a person specially informs another or states by public

advertisement that he has given a power of attorney to a third person,

the latter thereby becomes a duly authorized agent, in the former case

with respect to the person who received the special information, and in

the latter case with regard to any person.

The power shall continue to be in full force until the notice is rescinded

in the same manner in which it was given. (n)

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

through an agent, the authority of the latter shall be in writing;

otherwise, the sale shall be void. (n)

Art. 1875. Agency is presumed to be for a compensation, unless there is

proof to the contrary.

Gratuitous agent

- A person who agrees to act as an agent without compensation- Principal is liable for the torts of the gratuitous agent

Liability of principal to pay compensation:

- The principal must pay the agent the compensation agreed upon, orthe reasonable value of the agents services if no compen sation

was specified

- The liability of the principal to pay commission presupposes thatthe agent has complied with his obligation as such to the principal

Rule: the agent must prove that he was the guiding case for the transaction

or the procuring case, depending upon the facts of the particular case;

otherwise, he is not entitled to the stipulated brokers commission

General Rule: a broker or agent is not entitled to any commission until he

has successfully done the job given to him, especially where his authority

had already expired:

Exception:- The broker had diligently taken steps to bring back together the

owner and the buyer, which finalized and consummated thetransaction after the expiration of his exclusive authority

- If the broker is the sufficient procuring cause in bring the saleExclusive Sales Agency Agreement


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employment in which

he is engaged

particular instructions

or with restrictions

necessarily implied

from the act to be done

Continuous nature of

service authorized

Authorized to conduct

a series of transactionsinvolving a continuity

of service (no

discretion)

Single transaction or a

series of transactionsnot involving

continuity of service

(with discretion)

Extent to which agent

may bind principal

By an act within the

scope of his authority

although it may becontrary to his special

instructions

Cannot bind his

principal in a manner

beyond or outside thespecific acts which he

is authorized toperform on behalf of

the principal

Continuing and

unrestricted bylimitations other than

those which confine

the authority within the

bounds

Temporary and

naturally suggestslimitations of power of

which third persons

must inform

themselves

Termination of

authority

Does not terminate by

mere revocation of his

authority without

notice to the third party

The duty imposed upon

the third party to

inquire makes

termination of the

relationship as between

the principal and agent

effective as such third

party unless the agencyhas been entrusted for

the purpose of

contracting with such

third party

Construction of

instructions of

principal

Statement by the

principal with respect

to formers authority

would be regarded as

advisory in nature

They would be

regarded as words

limiting the authority

of the agent

Art. 1877. An agency couched in general terms comprises only acts of

administration, even if the principal should state that he withholds no

power or that the agent may execute such acts as he may consider

appropriate, or even though the agency should authorize a general and

unlimited management.

Extent of the power conferred:

1. general terms- only acts of administration may be deemed granted2. specific terms- agent may execute the act

Agency couched in general terms:

1. general agency2. special agency

It includes only acts of administration and an express power is necessary to

perform any act of strict ownership, even if the principal states that:1. he withholds no power2. the agent may execute such acts as he may consider appropriate3. he authorizes a general or unlimited management

Acts of Administration

- those which do not imply the authority to alienate for the exerciseof which an express power is necessary

- question of fact (rather than law)- sound management will sometimes require the performance of an

act of ownership

Construction of contracts of agency:- must be interpreted in accordance with the language used by theparties

- the intent is to be determined form the language used and gatheredfrom the whole instrument

- in case of doubt, resort must be had to the situation, surroundingsand relation of the parties

- intention of the parties must be sustained, rather than defeated- presumption: acts are done in good faith and in conformity to the

intent of the contract


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

cases:

(1) To make such payments as are not usually considered as

acts of administration;

(2) To effect novations which put an end to obligations already

in existence at the time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to

renounce the right to appeal from a judgment, to waive

objections to the venue of an action or to abandon a

prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of animmovable is transmitted or acquired either gratuitously or for

a valuable consideration;

(6) To make gifts, except customary ones for charity or those

made to employees in the business managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent

and indispensable for the preservation of the things which are

under administration;

(8) To lease any real property to another person for more than

one year;

(9) To bind the principal to render some service without

compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

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

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the

agency;

(15) Any other act of strict dominion.

general acts of strict dominion or ownershipa special power of attorney is necessary for their execution through

an agent

Power of Attorney

construed strictly

act done must be legally identical with that authorized to be done

notary public and writing is not a must

can be included in the general power

1. Payment- The delivery of money or the performance in any other manner of

an obligation

2. Novation- The extinction of an obligation through the creation of a new one

which substitutes it by changing the object or principal conditions

thereof, substituting a debtor, or subrogating another in the right of

the creditor

- The obligations must already be in existence at the time the agencywas constituted

3. Compromise- A contract whereby the parties, by making reciprocal concessions,

avoid litigation or put to an end to one already commenced- Arbitrationwhere the parties submit their controversies to one or

more arbitrators for decision

- Confession of Judgment stands on the same footing ascompromise of causes; a counsel may not confess judgment except

with the knowledge and at the instance of the credit

4. To waive an obligation gratuitously- Condonation or remission- The agent cannot waive a right belonging to the principal without

valuable consideration or even for a nominal consideration

5. To convey or acquire immovable


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- Applies to gratuitous or onerous contracts- Refer to sales made by an agent for a principal6. To make gifts (donation)- An act of liberality whereby a person disposes gratuitously of a

thing or right in favor of another who accepts it

7.

To loan or BORROW money- Loan of money the borrower is bound to pay to the creditor anequal amount of the same kind an quality

- An agent may be empowered to borrow money8. To lease realty for more than one year- Lease of things the lessor gives to the lessee the enjoyment or

use of a thing for a price certain, and for a period which may be

definite or indefinite

9. To bind the principal to render service gratuitously10. To bind the principal in a contract of partnership- The partners bind themselves to contribute money, property, or

industry to a common fund with the intention of dividing the

profits among themselves

11. To obligate the principal as guarantor or surety- Contract of guaranty the guarantor binds himself to fulfil the

obligation of the principal debtor in case the latter should fail to do

so (must be in writing, if not, it is unenforceable)

- Suretyshipthe person binds himself solidarily, he is a surety12. To create or convey real rights over immovable property- Act of strict ownership13. To accept or repudiate inheritance- One of strict dominion14. To ratify obligations contracted before the agency15. Any other act of strict dominion- A sale of purchase of personal property

Art. 1879. A special power to sell excludes the power to mortgage; and

a special power to mortgage does not include the power to sell.

- In the absence of special authority, the sale or mortgage will beunenforceable against the principal as the agent has acted beyond

his powers- The sale by a special power to mortgage in this article is a

voluntary and independent contract (not extrajudicial foreclosure)

- The power of attorney to sell any kind of realty belonging andmight belong to the principal covers not only the property

belonging to him at the time of the execution of the power, but also

such as he might afterwards have during the time it is in force

Contract giving agent exclusive authority to sell- The principal may endeavour to sell though his own efforts- Effect: giving the gent an exclusive territory which the principal

may not invade to make sales

Contract giving agent exclusive authority of sale

- The owner shall employ no other agent and that the broker shallhave the only grant of power to sell that the owner will execute

- Inhibition upon the owner to grant to any one else the power to sellArt. 1880. A special power to compromise does not authorize

submission to arbitration.

Scope of special power to compromise/to submit to arbitration- The authority of the agent to compromise or make settlements of

claims or account for the principal includes by implication the

power to do whatever things are usual and necessary which the

principal himself can do to effectuate such compromise or

settlement

- He is not authorized to submit to arbitration because whileprincipal may have confidence in the agents judgment, the

arbitrator designated may not possess the trust of the principal

Art. 1881. The agent must act within the scope of his authority. He may

do such acts as may be conducive to the accomplishment of the purpose

of the agency.

Art. 1882. The limits of the agent's authority shall not be considered

exceeded should it have been performed in a manner more

advantageous to the principal than that specified by him.

Authority

- The power of the agent to affect the legal relations of the principalby acts done in accordance with the principals manifestation of

consent to him (authority to act for the benefit of the principal)


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Authority Power

As to existence The source or cause The effect

As to scope If it is not in violation

of his duty to the

principal (has thepower to bind the

principal)

If he has the legal

ability to bind the

principal to a thirdperson although the act

constituted a violation

of his duty to the

principal

Kinds of Authority:

1. Actual- When it is actually granted- May be express or implied- Results from what the principal indicates to the agent2. Express-

When it is directly conferred by words3. Implied- When it is incidental to the transaction or reasonably necessary to

accomplish the purpose of the agency and the principal is deemed

to have actually intended the agent to possess

4. Apparent or ostensible- When it is conferred by words, conduct or even by silence of the

principal which cause a third person to believe that a person has

actual authority to act for the principal

- Authority by estoppels ( implied authority)5. General- When it refers to all the business of the principal6.

Special- When it is limited only to one or more specific transaction

7. Authority by necessity or by operation of law- When it is demanded by virtue of the existence of an emergency- It terminates when he agency has passed

Requisites that the principal may be bound by the act of the agent as to third

persons and as to the agent himself:

1. The agent must act within the scope of his authority2. The agent must act in behalf of the pr incipal

The principal is bound by either actual or apparent authority of the agent

- Regardless of the third persons belief that the agent has actualauthority or not

A person is not bound by the act of another in the following instances:

1.

The latter acts without or beyond the scope of his authority in theformers name

2. The latter acts without or beyond the scope of his authority but inhis own name, except when the transaction involves things

belonging to the principal

Unenforceable

- If the agent acts without authority or in excess or beyond the scopeof his authority, there is no representation

- Can be ratifiedEvident Equity

- Where acts in excess of authority more advantageous to principalQualifications whereby the principal is held liable when the agent acts

beyond his limited powers:

1. Where the principals acts have contributed to deceive a thirdperson in good faith

2. Where the limitations upon the power created by him could nothave been known by the third person

3. Where the principal has placed in the hands of the agentinstruments signed by him in blank

4. Where the principal has ratified the acts of the agentArt. 1883. If an agent acts in his own name, the principal has no rightof action against the persons with whom the agent has contracted;

neither have such persons against the principal.

In such case the agent is the one directly bound in favor of the person

with whom he has contracted, as if the transaction were his own, except

when the contract involves things belonging to the principal.

The provisions of this article shall be understood to be without

prejudice to the actions between the principal and agent.


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Kinds of Principal

Disclosed principal If at the time of the transaction

contracted by the agent, the other

party thereto has known that the

agent is acting for a principal and ofthe principals identity

Partially disclosed principal If the other party knows or has

reason to know that the agent is or

may be acting for a principal but is

unaware of the principals identity

Undisclosed principal If the party has no notice of the fact

that the agent is acting as such for a

principal

General Rule

- The agent is the one direct ly liable to the person with whom he hadcontracted as if the transaction were his own

- Reason: there is no representation of the principal when the agentacts in his own name

Exception

- When the contract involves things belonging to the principal- The agents 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

personRemedy of principal

- Principals right to demand from the agent damages for his failureto comply with the agency

Remedy of Third persons

- Third person has a right of action against the principal and theagent, when the rights and obligations which are the subject-matter

of the litigation cannot be legally and juridically determined

without hearing both of them

CHAPTER 2

OBLIGATIONS OF THE AGENT

Art. 1884. The agent is bound by his acceptance to carry out the

agency, and is liable for the damages which, through his non-

performance, the principal may suffer.

He must also finish the business already begun on the death of the

principal, should delay entail any danger.

Ratio: fiduciary relationship

Presumption

- An agent has performed his duty in good faith, and the principal,until notice is received of a breach of relational duties, may rely

upon his agents faithfulness

General rule as to loyalty when not applicable

- The agent is bound merely as an instrument, more properly as aservant, to perform a service, or where there is no showing of an

agency relationship

Obedience to principals instruction

- An agent must obey all lawful orders and instructions of theprincipal within the scope of the agency. If he fails to do so, hebecomes liable for any loss the principal incurs even though he can

show that he acted in good faith or reasonableness

- An agent is not liable if he violates the principals instruction for agood reason

- If he is in doubt, he should ask the principal for clarificationExercise of reasonable care

- Agent must exercise reasonable case, skill and diligence- Take the usual precautions

Specific obligations of agent to principal

1. To carry out the agency which he has accepted2. To answer for damages which through his performance theprincipal may suffer

3. To finish the business already begun on the death of the principalshould delay entail any danger

4. To observe the diligence of a good father of a family in the custodyand preservation of the goods forwarded to him by the owner in

case he declines an agency, until an agent is appointed

5. To advance the necessary funds should there be a stipulation to doso


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6. To act in accordance with the instructions of the principal, and indefault thereof, to do all that a good father of a family would do

7. Not to carry out the agency if its execut ion would manifestly resultin loss or damage to the principal

8. To answer for damages if there being a conflict between hisinterests and those of the principal, he should prefer his own9. Not to loan to himself if he has been authorized to lend money atinterest

10. To render an account of his transactions and to deliver to theprincipal whatever he may have received by virtue of the agency

11. To distinguish goods by countermarks and designate themerchandise respectively belonging to each principal, in the case

of a commission agent, who handles goods of the same kind and

mark, which belong to different owners

12. To be responsible in certain cases for the acts of the substituteappointed by him

13. To pay interest on funds he has applied to his own use14. To inform the principal, where an authorized sale of credit has

been made, of such sale15. To bear the risk of collection, should he receive also on a sale, a

guarantee commission

16. To indemnify the principal for damages for his failure to collectthe credits of his principal at the t ime they become due

17. To be responsible for fraud or negligenceN.B. the damages which the principal is entitled are those which result from

the agents non-performance. The principal must prove his damages and theamount thereof

Obligation to finish business upon principals death

- Although the death of the principal extinguishes the agency, theagent has an obligation to conclude the business already begun on

the death of the principal = principles of equity

- BUT the duty exists only should delay entail any danger- Agency shall remain if the common interest of the principal and

agency, or in the interest of a third person who has accepted the

stipulation in his favor- Power of attorneythe agent should deliver the amount collected

to the estate of the principal

Art. 1885. In case a person declines an agency, he is bound to observe

the diligence of a good father of a family in the 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.

Ratio: Equity

Owner must act as soon as practicable either by:

1. By appointing an agent2. By taking charge of the goods

Art. 1886. Should there be a stipulation that the agent shall advance the

necessary funds, he shall be bound to do so except when the principal is

insolvent.

Rule:

The principal must advance to the agent, should the latter so

request, the sums necessary for the execution of the agency

Exception:

Based on the principals obligation to reimburse the agent (the

insolvency of the principal is a ground for extinguishment of agency)

N.B. there are cases when the principal is not liable for the expenses

incurred by the agent (Art. 1918)

Art. 1887. In the execution of the agency, the agent shall act in

accordance with the instructions of the principal.

In default thereof, he shall do all that a good father of a family would

do, as required by the nature of the business.

Instructions

- Private directions which the principal may give the agent in regardto the manner of performing his duties as such agent

Authority Instructions

The sum total of the powers

committed or permitted to the agent

Direct the manner of transacting the

authorized business and


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by the principal, may be limited in

scope and such limitations are

themselves a part of the authority

contemplates only a private rule of

guidance to the agent and are

independent and distinct in character

Relates to the subject with which the

agent is empowered to deal or the

kind of business or transactionsupon which he is empowered to act

Manner or mode of his action with

respect to matters which in their

substance are within the scope ofpermitted action

Limitations of authority are

operative as against those who have

or are charged with knowledge of

them

Without significance as against

those dealing with the agent with

neither knowledge nor notice of

them

Contemplated to be made known to

the third person dealing with agent

Not expected to be made known to

those with whom the agent deals

Effect of Violation of pr incipals instructions:

- If an act done by an agent is within the apparent scope of theauthority with which he has been clothed, it matter not that it is

directly contrary to the instructions of the principal- The principal will be liable unless the third person with whom theagent dealt knew that he was exceeding his authority or violating

his instructions

- Third persons dealing with an agent do so at their peril and arebound to inquire as to the extent of his authority but they are not

required to investigate the instructions of the principal

- The principal after clothing an agent with apparent powers, cannot,by means of private communications with the agent, limit the

authority which he allows the agent to assume

Obligation of the agent to act in accordance with principals instructions:

1.

Duty to obey reasonable and lawful instructions2. Liable for loss or damage3. Duty to act in good faith and with due care4. Exemption from liability for failure of undertaking (does not

guarantee the principal against incidental losses)

5. The agent may disobey the principals instruction where it calls forthe performance of illegal acts, or where he is privileged to do so

to protect his security interest in the subject matter of the agency

When departure from principals instruction justified:

1. Sudden emergencySome unexpected emergency or unforeseen event occurs

which will admit no delay for communication with the

principal, the agent is justified in adopting the course

which seems best to him under the circumstances2. Ambiguous instructionsThe agent will not be liable if he chooses reasonably one

of two possible interpretations

3. Insubstantial departureAn agent may not be said to have breached the agency

contract by reason of an insubstantial departure from the

principals instructions, which does not affect the result

Art. 1888. An agent shall not carry out an agency if its execution would

manifestly result in loss or damage to the principal.

When agent shall not carry out agency the agent is not bound in all cases to carry out the agency in

accordance with the instructions of the principal

the agent must not carry out the agency if its execution wouldmanifestly result in loss or damage to the principal

Reason

to render service for the benefit of the principal and not to act tohis detriment

an agent must exercise due diligence in carrying out the agencyArt. 1889. The agent shall be liable for damages if, there being a

conflict between his interests and those of the principal, he should

prefer his own.

Reason: agency being a fiduciary relation, the agent is required to observe

utmost good faith and loyalty towards his principal. He must look after the

principals interest as if they were his own (the rule is the same whether the

agency is onerous or gratuitous)

Basis: to shut the door against temptation and keep the agents eye single to

the rights and welfare of his principal (preventive, not remedial justice)


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the principal may waive the benefit of the rule so far as he isconcerned, if he does so with full knowledge of the facts; but in the

absence of such waiver, the rule is absolute

where the agents interest are superior, such as where he has asecurity interest in goods of the principal in his possession, he may

protect this interest even if in so doing he disobeys the principalsorders or injuries his interest

if the conflict resulted from his breach of a duty owed to theprincipal the agent cannot prefer his own interest

Art. 1890. If the agent has been empowered to borrow money, he may

himself be the lender at the current rate of interest. If he has been

authorized to lend money at interest, he cannot borrow it without the

consent of the principal.

The agent cannot, without special power of attorney, loan or borrow money

1. If he has been expressly empowered to borrow moneyhe may himself be the lender at the current rate of interestfor there is no danger of the principal suffering any

damage since the current rate of interest would have to be

paid in any case if the loan were obtained from a third

person

2. Agent has been authorized to lend money at interesthe cannot be the borrower without the consent of the

principal because the agent may prove to be a bad debtor

possible conflict of interest

transaction may thus be prejudicial to the principal

Art. 1891. Every agent is bound to render an account of his

transactions and to deliver to the principal whatever he may havereceived by virtue of the agency, even though it may not be owing to the

principal.

Every stipulation exempting the agent from the obligation to render an

account shall be void.

Obligation to render accounts

It is the duty of the agent to account for and to deliver to the

principal all money and property which may have come into his hands or of

a sub-agent appointed by him by virtue of or as a result of the agency

1. fruit of agency2.

secret profitbonus, gratuity or personal benefit from the vendee

even if the principal does not suffer any injury by reason

of such breach of fidelity, or that he obtained better

results

Stipulation in par. 2

contrary to public policy would encourage fraud in the nature of a waiver of an act ion for future fraud which is void

Liability for conversion

if the agent fails to deliver and instead converts or appropriates forhis own use the money or property belonging to the principal, the

agent is liable for estafa

When obligation to account not applicable

1. middleman2. if the agent or broker had informed the principal of the gift or

bonus or profit he received from the purchaser and his principal

did not object thereto i.e. pledge and lawyers

Obligation to turn over proceeds of agency

the obligation imposed upon the agent to render an accounting andreport of his collections, presupposes the duty of simultaneouslyturning over his collections

Report

statement of collectionsAccounting

settling of accounts of administration or agency*the agent must account for the very property or funds he has received for

his principal

Art. 1892. The agent may appoint a substitute if the principal has not

prohibited him from doing so; but he shall be responsible for the acts of

the substitute:

(1) When he was not given the power to appoint one;


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(2) When he was given such power, but without designating the

person, and the person appointed was notoriously incompetent

or insolvent.

All acts of the substitute appointed against the prohibition of the

principal shall be void.

Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding

article, the principal may furthermore bring an action against the

substitute with respect to the obligations which the latter has

contracted under the substitution.

Sub-agent

a person to whom the agent delegates, as his agent, theperformance of an act for the pr incipal which the agent has been

empowered to perform through his representat ive

Power of agent to appoint sub-agent or substitute

unless prohibited by the principal, the agent may appoint a sub-agent or substitute

the agent in this situation is a principal with respect to thesubstitute

Ratio: convenience and practical utility The principal has a right of action to the sub-agent This right of action is an exception to the general rule that

contracts are binding only between the contracting parties, their

assigns and heirs

Relation among the principal, agent and sub-agent

1. Sub-agent appointed by agent on latters sole account Sub-agent is a stranger to the principal

2. Sub-agent appointed by agent with authority from principal Any act done by the substitute or sub-agent in behalf o the

principal is deemed an act of the principal

Neither the agent nor the substitute can be held personallyliable so long as they act within the scope of their

authority

3. Effect of death o f principal/agent If the authority of the sub-agent proceeds from the

principal, the death of the agent who appointed him does

not affect his uthority

Where the sub-agent is a substitute for the agent and actsunder authority from him and to whom he is accountable,

the death of the agent terminates his authority even

though the power of substitution is given in the original

power

Effect of Substitution:

1. When the substitute is appointed by the agent against the expressprohibition of the principal, the agent exceeds the limits of his

authority

2. If the agent is given the power to appoint a substitute and theprincipal did not designate any particular person to be appointed,

the substitution has the effect of releasing the agent from his

responsibility unless the person appointed is notoriously

incompetent or insolvent

3. If the substitute is the person designated by the principal, theconsequence is the absolute exemption of the agent

4. If the agent appoints a substitute when he was not given the powerto appoint one, the law recognizes the validity of the substitution if

the same is beneficial to the principal because the agency has beenexecuted in fulfilment of its object. If the substitution has

occasioned damage to the principal, the agent shall be primarily

responsible for the acts of the substitute as if he himself executed

them. The principal has also a right of act ion against the substitute

Art. 1894. The responsibility of two or more agents, even though they

have been appointed simultaneously, is not solidary, if solidarity has

not been expressly stipulated.

Art. 1895. If solidarity has been agreed upon, each of the agents is

responsible for the non-fulfillment of agency, and for the fault ornegligence of his fellows agents, except in the latter case when the fellow

agents acted beyond the scope of their authority.

Nature and liability of 2 or more agents to their principal:

1. Joint obligationeach debtor is liable only for a proportionate partof the debt

2. Solidaryeach debtor is liable for the entire obligationPresumption: JOINT


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If solidarity has been agreed upon, each of the agents becomes solidarily

liable:

1. For the non-fulfillment of the agency even though in this case, thefellow agents acted beyond the scope of their authority

2. For the fault or negligence of his fellow agents provided the latteracted within the scope of their authority

- An INNOCENT agent has a right later on to recover from theguilty or negligent agent

- An agent who exceeds his powers does not act as such agent,therefore, the principal assumed no liability to third persons. Since

this is so, solidary liability cannot be demanded by the principal

Art. 1896. The agent owes interest on the sums he has applied to his

own use from the day on which he did so, and on those which he still

owes after the extinguishment of the agency.

Liability of agent for interestI. Sums belonging to the principal which the agent applied to his

own use

Agent is liable for interest by way of compensation orindemnity which shall be computed from the day on

which he did so

II. Sums which the agent still owes the principal after theexpiration of the agency

Agent is liable for interest from the date the agency isextinguished

DEMAND is NOT necessary for payment be made in order that delay shall

exist

Art. 1897. The agent who acts as such is not personally liable to the

party with whom he contracts, unless he expressly binds himself or

exceeds the limits of his authority without giving such party sufficient

notice of his powers.

Rule: the principal is responsible for the acts of the agent done within the

scope of his authority and should bear any damage caused to third persons

Duties and liabilities of agent to third persons:

The duties of an agent to third persons and his correspondingliabilities must be considered with reference to the character of his

act as to whether it is authorized or unauthorized, and also with

reference to the nature of liability which is sought to assert as

being in contract or in to rt. The agent is liable to third persons for

his torts which result in an injury to the third person

Unauthorized assumption of agency One who unauthorizedly assumes to act for another is

guilty of a wrong, and is liable for the damage to those

dealing with hi in reliance on his assumed authority in

that they are deprived of the benefit of the responsibility

of the principal

If no damages have been sustained, no liability for theagents false assumption of authority exists

Nature of liability A purported agent will be held personally liable as

principal on a contract executed without authority if the

contract contains apt words to bind him personally, or if

such was the intention of the parties

In the absence of an apt expression or intention, the natureof his liability is the subject of some divergence injudicial opinion

Tort cases If tort is committed by the agent within the scope of his

authority, BOTH the principal and the agent are liable

Where duty violated owed solely to principal An agent is liable to third persons for injury resulting

from his misfeasance or malfeasance, the breach of a duty

owed to third persons generally independent of theparticular duties imposed by is agency

An agent is not responsible to third persons for injuryresulting from nonfeasance, the omission of the agent to

perform a duty owed solely to his principal by reason of

his agency

A suit against an agent cannot, without compelling reasons, be considered a

suit against the principal


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When agent may incur personal liability:

1. When the agent expressly binds himself, he thereby obligateshimself personally and by his own act

2. When the agent exceeds his authority, he really acts withoutauthority and, therefore, the contract is unenforceable against the

principal unless the latter ratifies the act

3. When an agent by his act prevents performance on the part of theprincipal, he can be held liable to third persons

4. When a person acts as an agent without authority or without aprincipal, he is himself regarded as a principal, possessed of all the

rights and subject to all the liabilities of a principal

5. A person who purports to act as agent of an incapacitated principalalso incurs personal liability unless the third party was aware o f the

incapacity at the time of making the contract

Instances in which a third party subjects himself to liability at the hands of

an agent:

1. Where the agent contracts in his own name for an undisclosedprincipal, in which case, the agent may sue the third party toenforce the contract

2. Where the agent possesses a beneficial interest in the subjectmatter of the agency

3. Where the agent pays money of his principal to a third party bymistake or under a contract which proves subsequently to be

illegal, the agent being ignorant with respect to its illegal nature

4. Where the third party commits tort against the agent. (an agentmay sue for a tort committed against him, even though the allegedtortuous act is also wrong against the principal)

Art. 1898. If the agent contracts in the name of the principal, exceedingthe scope of his authority, and the principal does not ratify the

contract, it shall be void if the party with whom the agent contracted is

aware of the limits of the powers granted by the principal. In this case,

however, the agent is liable if he undertook to secure the principal's

ratification.

Effect where third person aware of limits of agents powers

A contract entered into by one who has acted beyond his powersshall be UNENFORCEABLE refers to the unenforceablity of the

contract against the principal, and does not apply where the action

is against the agent himself for contracting in excess of the limits

of his authority

The agent is not bound nor liable for damages in case he gavenotice of his powers to the person with whom he has contracted

nor in case such person is aware of the limits of the powers granted

by the principal

The effect is to make the contract, which is UNENFORCEABLEas against the principal, VOID even as between the agent and the

third person, and not legally binding as between them

If the agent promised or undertook to secure the principalsratification and failed, he is personally liable. If the ratification is

obtained, then the principal becomes liable

Art. 1899. If a duly authorized agent acts in accordance with the orders

of the principal, the latter cannot set up the ignorance of the agent as to

circumstances whereof he himself was, or ought to have been, aware.

Effect of ignorance of agent Liability of the principal towards third persons If the principal appoints wan agent who is ignorant, the fault is his

alone

Equity demands that the principal should be bound by the acts ofhis agent

Art. 1900. So far as third persons are concerned, an act is deemed to

have been performed within the scope of the agent's authority, if such

act is within the terms of the power of attorney, as written, even if the

agent has in fact exceeded the limits of his authority according to an

understanding between the principal and the agent.

Scope agents authority includes not only the actual authorization conferred

upon the agent by his principal, but also that which has apparently or

impliedly been delegated to him

Every person dealing with an assumed agent is put upon an inquiry andmust discover upon his peril, if he would hold the principal liable, not only

the fact of the agency but the nature and extent o f authority of the agent


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In case the fact of agency or the extent of the authority of the agent is

controverted, the burden of proof is upon the third person to establish it

If the authority of the agent is in writing, such person is not required to

inquire further than the terms of the written power of atto rney.

- As far as he is concerned, an act of the agent within the terms ofthe power of attorney as written is within the scope of the agents

authority, although the agent has in fact exceeded the limits of his

actual authority according to the secret understanding between him

and the principal

- The principal is stopped from claiming that the agent exceeded hisauthority

- Ratio: To protect the interest of third personsMethod of broadening and restricting agents authority:

1. By implication Agents authority extends to acts and transactions

incidental thereto

Ratio: manifest intention of the party creating suchauthority and is in furtherance of such intention

2. By usage and customa. An agents authorization may not, however, be enlarged

through usage and custom in the following 4 classes of cases:

i. Where it is sought to vary the terms of an expressauthorization

ii. Where it is sought thereby to dispense with a legalrequirement enacted for the principals benefit

iii. Where it is sought thereby to change a rule of law orto dispense with formality required by law

iv. Where it is sought to vary an essential quality of theagency relationship

b. General Rule: the principal must have notice of the allegedcustom before the agents acts may bind the principal/ But in 2

main type of cases, a principal is deemed to have notice of a

given usage, even though he did not in fact have such notice:i. Where the principal and the agent reside in the same

community, the usage is definite and well known,and the agent has no notice that he is to act to the

contrary

ii. Where the agent is authorized to deal in a particularplace or in a particular market or exchange

3. By necessity What is created is additional authority in an agent

appointed and authorized before the emergency arose

The existence of an emergency or other unusualconditions may operate to invest in an agent authority to

meet the emergency, provided:

i. The emergency really existsii. The agent is unable to communicate with the

principal

iii. The agents enlarged authority is exercised forthe principals protection

iv. The means adopted are reasonable under thecircumstances

4. By certain doctrinesa. Apparent authorityb. Liability by estoppelsc. Ratification are additional methods by which authorization

may be created

5. By the rule of ejusdem generis Of the same kind or species A method for stating the rule that where, in an instrument

of any kind, an enumeration of specific matters is

followed by a general phrase, the general phrase is held to

be limited ins cope by the specific matters

Responsibility of principal where agent acted with improper motives

General Rule: the motive of the agent in entering into a contract with a

third person is immaterial. Where a written authority given to an agent

covers the thing done by him on behalf of the principal, it is not competentto the court to look into the mind of the agent, and if he has applied his

authority for his own ends, to hold that the principal is not bound

Exceptions:i. Where the third person knew that the agent was acting for his

private benefit.ii. Where the owner is seeking recovery of personal property of

which he has been lawfully deprived


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Art. 1901. A third person cannot set up the fact that the agent has

exceeded his powers, if the principal has ratified, or has signified his

willingness to ratify the agent's acts.

- The ratification shall have retroactive effect. It relates back to thetime of the act or contract ratified and is equivalent to originalauthority

- There must be knowledge on the part of the principal of the thingshe is going to ratify

- A principal may not accept the benefits of a transaction andrepudiate its burdens (deemed ratified upon the acceptance of

benefits)

Art. 1902. A third person with whom the agent wishes to contract on

behalf of the principal may require the presentation of the power of

attorney, or the instructions as regards the agency. Private or secret

orders and instructions of the principal do not prejudice third persons

who have relied upon the power of attorney or instructions shownthem.

Rule: a third person deals with an agent at his peril

- Ignorance of the agent is no excuse- It is his duty to require the agent to produce his power of attorney

to ascertain the scope of his authority

- He may also ask for the instructions of the principal, but he is NOTBOUND and CANNOT BE AFFECTED by the private or secret

orders and instructions of the principal in the same way he cannot

be prejudiced by any understanding between the pr incipal and the

agent

- Such secret orders cannot be invoked as against third parties of heagent has apparent authorityArt. 1903. The commission agent shall be responsible for the goods

received by him in the terms and conditions and as described in the

consignment, unless upon receiving them he should make a written

statement of the damage and deterioration suffered by the same.

Factor or commission agent

- One whose business is to receive and sell goods for a commission(Factorage) and who is entrusted by the principal with the

possession of goods to be sold, and usually selling in his own

name. He may act in his own name or in that of the principal

- NOTE: the commission agent must be in POSSESSION of thegoods

Liability of commission agent as to goods received

- Quality, quantity, and physical conditions of the goodsTo avoid liability

- Make a written statement of the damage or deterioration if thegoods received by him do not agree with the description in the

consignment

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

and mark, which belong to different owners, shall distinguish them by

countermarks, and designate the merchandise respectively belonging to

each principal.

Purpose: to prevent any possible confusion or deception. He may not

commingle the goods without authority

Ratio: the agent must hold the property only in his own name. Where he

violated that duty by mingling the property with his own, he becomes a

debtor of the principal and liable to him for any losses suffered as a resu lt of

the mingling

2 Exceptions:

1. By custom, some agents, (such as auctioneers), normally arepermitted to mingle their principals property with their own

2. Some agents (such as collecting banks) are permitted to mingle thefunds of their principal (depositor) with their own and the property

of other principals

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

consent of the principal, sell on credit. Should he do so, the principal

may demand from him payment in cash, but the commission agent

shall be entitled to any interest or benefit, which may result from such

sale.


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If an agent sell on credit without the authority, the principal is given 2

alternatives:

1. He may require the payment in cash, in which case, any interest orbenefit from the sale on credit shall belong to the agent since the

principal cannot be allowed to enrich himself at the agents

expense

2. He may ratify the sale on credit in which case it will have all therisks and advantages to him

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

principal, sell on credit, he shall so inform the principal, with a

statement of the names of the buyers. Should he fail to do so, the sale

shall be deemed to have been made for cash insofar as the principal is

concerned.

Purpose

- To prevent the agent from stating that the sale was on credit whenin fact it was made for cash

N.B. the agent shall be entitled to the benefits arising from the cred it sale.

The principal may also choose to ratify the sale on credit with all its

resulting benefits and risks

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

the ordinary commission, another called a guarantee commission, he

shall bear the risk of collection and shall pay the principal the proceeds

of the sale on the same terms agreed upon with the purchaser.

Guarantee Comission

- Del credere commission- One where, in consideration of an increased commission, the factor

or commission agent guaranteed to the principal the payment of

debts arising through his agency

- Purpose: to compensate the agent for the risks he will have to bearin the collection of the credit due to the principal

- N.B. applies to both cash and credit saleDel credere agent

- An agent who receives a guarantee commission

Nature of liability of a del credere agent

- Agent with a del credere commission is liable to the principal if thebuyer fails to pay or incapable of paying (he is not primarily the

debtor)

- The principal may sure the buyer in his own name notwithstandingthe del credere commission, so that the latter amounts to no more

than a guaranty

- The liability of the del credere agent is a contingent pecuniaryliabilityto make good in the event the buyer fails to pay the sum

due. It does not extend to other obligations of the contract such as

damages for failure of the buyer to accept and pay for the goods

- A del credere agent may sue in his name for the purchase price inthe vent of non-performance by the buyer

Art. 1908. The commission agent who does not collect the credits of his

principal at the time when they become due and demandable shall be

liable for damages, unless he proves that he exercised due diligence for

that purpose

When the agent is not liable, the principals remedy is to proceeds against

the debtor

This article does not apply to a case where there is a guarantee commission

Art. 1909. The agent is responsible not only for fraud, but also for

negligence, which shall be judged with more or less rigor by the courts,

according to whether the agency was or was not for a compensation.

Agent is liable in the following circumstances:

- He does not discharge the agency with due promptness oraccording to the instructions of the principal

- Within the limits of his authority- When he does not make use of the powers conferred on him

CHAPTER 3

OBLIGATIONS OF THE PRINCIPAL

Art. 1910. The principal must comply with all the obligations which the

agent may have contracted within the scope of his authority.


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As for any obligation wherein the agent has exceeded his power, the

principal is not bound except when he ratifies it expressly or tacitly.

The contract creating the agency normally defines the specific obligations

or duties of the principal to an agent. In the absence of express agreement,

the law imposes upon the principal certain obligation to his agent, amongwhich are:

1. To comply with all the obligations which the agent may havecontracted within the scope of his authority and in the name of the

principal

2. To advance to the agent, should the latter so request, the sumsnecessary for the execution of the agency

3. To reimburse the agent for all advances made by him, provided theagent is free from fault

4. To indemnify the agent for all the damages which the execution ofthe agency may have caused the latter without fault or negligence

on his part

5.

To pay the agent the compensation agreed upon, or if nocompensation was specified, the reasonable value of the agents

services

Note: A third person may waive his claim against the principal

Agency from Necessity

- Emergency occurs and an employee or an agent is unable to get intouch with is employer

- The authority is limited to the necessity and ceases to exist whenthe emergency has passed

Liability of third persons to the principal

An agent is the instrumentality of the principal whose primary

design is to obtain rights against third parties. The principals right are the

third parties liabilities

1. In contract A third person is liable to the principal upon contract

entered into by his agent, in the same manner as through

the contract were entered into by the principal himself.

This proposition results from the representative nature of

agency

The third party may not set-off or allege anydefense against the agent, in an action by the

principal to enforce the contract other than one

which arises out of the particular contract upon

which the action is brought

Since notice by a third party to the agent isnotice to the principal, third party is not liable for

damages for failure of the agent to give notice to

his principal

2. In tort The this persons tort liability to the principal, insofar as

the agent is involved in the tort, arises in 2 main factual

situations:

i. Where the third person damages or injureproperty or interest of the principal in the

possession of the agent

ii. Where the third person colludes with the agent toinjure or defraud the pr incipal

iii. Where the third person induces the agent toviolate his contract with the principal to betray

the trust reposed upon him by the principal

3. In respect of property received In the absence of a law or the possession by the agent of

apparent authority or circumstances working an estoppels

against the principal, the latter may recover the property

from the agents transferee

N.B. liability of principal for mismanagement of business by his agent

Liability of principal for tort of agent

General Rule:

- The principal is civilly liable to third persons for torts of an agentcommitted at the principals direction or in the course and within

the scope of the agents employment

N.B. the agent is also liable with the principal and their liability shall be

solidary (the third person may sure both the principal and the agent or

choose whom he will hold)

Business Hazard Theory

- It is thought that the hazards of business should be borne by thebusiness directly

Ratio:


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- If the cost then is added to the expense of doing business, it willultimately be borne by the consumer of the product; that the

consumer should pay the costs which the hazards of the business

have incurred

N.B. scope of employment is much wider than scope of authority

(Factors) Motivation Deviation Test

- Satisfactory evidence that he employee in doing the act, in doing ofwhich the tort was committed, was motivated in part, at least, by a

desire to serve his employer

- Satisfactory evidence that the act, in the doing of which the tortwas committed, was not an extreme deviation from the normal

conduct of such employee

**both factors should be present

Ratification

- The adoption or affirmance by a person of a prior act which did notbind him, but which was done or professed to be done on hisaccount thus giving effect to the acts as if originally authorized

- Applies to the ratification of the act of an agent in excess of hisauthority or the act of one who purports to be an agent but is really

not

- The authority created by ratification is subsequent but it isequivalent to prior authority

- Purely voluntaryConditions for rat ification:

1. The principal must have the capacity and power to ratify2. He must have had knowledge of material facts3. He must ratify the acts in its entirety4. The act must be capable of rat ification5. The act must be done in behalf of the principal

For implied ratification to be considered- It must be inconsistent with any other hypothesis than that he

approved and intended to adopt what had been done in his name

N.B. ratification is based on waiver (intentional relinquishment of right)

In order to bind the principal by ratification, he must have been in

possession of all the facts an must have acted in the light of such facts

- General rule: requires actual knowledge on the part of the principal- Material facts they are those reasonably ought to be known by

the principal, having in mind the factors of time, place and

circumstance, and especially the situation of the part ies

- If material facts were suppressed or unknown, there can be novalid ratification, regardless of the purpose or lack thereof in

concealing such facts

- Ratification cannot be implied as against the principal who isignorant of the facts

Whoever seeks to rely on a ratification is bound to show that it was made

under such circumstances as in law to be binding on the principal,

especially to see that all mater ial facts were made known to him

- Actual knowledge will be assumed where the principals recklessdisregard of the natural consequences of known facts induces an

inference that he was willing to assume the risk in respect of the

facts- Actual knowledge will be assumed where the principal gas actual

knowledge of a fact or facts that a person of ordinary intelligence

would thereby infer the existence of the fact or facts about which

the dispute exists

N.B. the act must be ratified in its entirety or not at all

Acts that may be ratified:1. Valid/void acts

Those acts that may be authorized may be rat ified Acts which are void cannot be authorized nor ratified

2. Voidable acts May be ratified Ratio: not an inoperative but imperfectly inoperative

3. Unrevoked acts The act or transaction must remain capable o f ratification A principal must ratify his agents unauthorized contract

before it is revoked by the other contracting party4. Criminal act

i.e. forgery cannot eb ratified


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5. Tortuous acts Agency would be inoperative The ratification without more of a tort is inconceivable

and is a rare phenomenon

Effect of Ratification

- Principal and agency is created- Relieves the agent from liability to the third party and to his

principal

- The principal assumes responsibility- Third person is bound by the rat ification- Ratification need not be communicated or made known to the

agent or the third party

- The act or conduct of the principal rather than his communicationis the key

Ratification so operates upon an unauthorized act to have retroactive effect

equivalent to initial approval. Exceptions:

1. Where to do so would be to defeat rights of third parties whichhave accrued between the time of the making of the unauthorized

contract and the time of ratification

- Where, however, the intervening act is inferior inimportance to the retroactive effect of ratification, the

ratification will be given full effect even to the detriment

of the intervening rights

2. Where to do so would be to render wrongful an otherwise rightfulct or omission which ahs taken place between the making of theunauthorized contract and the time of its ratification

3. Where to do so would allow the circumvention of a rule of lawformulated in the interest of public policy

4. If the third party has withdrawn from the contract, the act ortransaction is no longer capable of ratification. There is no

ratification with retroactive effect to speak of

5. Withdrawal by third party from contractThe third partys offer to a principal arising out of a contract with his

unauthorized agent, may be revoked in either of these ways:1. By express revocation2. By a change in the nature of the contract as originally entered into

Art. 1911. Even when the agent has exceeded his authority, the

principal is solidarily liable with the agent if the former allowed the

latter to act as though he had full powers.

Estoppel

-

A bar which precludes a person from denying or asserting anythingcontrary to that which has been established as the truth by his own

deed or representation either express or implied

- Through estoppel, an admission or representation is thus renderedconclusive upon the person making it and cannot be denied or

disproved as against the person relying thereon

Ratification Estoppel

Rests on intention, express or

implied, regardless of prejudice to

another

Rests on prejudice rather than

intention

Retroactive (makes the agents

unauthorized act good from thebeginning)

Operates upon something which has

been done but after the misleadingct and in reliance on it and may only

extend to so much of such act as can

be shown to be affected by the

stopping conduct

Affects the entire transaction from

the beginning

Affects only the relevant parts of the

transaction and from that time only

when estoppels may be said to be

spelled out

SUBSTANCE: confirmation of the

unauthorized act or contract after it

has been done or made

The principals inducement to

another to act to his prejudice

May be complete without anyelements of estoppel Estoppel in pais may in someinstances amount to ratification

N.B. the third person with whom the agent dealt may sure either the agent

or the principal alone, or both. The agent is exempt from liability if he acted

in good faith

Apparent Authority Authority by Estoppel

Which though not actually granted,

the principal knowingly permits theagent to exercise or holds him out as

Arises where the principal, by his

culpable negligence, permits hisagent to exercise powers not granted


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possessing to him, even though the principal

may have no notice or knowledge of

the conduct of the agent

Founded in the conscious

permission of acts beyond the

powers granted

Basis is the negligence of the

principal in failing properly to

supervise the affairs of the agent,

allowing him to exercise powers not

granted to him, and so justified

others in believing he possesses the

requisite authority

Implied agency distinguished from agency by estoppels:1. Implied agency there is an actual agency, the principal alone is

liable2. Agency by estoppels authority of the agent is not real but only

apparent

a. If the estoppels is caused by the principal, he is liable to anythird person who relied on the misrepresentation

b. If the estoppels is caused by the agent, then only the agent isliable

Art. 1912. The principal must advance to the agent, should the latter so

request, the sums necessary for the execution of the agency.

Should the agent have advanced them, the principal must reimburse

him therefor, even if the business or undertaking was not successful,

provided the agent is free from all fault.

The reimbursement shall include interest on the sums advanced, from

the day on which the advance was made.

N.B. demand is not necessary in order that delay on the part of the principal

shall exist

Obligation to reimburse agent for funds advanced by latter

1. Obligation founded on implied promise to pay2. Obligation not affected even if undertaking not successful

Art. 1913. The principal must also indemnify the agent for all the

damages which the execution of the agency may have caused the latter,

without fault or negligence on his part.

Ratio: Equity

Art. 1914. The agent may retain in pledge the things which are the

object of the agency until the principal effects the reimbursement and

pays the indemnity set forth in the two preceding articles.

Right of agent to retain in pledge object of agency

- Instance of legal pledge or pledge which is created by operation oflaw

- The agent is not entitled to the excess in case the things are sold tosatisfy his claim and the proceeds thereof are more than the

amount due

Nature of agents right of lien1. Right limited to subject matter of agency

The lien of the agent is specific or particular in character,and not a general lien so as to give the agent a right to

retain the principals goods for claims disconnected with

the business of the agency

2. Right requires possession by agent of subject matter An agent in order to have a lien, must have some

possession, custody, control or disposing power in and

over the subject matter in which the lien is c laimed

Actual or constructive possession Agent must have acquired that possession lawfully and in

his capacity as agent3. Right generally only in favor of agent

Art. 1915. If two or more persons have appointed an agent for a

common transaction or undertaking, they shall be solidarily liable to

the agent for all the consequences of the agency.

Joint Principals


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- A group with substantially identical interests, and contemplates theappointment of an agent or egants empowered to bind the members

of the group jointly (solidarily)

- ExceptionPartnership- Solidarily liable to the agent for all the consequences of the agency- solidary principals- Responsibility of 2 or more agents is JOINT

Requisites for solidary liability

1. 2 or more principals2. Principals have all concurred in the appointment of the same agent3. The agent is appointed for a common transaction or undertaking

N.B. solidarity arise from the common interest of the principals and not

from the act constituting the agency

Art. 1916. When two persons contract with regard to the same thing,

one of them with the agent and the other with the principal, and the

two contracts are incompatible with each other, that of prior date shall

be preferred, without prejudice to the provisions of Article 1544.

Art. 1544. If the same thing should have been sold to different vendees, the

ownership shall be transferred to the person who may have first taken

possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person

who in good faith was first in the possession; and, in the absence thereof, tothe person who presents the oldest title, provided there is good faith.

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

has acted in good faith, the principal shall be liable in damages to the

third person whose contract must be rejected. If the agent acted in bad

faith, he alone shall be responsible.

Liability to Third Persons

1. Agent acted in good faith and within the scope of his authority principal incurs liability

2. Acted in bad faithagent shall be liable

Art. 1918. The principal is not liable for the expenses incurred by theagent in the following cases:

(1) If the agent acted in contravention of the principal's

instructions, unless the latter should wish to avail himself of

the benefits derived from the contract;

(2) When the expenses were due to the fault of the agent;

(3) When the agent incurred them with knowledge that an

unfavorable result would ensue, if the principal was not aware

thereof;

(4) When it was stipulated that the expenses would be borne by

the agent, or that the latter would be allowed only a certain

sum.

When principal not liable for expenses incurred by the agent

Reasons:

1. Punish the agent (exception acceptance of benefits is impliedratification)

2. Self-evident3. Agent is guilty of bad faith and lack of diligence4. An express stipulation which is not contrary to law, morals, good

customs, public order or public policy is binding between the

parties

CHAPTER 4

MODES OF EXTINGUISHMENT OF AGENCY

Art. 1919. Agency is extinguished:

(1) By its revocation;

(2) By the withdrawal of the agent;


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(3) By the death, civil interdiction, insanity or insolvency of the

principal or of the agent;

(4) By the dissolution of the firm or corporation which

entrusted or accepted the agency;

(5) By the accomplishment of the object or purpose of the

agency;

(6) By the expiration of the period for which the agency was

constituted.

When once shown to have existed, an agency will be PRESUMED TO

HAVE CONTINUED, in the absence of anything to show its termination;

and the BURDEN OF PROVING revocation or other termination of an

agency is on the party asserting it

Modes of Extinguishment of an agency:1. By agreement (5,6)2. By the subsequent acts of the parties which may be either:

a. By the act of both parties or by mutual consent (OR)b. By the unilateral act of one of them (1,2)

3. By operation of law (3,4)Agency requires the PRESENCE, CAPACITY AND SOLVENCY of both

the principal and agent

- The death, civil interdiction, insanity or insolvency of either partyterminates the agency and this is true notwithstanding that the

agency period has not yet expired

- Whether the death of one of 2 or more principals or of one or 2 ormore agents terminates the agency depends upon the intention of

the parties

- A person under civil interdiction cannot validly give consentInsolvency

- As by an act of insolvency the principal loses control of the subjectmatter of the agency, the authority ceases by operation of law upon

an adjudication of the principals insolvency

- The insolvency of the agent will also ordinarily put an end to theagency, at least if it is in any way connected with the agents

business which has caused his failure

- The insolvency of the agent will not destroy any right he may haveunder a power coupled with interest

Death

General Rule: agency is extinguished ipso jure upon the death of

either principal or agent

- Death is revocation by operation of law which is instantaneouslyeffective

- With death, the principals will ceases or is terminated the sourceof authority is extinguished

- Death of agent he can no longer act for the benefit anrepresentation of the principal

Exceptions:

i. That the agency is coupled with an interestii. That the act of the agent was executed without knowledge

of the death of the principal and the third person whocontracted with the agent acted in good faith

Power to foreclose mortgage survives death of mortgagor

- The power of sale in a deed of mortgage is not revoked by thedeath of the principal as it is not an ordinary agency

- An ancillary stipulation supported by the same cause orconsideration for the mortgage and forms an essential and

inseparable part of the bilateral agreement- The right of the mortgagee to extrajudicially foreclose the

mortgage after the death of the mortgagor does not depend on the

authorization in the deed of mortgage executed by the latter

Dissolution of firm of corporation

- Extinguishes its juridical existence except for the purpose ofwinding up its affairs

- Equivalent to death (of a natural person)When the object or purpose of the agency is accomplished, there is noreason to assume the continued existence of authority to do something

which can no longer be done


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- Also extinguished by the non-accomplishment of the object withina reasonable time

Expiration of term

1. Fixed periodthe expiration of such period ends the agency, eventhough the purpose for which the agency was created has not been

accomplished

2. No specified timeterminates at the end of a reasonable period oftime

3. Implied form the terms of the agreements and the circumstances ofthe parties

Modes of Extinguishment in this sect ion is not exclusive:

- An agency may also be extinguished by the modes ofextinguishment of obligations like loss of the thing due and

novation

- During war, the agency is inoperative if the agent or the principalis an enemy alien

- Legal impossibility if a change in the law makes the purpose ofthe agency unlawful

- Termination of principals authority i.e. sub-agentGeneral Rule:

In the absence of any agreement by the parties to the contrary, the

loss or destruction of the subject matter of the agency or the termination of

the principals interest therein terminates the agents authority to deal with

reference to itExceptions:

1. Possible substitution without substantial detriment to eitherparty

2. The destroyed SM was not essential to the contract (agencymay continue)

3. Partial loss or destruction of SM (sometimes)N.B. the termination of the agency does not necessarily free the principal

from liability

General Rule:Where there is a basic change in the circumstances surrounding the

transaction, which was not contemplated by the parties and which would

reasonable lead the agent to believe that the principal would not desire him

to act, the authority of the agent is ter minated (i.e. change in the value of the

subject matter and changes in the general business climate)

Exceptions:

1. If the original circumstances are restored within a reasonableperiod of time, the agents authority may be revived

2. Where the agent has reasonable doubts as to whether theprincipal would desire him to act, his authority will not be

terminated if he acts reasonably (when in doubt, ask the

principal for instructions)

3. If the principal is aware of the change and does not give himnew instructions

While the relation of principal and agent is confidential, not all knowledge

acquired by the agent is of a confidential nature

Test:

1. Whether the knowledge or information, the use of which thecomplainant seeks to enjoin, is confidential

2. Whether, is it be confidential, in whole or in part, its use oughtto be prevented

Art. 1920. The principal may revoke the agency at will, and compel the

agent to return the document evidencing the agency. Such revocation

may be express or implied.

Termination by subsequent acts of the parties:

1. RevocationDone by the principalAt any time, at his mere option, with or without reason

(exceptions in Art. 1927)

Whether gratuitous or compensated agency

2. Withdrawal or renunciationDone by the agent

Ratio: the mere fact that the agency is to be irrevocable will not make it so;

and that the principal may still revoke the relationship at will

Liability of principal for damage caused by revocation- While the principal may have ABSOLUTE POWER TO REVOKE

the agency at any time, he must respond in damages, although Art.


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1920 does not expressly so provide, in those cases wherein not

having the right to do so, he should discharge the agent

- POWER NOT a RIGHT- Principals power to revoke or right to revoke would depend upon

the facts of a case

1. Agency for a fixed periodPrincipal shall be liable for damages derived from the

contract of the parties

2. No time fixed for continuance of agencyPrincipal is at liberty to terminate it at will subject only to

the requirements of good faith

N.B. the principal can co mpel the agent to return the document evidencing

the agency (prevent future use)

Kinds of Revocation:

1. Express2. Implied

Notice of Revocation:

1. To the agentNot always necessary

Party to be notified actually knows or has reason to know

there is sufficient notice

Revocation without notice will not render invalid an act

done in pursuance of the authority

2. To third personsActual notice must be brought home to former customers

Notice by publication is sufficient as to other persons

Renunciation of agency by agent- The agent has the power to renounce the agency relationship,

subject only to the contractual obligations owing to the principal

- No contract, contract has no fixed or definite period of time terminable by the agent at will

- Even in the face of an express contract, the agent has the power torenounce the agency, although under such circumstances, hisbreach may create a liability for wrongful termination

- An agent cannot legally terminate an agency in order to takeadvantage of the principals condition or to profit by information

resulting from his agency

- Reason: where the agent terminates the agency in violation of acontract, the principal has no right to affirmative specific

performance of the agency for the essence of relationship is

consensualthe willingness of the agent to act for the pr incipal

Forms of Renunciation:

1. Express2. Implied

Art. 1921. If the agency has been entrusted for the purpose of

contracting with specified persons, its revocation shall not prejudice the

latter if they were not given notice thereof.

- Notice of revocation must be personal-

Ratio: (specified) third person have a right to presume that therepresentation continues to exist in the absence of notification by

the principal

Art. 1922. If the agent had general powers, revocation of the agency

does not prejudice third persons who acted in good faith and without

knowledge of the revocation. Notice of the revocation in a newspaper of

general circulation is a sufficient warning to third persons.

- Notice of revocation may be personal- Innocent third person will not be prejudiced by the revocation- Revocation advertised in a newspaper of general circulation would

be sufficient warning to third persons

Art. 1923. The appointment of a new agent for the same business or

transaction revokes the previous agency from the day on which notice

thereof was given to the former agent, without prejudice to the

provisions of the two preceding articles.

- Implied revocation of previous agency- Not effective between the principal and agent until it is

communicated


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- Third person in good faith will not be prejudicedNo implied revocation

1. where the appointment of another agent is not incompatible withthe continuation of a like authority in the first agent

2. first agent is not given notice of the appointment of the new agentRequisites of substitution of counsel of record

1. there must be a written request for substitution2. it must be filed with the written consent of the client3. it must be with the written consent of the attorney to be substituted4. in case, the consent of the attorney to be substituted cannot be

obtained, there must be at least a proof of notice, that the motion

for substitution was served on him in the manner prescribed by the

Rules of Court

Art. 1924. The agency is revoked if the principal directly manages the

business entrusted to the agent, dealing directly with third persons.

- Implied revocation- Unless the only desire of the principal is for him and the agent to

manage the business together

- Distinguish from Art. 1916Art. 1925. When two or more principals have granted a power of

attorney for a common transaction, any one of them may revoke the

same without the consent of the others.

- Solidary obligationsArt. 1926. A general power of attorney is revoked by a special one

granted to another agent, as regards the special matter involved in the

latter.

Partial revocation of general power by a special power

Two agents involved:

1. General power is previously granted2. Special power is given (subsequently granted)- Special power naturally prevails over a general power

- Indispensable that notice of revocation be communicated in someway to the agent

Art. 1927. An agency cannot be revoked if a bilateral contract depends

upon it, or if it is the means of fulfilling an obligation already

contracted, or if a partner is appointed manager of a partnership in thecontract of partnership and his removal from the management is

unjustifiable.

AGENCY COUPLED WITH INTEREST

- The agency cannot be revoked by the sole will of the principal aslong as the interest of the agent or of a third person subsists

General Rule: the principal may revoke an agency at will

Ratio: the essence of agency is the agents duty of obedience to the

principal

Exceptions:

1.

When the agency is created not only for the interest of the principalbut also for the interest of third persons

2. When the agency is created for the mutual interest of both theprincipal and the agent

Three Instances of Irrevocability

1. Bilateral contract depends upon it2. If it is the means of fulfilling an obligation already contracted3. If a partner is appointed manager of a partnership in the contract of

partnership and his removal from the management is unjustifiable

Termination of the agency

An agency coupled with an interest cannot be terminated by thesole will of the principal although it is so revocable after the interest ceases

In order that an agency may be irrev

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