Agency - de Leon (Ajst Notes)

AGENCY Basis of Agency
Its basis is representation. The agent renders some service or does something “in
CHAPTER 1 representation or on behalf of another.”
NATURE, FORM, AND KINDS OF AGENCY a. Personal contract of representation – It is a personal contract of
representation based on trust and confidence reposed by the principal on
ART. 1868. By the contract of agency, a person binds himself to render some his agent, agency is generally revocable.
service or to do something in representation or on behalf of another, with the b. Acts of agency, by legal fiction, acts of principal – acts within the
consent of the latter. scope of his authority produce the same legal and binding effects as if
they were personally done by the principal.
Concept of Agency
 Agency is a fiduciary relationship which implies a power in an agent to Purpose of Agency
contract with a third person on behalf of a principal. The purpose of agency is to extend the personality of the principal through the
facility of the agent to render some service to do or something.
 It is the power to effect the principal’s contractual relations with third
persons that differentiates the agent from the employee, the servant, and
Parties and their Capacities to a Contract of Agency
the independent contractor.
1. Principal – one whom the agent represents and from whom he derives
his authority. He is the person represented.
Characteristics of a contract of agency
a. He may be either a natural person or an artificial one.
 Consensual – based on the agreement of the parties which is perfected
b. He must be capacitated or have the legal capacity to enter into
by mere consent
contract in his own right.
 Principal – it can stand by itself without another contract
Important:
 Nominate – has its own name
- Voluntary association of persons which is not a legal entity has no legal
 Unilateral/bilateral – can be gratuitous or by reason of compensation
existence and cannot sue or be sued; hence it has no capacity to appoint
giving rise to reciprocal rights and obligations
an agent.
 Preparatory – entered into as a means to an end. - During the state of war, an enemy alien may not appoint an agent to act
in the belligerent territory with which his nation is at war.
Nature of Agency
Article 1868 defines from the viewpoint of a contract. 2. Agent – one who acts for and represents another. He is the person
a. Manifestation of consent – the principal must INTEND that the agent acting in a representative capacity.
shall act for him, the agent must intend to ACCEPT the authority and a. His capacity is immaterial. Since he assumes no personal
act on it, and such intention of the parties must find expression either in liability, he does not have to possess full capacity to act for
words or conduct between them. himself insofar as third persons are concerned.
b. Agent, by legal fiction, becomes principal – in acting for the principal, b. However, some mental capacity is necessary as an agent.
by legal fiction, becomes the principal AUTHORIZED to perform all Persons who are absolutely incapacitated such as insane
acts which the latter would have him do. persons cannot be agents.
c. Presence/absence of contractual consideration – consideration is not
necessary; relationship may be created by operation of law or a person Essential Elements of a Contract of Agency
who acts for another as principal may do so gratuitously. Without a 1. There is consent, express or implied, of the parties to establish the
contract or a consideration there can be an agency power. relationship.
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2. The object is the execution of a juridical act in relation to third persons. 2. Criminal acts or acts not allowed by law – if done, considered as void.
3. The agent acts as a representative and not for himself. There can be no agency in the perpetration of a crime or an unlawful
4. The agent acts within the scope of his authority. act.
5. The parties must be competent to act as principal and agent. a. Alien cannot purchase land through a Filipino agent.
b. Persons prohibited from acquiring property cannot acquire the
Creation of Agency Relationship same through the mediation of another
 It is based on the concept that the parties mutually agree on its creation. c. Law on agency has no application in criminal cases.
Consent may be oral or expressed by contract, or by operation of law or
by ratification. Determination of existence of agency
 On the part of the principal, there must be an intention to appoint the The question is ultimately one of INTENTION.
agent, while on the part of the agent, there must be an intention to 1. Designation by the parties – the manner in which the parties designate
accept the appointment and act on it. the relationship is not controlling. If an act done by one person in behalf
of another is in its essential nature one of agency, the former is the
Relationship of Third Party with Principal and Agent agent of the latter notwithstanding he is not so-called.
 Since an agent’s contract is not his own but his principal’s a third 2. Fact of existence – the question is determined by the fact that ONE
party’s liability on such contract is to the principal and not to the agent. REPRESENTS and is ACTING FOR ANOTHER, and not by the
3rd person’s liability is enforceable against the principal, not the agent. consideration that it will be inconvenient or unjust if he is not held to be
 Where an agency exists, the relationship of the third party with whom the agent of such other.
the agent has contracted, to the principal, is the same as that in a 3. Presumption of existence – for the relation to exist, there must be
contract in which there is no agent. consent by both parties. It must exist as a FACT.
o AGENT AS AN ASSIGNEE – In such a case, the agent may, 4. Intention to create relationship – there must be either an actual intention
in his own behalf, sue on a contract made for his principal, as to appoint on the part of the principal. There must be an intention to
an assignee of such contract. accept the appointment and act on it on the part of the agent.
o He may bring an action founded on a contract made for his 5. As between the principal and a third party – as between them, agency
principal as an assignee of such contract. may exist without the direct assent of the agent.
 It is a general rule that an agent who assumes to contract in the name of
Nature of relations between principal and agent
a principal without contractual capacity renders himself liable to third
1. Relations fiduciary in character – because they are based on trust and
persons.
confidence, on a degree which varies considerably from situation to
 The acts of an agent done for an incompetent principal may be ratified
situation.
by the latter after he acquires capacity.
2. Agent estopped from asserting interest adverse to his principal – his
position is analogous to that of a trustee and he cannot, consistently
Acts that may be/not be delegated to agents
with the principles of good faith, be allowed to create himself an
1. Personal acts – acts required by law or public policy or the agreement of
interest in opposition to that of his principal. He has to refrain from
the parties to be done personally. The doing of such act does not
placing one’s self in a position which ordinarily conflicts between self-
constitute performance by the latter.
interest and integrity.
a. Right to vote during election
3. Agent must not act as an adverse party – agents cannot act so as to
b. Making of a will
bind their principals, where they have an adverse interest in themselves.
c. Statements which are required to be made under oath

4. Agent must not act for an adverse party – an agent cannot serve 2 b. Where the agent’s duty is not to disclose the information, as
masters, unless both consents, or unless he is a mere middleman or where he is informed by way of confidential information
intermediary with no independent initiative. c. Where the person claiming the benefit of the rule colludes with
a. Where an agent acts for both parties without the the agent to defraud the principal.
knowledge or consent of either, he is chargeable as
TRUSTEE for all the profits of the transaction, and is AGENCY DISTINGUISHED FROM OTHER CONTRACTS
responsible for any loss sustained by the principal, and cannot
recover compensation from either principal. Agency vs. Lease of Service
b. Where the third party (second principal) is aware of the AGENCY LEASE OF SERVICE
dual employment but the principal is not, the latter has the Basis is representation Basis is employment
right to affirm or rescind the transaction and recover damages Lessor ordinarily performs only
Agent exercises discretionary powers
and the agent irrespective any proof of actual fraud or that an ministerial functions
improper advantage has been gained over him. 3 persons are involved: Principal, 2 persons are involved: lessor
c. If double employment is with knowledge and consent of the agent, third person (master/employer) and the lessee
principal, such principal is bound but he cannot recover from Relates to commercial or business Relates more to matter mere manual
the other. He cannot complain of the agency’s breach of faith. transaction or mechanical execution
Employed in a capacity superior to
5. Agent must not use or disclose secret information – requirements of
that of the servant, being entitled, in Servant is directed by the master, not
good faith and loyalty demand of the agent the duty not to use or
general, to use his discretion as to the only as to what is to be done, but
divulge confidential information obtained in the course of his agency
means to accomplish the end for how it shall be done
for his own benefit to the principal’s injury and expense.
which he is employed
6. Agent must give notice of material facts – agent must make known to
Agent is employed to establish Servant is not employed to establish
his principal every and all material facts, of which the agent has
contractual relations between his contractual relations
cognizance, which concern the transaction and subject matter of agency.
principal and third person
Failure to do so, the agent may be held liable for damages for any loss
suffered or injury incurred as a result of such breach.
Agency vs. Independent Contract
AGENCY INDEPENDENT CONTRACT
Knowledge of agent imputed to principal Where one party to a contract
1. Agent’s duty of notification – it is only logical that the agent is required By the contract of agency, a person undertakes to accomplish a certain
to notify the principal of all matters that came to his attention that are binds himself to render some service result according to his own method
material to the subject matter of the agency. or to do something in representation and without being subject to other
2. Relationship of attorney and client – he is entitled to the fullest or on behalf of another, with the party’s control except as to the result
disclosure of why certain steps are taken and why certain matters are consent of the latter. of the work, the contract is one for a
either included or excluded from the documents he is made to sign. piece of work
3. Knowledge of the principal – note that the theory of imputed knowledge Independent contractor, without
of the agent to the principal, not the other way around. Subject to control and discretion of
being subject to control of the
the principal whom he represents
employer, exercises his employment
Exception to the rule imputing knowledge of agent to the principal: with respect to matters entrusted to
independently and not in
a. Where the agent’s interests are adverse to those of the principal him
representation of the employer
Agent is not liable Employer may be liable in case of

negligence or because of interference in the purchase or sale for another of
in the work of the independent personal property which for this he buys or sells. He is merely an
contractor purpose, is placed in his possession intermediary or negotiator between
and at his disposal. He maintains the purchaser and the vendor relative
Agency vs Partnership relation not only with his principal to the property with the custody or
AGENCY PARTNERSHIP and the purchaser or vendor, but also possession of which he has no
Pure agency Mutual agency with the property which is the subject concern.
Co-partner cannot be subject to matter of the transaction.
Controlled by the principal
another co-partner’s right to control Purpose is to bring together the
Partner acting as agent for the Purpose is to bind the principal and parties to the transaction never acting
No personal liability where he acts
partnership binds not only the firm third party in his own name but in the name of
within the scope of his authority
members but himself as well those who employed him.
Alleged owner or partner partakes Broker earns his pay merely by
If profits belong to all the parties as Agent received a commission upon
his agreed share of profits, not as an bringing the buyer and the seller
common proprietors in agreed the successful conclusion of a
owner but as an agreed measure of together, even if no sale eventually
proportions, the relation is one of transaction such as sale
compensation for his services or the made.
partnership
like, the relation is one of agency
Agency vs Sale
AGENCY SALE
Agency to sell, the agency receives
The buyer receives the goods as
the goods or property as the goods of
Agency vs. Negotiorum Gestio owner
the principal
AGENCY NEGOTIORUM GESTIO The agent delivers the proceeds of
Contract Quasi-contract The buyer pays the price
the sale
Representation is expressly conferred Agent can return the object in case
No authority of the owner of the The buyer, as general rule, cannot
and with authority and with he is unable to sell the same to a
business and without his knowledge return the object sold
knowledge of principal third person
Gestor acts according to the Agent is bound to act according to Buyer can deal with the thing as he
Acts according to the express will of presumed will of the owner by the instructions of his principal pleases, being the owner
the principal exercising all the diligence of a good
father of a family Agency vs Guardianship
AGENCY GUARDIANSHIP
Agency vs Brokerage does not derive his authority so to act
Derives authority from his principal
Brokerage – refers to the trade or occupation of a broker. from the ward
Broker – is one who is engaged for others on a commission; negotiator between Relation of principal and agent is
Relation may be created irrespective
other parties, never acting in his own name but in the name of those who founded upon the consent of the
of the consent or capacity of the ward
employed him. parties
Guardians are not subject to the
Subject to the control of the principal
AGENCY BROKERAGE direction of their wards
A commission agent is one engaged Maintains no relation with the thing Agent’s power may at any time be Legal guardian is substituted by law

abrogated or modified by the 4. As to authority conferred:
principal a. Couched in general terms – one which is created in general
Agent represents one who has a Guardian represents one who has no terms and is deemed to comprise only acts of administration
capacity capacity b. Couched in specific terms – one authorizing only the
performance of a specific act/s.
5. As to its nature and effects:
a. Ostensible or representative – agent acts in the name and
Agency vs Trust representation of the principal
AGENCY TRUST b. Simple or commission – agent acts in his own name but for the
Title and control of the property account of the principal
Agent represents and acts for his
under trust instrument passes to the
principal
trustee who acts in his own name Form of Agency
Agency may in general be revoked at Trust may be terminated only by General rule: It is created by contract which may be oral, written or implied.
any time fulfillment of its purpose Exceptions:
a. When form is required for the validity of the contract
Article 1869. Agency may be express, or implied from the acts of the b. When it is required to make the contract effective against third person
principal, from his silence or lack of action, or his failure to repudiate the c. When it is required for the purpose of proving the existence of a
agency, knowing that another person is acting on behalf without authority. contract such as those provided in the Statute of Frauds
Agency may be oral, unless the law requires a specific form. Appointment of Agent
It is not essential that an agent should be appointed directly by the principal, but
Kinds of Agency the appointment may be made through another, as by referring an applicant to
1. As to manner of its creation: another and representing that he has authority to act, or the relation may arise out
a. Express – orally or in writing (authority) of an agreement to employ the agent of another, such person then becoming the
b. Implied – (enumeration is NOT exclusive) agent of the first party.
i. one which is implied from the acts of the principal
ii. from his silence or lack of action, or Presumption of Agency
iii. his failure to repudiate the agency knowing that General rule: Agency is not presumed. The relation between principal and agent
another person is acting on his behalf without must exist as a fact. Burden of proof rests upon the person alleging the agency to
authority or show, not only the fact of its existence, but also its nature and extent.
iv. from the acts of the agent which carry out the agency
v. from his silence or inaction according to the Exception: Presumption may arise in those cases where an agency may arise by
circumstances operation of law or to prevent unjust enrichment.
2. As to its character:
a. Gratuitous Authority of attorney to appear on behalf of his client
b. Compensated or onerous 1. Authority in an action presumed – Rule 138, ROC Section 21, Section
3. As to extent of business covered: 22, Section 23. (Authority to represent is presumed)
a. General – one which comprises all the business of the principal 2. Scope of authority – an act performed by counsel within the scope of a
b. Special – one which comprises one or more specific “general or implied authority” is regarded as an act of the client.
transactions
a. Exceptions: Construction of Powers of Attorney
i. Where reckless or gross negligence of counsel  Rule of strict construction – POA must be strictly construed and strictly
deprives the client of due process of law pursued.
ii. When its application will result in outright deprivation o The act done must be legally identical with that authorized to
of the client’s liberty or property be done.
iii. Where the interest of justice so requires o Moreover, where the mode of exercising their power is
3. Authority outside the court – the extent of authority of a lawyer, when prescribed in the instrument in which it is created, there must
acting on behalf of his client outside of court is measured by the same be strict compliance therewith in every substantial particular.
test as that which is applied to an ordinary agent.  Qualification of the rule – rule is NOT ABSOLUTE and should not be
applied to the extent of destroying the very purpose of the power.
Article 1870. Acceptance by the agent may also be express, or implied from
his acts which carry out the agency, or from his silence or inaction according Article 1872. Between persons who are not absent, the acceptance of the
to the circumstances. agency cannot be implied except:
1. When the principal transmits his power of attorney to the agent, who
Form of Acceptance by Agent receives it without any objection;
 There must be consent by BOTH parties. 2. When the principal entrusts to him by letter or telegram a power of
 It does not depend upon the express appointment and acceptance. 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.
Article 1871. Between persons who are present, the acceptance of the agency Implied Acceptance – where the persons are ABSENT
may also be implied if the principal delivers his power of attorney to the agent  If both the P&A are absent, acceptance by the agent is not implied from
and the latter receives it without objection. his silence or inaction. He may simply ignore the offer.
 Exceptions:
o If the agent writes a letter acknowledging receipt of the POA
but offers no objection to the creation of agency.
Implied Acceptance – where the persons are PRESENT o POA is with respect to business in which he is habitually
 Agent receives a power of attorney from the principal himself engaged as an agent
 Personally, without any objection (Both being present) o Acceptance could be inferred from his acts which carry out the
agency as when he begins to act under the authority conferred
Power of Attorney (POA) upon him.
It is an instrument in writing by which one person, as principal, appoints another
as his agent and confers upon him the authority to perform certain acts or kinds Difference between Article 1872 and Article 1871
of acts on behalf of the principal.  Art. 1871 – he personally delivers the POA
 Art. 1872 – the principal transmits the POA to the agent.
Purpose of Power of Attorney
Primary purpose – to evidence the authority of the agent to third parties within
Article 1873. If a person specially informs another or states by public
whom the agent deals; and the person holding a power of attorney is shown and
advertisement that he has given a power of attorney to a third person, the
designated as an “attorney-in-fact,” thus distinguishing such person from an
latter thereby becomes a duly authorized agent, in the former case with
attorney-at-law.
respect to the person who received the special information, and in the latter

case with regard to any person. o As to third persons – one who knows that another is acting as
his agent or permitted another to appear as his agent, to the
The power shall continue to be in full force until the notice is rescinded in the injury of third persons who have dealt with the apparent agent
same manner in which it was given. as such in good faith and in the exercise of reasonable
prudence, is estopped to deny the agency.
Two ways of giving notice of agency:
1. If by special information, the person appointed as agent is considered  Estoppel of third person – he will not be estopped where he has
such with respect to the person to whom it was given. withdrawn from the contract made with the unauthorized agent before
2. If by public advertisement, the agent is considered as such with regard receiving any benefits thereunder.
to any person. (newspaper, radio, posters, etc.)
 Estoppel of the government – government is neither estopped by the
mistake or error on the part of its agent. BUT it may be estopped
through affirmative acts of its officers acting within the scope of their
Manner of revocation of Agency authority.
 POA must be revoked in the SAME MANNER in which it was given.
 If agency has been entrusted for the purpose of contracting with Agency by Estoppel vs Implied Agency
specified persons – its revocation shall not prejudice the latter if they Agency by Estoppel Implied Agency
were not given notice thereof. Existence of actual agency
 If the agent had general powers – revocation of the agency does not There is no agency at all, but one
prejudice third persons who acted in good faith and without knowledge assuming to act as agent has apparent
There is an actual agency.
of the revocation. or ostensible authority to represent
 Notice of revocation in a newspaper of general circulation is a sufficient another
Reliance by third party
warning to third persons.
It may be invoked by a third person
 ACTUAL KNOWLEDGE of the agent of the revocation is sufficient
who in good faith relied on the Reliance is not necessary since the
regardless of any manner made.
conduct of the principal in holding agent is a real agent
the agent out as being authorized
Estoppel to Deny Agency
Nature of Authority
 Estoppel of Agent – one professing to act as agent for another may be Being actual agency, it is a fact to be
estopped to deny his agency both as against his asserted principal and Should be restricted to cases in which
proved by deductions or inferences
the third person interested in the transaction in which he is engaged. authority is not real but apparent
from other acts
 Estoppel of Principal:
o As to agent – one who knows that another is acting as his agent  An agent by implied appointment is a real agent with all the rights and
and fails to repudiate his acts or accepts the benefits of them, liabilities
will be estopped to deny the agency as against such other.  An apparent agent, an agent by estoppel, is no agent at all, and as
o As to sub-agent – to estop the principal from denying his against the principal, has none of the rights of an agent.
liability to a 3rd person, he must have known or be charged
with knowledge of the fact of the transaction and the terms of Article 1874. When a sale of a piece of land or any interest therein is through
the agreement between the agent and sub-agent. an agent, the authority of the latter shall be in writing; otherwise, the sale

shall be void. 2. Compliance by agent with his obligation – payment by the principal to
the agent presupposes that the latter has complied with his obligations
Sale of land through an Agent as such to the principal.
 Under this article, the sale of a piece of land (not any other real estate) 3. Procuring cause of transaction – the governing rule is that the agent
or any interest thereon, like usufruct, mortgage, etc., through an agent is must prove that he was the guiding cause for the transaction or, as has
void unless the authority is in writing. been said, the “procuring cause” thereof, depending upon the facts of
 A written special POA is necessary to protect the interest of an the particular case; otherwise, he is not entitled to the stipulated
unsuspecting owner from being prejudiced by the unwarranted act of broker’s commission.
another but also to caution the buyer to assure himself of the specific a. Procuring cause – refers to a cause originating a series of
authorization. events which, without break in their continuity, result in the
 It may be argued that an agency to PURCHASE need not be in writing. accomplishment of the prime objective of the employment of
Such agency is covered by Article 1878(5) – a SPOA is necessary to the broker – producing a purchaser ready, willing and able to
enter into any contract by which the ownership of an immovable is buy on the owner’s terms.
transmitted or acquired. 4. Evasion of commission in bad faith – the principal cannot evade
 Real estate broker is not within this article. payment of the commission agreed upon by inducing the agent to sign a
 Written authorization need not contain a particular description of the deed of cancellation of the written authority after the agent had found a
property which the agent is permitted to sell. buyer, and later selling the property to the buyer.
5. Compensation contingent on profits – when the compensation is
 To authorize a conveyance of real estate, a POA must be plain in its
contingent or dependent upon the realization of profit, the agent is not
terms.
entitled to compensation until the principal realizes the profit.
 Under Article 1403(2.e), NCC – an oral agreement for the sale of real
6. Reduction by principal of overprice –
property or of an interest therein is unenforceable even if there is no
agent.
Article 1876. An agency is either general or special. The former comprises all
the business of the principal. The latter, one or more specific transactions.
Article 1875. Agency is presumed to be for a compensation, unless there is
proof to the contrary.
 Prima facie presumption that the agency is for a compensation may be

Classes and kinds of Agents
contradicted by contrary evidence.
1. Universal Agent – one employed to do all acts that the principal may
 A person who agrees to act as an agent without compensation is a
personally do, and which he can lawfully delegate another the power of
gratuitous agent.
doing.
 However, the circumstances that the agency was for compensation or
not, shall be considered by the court in determining the extent of 2. General Agent – one employed to transact all the business of his
liability of an agent for fraud or negligence. principal, or all business of a particular kind or in a particular place, or
in other words, to do all acts, connected with a particular trade,
Liability of principal to pay compensation business, or employment.
1. Amount – the principal must pay the agent the compensation agreed
upon, or the reasonable value of the agent’s services if no compensation
was specified.

3. Special or Particular Agent – one authorized to act in one or more Termination of authority
specific transactions, or to do one or more specific acts, or to act upon a
The duty imposed upon the third
particular occasion.
Mere revocation of his authority party to inquire makes termination of
without notice to the third party the relationship between P&A
Special Types of Agents
effective as to such 3rd party
1. Attorney at law – one whose business is to represent clients in legal
proceedings Construction of instruction of principal
2. Auctioneer – one whose business is to sell property for others to the Statement by the principal with
highest bidder at a public sale respect to agent’s authority would They would be regarded as words
3. Broker – to act as intermediary between 2 other parties ordinarily be regarded as advisory in limiting the authority of the agent.
4. Factor – a.k.a. commission merchant; one whose business is to receive nature only.
and sell goods for a commission being entrusted with the possession of
the goods involved in the transaction. Article 1877. An agency couched in general terns comprises only acts of
5. Cashier in bank – one whose business is to represent a baking institution administration, even if the principal should state that he withholds no power
in its financial transactions or that the agent may execute such acts as he may consider appropriate, or
6. Attorney in fact – one who is given authority by his principal to do a even though the agency should authorize a general and unlimited
particular act not of a legal character. management.
General Agent vs Special Agent

GEN. AGENT SPEC. AGENT
Scope of authority Agency couched in general terms
Authorized to do only one or more  It includes only acts of administration and an express power is
Usually authorized to do all acts specific acts in pursuance of necessary to perform any act of strict ownership even if the principal:
connected with the business or particular instructions or with o He withholds no power; or
employment in which the principal is restrictions necessarily implied from o That the agent executes such acts as he may consider
engaged the act to be done appropriate; or
o That he authorizes a general or unlimited management
Continuous nature of service authorized
Authorized to conduct a series of Authorize to conduct a single
Acts of Administration – are those which do not imply the authority to alienate
transactions over time involving a transaction or a series of transactions
for the exercise of which an express power is necessary.
continuity of service not involving continuity of service
Extent to which agent may bind principal
May bind principal by an act within cannot bind principal in a manner Construction of contracts of agency
the scope of authority although beyond or outside specific acts which 1. Contracts of agency as well as general powers of attorney must be
contrary to his special instructions he is authorized to perform interpreted in accordance with the language used by the parties.
Knowledge/Disclosure of limitations of power 2. The real intention of the parties is primarily to be determined from the
Continuing and unrestricted by language used and gathered from the whole instrument.
Temporary and naturally suggests
limitations other than those which 3. In case of doubt, resort must be had to the situation, surroundings, and
limitations of power which 3rd
confine the authority bounds of what relations of the parties.
persons must inform themselves
is usual, proper and necessary. 4. The intention of the parties must be sustained rather than defeated.

5. If the contract be open to two constructions, one of which would uphold b. Novation – is the extinction of an obligation through the creation of a
while the other would overthrow it, the former is to be chosen. new one which substitutes it by changing the object or principal
6. The acts of the parties in carrying out the contract will be presumed to conditions thereof, substituting a debtor, or subrogating another in the
have been done in good faith and in conformity with and not contrary to right of the creditor.
the intent of the contract. c. Compromise – is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.
d. Arbitration is where the parties submit their controversies to one or
more arbitrators for decision.
e. Gift or donation – is an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another who accepts it.
Article 1878. Special powers of attorney are necessary in the following cases:
1. To make such payments as are not usually considered as acts of Article 1879. A special power to sell excludes the power to mortgage and a
administration; special power to mortgage does not include the power to sell.
2. To effect novations which put an end to obligations already in
existence at the time the agency was constituted;  An authority to sell the principal’s property does not carry with it or
3. To compromise, to submit questions to arbitration, to renounce the imply the authority to mortgage.
right to appeal from judgment, to waive objections to the venue of an  In the absence of special authority, the sale or mortgage will be
action or to abandon a prescription already acquired; unenforceable against the principal as the agent “has acted beyond his
4. To waive any obligation gratuitously; powers.”
5. To enter into any contract by which the ownership of an immovable  In the absence of express authorization, authority to sell contemplates
is transmitted or acquired either gratuitously or for a valuable the sale for cash and not for credit.
consideration;  Unless otherwise agreed, authority to buy or sell include authority to
6. To make gifts, except customary ones for charity or those made to rescind or modify the terms of the sale after its completion, nor to act
employees in the business managed by the agent; further with reference to the subject matter to undo or to correct
7. To loan or borrow money, unless the latter act be urgent and mistakes.
indispensable for the preservation of the things which are under
administration; Article 1880. A special power to compromise does not authorize submission
8. To lease any real property to another person for more than one year; to arbitration.
9. To bind the principal to render some service without compensation;
10. To bind the principal in a contract of partnership; Reason: He is not thereby authorized to submit to arbitration because while the
11. To obligate the principal as a guarantor or surety; principal may have confidence in the agent’s judgment, the arbitrator designated
12. To create or convey real rights over immovable property; may not possess the trust of the principal.
13. To accept repudiate an inheritance;
14. To ratify or recognize obligations contracted before the agency; The authority to submit to arbitration does not include the power to compromise.
15. Any other act of strict dominion.
Article 1881. The agent must act within the scope of his authority. He may do
Definition of terms: such acts as may be conducive to the accomplishment of the purpose of the
a. Payment – is the delivery of money or the performance in any other agency.
manner of an obligation.
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Article 1882. The limits of the agent’s authority shall not be considered b. The agent must act in behalf of the principal
exceeded should it have been performed in a manner more advantageous to
the principal than that specified by him.  Authority possessed by agent – principal is bound by either actual or
apparent authority of the agent.
Authority – is the power of the agent to affect the legal relations of the principal o Under the doctrine of apparent authority, the principal is liable
by acts done in accordance with the principal’s manifestation of consent to him. only as to third persons who have been led reasonably to
 Authority – source or cause believe by the conduct of the principal that such actual
 Power – effect authority exists, although none has been given.
 Authority ratified by another (principal) – On occasion, a person,
Kinds or Types of Authority who is in fact not an agent, may make a contract on behalf of another,
1. Actual – when it is actually granted or he is an agent but he has exceeded his power. If the principal
2. Express – when it is directly conferred by words subsequently approves or affirms the contract, an agency relationship is
3. Implied – when it is incidental to the transaction or reasonably created by ratification, and neither the principal nor the third person can
necessary to accomplish the main purpose of the agency although the set up the fact that the agent had no authority or exceeded his power.
principal has said nothing about the particular aspect of the agent’s
authority. When a person not bound by act of another
4. Apparent or ostensible – when it is conferred by words, conduct or even 1. The latter acts, without or beyond the scope of his authority in the
by silence of the principal which causes a third person to believe that a former’s name; and
particular person, who may or may not be the principal’s agent, has 2. The latter acts within the scope of his authority but in his own name,
actual authority to act for the principal. (a.k.a. authority by estoppel) except when the transaction involves things belonging to the principal.
a. The apparent authority of an agent can only arise by the acts or
conduct of the principal giving rise to an appearance of Unauthorized acts in the name of another unenforceable
authority and making the principal responsible for certain If the agent acts without authority or in excess or beyond the scope of his
agent’s action that were not really authorized at all. authority, there is no representation.
b. An agent has authority if it appeared reasonable from the
Such act is unauthorized, and, therefore, unenforceable, whether or not the party
viewpoint of the third party.
with whom the agent contracted was aware of the limits of the agent’s power,
c. Apparent authority is the term used where no express or
unless the principal ratifies the transaction before it is revoked by the other
implied authority is present.
contracting party or is in estoppel to deny the agent’s authority.
d. The principal’s liability is limited only to third persons who, in
good faith, believed that actual authority exists.
Where acts in excess of authority more advantageous to principal
5. General – refers to all the business of the principal
The agent is not deemed to have exceeded the limits of his authority should he
6. Special – limited only to one or more specific transactions
perform agency in a manner more advantageous to the principal than that
7. Emergency or authority by necessity or by operation of law – when it is
indicated by him, since he is authorized to do such acts as me by conducive to
demanded by necessity.
the accomplishment of the purpose of the agency.
When principal bound by act of agent

Liability of Principal/Agent for acts of agent beyond his authority or power
In order that the principal may be bound by the act of agent as to third person
1. Principal
and as to the agent himself, there are 2 requisites:
a. General Rule – principal is not bound by the acts of agent
a. The agent must act within the scope of his authority
beyond his limited powers.
b. 4 Qualifications whereby principal is liable: 1. Disclosed Principal – the agent discloses that he is representing a
i. Where principal acts have contributed to deceive third principal and identifies the principal.
person in good faith  Principal may be liable on the contract of the agent by any of
ii. Where the limitation upon the power created by him the kinds of authority that have been discussed.
could not have been known by the third person 2. Partially disclosed Principal – if the other party knows or has reason
iii. Where the principal has placed in the hands of the to know that the agent is or may be acting for a principal but is unaware
agent instruments signed by him in blank of the principal’s identity.
iv. Where the principal has ratified the acts of the agent  In this kind, the third person has a right of action against the
2. Agent principal.
a. General Rule – The agent who exceeds his authority is  Liability of the third party and the principal is the same as in
personally liable either to the principal or to the third party, in the case of a disclosed principal.
the absence of ratification by the principal. 3. Undisclosed Principal – party has no notice of the fact that the agent is
b. To whom the agent is liable: acting such for a principal. The existence and identity of the principal
i. If the principal is liable to third party on the ground of are unknown to the third party.
apparent authority – agent is liable to the principal.  As far as the third party is concerned, there are only 2 parties
ii. If principal is not liable to third person because the to the transaction, the third party and the agent.
facts are such no apparent authority is present –
agent’s liability is to the third person Agency with undisclosed principal
iii. If the agent personally assumes responsibility for the General Rule – The agent will be liable where the agent:
particular transaction, if the principal defaults he, in a. Being authorized to act on behalf of the principal
effect, also becomes obligated as co-principal. b. Acts instead in his name own name.
Note: When the principal is bound by the act of the agent, the action must be The agent is the one DIRECTLY liable to the person with whom he had
brought against the principal, not against the agent. Bringing an action against contracted as if the transaction were his own. Because there is NO
the agent cannot have legal effect except that of notifying the agent of the claim. REPRESENTATION of principal when the agent acts in his own name.
Article 1883. If the agent acts in his own name, the principal has no name, It is well-settled principle that the agent shall be liable for acts or omission of the
the principal has no right of action against the persons with whom has principal only if the latter is undisclosed.
contracted; neither have such persons against the principals.
Note that the exception in Article 1883 does not include knowledge by the third
In such case, the agent is the one directly bound in favor of the person with party that the agency who is acting in his own name is acting for another.
whom he has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal. Exception - when the contracts involves things belonging to the principal. In
such case, the contract is considered as entered into between the principal and
The provisions of this article shall be understood to be without prejudice to the third person.
the actions between the principal and agent.  Reason: for the protection of third persons against possible collusion
between agent and the principal. It applies only when the agent has, in
fact, been authorized by the principal to enter into particular transaction,
Kinds of Principal but the agent acts in his own name.
 In the case of this exception, the agent’s apparent representation yields
to the contract must be considered as entered into between the principal 2. Obedience to principal’s instruction – An agent must obey all lawful
and the third party. orders and instructions of the principal within the scope of the agency.
Failure to do so, he becomes liable for any loss the principal incurs even
Remedy of Principal though he can show that he acted in good faith or exercised
 The foregoing is without prejudice to the principal’s right to demand reasonableness.
from the agent damages for his failure to comply with agency.  Exception – agent is not liable if he violates the principal’s
 The principal cannot maintain an action against a third person for the instruction for a good reason.
recovery of the merchandise or for damages, but can only proceed
against the agent. 3. Exercise of reasonable care – he agrees that he will exercise reasonable
skill and that he will take the usual precautions as a reasonably careful
Remedy of Third Person agent would under similar circumstances.
 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 Specific Obligations of Agent to Principal
subject-matter of the litigation cannot be legally and juridically 1. To carry out the agency which he has accepted;
determined without hearing both of them. 2. To answer for damages which through his performance the principal
may suffer
3. To finish the business already begun on the death of the principal
CHAPTER 2 should delay entail any danger;
4. To observe the diligence of a good father of a family in the custody and
OBLIGATIONS OF THE AGENT preservation of the goods forwarded to him by the owner in case he
declines an agency, until an agent is appointed
Article 1884. The agent is bound by his acceptance to carry out the agency
5. To advance the necessary funds should there be a stipulation to do so
and is liable for the damages which, through his non-performance, the 6. To act in accordance with the instructions of the principal, and in
principal may suffer. default thereof, to do all that a good father of a family would do
7. Not to carry out the agency if its execution would manifestly result in
He must also finish the business already begun on the death of the principal, loss or damage to the principal
should delay entail any danger. 8. To answer for damages if there being a conflict between his interests
General Obligations of agent to principal and those of the principal, he should prefer his own
9. Not to loan to himself if he has been authorized to lend money at
1. Good faith and loyalty to his trust, agent’s first duty – relationship
interest
existing between principal and agent is fiduciary one, demanding 10. To render an account of his transactions and to deliver to the principal
conditions of trust and confidence. The duty of good faith is also called whatever he may have received by virtue of the agency
the fiduciary duty which imposes upon the agent the obligation of 11. To distinguish goods by countermarks and designate the merchandise
faithful service. respectively belonging to each principal, in the case of a commission
 Presumption – an agent’s act which tend to violate his agent who handles goods of the same kind and mark, which belong to
different owners
fiduciary duty are not only invalid as to the principal but are
12. To be responsible in certain cases for the acts of the substitute appointed
also against public policy. by him
 When loyalty is not applicable – does not apply where no 13. To pay interest on funds he has applied to his own use
relation of trust or confidence exists between the parties, as 14. To inform the principal, where an authorized sale of credit has been
where the agent is bound merely as an instrument or a servant made, of such sale
or where there is no showing of an agency relationship.
15. To bear the risk of collection, should he receive also on a sale, a distinct in character part of the authority
guarantee commission Refers to the manner or mode of his Relates to the subject with which the
16. To indemnify the principal for damages for his failure to collect the action with respect to matters which agent is empowered to deal or the
credits of his principal at the time that they become due in their substance are within the kind of business upon which he is
17. To be responsible for fraud or negligence. scope of permitted action empowered to act
Are not expected to be made known Contemplated to be made known to
Article 1885. In case a person declines an agency, he is bound to observe the to those with whom the agent calls the third person dealing with the
diligence of a good father of a family in the custody and preservation of the agent
goods forwarded to him by the owner until the latter should appoint an agent. When departure from principal’s instructions justified
The owner shall as soon as practicable either appoint an agent or take charge 1. A departure from instructions may be justified by a sudden emergency.
of the goods.
2. Ambiguous instructions. The agent will not be liable if he chooses
reasonably one of two possible interpretations. Agent will not be
Obligation of person who declines an agency
chargeable with disobedience or its consequences in case he makes an
In the event a person declines an agency, he is still bound to observe the
honest mistake and adopts a construction different from that intended by
diligence of a good father of a family in the custody and preservation of the
the principal.
goods forwarded to him by the owner.
3. Insubstantial departure from the principal’s instructions, which does not
Article 1886. Should there be a stipulation that the agent shall advance the affect the result.
necessary funds, he shall be bound to do so except when the principal is
insolvent.
Article 1888. An agent shall not carry out an agency if its execution would
Obligation to advance necessary funds manifestly result in loss or damage to the principal.
As a rule, the principal must advance to the agent, should the latter so request, When agent shall not carry out agency
the sums necessary for the execution of agency. The contract of agency may The agent, upon acceptance of the agency, is not bound in all cases to carry out
stipulate that the agent shall advance the necessary funds. the agency in accordance with the instructions of the principal. Thus, the agent
must not carry out the agency if its execution would manifestly result in loss or
damage to the principal.
Article 1887. In the execution of the agency, the agent shall act in accordance
with the instructions of the principal.
Article 1889. The agent shall be liable for damages if, there being a conflict
In default thereof, he shall do all that a good father of a family would do, as between his interests and those of the principal, he should prefer his own.
required by the nature of the business.
Obligation not to prefer his own interest to those of principal
1. Reason – fiduciary relation. The agent must look after the principal’s
Instructions – are private directions which the principal may give the agent in
interest as if they were his own.
regard to the manner of performing his duties as such agent but of which a third 2. Basis of the rule – to shut the door against temptation and keep the
party is ignorant. agent’s eye single to the rights and welfare of his principal.
a. The principal, however, may waive the benefit of the rule so
INSTRUCTIONS VS AUTHORITY far as he is concerned, if he does so with full knowledge of the
INSTRUCTIONS AUTHORITY facts; but in the absence of such waiver, the rule is absolute.
Directs the manner of transacting the Sum total of the powers committed or
Where agent’s interests are superior
authorized business and contemplates permitted to the agent by the
Where the agent’s interests are superiors, such as where he has a security interest
only a private rule of guidance to the principal, may be limited in scope in goods of the principal in his possession, he may protect this interest even if in
agent and are independent and and such limitations are themselves so doing he disobeys principal’s orders or injures his interest.
1. The agent or broker acted only as a middleman with the task of merely
If the conflict resulted from his breach of a duty owed to the principal, the agent bringing together the vendor and the vendee
cannot prefer his own interest. 2. 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
Article 1890. If the agent has been empowered to borrow money, he may thereto.
himself be the lender at the current rate of interest. If he has been authorized 3. A right of lien exists in favor of the agent
to lend money at interest, he cannot borrow it without the consent of the a. The agent may retain in pledge the things which are the object
principal. of the agency until the principal effects the reimbursement and
pays the indemnity provided in Art. 1912 and 1913.
Obligation not to loan to himself
The agent cannot, without special power of attorney, loan or borrow money. Obligation to turn over proceeds of agency
1. If he has been expressly empowered to borrow money – he may himself The obligation imposed upon the agent to render an accounting and report of his
be the lender. collections, presupposes the duty of simultaneously turning over his collections.
2. If the agent has been authorized to lend money at interest – he cannot be
the borrower without the consent of the principal because the agent may Distinction between possession by a receiving teller of funds received from
prove to be a bad debtor. third persons paid to the bank and an agent who receives the proceeds of sales
of merchandise delivered to him in agency by his principal
ART. 1891. 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  Possession of teller of bank –
agency, even though it may not be owing to the principal. o the teller is a mere custodian or keeper of the funds received,
and has no independent right or title to retain or possess the
Every stipulation exempting the agent from the obligation to render an same as against the bank.
account shall be void. o A receiving teller of a bank is guilty of qualified theft.
 Agent –
Obligation to render accounts o can assert as against his own principal, an independent,
This includes gifts from the third party in connection with the agency. autonomous right to retain the money or goods received in
1. Source of profit – if his duty be strictly performed, the resulting profit consequences of the agency, as when the principal fails to
accrues to the principal as the legitimate consequence of the relation; if reimburse him for advances, he has made, and indemnify for
profit accrues from his violation while executing the agency, that damages suffered without his fault.
likewise belongs to the principal. o May be guilty of estafa when he misappropriates or fails to
turn over to his principal the proceeds.
2. Secret profit – It has been held that an agent who takes a secret profit in
the nature of a bonus, gratuity or personal benefit from the vendee, is ART. 1892. The agent may appoint a substitute if the principal has not
guilty of breach of his loyalty to the principal and forfeits his right to prohibited him from doing so; but he shall be responsible for the acts of the
collect the commission from his principal, even if the principal does not substitute:
suffer any injury. 1. When he was not given the power to appoint one;
2. When he was given such power, but without designating the person,
Stipulation exempting agent from obligation to account VOID and the person appointed was notoriously incompetent or insolvent.
 It is in the nature of a waiver of an action for future fraud which is void. All acts of the substitute appointed against the prohibition of the principal
shall be void.
Liability for conversion
If the agent fails to deliver and instead converts or appropriates for his own use ART. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article,
the money or property belonging to the principal, the agent is liable for estafa. the principal may furthermore bring an action against the substitute with
respect to the obligations which the latter has contracted under the
When obligation to account not applicable
substitution. 3. Not authorized, not prohibited – the law recognizes the validity of the
substitute if the same is beneficial to the principal because the agency
Sub-agent – is a person employed or appointed by an agent as his agent, to assist has thus been executed in fulfillment of its object.
him in the performance of an act for the principal which is the agent has been
empowered to perform. ART. 1894. The responsibility of two or more agents, even though they have
been appointed simultaneously, is not solidary, if solidarity has not been
Power of agent to appoint sub-agent or substitute expressly stipulated.
 The agent in this situation is a principal with respect to the substitute.
 An agent may not delegate to a subagent where the work entrusted to ART. 1895. If solidarity has been agreed upon, each of the agents is
him by the principal to carry out requires special knowledge, skill, or responsible for the non-fulfillment of the agency, and for the fault or
competence unless he has been authorized to do so by the principal. negligence of his fellow agents, except in the latter case when the fellow
 The principal need not fear prejudice as he has a right of action not only agents acted beyond the scope of their authority.
against the agent but also against the substitute with respect to the
obligations which the latter has contracted under substitute. Nature of liability of two or more agents to their principal
1. In a joint obligation, each debtor is liable only for a proportionate part
Relation among the principal, agent, and sub-agent of the debt. If it is solidary, each debtor is liable for the entire
1. Sub-agent appointed by agent on latter’s sole account – the sub-agent is obligation.
a stranger to the principal who originally gave life to the agency. Th 2. If solidarity has been agreed upon, each of the agents become solidarily
principal will not be liable to third parties for the sub-agent’s acts but liable:
the agent will be liable to the principal or third parties if the sub-agent a. For the non-fulfillment of the agency even though in this case,
acts wrongfully. the fellow agents acted beyond the scope of their authority; and
b. For the fault or negligence of his fellow agents provided the
2. Sub-agent appointed by agent with authority from principal – a latter acted within the scope of their authority.
fiduciary relationship exists between the principal and the agent, the  The innocent agent has a right later on to recover from the guilty or
agent and the sub-agent, and the principal and the sub-agent. Any act negligent agent.
done by the substitute or sub-agent in behalf of the principal is deemed
an act of the principal. ART. 1896. The agent owes interest on the sums he has applied to his own
use from the day on which he did so, and on those which he still owes after
3. Effect of death of principal/agent – if the authority of the sub-agent the extinguishment of the agency.
proceeds from the principal, the death of the agent who appointed him
does not affect his authority. But where the sub-agent is a substitute for Liability of agent for interest
the agent and acts under the authority from him and to whom he is 1. The first refers to sums belonging to the principals which the agent
accountable, the death of the agent terminates his authority even though applied to his own use
the power of substitution is given in the original power. 2. To sums which the agent still owes the principal after the expiration of
the agency
Effects of substitution
 Agent who converted to his personal use the funds of the principal is
1. Substitution prohibited – when substitute is appointed by the agent
liable for the interest by way of compensation or indemnity (not to be
against the express prohibition of the principal, the agent exceeds the
confused with interest for delay) which shall be computed from the day
limits of his authority.
on which he did so.
 The agent who is found to owe the principal sums after the
2. Substitution authorized – the substitution has the effect of releasing the
extinguishment of the agency is liable for interest from the date the
agent from his responsibility unless the person appointed is notoriously
agency is extinguished.
incompetent or insolvent.
 Demand is not essential for delay to exist. Because it is clear that if by
provision of law the agent is bound to deliver to the principal whatever
he may have received by virtue of the agency, demand is no longer principal unless the latter ratifies the act. This must be proved by the
necessary. principal if he denies liability, or by third person if he wants to hold the
agent personally liable, on that ground.
ART. 1897. The agent who acts as such is not personally liable to the party c. By his acts he incurs the liabilities of a principal under the contract
with whom he contracts, unless he expressly binds himself or exceeds the d. A person who purports to act as agent of an incapacitated principal
limits of his authority without giving such party sufficient notice of his
powers. When is a third party liable to agent
General Rule: a third party’s liability on agent’s contracts is to the principal, not
to the agent, because such contracts are not his own but his principal’s.
Duties and liabilities of agent to third person Exceptions:
1. In general – duties of an agent to third persons and his corresponding a. Where the agent contracts in his own name for an undisclosed principal
liabilities must be considered with reference to the character of his acts (see Art. 1883.), in which case, the agent may sue the third party to
as to whether it is authorized or unauthorized, and also with reference to enforce the contract;
the nature of liability which it sought to assert as being in a contract or
in tort. b. Where the agent possesses a beneficial interest in the subject matter of
the agency. A factor selling under a del credere commission (see Art.
2. Unauthorized assumption of agency – guilty of a wrong, and is liable 1907.) would illustrate such an agent, as would also an auctioneer by
for the damage to those dealing with him in reliance on his assumed virtue of his lien (see Art. 1914.);
authority in that they are deprived of the benefit of the responsibility of
the principal. This implied warranty and its accompanying liability is c. Where the agent pays money of his principal to a third party by mistake
not confined merely to the making of contracts but extends to all or under a contract which proves subsequently to be illegal, the agent
unauthorized acts perpetrated in his assumed agency. being ignorant with respect to its illegal nature; and
3. Nature of liability – a purported agent will be held personally liable as d. Where the third party commits a tort against the agent. We have seen
principal on a contract executed without authority if the contract that an agent may not utilize his agency as a defense to an action based
contains apt words to bind him personally, or if such was the intention on a tort committed by him. The converse is also true: an agent may sue
of the parties. for a tort committed against him, even though the alleged tortious act is
also a wrong against the principal.
4. Tort cases – if the tort is committed by the agent within the scope of his
authority, both the principal and the agent are liable. It is no defense by ART. 1898. If the agent contracts in the name of the principal, exceeding the
the agent that the benefit obtained by the tort has been turned over to the scope of his authority, and the principal does not ratify the contract, it shall be
principal. 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
5. Where duty violated owed solely to principal – an agent is liable to third undertook to secure the principal’s ratification.
persons for injury resulting from his misfeasance or malfeasance
independent of the particular duties imposed by his agency.
Effect where third person aware of limits of agent’s power
1. Agent acts in the name of the principal; acts w/in the scope of his
So, if the wrong done by the agent in the performance of his duties authority – agent has no liability.
devolves upon him purely from his agency, he is not responsible for the 2. Agent acts in excess of his authority; in the name of the principal –
resulting injury to third persons. agent is personally liable.
3. Third party is aware of limits – agent is not bound nor liable; contract is
When agent may incur personal liability considered void
a. When he expressly binds himself
b. When he exceeds the limits of his authority without giving such party
ART. 1899. If a duly authorized agent acts in accordance with the orders of
sufficient notice of his powers – contract is unenforceable against the
the principal, the latter cannot set up the ignorance of the agent as to 5. By the rule of ejusdem generis - The term is a method for stating the
circumstances whereof he himself was, or ought to have been, aware. rule that where, in an instrument of any kind, an enumeration of specific
matters is followed by a general phrase, the general phrase is held to be
Effect of ignorance of agent limited in scope by the specific matters.
This article refers to the liability of the principal towards third persons. If the
principal appoints an agent who is ignorant, the fault is his alone. Equity Responsibility of principal where agent acted with improper motives.
demands that the principal should be bound by the acts of his agent. (1) General rule. — The motive of the agent in entering into a contract with
a third person is immaterial. It would be impossible for the business of a
ART. 1900. So far as third persons are concerned, an act is deemed to have mercantile community to be carried on, if a person dealing with an
been performed within the scope of the agent’s authority, if such act is within agent was bound to go behind the authority of the agent in each case,
the terms of the power of attorney, as written, even if the agent has and inquire whether his motives did or did not involve the application of
in fact exceeded the limits of his authority according to an understanding the authority for his own private purposes.
between the principal and the agent.
(2) Exceptions. — The rule does not apply:
a. where the third person knew that the agent was acting for his
Scope of agent’s authority as to third person
private benefit. In other words, the principal is not liable to the
1. Where authority is not in writing - Every person dealing with an
third person.
assumed agent is put upon an inquiry and must discover upon his peril,
b. where the owner is seeking recovery of personal property of
if he would hold the principal liable, not only the fact of the agency but
which he has been unlawfully deprived.
the nature and extent of authority of the agent.
2. Where authority is in writing - As far as he is concerned, an act of the ART. 1901. A third person cannot set up the fact that the agent has exceeded
agent within the terms of the power of attorney as written is within the his powers, if the principal has ratified, or has signified his willingness to
scope of the agent’s authority, although the agent has in fact exceeded ratify the agent’s acts.
the limits of his actual authority according to the secret understanding
between him and the principal. Ratification by the principal
a. In such a case, the principal is estopped from claiming that the (1) Binding effect of ratification. — The principal is not bound by the
agent exceeded his authority. The rule is necessary to protect contract of his agent should the latter exceed his power. The contract is
the interests of third persons. unenforceable but only as regards him.
Methods of broadening and restricting agent’s authority Under the above article, the third person cannot set up the fact that the
1. By implication - agent’s authority extends not only to the express agent exceeded his authority to disaffirm his contract not only after the
requests, but also to those acts and transactions incidental thereto. principal has ratified the agent’s acts but even before such ratification
2. By usage and custom where he has signified his willingness to ratify. In such a case, the third
3. By necessity – The existence of an emergency or other unusual person can be compelled to abide by his contract.
condition may operate to invest in an agent authority to meet the
emergency, provided: (2) Only principal can ratify. — It is fundamental in the law of agency that
a. the emergency really exists; only the principal and not the agent can stamp the imprimatur of
b. the agent is unable to communicate with the principal; ratification. There must be knowledge on the part of the principal of the
c. the agent’s enlarged authority is exercised for the principal’s things he is going to ratify. It can hardly be said that there was
protection; and ratification on his part in the absence of proof that he had knowledge of
d. he means adopted are reasonable under the circumstances. what was to be ratified.
4. By certain doctrines
a. Doctrine of apparent authority (3) Receipt by principal of benefits of transaction. — It is an established
b. Liability by estoppel principle of law that where a person acts for another who accepts or
c. Ratification retains the benefits or proceeds of his effort with knowledge of the
material facts surrounding the transaction, the latter must be deemed to countermarks, and designate the merchandise respectively belonging to each
have ratified the methods employed, as he may not, even though principal.
innocent, receive or retain the benefits and at the same time disclaim
responsibility for the measures by which they were acquired. The evident purpose is to prevent any possible confusion or deception. He may
not commingle the goods without authority.
ART. 1902. A third person with whom the agent wishes to contract on behalf
of the principal may require the presentation of the power of attorney, or the Where he violates that duty by mingling the property with his own, he becomes a
instructions as regards the agency. Private or secret orders debtor of the principal and liable to him for any losses suffered as a result of the
and instructions of the principal do not prejudice third persons who have mingling.
relied upon the power of attorney or instructions shown them.
Two exceptions exist to these general rules.
Presentation of power of attorney or instructions as regards agency. 1. First, by custom, some agents, such as auctioneers, normally are
As a rule, a third person deals with an agent at his peril. Hence, he is bound to permitted to mingle their principal’s property with their own.
inquire as to the extent of the agent’s authority, and this is especially true where 2. second, some agents, such as collecting banks, are permitted to mingle
the act of the agent is of an unusual nature. the funds of their principal (depositor) with their own and the property
of other principals.
Third person not bound by principal’s private instructions.
While the third person is chargeable with knowledge of the terms of the power of ART. 1905. The commission agent cannot, without the express or implied
attorney as written and the instructions disclosed to him, he is not bound and consent of the principal, sell on credit. Should he do so, the principal may
cannot be affected by the private or secret orders and instructions of the principal demand from him payment in cash, but the commission agent shall be entitled
in the same way that he cannot be prejudiced by any understanding between the to any interest or benefit, which may result from such sale.
principal and the agent.
Right of principal where sale on credit made without authority.
ART. 1903. The commission agent shall be responsible for the goods General Rule: A commission agent can sell on credit only with the express or
received by him in the terms and conditions and as described in the implied consent of the principal.
consignment, unless upon receiving them he should make a written statement
of the damage and deterioration suffered by the same. Alternatives if sale was made without authority:
(1) He may require payment in cash, in which case, any interest or benefit
Factor or commission agent defined. from the sale on credit shall belong to the agent since the principal
A factor or commission agent is one whose business is to receive and sell cannot be allowed to enrich himself at the agent’s expense;
goods for a commission (also called factorage) and who is entrusted by the (2) He may ratify the sale on credit in which case it will have all the risks
principal with the possession of goods to be sold, and usually selling in his own and advantages to him.
name.
Liability of commission agent as to goods received. ART. 1906. Should the commission agent, with authority of the principal, sell
If the commission agent received goods consigned to him, he is responsible for on credit, he shall so inform the principal, with a statement of the names of
any damage or deterioration suffered by the same in the terms and conditions and the buyers. Should he fail to do so, the sale shall be deemed to have been
as described in the consignment. made for cash insofar as the principal is concerned.
 To avoid liability, the commission agent should make a written
statement of the damage or deterioration if the goods received by him Under this article, an authorized sale on credit shall be deemed to have been on a
do not agree with the description in the consignment. cash basis (Art. 1905.) insofar as the principal (not third parties) is concerned,
upon failure of the agent to inform the principal of such sale on credit with a
ART. 1904. The commission agent who handles goods of the same kind and statement of the names of the buyers. The purpose of the provision is to prevent
mark, which belong to different owners, shall distinguish them by
the agent from stating that the sale was on credit when in fact, it was made for according to whether the agency was or was not for a compensation.
cash.
 The circumstance that the agency is or is not gratuitous will be
ART. 1907. Should the commission agent receive on a sale, in addition to the considered by the courts in fixing the liability of the agent for
ordinary commission, another called a guarantee commission, he shall bear negligence (not fraud). Agency is presumed to be for compensation.
the risk of collection and shall pay the principal the proceeds of the sale on  Quasi-delict or tort may be committed by act or omission. If it causes
the same terms agreed upon with the purchaser. damage to another, there being fault or negligence, the guilty party is
liable for the damage done. (Art. 2176.) Article 1909 speaks of
Meaning and purpose of guarantee commission. negligence (simple carelessness). The agent, to be sure, is also liable for
 Guarantee commission (also called del credere commission) is one torts committed willfully. As a general, rule, the principal is not
where, in consideration of an increased commission, the factor or responsible if the agent’s tort was intentional rather than merely
commission agent guarantees to the principal the payment of debts negligent.
arising through his agency.
 del credere agent - an agent who guarantees payment of the customer’s CHAPTER 3
account in consideration of the higher commission.
 The purpose of the guarantee commission is to compensate the agent for OBLIGATIONS OF THE PRINCIPAL
the risks he will have to bear in the collection of the credit due the
principal. ART. 1910. The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
Nature of liability of a del credere agent.
 Liable to the principal if the buyer fails to pay or is incapable of paying. As for any obligation wherein the agent has exceeded his power, the principal
But he is not primarily the debtor. is not bound except when he ratifies it expressly or tacitly.
 contingent pecuniary liability — to make good in the event the buyer
fails to pay the sum due. It does not extend to other obligations of the  The duties and liabilities of the principal are primarily based upon the
contract such as damages for failure of the buyer to accept and pay for contract and the validity of the contract between them.
the goods.  In addition to his contractual duties, the principal is under an obligation
to deal fairly and in good faith with his agent who owes the same duty
ART. 1908. The commission agent who does not collect the credits of his to his principal.
principal at the time when they become due and demandable shall be liable
for damages, unless he proves that he exercised due diligence for that Specific obligations of principal to agent.
purpose. In the absence of express agreement, the law imposes upon the principal certain
obligations to his agent, among which are the following:
Obligation of commission agent to collect credits of principal. (1) To comply with all the obligations which the agent may have contracted
 A commission agent who has made an authorized sale on credit must within the scope of his authority and in the name of the principal
collect the credits due the principal at the time they become due and (2) To advance to the agent, should the latter so request, the sums necessary
demandable. for the execution of the agency
 Where the agent is not liable, the principal’s remedy is to proceed (3) To reimburse the agent for all advances made by him, provided the
against the debtor. agent is free from fault
(4) To indemnify the agent for all the damages which the execution of the
 This article does not apply to a case where there is a guarantee
agency may have caused the latter without fault or negligence on his
commission.
part
(5) To pay the agent the compensation agreed upon, or if no compensation
was specified, the reasonable value of the agent’s services.
ART. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the courts, Liability of principal to third persons
(1) General rule. —where the relation of agency legally exists, the  Where the third person induces the agent to violate his contract
principal will be liable to third persons for all acts committed by the with the principal to betray the trust reposed upon him by the
agent and obligations contracted by him in the principal’s behalf in the principal.
course and within the actual (express or implied) or apparent scope of (3) In respect of property received. - In respect of negotiable instruments,
his authority, and should bear the damage caused to third persons. however, the law protects third parties who are bona fi de holders
thereof or holders in due course. The principal cannot recover money
(2) Reason for liability. — A principal is liable for the acts of his agent and negotiable instruments wrongfully transferred by his agent to
within his express authority because the act of such agent is the act of innocent holders for value who have no knowledge or notice of the
the principal. agent’s wrongful acts.
(3) Estoppel to deny - An agency by estoppel may involve the expansion Liability of principal for mismanagement of business by his agent.
of the authority given to a designated agent or create authority in the Under general rules and principles of law, the mismanagement of the business of
alleged agent though not actually granted. (see Art. 1911.) The a party by his agents does not relieve said part from the responsibility that he had
principal is bound by either the actual (express or implied) or apparent contracted to third persons.
authority of the agent.
Where the agent’s acts bind the principal, the latter may seek recourse against
(4) Waiver of claim against principal. — Since it is the principal who the agent.
should be answerable for the obligation arising from the agency, it is
obvious that if a third person waives his claims against the principal, Liability of principal for tort of agent.
he cannot assert them against the agent. (1) General rule. — As a general rule, the principal is civilly liable to third
persons for torts of an agent committed at the principal’s direction or in
the course and within the scope of the agent’s employment.
Liability of third persons to principal. The principal cannot escape liability so long as the tort was
The principal’s rights are the third parties’ liabilities. committed by the agent while performing his duties in furtherance of
the principal’s business or at his direction although outside the scope of
(1) In contract. — A third person is liable to the principal upon contracts his employment or authority.
entered into by his agent, in the same manner as though the contract
were entered into by the principal himself. (2) Reason for liability. — This rule is based upon the principle that he
 It follows that the third party may not set-off or allege any who does an act through another does it himself.
defense against the agent, in an action by the principal to
enforce the contract other than one which arises out of the The agent, to be sure, is also liable with the principal and their liability
particular contract upon which the action is brought. shall be solidary, i.e., the third person may sue both the principal and
 Since notice by a third party to the agent is notice to the the agent or choose whom he will hold.
principal, the third party is not liable for damages for failure of
the agent to give notice to his principal. (3) Business hazard theory. - The “business hazard theory” advances the
argument that “it is thought that the hazards of business should be borne
(2) In tort. — The third person’s tort liability to the principal, insofar as the by the business directly. It is reasoned that if the cost then is added to
agent is involved in the tort, arises in three main factual situations: the expense of doing business, it will ultimately be borne by the
 Where the third person damages or injures property or interest consumer of the product; that the consumer should pay the costs which
of the principal in the possession of the agent; the hazards of the business have incurred.”
 Where the third person colludes with the agent to injure or
defraud the principal; (4) Motivation-deviation test. — The bounds of the agent’s authority are
not the limits of the principal’s tort liability, but rather the “scope of the
employment” which may or may not be within the bounds of authority.
Scope of employment is much wider than scope of authority. But an act In order that one may be entitled to ratify the unauthorized act of an
is not necessarily done within the scope of employment by reason agent, it is necessary that the ratifier has the power or authority to do, on
merely of the fact that it is done during the employment. his account, the original act which is sought to be ratified.
An examination of a large number of cases discussing vicarious liability for tort A voidable act or transaction by reason of incapacity to give consent
shows that where two factors are present, such liability is imposed, but that may be ratified but the defect must first be removed before a valid
where either of the two factors is missing, such liability is not imposed. ratification can take place. Thus, an infant is not bound by ratification of
a contract entered by an agent.
The third party has a right to withdraw from the transaction prior to
These factors are: ratification. The principal will not be permitted to ratify after the third
(1) satisfactory evidence that the employee in doing the act, in the doing party has already indicated a desire to withdraw from the transaction.
of which the tort was committed, was motivated in part, at least, by a Obviously, there can be no ratification of an illegal transaction.
desire to serve his employer; and
(2) satisfactory evidence that the act, in the doing of which the tort was B. Knowledge by ratifier of material facts essential.
committed, was not an extreme deviation from the normal conduct of (1) Meaning of material facts. — Within the meaning of the
such employee. requirement, they are those which reasonably ought to be known
by the principal, having in mind the factors of time, place, and
Doctrine of Ratification circumstance, and especially the situation of the parties. The
Ratification is the adoption or affirmance by a person of a prior act which did not problem is one which must be determined by reference to the
bind him, but which was done or professed to be done on his account thus giving facts of the particular case.
effect to the acts as if originally authorized. The doctrine applies to the
ratification of the act of an agent in excess of his authority or the act of one who (2) Full and complete knowledge. — In order to bind a principal by
purports to be an agent but is really not. ratification, he must have been in possession of all the facts and
must have acted in the light of such facts.
Act of ratification purely voluntary.
The very idea of ratification implies that the principal has an option to ratify or If material facts were suppressed or unknown, there can be no
not, and that he has this advantage over the other party, to wit: that he may hold valid ratification, regardless of the purpose or lack thereof in
the other party whether the other party wishes it or not whereas the other party concealing such facts. This principle does not apply if the
cannot hold him if he is not willing to be held. principal’s ignorance of the material facts and circumstances was
willful, or that the principal chooses to act in ignorance of the
The failure or refusal of the principal to ratify the unauthorized acts of his agent facts.
makes the latter personally in damages to the third party.
(3) Actual knowledge. - This requirement springs from the fact that a
Conditions for ratification. principal has the election of repudiating or affirming an agent’s
In addition to an intent to ratify, the following conditions must be fulfilled for unauthorized act, and he ought not to be made liable in spite of
ratification to be effective: his ignorance.
(1) The principal must have the capacity and power to ratify;
(2) He must have had knowledge or had reason to know of material or
essential facts about the transaction;
(3) He must ratify the acts in its entirety; Burden to show such knowledge.
(4) The act must be capable of ratification; and  Party relying on the ratification. — Whoever, therefore, seeks to rely
(5) The act must be done in behalf of the principal. on a ratification is bound to show that it was made under such
circumstances as in law to be binding on the principal, especially to see
A. Persons entitled to ratify. that all material facts were made known to him.
principal, and not in his own behalf. The rule operates to prevent one
 When actual knowledge assumed. - What this means is that the person from acquiring the right of another.
principal must have either actual knowledge of material facts or
sufficient knowledge or notice of other facts so that it would have been Effects of ratification by principal.
easy to find out the material facts. By ratification, the relation of principal and agency is created since ratification
o Actual knowledge will be assumed where the principal’s by a principal is equivalent to prior authority. Once made, ratification becomes
reckless disregard of the natural consequences of known facts irrevocable.
induces an inference that he was willing to assume a risk in
respect of the facts. 1. With respect to agent – relieves the agent from liability to the third
o Similarly, actual knowledge will be assumed where the party and to his principal. He may recover compensation due for
principal has actual knowledge of a fact or facts that a person performing the act which has been ratified.
of ordinary intelligence would thereby infer the existence of
the fact or facts about which the dispute exists.
2. With respect to the principal himself – assumes the responsibility of the
C. Ratification must be entire unauthorized act. But he is not liable for acts outside the authority
 The act must be ratified in its entirety or not at all. In other words, approved by his ratification.
the principal cannot accept the benefits of a transaction and refuse
to accept the obligations (e.g., warranties in a contract of sale) that 3. With respect to third persons - Ordinarily, a third person is bound by a
are part of it. ratification to the same extent as he would have been bound if the
 The acceptance of the result of the act, moreover, ratifies the ratified act had been authorized in the first instance, and he cannot raise
whole transaction including the means whereby that result was the question of the agent’s authority to do the ratified act. But before
achieved. This rule is constantly applied to promises, ratification, the third party is free to revoke the unauthorized contract.
misrepresentations, and even fraud upon which the contract was
based. Retroactive effect of ratification.
General Rule: The effect is the same as where the principal allowed the agent to
Acts that may be ratified act as though the latter had full authority from the beginning.
 Valid acts
Exceptions:
 Voidable acts
1. Rights of third parties - Where to do so would be to defeat rights of
 Unrevoked acts - The general rule is that a principal must ratify his
third parties which have accrued between the time of the making of the
agent’s unauthorized contract before it is revoked by the other
unauthorized contract and the time of ratification.
contracting party. In other words, the third party’s contract with the
unauthorized agent may be said to constitute an offer to the principal
2. Intervening act or omission otherwise rightful. — Where to do so would
which can be revoked by the offeror before acceptance by the offeree.
be to render wrongful an otherwise rightful act or omission which has
This aspect of the doctrine of ratification would appear to contradict a
taken place between the making of the unauthorized contract and the
fundamental concept of the doctrine, that of relation back to the time
time of its ratification.
when the contract was originally entered into.
o It may be revoked in 2 ways:
3. Circumvention of legal rule or provision. — Where to do so would be to
 Express revocation allow the circumvention of a rule of law formulated in the interest of
 Change in the nature of the contract originally entered public policy.
into
4. Withdrawal by third party from contract. — If the third party has
D. Acts must be done in behalf of principal
withdrawn from the contract, the act or transaction is no longer capable
A principal cannot ratify the unauthorized act of another person unless
of ratification.
that person purported to act as agent for, and in the name of, the
ART. 1911. Even when the agent has exceeded his authority, the principal is not founded in negligence of the basis in the negligence of the
solidarily liable with the agent if the former allowed the latter to act as though principal but in the conscious principal in failing properly to
he had full powers. permission of acts beyond the powers supervise the affairs of the agent,
granted allowing him to exercise powers not
Estoppel is a bar which precludes a person from denying or asserting anything granted to him, and so justifies others
contrary to that which has been established as the truth by his own deed or in believing he possesses the requisite
representation either express or implied. authority.
Ratification vs Estoppel Implied Authority vs Agency by Estoppel

RATIFICATION ESTOPPEL Implied Authority Agency by Estoppel
rests on intention, express or implied, rests on prejudice rather than there is an actual agency the authority of the agent is not real
regardless of prejudice to another intention. but only apparent
party is bound because he intended to he is bound notwithstanding the Principal is liable If caused by principal – liable to 3rd
be absence of such intention because the person who relied on the
other party will be prejudiced and misrepresentation
defrauded by his conduct, unless the If caused by agent – only the agent is
law treats him as legally bound. liable
affects the entire transaction and from affects only the relevant parts of the
the beginning transaction and from that time only ART. 1912. The principal must advance to the agent, should the latter so
when estoppel may be said to be request, the sums necessary for the execution of the agency.
spelled out.
Should the agent have advanced them, the principal must reimburse him
Substance of ratification is substance of estoppel is the
therefor, even if the business or undertaking was not successful, provided the
confirmation of the unauthorized act principal’s inducement to another to
agent is free from all fault.
or contract after it has been done or act to his prejudice
made The reimbursement shall include interest on the sums advanced, from the day
on which the advance was made.
When principal solidarily liable with the agent.
Under Article 1911, the agent must have acted in the name of a disclosed Obligation to advance funds.
principal and the third person were not aware of the limits of the power granted The principal is under obligation to provide the means with which to execute the
by the principal. agency. In the absence of stipulation that the agent shall advance the necessary
funds, the principal must advance to the agent upon his request the sums
The third person with whom the agent dealt may sue either the agent or the necessary for the execution of the agency.
principal alone, or both. The agent should be exempt from liability if he acted in
good faith. If the principal fails to comply with his obligations, the agent will not be liable
for the damage which, through his nonperformance, the principal may suffer.
Apparent Authority vs Authority by Estoppel
Apparent Authority Authority by Estoppel Obligation to reimburse agent for funds advanced by latter.
is that which though not actually arises in those cases where the Demand is not necessary in order that delay on the part of the principal shall
granted, the principal knowingly principal, by his culpable negligence, exist.
permits the agent to exercise or holds permits his agent to exercise powers
him out as possessing. not granted to him, even though the (1) Obligation founded on implied promise to repay. - This rule is based
principal may have no notice or upon the principle that a request to undertake an agency, the proper
knowledge of the conduct of the execution of which involves the expenditure of money on the part of
agent. the agent, operates not only as an implied request on the part of the
principal to incur such expenditure but also as a promise to repay it.
(1) Right limited to subject matter of agency . — The lien of the agent is
(2) Obligation not affected even if undertaking not successful. — The law specific or particular in character.
adds that the obligation to reimburse the agent cannot be defeated by
the fact that “the business or undertaking was not successful” provided (2) Right requires possession by agent of subject matter . — An agent in
the agent is free from all fault. order to have a lien, must have some possession, custody, control, or
disposing power in and over the subject matter in which the lien is
claimed. To entitle the agent to a lien, the funds or property against
ART. 1913. The principal must also indemnify the agent for all the damages which it is asserted must be in his actual or constructive possession,
which the execution of the agency may have caused the latter, without fault or and he must have acquired that possession lawfully and in his capacity
negligence on his part. as agent.
Obligation to indemnify agent for damages. (3) Right generally only in favor of agent. — In the absence of a
(1) Where damages caused by the execution of agency. - Having no ratification of a sub-agent’s acts by the principal, the right of lien
personal interest in the act other than the performance of his duty, exists only in favor of the agent, and cannot be claimed by one to
the agent should not be required to suffer loss from the doing of an whom the agent delegates his authority where no privity exists
act apparently lawful in itself, and which he has undertaken to do by between sub-agent and the principal.
the direction and for the benefit and advantage of his principal.
A lien is a right in rem against real or personal property, given by law to secure
(2) Where damages caused by wrongful acts of third persons . — Be it the performance of an obligation existing in favor of the lien holder.
noted, however, that the liability of the principal for damages is (1) general lien - right to retain the property of another on account of a
limited only to that which the execution of the agency has caused the general balance due from that other. It can be asserted only by an agent
agent. Thus, no promise to indemnify will be implied for losses or where he has come into possession of the money or property in the
damages caused by the independent and unexpected wrongful acts of course of employment and continues to possess the money or property;
third persons for which the principal is in no way responsible. and
(2) special lien - right to retain the property of another on account of labor
(3) Where agent acted upon his own account . — Similarly, there is no or money employed in that specific property.
obligation to indemnify where no agency relation exists, as where it
appears that the supposed agent acted upon its own account and not ART. 1915. If two or more persons have appointed an agent for a common
as an agent, in the legal sense. transaction or undertaking, they shall be solidarily liable to the agent for all
the consequences of the agency.
ART. 1914. The agent may retain in pledge the things which are the object of
the agency until the principal effects the reimbursement and pays the Under Article 1915, the so-called joint principals are solidarily liable to the agent
indemnity set forth in the two preceding articles. for all the consequences of the agency. It would, therefore, be more appropriate
to use the term “solidary principals.” On the other hand, the responsibility of two
Right of agent to retain in pledge object of agency. or more agents, even though they have been appointed simultaneously, is joint,
If the principal fails to reimburse or indemnify the agent as required in Articles not solidary.
1912 and 1913, the agent has the right to retain in pledge the things which are the
object of the agency. Requisites for solidary liability.
There are three requisites for the application of the above article:
This is an instance of legal pledge or pledge which is created by operation of (1) There are two or more principals;
law. Unlike contractual pledges, however, the agent is not entitled to the excess (2) The principals have all concurred in the appointment of the same
in case the things are sold to satisfy his claim and the proceeds thereof are more agent; and
than the amount due. (3) The agent is appointed for a common transaction or undertaking.
Nature of agent’s right of lien.

 The rule in Article 1915 applies even when the appointments were ART. 1918. The principal is not liable for the expenses incurred by the agent
made by the principals in separate acts, provided that they are for the in the following cases:
same transaction. (1) If the agent acted in contravention of the principal’s instructions,
 The solidarity arises from the common interest of the principals and not unless the latter should wish to avail himself of the benefits
from the act of constituting the agency. derived from the contract;
 The parties, however, may, by express agreement negate this solidarity (2) When the expenses were due to the fault of the agent;
responsibility. (3) When the agent incurred them with knowledge that an unfavorable
result would ensue, if the principal was not aware thereof;
Where principals are members of a non-profit association. (4) When it was stipulated that the expenses would be borne by the
The principals or members of a non-profit association are liable personally only agent, or that the latter would be allowed only a certain sum.
under two circumstances:
(1) Where the member assented to the particular act or transaction in CHAPTER 4
respect of which personal liability is sought to be fastened. Such
assent is usually indicated by an affirmative vote at the meeting where MODES OF EXTINGUISHMENT OF AGENCY
the proposal is discussed
(2) Where the member assented by his conduct, e.g., at a meeting at ART. 1919. Agency is extinguished:
which the contract was proposed, nobody dissented. (1) By its revocation;
(2) By the withdrawal of the agent;
ART. 1916. When two persons contract with regard to the same thing, one of (3) By the death, civil interdiction, insanity or insolvency of the
them with the agent and the other with the principal, and the two contracts are principal or of the agent;
incompatible with each other, that of prior date shall be preferred, without (4) By the dissolution of the firm or corporation which entrusted or
prejudice to the provisions of article 1544. accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
Rule where two persons contract separately with agent and principal. (6) By the expiration of the period for which the agency was constituted.
Limitation:
Article 1544 - If the same thing should have been sold to different Presumption of continuance of agency.
vendees, the ownership shall be transferred to the person who may have When once shown to have existed, an agency relation will be presumed to have
first taken possession thereof in good faith, if it should be movable continued, in the absence of anything to show its termination; and the burden of
property. proving a revocation or other termination of an agency is on the party asserting
it.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of Presence, capacity, and solvency of parties essential for continuance of
Property. agency.
Consequently, the death, civil interdiction, insanity, or insolvency of either party
Should there be no inscription, the ownership shall pertain to the person terminates the agency and this is true notwithstanding that the agency period has
who, in good faith was first in the possession; and, in the absence not yet expired.
thereof, to the person who presents the oldest title, provided there is  Death of two or more principal – termination of agency depends upon
good faith. the parties.
 Civil interdiction deprives the offender during the period of his sentence
ART. 1917. In the case referred to in the preceding article, if the agent has of the right to manage his property and dispose of such property by any
acted in good faith, the principal shall be liable in damages to the third person act or any conveyance inter vivos.
whose contract must be rejected. If the agent acted in bad faith, he alone shall  As by an act of insolvency the principal loses control of the subject
be responsible. matter of the agency, the authority of the agent to act for his principal
generally ceases by operation of law upon an adjudication of the
principal’s insolvency.
Death of the principal or agent Modes provided not exclusive.
General rule. — By reason of the very nature of the relationship between the (1) Generally. — An agency may also be extinguished by the modes of
principal and agent, agency is extinguished ipso jure upon the death of either extinguishment of obligations in general when applicable.
principal or agent. (2) War. — During the existence of a state of war, a contract of agency is
inoperative if the agent or the principal is an enemy alien.
Exceptions. — The Civil Code expressly provides for two exceptions to the (3) Legal impossibility
general rule that the death of the principal or the agent revokes or terminates ipso (4) Termination of agent’s authority. - A position which flows from a trust
jure the agency, to wit: relationship, whether directly or indirectly, terminates as a matter of law
with the destruction or loss of the trust.
(a) That the agency is coupled with an interest; and (5) Occurrence of a specified event. — If the principal and agent have
(b) That the act of the agent was executed without knowledge of the death originally agreed that the agency, or some particular aspect of it, will
of the principal and the third person who contracted with the agent acted continue until a specified event occurs.
in good faith.
Loss or destruction of subject matter.
Power to foreclose survives death of mortgagor. (1) General rule. — In the absence of any agreement by the parties to the
(1) Under Act No. 3135. - primarily an authority conferred upon the contrary, the loss or destruction of the subject matter of the agency or
mortgagee for the latter’s own protection. It is an ancillary stipulation the termination of the principal’s interest therein terminates the agent’s
supported by the same cause or consideration for the mortgage and authority to deal with reference to it.
forms an essential and inseparable part of that bilateral agreement.
(2) Exceptions. –
(2) Under the Rules of Court. - The right exists independently of said a. If it is possible to substitute other material for that which was
stipulation and is clearly recognized in Section 7, Rule 86 of the Rules destroyed without substantial detriment to
of Court which grants to a mortgagee three remedies that can be either party or if the destroyed subject matter was not in fact
alternatively pursued in case the mortgagor dies, to wit: essential to the contract, the agency may continue.
(a) to waive the mortgage and claim the entire debt from the estate b. A partial loss or destruction of the subject matter does not
of the mortgagor as an ordinary action; always result in a complete termination of the agency, and
(b) to foreclose the mortgage judicially and prove any deficiency under such circumstances, while the agency may be ended
as an ordinary claim; and insofar as the destroyed property is concerned, it may continue
(c) to rely on the mortgage exclusively, foreclosing the same at in existence as to other property not affected.
any time before it is barred by prescription without right to fi le
a claim for any deficiency. (3) Liability of principal. — The termination of the agency does not
necessarily free the principal from liability. On the other hand, should
 Dissolution of firm or corporation - After winding up, the existence of the the subject matter be destroyed without the fault of the principal, no
firm or corporation is terminated for all purposes. liability is assumed by him.
 Accomplishment of object or purpose; Termination of agency ipso
facto. — At least as between the parties, principal and agent, the fulfillment Change of conditions.
of the purpose for which the agency is created ipso facto terminates the (1) General rule. — Where there is a basic change in the circumstances
agency, even though expressed to be irrevocable. surrounding the transaction, which was not con templated by the parties
and which would reasonably lead the agent to believe that the principal
Expiration of term. would not desire him to act, the authority of the agent is terminated.
(1) Term specified. - the expiration of such period or the arrival of that time
(2) Term not specified. — If no time is specified, it terminates at the end of (2) Exceptions. — The above rule is subject to certain qualifications.
a reasonable period of time. Either, party can terminate the relationship (a) If the original circumstances are restored within a reasonable
at will by giving notice to the other. period of time, the agent’s authority may be revived
(b) Where the agent has reasonable doubts as to whether the
principal would desire him to act, his authority will not be Liability of principal for damage caused by revocation.
terminated if he acts reasonably. While the principal may have absolute power to revoke the agency at any time,
(c) Where the principal and agent are in close daily contact, the he must respond in damages for breach of contract where the termination is
agent’s authority to act will not terminate upon a change of wrongful.
circumstances if the agent knows the principal is aware of the
change and does not give him new instructions. It must be emphasized, that we are speaking of a power and not a right. As to
whether the principal’s revocation of authority constitutes an exercise of a “right
Confidential information acquired by former agent in the course of his to revoke” or a “power to revoke” will, of course, depend upon the facts of the
agency. particular case.
 Factors considered by court:
o whether the knowledge or information, the use of which the (1) Where agency constituted for a fixed period. — The principal shall be
complainant seeks to enjoin, is confidential liable for damages occasioned by the wrongful discharge of the agent
o whether, if it be confidential, in whole or in part, its use ought before the expiration of the period fixed. In such case, however, the
to be prevented. action for indemnity would be derived not from the law, but from the
 If information be imparted privately, the character of the secret is contract of the parties.
immaterial, if it is one important to the business of the employer and
one to which the employment relates. For an employee to quit the (2) Where no time fixed for continuance of agency. — Where no time for
employment and then use in the service of a rival information of a the continuance of the agency is fixed by its terms, the principal is at
confidential nature gained in the prior employment, is contrary to good liberty to terminate it at will subject only to the requirements of good
faith and fair dealing. faith.
 The real principle upon which the agent is restrained from making use But if the principal acted in bad faith, i.e., with the view of concluding the
of confidential information which he has gained in the employment of bargain without the aid of the broker and avoiding the payment of commission
the principal is that there is in the contract of service subsisting between about to be earned, it might be well said that the due performance of his
the principal and agent an implied contract on the part of the agent that obligation by the broker was purposely prevented by the principal.
he will not, after the service is terminated, use information which he has
gained while the service has been subsisting to the detriment of his Return of document evidencing agency.
former employer. If the authority of the agent is in writing, the principal can compel the agent to
return the document evidencing the agency. The purpose is to prevent the agent
ART. 1920. The principal may revoke the agency at will, and compel the
from making use of the power of attorney and thus avoid liability to third
agent to return the document evidencing the agency. Such revocation may be
persons who may subsequently deal with the agent on the faith of the instrument.
express or implied.
Implied revocation
Revocation of agency by principal.
 when the principal appoints a new agent for the same business or
When done by the principal, it is called “revocation” and when done by the
transaction
agent, it is usually spoken of as “withdrawal” or “renunciation.”
 when the principal directly manages the business entrusted to the agent
(1) Agency generally revocable at will by principal. — Subject only to the  When the principal after granting a general power of attorney to an
exceptions provided in Article 1927, the principal may revoke the agent, grants a special one to another agent, there is implied revocation
agency at will — at any time, at his mere option, with or without of the former as regards the special matter involved in the latter.
reason — since an agency relationship is voluntary.
(2) Reason for the rule - The principal-agent relationship is consensual Notice of revocation.
and personal in nature and no one can be forced to retain another as (1) To agent. — As between the principal and the agent, express notice to
his agent against his will. But a principal may not revoke an agent’s the agent that the agency is revoked is not always necessary.
authority for acts or transactions the agent has already performed or
entered into, or an agency coupled with interest.
(2) To third persons. — In this connection, it has been held that actual (2) Substitution of counsel of record. — No substitution of counsel of
notice must be brought home to former customers, while notice by record is allowed unless the following essential requisites of a valid
publication is sufficient as to other persons. substitution of counsel concur:
a. In the absence of any notice of revocation, the principal may i. There must be a written request for substitution;
also be held liable even to third persons who never dealt with ii. It must be fi led with the written consent of the client;
the agent previous to the revocation, if they, in common with iii. It must be with the written consent of the attorney to be
the public at large, are justified in believing that such agency substituted; and
continues to exist. iv. In case, the consent of the attorney to be substituted cannot
be obtained, there must be at least a proof of notice, that the
Renunciation of agency by agent. motion for substitution was served on him in the manner
(1) Agency terminable at will. — Just as the principal has the power to prescribed by the Rules of Court.
revoke the agency at will, so too, the agent has the power to renounce
the agency relationship, subject only to the contractual obligations ART. 1924. The agency is revoked if the principal directly manages the
owing to the principal. business entrusted to the agent, dealing directly with third persons.
(2) Reason for the rule. — Where the agent terminates the agency in
violation of a contract, the principal has no right to affirmative specific Revocation by direct management of business by principal himself.
performance of the agency for the essence of the relationship is  Article 1924 – another form of implied revocation
consensual — the willingness of the agent to act for the principal.  If the purpose of the principal in dealing directly with the purchaser and
himself effecting the sale of the principal’s property is to avoid payment
ART. 1921. If the agency has been entrusted for the purpose of contracting of his agent’s commission, the implied revocation is deemed made in
with specified persons, its revocation shall not prejudice the latter if they were bad faith and cannot be sanctioned without according to the agent the
not given notice thereof. commission which is due him.
 the effect of the direct management of the business by the principal
ART. 1922. If the agent had general powers, revocation of the agency does himself is to revoke the agency for there would no longer be any basis
not prejudice third persons who acted in good faith and without knowledge of for the representation previously conferred.
the revocation. Notice of the revocation in a newspaper of general circulation
is a sufficient warning to third persons. Revocation by one of two or more principals.
ART. 1925. When two or more principals have granted a power of attorney
Under Article 1921, the notice of revocation must be personal; under Article for a common transaction, any one of them may revoke the same without the
1922, it may be personal. consent of the others.
ART. 1923. The appointment of a new agent for the same business or ART. 1926. A general power of attorney is revoked by a special one granted
transaction revokes the previous agency from the day on which notice thereof to another agent, as regards the special matter involved in the latter.
was given to the former agent, without prejudice to the provisions of the two
preceding articles. Partial revocation of general power by a special power.
The general power is impliedly revoked as to matters covered by the special
Revocation by appointment of new agent. power. A special power naturally prevails over a general power. It is
(1) Implied revocation of previous agency. — There is implied revocation indispensable that notice of the revocation be communicated in some way to the
of the previous agency when the principal appoints a new agent for the agent.
same business or transaction provided there is incompatibility. But the
revocation does not become effective as between the principal and the ART. 1927. An agency cannot be revoked if a bilateral contract depends upon
agent until it is in some way communicated to the latter. it, or if it is the means of fulfilling an obligation already contracted, or if a
partner is appointed manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable.
principal. It is not open to serious doubt that the irrevocability of a
Agency coupled with an interest. power of attorney may not be used to shield the perpetration of acts in
General Rule: the principal may revoke an agency at will. bad faith, breach of confidence, or betrayal of trust, by the agent for
that would amount to holding that a power coupled with an interest
Exceptions: authorizes the agent to commit frauds against the principal.
(1) when the agency is created not only for the interest of the principal but
also for the interest of third persons; and “Agency” coupled with an interest not a true agency.
(2) when the agency is created for the mutual interest of both the principal However, that very fact negates the possibility that it could be an agency relation
and the agent. at all. This is the case, of course, since one of the hallmarks of the agency
relation is that the principal must retain control over the agent concerning the
It is evident that the agency cannot be revoked by the sole will of the principal as object of his agency.
long as the interest of the agent or of a third person subsists because it is not
solely the rights of the principal which are affected. Plainly, if the principal cannot terminate the relation, he has surrendered that
degree of control which an agency requires. If the power holder holds an interest
Article 1927 mentions three instances of irrevocability. for the benefit of a person other than the creator of the power, he is not the
creator’s agent.
Termination of the agency.
Revocable after the interest ceases. ART. 1928. The agent may withdraw from the agency by giving due notice to
the principal. If the latter should suffer any damage by reason of the
(1) Interest in the subject matter of power conferred. — In order that an withdrawal, the agent must indemnify him therefor, unless the agent should
agency may be irrevocable because coupled with an interest, it is base his withdrawal upon the impossibility of continuing the performance of
essential that the interest of the agent shall be in the subject matter of the agency without
the power conferred and not merely an interest in the exercise of the grave detriment to himself.
power because it entitles him to compensation therefor.
Right of agent to withdraw.
(2) Sufficiency of interest. — As to what constitutes a sufficient interest to  This rule which applies whether the agency is gratuitous or for
take the holder out of the agency relation, it is sometimes said it must be compensation is based on the constitutional prohibition against
a present interest in the subject matter itself and that an interest in the involuntary servitude.
proceeds of the power’s exercise as compensation is insufficient. An  subject to liability for breach of contract or for tort.
agent is not considered to have an interest in the subject matter simply
 Withdrawal without just cause - to indemnify the principal should the
because he expects to make a commission or profit from his
latter suffer damage by reason of such withdrawal.
employment as agent.
 Withdrawal with just cause - the agent cannot be held liable.
o Instances:
Important: Whether an interest which will make an agency or power
irrevocable exists in a particular case is to be determined from the entire  impossibility of continuing with the agency without
grave detriment to himself
agreement between the parties and from the facts and circumstances. The
terminology used by the parties is not controlling.  fortuitous event
Revocability of agency coupled with an interest. ART. 1929. The agent, even if he should withdraw from the agency for a
(1) Where there is no just cause. — A contract not to revoke an agency valid reason, must continue to act until the principal has had reasonable
only abridges the right of the principal to revoke, and not his power to opportunity to take the necessary steps to meet the situation.
revoke.
Obligation of the agent to continue to act after withdrawal.
(2) Where there is a just cause. — the authority certainly can be revoked The law reconciles the interests of the agent with those of the principal, and if it
for a just cause, such as when the agent betrays the interest of the permits the withdrawal of the agent, it is on the condition that no damage results
to the principal, and if the agent desires to be relieved of the obligation of Duty of agent’s heirs to protect interest of principal.
making reparation when he withdraws for a just cause, he must continue to act so (1) General rule. — An agency calls for personal services. Ordinarily,
that no injury may be caused to the principal. therefore, the agent’s duties cannot be performed by his personal
representatives, and in case of his death, the agency is generally thereby
ART. 1930. The agency shall remain in full force and effect even after the terminated. The rights and obligations of the agent arising from the
death of the principal, if it has been constituted in the common interest of the contract are not transmissible to his heirs.
latter and of the agent, or in the interest of a third person who has accepted the (2) Exceptions. –
stipulation in his favor.  The heirs’ duty to continue the agency after the death of the
agent arises from what may be termed as an agency by
General rule: Agency is terminated instantly by the death of the principal. operation of law or a presumed or tacit agency.
 An agency coupled with an interest survives the death of the
Exceptions: *agency remains in full force* agent. It is transmitted to his heirs or representatives.
(1) if the agency has been constituted in the common interest if the
principal and the agent; and
(2) if it has been constituted in the interest of a third person who has
accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of
the principal or of any other cause which extinguishes the agency, is valid and
shall be fully effective with respect to third persons who may have contracted
with him in good faith.
Nature of agent’s authority after death of principal.

In the case where the principal’s affairs must be wound up,
or even in rare cases, carried on for a time by the agent after the
death of the principal, the agent acts because of a prior and not
a presently existing relation with the creator of the authority;
but the agent’s duty is no longer to the deceased but to a quasientity
— the principal’s estate. Hence, it is for the personal
representative (executor or administrator) vested by law with the
authority to administer the liquidation of the principal’s affairs to
say what shall be done about the business originally delegated by the
principal to the agent. If the agent has to continue the business,
it must be by the personal representative’s authority and as his
agent.
Note that Article 1931 speaks of “knowledge of death of the

principal or of any other cause” and requires not only the third
persons to be in good faith but also the agent.
ART. 1932. 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.
TRUSTS (and commingle them with his or her own money), a debtor-creditor
relationship exists, not a trust.
CHAPTER 1 CONTRACT
always involves an ownership,
GENERAL PROVISIONS embracing a set of rights and duties a legal obligation based on an
fiduciary in character which may be undertaking supported by a
ARTICLE 1440. A person who establishes a trust is called the trustor; one in created by a declaration without a consideration, which obligation may
whom confidence is reposed as regards property for the benefit of another consideration or may not be fiduciary in character.
person is known as the trustee; and the person for whose benefit the trust has
been created is referred to as the beneficiary.
Parties to a Trust
Concept of Trust 1. Trustor - the person who intentionally creates or establishes the trust.
A trust is the fiduciary relationship between one person having an equitable He transfers legal ownership of property to a person for the benefit of a
ownership in property and another owning the legal title to such property, the third party, who owns the equitable title.
equitable ownership of the former entitling him to the performance of certain 2. Trustee - the person who takes and holds the legal title to the property
duties and the exercise of certain powers by the latter for the benefit of the in trust solely for the benefit of another, with certain powers and subject
former. to certain duties
3. Beneficiary or cestui que trust - the person who has the equitable title
(1) Trust implies confidence in a relationship. — the word still implies such or interest in the property and enjoys the benefit of the administration of
confidence in a relationship intentionally created, involving a trustee, a the trust by the trustee.
beneficiary, and a trust property and not one involving merely personal duties,
imposing equitable duties upon the trustee with respect to the property to deal Trust property.
with it for the benefit of the beneficiary.  The subject-matter of a trust may be any property of value — real,
personal, funds or money, or choses in action. The property so held is
(2) Trust cannot be established in violation of law. — Trust is founded referred to as the “trust property” or “trust res.” “Corpus’’ and
in equity and can never result from acts violative of law. Thus, no trust can result “principal’’ are names also used for the trust property.
from a contract of partnership formed for an illegal purpose. Since the contract is  The trust res must consist of property actually in existence in which the
null and void, no rights and obligations can arise therefrom. trustor has a transferable interest or title although it may, as a rule, be
any kind of transferable property either realty or personalty including
Trust distinguished from other relations. undivided, future, or contingent interest therein.
TRUST BAILMENT Nature of ownership of trustee and beneficiary.
delivery of property in trust the bailee has possession of, without (1) Ownership by two persons at the same time. — The trust property is
necessarily involves a transfer of legal title to, the property subject to owned by two persons at the same time, the relation between the two
legal title the bailment. owners being such that one of them with legal title under an obligation
an existing legal relationship and DONATION to use his ownership for the benefit of the other.
involves the separation of legal and a transfer of property and except in (2) Trustee, not mere agent. — In legal theory, however, the trustee is not a
equitable title. the case of a gift in trust, involves a mere agent but an owner. He is a person to whom the property of
disposition of both legal and someone else is fictitiously attributed by the law, to the extent that the
equitable ownership. rights and powers thus vested in a nominal owner shall be used by him
DEBT on behalf of the real owner.
refers to a duty to deal with a specific
implies merely an obligation to (3) Transfer of equitable title. — The interests of the beneficiary in the trust
property for the benefit of another.
pay a certain sum of money can, in general, be reached by his creditors, and he can sell or otherwise
If a creditor-debtor relationship exists, but not a fiduciary relationship dispose of them. The beneficiary can transfer only the interests he holds
between the parties, there is no express trust. However, it is understood that — the equitable title.
when the purported trustee of funds is entitled to use them as his or her own
(4) Rights of beneficiary. — Depending on the terms of the trust
instrument, the beneficiary may receive the income from the assets of ART. 1442. The principles of the general law of trusts, insofar as they are not
the trust, the assets themselves, or both. in conflict with this Code, the Code of Commerce, the Rules of Court and
special laws are hereby adopted.
ART. 1441. Trusts are either express or implied. Express trusts are created by
the intention of the trustor or of the parties. Implied trusts come into being by Termination of express trust
operation of law. (1) Expiration of period fixed. — Ordinarily, a trust instrument states the
termination of date of the trust or the event on which the trustor wishes
Classification of trusts. it to terminate.
1. Express trust - one which can come into existence only by the
execution of an intention to create it by the trustor or the parties (2) Accomplishment of purpose. — whether or not a date is expressly
2. Implied trust – one which comes into being by operation of law. stated, a trust will terminate when its purpose has been fulfilled, or has
a. Resulting trust or one in which the intention to create a trust become unlawful or impossible.
is implied or presumed in law; or
b. Constructive trust or one imposed by law irrespective of, and (3) Mutual agreement of beneficiaries. — Under some circumstances, the
even contrary to, any such intention for the purpose of trust may terminate by mutual agreement of all the beneficiaries.
promoting justice, frustrating fraud, or preventing unjust (4) Exercise of power to terminate. — Under the terms of the trust deed, the
enrichment. (a.k.a. trust ex malefi cio, trust ex delict, and de trustor, trustee, or someone else may have the power to terminate the
son tort.) trust.
Effectivity CHAPTER 2
1. Testamentary trust or one which is to take effect upon the trustor’s
death. It is usually included as part of the will and does not have a EXPRESS TRUSTS
separate trust deed
2. Trust inter vivos (a.k.a. “living trust”) or one established effective ART. 1443. No express trusts concerning an immovable or any interest
during the owner’s life. therein may be proved by parol evidence.
Revocability Evidence to prove express trust.

Whether a trust is revocable or irrevocable depends on the wordings or language (1) Burden of proof. — it is generally required that his proof be clear and
used in the creation of the trust. It will be presumed revocable unless the creator satisfactory and convincing.
has expressed a contrary intention in the trust deed.
(2) Trust concerns immovable therein. — By virtue of Article 1443, a
Elements of express trust. writing is necessary to prove an express trust concerning an immovable
(1) A competent trustor and trustee; or any interest therein. The writing is required by said article not for
(2) An ascertainable trust res; and validity but for purposes of proof.
(3) Sufficiently certain beneficiaries.
(3) Failure to object to parol evidence. — waivable. either by failure to
Important: interpose timely objections against the presentation of oral evidence not
 trustee must also have some power of administration other than a mere admissible under the law or by cross-examining the adverse party and
duty to perform a contract although the contract is for some third-party his witnesses along the prohibited lines.
beneficiary
 A declaration of terms is essential and these must be stated with An express trust over personal property or any interest therein, and an implied
reasonable certainty in order that the trustee may administer, and that trust, whether the property subject to the trust is real or personal, may be proved
the court, if called upon so to do, may enforce the trust. by oral evidence.
 Consideration, is not required to establish a trust.
ART. 1444. No particular words are required for the creation of an express defeat or void the trust; nor does it operate to vest legal as well as equitable title
trust, it being sufficient that a trust is clearly intended. in the beneficiary.
Creation of an express trust. Renunciation by the trustee

 Express trusts are those trusts intentionally created by direct and Renunciation of a trust after its acceptance can only be by resignation or
positive act of the trustor, by some writing, deed, will, or oral retirement with court approval or at least, with agreement of beneficiaries and on
declaration evincing an intention to create the trust. No particular words satisfaction of all legal liabilities growing out of the acceptance of the trust.
are required or essential for the creation of an express trust, it being
sufficient that a trust is clearly intended. When a person administering property in the character of trustee inconsistently
 Technical or particular forms of words or phrases are not essential to the assumes to be holding in his own right, this operates as renunciation of the trust
manifestation of an intention to create a trust. and the beneficiaries in the property are entitled to maintain an action to declare
their right and remove the unfaithful trustee.
Kinds of Express Trusts.
(1) Charitable trust - one designed for the benefit of a segment of the ART. 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the
public or of the public in general. trust imposes no onerous condition upon the beneficiary, his acceptance shall
(2) Accumulation trust - one that will accumulate income to be be presumed, if there is no proof to the contrary.
reinvested by the trustee in the trust for the period of time specified;
(3) Spendthrift trust - one established when the beneficiary needs to be Acceptance of trust by the beneficiary.
protected, because of his inexperience or immaturity from his Acceptance of or assent to the trust by the beneficiary is essential to the creation
imprudent spending habits or simply because the beneficiary is and validity of a trust. However, if the trust imposes some onerous condition,
spendrift. acceptance must be shown. Such acceptance may be express or implied.
(4) Sprinkling trust - one that gives the trustee the right to determine the
income beneficiaries who should receive income each year and the CHAPTER 3
amount thereof.
IMPLIED TRUSTS
Important: In order that a trustee may sue or be sued alone, it is essential that
his trust be express. ART. 1447. The enumeration of the following cases of implied trust does not
exclude others established by the general law of trust, but the limitation laid
ART. 1445. No trust shall fail because the trustee appointed declines the down in Article 1442 shall be applicable.
designation, unless the contrary should appear in the instrument constituting
the trust. Concept of Implied Trust.
 Are those that which are deducible from the nature of the transaction as
Acceptance of express trust matters of intent, or which are superinduced on the transaction by
In the case of an express trust, acceptance of trust by a trustee is necessary to operation of law, as matters of equity, independently of the particular
charge him with the office of the trustee and the administration of the trust and to intention of the parties.
vest the legal title in him.
Kinds of Implied Trust
Declination of express trust (1) Resulting trust. — a trust raised by implication of law and presumed
One designated or appointed as trustee may decline the responsibility and always to have been contemplated by the parties, the intention as to
thereby be free from any legal or equitable duty or liability in the matter. which is to be found in the nature of their transaction, but not expressed
in the deed or instrument of conveyance.
Unless a contrary intention appears in the instrument constituting the trust (Art. The trust is said to result in law from the act of the parties. Examples of
1145.), declination or refusal or disqualification of a trustee does not operate to this kind of trust are found in Articles 1448, 1449, 1451, 1452, and
1453.
(2) Constructive trust. — the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. It does not arise by
agreement or intention but by operation of law against one who, by
fraud, duress, or abuse of confidence obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold.
In a constructive trust, there is neither a promise nor any fiduciary

relation to speak of and the so-called trustee neither accepts any trust
nor intends holding the property for the beneficiary. Constructive trusts
are illustrated in Articles 1450, 1454, 1455, and 1456.
Distinctions between express trusts and implied trusts.

EXPRESS IMPLIED
Creation of trust
created by the intention of the trustor
Comes into being by operation of law
or parties
Proof of Trust
cannot be proved by parol evidence may be proved by oral evidence
Repudiation of trust
In order that laches or acquisitive while laches constitutes a bar to
prescription may bar an action to actions to enforce an implied trust
enforce an express trust, an express even where there is no repudiation,
repudiation made known to the unless there is concealment of the
beneficiary is required fact giving rise to the trust.
Implied trust converted to express trust.

An implied trust may be converted to an express trust by the
recognition by the implied trustee of the right to the property of
the owner.
Acquisition of property through prescription.

The rule that a trustee cannot acquire by prescription ownership over property
entrusted to him until and unless he repudiates the trust, applies to express trusts
and resulting implied trusts.

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AGENCY Basis of Agency

1|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

2|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

3|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

4|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

6|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

7|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

 Prima facie presumption that the agency is for a compensation may be

8|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

General Agent vs Special Agent

9|PARTNERSHIP, AGENCY AND TRUST NOTES| AJSTEJADA NOTES | 2019-2020 | SBCA

When principal bound by act of agent

Ratification vs Estoppel Implied Authority vs Agency by Estoppel

Nature of agent’s right of lien.

Nature of agent’s authority after death of principal.

Note that Article 1931 speaks of “knowledge of death of the

Revocability Evidence to prove express trust.

Creation of an express trust. Renunciation by the trustee

In a constructive trust, there is neither a promise nor any fiduciary

Distinctions between express trusts and implied trusts.

Implied trust converted to express trust.

Acquisition of property through prescription.

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