of things like selling, buying, manufacturing, and

transporting. Its purpose is to extend the

personality of the principal or the party for whom
another acts and from whom he or she derives the
authority to act. (at p. 592)

I. DEFINITION AND OBJECTIVE OF

A CONTRACT OF AGENCY

I. NATURE, FORM AND KINDS

OF AGENCY

In
Orient
Air
Service
&
Hotel
Representatives v. Court of Appeals, 197 SCRA
645 (1991), the Court held that 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.

1. DEFINITION AND OBJECTIVE OF

AGENCY
a. Definition

In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204

(2006), the Court held that "It bears stressing that
in an agent-principal relationship, the personality
of the principal is extended through the facility of
the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all
acts which the latter would have him do. Such a
relationship can only be effected with the consent
of the principal, which must not, in any way, be
compelled by law or by any court." [2] (at p. 223)

Article 1868 of the Civil Code defines the

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." [1]
b. Purpose or Objective of Agency
In Eurotech Industrial Technologies, Inc. v.
Cuizon, 521 SCRA 584 (2007), the Court held --

In Doles v.
(2006),
the

In a contract of agency, a person binds

himself to render some service or to do something
in representation or on behalf of another with the
latter's consent. The underlying principle of the
contract of agency is to accomplish results by
using the services of others - to do a great variety

Angeles , 492 SCRA 607

Court
held
--

"The CA is incorrect when it considered the fact

that the "supposed friends of [petitioners], the
actual borrowers, did not present themselves to
[respondent]" as evidence that negates the
agency relationship--it is sufficient that petitioner
1

disclosed to respondent that the former was

acting in behalf of her principals, her friends
whom she referred to respondent. For an agency
to arise, it is not necessary that the principal
personally encounter the third person with whom
the agent interacts. The law in fact contemplates,
and to a great degree, impersonal dealings where
the principal need not personally know or meet
the third person with whom her agent transacts;
precisely, the purpose of agency is to extend the
personality of the principal through the facility of
the agent." (at p. 622)

: 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).

c. Parties to a Contract of Agency

The parties to a contract of agency are the
PRINCIPAL (the person represented) and the AGENT
(the person who acts for and in representation of
another). Although Article 1868 defines agency in
terms of being a contract, it should also be
considered that upon the perfection of the
contract of agency, it creates between the
principal and an agent an on-going legal
relationship that imposes personal obligations on
both parties.

When an agency is established, and the

agent acts for the principal, he is insofar as the
world is concerned essentially the principal acting
in the particular contract or transaction on hand.
Consequently, the acts of the agent on behalf of
the principal within the scope of the authority
have the same legal effect and consequence as
though the principal had been the one so acting in
the given situation. Some of the legal
consequences that flow from the doctrine of
representation in the contract of agency are that -

A suit against an agent cannot,

without compelling reasons, be
considered a suit against the principal
PNB v. Ritratto Groups, Inc., 362 SCRA
216 (2001).

The other terms used for the position of

agent are "attorney-in-fact", "proxy", "delegate" or
"representative."

Notice to the agent is notice to the

principal. Air France v. Court of
Appeals , 126 SCRA 448 (1983).

(1) Capacity of the Parties

Knowledge of the agent pertains to

the principal

The principal must have capacity to contract

(Arts. 1327 and 1329), and may either be a
natural or juridical person (Art. 1919[4]).
2

There is legal literature that holds that since

the agent assumes no personal liability, he does
not have to possess full capacity to act insofar as
third persons are concerned.[3] Since a contract of
agency is first and foremost a contract in itself,
the parties (both principal and agent) must have
to have legal capacity to validly enter into an
agency. If one of the parties has no legal capacity
to contract, then the contract of agency is not
void, but merely voidable, which means that it is
valid until annulled.

does not affect the constitution of the agency

relationship. And yet, it is clear under Article
1919(3) that if during the term of the agency, the
principal or agent is placed under civil interdiction,
or becomes insane or insolvent, the agency is ipso
jure extinguished. It is therefore only logical to
conclude that if the loss of legal capacity of the
agent extinguishes the agency, then necessarily
any of those cause that have the effect of
removing legal capacity on either or both the
principal and agent at the time of perfection
would not bring about a contract of agency.

Thus, a voidable agency will produce legal

consequences, when it is pursued to enter into
juridical relations with third parties. If the principal
is the one who has no legal capacity to contract,
and his agent enters into a contractual
relationship in his name with a third party, the
resulting contract is voidable and subject to
annulment. On the other hand, if the principal has
legal capacity, and it is the agent that has no legal
capacity to contract, the underlying agency
relationship
is
voidable,
and
when
the
incapacitated agent enters into a contract with a
third party, the resulting contract would be valid,
not voidable, for the agent's incapacity is
irrelevant, the contract having been entered into
for and in behalf of the principal, who has full legal
capacity.

Obviously, there seems to be an

incongruency when it comes to principles
involving the legal capacities of the parties to a
contract of agency. The reason for that is that the
principles actually occupy two different legal
plains. When it comes to creating and
extinguishing the contractual relationship of
principal and agent, the provisions of law take into
consideration purely intramural matters pertaining
to the parties thereto under the principle of
relativity. Since agency is essentially a personal
relationship
based
on
the
purpose
of
representation, then when either the principal or
agent die or become legally incapacitated, then
the agency relation should ipso jure cease. But a
contract of agency is merely a preparatory
contract, where the main purpose is to effect
through the agent contracts and other juridical
relationships with third parties. The public policy is
that third parties who act in good faith with an

The foregoing discussions would all make

sense to support the fact that as a general
proposition the lack of legal capacity of the agent
3

agent have a right to expect that their contracts

would be valid and binding on the principal.
Therefore, even when by legal cause an agency
relationship has terminated, say with the insanity
of the principal, if the agent and a third party he
enters into contract are unaware of the situation,
then the various provisions on the Law on Agency
would affirm the validity of the contract. More on
this point will be covered under the section on the
essential characteristics of agency.

(d) Agent acts within the scope of his

authority.

The element not included in the Rallos

enumeration is the cause or consideration of every
contract of agency. Under Article 1875, every agency
is presumed to be for a compensation, unless there is
proof to the contrary.

(1) Consent
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
(2006), held that consent of both principal and
agent is necessary to create an agency. The
principal must intend that the agent shall act for
him; the agent must intend to accept the
authority and act on it, and the intention of the
parties must find expression either in words or
conduct between them.

d. Elements of the Contract of Agency

Like any other contract, agency is
constituted of the essential elements of consent,
object or subject matter, and cause or
consideration. In Rallos v. Felix Go Chan & Sons
Realty Corp., 81 SCRA 251 (1978), the Court held
that the following are the essential elements of
the contract of agency:
to

[4]

In the same manner, Dominion Insurance

Corp. v. Court of Appeals, 426 SCRA 620 (2002),
held that 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.

(a) Consent, express or implied, of the parties

establish
the relationship;

(b) Object, which is the execution of a juridical

act
in
relation
to third parties;
(c) Agent acts as a representative and not for
himself;
and

Perhaps the only exception to this rule is

agency by estoppel, but even then it is by the
4

separate acts of the purported principal and

purported agent, by which they are brought into
the relationship insofar as third parties acting in
good faith are concerned. More discussions on
the essential element of consent shall take place
in the section on essential characteristic of
consensuality of contracts of agency.

agent is entitled to remuneration or compensation

for the services performed under the contract of
agency.
In Aguna v. Larena, 57 Phil 630 (1932),
although the agent had rendered service to the
principal covering collection of rentals from the
various tenants of the principal, and in spite of the
agreement that principal would pay for the
agent's service, nevertheless, the principal
allowed the agent to occupy one of his parcels of
land and to build his house thereon. The Court
held that 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." (at p. 632)

(2) Object or Subject Matter

Object of an agency contract is service,

which particularly is undertaking of the agent to

enter into juridical acts with third persons on
behalf
of
the
principal.
Items (b), (c) and (d) in the enumerated
elements of Rallos can actually be summarized
into the object of every contract of agency to be
that of service,i.e., the undertaking (obligation)
of the agent to enter into a juridical act with third
parties on behalf of the principal and within the
scope of his authority.
(3) Consideration
Cause or Consideration in agency is the
commission that the principal would pay the
agent. Under Article 1875, agency is presumed to
be for a compensation, unless there is proof to the
contrary. In other words, liberality may be the
proper cause or consideration for an agency
contract only when it is so expressly agreed upon.
Unless otherwise stipulated, therefore, every

(4) Entitlement of Agent to Commission

Anchored
on the Rendering of Service
The compensation that the principal agrees
to pay to the agent is part of the terms of the
contract of agency upon which their minds meet.
Therefore, the extent and manner by which the
5

agent would be entitled to receive compensation

or commission is based on the terms of the
contract. Sometimes, the terms are not that clear,
and decisions have had to deal with the issue of
when an agent has merited the right to receive
the compensation either stipulated or implied
from the terms of the contract. The doctrine that
may be derived from the various decisions on the
matter are anchored on the nature of the contract
of agency as a species of contracts of services in
general; and that consequently, an agent should
be entitled to receive compensation when it has
been established that it was through his efforts or
service that the object of the agency was
achieved.

In contrast, in Manotok Bros. Inc. v. Court of

Appeals, 221 SCRA 224 (1993), the Court held
that although the sale of the object of the agency
to sell was perfected three days after the
expiration of the agency period, the agent was
still be entitled to receive the commission
stipulated based on the doctrine held in Prats v.
Court of Appeals, 81 SCRA 360 (1978), that when
the agent was the efficient procuring cause in
bringing about the sale that the agent was
entitled to compensation. In essence, the Court
ruled that when there is a close, proximate and
causal connection between the agent's efforts and
labor and the principal's sale of his property, the
agent
is
entitled
to
a
commission.

Thus, in Inland Realty v. Court of Appeals,

273 SCRA 70 (1997), the Court held that
"Although the ultimate buyer was introduced by
the agent to the principal during the term of the
agency, nevertheless, the lapse of the period of
more than one (1) year and five (5) months
between the expiration of petitioners' authority to
sell and the consummation of the sale, cannot
authorize compelling the principal to pay the
stipulated broker's fee, since the agent was not
longer entitled thereto. The Court takes into
strong consideration that utter lack of evidence of
the agent showing any further involvement in the
negotiations between principal and buyer during
that period and in the subsequent processing of
the documents pertinent to said sale." (at p. 79)

The matter pertaining to entitlement to

commission will be discussed in greater details on the
section that contrast an contract of agency from that
of a broker's contract.

e. Essential Characteristics of Agency

(1) Nominate and Principal
Not only is the contract of agency
specifically named as such under the Civil Code, it
is a principal contract because it can stand on its
own without need of another contract to validate
it.
The real value of the contract of agency
being a "nominate and principal" contract is that it
6

has been so set apart by law and provided with its

own set of rules and legal consequences, that any
other arrangement that essentially falls within its
terms shall be considered as an agency
arrangement and shall be governed by the Law on
Agency, notwithstanding any intention of the
parties to the contrary. After all, a contract is what
the law says it is, and not what the parties call it.

Ordinarily, an agency is onerous in nature,

where the agency expects compensation for his
services in the form of commissions. However,
Article 1875 recognizes that an agency may be
supported by pure liberality, and thus would be
gratuitous, but the burden of proof would be to
show
that
the
agency
was
constituted
gratuitously.

In Doles v. Angeles, 492 SCRA 607 (2006), it

was held that 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.

When it is gratuitous, the contract of

agency is unilateral contract because it only
creates an obligation on the part of the agent. But
even when it is supported by a valuable
consideration (i.e., compensated or onerous
agency), it would still be characterized as a
unilateral contract, because it is only the
fulfillment of the primary obligations of the agent
to render some service upon which the
subordinate obligation of the principal to pay the
compensation agreed upon arises.

(2) Consensual
The contract of agency is perfected by mere
consent. Under Article 1869, 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; agency may be oral, unless
the
law
requires
a
specific
form. [5]

When an agent accepts the agency position

without compensation, he assumes the same
responsibility to carry out the agency and
therefore incurs the same liability when he fails to
fulfill his obligations to the principal. Is is therefore
rather strange that under Article 1909, the
circumstance
that
the
agency
was
for
compensation or not shall be considered by the
courts in determining the extent of the liability of
the agent for fraud or negligence.

Under Article 1870, acceptance by the agent

may also be express, or implied from his acts which
carry out the agency, of from his silence or inaction
according to the circumstances.

(3) Unilateral and Primarily Onerous

(4) Preparatory and Representative

7

There is no doubt that agency is a species of

the broad grouping of what we call the "service
contracts", which includes employment contract,
management contract and contract-for-a piece of
work. There are also special service contracts
which include the rendering of professional
service (e.g., doctors and lawyers), and
consultancy work. But it is the characteristic of
"representation" that is the most distinguishing
mark of agency when compared with other service
contracts, in that the main purpose is to allow the
agent to enter into contracts with third parties
which would bind the principal.

Milling Co., Inc. v. Court Appeals, [333 SCRA 663

(2000)], the Court decreed from Article 1868 that
the basis of agency is representation," (at p.
560),74 and that consequently one of the
strongest feature of a true contract of agency is
that of "control"--that the agent is under the
control and instruction of the principal. Thus, in
Victorias Milling Co., Inc. v. Court of Appeals, 333
SCRA 663 (2000), it was ruled -It is clear from Article 1868 that the basis of
agency is representation.[6] 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.[7] The control factor, more than
any other, has caused the courts to put contracts
between principal and agent in a separate
category. . . .

A contract of agency does not exist for its

own purpose; it is a preparatory contract entered
into for other purpose that deal with the public.
This characteristic of an agency is reflected in
various provisions in the Law on Agency, and in
case-law, that seek to protect the validity and
enforceability of contracts entered into pursuant
to the agency arrangement, even when to do so
would contravene strict agency principles. In
another way of putting it, an agency contract is
merely a tool for a greater objective to enter into
juridical relations on behalf of the principal;
considerations that pertain merely to the tool,
certainly cannot outweigh considerations that
pertain to the main objects of the agency.

xxx

In Amon Trading Corp. v. Court of Appeals,

477 SCRA 552 (2005), the Court decreed that "In a
bevy of cases as the avuncular case of Victorias

In the instant case, it appears plain to us that

private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent
8

CSC was not subject to STM's control. The

question of whether a contract is one of sale or
agency depends on the intention of the parties as
gathered from the whole scope and effect of the
language employed. That the authorization given
to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the
parties. That no agency was meant to be
established by the CSC and STM is clearly shown
by CSC's communication to petitioner that SLDR
No. 1214M had been "sold and endorsed" to it.
The use of the words "sold and endorsed" means
that STM and CSC intended a contract of sale, and
not an agency. . . (at pp. 676-677)

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. (at p. 593)
Earlier, in Rallos v. Felix Go Chan & Sons
Realty Corp., 81 SCRA 251 (1978), the Court held
that "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.'" (at p. 259)
Principles
Flowing
from
Agency
Characteristics
of
"Prepartatory
and
Representative. -- The following principles flow
from
the
application
of
the
essential
characteristics of an agency being "preparatory
and representative" contract, thus:

In Doles v. Angeles, 492 SCRA 607 (2006), it

was held that for an agency to arise, it is not
necessary that the principal personally encounter
the third person with whom the agent
interactsprecisely, the purpose of agency is to
extend the personality of the principal through the
facility
of
the
agent.

(a) The contract entered into with third

persons
pertains
to the principal and not to the agent; the
agent
is
a
stranger to said contract although he
physically
was
the one who entered into it in a
representative
capacity;

In Eurotech Industrial TEchnologies, Inc. v.

Cuizon, 521 SCRA 584 (2007), the Court held -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
9

the agent has neither rights or

obligations from the resulting
contract;

when

in
fact
the
principal never became aware thereof.
France
v.
Court of Appeals, 126 SCRA 448 (1983)

Air

the agent has no legal standing to sue upon said

contract

(f) Knowledge of the agent is equivalent to

knowledge
of the principal.

(b) The liabilities incurred shall pertain to the

principal
and not the agent;

EXCEPT:

(c) Generally, all acts that the principal can

do
in
person,
he may do through an agent, except
those
which
under public policy are strictly personal to
the
person
of the principal.

(2)

(1) where the agent's interests are

adverse to those of the principal;

where the agent's duty is not to

disclose the information, as where he
is informed by way of confidential
information; and

(3) where the person claiming the benefit

of the rule colludes with the agent to
defraud the principal (De Leon & De
Leon, at p. 367,citing TELLER, at p.150)

(d) The agent who acts as such is not

personality
liable
to the party with whom he contracts,
unless
he
expressly binds himself or exceeds the
limits
of
his
authority without giving such party
sufficient
notice
of
his powers. (Art. 1897)

Thus, in Eurotech Industrial Technologies, Inc. v.

Cuizon, 521 SCRA 584 (2007), the Court held --

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

(e) Notice to the agent should always be

construed
as
notice binding on the principal, even
10

agent can be held liable if he does not give the

third party sufficient notice of his powers. (at p.
593)

the agent the representative of the principal.

Consequently:
(a) As regards property forming the subject
matter
of
the
agency, the agent is estopped from
asserting
or
acquiring a title adverse to that of the
principal.
(Art.
1435);

In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919),

the Court held that 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.

(b) In a conflict-of-interest situation, the agent

cannot
choose a course that favors himself to the
detriment
of
the principal; he must choose to the best
advantage
of
the principal. Thomas v. Pineda, 89 Phil.
312
(1951);
Palma v. Cristobal, 77 Phil. 712 (1946); and

(5) Derivative, Fiduciary and Revocable

A contract of agency creates a legal
relationship of representation by the agent on
behalf of the principal, where the powers of the
agent is essentially derived from the principal,
and consequently, it is fiduciary in nature. One of
the legal consequences of the fiduciary nature of
the contract of agency is that it is essentially
revocable: neither the principal nor the agent can
be legally made to remain in the relationship
when they choose to have it terminated.

(c) The agent cannot purchase for himself the

property
of
the principal which has been given to his
management
for sale or disposition (Art. 1491[2]); unless
there
is
an
express consent on the part of the principal
(Cui
v.
Cui,
100 Phil. 913 (1957); or when the agent
purchases
after
the agency is terminated (Valera v. Velasco,

Severino v. Severino, 44 Phil. 343 (1923),

held that the relations of an agent to his principal
are fiduciary in character because they are based
on trust and confidence, which must flow from the
essential nature a contract of agency that makes
11

51

Phil.

doing, the agent, by legal fiction, becomes the

principal, authorized to perform all acts which the
latter would have him do. Such a relationship can
only be effected with the consent of the principal,
which must not, in any way, be compelled by law
or by any court. 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.'" [8]
(at
p.
656)

695 (1928).
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).

f. Distinguished from Other Similar

Contracts

In Orient Air Services v. Court of Appeals,

197 SCRA 645 (1991), it was held that the
decision of the lower court ordering the principal
airline company to "reinstate defendant as its
general sales agent for passenger transportation
in the Philippines in accordance with said GSA
Agreement," was unlawful since courts have no
authority to compel the principal to reinstate a
contract of agency it has terminated with the
agent:

(1) From Employment Contract

Unlike agency relationship which is
essentially contractual in natured, under Article
1700 of the Civil Code, "[t]he relationship between
capital and labor are not merely contractual. They
are so impressed with public interest that labor
contracts must yield to the common good.
Therefore, such contracts are subject to the
special laws on labor unions, collective bargaining,
strikes and lockouts, closed shop, wages, working
conditions, hours of labor and similar subjects."
More specifically, the purpose of an employeremployee relationship is for the employee to
render service for the direct benefit of the
employer or of the business of the employer;
while agency relationship is entered into to enter
into juridical relationship on behalf of the principal
with third parties.

"Such would be violative of the principles and

essence of agency, defined by law as a contract
whereby "a person binds himself to render some
service or to do something in representation or on
behalf of another, WITH THE CONSENT OR
AUTHORITY OF THE LATTER." In an agent-principal
relationship, the personality of the principal is
extended through the facility of the agent. In so
12

In Dela Cruz v. Northern Theatrical

Enterprises, 95 Phil 739 (1954), the Court held
that 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.

build for the other party a costly edifice, the

underlying contract is one for a contract for a
piece of work, and not a principal and agency
relation. Consequently, the contract is authorized
to do the work according to his own method and
without being subject to the client's control,
except as to the result of the work; he could
purchase his materials and supplies from whom
he pleased and at such prices as he desired to
pay. And the mere fact that it was stipulated in the
contract that the client could take possession of
the work site upon the happening of specified
contingencies did not make the relation into that
of an agency. Consequently, when the client did
take over the unfinished works, he did not assume
any direct liability to the suppliers of the
contractor. Fressel v. Mariano Uy Chaco Sons &
Co., 34 Phil. 122 (1915).

(2) From Contract for a Piece-of-Work

Under Article 1713 of the Civil Code, "[b]y
the contract for a piece of work the contractor
binds himself to execute a piece of work for the
employer, in consideration of a certain price or
compensation. The contractor may either employ
only his labor or skill, or also furnish the material."
Under a contract for a piece of work, the
contractor is not an agent of the "principal", and
the contractor has no authority to represent the
principal in entering into juridical acts with third
parties.

(3) From a Management Agreement

In both agency and lease of services, one of
the parties binds himself to render some service
to the other party. Agency, however, is
distinguished from lease of work or services in
that the basis of agency is representation, while in
the lease of work or services the basis is
employment. The lessor of services does not
represent his employer, while the agent
represents his principal. x x x . There is another
obvious distinction between agency and lease of
services. Agency is a preparatory contract, as
agency "does not stop with the agency because

Where the contract entered into is one

where the individual undertook and agreed to
13

the purpose is to enter into other contracts." The

most characteristic feature of an agency
relationship is the agent's power to bring about
business relations between his principal and third
persons. "The agent is destine to execute juridical
acts (creation, modification or extinction of
relations with third parties). Lease of services
contemplate only material (non-juridical) acts.[9]"
Nielson & Co., Inc. v. Lepanto Consolidated Mining
Co., 26 SCRA 540, 546-547 (1968).

full contracted period. Nielson & Co., Inc. v.

Lepanto Consolidated Mining Co., 26 SCRA 540,
546-547 (1968).
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 Co. v. Firemen's
Insurance of Newark, 100 Phil. 757 (1957).

Where the principal and paramount

undertaking
of
the
"manager"
under
a
Management Contract was the operation and
development of the mine and the operation of the
mill, and all other undertakings mentioned in the
contract are necessary or incidental to the
principal undertaking--these other undertakings
being dependent upon the work on the
development of the mine and the operation of the
mill. In the performance of this principal
undertaking the manager was not in any way
executing juridical acts for the principal, destined
to create, modify or extinguish business relations
between the principal and third person. In other
words, in performing its principal undertaking the
manager was not acting as an agent of the
principal, in the sense that the term agent is
interpreted under the law of agency, but as one
who was performing material acts for an
employer, for a compensation. Consequently, the
management contract not being an agency
cannot be revoked at will and was binding to its

(4) from Contract of Sale

Under Article 1466 of the Civil Code, "[i]n
construing a contract containing provisions
characteristic of both the contract of sale and of
the contract of agency to sell, the essential
clauses of the whole instrument shall be
considered." Jurisprudence has indicated what the
14

"essential clauses" that should indicate whether it

is one of sale or agency to sell/purchase, refers to
stipulations in the contract which places obligation
son the part of the purported "agent" having to do
with what should be a seller' obligation to transfer
ownership and deliver possession of the subject
matter, or the buyer's obligation on the payment
of the price.

latter, on receiving the beds, was necessarily

obliged to pay their price within the term fixed,
without any other consideration and regardless as
to whether he had or had not sold the beds. (at p.
505)
As a consequence, the "revocation" sought
to be made by the principal on the purported
agency arrangement was denied by the Court, the
relationship being one of sale, and the power to
rescind is available only when the purported
principal is able to show substantial breach on the
part of the purported agent.

In Quiroga v. Parsons, 38 Phil. 501 (1918),

although the parties designated the arrangement
as an agency agreement, the Court found the
arrangement to be one of sale since the essential
clause provided that "[p]ayment was to be made
at the end of sixty days, or before, at the
[principal's] request, or in cash, if the [agent] so
preferred, and in these last two cases an
additional discount was to be allowed for prompt
payment." These conditions to the Court were
"precisely the essential features of a contract of
purchase and sale" because there was the
obligation on the part of the purported principal to
supply the beds, and, on the part of the purported
agent, to pay their price, thus:

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).

These features exclude the legal conception

of an agency or order to sell whereby the
mandatory or agent received the thing to sell it,
and does not pay its price, but delivers to the
principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed
in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the

In Gonzalo Puyat & Sons, Inc. v. Arco

Amusement Company, 72 Phil. 402 (1941), which
covered a purported agency contract to purchase,
15

the Court looked into the provisions of their

contract, and found that the letters between the
parties clearly stipulated for fixed prices on the
equipment ordered, which "admitted no other
interpretation than that the [principal] agreed to
purchase from the [agent] the equipment in
question at the prices indicated which are fixed
and determinate." (at p. 407). The Court held that
"whatever unforeseen events might have taken
place unfavorable to the [agent], such as change
in prices, mistake in their quotation, loss of the
goods not covered by insurance or failure of the
Starr Piano Company to properly fill the orders as
per specifications, the [principal] might still legally
hold the [agent] to the prices fixed." (at p. 407).
Consequently, the demand by the purported
principal of all discounts and benefits obtained by
the purported agent from the American suppliers
under the theory that all benefits received by the
agent under the transactions were to be
accounted for the benefit of the principal was
denied by the court, the underlying relationship
being essentially a contract of purchase.

discounts received from the American supplier,

pertain 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). Reiterated in Far Eastern Export & Import
Co., v. Lim Tech Suan, 97 Phil. 171 (1955).
In Ker & Co., Ltd. v. Lingad, 38 SCRA 524
(1971), covering a contract of distributorship, it
was specifically stipulated in the contract that "all
goods on consignment shall remain the property
of the Company until sold by the Distributor to the
purchaser or purchasers, but all sales made by the
Distributor shall be in his name;" and that the
Company "at its own expense, was to keep the
consigned stock fully insured against loss or
damage by fire or as a result of fire, the policy of
such insurance to be payable to it in the event of
loss." It was further stipulated that the contract
"does not constitute the Distributor the agent or
legal representative of the Company for any
purpose whatsoever. Distributor is not granted
any right or authority to assume or to create any
obligation or responsibility, express or implied in
behalf of or in the name of the Company, or to
bind the Company in any manner or thing
whatsoever." In spite of such stipulations, the
Court did find the relationship to be one of
agency, because it did not transfe4r ownership of
the merchandise to the purported distributor,
even though it was supposed to enter into sales
agreements in the Philippines in its own name,
thus:

When under the terms of 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 an agent
does not bear any risk relating to the subject
matter or the price. Being truly a contract of sale,
any profits realized by the purported agent from
16

The transfer of title or agreement to transfer

it for a price paid or promised is the essence of
sale. If such transfer puts the transferee in the
attitude or position of an owner and makes him
liable to the transferor as a debtor for the agreed
price, and not merely as an agent who must
account for the proceeds of a resale, the
transaction is a sale; while the essence of an
agency to sell is the delivery to an agent, not as
his property, but as the property of the principal,
who remains the owner and has the right to
control the sale, fix the price, and terms, demand
and receive the proceeds less the agent's
commission upon sales made. (at p. 530)

and enforceable in whatever form it may be

entered into. Lim v. Court of Appeals, 254 SCRA
170 (1996).
(5) From Broker
A broker is best defined in Schmid and
Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988),
where the Court held that a broker is "one who is
engaged, for others, on a commission, negotiating
contracts relative to property with the custody of
which he has no concern; the negotiator between
other parties, never acting in his own name but in
the name of those who employed him. . . . a
broker is one whose occupation is to bring the
parties together, in matters of trade, commerce or
navigation." (at p. 501)

In Victoria Milling Co., Inc. v. Court of

Appeals, 333 SCRA 663 (2000), the Court held
that an authorization given to the buyer of goods
to obtain them from the bailee "for and in behalf"
of the bailor-seller does not necessarily establish
an agency, since the intention of the parties was
for the buyer to take possession and ownership
over the goods with the decisive language in the
authorization being "sold and endorsed."

Unlike an agent who must act in the name of

the principal, a broker is one who is engaged for
others on a commission to negotiate between
other parties, never acting in his own name but in
the name of those who employed him. Reyes v.
Rural Bank of San Miguel, 424 SCRA 135 (2004).
He has no relation with the thing he has been
retained to buy or to sell; he is merely an
intermediary between the purchaser and the
vendor. He acquires neither the custody nor the
possession of the thing he sells. His only office is
to bring together the parties to the transaction.
Pacific Commercial Co. v. Yatco, 63 Phil. 398
(1936).

As a general rule, an agency to sell on

commission basis does not belong to any of the
contracts covered by Articles 1357 and 1358
requiring them to be in a particular form, and not
one enumerated under the Statutes of Frauds in
Article 1403. Hence, unlike a sale contract which
must comply with the Statute of Frauds for
enforceability, a contract of agency to sell is valid
17

A broker may at the same time be an agent.

When he acts in his behalf in dealing with the
public, even when he handles things pertaining to
the principal, he is a mere broker. On the other
hand, if he is duly authorized to act in the name of
the principal, there is no doubt that the broker is
also an agent. Thus, in Abacus Securities Corp. v.
Ampil, 483 SCRA 315 (2006), it was held that
since in that case the brokerage relationship was
necessary a contract for the employment of an
agent, principles of contract law also govern the
broker-principal relationship.

will negotiate on the terms and conditions of the

transaction." (at p. 140)
Broker Has No Authority To Enter into
Contract in the Name of the Principal. -- In
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006),
it was held that 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.
Thus, when the seller himself closes the sale with
the purchaser located by the broker, the seller is
bound to pay the commission he has contracted
with the broker for merely finding the buyer.

In the same manner, in Domingo v.

Domingo, 42 SCRA 131 (1971), the Court held that
the duties and liabilities of a broker to his
employer are essentially those which an agent
owes to his principal. In such a situation, the
decisive legal provisions [to determine whether a
broker has violated his duty or obligation] are
found in Articles 1891 and 1909 of the New Civil
Code, whereby every agent is bound to render an
account of his transactions and to deliver to the
principal whatever he may have received by
virtue of the agency, even though it may not be
owning to the principal; and that an agent is
responsible not only for fraud, but also for
negligence.[10 On the other hand, the Court also
held in Domingo that "[t]he duty embodied in
Article 1891 of the New Civil Code will not apply if
the agent or broker acted only as a middleman
with the task of merely bringing together the
vendor and vendee, who themselves thereafter

Broker Is Not Legally Incapacityaa to

Purchase Property of the Principal. -- In
Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it
was held that the ban of paragraph 2 of [Article
1491] when renders an agent legally incapable of
buying the properties of his principal connotes the
idea of trust and "confidence; and so where the
relationship does not involve considerations of
good faith and integrity the prohibition should not
and does not apply. To come under the prohibition,
the agent must be in a fiduciary relation with his
principal." The Court held that a broker does not
come within the meaning of Article 1492, because
he is nothing more than a go-between or
18

middleman between the defendant and the

purchaser, bringing them together to make the
contract themselves. There is no confidence to be
betrayed, since a broker is not authorized to make
a binding contract for the purported principal; he
is not sell the property, but only to look for a
buyer and the owner is to make the sale; he was
not to fix the price of the sale because the price
had to be already fixed in his commission; he is
not to make the terms of payment because these,
too, would be clearly specified in his commission.
In fine, a broker is left no power or discretion
whatsoever, which he could abuse to his
advantage and to the owners prejudice.

p. 339) The Court then held that "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." . . . Clearly, therefore, petitioners, as
brokers, should be entitled to the commission
whether or not the sale of the property subject
matter of the contract was concluded through
their efforts." (at p. 341).
In Phil. Health-care Providers (Maxicare) v.
Estrada, 542 SCRA 616 (2008), the Court held that
the term "procuring cause" in describing a
broker's 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 broker-producing a purchaser ready, willing and able to
buy on the owner's terms. To be regarded as the
"procuring cause" of a sale as to be entitled to a
commission, a broker's efforts must have been the
foundation on which the negotiations resulting in
a sale began.

Entitlement to Commission. -- In quite a

number of decisions, the Court has held that the
determination of whether one is an agent or a
broker constitutes a critical factor of whether he
would be entitled to the commission stipulated in
the contract.
Thus, in Tan v. Gullas, 393 SCRA 334 (2002),
quoting from Schmid & Oberly, Inc. v. RJL Martinez
Fishing Corp., 166 SCRA 493 (1988), it defined a
"broker" as "one who is engaged, for others, on a
commission, negotiating contracts relative to
property with the cutody of which he has no
concern; the negotiator between other parties,
never acting in his own name but in the name of
those who employed him. x x x a broker is one
whose occupation is to bring the parties together,
in matters of trade, commerce or navigation." (at

From decisions of the Supreme Court, it

seems that the arrangement on entitlement to
commission determines whether the relationship
is one of broker or agency. Thus, in Hahn v. Court
of Appeals, 266 SCRA 537 (1997), the Court held
that "Contrary to the appellate court's conclusion,
this arrangement shows an agency. An agent
receives a commission upon the successful
19

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." (at p. 549)

Although Schmid & Oberly, Inc. is now

credited with laying down the definition of a
broker, the decision shows that it quoted from the
early decision of Behn, Meyer and Co., Ltd. v.
Nolting and Garcia , 35 Phil. 274 (1916),
where the Court held --

But truly, since both a brokerage

arrangement and an agency agreement are
inherently contractual relations, the entitlement of
a broker or agent to the compensation or
commission stipulated would have to depend
upon the contractual clause covering the same. In
other words, it may well be stipulated in a true
brokerage arrangement that the broker would be
entitled to a commission only when a sale is
eventually made. In the same manner, the agency
contract may well stipulate that the agent shall be
entitled to earn commission by merely bringing
the buyer and the seller together, even when the
actual sale of the person referred to by the agent
happens long after the agency relationship has
terminated.

"A broker is generally defined as one who

is engaged, for others, on a commission,
negotiating contracts relative to property with the
custody of which he has no concern; the
negotiation between other parties, never acting in
his own name but in the name of those who
employed him; he is strictly a middleman and for
some purpose the agent of both parties. (19 Cyc.,
186; Henderson vs. The State, 50 Ind., 234;
Balck's Law Dictionary.) A broker is one whose
occupation it is to bring parties together to
bargain, or to bargain for them, in matters of
trade, commerce or navigation. (Mechem on
Agency, sec. 13; Wharton on Agency, sec. 695).
Judge Storey, in his work on Agency, defines a
broker as an agent employed to make bargains
and contracts between other persons, in matters
of trade, commerce or navigation, for
compensation commonly called brokerage.
(Storey on Agency, sec. 28)" (at p. 279-280)

To illustrate, in Guardex v. NLRC, 191 SCRA

487 (1990), the Court held that 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.

Note therefore that "broker" is considered a

commercial term for a person engaged as a
middleman to bring parties together in matters
pertaining to trade, commerce or navigation. If
the person has not been given the power to enter
20

into the contract or commerce in behalf of the

parties, then he is a "broker" in the sense that his
job mainly is "to bring parties together to
bargain," and even then he may not be entitled to
his commission if the bargaining between the
parties does not result in a contract being
perfected. But in this sense, the broker does not
assume the role of an agent because he has no
power to enter into a contract in behalf of any of
the parties; he also assumes no fiduciary
obligations to either or both parties, since they
are expected to use their own judgment in
deciding to bind or not to bind themselves to a
contract.

Far Eastern Export & Import Co. v. Lim Tech Suan,

97 Phil. 171 (1955).

On the other hand, if the person has been

given the power to enter into a contract or
commerce on behalf of any, or even for both the
parties, he is truly a broker and an agent. In which
case, he assumes fiduciary obligations to the
person who is therefore legally his principal. In
such case, he is entitled to a commission if his
efforts (i.e., the services he rendered) where the
efficient cause for the eventual perfection and
consummation of the contract that was the object
for appointing him broker/agent.

[1]See Chemphil Export v. Court of Appeals, 251 SCRA 217 (1995);

Pearl Island Commercial Corp. v. Lim Tan Tong,

101 Phil. 789 (1957).
National Rice and Corn Corp. v. Court of Appeals,
91 SCRA 437 (1979).

Shopper's Paradise Realty v. Roque, 419 SCRA 93 (2004);

Dominion Insurance Corp. v. Court of Appeals, 426 SCRA 620, 626
(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).

[2]Citing Orient Air Services and Hotel Representatives v. Court of

Appeals, 274 Phil. 927, 939 (1991).

[3]DE LEON AND DE LEON, COMMENT AND CASES ON PARTNERSHIP AGENCY

AND TRUSTS,
LEONS".

2005 ed., at p. 356; hereinafter referred to as "DE

[4]Reiterated in Eurotech Industrial Technologies, Inc. v. Cuizon,

Related Cases:

521 SCRA 584 (2007).

Chua Ngo v. Universal Trading Co., Inc ., 87 Phil.

331 (1950).

[5]See also Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
[6]Citing Bordador v. Luz, 283 SCRA 374, 382 (1997).

21

[7]ROSCOE T. STEFFEN, AGENCY- PARTNERSHIP IN A NUTSHELL

Agency may be oral, unless the law requires a

specific form."

(1977) 30-31.

[8]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

In Equitable PCI-Bank v. Ku, 355 SCRA 309

(2001), it was held that an agency may be
express but it may also be implied from the acts
of the principal, from his silence, or lack of action
or his failure to repudiate the agency knowing that
another person is acting on his behalf without
authority. Likewise, acceptance by the agent may
also be express, although it may also be implied
from his acts which carry out the agency, or from
his silence or inaction according to the
circumstances. Thus, when a law firm allowed the
employee of its client to occasionally receive its
mail, and not having formally objected to the
receipt by said employee of a court process, or
taken any steps to put a stop to it, meant that an
agency relationship had been established, to
which receipt of the court process by said
employee was legally deemed to be service to the
law firm.

[9]Quoting from Reyes and Puno, "An Outline of Philippine Civil

Law," Vol. V, p. 277.

[10]Citing 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown

vs. Coates, 67 ALR 2d 943; Haymes vs. Rogers, 17 ALR 2d 896;

Moore vs. Turner, 32 ALR 2d 713.

POSTED BY Dean Cesar L. Villanueva AT 8/02/2008

3:25 AM | 0 COMMENTS | POST A COMMENT |
DIGG IT

II. FORM REQUIRED FOR CONTRACTS OF AGENCY

In Lim v. Court of Appeals, 254 SCRA 170

(1996), the Court noted that there are some
provisions of law which require certain formalities
for particular contract: 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 such as those
mentioned in Article 1357 and 1358 of the Civil
Code; and the third is when the form is required
for the purpose of proving the existence of the

2. Forms Required of Agency

a. How Agency May Be Constituted
Article 1869 emphasizes the consensual
nature of the contract of agency: "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.
22

contract, such as those provide in the Statute of

Frauds in Article 1403. Since a contract of agency
to sell pieces of jewelry on commission does not
fall into any of the three categories, it was
considered valid and enforceable in whatever
form it may have been entered into.

made with both principal and agent being

physically present at the time of perfection of the
contract of agency (i.e., "Between persons who
are present"), the acceptance of the agency may
be implied if the principal delivers his power of
attorney to the agent and the latter receives it
without objection.

(1) From the Side of the Principal

On the other hand, under Article 1872, when
the constitution of the agency is made with the
principal and agent not being physically present in
one place (i.e., "Between persons who are
absent"), then there can be no implied acceptance
of the agency from the silence or inaction of the
agent, except in two instances:

On the side of the principal, Article 1869 of

the Civil Code provides that an agency is impliedly
constituted (i.e., principal has given his consent to
the agency arrangement) from his acts formally
adopting it, or from his silence or inaction, or
particularly from his failure to repudiate the
agency knowing someone is acting in his name.
Certainly, the ideal form by which the principal is
deemed to have entered into a contract of agency
is when he issues a written power of attorney to
the person designated as agent.

(a) When the principal transmit his power of

attorney
to
the agent (i.e., it is in writing?), who
receives
it
without
any objection; or

(2) From the Side of the Agent

On the side of the agent, Article 1870
provides that his acceptance of the agency (i.e.,
agent has given his consent to the agency
arrangement) may be expressed, or implied from
his acts which carry out the agency, or from his
silence or inaction according to the circumstances.

(b) When the principal entrusts to the agent 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.

Under Article 1871, which describes the

most ideal form of perfection of the contract of
agency, when the constitution of the agency is

The languages used in Articles 1871 and

1872 indicates that the "power of attorney" must
constitute a written instruments, because in both
23

cases the articles refer to situations where "the

principal delivers his power of attorney to the
agent," and when "the principal transmits his
power of attorney to the agent," which requires
that it must be in writing, which today would
include texting and electronic mail, which are
considered to be equivalent to a written
instrument under the Electronic Commerce Law.
Consequently, when the other provisions of the
Law on Agency refers to "general power of
attorney" and "special power of attorney," does
the law mean that they conform to the
rudimentary requirement that they be in writing?

thereby becomes a duly authorized agent with

respect to the person who received the special
information. The clear implication is that even
when in fact there has been no meeting of the
minds between the purported principal and agent
(i.e., there is strictly speaking no contract of
agency), there is deemed to have arisen one with
respect to the third party who has been so
informed by the principal.
On the other hand, when the principal states
by public advertisement that he has given a
power of attorney to a third person (the agent),
the latter thereby becomes a duly authorized
agent with regard to any person.

(3) From the Side of Third Parties/Public

The previous rules on when a contract of
agency is deemed constituted (i.e., perfected) are
taken from the intramural point of view: as
between the parties to the contract of agency.
However, a contract of agency is merely a
preparatory contract, and is meant to achieve
goals beyond its own "being"; consequently, the
Law on Agency contained in the Civil Code
provides for additional rule that addresses most
essentially the targets of every contract of
agency: the third parties intended to be
contracted with by the agent in behalf of the
principal.

It is specifically provided in said article that

"[t]he power [of the agent] shall continue to be in
full force until the notice is rescinded in the same
manner in which it was given."
Thus, under Article 1921, if the agency has
been entrusted for the purpose of contracting with
specific persons (referred to as "special agency"),
the revocation of the agency shall not prejudice
the latter if they were not given notice thereof.
Under Article 1922, if the agent had been granted
general powers (referred to as "general agency"),
the revocation of the agency will not prejudice
third persons who acted in good faith and without
knowledge of the revocation; however, notice of
the revocation in a newspaper of general

Under Article 1873, when the principal

informs another person that he has given a power
of attorney to a third person (the agent), the latter
24

circulation constitutes sufficient notice to bind

third persons.

implied agency must be held to have been

created from their silence or lack of action, or
their failure to repudiate the agency."

In Rallos v. Yangco, 20 Phil 269 (1911), the

Court held that a long-standing client, acting in

(4) Agency Not Presumed to Exist

good faith and without knowledge, having sent

goods to sell on commission to the former agent
of
the
defendant,
could recover
from the
defendant, when no previous notice of the
termination of agency was given said client . The
Court emphasized that 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, the defendant was
held 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.

Although an agency contract is consensual

in nature and generally requires no formality, the
Court has stressed that an agency arrangement is
never presumed. Lopez v. Tan Tioco, 8 Phil. 693
(1907) In other words, the declaration of one that
he is an agent of another is never to be accepted
at face value. except in those cases where an
agency arises by express provision of law.
Compania Maritima v. Limson, 141 SCRA 407
(1986).
In People v. Yabut, 76 SCRA 624 (1977), it
was held that although the perfection of a
contract of agency may take an implied form, the
existence of an agency relationship is never
presumed. The relationship of principal and agent
cannot be inferred from mere family relationship;
for the relation to exist, there must be consent by
both parties. The law makes no presumption of
agency;
it
must
exist
as
a
fact. [1]

In Conde v. Court of Appeals, 119 SCRA 245

(1982), the Court held that when the right of
redemption by sellers-a-retro is exercised by their
son-in-law who was given no express authority to
do so, and the buyer-a-retro accepted the exercise
and done nothing for the next ten years to clear
their title of the annotated right of repurchase on
their title, and possession had been given to the
sellers-a-retro during the same period, then "an

In Harry E. Keeler Elec . Co. v. Rodriguez,

44 Phil. 19 (1922), the Court ruled that a third
person must act with ordinary prudence and
reasonable diligence to ascertain whether the
agent is acting and dealing with him within the
scope of his powers. Obviously, if he knows or has
25

good reason to believe that the agent is

exceeding his authority, he cannot claim
protection. So, if the character assumed by the
agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks is of
such an unusual or improbable character, as
would suffice to put an ordinarily prudent man
upon his guard, the party dealing with him may
not shut his eyes to the real state of the case but
should withal refuse to deal with the agent at all,
or should ascertain from the principal the true
condition of affairs.

In Dizon v. Court of Appeals, 302 SCRA 288

(1999), the Court held that 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 and must
discover upon his peril the authority of the agent.
Since there was no showing that the other coowners 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.

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

the Court held that "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 illadvised. 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." (at p. 382)

On the other hand, under Article 1873, the

declaration of a person that he has appointed
another as his agent is deem to have constituted
the person alluded to as an agent (even when the
latter is unaware), insofar as the person to whom
such delcaration ihas been made. What is clear
therefore is that third parties must never take the
words or representation of the purported agent at
face value; they are mandated to apprise
themselves of the commission and extent of
powers of the purported agent. On the other
hand, third parties (to the contract of agency) can
take the words, declarations and representations
of the purported principal with respect to the
26

appointment of, and extent of powers, of the

purported agent. The principle is self-evident from
the nature of agency as a relation of
representation--that an agent acts as though he
were the principal- and therefore if the principal
himself says so, then it is taken at face value as a
contractual commitment.

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." (at p.
555) The hotel owner was deemed 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.

b. Agency by Estoppel
Under Article 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
auhtorized agent, even if previously there was
never a meeting of minds between them.

In Naguiat v. Court of Appeals, 412 SCRA

592 (2003), the Court applied the provisions of
Article 1873 of the Civil Code to rule that if by the
interaction between a purported principal and a
purported agent in the presence of a third person,
the latter was given the impression of the
existence of a principal-agency relation, and the
purported principal did nothing to correct the third
person's impression, an "agency by estoppel is
deemed to have been constituted, and the rule is
clear: one who clothes another with apparent
authority as his agent, and holds him out to the
public as such, cannot be permitted to deny the
authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with
such person in good faith, and in the honest belief
that he is what he appears to be." (at p. 599)

Under Article 1911, even when the agent has

exceeded his authority (i.e., he acts without
authority from the principal), the principal shall be
solidarily with the agent if he allowed the agent to
act as though he had full powers.
In In Macke v. Camps, 7 Phil 553 (1907).
where the owner of a hotel/cafe business allowed
a person to use the title "managing agent" and
during his prolonged absences allowed 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.The Court held that "One who clothes
another apparent authority as his agent, and
holds him out to the public as such, can not be
27

In Litonjua, Jr. v. Eternit Corporation, 490

SCRA 204 (2006), the Court held that for an
agency by estoppel to exist, the following must be
established: (1) the principal manifested a
representation of the agent's authority or
knowingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied
upon such representation; (3) relying upon such
representation, such third person has changed his
position to his detriment. An agency by estoppel,
which is similar to the doctrine of apparent
authority, requires proof of reliance upon the
representations, and that, in turn, needs proof
that the representations predated the action taken
in reliance.

III. KINDS OF AGENCY

3. Kinds of Agency
a. Based on the Business or Transactions
Covered
Under Article 1876, an agency is termed to
be a "general agency" when it encompasses all of
the business of the principal. The better term for
such an agency would be a "universal agency," for
the term "general agency" is one that is
addressed to the general public, and not just a
particular person or group of persons which whom
the agent is to transact.
In Siasat v. Intermediate Appellate Court,
139 SCRA 238 (1985), the Court held that a power
of attorney which provides that "This is to
formalize our agreement for you to represent
United Flag Industry to deal with any entity or
organization,
private
or
government,
in
connection with the marketing of our products-flags and all its accessories. For your services, you
will be entitled to a commission of 30%," was
construed to authorize the agent to enter into
contract of sale over the products covered and for
which he would be entitled to receive
commissions stipulated. It held that "[a] general

[1]Reiterated in Lim v. Court of Appeals, 251 SCRA 408

(1995).

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28

agent usually has 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."

b. Whether
Matters

or

Not

It

Covers

Litigation

Although not specifically treated in the Civil

Code, we should distinguish between a form of
agency called "attorney-at-law," from that of
"attorney-in-fact.."

On the other hand, Article 1876 defines a

"special agency" when it covers only one or more
specific transactions. The better term for such an
agency is "particular agency;" for indeed, the term
"special agency" has been used in decisions of the
Supreme Court to refer to one which is addressed
to a particular person or group of persons with
whom the agent is to transact.

An attorney-at-law, necessarily means the

appointment of an agent to represent the
principal on legal matters, particularly on matters
pertaining to litigation or court matters. Not every
attorney-client relationship is a contract of agency
where the essential objective is representation,
such as when an attorney is retained to draw-up
legal documents. But when it comes to litigation,
the retaining of an attorney is truly in
representation of the client-principal before the
court, such that the acts of the attorney for and in
behalf of the client, that notice to the attorney,
and service of judicial process to the attorney, is
equivalent to service to the client principal. Under
existing rules and jurisprudence, such an agent
would be practicing law and would have to be a
licensed lawyer. The relationship is one that is
fiduciary and professional, and is governed by
separate rules, including the legal professional
code and the rules promulgated by the Supreme
Court covering the practice of law.

The classifications under Article 1876 are

more academic than practical, since outside of
guardianship proceedings, hardly anybody in the
modern world empowers an agent to cover every
business aspect owned by the principal. Beside
such a classification is not really useful because a
"general or universal agency" can by law only
cover general powers of attorney covering merely
acts of administration; and cannot, without
express or detailed description, cover special
powers of attorney, covering particular acts of
strict ownership. Therefore, a general agency is
better achieved by other contractual forms such
as a contract of employment, or a universal
partnership.
Robinson Fleming v. Cruz, 94 Phil 42

Consequently, the term "attorney-in-fact" is

intended to describe all agents appointed by a
principal to act on juridical relations that have

(1926)
29

nothing to do with legal matters and do not

constitute a practice of law on the part of the
agent. This is the classification that covers the
"contract of agency" governed by the Civil Code.

administration. Thus, under Article 1877 of the

Civil Code: "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."

It should be noted, however, that even in

the case of an attorney-at-law representing a
client in a court case, there are certain powers
which are not inherent in the position of an
attorney-at-law to legally bind the client, such as
the power to compromise, to arbitrate, etc.
Whether an attorney-at-law has power to bind the
client principal in such matters are governed by
the rules of the Civil Code on special agency or
special powers of attorney.

Distinction between general power of

attorney and special power of attorney shall be
covered in the immediately succeeding chapter on
the "Power and Authority, Duties and Obligations,
of the Agent."
In Macke vs. Camps, 7 Phill. 553 (1907), the
Court held: "It seems easy to answer that acts of
administration are those which do not imply the
authority to alienate for the exercise of which an
express power is necessary. Yet what are acts of
administration will always be a question of fact,
rather than of law, because there can be no doubt
that sound management will sometimes require
the performance of an act of ownership. (12
Manresa 468) But, unless the contrary appears,
the authority of an agent is presumed to include
all the necessary and usual means to carry out
the
agency
into
effect."
(at
p.
555)

c. Whether It Covers Acts of Administration

or Acts of Ownership
It is in the realm of "attorney-in-fact" that we
would more appropriately use the classifications
of "general power of attorney" and "special power
of attorney" to describe the authority and power
of the agent.
Simply stated, a general power of
attorney covers only acts of administration, or
expressed in commercial terms, it only covers
power to pursue the ordinary or regular course of
business. Whereas, a special power of attorney
covers acts of dominion or strict ownership. The
general rule is that unless so expressly stated, an
agency covers only the powers to execute acts of

In Insular Drug Co. v. PNB, 58 Phil 684

(1933), it was held that the right of an agent to
indorse a commercial paper is never presumed to
exists; it must be clearly granted by the principal.
30

A salesman with authority to collect money

belonging to the principal does not have implied
authority to indorse the checks received in
payment. Any person taking checks payable to a
corporation through the endorsement of an agent,
does so at his peril and must abide by the
consequences if the agent who indorses the same
is without authority.

1. GENERAL OBLIGATION
THE AGENCY

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Article 1884 expresses in the realm of

Agency
the
contract
law
principles
of
consensuality, mutuality and obligatory force
expressed in Articles 1159 and 1315 of the Civil
Code, which provide that "Obligations arising from
contracts have the force of law between the
contracting parties and should be complied with in
good faith," and that "Contracts are perfected by
mere consent, and from that moment the parties
are bound not only to the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and
law." Likewise, Article 1356 of the Civil Code
provides that "Contracts shall be obligatory, in
whatever form they may have been entered into,
provided all the essential requisites for their
validity are present." Finally, Article 1308 provides
that the "contract must bind both contracting
parties; its validity or compliance cannot be left to
the will of one of them."

OF

AGENT WHO ACCEPTS

Under Article 1884, when an agent accepts

the appointment of the principal, then he is legally
bound to carry out the terms of the agency;
otherwise, if he fails or refuses to carry on the
agency, he shall be liable for damages suffered by
the principal by reason of his non-feasance or
non-performance.

IV. AUTHORITY & POWER, DUTIES & OBLIGATIONS,

OF THE AGENT

II. POWER & AUTHORITY,

DUTIES &
OBLIGATIONS, OF THE
AGENT

31

Despite the obligatory nature of every

contract of agency, note that Article 1884
emphasizes the point that when an agent refuses
to comply with the obligations he accepted for
himself, the remedy of the principal is to sue him
for damages, since an action for specific
performance is not available for personal
obligations to do or not to do. The liability of an
agent for damages when he fails to carry out his
obligations is consistent with the terms of Article
1170 of the Civil Code which provides that "Those
who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof,
are liable for damages." This same principle is
expressed in Article 1909 of the Law on Agency,
which provides that "[t]he agent is responsible not
only for fraud, but also for negligence, which shall
be adjudged with more or less rigor by the courts,
according to whether the agency was or was not
for a compensation."

respect to third parties. Consequently, even if

strictly speaking the agency relation is terminated
upon the death of the principal, the established
but unfinished contracts and transactions then
pending must be fulfilled by the agent on behalf of
the
decedent,
when
continuation
of
representation is necessary.
(1) Measure of Damage for an Agent's NonPerformance of Obligation
In BA Finance v. Court of Appeals, 201 SCRA 157
(1991), under the deed of chattel mortgage, the
finance company was constituted as an attorney-infact for the mortgagors with full power and authority to
file, follow-up, prosecute, compromise or settle
insurance claims; to sign execute and deliver the
corresponding papers, receipts and documents to the
insurance company as may be necessary to prove the
claim, and to collect from the latter the proceeds of
insurance to the extent of its interests, in the event
that the mortgaged car suffers any loss or damage,
the grant of power constituted the finance company as
the agent of the mortgagors. When the mortgaged
motor vehicle figured in an accident that would have
allowed recovery on the insurance claim for total loss,
and the mortgagors had instructed the finance
company to make such claim, but instead it opted to
have the motor vehicle repaired and forego the total
loss claim, the Court decreed that the failure and
refusal of the finance company to seek total loss
claims on the vehicle mortgaged against the insurance
company, constituted negligence and not outright
refusal to comply with the instructions of the
principals, and liable for damages. It held that under

Finally, although a contract of agency is

terminated ipso jure upon the death of the
principal, nonetheless, Article 1884 provides
expressly that the agent must finish the business
already begun upon death of principal should
delay
entail
any
danger.
This
provision
emphasizes the characteristic of agency to be
merely a preparatory contract; that it is
constituted not for its own sake, by primarily to be
the basis by which the agent may enter into
juridical acts on behalf of the principal with
32

Article 1884 of the Civil Code, the finance company

was bound by its acceptance to carry out the agency,
and is liable for damages which, through its nonperformance, the principals-mortgagors may suffer.
Consequently, by reason of the loss suffered by the
principals, the Court held that the finance company
could no longer collect on the unpaid balance of the
promissory note secured by the chattel mortgage.

2. OBLIGATION

OF

AGENT WHO DECLINES AGENCY

Under Article 1885, if 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."
The article mandates the owner in such case to
"as soon as practicable either appoint an agent or
take charge of the goods."

In PNB v. Manila Surety, 14 SCRA 776

(1965), 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.

We should compare the obligations of a

person who declines an agency, from one who
withdraws from an agency he previously
accepted. Under Article 1929, even if an agent
withdraws from the agency for a valid reason, "he
must continue to act until the principal has had
reasonable opportunity to take the necessary
steps
to
meet
the
situation."

In Barton v. Leyte Asphalt, 46 Phil 938

(1924), where the prevailing statutory rule then
was Article 267 of the Code of Commerce which
delared 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 provisions of Articles 1885 and 1929

constitute rare instances where a duty of diligence
is owed by a person to another outside of an
existing contractual bond.
3. GENERAL
AUTHORITY:

RULE

ON

AGENT'S

POWER

AND

a. Agent Must Act Within the Scope of

His Authority
33

Under Article 1881, the agent must act

"within the scope of his authority," which
essentially means that since the agent acts in
representation of the principal, he must enter into
juridical relations on behalf of the principal and
representing the will of the principal, and not his
(agent's) own will. The general rule embodies the
two fiduciary duties of the agent to the principal:
duty of obedience and the duty of diligence.

with the principals instruction, he is acting

within the scope of his authority.
Nonetheless, agency relation is entered into
mainly for business or commercial ventures, and it
is not expected that the principal can cover ever
contingencies with specific instructions, or that
every act of the agent must be based on detailed
instructions of the principal. Indeed, the agent is
expected to use his business discretion as that of
the principal would or could if personally present.
Therefore, we should consider the principal's
instructions as the limit of an agent's power; and
that in the absence of limiting instructions, it is
expected that the agent uses his best judgment to
stay within the scope of the principal's authority
granted to him. This is part of the duty of
diligence of every agent who accepts an agency
designation.

a. Duty of Obedience
(1) As Between the Principal and the Agent
That the agent must act "within the scope of
his authority" means that that every agent
assumes by his acceptance of the agency to be
obedient to the will of the principal, which is best
expressed under Article 1887 of the Civil Code,
which provides that "[i]n the execution of the
agency, the agent shall act in accordance with the
instructions of the principal." There is no doubt
that when an agent complies with the instructions
of his principal, he is acting within the scope of his
authority.

This principle is best expressed under Article

1881, which provides that the agent "any do such
acts as may be conducive to the accomplishment
of the purpose of the agency." Likewise, Article
1882 provides that "[t]he limits of the agent's
authority shall not be considered exceed should it
have been performed in a manner more
advantageous to the principal than that specified
by him." In other words, an agent not only has
express powers, but also implied powers
emanating from the express powers granted to
him; as well as incidental powers necessary in

As held in Victorias Milling Co., Inc. v. Court

of Appeals, 333 SCRA 663 (2000), one factor that
most clearly distinguishes an agency from other
legal concepts, including sale, is control: one
person--the agent--agrees to act under the control
or direction of another--the principal. It is clear
therefore, that when an agent acts in accordance
34

that essentially addresses the interests of third parties

with whom the agent enters into juridical relations on
behalf
of
the
principal.

order to achieve the purpose for which the agency

was
constituted.
InTan Tiong v. SEC, 69 Phil 425 (1940), it
was held that the agent is not deemed to have
exceeded his authority should he perform the agency
in a manager more advantageous to the principal than
that indicated by the principal. Thus, when the agent
sells the car of the principal for more than the amount
indicated by the principal, then he has not exceeded
his authority because a higher price is more
advantageous to the principal.

Thus, under Article 1911, even when the agent

has exceeded his authority, the principal remains
solidarily liable with the agent if the principal allowed
the agent to act as though he had full powers.

(2) As To Third Parties

Under Article 1900, insofar 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 agent." In other words, as to third
parties acting in good faith, the written
instructions of the principal are the binding
powers of the agent, and cannot be overcome by
non-written instructions of the principal not made
known to them. In Bank of P.I. v. De Coster, 47
Phil. 594 (1925), the Court held that the powers
and duties of an agent are confined and limited to
those which are specified and defined in his
written power of attorney, which limitation is a
notice to, and is binding upon, the person dealing
with such agent.

The terms of Article 1887 which effectively states

that when an agent acts contrary to the instructions of
his principal, he is deemed to have acted without or in
excess of authority, is a rule that governs the
relationship of the principal and agent; it is not a rule

In effect, when the power of attorney of the

agent has been reduced in writing by the
principal, it constitute, even as to third parties
dealing with the agent, the highest form of the
extent and limitation of the powers of the agent,

The principle was reiterated in the syllabus

of
the
published
decision
inOlaguer
v.
Purugganan, Jr., 515 SCRA 460 (2007), it was held
that under Article 1882 of the Civil Code the limits of
an agent's authority shall not be considered exceeded
should it have been performed in a manner
advantageous to the principal than that specified by
him. In that decision, the manner by which the
attorney-in-fact pursued the sale of the shares of the
principal, and the payment of the consideration so as
not to reveal that he owned such shares as requested
by the principal, were all deemed to have been
executed by the agent within the scope of his
authority.

35

and third parties should contract on the basis of

such written instrument. Thus, Article 1902
provides that 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. In
addition, private or secret orders and instructions
of the principal do not prejudice third persons who
have relied upon the power of attorney or
instruction
shown
them.

The authority or extent of authority of an

agent cannot be established by his own
representations out of court but upon the basis of
the manifestations of the principal himself. 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. BA Finance
Corp. v. Court of Appeals, 211 SCRA 112 (1992);
Velasco v. La Urbana, 58 Phil. 681 (1933);
Bacaltos Coal Mines v. Court of Appeals, 245 SCRA
460 (1995); Safic Alcan & Cie v. Imperial
Vegetable Oild co., Inc., 355 SCRA 559 (2001).

Outside of the written power of attorney of

an agent, third parties who deal with such agent
are not supposed to presume that the agent is
fully authorized. The rule has always been that
every person dealing with an assumed agent is
put upon an inquiry and must discover upon his
peril, if he would hold the principal liable, not only
the fact of the agency but the nature and extent
of the authority of the agent. Strong v. Gutierrez
Repide, 6 Phil. 680 (1960); Deen v. Pacific
Commercial Co., 42 Phil. 738 (1922); Velso v. La
Urbana, 58 Phil. 681 (1933);Toyota Shaw, Inc. v.
Court of Appeals, 244 SCRA 320 (1995).

If a third person does not make an inquiry

into the authority of an assumed agent, he is
chargeable with knowledge of the agent's
authority, and his ignorance of that authority will
not be an excuse. Bacaltos Coal Mines v. Court of
Appeals, 245 SCRA 460 (1995).
Nonetheless, in spite of the fact that the
purported agent acts without authority or in
excess of authority, under Article 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
agents acts.

The fact that one is dealing with an agent,

whether the agency be general or special, should
be a danger signal. The mere representation or
declaration of one that he is authorized to act on
behalf of another cannot of itself serve as proof of
his authority to act as agent or of the extent of his
authority as agent. Yu Eng Cho v. Pan American
World Airways, Inc., 328 SCRA 717 (2000).

b. Duty of Diligence
(1) As Between the Principal and the Agent
36

Under Article 1887, it is the obligation of

every agent who accepts the agency to act in
accordance with the instructions of the principal,
and in default thereof, to do all that a good father
of a family would do as required by the nature of
the business. In the same manner, Article 1909
provides expressly that the agent is responsible
not only for fraud, but also for negligence.

principal would suffer no loss or damage in the

pursuit of the agency; human nature as it is, the
sustaining of losses due to human error is part of
the risk of every owner or principal, even when he
himself carries on the business. The obligation of
the agent is to avoid losses which are clearly
avoidable from the exercise of due diligence of a
good father of a family.

In essence, the duty of diligence requires of

the agent to act on behalf of the principal
exercising the due diligence of a good father of a
family; and he is in breach of such fiduciary duty
when he acts in fraud or in negligence, even when
he pursues the business of the principal. Articles
1887 and 1909 of the Civil Code confirm the
truism that in the pursuit of the agency, it is
expected that the agent would have to act based
on his own assessment of what is necessary under
the situation when it is not covered by an express
instruction from the principal. The agent is
supposed to exercise the business judgment
expected from the principal when entering into
juridical relations with third parties or pursuing the
business under his management.

When an agent violates his duty of diligence,

he becomes personally liable to the principal for
the damages caused to the principal by reason of
his fraud or negligence.

As a matter of guideline of what is within his

power, Article 1888 provides that the agent "shall
not carry out an agency if its execution would
manifestly result in loss or damage to the
principal." Notice that the article covers only acts
that would "manifestly" lead to losses; in other
words, the agent cannot be a guarantor that the

(2) As to Third Parties

It should be emphasized however, that when

the agent acts in accordance with the instructions
of the principal, the agent cannot be deemed to
have acted in fraud against the principal or to
have acted negligently, even when damage was
caused to the principal. Thus Article 1899 provides
that "If a duly authorized agent acts in accordance
with the orders of the principal, the [principal]
cannot set up the ignorance of the agent as to
circumstances whereof he himself was, or ought
to have been, aware."

Since an agent acts in representation of his

principal, when he acts within the scope of his
authority, but does so with fraud or negligence
that causes damage to third persons, the principal
is liable to such injured parties to the damages
37

caused by the agent, as though he himself had

directly caused the damages.

c. Effects on the Agent of Contracts Entered

into
Within the Scope of His Authority

When an agent acts with fraud or negligence

but pursuant to the instructions of the principal,
would the agent then be personally liable to the
third parties injured thereby? In other words, does
the agent also become personally liable to third
parties injured by his fraudulent or negligent acts?
The answer would be in the affirmative. Under
Article 1909, "[t]he agent is [personally]
responsible not only for fraud, but also for
negligence, which shall be judged with more or
less rigor by the courts, according to whether the
agency was or was not for a compensation." In
other words, acts of fraud or negligence on the
part of the agent, even when acting for and in
behalf of the principal, are by themselves causes
of action for the injured party against the person
of
the
acting
agent.

All contracts and transactions entered into

by the agent on behalf of the principal with the
scope of his authority are binding on the principal,
and the agent does not stand to either be liable,
or to have gained any right on his own accord,
thereunder. Thus, Article 1897 provides that "[t]he
agent who acts as such is not personally liable to
the party with whom he contract, unless he
expressly binds himself or exceeds the limits of
his authority without given such party sufficient
notice of his powers."
In Ang v. Fulton Fire Insurance Co., 2 SCRA
945 (1961), it was held that when the agent has
acted within the scope of his authority, the action
on the contract must be brought against the
principal and not against the agent.

Thus, in British Airways v. Court of

Appeals, 285 SCRA 450 (1998), it was held that

In Bay View Hotel v. Ker & Co., 116 SCRA

327 (1982), the Court held that the acts and
declaration of the agent within the scope of his
authority and during its existence are considered
and treated as those of principal.

when
one
airline
company
(British
Airways)
subcontracts a leg of the international trip of its
passenger to another airline company (PAL), the
contract of air transportation was exclusively between
passenger and BA, with PAL merely acting as its agent
on the Manila to Hong Kong leg of the journey. The
well-settled rule is that an agent is also responsible for
any negligence in the performance of its function and
is liable for damages which the principal may suffer by
reason of the agent's negligent act.

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,
38

or fraud, he cannot be held responsible for the

failure of his principal to accomplish the object of
the agency. Gutierrez Hermanos v. Oria
Hermanos, 30 Phil. 491 (1915); G. Puyat & Sons,
Inc. v. Arco Amusement Company, 72 Phil. 402
(1941).

The general rule is set under Article 1317 of

the Civil Code that "No one may contract in the
name of another without being authorized by the
latter, or unless he has by law a right to represent
him. A contract entered into in the name of
another by one who has no authority or legal
representation, or who has acted beyond his
powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is
revoked by the other party."

An action brought in the name of the

agent and not in the name of the principal who is
the real party in interest, must be dismissed not
upon the merits, but upon the ground that it has
not been properly instituted. Esperanza and Bullo
v. Catindig, 27 Phil. 397 (1914).

The rules under Article 1317 are supported

under Article 1403, which includes among those
classified an "unenforceable contracts," "(1) Those
entered into in the name of another person by one
who has been given no authority or legal
representation, or who has acted beyond his
power."

Related Cases:
Cason v. Richards, 5 Phil 611 (1906)
PNB v. Manila Surety, 14 SCRA 776 (1965)
Nepomuceno v. Heredia, 7 Phil 563 (1907)

Specifically, under the Law on Agency,

Article 1898 provides that "[i]f the agent contracts
in the name of the principal, exceeding the scope
of his authority, and the principal does not ratify
the contract, it shall be void if the party with
whom the agent contracted is aware of the limits
of the powers granted by the principal. In this
case, however, the agent is liable if he undertook
to secure the principal's ratification." the following
consequences shall flow:

Phil. Bank of Commerce v. Aruego, 102 SCRA 530

(1981)
National Food Authority v. IAC, 184 SCRA 166 (1990)
Maritime Agencies & Securities, Inc. v. Court of
Appeals, 187 SCRA 346 (1990).

d. Effects of Acts Done by Agent Without or

in
Excess of His Authority

(a) it shall be void if the party with whom the

agent
39

contracted is aware of the limits of the

case such person is aware of the limits of the

agent's powers. The resulting contract would be
void even as between the agent and the third
person, and consequently not legally binding as
between them. However, if the agent promised or
undertook to secure the principal's ratification and
failed, he is personally liable. If the ratification is
obtained, then the principal becomes liable.
Cervantes v. Court of Appeals, 304 SCRA 25
(1999); Safic Alcan v. Imperial Vegetable, 355
SCRA 559 (2001); DBP v. Court of Appeals, 231
SCRA 370 (1994).

powers
granted by the principal;
(b) In such case, the agent would be liable
personally to
such third party, if he undertook to
secure the
principal's ratification;
This principle is reiterated in the second
paragraph of Article 1910 which provides that "As
for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly."

Related Cases:
Borja v. Sulyap, 399 SCRA 601 (2003).

On the other hand, if the party which whom

the agent contract is unaware of the limits of the
powers granted by the principal, the contract is
unenforceable under Article 1403(1).

National Power v. NAMARCO, 117 SCRA 789 (1982)

Zayco v. Serra, 49 Phil 985 (1925)
PNB v. Welsh Fairchild, 44 Phil 780 (1923)

Under Article 1900, the written power of

attorney given by the principal governs the
contracts entered into with third parties,
irregardless of any private limitation of powers
agreed upon between the principal and the agent.

e. Consequences When Agent Acts in His

Own Name
Under Article 1883, if an agent acts in his own
name, the principal has no right of action against the
persons with whom the agent has contracted; and
neither have such persons a right or cause of action
against the principal. It a well-established doctrine that
when an agent, do acting within the scope of his
authority, enters into the covered contract in his own
name, then the contract is binding only against the

The liability of an agent who exceeds the

scope of his authority depends upon whether the
third person was aware of the limits of the agent's
power. The agent is not bound nor liable for
damages in case he gave notice of his power to
the person with whom he has contracted, nor in
40

agent, and the principal is not bound, nor does he

have legal standing to enforce it; this is because the
contract is deemed to have been entered between the
third party and the agent as his own principal. [1]

in which case the principal is bound even when

the contract was entered into in the name of the
agent. Gold Star Mining Co., Inc. v. Lim-Jimena, 25
SCRA 597 (1968); and is a rule necessary for the
protection of third persons against possible
collusion between the agent and the principal.
PNB v. Agudelo , 58 Phil. 655 (1933).

In Gozun v. Mercado 511 SCRA 305 (2006),

it was held that 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.

Thus, the fact that money used by the agent

belonged to the principal is covered by the
exception. Sy-Juco v. Sy-Juco, 40 Phil 634
(1920).

In Marimperio Compania Naviera, S.A. v. Court

of Appeals, 156 SCRA 368 (1987), the Court held that
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.

(2) Remedy of the Principal Is to Recover

Damages
from the Agent
Article 1883 makes it clear that the
foregoing rules are without prejudice to actions
between principal and agent.
The rule in this jurisdiction is that where the
merchandise is purchased from an agent with
undisclosed principal and without knowledge on
the part of the purchaser that the vendor is
merely an agent, the purchaser take titles to the
merchandise and the principal cannot an actions
against him for the recovery of the merchandise
or even for damages, but can only proceed
against the agent. Aivad v. Filma Mercantile
Co., 49 Phil. 816 (1926).

(1) Exception: When the Property Involved

in
the
Contract Belongs to the Principal
The exception, as provided in Article 1883, is
when the properties of the principal are involved,
41

Although according to article 1883, when

the agent acts in his own name he is not
personally liable to the person with whom he
enters into a contract when things belonging to
the principal are the subject thereof; yet such
third person has a right of action not only against
the principal but also against the agent, when the
rights and obligations which are the subject
matter of the litigation cannot be legally and
juridically determined without hearing both of
them. Beaumont v. Prieto, 41 Phil. 670
(1921).

V. RULES OF WHAT POWERS MAY BE VALIDLY

EXERCISED BY THE AGENY
a. General
Administration

Rule

on

Power

of

In the absence of the grant of special power

of attorney to the agent, he is deemed to have
been extended only a general power of attorney
by the principal, and his powers can only cover
acts of administration. Thus, under Article 1877,
every agency couched in general terms can only
be construed as granting to the agent the power
to execute acts of administration, even if the
principal:

National Food Authority v. Intermediate Appellate

Court, 184 SCRA 166 (1990)

(a) States that he withholds no power from the

agent;

[1]Herranz & Garriz v. Ker & Co., 8 Phil. 162 (1907); Lim Tiu v.
Ruiz, 15 Phil 367 (1910); Smith Bell v. Sotelo Matti, 44 Phil 874
(1922); Behn Meyer & Co. v. Banco Espanol-Filipino, 51 Phil. 253
(1927); Lim Tek Goan v. Azores, 70 Phil. 363 (1940); Ortega v.
Bauang Farmers Cooperative Marketing Assn., 106 Phil. 867
(1959).

(b) States that the agent may execute acts he

considers
appropriate; or
(c) Authorizes general and unlimited management

POSTED BY Dean Cesar L. Villanueva AT 8/02/2008

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Acts of administration has the same

commercial and legal significance as "to act in the
ordinary course of business." For example, the
right to sue for the collection of debt owing to the
principal is deemed not an incident of strict
42

ownership which must be conferred in express

terms. German & Co. v. Donaldson, Sim &
Co., 1 Phil. 63 (1901).

attorney), is not determined from the title given to

the instrument, but nature on the nature of the
power given under the operative provisions of
such instrument.

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 attorney's fees charged by the lawyer.
Municipal Council of Iloilo v. Evangelista, 55 Phil
290 (1930).

But whether what is granted to the agent is

a general power of attorney or a special power of
attorney, the rule of strict construction still
prevails. Thus -

Powers of attorney are generally construed

strictly and courts will not infer or presume
broad powers from deeds which do not
sufficiently include property or subject under
which the agent is to deal. The act done must
be legally identical with that authorized to be
done. Woodchild Holdiings, Inc. v. Roxas
Electric & Construction Co., Inc., 436 SCRA
235 (2004).

The declaration of the agent alone are generally

insufficient to establish the fact or extent of her
authority. The settled rule is that persons
dealing with an assumed agent are bound at
their peril, and if they would hold the principal
liable to ascertain not only the fact of agency
but also the nature and extent of authority, and
in case either is controverted, the burden of
proof is upon them to prove it. Litonjua v.
Fernandez, 427 SCRA 478 (2004), citing Yu Eng
Cho v. Pan American World Airways, Inc., 328
SCRA 717 (2000).

Even when a special power of attorney is

granted by the principal to his agent, it is still

An agent granted under a power of attorney

the authority to deal with property which the
principal might or could have done if personally
present, is deemed authorized to engage the
services of a lawyer to preserve the ownership
and possess of the properties of the principal.
An officer who has control and management
of the corporation's business, or a specific part
thereof, is deemed to have power to employ such
agents and employees as are usual and necessary
in the conduct of the corporation's business,
except only where such authority is expressly
vested in the Board of Directors. Yu Chuck v.
Kong Li Po, 46 Phil 608 (1924).
Government of PI v. Wagner, 54 Phil 132 (1929).

Whether what is granted is an authority to

merely administer (general power of attorney), or
to do an act of strict ownership (special power of
43

the 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).

as between the principal and agent, but that third

parties who deal with him must require written
evidence of his power to execute acts of strict
ownership, otherwise, they are bound to enter
into the contract at their own risk.
In Home Insurance Co. v. United States Lines
Co., 21 SCRA 863 (1967), the Court held that
Article 1878 does not state that the special power
of attorney be in writing; be that as it may, the
same must be duly established by evidence other
than the self-serving assertion of the party
claiming that such authority was verbally given
him. In Home Insurance Co., in spite of counsel's
assurance that he had verbal authority to enter
into compromise for purpose of pre-trial
proceedings, the Rules of Court require for
attorneys to compromise the litigation of their
clients a "special authority" (then 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
him. . . For authority to compromise cannot lightly
be presumed. And if, with good reason, the judge
is not satisfied that said authority exists, as in this
case, dismissal of the suit for non-appearance of
plaintiff in pre-trial is sanctioned by the Rules.

(1) Forms Required of Powers of Attorney

Although agency is a consensual contract
and may thus be constituted by mere meeting of
minds, it seems that when the law requires the
agency to be in the form of a "power of attorney",
it means that ideally (but not necessarily) it must
be in writing. When the agency is not in writing,
then it does not necessarily mean that the
contract of agency is void, but that failure to
comply with the form required would have serious
legal consequences.
Thus, under Article 1874 of the Civil Code,
an agency to sell a piece of land or an interest
therein must be in writing, otherwise, the resulting
contract of sale would be void.
Under Article 1878, a special power of attorney is
necessary to confer power in the agency that
would constitute acts of ownership, ideally the
agency contract must be in writing. When
therefore a special power of attorney, or the
conferment of powers to the agent to execute acts
of strict ownership on behalf of the principal, is
done orally, the agency relationship may be valid

Although, there is no requirement that the

power of attorney to be valid and binding must be
44

notarized or in a public instrument. Barretto v.

Tuason, 59 Phil. 845 (1934). However, a notarized
power of attorney carries the evidentiary weight
conferred upon it with respect to its due
execution. Veloso v. Court of Appeals, 260
SCRA 593 (1996).
(2) Construction
Attorney

Rules

on

Powers

Therefore, outside of Article 1874 which

renders the sale of a piece of land void if the
power of attorney is not in writing, every contract
entered into by the agent on behalf of the
principal covering acts of ownership made
pursuant to a verbal special power of attorney
would not be void, but rather unenforceable, for
the principal has every authority to pursue the
resulting contract, and the third-party would be
estopped from refusing to comply with a contract
he willingly entered into absent the written
authority of the agent.

of

That a power of attorney be in writing seems

to be more critical to the constitution of a special
power of attorney, than to a general power of
attorney. In both types of agencies, because of the
absence of a written evidence, the burden of proof
to show that there is indeed a contract of agency
is on the part of the person who purports to act
for and in behalf of a principal, and even then
third parties are directed to ensure the nature and
extent of the agent's power. But if what was
constituted was a general power of attorney, it
covers merely acts of administration, and
therefore third parties would be less wary that the
contract or transaction they entered into is not
within the powers of the agent. On the other
hand, when what was constituted was an oral
special power of attorney, then lacking the written
evidence of what particular power of ownership
has been granted to the agent, the third party
may only reasonably presume that the agent is
granted only powers of administration.

b. Cases Where Special Powers of Attorney

Are
Necessary
Article 1878 enumerates fourteen instances
which are described as "acts of strict dominion,"
and which cannot be deemed to be within the
power of the agent unless expressly granted (i.e.,
except under a special power of attorney), and the
fifteenth case enumerated actually covers the
general rule: A duly appointed agent has no
power to exercise on behalf of the principal any
act of strict dominion unless it is under a special
power of attorney.
What makes an agency a special power of
attorney? It is not the name or title given in the deed
issued by the principal that determines whether the
agent can exercise acts of strict dominion for and in
behalf of the principal.
45

(1) To Make Payments as Are Not Usually

Considered as Acts of Administration

In Dominion Insurance, it was held that the

payment of claims by the area manager of an
insurance company did not constitute 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 were not allowed to be reimbursed from
the principal insurance company.

Payments made in the ordinary course of

business constitute merely acts of administration,
since they then go into mere acts of management.
Under Article 1877, an agency couched in general
terms comprises acts of administration which
would
include
"general
and
unlimited
management."
All other forms of payment for and in behalf
of the principal would constitute acts of strict
dominion, which are not deemed within the power
of even a duly appointed agent, unless granted
specially or under a special power of attorney.

(2) To Effect Novation Which Put an End to

Obligations Already in Existence at the
Time
the
Agency Was Constituted

In Dominion Insurance v. Court of Appeals,

376 SCRA 329 (2002), although a "Special Power
of Attorney" was issued by the insurance company
to its agency manager, its wordings showed that it
sought only to establish an agency that comprises
all the business of the principal with the
designated locality, but couched in general terms,
and consequently was limited only to acts of
administration. The Court held that 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.

The power of an agent to novate obligations

"already in existence at the time the agency was
constituted," which must be covered by a special
power of attorney, would imply that if the
obligation was created only during the agency
relationship, the power to create such obligation
granted to the agent brings with it the implied
power to novate it.
What happens if the agent is clearly
empowered under a special power of attorney to
incur an obligation in behalf of the principal, and
46

in the process of doing so, the agent novates an

pre-existing obligation?

Under Article 1880, 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.
With such special exclusion rule under Article
1880 as to the powers to compromise and
arbitrate, would that mean all other powers
covered under the paragraph numbered 3 of
Article 1868 are not mutually exclusive? In order
words, the grant of the special power to
compromise would mean that the implied power
of the agent to renounce the right to appeal from
a judgment of a lower court, if that be essential in
arriving at a compromise resolution before the
appellate court. Same thing could be said of the
special power to waive objections to the venue of
an action, or to waive a prescription already
acquired, vis- -vis the special power to
compromise.

(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
Under Article 1880, a special power to
compromise does not authorize submission to
arbitration. It may also be deduced that a special
power to submit to arbitration cannot be
construed to grant to the agent the power to
compromise.
Under Article 2028, compromise is a
contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an
end to one already commenced.

When the attorney-in-fact has been

authorized in writing to institute any action in
court to eject all person found in a specified parcel
of land "and for this purpose, to appear at the pretrial and enter into any stipulation of facts and/or
compromise agreement but only insofar as this
was protective of the rights and interests of the
principal in the property," the same does not
constitute authority to enter into a compromise
agreement that provides for the sale of the
property to the defendant in the case thus filed.
The judgment based on compromise entered into

Section 3(d) of the Alternative Dispute

Resolution Act of 2004 (R.A. No. 9285),
"arbitration" is defined as "a voluntary dispute
resolution process in which one or more
arbitrators, appointed in accordance with the
agreement of the parties, or rules promulgated
pursuant to this Act, resolve a dispute by
rendering an award."
47

by the attorney who has not shown specific

authority to do so was declared void. Cosmic
Lumber v. Court of Appeals, 265 SCRA 168 (1996).
Nonetheless, in Dungo v. Lopena, 6 SCRA 1007
(1962), the court characterized a compromise
entered into by the lawyer without the special
power of attorney of client not to be void but
merely unenforceable.

means is that when within the scope of authority

of the agent's authority he may do so as an
implied or incidental power; whereas, the power
to waive an obligation owed to the principal
gratuitously can only arise as an express power,
but not implied or incidental power of an agent. In
other words, the equivalent of the term "to waive
any obligation onerously," would be equivalent to
payment or performance of the obligation, which
by its essence is an act advantageous to the
principal, and when done without express
authority is still within the scope of the agent's
authority.

Confession of judgments stands on the same

footing as a compromise, and may not be entered
into by counsel except with the knowledge and
consent of the client, or upon his special
empowerment. Acener v. Sison, 8 SCRA 711
(1963).

Another way of approaching the issue, is

that if under paragraph numbered 1 of Article
1878, every agent has the implied power to make
payments that in the ordinary course of business,
then moreso can an agent collect payments on
obligations owing to the principal, which by their
nature are also acts of administration or
management.

(4) To Waive Any Obligation Gratuitously

"To waive any obligation gratuitously" is the
inelegant version of the legal term "condonation
or remission of the debt" which under Article 1270
"is essentially gratuitous, and requires the
acceptance by the obligor. It may be made
expressly or impliedly." In other words, an agent
cannot outside of a special power of attorney,
condone or remit the obligations owing to the
principal; and if he does so, the act is
"unenforceable."

(5) To Enter into Any Contract by Which the

Ownership
of
an
Immovable
Is
Transmitted
or
Acquired Either Gratuitously or for a
Valuable
Consideration

It does not mean however, that every agent

of the principal would have the power to waive
the
principal's
obligation
for
valuable
consideration outside of authority to do so; what it

Paragraph numbered 5 of Article 1878

covers only immovable property, as distinguished
from movable property. It does not mean that
48

every agent has the implied power to transmit or

acquire ownership over movable property on
behalf of the principal; what the paragraph
intends to convey is that there can never be an
implied power on the part of the agent to transmit
or acquire ownership over immovable property,
whether by onerous or gratuitous title; if such
power shall be deemed to exist is must be
expressly granted.

in writing in order to be valid. Rodriguez v.

Court of Appeals, 29 SCRA 419 (1969). In
Pineda v. Court of Appeals, 376 SCRA 222 (2002), it
was held that when a house and lot was sold by
an agent who had no authority from the registered
owner to do so, the resulting sale is void:
The Civil Code provides that in a sale of a
parcel of land or any interest therein is 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] x x x A special power of attorney is
necessary to enter into any contract by which the
ownership of an immovable is transmitted or
acquired for a valuable consideration. Without an
authority in writing . . . any 'sale' . . . is void. (at p.
228)

Paragraph numbered 5 of Article 1878

creates the "general rule|" of special power of
attorney when it comes to immovable property;
and generally renders the resulting contracts
merely unenforceable. When it comes to a
particular type of immovable property, namely
land or any interest therein, Article 1874 applies
specifically, i.e., not only must the power be
granted under a special power of attorney (i.e.,
expressly given), it must be in writing, otherwise,
the resulting contract of sale is void. Obviously, in
the purchase of a piece of land or any interest
therein through an agent, Article 1874 does not
apply, and would be covered by Article 1878.
Likewise, donations of immovables through an
agent are covered entirely under paragraph 5 of
Article 1878.

There is no documentary evidence on record

that the owners of a large tract of land specifically
authorized the broker to sell their property to
another. 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 [Article 1878(5)], to create or
convey real rights over immovable property
[Article 1878(12)], or for any other act of strict
dominion [Article 1878(150]. Any sale or real
property by one purporting to be an agent of the
registered owner without any authority therefor in

Finally, it is clear from a comparison of the

provisions of Article 1874 and 1878[5], that the
power granted to an agent to purchase a piece of
land or any interest therein must be in the form of
special power of attorney, the same need not be
49

writing from said owner is null and void.[1] Litonjua

v. Fernandez, 427 SCRA 478 (2004).

ratification converting the relationship into an

express agency. However, the ruling in Guitierrez
Hermanos cannot be relied upon to support the
conclusion that a sale of a piece of land through
an agent without a written authority would merely
be unenforceable in spite of the clear language of
Article 1874 since the decision was rendered
under the terms of the old Civil Code, and Article
1874 is an entirely new provision in the New Civil
Code. Likewise, apart from the deed of sale
effected by the agent in Gutierrez Hermanos, the
registered owner subsequently thereto affirmed
the sale under public documentation. The
procedure is also possible under Article 1874,
which means that if the agent enters into a sale of
a piece of land without written authority, indeed
the sale would be void; but that if the principal
subsequently, enters directly again with the same
buyer into a formal deed of sale, then the second
transactions would be valid for it is no longer
covered under Article 1874.

Under Article 1879, "[a] special power to sell

excludes the power to mortgage; and a special
power to mortgage does not include the power to
sell."
(5-A) Sale of a Piece of Land
Article 1874 of the Civil Code provides that
"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." Note 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?
The De Leons have opined that the status of
such a sale effected through an agent whose
special power of attorney is not in writing, is not
really void, but merely voidable "since the sale
can be ratified by the principal (see Arts. 1901,
1910, par. 2) such as by availing himself of the
benefits derived from the contract." (at p. 416).

The rule therefore is best expressed in Raet

v. Court of Appeals, 295 SCRA 677 (1998), where
the Court held that Article 1874 of the Civil Code
requires for the validity of a sale involving land
that the agent should have an authorization in
writing; otherwise any sale concluded on the land
is void;[2] and that in Rodriguez v. Court of
Appeals, 29 SCRA 419 (1969), which held that
Article 1874 refers to sales made by an agent for
a principal and not the sales made by the owner
personally to another, whether that other be

Indeed, in Gutierrez Hermanos v. Orense, 28

Phil 572 (1914), the Court held that although the
seller had not previously authorized a person to
sell his parcel of land, but when such person
subsequently approved the action of the
purported agent, this produced the effect of
50

acting personally or through a representative. Is it

clear therefore that Art. 1874 does not cover
directly an agency to purchase a piece of land
or an interest therein.

Please proceed to hold preliminary negotiations

with interested buyers and endorse formal offers
to us for our final evaluation and appraisal." The
Court held that the language of the letter did not
constitute written authority to sell the land, and
the appointed individual was only designated as a
contact person or a broker with no authority to
conclude a sale of the property. Any sale on the
parcel of land concluded by such an appointee
would be void, and the sale could not produce any
legal effect as to transfer the subject property
from its lawful owner.

Nonetheless, only recently in Escueta v. Lim,

512 SCRA 411 (2007), the Court affirmed the
ruling in Gutierrez Hermanos. Escueta involved
the sale is parcels of land effected by the subagent appointed by the attorney-in-fact of the
owner, who claims that that the sub-agent was
not given any special power of attorney to sell the
parcels of land. The Court held: "Even assuming
that [the sub-agent] has no authority to sell the
subject properties, the contract she executed in
favor of the respondents is not void, but simply
unenforceable, under the second paragraph of
Article 1317 of the Civil Code which reads . . . a
contract entered into in the name of another by
one who has no authority or legal representation,
or who acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the persons on whose behalf it has
been executed, before it is revoked by the other
contracting party." (at p. 424).

In Linan v. Puno, 31 Phil. 259 (1915), the

Court held that for the principal to confer the right
upon an agent to sell real estate, a power of
attorney must so express the powers of the agent
in clear and unmistakable language; and when
there is any reasonable doubt that the language
so used conveys such power, no such construction
shall be given the document. Thus, in that
decision, a power of attorney providing that "I
hereby confer sufficient power x x x upon A, in
order that in my name and representation he may
administer the interest I possess within this
Municipality of Tarlac, purchase, sell, collect and
pay, etc." was held sufficient to cover the sale by
the agent of land of the principal in Tarlac.

A letter containing the specific authority to

sell is sufficient and complies with Article 1874.
Jimenez v. Rabot, 38 Phil. 387 (1918). Thus, In
City Lite Realty Inc. v. Court of Appeals, 325 SCRA
385 (2000), the written letter issued by a
landowner read: "We will appreciate Metro Drug's
assistance in referring to us buyers for property.

In Strong v. Gutierrez Repide, 6 Phil.

680 (1906), the Court clarified that The express
mandate required by Article 1874 to enable an
appointee of an agency couched in general terms
51

to sell must be one that expressly mentions a sale

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.

land in the name of the principal. "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).
Finally, it should be noted that in Bico
Savings & Loan Assn. v. Court of Appeals,
171 SCRA 630 (1989), the Court held that the
sale proscribed under Article 1879 refers to a
voluntary sale effected through the agent; it does
not cover the public sale that happens as part of
the foreclosure on the mortgage duly constituted.

In Katigbak v. Tai Hing Co., 52 Phil. 622

(1928), it was held that the authority to sell any
kind
of
realty
that
"might
belong"
to the principal was held to include also such as
the principal might afterwards have during the
time it was in force.

Related Cases:

In P. Amico and J. Amigo v. S. Teves, 96

Phil. 252 (1954), the Court held that where the
power of attorney says that the agent can enter
into any contract concerning a land, or can sell
the land under any term or condition and
covenant he may think fit, he is certainly granted
power to deal with the land, and sell it, in the
same manner and with the same breadth and
latitude as the principal could.

PNB v. Court of Appeals, 94 SCRA 357 (1979)

Kuenzle and Streiff v. Collector of Customs, 31 Phil 646
(1915)
Dela Pena v. Hidalgo, 16 Phil 450 (1910)
Rio y Olabbarrieta v. Yutec, 49 Phil 276 (1926)

Although the document executed by the

owner of the land was denominated as a "General
Power of Attorney," it was with respect to the
authority given to sell the land a special power of
attorney, for it properly described the title of the
land and the clear power to sell it. Thus there was
no need to execute a separate and special power
of attorney for the agent to effect the sale of the

(5-B)
Agent
Property
Principal

Cannot

Validly
of

Purchase

Under Article 1491(2) of the Civil Code,

unless so expressly authorized, an agent cannot
purchase the property of his principal; and if he
52

does so, the sale would be void. It means

therefore that even when the agent has been
granted a special power of attorney to sell a piece
of land or any interest in it, such power does not
include by implication the power to sell to himself
under the clear provisions of Article 1491(2) of the
Civil Code, unless there was such prior
authorization given by the principal.

(b) Those made to employees in the business

managed by
the agent
When a gift or donation is made by an agent
on behalf of the principal which is not covered by
a special power of attorney, it does not become
void for failure to comply with these requirement
in Agency Law (because such deficiency merely
renders the contract unenforceable), but rather it
is void or not depending on whether it complies
with the formalities required under the Law on
Donation, for every act of donation constituted a
solemn contract. The net effect of compliance
with the formalities required by the Law on
Donation would be to make the resulting gift or
donation unenforceable, when it does not comply
with the special power of attorney requirement.

Olaguer v. Purugganan, Jr., 515 SCRA 460

(2007), recognized that the prohibition against
agents purchasing property in their hands for sale
or management is 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.
(6) To Make Gifts
A gift or a donation is defined under Article
725 of the Civil Code as an act of liberality
whereby a person disposes gratuitously of a thing
or right in favor of another person who accepts it.

(7) To Loan or Borrow Money

Under paragraph 7 of Article 1878, the
power of an agent to either loan or borrow money,
is an act of strict ownership, and requires the
same to be in the form of a special power of
attorney. The exception would be when the act
"be urgent and indispensable for the preservation
of the things which are under administration." [3]
The paragraph has been construed to cover only
the borrowing of money under mutuum, and does
not include purchasing of goods on credit on
behalf of the principal. De Villa v. Fabricante, 105
Phil. 672 (1959).

Under paragraph 6 of Article 1878, for an

agent to have the power to make gifts or
donations on behalf of the principal would require
the same to be in the form of a special power of
attorney, except:
(a) Customary ones for charity

53

Since the authority to borrow money is

rarely inferred, in Rural Bank of Caloocan, Inc. v.
Court of Appeals, 104 SCRA 151 (1981), the Court
ruled that a creditor should require the execution
of a power of attorney in order that one may be
understood to have granted another the authority
to borrow on behalf of the former.

lender at the current rate of interest. On the other

hand, the article also provides, that if the agent
has been empowered to lend money at interest,
he cannot borrow it without the consent of the
principal.
In Rural Bank of Caloocan v. Court of
Appeals, 104 SCRA 151 (1981), the Court held
that although it is principle is that a person whose
acts holding another person to be his agent and
would lead a third person to believe such
purported agent was authorized to speak and bind
him, cannot now be permitted to deny the
authority of the purported agent; but this is only
true when the purported agent was clothed with
apparent authority. In this case, where the
authority of the purported agent was only to
follow up of the principal's loan application with
the bank, it cannot be presumed that he was also
granted authority to borrow on behalf of the
principal, especially when the principal herself
went to the bank to sign the promissory note for
the loan obtained from the bank. If the
principa's act had been understood by the
bank to be a grant of an authority to the agent to
borrow on behalf of the principal, the bank should
have required a special power of attorney
covering such power to borrow.

What happens when there is no power of

attorney given? In Gozun v. Mercado 511 SCRA
305 (2006), the Court held that 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; and that such contract 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.
The special authority to borrow money for
the principal is not to be implied from the special
power of attorney to mortgage real estate. PNB
v. Sta. Maria, 29 SCRA 303 (1969); and the
power to borrow money granted to the agent
cannot be deemed to include the power to
spend the amount thus borrowed as he pleases.
Hodges v. Salas, 63 Phil. 567 (1936).

Related Case:

On the other hand, under Article 1890, if the

agent has been empowered to borrow money,
then he is not disqualified from being himself the

De Villa v. Fabricante, 105 Phil 672 (1959)

54

PNB v. Tan Ong Sze, 53 Phil. 451 (1929)

than a year is not in writing, the resulting contract

would still be unenforceable.

Rodriguez v. Pamintuan, 37 Phil 876 (1918)

In a contract of agency, the agent acts in

representation or in behalf of another with the
consent of the latter. 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. Shopper's Paradise Realty v.
Roque, 419 SCRA 93 (2004).

PNB v. Sta. Maria, 29 SCRA 203 (1969)

(8) To Lease Real Property for More Than

One Year
It seems clear from paragraph numbered 8
of Article 1878, the lease of real property for more
than one year is an act of strict ownership;
whereas, the act of entering into a contract of
lease for one year or less, would be considered an
act of administration, and may be in the form of
general power of attorney.

What is the legal status of a contract entered

into by an agent on behalf of the principal where
the law requires that he should be armed with a
special power of attorney, and yet he had no such
special power? In Vda. De Chua v. IAC, 229 SCRA 99

The paragraph does not cover leases of

personal property, which then would lead to the
conclusion that any power given to the agent to
lease personal property, for whatever period,
would constitute merely a general power of
attorney; and may be implied from the express
powers given.

(1994), where the issue before the Supreme Court was

"the affirmance by the Court of Appeals of the

decision of the trial court, ordering their ejectment

from the premises in question and the demolition
of the improvements introduced thereon," the
lessees relied on the contract of lease entered into
by on behalf of the principal-lessor, by her
attorney in fact who was not armed to lease the
premises for more than one year. However, the
facts showed that the lessees stayed in the
premises during the term of the lease, and which
was
impliedly
renewed
through
tacita

In this connection, it should be noted that

under Article 1403(2) of the Civil Code, an
agreement for the leasing of real property for a
period longer than one year is unenforceable
unless made in writing. Therefore, even when the
agency possess a special power of attorney to
lease real property, when the lease itself for more
55

reconduccion. The Court expressly agreed with

the Court of Appeals resolution "declaring the
contract of lease (Exh "C") void" on the ground
that the agent "was not armed with a special
power of attorney to enter into a lease contract
for a period of more than one year, thus:

(9) To Bind the Principal to Render Some

Service
Without Compensation
Although the agent may bind himself to the
contract of agency without compensation, (Article
1875), in order to bind the principal to enter into
service
without
compensation
would
be
unenforceable without a special power of attorney.
The implication of paragraph number 9 of Article
1878 is that to bind the principal to render service
for compensation would be deemed a mere act of
administration, and constituted in a mere general
power of attorney, or more specifically, to be an
implied power of every agent.

We agree with the Court of Appeals.

The lease contract (Exh. "C"), the linchpin of
petitioners' cause of action, involves the lease of
real property for a period of more than one year.
The contract was entered into by the agent of the
lessor and not the lessor herself. In such a case,
the law requires that the agent be armed with a
special power of attorney to lease the premises. x
x x.

I disagree, any contract of service to be

entered into on behalf of the principal should
properly be considered an act of strict ownership,
for it impinges on obliging the principal to render
a personal obligation, which if he refuses makes
him liable for damages. Why should contracts of
service, even when for compensation, be deemed
to be within implied powers of the agent to bind
the principal?

It is true that respondent Herrera allowed

petitioners to occupy the leased premises after
the expiration of the lease contract (Exh. "C") and
under Article 1670 of the Civil Code of the
Philippines, a tacit renewal of the lease (tacita
reconduccion) is deemed to have taken place.
However, as held in Bernardo M. Dizon v.
Ambrosio Magsaysay, 57 SCRA 250 (1974), a tacit
renewal is limited only to the terms of the contract
which are germane to the lessee's right of
continued enjoyment of the property and does not
extend to alien matters, like the option to buy the
leased premises. (at p. 106)

(10) To Bind the Principal in a Contract of

Partnership
Every agreement by the agent on behalf of
the principal which has the effect of obliging the
principal to contribute money or industry to a
common fund with the intention of deriving profits
56

therefrom would be unenforceable without a

special power of attorney having been previously
given to the agent, for it in effect makes the
principal a partner in a partnership. (Art. 1767).

A power of attorney to sell or lease the

property of the principal with the provision
that empowers the agent "to perform and
execute all and every lawful and reasonable
act as fully and effectively as I might or
could do if personally present," cannot be
construed to include the power to enter into
a contract of guaranty to bind the principal.
Director of Public Works v. Sing Juco, 53 Phil.
205 (1929).

A power of attorney to loan money does not

include the implied power to make the
principle a surety for the payment of the
debt a third person. Bank of P.I. v. Coster, 47
Phil. 594 (1925).

(11) To Obligate the Principal as a Guarantor

or
Surety
Under Article 2047 of the Civil Code, by the
contract of guaranty, the guarantor binds himself
to fulfill the obligation of the principal debtor in
case the latter should fail to do so; and if the
person binds himself solidarily with the principal
debtor, he becomes a surety under a contract of
suretyship.
Therefore, under paragraph numbered 11 of
Article 1878, no contract of guaranty or surety is
enforceable against the principal when it has been
entered into by an agent who possesses no
special power of attorney to do so

It should be recalled that under Article

1403[2][b] of the Civil Code, a contract of
guaranty is unenforceable unless it is made in
writing. Consequently, even when the agent has
the requisite special power of attorney to enter
into a contract of guaranty in behalf of the
principal,
the
result
contract
would
be
unenforceable if not reduced in writing.

It has been held that a contract of guaranty

or surety cannot be inferred from us of vague or
general words of commitment. Thus, the authority
given by the corporation to its agent to approve a
loan up to P350,000 without any security
requirement does not include the authority to
issue guarantees for any amount. BA Finance
Corp. v. Court of Appeals, 211 SCRA 112 (1992).
Thus:

(12) To Create or Convey Real Rights Over

Immovable
Under paragraph numbered 12 of Article
1878, an agent cannot, in the name of the
principal, create or convey real rights over
immovable property without being possessed of a
57

special power of attorney; otherwise, the resulting

contract would be unforceable against the
principal.

give the presumption that it includes under any

form of construction or interpretation another
named special power. Rodriguez v. Pamintuan
and De Jesus, 37 Phil. 876 (1918).

The paragraph intends to cover dealings on

immovable property outside of the sale of a piece
of land or any interest therein covered specifically
under Article 1874, and contracts of purchase of a
piece of land, and contracts of donations of every
type of immovable property.

The power to mortgage does not carry the

implied power to represent the principal in
litigation. Valmonte v. Court of Appeals, 252 SCRA
92 (1996).
In Rural Bank of Bombon v. Court of Appeals,
212 SCRA 25 (1992), although the agent was
given a special power of attorney to mortgage the
property of the principal, nonetheless, when he
signed the Deed of Real Estate Mortgage in his
name alone as mortgagor, without any indication
that he was signing for and in behalf of the
property owner, the mortgage is void, and the
agent bound himself as the only debtor of under
the loan obtained from the bank.

"Real rights" over immovable property would

cover such contracts as mortgages, usufruct,
easement, etc. It obviously covers the entering
into a lease contract over an immovable with a
period exceeding one year (separately covered
under paragraph numbered 8 of Article 1878).
When it comes to a mortgage, the Court has
expressed the doctrine that a person can become
liable on a real estate mortgage which he never
executed either in person or by attorney-in-fact.
Philippine sugar Estates Dev. Co. v. Poizat, 48 Phil.
536 (1926). Rural Bank of Bombon, Inc. v. Court of
Appeals, 212 SCRA 25 (1992).

In Philippine Sugar Estates Dev. Co., v. Poizat,

48 Phil. 536 (1925), the Court held that it is a
general rule in the law of agency that, in order to
bind the principal by a mortgage on real property
executed by an agent, it must upon its face
purpose to be made, signed and sealed in the
name of the principal, otherwise, it will bind the
agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he
has not acted in the name of the principal. Neither
is it ordinarily sufficient that in the mortgage the
agent described himself as acting by virtue of the

Under Article 1879, the power to sell

excludes the power to mortgage; and that the
power to mortgage excludes the power sell. This
supports the proposition that each of the powers
enumerated under Article 1878, are named "acts
of strict dominion," and cannot be implied powers;
and that one form of named special power cannot
58

power of attorney, if in fact the agent has acted in

his own name and has set his own hand and seal
to the mortgage. This is especially true where the
agent himself is a party to the instrument.
However clearly the body of the mortgage may
show and intend that it shall be the act of the
principal, yet, unless in fact it is executed by the
agent for and on behalf of his principal, it is not
valid as to the principal.

"Ratify" is a legal term that involves the

acceptance of a contract, which is either voidable
or unenforceable, and has the effect cleansing
such contract of its legal defects that retroacts to
the date of its perfection. Under Articles 1392 and
1396, "[r]atification extinguishes the action to
annul a voidable contract," and "cleasenses the
contract from all its defects from the moment it
was constituted." When it comes to unenforceable
contracts, under Article 1404, those contracts that
are governed by the Statutes of Frauds "are
ratified by the failure to object to the presentation
of oral evidence to prove the same, or by the
acceptance of benefits under them."

(13) To Accept or Repudiate an Inheritance

Under Article 1044 of the Civil Code, any
person "having the free disposal of his property
may accept or repudiate an inheritance," which
obviously under paragraph 13 of Article 1878
constitute acts of strict dominion. While there is
no doubt that repudiation of an inheritance is an
act that goes against the interest of the principal
and would require the grant of a special power of
attorney if it is to be done through an agent, the
acceptance of inheritance has another basis upon
which it cannot be an implied power of his agent:
the acceptance of an inheritance involves an act
of gratitude on the part of the heir, and therefore
cannot be presumed to be a "burden" that the
principal is presume to accept as a matter of
course..

Paragraph numbered 14 of Article 1878

clearly recognizes that the act of ratifying or
cleansing a defect contract that therefore could
validly be enforced against the principal is an act
of strict ownership, and cannot be effected by the
agent without special power of attorney.
"Recognition" of an obligation refers to
acknowledging what was a natural obligation
which was not therefore the subject of civil
enforcement; it has the effect of making a former
natural obligation be transformed into a civil
obligation that can be enforced against the estate
of the principal. Recognition is an act of strict
ownership which can be performed by an agent
on behalf of the principal who possesses a special
power of attorney.

(14) To Ratify or Recognize Obligations

Contracted
Before the Agency
59

Director v. Sing Juco, 53 Phil 205 (1929)

from the nature of the business covered by the

agency arrangement.

Villa v. Garcia Bosque, 49 Phil 126 (1926)

In Garcia v. De Manzano, 39 Phil 577 (1919),

one of the issue to be resolved was whether a
power of attorney that granted the son the
following powers: "To enable him to buy or sell,
absolutely or under pacto de retro, any of the
rural or urban estates that I now own and may
acquire in the future, at such price as he may
deem most advantageous, which he shall collect
in cash or by installments and under such
conditions as he may consider proper, and he
shall set forth the encumbrances on the properties
and their origin. I bind myself to warrant and
defend, in accordance with law, the titles to such
properties; and if the properties alienated by this
agreement should be redeemed, he is empowered
to redeem them by paying the price that may
have been fixed, and, for this purpose, shall
execute the proper instrument," would grant him
authority to sell the half-interest that the principal
had in a boat. The court held in the affirmative,
ruling as follows --

Bank of PI v. De Coster, 47 Phil 594 (1925)

Aznar v. Morris, 3 Phil 636 (1904)
Germann v. Donaldson, 1 Phil 63 (1901)

(15) Any Other Act of Strict Dominion

Generally, the sale or purchase of even
personal properties should be treated as acts of
strict dominion and would require a special power
of attorney to be executed by the agent in behalf
of the principal. But under Article 1877, a sale or
purchase made in the ordinary course of
management is merely an act of administration
and, therefore, included in agency couched in
general terms. The clear implication under
paragraph numbered 15 is that those that may be
constituted as acts of strict ownership, but not so
specifically
named
in
the
first
fourteen
paragraphs, would always need a special power of
attorney to be executed in behalf of the principal
by the agent, BUT not having so named, it is
possible that such acts of strict ownership may,
depending on circumstances prevailing in each
case, would be acts of administration, and may be
governed by a general power of attorney, or may
be implied or incidental from express powers or

The power-of-attorney authorizes the sale of

real property, the buying of real property and
mortgaging the same, the borrowing of money
and in fact is general and complete.
The power does not expressly state that the
agent may sell the boat, but a power so full and
complete and authorizing the sale of real
60

[3]See Gozun v. Mercado

511 SCRA 305 (2006);

Yasuma v. Heirs of Cecilio S. De Villa, 499 SCRA 466
(2006).

property, must necessarily carry with it the right

to sell a half interest in a small boat. The record
further shows the sale was necessary in order to
get money or a credit without which it would be
impossible to continue the business which was
being conducted in the name of Narciso L.
Manzano and for his benefit. (at p. 585)

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De Manzano is authority to show that

although the power to sell immovables must be
contained in a special power of attorney, and
therefore always constitutes an act of strict
ownership, the sale or encumbrance of movables
may constitute either acts of administration or
acts of strict ownership, depending on the
prevailing circumstances. Thus, in De Manzano,
the grant of the express power to manage the
entire business affairs of the principal, was
deemed to include the power to sell co-ownership
interest in movable property, especially when the
sale was necessary to conduct the business of the
principal.

VI. SPECIFIC OBLIGATION RULES FOR AGENTS

a. Obligation of Agent to Advance
Funds
There is no common-law duty or obligation
on the part of the agent to advance his own funds
in behalf of the principal; for indeed, one of the
distinguishing characteristic of every agency is
that the agent does not personally become liable
for the contracts and transactions pursued in
behalf of the principal.
Under Article 1886 of the Civil Code, the
only time that an agent is legally bound to
advance personal funds in the pursuit of the
agency is when such obligation has been
expressly agreed upon in the creation of the
contract of agency. But even in such a case, the
agent may refuse to advance any personal funds
when the principal is insolvent. Indeed, under

[1]Citing City-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385

(2000); Raet v. Court of Appeals, 295 SCRA 677 (1998).

[2]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA

204 (2006).

61

Article 1919(3), insolvency

extinguishes the agency.

of

the

principal

upon by law, and will be allowed only when known

to both parties. Domingo v. Domingo, 42 SCRA
131 (1971).

b. Agents Duty of Loyalty

(2) When Agent Enters

into a Contract in His
Own Name on a Matter
that Falls With the
Scope of the Agency

(1) Duty of Loyalty in General

Article 1899 sets-out what in corporate
parlance is known as the duty of loyalty of an
agent: "The agent shall be liable for damages if,
there being a conflict between his interest and
those of the principal, he should prefer his own."
Agency relation is essentially fiduciary in
character, which requires of the agent to observe
utmost good faith and loyalty to the principal.

Article 1883 provides that "[i]f an agent acts

in his own name, the principal has no right of
action against the person with whom the agent
has contracted; neither have such persons against
the principal." In such a case it is provided that it
is the agent who "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."

When a agent violates his duty of loyalty,

and in a conflict-of-interests situation, he prefers
his own interest to the detriment of the principal,
Article 1899 does not declare the contract or
transaction he entered into to be void, but merely
makes the agent liable for the damages suffered
by the principal. In Corporate Law, when a director
or officer violates his duty of loyalty to the
corporation, he is bound to disgorge to the
corporation all the profits and earnings he obtain
from his breach of duty, even when he used his
own capital or funds for the contract or
transaction (Sections 31 and 34, Corporation
Code). Would the measure of damages due to the
principal be the same when an agent violates his
duty of loyalty?

If the matters entered into by the agent in

his own name are matters that are within the
scope of his authority or those pertaining to
matters that should pertain to the business of the
principal, there would be no doubt that the agent
has breach his fiduciary duty of loyalty, by having
preferred his own interests to that of the
principals. Whether the agent has used his
own funds or property, or those of the
principals, he would still be in breach of this
fiduciary duty, and under Article 1891, he "is
bound to render an account of his transactions
and to deliver to the principal whatever he may

Double agency (where the same agent

serves the two contracting principals is frowned
62

have received by virtue of the agency, even

though it may not be owing to the principal." In
either case, therefore, the principal has the right
to demand that the agent should turn-over to him
whatever contract, property or business has been
acquired by the agent in breach of his duty of
loyalty.

words, if the contract or business acquired by the

agent in breach of his duty of loyalty is demanded
by the principal to be turned over to him, then the
use of the principal's sum to acquire such
business would be deemed to have been ratified,
and the agent is not personally liable for the
interests due on said amount.

In Miguel v. Court of Appeals, 29 SCRA 760

(1969), the Court held that "a fiduciary relation
arises where one man assumes to act as agent for
another and the other reposes confidence in him,
although there is no written contract or no
contract at all. If the agent violates his duty as
fiduciary, a constructive trust arises. It is
immaterial that there was no antecedent fiduciary
relation and that it arose contemporaneously with
the particular transaction."[1]

In addition, Article 1455 of the Civil Code

(on implied trusts), provides that "[w]hen any
trustee, guardian or other person holding a
fiduciary relationship uses trust funds for the
purchase of property and causes the conveyance
to be made to him or to a third person, a trust is
established by operation of law in favor of the
person to whom the funds belong."
(3) Particular Rules on
Interests Situations

If the agent had used the funds belonging to

the principal, under Article 1896 he "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."
The provisions of this article presumes that the
property or business acquired by the agent for his
own in violation of his fiduciary duty is one that
the principal is not demanding to be delivered to
him. This is clear from Article 1918 which provides
that "[t]he principal is not liable for the expenses
incurred by the agent . . . [i]f the agent acted in
contravention of the principals instructions,
unless the latter should wish to avail himself of
the benefits derived from the contract." In other

Conflict

of

The following are specific rules covering

violation of the duty of loyalty of the agent:
(a)

63

Purchase of Principals
Property - Article 1491(2) of the
Civil Code provides for any
conflict-of-interest
situation
when it provides that an agent
is
prohibited
from
buying
property entrusted to him for
administration or management,
without the principal's consent.
Even
when
an
agent
is
authorized to sell the property,
and he sells it to himself for

valuable
consideration
but
without the consent of the
principal, the sale would be
void.

charged interest higher than the current rate, the

difference would have to be returned to the
principal. If the agent borrows for himself without
the principal's the money which the principal has
authorized him to lend out, he would not only be
liable for the current interest that the principal
would have earned had it been lent out to a third
party, he would also be liable for damages that
the principal may have suffered.

(b) When Agent Empowered to

Borrow or Lend Money - Article
1890 provides that when the
agent is empowered to borrow
or lend money by the principal,
then:

Related Cases:

(i) If empowered to borrow

money, he may be the
lender at current
interest; and

Aboitiz v. De Silva, 45 Phil 883 (1924)

Sing Juco v. Sunyantong Lorente, 43 Phil 589
(1922)
Severino v. Severino, 44 Phil 343 (1923)

(ii) If empowered to lend

money at interest, he
cannot borrow without
principal's consent.

Hodges v. Salas, 63 Phil 567 (1936)

c. Obligation of Agent to Render

Account

(c) Obligation To Turn-Over to the

Principal Whatever Received by
Virtue of the Agency - Under
Article 1890, every agent is
bound to deliver to the principal
whatever he may have received
by virtue of the agency, even
though it may not be owing to
the principal, and even when
given to him for his benefit.

Under 1891 of the Civil Code, "Every agent

is bound to render an account of his transactions
and to deliver to the principal whatever he may
have received by virtue of the agency, even
though it may not be owing to the principal. Every
stipulation exempting the agent from the
obligation to render an account shall be void."
The well-established rule is that an agent
cannot retain as his commission any part of the
proceeds that belong to the principal. [2] "As a
necessary consequence of such breach of trust,
defendant-appellee Gregorio Domingo must forfeit

What happens when the agent violates his

obligations under Article 1890? In the case where
the agent was the lender to the principal and
64

his right to the commission and must return the

part of the commission he received from his
principal." Domingo v. Doming, 42 SCRA 131
(1971).

vendor, is guilty of a breach of his

loyalty to the principal and forfeits
his right to collect the commission
from his principal, even if the
principal does not suffer any injury
by reason of such breach of fidelity,
or that he obtained better results
or that the agency is a gratuitous
one, or that usage or custom allows
it; because the rule is to prevent
the possibility of any wrong, not to
remedy or repair an actual
damage. 3 By taking such profit or
bonus or gift or propina from the
vendee,
the
agent
thereby
assumes
a
position
wholly
inconsistent with that of being an
agent for his principal, who has a
right to treat him, insofar as his
Commission is concerned, as if no
agency had existed.

The reason why an agent has to turn-over to

the principal everything he receives by virtue of
the agency is that when he acts, he does so
merely as a representative of the principal, and
whatever he receives is as though it was the
principal who receives it. He has no standing
therefore to retain for himself any amount or item
received in pursuit of the agency.
The obligation of the agent to account for
everything to the principal lies at the core of his
fiduciary
obligations
that
any
stipulation
exempting the agent from the obligation to render
an accounting is declared void under Article 1891.
Domingo v. Domingo, 42 SCRA 131 (1971),
held that "Paragraph 2 of Article 1891 is a new
addition designed to stress the highest loyalty
that is required to an agent condemning as void
any stipulation exempting the agent from the duty
and liability imposed on him in paragraph one
thereof." It equates the taking of secret profit by
the agent as to be a fraud committed against the
principal. It held that --

The fact that the principal may

have been benefited by the
valuable services of the said agent
does not exculpate the agent who
has only himself to blame for such
a result by reason of his treachery
or perfidy. (at pp. 137-138)

Hence, an agent who takes a

secret profit in the nature of a
bonus, gratuity or personal benefit
from the vendee, without revealing
the same to his principal, the

Domingo v. Domingo, 42 SCRA 131 (1971),

cites American jurisprudence that apply the
doctrine under Article 1891, thus -65

The American jurisprudence on

this score is well-nigh unanimous.

he has taken a position wholly

inconsistent with that of agent for
his employer, and which gives his
employer, upon discovering it, the
right to treat him so far as
compensation,
at
least,
is
concerned as if no agency had
existed. This may operate to give
to the principal the benefit of
valuable services rendered by the
agent, but the agent has only
himself to blame for that result.'

"Where a principal has paid an

agent or broker a commission while
ignorant of the fact that the latter
has been unfaithful, the principal
may recover back the commission
paid, since an agent or broker who
has been unfaithful is not entitled
to any compensation.
xxx xxx xxx
"In discussing the right of the
principal to recover commissions
retained by an unfaithful agent, the
court in Little vs. Phipps (1911) 208
Mass. 33l, 94 NE 260, 34 LRA (NS)
1046, said: 'It is well settled that
the agent is bound to exercise the
utmost good faith in his dealings
with his principal. As Lord Cairns
said, this rule "is not a technical or
arbitrary rule. It is a rule founded
on the highest and truest principles
of morality." Parker vs. McKenna
(1874) LR 10 Ch (Eng) 96, 118.. If
the agent does not conduct himself
with entire fidelity towards his
principal, but is guilty of taking a
secret profit or commission in
regard the matter in which he is
employed, he loses his right to
compensation on the ground that

xxx
"The intent with which the agent
took a secret profit has been held
immaterial where the agent has in
fact entered into a relationship
inconsistent with his agency, since
the law condemns the corrupting
tendency
of
the
inconsistent
relationship.
Little
vs.
Phipps
(1911) 94 NE 260."
"As a general rule, it is a breach
of good faith and loyalty to his
principal for an agent, while the
agency exists, so to deal with the
subject matter thereof, or with
information acquired during the
course of the agency, as to make a
profit out of it for himself in excess
of his lawful compensation: and if
he does so he may be held as a
66

trustee and may be compelled to

account to his principal for all
profits, advantages, rights, or
privileges acquired, by him in such
dealings, whether in performance
or in violation of his duties, and be
required to transfer them to his
principal upon being reimbursed for
his expenditures for the same,
unless the principal has consented
to or ratified the transaction
knowing that benefit or profit would
accrue, or had accrued, to the
agent,
or
unless
with
such
knowledge he has allowed the
agent so as to change his condition
that he cannot be put in status
quo. The application of this rule is
not affected by the fact that the
principal did not suffer any injury
by reason of the agent's dealings,
or that he in fact obtained better
results; nor is it affected by the fact
that there is a usage or custom to
the contrary, or that the agency is
a gratuitous one." (at p. 139)

The Court also held in Domingo that

Paragraph 2 of Article 1891 (waiver of duty to
account is void) is designed to stress the highest
loyalty that is required of an agent. Article 1891
(and Art. 1909) imposed upon the agent the
absolute obligation to make a full disclosure or
complete account to his principal of all his
transactions and other material facts relevant to
the agency, so much so that the law does not
countenance any stipulation exempting the agent
form such obligation and condemns as void such
stipulation. The duty of an agent is likened to that
of a trustee. This is not a technical or arbitrary
rule but a rule founded on the highest and truest
principle of morality as well as of the strictest
justice.
An agent, unlike a servant or messenger,
has both the physical and juridical possession of
the goods received in agency, or the proceeds
thereof, which take the place of the goods after
their sale by the agent. His duty to turn over the
proceeds of the agency depends upon his
discharge as well as the result of the accounting
between him and the principal, and he may not
set up his right of possession as against that of
the principal until the agency is terminated.
Guzman v. Court of Appeals, 99 Phil. 703
(1956).

However, Domingo also held that the duty

embodied in Article 1891 to account will not apply
"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." (at p. 140)

It is immaterial whether such money or

property is the result of the performance or
violation of the agent's duty, if it be the fruit of
the agency, it must be accounted for and turned
67

over to the principal. If his duty is strictly

performed, the resulting profit accrues to the
principal as the legitimate consequence of the
relation; if profit accrues from his violation of duty
while executing the agency, that likewise belongs
to the principal, not only because the principal has
to assume the responsibility of the transaction,
but also because the agent cannot be permitted
to derive advantage from his own default.
Dumaguin v. Reynolds, 92 Phil. 66 (1952).

reimbursement and pays the indemnity provided

in Article 1912 and 1913.
g. Liability of Agent for Interest
Under Article 1896, the agent would owe
interest to the principal on the following items:
(a) On sums the agent applied to
his own use from the time he
used them; and
(b) On sums owing the principal
which remain outstanding at the
time of extinguishment of the
agency, interest to run from the
time of such extinguishment.

Therefore, when the agent enters into a

contract that should pertain to the principal, but in
his own name, it would be a violation of his duty
of loyalty to the principal, and as between the
principal and the agent, the latter must account to
the principal for all profits earned from the
transaction.

The Supreme Court has recognized the two

distinct cases covered under Article 1896. [3]

It matters now how fair the conduct of the

agent may have been in a particular case, nor
that the principal would have been no better of if
the agent had strictly pursued his power, nor that
the principal was not, in fact, injured by the
intervention of the agent for his own profit. The
result in both cases is the same; the profits shall
still pertain to the principal. Ojinaga v. Estate of
Perez, 9 Phil. 185 (1907).

The Supreme Court recognized in Borja v.

De Borja, 58 Phil 811 (1933), that there is no
interest due on sums owed by the agent to the
principal which have not been the result of
agents conversion to his own use, such agent
would be liable for interests to run from the date
the agency is extinguished until he pays such
sums.
h.

(1) When the Duty to Account Does Not

Apply

Agent
Liable
Negligence

for

Fraud

and

Article 1909 provides that "[t]he agent is

responsible not only for fraud, but also for
negligence, which shall be judged with more or

Under Article 1914, the agent may retain in

pledge the things which are the object of the
agency
until
the
principal
effects
the
68

less rigor by the courts, according to whether the

agency was or was not for a compensation."

It must be noted that an agent cannot be

held personally liable by the principal for damages
caused where, as provided under Article 1899, the
"agent acts in accordance with the orders of the
principal, the principal cannot set-up the
ignorance of the agent as to circumstances
whereof he himself was, or ought to have been,
aware." This refers to the liability incurred by the
principal as to third parties: having appointed an
ignoramus for an agent, who acts in accordance
with the principals instruction (does not use
good judgment), the principal cannot avoid his
obligations arising from the contract.

Domingo v. Domingo, 42 SCRA 131 (1971),

held that the provisions of Article 1909 "demand
the utmost good faith, fidelity, honesty, candor
and fairness on the part of the agent, the real
estate broker in this case, to his principal, the
vendor. The law imposes upon the agent the
absolute obligation to make a full disclosure or
complete account to his principal of all his
transactions and other material facts relevant to
the agency, so much so that the law as amended
does not countenance any stipulation exempting
the agent from such an obligation and considers
such an exemption as void. The duty of an agent
is likened to that of a trustee. This is not a
technical or arbitrary rule but a rule founded on
the highest and truest principle of morality as well
as of the strictest." (at p. 137)

Article 1909 is also the legal basis by which

an agent becomes personally liable to third
parties who are injured by his act of fraud or
negligence.
Related Cases:

The provisions of Article 1909 are merely an

implementation of the duty of diligence expressed
in Article 1887 which provides that in the
execution of the agency, the agent shall act in
accordance with the instructions of the principal,
and in default of instructions, the agent "shall do
all that a good father of a family would do, as
required by the nature of the business;" and
Article 1888, which provides that an agent "shall
not carry out an agency if its execution would
manifestly result in loss or damage to the
principal."

Strong v. Guiterrez Repide, 41 Phil 947

(1909)
British Airways v. Court of Appeals, 285
SCRA 450
(1998)
Metrobank v. Court of Appeals, 194
SCRA 169
(1991)
International Films (China) v. Lyric Film, 63
Phil 778 (1936)
69

Austria v. Court of Appeals, 39 SCRA 527

(1971)

In Escueta v. Lim, 512 SCRA 411 (2007), the father

who had given her daughter a special power of
attorney to sell real properties, could not seek the
declaration of nullity of the sale effected by the
substitute agent appoint by the daughter:
Applying [Article 1892 of the Civil Code] to
the special power of attorney executed by [the
father] in favor of his daughter . . ., it is clear that
she is not prohibited from appointing a substitute.
By authorizing [the sub-agent] to sell the subject
properties, [the daughter] merely acted within the
limits of the authority given by her father, but she
will have to be responsible for the acts of the
sub-agent, among which is precisely the sale
of
the
subject
properties
in
favor
of
respondents. (at pp. 423-424)

Cadwallader v. Smith Bell, 7 Phil 461 (1907)

[1]at p. 777, citing Scott on Trusts, 3rd ed., Vol. V, p.

2544, citing Harrop v. Cole,, 85 N.J. Eq. 32, 95 A. 378,
affd 86 N.J. Ea. 250, 98 A. 1085.
[2]U.S. v. Reyes, 36 Phil. 791 (1917); U.S. v. Kiene, 7 Phil. 736
(1907); Ojinaga v. Estate of Perez, 9 Phil. 185 (1907); In re
Bamberger, 49 Phil. 962 (1972); Duhart Freres y Compania v.
Macia, 54 Phil. 513 (1930).

[3]Ojinaga v. Estate of Perez, 9 Phil. 185 (1907);

Mendezona v. Vda. De Goitia, 54 Phil 557 (1930); A.L.
Ammen Transportation Co. v. De Margallo, 54 Phil. 570
(1930).

a. Effects When Agent Appoints a Substitute:

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(1) When the sub-agent has been appointed pursuant

to the instructions of the principal:

(i) Clearly the sub-agent is really an agent of the

principal as well.
Any act done by the agent or the substitute in
behalf of the principal is deemed the act of the
principal;

VII. POWER OF AGENT TO APPOINT A SUBSTITUTE

Article 1892 sets the default rule that [t]he
agent may appoint a substitute if the principal has
not prohibited him from doing so.

(2) When he has not been prohibited by the principal,

and the agent appoints a substitute, he is responsible
for acts of substitute:
70

(i) he was not given power to appoint one

the former. Baltazar v. Ombudsman 510 SCRA 74

(2006).

(ii) he was given such power without designating

the person and substitute is notoriously
incompetent or insolvent.

If the appointment of a sub-agent which was neither

prohibited or authorized, has occasioned the incurring
of damages by the principal, the agent shall be
primarily responsible for the acts of the substitute, in
accordance with the provisions of Article 1892(1).
Serona v. Court of Appeals, 392 SCRA 35 (2002).

In either case, the principal may furthermore bring

an action against the substitute with respect to
the obligations which the latter has contracted
under the substitution. (Art. 1893)

A sub-agent appointed to collect the deferred

installments from the sale of property made by an
attorney-in-fact has no authority to enter into a
new contract with the transferee by modifying the
terms of the sale and releasing the solidary
sureties in the original contract. Villa v. Garcia
Gosque, 49 Phil. 126 (1920).

(3) When the agent appoints a substitute against the

principals prohibition:

(i) All acts of substitute as against the principal

are void. (Art. 1892)
(ii) It is clear that it would be the agent who
becomes personally liable for the contracts
entered into by the substitute

Related Cases:
Del Rosario v. La Badenia, 33 Phil 316 (1916).

The implication from the language used in Article

1893, that the principal would have no cause of
action against the substitute.

Lopez v. Seva, 69 Phil 311 (1940) (Spanish).

Marquez v. Varela, 92 Phil. 373 (1952).

The legal maxim potestas delegate non delegare

potest; a power once delegated cannot be redelegated, while applied primarily in political law
to the exercise of legislative power, is a principle
of agencyfor another, a re-delegation of the
agency would be detrimental to the principal as
the second agent has no privity of contract with

6. RULE ON LIABILITY WHEN TWO OR MORE AGENTS

APPOINTED BY THE SAME PRINCIPAL
Article 1894 provides for the rule of responsibility
(liability) of two or more agents serving the same
principal, even when they have been appointed
simultaneously: (a) Joint, when nothing is
71

stipulated;
stipulated.

and

(b)

Solidary,

only

when

so

supplemented by Article 1910, which provides

that [t]he principal must comply with all the
obligations which the agent may have contracted
within the scope of his authority.

Under Article 1895, when solidarity has been

agreed upon, each of the agents is responsible for
the non-fulfillment of the agency, and for the fault
or negligence of his fellow agents, except in the
latter case when the fellow agents acted beyond
the scope of their authority.

Article 1897 of the Civil Code reinforces the

familiar doctrine that an agent, who acts as such,
is not personally liable to the party with whom he
contracts. Eurotech Industrial Technologies, Inc. v.
Cuizon, 521 SCRA 584 (2007).

Compare the rule in Article in 1894 with the

general rule of solidary liability under Article
1915: when the agent is serving two or more
principals, the liability of the principals is solidary.

In Uy v. Court of Appeals, 314 SCRA 69 (1999), a gents

who have been authorized to sell parcels of land

cannot claim personal damages in the nature of
unrealized commission by reason of the act of the
buyer is refusing to proceed with the sale:
Petitioners are not parties to the contract of
sale between their principals and NHA. They are
mere agents of the owners of the land subject of
the sale. As agents, they only render some service
or do something in representation or on behalf of
their principals. [Article 1868, Civil Code.] The
rendering of such service did not make them
parties to the contracts of sale executed in behalf
of the latter. Since a contract may be violated only
by the parties thereto as against each other, the
real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must,
generally, either be parties to said contract.[1]

In Municipal Council of Iloilo v. Evangelista, 55 Phil

290 (1930), the Court set the general rule: when a
person appoints two agents independently, the
consent of one will not be required to validate the
acts of the other, unless that appears positively to
have been the principals intention.
7. RULES
PARTIES

OF

AGENTS LIABILITY

TO

THIRD

a. When the Agent Acts Within the Scope of

His Authority:
(1) General Rule:
Article 1897 expressly provides that [t]he
agent who acts as such is not personally liable to
the party with whom he contracts; and this is

(2) Exceptions:

72

In the following cases, an agent, even when acting

as such within the scope of his authority, may
become personally liable on the contracts or
transactions entered into, when:

SCRA 444 (2006). Chua v. Total Office Products

and Services (Topros), Inc., 471 SCRA 500 (2005);
Tan v. Engineering Services, 498 SCRA 93 (2006);
Chong v. Court of Appeals, 527 SCRA 144 (2007).

(a) The agent expressly makes himself personally

liable for the contracts of his principal. (Art. 1897);
or

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).

(b) The agent acts with fraud or negligence (Art.

1909).
A person dealing with a known agent is not
authorized, under any circumstances, blindly to
trust the agents; statements as to the extent of
his powers; such person must not act negligently
but must use reasonable diligence and prudence
to ascertain whether the agent acts within the
scope of his authority. The settled rule is that,
persons dealing with an assumed agent are bound
at their peril, and if they would hold the principal
liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in
case either is controverted, the burden of proof is
upon them to prove it. Litonjua v. Fernandez, 427
SCRA 478 (2004). Reiterated in Litonjua, Jr. v.
Eternit Corp., 490 SCRA 204 (2006).

Since, as a rule, the agency, as a contract, is

binding only between the contradicting parties,
then only the parties, as well as the third person
who transacts with the parties themselves, may
question the validity of the agency or the violation
of the terms and conditions found therein. Villegas
v. Lingan, 526 SCRA 63 (2007).
One who signs a receipt as a witness with the
word agent typed below his signature, but
never received the alleged amount or anything on
account of the subject transaction, is not
personally liable. Caoile v. Court of Appeals,
226 SCRA 658 (1993).

A person acting as a mere representative of

another acquires no rights whatsoever, nor does
he incur any liabilities arising from the said
contract between his principal and another party.
Angeles v. Philippine National Railways (PNR), 500

An agent becomes personally liable when by his

wrong or omission, he deprives the third person
with whom he contracts of any remedy against
73

the principal. The third person would be defrauded

if he would not be allowed to recover from the
agent. National Power Corp. v. National
Merchandising Corp., 117 SCRA 789 (1982).

(b) As to third parties who relied upon the terms of

the power of attorney as written, even if in fact
the agent had exceeded the limits of his authority
according to an understanding between the
principal and the agent (Arts. 1900 and 1903);

b. When the Agent Acts Without or in Excess

of Authority

Under Article 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 agents
act.

(1) General Rule:

Under Article 1897, an agent who acts without or
in excess of his authority becomes personally
liable to third parties even when he enters into
said contracts or transactions in the name of the
principal, without giving such third parties
sufficient notice of his powers. This is
supplemented under Article 1910 which provides
that [a]s for any obligation wherein the agent
has exceeded his power, the principal is not
bound.

Under Article 1902, every 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. Consequently, private or secret orders
and instructions of the principal do not prejudice
third persons who have relied upon the power of
attorney or instructions shown them.

(2) Exceptions:

(3) Consequence on Contracts Entered Into

Without or In Excess of Authority:

In the following cases, even though the agent acts

without or in excess of his authority, he would not
be personally liable for the contracts or
transactions he entered into in the name of the
principal:

General
Rule:
The
contract
unenforceable (Arts. 137 and 1403[1]).

would

be

Exceptions:
(i) Valid if the principal shall ratify the contract;

(a) When the principal ratifies the contract or

transactions (Arts. 1898 and 1910);

(ii) Void if the party with whom the agent

contracted is aware of the limits of the powers granted
74

by the principal; BUT the agent is personally liable, if

he undertook to secure the principals ratification.
(Art. 1898).

Pour Le Commerce Exterieur: Primaterial [Phil.],

Inc., 15 SCRA 301 (1965).
To reiterate, the first part of Article 1897 declares
that the principal is liable in cases when the agent
acted within the bounds of his authority. Under
this, the agent is completely absolved of any
liability. The second part of the said provision
presents the situations when the agent himself
becomes liable to a third party when he expressly
binds himself or he exceeds the limits of his
authority without giving notice of his powers to
the third person. However, it must be pointed out
that in case of excess of authority by the agent,
like what petitioner claims exists here, the law
does not say that a third person can recover from
both the principal and the agent. Eurotech
Industrial Technologies, Inc. v. Cuizon, 521 SCRA
584 (2007)

The rule that the agent is liable when he acts

without authority is founded upon the supposition
that there has been some wrong or omission on
his part either in misrepresenting, or in affirming,
or concealing the authority under which he
assumes to act. Inasmuch as the non-disclosure of
the limits of the agency carries with it the
implication that a deception was perpetuated on
the unsuspecting client, the provisions of Articles
19, 20 and 21 of the Civil Code come into play.
DBP v. Court of Appeals, 231 SCRA 370
(1994).
The Rule that a contract entered into by one who
has acted beyond his powers shall be
unenforceable refers to the unenforceability 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.
National
Power
Corp.
v.
National
Merchandising Corp., 117 SCRA 789 (1982).

We likewise take note of the fact that in this case,

petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the
agent. It is well to state here that Article 1897 of
the New Civil Code upon which petitioner anchors
its claim against respondent EDWIN does not
hold that in case of excess of authority, both the
agent and the principal are liable to the other
contracting
party.
Eurotech
Industrial
Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007)

When agent exceeds his authority, the matter can

be raised only by the principal, and when not so
raised, recovery can be made by the third party
only against the principal. Article 1897 does not
hold that in case of excess of authority, both the
agent and the principal are liable to the other
contracting party. Phil. Products co. v. Primateria

The scope and extent of the function of an

adjustment and settlement agent, does not
75

Toyota Shaw, inc. v. Court of Appeals, 244 SCRA

320 (1995)

include personal liability. His functions are merely

to settle and adjust claims in behalf of his
principal. If those claims are disapproved by the
principal, the agent does not assume any personal
liability. The recourse of the insured is to press
chis claim against the principal. Salonga v. Warner
Barnes, 88 Phil 125 (1951); E. Macias and Co. v.
Warner Barnes, 43 Phil 155 (1922).

Eugenio v. Court of Appeals, 239 SCRA 207

(1994)
BA Finance v. Court of Appeals, 201 SCRA 157
(1991)
BA Finance v. Court of Appeals, 211 SCRA 112 (1992)

When the agent expressly bind himself, he

thereby obligates himself personally by his own
act, but that does not relieve the principal from
his obligation to pay the debt incurred for his
benefit. Tuason v. Orozco, 5 Phil 596 (1906).

Smith Bell v. Court of Appeals, 267 SCRA 530

(1997)
DBP v. Court of Appeals, 231 SCRA 370 (1994)

An agent is not personally liable to the party with

whom he contracts unless he expressly binds
himself or he exceeds the limits of his authority
without giving such party sufficient notice of his
powers. Zialcita-Yuseco v. Simmons, 97 Phil. 487
(1955); Banque Generale Belge v. Walter, Bull &
Co., Inc., 84 Phil. 164 (1949); Salmon & Pacific
Commercial Co. v. Tan Cueco, 36 Phil. 556
(1917).

Pineda v. Court of Appeals, 226 SCRA 754 (1993)

Benguet v. BCI Employees, 23 SCRA 465 (1968)
Bank of PI v. De Coster, 47 Phil 594 (1925)

(4) Third Person Cannot Set-up Facts of

Agents Exceeding Authority
Under Article 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 agents acts.

Related Cases:
Yu Eng Cho v. PANAM, 328 SCRA 717 (2000)
Bacaltos Coal Mines v. Court of Appeals, 245
SCRA 460 (1995)

The settled rule is that, persons dealing with an

assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain
not only the fact of agency but also the nature
76

and extent of authority, and in case either is

controverted, the burden of proof is upon them to
prove it.46 In this case, the petitioners failed to
discharge their burden; hence, petitioners are not
entitled to damages. Litonjua, Jr. v. Eternit Corp.,
490 SCRA 204 (2006).[2]

as a factor selling under a del credere commission

(Art. 1907);
(c) Where a third party commits a tort against the
agent.
9. OBLIGATIONS

Related Cases:

COMMISSION AGENTS

a. Nature of Factor or Commission Agent

Commissioner v. San Diego, 31 SCRA 617 (1970)

A commission agent is one whose business it is to

receive and sell goods for a commission, and who
is entrusted by the principal with the possession
of the goods to be sold, and usually selling in his
own name. An ordinary agent need not have
possession of the goods of his principal, while the
commission agent must be in possession. (DE
LEON, at p. 544).

Bacaltos Coal Mines v. Court of Appeals, 245

SCRA 460 (1995)
Toyota Shaw v. Court of Appeals, 244 SCRA 320
(1995)
PNB v. Tan Ong Sze, 53 Phil 451 (1929)

8. INSTANCES WHEN THIRD PARTY LIABLE

AGENT HIMSELF

OF

TO THE

b. Specific Obligations of a Commission

Agent

In the following cases, a third party would be

directly liable to the agent himself even on
contracts entered into pursuant to the agency
arrangement, thus:

(1) Take Custody of Goods A commission agent

by being such is responsible for the goods received by
him in the terms and conditions and as described in
the consignment, unless upon receiving them he
should make a written statement of the damage and
deterioration suffered by the same. (Art. 1903);

(a) Where the agent contracts in his own name,

on a matter that it within the scope of the agency
(Art. 1883);

(2) Not to Commingle Similar Goods Belong to

Different Principal under Article 1904, a
commission agent who handles goods of the same
kind and mark, which belong to different owners, shall
distinguish them by countermarks, and designate the

(b) Where the agent possesses a beneficial

interest in the subject matter of the agency, such
77

merchandise respectively belong to each principal. In

other words, the default rule is that commission agent
cannot commingle goods of the same kind belonging
to different principals.

(6) To Collect Credits of the Principal Under

Article 1908, a 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 exercise due
diligence for that purpose.

Distinguish this default rule in the case of a

contract of deposit, which under Article 1976, the
depositary is allowed to commingle grain or other
articles of similar nature and quality (Contract of
Deposit) Depositary may commingle grain or
other articles of similar nature and quality, and
the result would be pro-rata ownership among the
owners thereof.

(7) Shall Be Responsible for His Fraud and

Negligence Under Article 1909, the agent is
responsible to the principal for the damages suffered
for his fraud and his 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.

(3) Cannot Sell on Credit without Principals

Authorization If he sells on credit, the principal
may still demand from his payment in cash, but the
agent shall be entitled to any interest or benefit which
may result from such sale. (Art. 1905);

The failure of the sub-agent who has custody of

the film to insure against loss by fire, where there
was no instruction received from the principal to
so insure or that the insurance of the film was not
a part of the obligation imposed upon an agent by
law, does not constitute either negligence or
fraud. International Films v. Lyric Film
Exchange, 63 Phil. 778 (1936).

(4) To Inform the Principal of Every PreAuthorized Sale on Credit Under Article 1906,
should the agent sell on credit with the authority of the
principal, then the agent shall so inform the principal
with a statement of the4 names of the buyers. If he
fails to do so, the sale shall be deemed to have been
made for cash insofar as the principal is concerned.

Where the client order the broker to sell the

shares giving a floor or minimum price, and the
broker did sell at the minimum price indicated
even though the prevailing ranging prices were
much higher that they, the broker is liable for the
difference suffered by the principal because the
broker failed to exercise the prudence and tact of
a good father of a family which the law required of
him. Tan Tiong Teck v. SEC, 69 Phil. 425
(1940).

(5) Shall Bear the Risk of Collection under Del

Credere Commission Set-up Under Article
1908, should the commission agent receive on a sale,
in addition to the ordinary commission, another called
a guarantee commission, then: (i) He shall bear the
risk of collection; and (ii) He shall pay the principal the
proceeds of sale on same terms agreed with purchaser
78

Where the manager of the bank released the

proceeds of an unauthorized loan to unqualified
borrower, the bank may recover both against the
borrower and its manager, and the suit cannot be
considered as the principal-bank ratifying the
unauthorized act of its agent-manager, but is
merely seeking to diminish as much as possible
the loss to itself. PNB v. Bagamasbad and
Ferrer, 89 Phil. 365 (1951).

[2]Citing Litonjua v. Fernandez, 427 SCRA 478 (2004);

BA Finance Corp. v. Court of Appeals, 211 SCRA 112
(1992).

POSTED BY Dean Cesar L. Villanueva AT 8/02/2008

1:06 AM | 0 COMMENTS | POST A COMMENT |
DIGG IT

In Green Valley v. IAC, 133 SCRA 697 (1984), where

the purported agent refused to be held liable for
merchandise received from the principle on the ground
that it was a mere agent to sell and the ultimate
buyers of the products should be the one made liable
for the purchase price, (whereas the purported
principal insisted that it was a sale arrangement), the
Court ruled that whether the contract between the
parties be one of sale or agency to sell, there is no
doubt that the purported agent would be personally
liable for the price of the merchandise sold. Being a
commission agent under its authority, then pursuant
to Article 1905, it should not have sold the
merchandise on credit. Under Article 1905, the
commission agent cannot, without the express or
implied consent of the principal, sell on credit; and
should he do so, the principal may demand from him
payment in cash.

VIII. OBLIGATIONS OF THE PRINCIPAL

1. BINDING EFFECT OF
CONTRACT OF AGENCY

THE

TERMS

OF THE

Indeed, since a contract of agency is merely

a preparatory contract, it is well within the legal
capacity of both parties to enter into any
stipulation, obligation and undertaking by which
they can tailor-fit the relationship to best achieve
the purpose of the agency. Like any other contract
governed by the principles of mutuality and
obligatory force, the principal is bound by the
terms agreed upon under the contract of agency.
Apart from the contractual obligations
voluntarily assumed by the principal under the
terms of the particular contract of agency entered
into, the following are the common-law duties and

[1]Citing

Marimperio Compania Naviera, S.A. v. Court of Appeals,

156 SCRA 368 (1987).

79

obligations of the principal by the very fact that

he has constituted another person, the agent, to
represent him in pursuing juridical acts and
contracts, in his name.
2. PRINCIPAL IS BOUND BY
THE AGENT IN HIS BEHALF

THE

CONTRACTS MADE

scope of his authority, even when entered into in

the name of the principal, would not bind the
principal, and would thus not be void, but merely
unenforceable (Art. 1403). In the following cases,
though, even acts done by the agent in the name
of the principal, outside of the scope of his
authority, would bind the principal, thus:

BY

The central principle in agency law is that all

contracts and transactions entered into by the
agent on behalf of the principal within the scope
of his authority are binding on the principal as
though he himself had entered into them directly.
This tenet is repeatedly expressed in various
provisions of the Law on Agency.

(a) When the principal ratifies such contract,

expressly or tacitly (Art. 1910);
(b) When the principal has allowed the
purported agent to act as though he had full
powers (Art. 1911); and
(c) When the principal has revoked the
agency, but the third party have acted in good
faith without notice of such revocation.

Article 1897 provides that the agent who acts

as such is not personally liable to the party with
whom he contracts when acting within the scope
of his authority.

Under Article 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. This is termed as agency by estoppel. It is
also referred to as the doctrine of apparent
authority in Corporate Law.

Article 1910 provides that the principal must

comply with all the obligations which the agent
may have contracted within the scope of his
authority.
a. Principal Not Bound by Contracts Made by
the Agent Without or Outside the Scope of
His Authority

When a bank, by its acts and failure to act,

has clearly clothed its manager with apparent
authority to sell an acquired asset in the normal
course of business, it is legally obliged to confirm
the transaction by issuing a board resolution to
enable the buyers to register the property in their

The collolary rule would then be that "for

any obligation wherein the agent has exceed his
power," or acts done by the agent outside of the
80

names. It has a duty to perform necessary and

lawful acts to enable the other parties to enjoy all
benefits of the contract which it had authorized.
Rural Bank of Milaor v. Ocfemia, 325 SCRA 99
(2000).

Respondents based their action before the

trial court on the Deed of Sale, the substance of
which was alleged in and a copy thereof was
attached to the Petition for Mandamus. The Deed
named Fe S. Tena as the representative of the
bank. Petitioner, however, failed to specifically
deny under oath the allegations in that contract.
In fact, it filed no answer at all, for which reason it
was declared in default. x x x.

How does Ocfemia ruling jive with the other

rulings of the Supreme Court that hold that even
in the case of a corporation, the sale through its
agent of a piece of land requires that the authority
of the corporate officer to sell on behalf of the
corporation must be in writing, otherwise the
resulting transaction is void pursuant to Article
1874? The Ocfemia ruling shows that the use of
the term "void" under Article 1874, is relative, in
that it is void only insofar as the principal is
concerned; and that any attempt to enforce the
purchase by a third party is void when the
principal refuses to accept the sale of a piece of
land effected by an agent in his name without
written power of attorney. In other words, if the
principal, after the fact of sale, accepts the
contract, does not oppose the validity of the sale,
or in other words, ratifies the sale, it would then
be valid and binding on the principal.

In failing to file its answer specifically

denying under oath the Deed of Sale, the bank
admitted the due execution of the said contract.
Such admission means that it acknowledged that
Tena was authorized to sign the Deed of Sale on
its behalf.13 [Imperial Textile Mills, Inc. v. C.A., 183
SCRA 1, March 22, 1990.] Thus, defenses that are
inconsistent with the due execution and the
genuineness of the written instrument are cut off
by an admission implied from a failure to make a
verified specific denial.
x x x.
In any event, the bank acknowledged, by its
own acts or failure to act, the authority of Fe S.
Tena to enter into binding contracts. After the
execution of the Deed of Sale, respondents
occupied the properties in dispute and paid the
real estate taxes due thereon. If the bank
management believed that it had title to the
property, it should have taken some measures to

In Ocfemia, when an action was brought by

the buyer against the bank to enforce the sale, it
failed to contest the genuineness and due
execution of the deed of absolute sale executed
by its general manager. The Court held --

81

prevent the infringement or invasion of its title

thereto and possession thereof.

recognition in other instances where the power

was in fact exercised.'

Likewise, Tena had previously transacted

business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to
innocent third persons where representation is
made in the course of its normal business by an
agent like Manager Tena, even though such agent
is abusing her authority.14 [First Philippine
International Bank v. CA, infra, note 17.] Clearly,
persons dealing with her could not be blamed for
believing that she was authorized to transact
business for and on behalf of the bank. Thus, this
Court has ruled in Board of Liquidators v. Kalaw:15
[20 SCRA 987, 1005, August 14, 1967, per
Sanchez, J.]

"'x x x Thus, when, in the usual course of

business of a corporation, an officer has been
allowed in his official capacity to manage its
affairs, his authority to represent the corporation
may be implied from the manner in which he has
been permitted by the directors to manage its
business.'"
Notwithstanding the putative authority of the
manager to bind the bank in the Deed of Sale,
petitioner has failed to file an answer to the
Petition below within the reglementary period, let
alone present evidence controverting such
authority.
Indeed,
when
one
of
herein
respondents, Marife S. Nino, went to the bank to
ask for the board resolution, she was merely told
to bring the receipts. The bank failed to
categorically declare that Tena had no authority.

"Settled jurisprudence has it that where

similar acts have been approved by the directors
as a matter of general practice, custom, and
policy, the general manager may bind the
company without formal authorization of the
board of directors. In varying language, existence
of such authority is established, by proof of the
course of business, the usages and practices of
the company and by the knowledge which the
board of directors has, or must be presumed to
have, of acts and doings of its subordinates in and
about the affairs of the corporation. So also,

As to the merits of the case, it is a wellestablished rule that one who clothes another with
apparent authority as his agent and holds him out
to the public as such cannot be permitted to deny
the authority of such person to act as his agent, to
the prejudice of innocent third parties dealing with
such person in good faith and in the honest belief
that he is what he appears to be (Mack, et al. v.
Camps, 7 Phil. 553 [1907]; Philippine National
Bank v. Court of Appeals, 94 SCRA 357 [1979]).
From the facts and the evidence on record, there

"'x x x authority to act for and bind a

corporation may be presumed from acts of
82

is no doubt that this rule obtains. The petition

must therefore fail. (at pp. 107-109)

transactions to the latter cannot in any way

relieve or exonerate such principal from liability to
the third persons who relied on his agents
authority. It is an equitable maxim that as
between two innocent parties, the one who made
it possible for the wrong to be done should be the
one to bear the resulting loss. Cuison v. Court of
Appeals, 227 SCRA 391 (1993).

When a third party admits in her written

correspondence that he had contracted with the
principal through an duly authorized agent, and
then sues both the principal and the agent on an
alleged breach of that contract, and in fact later
on dismisses the suit insofar as the principal is
concerned, there can be no cause of action
against the agent. Since it is the principal who
should be answerable for the obligation arising
from the agency, it is obvious that if a third person
waives his claims against the principal, he cannot
assert them against the agent. Bedia v. White,
204 SCRA 273 (1991).

Under the general rules and principles of

law, the mismanagement of the business of a
party by his agents does not relieve said party
from the responsibility that he had contracted
with third persons. Commercial Bank & Trust
Co. v. Republic Armored Car Services Corp.,
8 SCRA 425 (1963).

The basis of agency is representation; The

question of whether an agency has been created
is ordinarily a question which may be established
in the same way as any other fact, either by direct
or circumstantial evidence; Though that fact or
extent of authority of the agents may not, as a
general
rules,
be
established
from
the
declarations of the agents alone, if one professes
to act as agent for another, she may be estopped
to deny her agency both as against the asserted
principal and the third persons interested in the
transaction in which he or he is engaged. Doles v.
Angeles, 492 SCRA 607 (2006).

When the principal issued the checks in full

payment of the taxes due, but his agents had
misapplied the check proceeds, the principal
would still be liable, because when a contract of
agency exists, the agents acts bind his
principal, without prejudice to the latter seeking
recourse against the agent in an appropriate civil
or criminal action. Dy Peh v. Collector of
Internal Revenue, 28 SCRA 216 (1969).
A registered owner who places in the hands
of another an executed document of transfer of
the registered land effectively represents to a
third party that he holder of such document is
authorized to deal with the property. Blondeau v.

The fact that the agent defrauded the

principal in not turning over the proceeds of the
83

Nano,. 61 Phil. 625 (1935); Domingo v.

Robles, 453 SCRA 812 (2005).

Barton v. Leyte Asphalt, 46 Phi; 938 (1924)

Nantes v. Madriguera, 42 Phil 389 (1921)

Related Cases:
Lim Chai Seng v. Trinidad, 41 Phil 544 (1921)
Pleasantville Dev. v. Court of Appeals, 253
SCRA 10 (1996)

3. LIABILITY
THE AGENT

Limketkai Sons v Court of Appeals , 250 SCRA

523 (1995)

OF THE

PRINCIPAL

FOR THE

TORTS

OF

The general rule is that the principal is liable

to injured third parties for the torts committed by
the agent at the principals director or in the
course and within the scope of the agents
authority. It also goes without saying, that since
the act of negligence was that of the agent, he
also becomes civilly liable to the injured parties,
even when he acts in representation of the
principal.

Air France v. Court of Appeals , 126 SCRA 448

(1983)
PNB v. Court of Appeals, 94 SCRA 357 (1979)
PNB v. Bagamaspad, 89 Phil. 365 (1951)
Manila Remnants v. Court of Appeals , 191 SCRA
622 (1990)

4. OBLIGATIONS

Versoza v. Lim, 45 Phil 416 (1923)

OF THE

PRINCIPAL

TO THE

AGENT

a. Obligation to Advance Sums Requested

for Execution of Agency

Lopez v. Alvendia, 120 Phil 142 (1964)

Under Article 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 the agent
therefor, even if the business or undertaking was
not successful, provided the agent is free from
fault.

Wise and Co. v. Tanglao, 63 Phil 372 (1936)

Katigbak v. Tai Hing Co., 52 Phil 622 (1928)
Robinson, Fleming and Co. v. Cruz, 49 Phil 42
(1926)
Gonzales v. Haberer, 47 Phil 380 (1925)
84

The reimbursement shall include interest on

the sums advanced, from the day on which the
advance was made.

(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.

We should compare this to the provisions in

Article 1886 where the agent is bound to advance
the sums necessary to carry out the agency, but
only when he so consents or is stipulated in the
agreement.

When the authority of the area manager to

settling the claims is further limited by the written
standard authority to pay, which states that the
payment shall come from his revolving fund or
collection, the settlement beyond such fund was a
clear deviation from the instructions of the
principal. Consequently, the expenses incurred by
the area manager in the settlement of the claims
of the insured may not be reimbursed from the
insurance company pursuant to the clear
provision of Article 1918(1) of the Civil Code.

Versoza v. Lim, 45 Phil 416 (1923)

b. When Principal Not Liable for Agents
Expenses
Under Article 1918, the principal is not liable
for the expenses incurred by the agent in the
following cases:

However, while the law on agency prohibits

the area manager from obtaining reimbursement,
his right to recover may still be justified under the
general law on obligations and contracts,
particularly Article 1236 of the Civil Code on
payment by a third party of the obligation of the
debtor, allows recovery only insofar as the
payment has been beneficial to the debtor.
Thus, to the extent that the obligation of the
insurance company has been extinguished, the
area manager may demand for reimbursement
from his principal. To rule otherwise would result
in unjust enrichment of petitioner. Dominion
Insurance v. Court of Appeals, 376 SCRA 239
(2002).

(1) if the agent acted in contravention of the

principals 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; or

85

c. Principal Liable to Indemnify Agent for the

Damages Sustained

In an onerous or compensated agency, the

obligation of the principal to pay the agent shall
be in accordance with the terms agreed upon
when the agency was constituted. If no particular
formula has been agreed upon on the agents
compensation, then the following rules should
apply:

Under Article 1913, the principal must

indemnify the agent for all the damages which the
execution of the agency may have caused the
agent, without fault or negligence on agents
part.

(i) the principal shall pay the agents

commission only on the legal basis that the agent
has complied with his obligations with the
principal; and

Article 1913 is the counter-balance to the

provision in Article 1884 that makes the agent
liable for damages sustained by the principal for
agents refusal to perform his obligations
under the agency.

(ii) the principal shall be liable to the agent

for the reasonable value of the agents
services.

Albaladejo y Cia v. PRC, 45 Phil 556 (1923).

(1) Right of Agent to Retain Object of
Agency in Pledge for Advances and
Damages

A broker is entitled to the usual commission

whenever the 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
consummated between the principal and the
purchaser directly. It would be the height of
injustice to permit the principal then to withdraw
the authority as against an express provision of
the contract, and reap the benefits of the
agents labors, without being liable to him for
his commission. Macondray & Co. v. Sellner, 33
Phil. 370 (1916).

Under Article 1914, the agent is granted the

power to retain in pledge the things which are the
object of the agency until the principal effects the
reimbursement and pays the indemnity covering
advances made and damages sustained. This is
an exception to the duty of the agent, expressed
in Article 1891, to deliver to the principal
everything he received even if not due to the
principal.
d. Obligation of Principal to Pay Agents
Compensation

Related Cases:
86

Infante v. Cunanan, 93 Phil. 693 (1953).

not affect their juridical standing of the agent.

Doles v. Angeles, 492 SCRA 607 (2006).

Lim v. Saban, 447 SCRA 232 (2004).

De Castro v. Court of Appeals, 384 SCRA 607
(2002)

Fiege & Brown v. Smith, Bell & Co., 43 Phil. 118

(1922).

6. RIGHTS OF PERSONS WHEN FACED WITH

CONFLICTING CONTRACTS

Ramos v. Court of Appeals, 63 SCRA 331 (1975).

Under Article 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 on the rules on double sales.

J.M. Tuazon & Co. v. Collector of Internal Revenue ,

108 Phil. 700 (1960).

Inland Realty Investment Service, Inc. v. Court of
Appeals, 273 SCRA 70 (1997).
Daon v. Brimo & Co., 42 Phil. 133 (1921).

Article 1917 provides that in such a case, if

the agent had acted in good faith, the principal
shall be liable in damages to the third person
whose contract must be rejected. On the other
hand, if the agent acted in bad faith, he alone
shall be responsible.

Reyes v. Mosqueda, 99 Phil. 241 (1956).

Collector of Internal Revenue v. Tan Eng Hong, 18
SCRA 531 (1966).
5. OBLIGATION OF TWO OR MORE PRINCIPALS
AGENT APPOINTED FOR COMMON TRANSACTIONS

TO

Under Article 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.

POSTED BY Dean Cesar L. Villanueva AT 8/02/2008

12:34 AM | 0 COMMENTS | POST A COMMENT |
DIGG IT

Even if the principals do not actually and

personally know each other, such ignorance does
87

2. REVOCATION
IX. EXTINGUISHMENT OF AGENCY
1.

HOW

AND

WHEN

AGENCY

OF THE

AGENCY

The law recognizes the power to revoke an

agency relation by principal, in keeping with the
truism that an agency is a highly personal
relationship and one built upon trust and
confidence. Unlike the remedy of rescission which
requires the existence of substantial breach of
contract, revocation is literally at the will of the
principal.

EXTINGUISHED

Article 1919 of the Civil Code enumarates the

modes by which an agency contract is
extinguished,
thus:
a. By revocation

But the near absolute power of the principal

to revoke the agency should not be confused with
the thought that there can be no breach of
contract committed by a principal who revokes
the agency which was constituted as "irrevocable"
for a definite term or period. In such a case, the
agreement as to the term of the agency would not
make the principal lose his power to revoke, and
when he does so revoke the agency is terminated,
but he would be liable to the agent for the
damages caused, including to the compensation
due him when the revocation was done in bad
faith, i.e., to avoid the payment of the commission
earned by the agent.

b. By the withdrawal of the agent

c. By death, civil interdiction, insanity or
insolvency of either the principal or agent
d. By the dissolution of the juridical entity
which entrusted or accepted the agency
e. By the accomplishment of the object or
purpose of the agency
f. By the expiration of the period for which
the agency was constituted
Other modes of extinguishment of an
agency would be mutual withdrawal, by
supervening event that makes illegal or
impossible the objective or purpose for which the
agency is constituted, like the destruction of the
subject matter which is the object of the agency.

a. Express Revocation
Under Article 1920, the principal may revoke
the agency at will, express or implied, and thereby
compel the agent to return the document
evidencing the agency. This would ensure that the
document, i.e., power of attorney, would not fall
88

into the hands of third parties who then act in

good faith in entering into a contract in the name
of the principal, believing there is still existing the
agency relation.

(1) Appointment of New Agent for Same

Business
Under Article 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. The effect of revocation is without
prejudice to the rights of third parties who were
not aware of or notified of such situation.

If the agent fails or refuses to return the

power of attorney, it is incumbent upon the
principal to give proper notice to the members of
the public who may be affected by the revocation.
Under Article 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. Under Article 1922, if the agent had
general powers (i.e., not directed towards specific
persons), notice of the revocation in a newspaper
of general circulation is a sufficient warning to
third persons.

The critical time when the agency is revoked

is "from the day on which notice thereof was given
to the former agent." Thus, in Garcia v. De
Manzano, 39 Phil 577 (1919), where the father
first gave a power of attorney over the business to
his son, and subsequently to the mother, the
Court held that without evidence showing that the
son was informed of the issuance of the power of
attorney to the mother, the transaction effected
by the son pursuant to his power of attorney, was
valid and binding, thus --

Under Article 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. This
rule is consistent with the rule under Article 1915
that the obligation of two or more principals to a
common agent is solidary, and consequently, the
power to revoke the agency can be made by the
will of only one of the principals.

There is no proof in the record that the first

agent, the son, knew of the power-of-attorney to
his mother.
It was necessary under the law for the
defendants,
in
order
to
establish
their
counterclaim, to prove that the son had notice of
the second power-of-attorney. They have not done
so, and it must be considered that Angel L.
Manzano was acting under a valid power-of-

b. Implied Revocation
The following have been enumerated as to
constitute implied revocation, thus:
89

attorney from his father which had not been

legally revoked on the date of the sale of the half
interest in the steamer to the plaintiffs son, which
half interest was legally inherited by the plaintiffs.
(at p. 584)

of a power of attorney given to an agent does not

necessarily mean there is intent to revoke. For
indeed, agency arrangements are not meant to
curtail the power of the principal to execute acts
of ownership and administration, but as a matter
of business sense, to allow the principal, by legal
fiction, to extend his personality through the
facility of the agent (Orient Air Service & Hotel
Representatives v. Court of Appeals, 197 SCRA
645 [1991]). In other words, the direct
management of the business by the principal and
directly dealing with third parties shall be deemed
to produce the effect of revocation when such acts
would be inconsistent with the terms of the power
of attorney previously given to the agent.

(2) When Principal Directly Manages

Business
Under Article 1924, the agency is revoked
when the principal directly manages the business
entrusted to the agent, dealing directly with third
persons. The provision does not state when the
act of revocation takes place, and it can be
presumed therefore that the moment the principal
directly manages the business by dealing directly
with third persons, the agency is revoked. But that
would only mean that the revocation of the
agency is only with respect to the third persons
with whom the principal deals directly; as to third
parties who have previously known of the power
of attorney of the agent and who have not dealt
with the principal, the agency cannot be
considered revoked. It is also apparent that unless
the agent is aware or given notice that the
principal has directly managed the business which
is covered by his power of attorney, then insofar
as the agent is concerned there is as yet no
revocation of his powers.

Such principle is best illustrated in CMS

Logging v. Court of Appeals, 211 SCRA 374 (1992),
where the principal appointed the agent "as his
sole and exclusive export sales agent with full
authority . . .to sell and export under a firm sales
contract . . . all logs produced by [the principal]
for a period of five (5) years commencing upon
the execution of the agreement x x x [and for
which the agent] shall receive five (5%) per cent
commission of the gross sales of logs of [the
principal] based on F.O.B. invoice value which
commission shall be deducted from the proceeds
of any and/or all moneys received by [agent] for
and in behalf and for the account of [the
principal]." During the five year-period, the
principal sold logs directly to Japanese firms, and
for which the agent now seeks to recover the

It must be made clear that the continued

involvement of the principal in the management
of the business or the property which is the object
90

commission to which he was entitled to under the

exclusive agency arrangement. In denying any
right on the part of the agent to receive
commission from the principals direct sales of
logs to its Japanese customers, the Court held --

irrevocable within the period provided in the

contract of agency, but that merely it means that
the principal would not appoint another agent to
handle the business covered.
In Guardez v. NLRC, 191 SCRA 487 (1990),
where the principal had authorized the purported
agent to "follow up" principals previous offer
to sell a firetruck to a company, the Court held
that when the agent dropped out of the scene and
it was the principal that directly negotiated with
the company to saw the consummation of the
sale, no commission was due to the agent
because "such agency would have been deemed
revoked
upon
the
resumption
of
direct
negotiations between" the principal and the
company.

However, We find merit in [principals]

contention that the appellate court erred in
holding that [the agent] was entitled to its
commission from the sales made by [the principal]
to Japanese firms.
The principal may revoke a contract of
agency at will, and such revocation may be
express, or implied, and may be availed of even if
the period fixed in the contract of agency as not
yet expired. As the principal has this absolute
right to revoke the agency, the agent can not
object thereto; neither may he claim damages
arising from such revocation, unless it is shown
that such was done in order to evade the payment
of agent's commission. (at pp. 381-382)

In New Manila Lumber Company, Inc. vs.

Republic of the Philippines, 107 Phil 824 (1960),
the Court ruled that the act of a contractor, who,
after executing powers of attorney in favor of
another empowering the latter to collect whatever
amounts may be due to him from the
Government, and thereafter demanded and
collected from the Government the money the
collection of which he entrusted to his attorney-infact, constituted revocation of the agency in favor
of the attorney-in-fact.

CMS Logging confirms the legal position that

the indication of a period in the contract of agency
does not mean that the contract was contractually
deemed irrevocable within the period granted,
and to the effect revocation within the period
would amount to breach of contract for which the
principal may be held liable for damages. In
addition, the ruling also confirms the position that
the grant to a person of an "exclusive agency"
position does not mean that the agency is

The rulings in the above-discussed cases

indicate that the issue of "implied revocation"
arising when the principal directly manages the
91

business or property covered by a power of

attorney really go into the issue of entitlement of
the agent to the commission or remuneration
agreed upon under the contract of agency. In
other words, it seems that jurisprudence indicates
that agency being a contract of service, the agent
must earn through his service or efforts the
commission or remuneration agreed upon with the
principal; such that if it is the principal himself,
through his own efforts, who is able to effect the
transaction
contemplated
by
the
agency
arrangement, then the agent would not be
entitled to receive any commission.

misleading in Article 1926, for the rule is properly

embodied in Article 1923, in that "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."
Again, if we look at the language of Article
1926, it would mean that "a general power of
attorney is not revoked by a special one granted
to the same agent." The falsity of such an
implication is best shown in the decision in Dy
Buncio and Co. v. Ong Guan Can, 60 Phil 696
(1934).

(3) Special Power of Attorney Revokes a

General Power of Attorney

In that decision, the son executed on behalf

of the father, the deed covering the sale of a ricemill and camarin, in favor of buyers who relied
upon a 1928 power of attorney attached to the
deed, but which turned out was "not a general
power of attorney but a limited one and [did] not
give the express power to alienate the properties
in question." When the creditors of the principal
sought to have the sale declared void, the buyers
claimed that the defect in the sons authority
to sell on behalf of the father was cured by an
earlier 1920 "general power of attorney given to
the same agent [son]" by the father. The Court
nonetheless declared the sale void on the ground
that "The making and accepting of a new power of
attorney, whether it enlarges or decreases the
power of the agent under a prior power of
attorney, must be held to supplant and revoke the

Under Article 1926, "A general power of

attorney is revoked by a special one granted to
another agent, as regards the special matter
involved in the" general power of attorney. It is
unfortunate that Article 1926 fuses two distinct
situations into one statutory rule.
For example, the implication from the
language of Article 1926 is that "a special power
of attorney granted to one person is not revoked
by a general power of attorney subsequently
granted in favor of another person as to the
special matter involved in the special power of
attorney;" for indeed the proposition if illogical.
The use of the terms "general power of attorney"
and "special power of attorney" is completely
92

latter when the two are inconsistent. If the new

appointment with limited powers does not revoke
the general power of attorney, the execution of
the second power of attorney would be a mere
futile gesture."

Valera v. Velasco, 51 Phil 695 (1928)

If the purpose of the principal in dealing

directly with the purchaser and himself effecting
the sale of the principals property is to avoid
payment of his agents commission, the
implied revocation is deemed made in bad faith
and cannot be sanctioned without according to
the agent the commission which is due him.
Infante v. Cunanan, 93 Phil 693 (1953).

(1) When It Affects Dealings with Specified

Third Parties

Barretto v. Santa Marina, 26 Phil 440 (1913)

c. Effects of Revocation on Third Parties

Under Article 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. It seems clear, when compared with the
situation in Article 1873, that notice by public
advertisement would not constitute sufficient
notice to bind such specified third parties.

Where no time for the continuance of the

agency is fixed by the terms, the principal is at
liberty to terminate it at will subject only to the
requirements of good faith. Daon v. Brimo,
42 Phil 133 (1921).

In Rallos v. Yangco, 20 Phil 269 (1911), the

former principal refused to be personally liable for
any account handled by his agent (Collantes) for
transactions that occurred after the principal had
terminated the agency relations, even to a longstanding customer who had done business with
the principal through the agent who was specially
endorsed. In affirming the liability of the principal,
the Court held --

Related Cases:
Valenzuala v. Court of Appeals, 191 SCRA 1 (1990)
Florentino
(1993).

v.

Sandiganbayan,

202

SCRA

309

Dialosa v. Court of Appeals, 130 SCRA 350 (1984)

It appears, however, that prior to the

sending of said tobacco the defendant had
severed his relations with Collantes and that the
latter was no longer acting as his factor.

Manila Trading v. Manila Trading Laborers Assn.,

83 Phil 297 (1949)
93

This fact was not known to the plaintiffs; and

it is conceded in the case that no notice of any
kind was given by the defendant to the plaintiffs
of the termination of the relations between the
defendant and his agent. The defendant refused
to pay the said sum upon demand of the plaintiffs,
placing such refusal upon the ground that at the
time the said tobacco was received and sold by
Collantes he was acting personally and not as
agent of the defendant. This action was brought to
recover said sum.

Lustan v. Court of Appeals, 266 SCRA 663

(1997), held that when the special power of
attorney duly authorized the agent to represent
and act on behalf of the principal, the power
granted thereto can be relied upon by third
parties for whom specifically the authority was
issued, thus:
As far as third persons are concerned, an act
is deemed to have been performed within the
scope of the agent's authority if such 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 the understanding between
the principal and the agent. The Special Power of
Attorney particularly provides that the same is
good not only for the principal loan but also for
subsequent commercial, industrial, agricultural
loan or credit accommodation that the attorneyin-fact may obtain and until the power of attorney
is revoked in a public instrument and a copy of
which is furnished to PNB. 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 (Article 1911, Civil Code). The mortgage
directly and immediately subjects the property
upon which it is imposed. The property of third
persons which has been expressly mortgaged to
guarantee an obligation to which the said persons
are foreign, is directly and jointly liable for the
fulfillment thereof; it is therefore subject to
execution and sale for the purpose of paying the

As is seen, the only question for our decision

is whether or not the plaintiffs, acting in good faith
and without knowledge, having sent produce to
sell on commission to the former agent of the
defendant, can recover of the defendant under
the circumstances above set forth. We are of the
opinion that the defendant is liable. Having
advertised the fact that Collantes was his agent
and having given special notice to the plaintiffs 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. (at pp. 272-273)

94

amount of the debt for which it is liable. However,

petitioner has an unquestionable right to demand
proportional indemnification from Parangan with
respect to the sum paid to PNB from the proceeds
of the sale of her property in case the same is sold
to satisfy the unpaid debts." (at p. 676)

third persons. Rammani v. Court of Appeals,

196 SCRA 731 (1991).
By the opening of branch office with the
appointment of its branch manager and honoring
several surety bonds issued in its behalf, the
insurance company induced the public to believe
that its branch manager had authority to issue
such bonds. As a consequence, the insurance
company was estopped from pleading, particularly
against a regular customer thereof, that the
branch manager had no authority. Central
Surety & Insurance Co. v. C.N. Hodges, 38
SCRA 159 (1971).

Lustan holds that where the special power of

attorney provides that the same is good not only
for the principal loan but also for subsequent
commercial, individual, agricultural loan or credit
accommodation that the attorney-in-fact may
obtain and until the power of attorney is revoked
in a public instrument and a copy of which is
furnished to the bank, in the absence of any proof
that the bank had knowledge that the last three
loans were without the express authority of the
principal, the bank cannot be prejudice.

While Article 1358 of the Civil Code requires

that the contracts involving real property must
appear in a proper document, a revocation of a
special power of attorney to mortgage a parcel of
land, embodied in a private writing, is valid and
binding between the parties, such requirement of
Article 1358 being only for the convenience of the
parties and to make the contract effective as
against third persons. PNB v. Intermediate
Appellate Court, 189 SCRA 680 (1990).

(2) When Revocation of General Powers of

Agency
Under Article 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.

Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).

d. CASES

In a case covering a power of attorney to

deal with the general public, the fact that the
revocation was advertised in a newspaper of
general circulation would be sufficient warning to

OF IRREVOCABLE

AGENCIES

Under Article 1927, an agency cannot be revoked

when:
95

 a bilateral contract depends upon it;

compensation, she received 4% of the proceeds in

the concept of commissions. And as we said,
Sevilla herself, based on her letter of November
28, 1961, presumed her principal's authority as
owner of the business undertaking. We are
convinced, considering the circumstances and
from the respondent Court's recital of facts, that
the parties had contemplated a principal-agent
relationship, rather than a joint management or a
partnership.

it is the means of fulfilling an obligation already

contract;
a partner is appointed manager of a
partnership in the contract of partnership and the
removal from management is unjustifiable.
However, an exception to the revocability
of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon
the agency. The reason for its irrevocability is
because the agency becomes part of another
obligation or agreement. It is not solely the rights
of the principal but also that of the agent and
third persons which are affected. Hence, the law
provides that in such cases, the agency cannot be
revoked at the sole will of the principal. Republic
v. Evangelista, 466 SCRA 544 (2005)

But unlike simple grants of a power of

attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot
be revoked at will. The reason is that it is one
coupled with an interest, the agency having been
created for the mutual interest of the agent and
the principal. 19 It appears that Lina Sevilla is a
bona fide travel agent herself, and as such, she
had acquired an interest in the business entrusted
to her. Moreover, she had assumed a personal
obligation for the operation thereof, holding
herself solidarily liable for the payment of rentals.
She continued the business, using her own name,
after Tourist World had stopped further operations.
Her interest, obviously, is not limited to the
commissions she earned as a result of her
business transactions, but one that extends to the
very subject matter of the power of management
delegated to her. It is an agency that, as we said,
cannot be revoked at the pleasure of the principal.
Accordingly, the revocation complained of should
entitle the petitioner, Lina Sevilla, to damages.

In Sevilla v. Court of Appeals, 160 SCRA 171

(1968), the Court found that when the petitioner,
Lina Sevilla, agreed to man the respondent,
Tourist World Service, Inc.'s Ermita office, she
must have done so pursuant to a contract of
agency. It is the essence of this contract that the
agent renders services "in representation or on
behalf of another." The Court then held -. . . In the case at bar, Sevilla solicited airline
fares, but she did so for and on behalf of her
principal,
Tourist
World
Service,
Inc.
As
96

x x x.

to the principal. If the principal should suffer any

damage by reason of the withdrawal, the agent
must indemnify him therefore, unless the agent
should base his withdrawal upon the impossibility
of continuing the performance of the agency
without grave detriment to himself.

This conduct on the part of Tourist World

Service, Inc. betrays a sinister effort to punish
Sevilla for what it had perceived to be disloyalty
on her part. It is offensive, in any event, to
elementary norms of justice and fair play.

Under Article 1929, even when the agent

should withdraw for a valid reason, must continue
to act until the principal has had reasonable
opportunity to take the necessary steps to meet
the situation.

We rule, therefore, that for its unwarranted

revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be
sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of
contract where the defendant acted . . . in bad
faith." (at p. 184)

Related Cases:
Valera v. Velasco, 51 Phil 695 (1928)

Related Cases:
Dela Pena v. Hidalgo, 16 Phil 450 (1910)
National Sugar Trading v. PNB, 396 SCRA 528
(2003)

4. DEATH, INCAPACITY
PRINCIPAL

Bacaling v. Muya, 380 SCRA 714 (2002)

Since agency is both a fiduciary and

representative relationship, the death of the
principal automatically extinguishes the contract,
for certainly even if the agent is willing to go on,
he has nobody to represent and bind in juridical
relations. Thus, Rallos v. Felix Go Chan & sons
Realty Corp., 81 SCRA 251 (1978), the Court held
--

Perez v. PNB, 17 SCRA 833 (1966)

Coleongco v. Claparols, 10 SCRA 577 (1964)
Del Rosario v. Abad, 104 Phil 648 (1958)
3. WITHDRAWAL

OF THE

AGENT

FROM THE

OR INSOLVENCY OF THE

AGENCY

Under Article 1928, the agent may

withdrawal from the agency by giving due notice

By reason of the very nature of the

relationship between principal and agent, agency
97

is extinguished by the death of the principal or the

agent. This is the law in this jurisdiction.

represented by an attorney. Lavina v. Court of

Appeals, 171 SCRA 691 (1988).

Manresa commenting on Art. 1709 of the

Spanish Civil Code explains that the rationale for
the law is found in the juridical basis of agency
which is representation. There being an
integration of the personality of the principal into
that of the agent it is not possible for the
representation to continue to exist once the death
of either is establish. Pothier agrees with Manresa
that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says
that the juridical tie between the principal and the
agent is severed ipso jure upon the death of either
without necessity for the heirs of the principal to
notify the agent of the fact of death of the former.

Related Cases:
Terrado v. Court of Appeals, 131 SCRA 373
(1984)
Hermosa v. Longara, 93 Phil 977 (1953)
Danon v. Brimo, 42 Phil 133 (1921)
Barretto v. Santa Marina, 26 Phil 440 (1913)
Dela Pena v. Hidalgo, 16 Phil 450 (1910)
a. When the Agency Continues Despite
Death of Principal

The same rule prevails at common law the

death of the principal effects instantaneous and
absolute revocation of the authority of the agent
unless the power be coupled with an interest. 10
This is the prevalent rule in American
Jurisprudence where it is well-settled that a power
without an interest conferred upon an agent is
dissolved by the principal's death, and any
attempted execution of the power afterwards is
not binding on the heirs or representatives of the
deceased. (at p. 260)

Under Article 1930, the agency shall remain

in full force and effect even after the death of the
principal, if it has been constituted in the common
interest of the latter and of the agent, or in the
interest of a third person who has accepted the
stipulation in his favor.
Earlier on in Pasno v. Ravina, 54 Phil 378
(1930), the Court recognized that "the power of
sale given in a mortgage is a power coupled with
an interest which survives the death of the
grantor."

The death of a client divests his lawyer of

authority to represent him as counsel. A dead
client has no personality and cannot be
98

An example of such a situation, is when a

power of attorney is constituted in a contract of
real estate mortgage pursuant to the requirement
of Act No. 3135, which would empower the
mortgagee upon the default of the mortgagor to
payment the principal obligation, to effect the sale
of the mortgage property through extrajudicial
foreclosure. It has been held that the power of
sale in the deed of real estate mortgag4e is not
revoked by the death of the principal-mortgagor,
on the ground that it is an ancillary stipulation
supported by the same cause or consideration
that supports the mortgage and forms an
essential inseparable part of that bilateral
agreement. The power of attorney therefore
survives the death of the mortgagor, and allows
the mortgagee to effect the foreclosure of the real
estate mortgage even after the death of the
principal-mortgagor. Perez v. PNB, 17 SCRA 833
(1966); Del Rosario v. Abad and Abad, 104 Phil.
648 (1958).

would not be protected, and the contract would be

void, not just unenforceable, for lack of the
essential element of consent.
In Buason v. Panuyas, 105 Phil 795 (1959),
the Court applied the provisions of Article 1931 in
upholding the validity of the sale of the land
effected by the agent only after the death of the
principal, when no evidence was adduced to show
that at the time of sale both the agent and the
buyers were unaware of the death of the principal.
(Reiterated in Herrera v. Uy Kim Guan, 1 SCRA
406 [1961]).
In Rallos v. Felix Go Chan & Sons Realty
Corp., 81 SCRA 251 (1978), the Court emphasized
that lack of knowledge of the death of the
principal must exist at the time of contract with
both the agent and the third parties for the
provision of Article 1931 to apply, thus -Article 1931 is the applicable law. Under this
provision, an act done by the agent after the
death of his principal is valid and effective only
under two conditions, viz: (1) that the agent acted
without knowledge of the death of the principal,
and (2) that the third person who contracted with
the agent himself acted in good faith. Good faith
here means that the third son was not aware of
the death of the principal at the time he
contracted with said agent. These two requisites
must concur: the absence of one will render the
act of the agent invalid unenforceable.

b. Effect of Acts Done by Agent Without

Knowledge of Principals Death
Under Article 1931, anything done by the
agent, without knowledge of the death of the
principal or of any other cause which extinguishes
the agency, is valid and shall be fully effective
with respect to third persons who may have
contracted with him in good faith. It is obvious,
that third parties who deal with the agent in bad
faith (i.e., knowing that the principal is dead)
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In the instant case, it cannot be questioned

that the agent, Simeon Rallos, knew of the death
of his principal at the time he sold the latter's
share in Lot No. 5983 to respondent corporation.
The knowledge of the death is clearly to be
inferred from the pleadings filed by Simeon Rallos
before the trial court. That Simeon Rallos knew of
the death of his sister Concepcion is also a finding
of fact of the court a quo and of respondent
appellate court when the latter stated that Simeon
Rallos "must have known of the death of his sister,
and yet he proceeded with the sale of the lot in
the name of both his sisters Concepcion and
Gerundia Rallos without informing appellant (the
realty corporation) of the death of the former."

annotated on said certificate of title by the heirs

of the principal and accordingly they must suffer
the consequences of such omission.
To support such argument reference is made
to a portion in Manresa's Commentaries which We
quote:
"If the agency has been granted for the
purpose of contracting with certain persons, the
revocation must be made known to them. But if
the agency is general in nature, without reference
to particular person with whom the agent is to
contract, it is sufficient that the principal exercise
due diligence to make the revocation of the
agency publicly known.

On the basis of the established knowledge of

Simeon Rallos concerning the death of his
principal, Concepcion Rallos, Article 1931 of the
Civil Code is inapplicable. The law expressly
requires for its application lack of knowledge on
the part of the agent of the death of his principal;
it is not enough that the third person acted in
good faith. (at p. 262)

"In case of a general power which does not

specify the persons to whom representation
should be made, it is the general opinion that all
acts executed with third persons who contracted
in good faith, without knowledge of the
revocation, are valid. In such case, the principal
may exercise his right against the agent, who,
knowing of the revocation, continued to assume a
personality which he no longer had." (Manresa,
Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The Court further held in Rallos

Another argument advanced by respondent
court is that the vendee acting in good faith relied
on the power of attorney which was duly
registered on the original certificate of title
recorded in the Register of Deeds of the Province
of Cebu, that no notice of the death was ever

The above discourse, however, treats of

revocation by an act of the principal as a mode of
terminating an agency which is to be
distinguished from revocation by operation of law
such as death of the principal which obtains in this
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case. On page six of this Opinion We stressed that

by reason of the very nature of the relationship
between principal and agent, agency is
extinguished ipso jure upon the death of either
principal or agent. Although a revocation of a
power of attorney to be effective must be
communicated to the parties concerned, yet a
revocation by operation of law, such as by death
of the principal is, as a rule, instantaneously
effective inasmuch as "by legal fiction the agent's
exercise of authority is regarded as an execution
of the principal's continuing will." With death, the
principal's will ceases or is terminated; the source
of authority is extinguished.

Appeals, 131 SCRA 371 (1984), the Court held

that contract of agency establishes a purely
personal relationship between the principal and
the agent, such that the agency is extinguished
by the death of the agent, and his rights and
obligations arising from the contract of agency are
not transmittable to his heirs.
However, under Article 1932, if the agent
dies during the term of the agency, his heirs must
notify the principal thereof, and in the meantime
must adopt such measures as the circumstances
may demand in the interest of the principal. The
provision establishes a rare situation where an
obligation is imposed by law upon persons who
are not parties to a contractual relationship, and
that in fact of one that has already been
extinguished by the death of the agent.

The Civil Code does not impose a duty on the

heirs to notify the agent of the death of the
principal. What the Code provides in Article 1932
is that, if the agent dies, his heirs must notify the
principal thereof, and in the meantime adopt such
measures as the circumstances may demand in
the interest of the latter. Hence, the fact that no
notice of the death of the principal was registered
on the certificate of title of the property in the
Office of the Register of Deeds, is not fatal to the
cause of the estate of the principal. (at p. 264)
5. DEATH, INCAPACITY
AGENT

a. In case of Multiple Agents

Generally, without showing an intention to
the contrary, in case of an agency where there are
several agents constituted for the same business
or property, the death of one or more, but not all
of them would not extinguish the agency, with
respect to those who remain living. The same rule
would apply in case of civil interdiction, insanity or
insolvency of any but not all of the common
agents.

OR INSOLVENCY OF THE

Article 1919(3) provides that the death, civil

interdiction, insanity or insolvency of the agent
extinguishes at he agency. In Terrado v. Court of

On the other hand, when it is clear at the

constitution of the agency that the common
101

agents were intended to be considered as having

capacity as a group and not individually (such as
by the use of the term and in defining
their powers), then the death, legal incapacity, or
insolvency of one would legally terminate the
agency.
6. DISSOLUTION

OF A

all purpose that seek the liquidation of its assets

and the payment of all its liabilities.
7. OBLIGATIONS OF THE AGENT EVEN WHEN
AGENCY IS EXTINGUISHED

THE

The fiduciary nature of the contract of

agency requires that even when the agency
relation is terminated, the agent is bound to keep
confidential such matters and information which
he learned in the course of the agency when the
nature of such matter or information is
confidential, such as business secrets.

CORPORATION

The dissolution of a corporation extinguishes

its juridical personality for every purpose that
seeks to pursue "new business" (Alhambra Cigar v.
SEC, 24 SCRA 269 [1968]) or that of "a going
concern" (PNB v. Court of First Instance of Rizal ,
Pasig, Br. XXI, 209
SCRA
294 [1992]).
Consequently, upon the dissolution of a
corporation, its Board of Directors and corporate
officers lose every legal right to enter into an
contract or transaction to pursue new business or
done in the ordinary course of business, and any
of such contract entered into would be void, even
as against third parties who act in good faith, for
at the point of dissolution, existing creditors of the
corporations must be protected under the trust
fund doctrine.

Just as the principal cannot legally revoke an

agency in order to evade the payment of
compensation due to the agent, then in the same
manner an agent cannot legally terminate an
agency in order to take advantage of the
principals condition or to profit by information
resulting from his agency, for such would be in
breach of his duty of loyalty.

However, the corporation after dissolution,

and within three years therefrom continues to
have juridical personality for only for purposes of
liquidation. Consequently, the Board of Directors
and corporate officers continue to have agency
powers to represent the corporation for any and
102