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Nature, Form and Kinds of Agency Pares to the contract.

Arcle 1868. By the contract of agency a person binds (1) Principal. — one whom the agent represents
himself to render some service or to do something in and from whom he derives his authority; he is
representaon or on behalf of another, with the consent the person Represented.
or authority of the laer.
(2) Agent. — one who acts for and represents
another; he is the person acng in a
representave capacity.
Concept of agency.

Agency is a fiduciary relaonship which implies a power

in an agent to contract with a third person on behalf of Essenal elements of agency.
a principal. It is this power to eect the principal’s
(1) There is consent, express or implied, of the pares
contractual relaons with third persons that
to establish the relaonship;
dierenates the agent from the employee, the servant,
and the independent contractor. (2) The object is the execuon of a juridical act in
relaon to third persons;
Agency, properly speaking, relates to commercial or
business transacons. Agency relaonship may also (3) The agent acts as a representave and not for
arise in non-business situaons, as for example, a himself; and
person returns an arcle to a lender for a borrower-
friend. (4) The agent acts within the scope of his authority.

In addion, the pares must be competent to act as

principal and agent. (infra.) Consideraon is not
Characteriscs of a contract of agency. required.
The contract of agency is:

(1) consensual, because it is based on the agreement of Acts that may be/not be delegated to agents.
the pares which is perfected by mere consent;
General Rule: what a man may do in person, he may do
(2) principal, because it can stand by itself without need thru another. Thus, a stockholder may delegate to
of another contract; another his right to inspect the books of the corporaon
because this is an act which he can lawfully do
(3) nominate, because it has its own name;
personally.
(4) unilateral, if it is gratuitous because it creates
Excepons:
obligaons for only one of the pares, i.e., the agent; or
bilateral, if it is for compensaon because it gives rise to  Personal Acons
reciprocal rights and obligaons; and
 Criminal Acts or acts not allowed by law.
(5) preparatory, because it is entered into as a means to
an end, i.e., the creaon of other transacons or 1) Loan
contracts. 2) Lease of service

3) Independent contract
Nature, basis, and purpose of agency. 4) Partnership
(1) Nature. — Since agency is a contract, it is essenal 5) Negoorium geso
that the minds of the pares should meet in making it.
(COC) 6) Brokerage

(2) Basis. — Agency is also a representave relaon. 7) Sales

The agent renders some service or does something “in
representaon or on behalf of another.”
Arcle 1869. Agency may be express, or implied from
(3) Purpose. — The purpose of agency is to extend the the acts of the principal, from his silence or lack of
personality of the principal through the facility of the acon, or his failure to repudiate the agency, knowing
agent to render some service to do or something.

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that another person is acng on his behalf without agency, or from his silence or inacon according to the
authority. circumstances.

Agency may be oral, unless the law requires a specific Arcle 1871. Between persons who are present, the
form. acceptance of the agency may also be implied if the
principal delivers his power of aorney to the agent and
Kinds of agency.
the laer receives it without any objecon.
Agency may be classified as follows:
Arcle 1872. Between persons who are absent, the
(1) As to manner of its creaon: acceptance of the agency cannot be implied from the
silence of the agent, except:
(a) express. — one where the agent has been actually
authorized by the principal, either orally or in wring (1) When the principal transmits his power of aorney
(Art. 1869.); or to the agent, who receives it without any objecon;

(b) implied. — one which is implied from the acts of the (2) When the principal entrusts to him by leer or
principal, from his silence or lack of acon, or his failure telegram a power of aorney with respect to the
to repudiate the agency knowing that another person is business in which he is habitually engaged as an agent,
acng on his behalf without authority (Ibid.), or from and he did not reply to the leer or telegram.
the acts of the agent which carry out the agency, or
Arcle 1873. If a person specially informs another or
from his silence or inacon according to the
states by public adversement that he has given a
circumstances. (Art. 1870.) An implied agency is an
power of aorney to a third person, the laer thereby
actual agency as much as an express agency.
becomes a duly authorized agent, in the former case
(2) As to its character: with respect to the person who received the special
informaon, and in the laer case with regard to any
(a) gratuitous. — one where the agent receives no person.
compensaon for his services (Art. 1875.); or
The power shall connue to be in full force unl the
(b) compensated or onerous. — one where the agent noce is rescinded in the same manner in which it was
receives compensaon for his services. given.
(3) As to extent of business covered:

(a) general. — one which comprises all the business of Communicaon of existence of agency.
the principal (Art. 1876.); or
There are two ways of giving noce of agency with
(b) special. — one which comprises one or more specific dierent eects:
transacons. (Ibid.)
(1) If by special informaon (e.g., by leer), the person
(4) As to authority conferred: appointed as agent is considered such with respect to
(a) couched in general terms. — one which is created in the person to whom it was given.
general terms and is deemed to comprise only acts of (2) If by public adversement, the agent is considered as
administraon (Art. 1877.); or such with regard to any person. Public adversement
(b) couched in specific terms. — one authorizing only may be made in any form — through the newspaper,
the performance of a specific act or acts. (see Art. radio, etc. and by posters or billboards.
1878.) In either case, the agency is deemed to exist whether
(5) As to its nature and eects: there is actually an agency or not.

(a) ostensible or representave. — one where the agent

acts in the name and representaon of the principal Manner of revocaon of agency.
(Art. 1868.); or
The power of aorney must be revoked in the same
(b) simple or commission. — one where the agent acts manner in which it was given.
in his own name but for the account of the principal.
EXAMPLE:

P especially informs X that he has given A a power of

Arcle 1870. Acceptance by the agent may also be aorney. With respect to X, A thereby becomes a duly
express, or implied from his acts which carry out the

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authorized agent of P. To rescind the power of aorney, (1) Aorney at law, or one whose business is to
P must give noce in the same manner in which he was represent clients in legal proceedings;
given, namely, by special informaon to X.
(2) Auconeer, or one whose business is to sell property
Public adversement is not sufficient unless X has actual for others to the highest bidder at a public sale;
knowledge of the revocaon. But if P makes known the
(3) Broker, or one whose business is to act as
appointment of A by public adversement, terminaon
intermediary between two other pares such as
of the agency by special informaon to X or by public
insurance broker and real estate broker;
adversement is eecve against him.
(4) Factor (synonymous with commission merchant), or
one whose business is to receive and sell goods for a
Arcle 1874. When a sale of a piece of land or any commission, being entrusted with the possession of the
interest therein is through an agent, the authority of the goods involved in the transacon. (see Art. 1903.);
laer shall be in wring; otherwise, the sale shall be
(5) Cashier in bank, or one whose business is to
void.
represent a banking instuon in its financial
Arcle 1875. Agency is presumed to be for a transacons; and;
compensaon, unless there is proof to the contrary.
(6) Aorney-in-fact is one who is given authority by his
Arcle 1876. An agency is either general or special. The principal to do a parcular act not of a legal character.
former comprises all the business of the principal. The The term is, in loose language, used to include agents of
laer, one or more specific transacons. all kinds, but in its strict legal sense, it means an agent
having a special authority created by deed.

General and special agencies.

Arcle 1877. An agency couched in general terms
The disncon here is based on the scope of the
comprises only acts of administraon, even if the
business covered. A general agency must not be
principal should state that he withholds no power or
confused with one couched in general terms (Art. 1877.)
that the agent may execute such acts as he may
which is a special agency when it involves only one or
consider appropriate, or even though the agency should
more specific transacons. (Art. 1876.)
authorize a general and unlimited management.
Classes and kinds of agents.

According to the nature and extent of their authority

Agency couched in general terms.
agents have been classified into:
As to the extent of the power conferred, agency may be
(1) A universal agent is one employed to do all acts
couched in general terms (Art. 1877.) or couched in
that the principal may personally do, and which
specific terms. (Art. 1878.)
he can lawfully delegate to another the power
of doing. An agency couched in general terms may be a general
agency (Art. 1876, par. 1.) or a special agency. (Ibid., par.
(2) A general agent is one employed to transact all
2.) It includes only acts of administraon and an express
the business of his principal, or all business of a
power is necessary to perform any act of strict
parcular kind or in a parcular place, or in
ownership (Art. 1878.), even if the principal states that:
other words, to do all acts, connected with a
parcular trade, business, or employment. (1) he withholds no power, or that

(3) A special or parcular agent is one authorized to (2) the agent may execute such acts as he may
act in one or more specific transacons, or to do consider appropriate, or that
one or more specific acts, or to act upon a
(3) he authorizes a general or unlimited
parcular occasion.
management. (Art. 1877.)

Special types of agents.

Arcle 1878. Special powers of aorney are necessary
The more common special types of agents are the in the following cases: legal document that grants a chosen
following: individual—the agent or attorney-in-fact—
the authority to perform specific actions
on behalf of another person, the principal
or grantor

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(1) To make such payments as are not usually Authority of an agent defined.
considered as acts of administraon;
Authority is the power of the agent to aect the legal
(2) To eect novaons which put an end to obligaons relaons of the principal by acts done in accordance
already in existence at the me the agency was with the principal’s manifestaon of consent to him. The
constuted; authority of the agent is the very essence — the sine
qua non — of the principal and agent relaonship.
(3) To compromise, to submit quesons to arbitraon,
to renounce the right to appeal from a judgment, to This authority, unless it is otherwise agreed, includes
waive objecons to the venue of an acon or to only authority to act for the benefit of the principal, and
abandon a prescripon already acquired; the source of the authority is always the principal and
never the agent.
(4) To waive any obligaon gratuitously;

(5) To enter into any contract by which the ownership of

an immovable is transmied or acquired either Authority disnguished from power.
gratuitously or for a valuable consideraon;
(1) As to existence. — While “authority” and “power”
(6) To make gis, except customary ones for charity or are oen used synonymously, the former may be
those made to employees in the business managed by considered the source or cause, while the laer, the
the agent; eect. Thus, an agent granted authority by the principal
has thereby the “power” to act for him, which is taken
(7) To loan or borrow money, unless the laer act be
to mean “an ability on the part of the agent to produce
urgent and indispensable for the preservaon of the
a change in a given legal relaon, by doing and not
things which are under administraon;
doing a given act.”
(8) To lease any real property to another person for
The power of the agent is also the limitaon upon his
more than one year;
ability to bind the principal, for it is well-seled that an
(9) To bind the principal to render some service without agent binds his principal only as to acts within his actual
compensaon; or apparent authority.

(10) To bind the principal in a contract of partnership; (2) As between an agent and a principal --- an act is
within the authority of the agent if it is not a violaon of
(11) To obligate the principal as a guarantor or surety; his duty to the principal, and it is within his power if he
(12) To create or convey real rights over immovable has the legal ability to bind the principal to a third
property; person although the act constutes a violaon of his
duty to the principal.
(13) To accept or repudiate an inheritance;
(3) So far as third persons are concerned, no disncon
(14) To rafy or recognize obligaons contracted before exists. An act within the power of the agent is deemed
the agency; within the scope of his authority even if the agent has,
(15) Any other act of strict dominion. in fact, exceeded the limits of his authority (See
examples under Arts. 1900 and 1911.), or he has no
Arcle 1879. A special power to sell excludes the power authority whatever to do so as in the following cases:
to mortgage; and a special power to mortgage does not
include the power to sell.

Arcle 1880. A special power to compromise does not Kinds of authority.

authorize submission to arbitraon. (1) Actual. — when it is actually granted, and it may be
Arcle 1881. The agent must act within the scope of his express or implied. It is the authority that the agent
authority. He may do such acts as may be conducive to does, in fact, have. It results from what the principal
the accomplishment of the purpose of the agency. indicates to the agent;

Arcle 1882. The limits of the agent's authority shall not (2) Express. — when it is directly conferred by words
be considered exceeded should it have been performed (Art. 1869.);
in a manner more advantageous to the principal than (3) Implied. — when it is incidental to the transacon or
that specified by him. reasonably necessary to accomplish the main purpose
of the agency (Art. 1881.)

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(4) Apparent or ostensible. — when it is conferred by (a) Where his (principal’s) acts have contributed to
words, conduct or even by silence of the principal deceive a third person in good faith;

(5) General. — when it refers to all the business of the (b) Where the limitaons upon the power created by
principal (see Art. 1876.); him could not have been known by the third person;

(6) Special. — when it is limited only to one or more (c) Where the principal has placed in the hands of the
specific transacons (Ibid.); and agent instruments signed by him in blank; and

(7) Authority by necessity or by operaon of law. — (d) Where the principal has rafied the acts of the
when it is demanded by necessity or by virtue of the agent. (see Art. 1901.)
existence of an emergency. The agency terminates when
(2) Agent. — The agent who exceeds his authority is
the emergency has passed.
personally liable either to the principal or to the third
party, in the absence of raficaon by the principal.

When principal bound by act of agent. (a) If the principal is liable to the third party on the
ground of apparent authority, the agent’s liability is to
The principal is, of course, liable to the agent if he
the principal.
breaches his contractual or any other duty to the agent.
However, the more important quesons arising from the (b) If the principal is not liable to the third person
relaonship relate to the principal’s liability to third because the facts are such no apparent authority is
persons with whom the agent has dealt. present, then the agent’s liability is to the third party.

(1) Requisites. — In order that the principal may be (c) If the agent personally assumes responsibility for the
bound by the act of the agent as to third persons and as parcular transacon, if the principal defaults he, in
to the agent himself, there are two requisites: eect, also becomes obligated as a co-principal.

(a) The agent must act within the scope of his authority;
and
Arcle 1883. If an agent acts in his own name, the
(b) The agent must act in behalf of the principal. principal has no right of acon against the persons with
whom the agent has contracted; neither have such
(2) Authority possessed by agent. — The principal is
persons against the principal.
bound by either actual or apparent authority (estoppel)
of the agent. In such case the agent is the one directly bound in favor
of the person with whom he has contracted, as if the
(3) Authority rafied by another (principal). — On
transacon were his own, except when the contract
occasion, a person, who is in fact not an agent, may
involves things belonging to the principal.
make a contract on behalf of another, or he is an agent
but he has exceeded his powers. If the principal The provisions of this arcle shall be understood to be
subsequently approves or affirms the contract, an without prejudice to the acons between the principal
agency relaonship is created by raficaon, and and agent.
neither the principal nor the third person can set up the
fact that the agent had no authority or exceeded his
powers. Kinds of principal.

The principal may be disclosed, parally disclosed, or

undisclosed.
Liability of principal/agent for acts of agent beyond his
authority or power. (1) Disclosed principal. — if at the me of the
transacon contracted by the agent, the other party
(1) Principal. — As a general rule, the principal is not
thereto has known that the agent is acng for a
bound by the acts of an agent beyond his limited
principal and of the principal’s identy. This is the usual
powers. In other words, third persons dealing with an
type of agency.
agent do so at their risk and are bound to inquire as to
the scope of his powers. (2) Parally disclosed principal. — if the other party
knows or has reason to know that the agent is or may
There are, however, four qualificaons whereby the
be acng for a principal but is unaware of the principal’s
principal is held liable:
identy.

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(3) Undisclosed principal. — if the party has no noce of
the fact that the agent is acng as such for a principal.

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Obligaons of the agent (12) To be responsible in certain cases for the acts of the
substute appointed by him (Art. 1892.);
Arcle 1884. The agent is bound by his acceptance to
carry out the agency, and is liable for the damages (13) To pay interest on funds he has applied to his own
which, through his nonperformance, the principal may use (Art. 1896.);
suer.
(14) To inform the principal, where an authorized sale of
He must also nish the business already begun on the credit has been made, of such sale (Art. 1906.);
death of the principal, should delay entail any danger.
(15) To bear the risk of collecon, should he receive also
on a sale, a guarantee commission (Art. 1907.);

Obligaons, in general, of agent to principal. (16) To indemnify the principal for damages for his
failure to collect the credits of his principal at the me
(1) Good faith and loyalty to his trust, agent’s rst duty.
that they become due (Art. 1908.); and
(2) Obedience to principal’s instrucon.
(17) To be responsible for fraud or negligence. (Art.
(3) Exercise of reasonable care. 1909.)

Specific obligaons of agent to principal.

(1) To carry out the agency which he has accepted; Arcle 1885. In case a person declines an agency, he is
bound to observe the diligence of a good father of a
(2) To answer for damages which through his family in the custody and preservaon of the goods
performance the principal may suer (Ibid.); forwarded to him by the owner unl the laer should
(3) To nish the business already begun on the death of appoint an agent or take charge of the goods.
the principal should delay entail any danger (Ibid.); Arcle 1886. Should there be a spulaon that the
(4) To observe the diligence of a good father of a family agent shall advance the necessary funds, he shall be
in the custody and preservaon of the goods forwarded bound to do so except when the principal is insolvent.
principal is not liable for the expenses incurred by the agent
to him by the owner in case he declines an agency, unl Arcle 1887. In the execuon of the agency, the agent
an agent is appointed (Art. 1885.); shall act in accordance with the instrucons of the
(5) To advance the necessary funds should there be a principal.
spulaon to do so (Art. 1886.); In default thereof, he shall do all that a good father of a
(6) To act in accordance with the instrucons of the family would do, as required by the nature of the
principal, and in default thereof, to do all that a good business.
father of a family

would do (Art. 1887.); Instrucons (of principal) defined.

(7) Not to carry out the agency if its execuon would Instrucons are private direcons which the principal
manifestly result in loss or damage to the principal (Art. may give the agent in regard to the manner of
1888.); performing his dues as such agent but of which a third
(8) To answer for damages if there being a conflict party is ignorant. They are said to be secret if the
between his interests and those of the principal, he principal intended them not to be made known to such
should prefer his own party.

(Art. 1889.);

(9) Not to loan to himself if he has been authorized to Instrucons disnguished from authority.
limitation of the agent’s power to represent the principal.
lend money at interest (Art. 1890.); (1) Authority (see Arts. 1881, 1882.), the sum total of
(10) To render an account of his transacons and to the powers commied or permied to the agent by the
deliver to the principal whatever he may have received principal, may be limited in scope and such limitaons
by virtue of the agency (Art. 1891.); are themselves a part of the authority, but instrucons
direct the manner of transacng the authorized
(11) To disnguish goods by countermarks and business and contemplates only a private rule of
designate the merchandise respecvely belonging to guidance to the agent and are independent and disnct
each principal, in the case of a commission agent who in character;
handles goods of the same kind and mark, which belong
to dierent owners (Art. 1904.);

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(2) Authority relates to the subject with which the agent lend money at interest, he cannot borrow it without the
is empowered to deal or the kind of business or consent of the principal.
transacons upon which he is empowered to act, while
Arcle 1891. Every agent is bound to render an account
instrucons refer to the manner or mode of his acon
of his transacons and to deliver to the principal
with respect to maers which in their substance are
whatever he may have received by virtue of the agency,
within the scope of permied acon;
even though it may not be owing to the principal.
(3) Limitaons of authority are operave as against
Every spulaon exempng the agent from the
those who have or are charged with knowledge of them
obligaon to render an account shall be void.
(see Art. 1900.), while instrucons liming the agent’s
authority are without signicance as against those
dealing with the agent with neither knowledge nor
noce of them; (see Art. 1902.) and EXAMPLES:

(4) Authority is contemplated to be made known to the (1) P employs A as a full-me salesman. A must turn
third person dealing with the agent, while instrucons over to P any overprice received by him for goods he is
are not expected to be made known to those with to sell at a certain price. He may not make any prot out
whom the agent deals. of the agency beyond his spulated compensaon.

(see 2 C.J.S. 1200-1202.) (2) In the same example, A also sold goods for B without
the knowledge of P. In this case, P is also entled to all
commissions or compensaon earned by A on sales of
B’s goods in violaon of the contract of agency.
Arcle 1888. An agent shall not carry out an agency if its
execuon would manifestly result in loss or damage to
the principal.

Arcle 1889. The agent shall be liable for damages if,

there being a conflict between his interests and those of Arcle 1892. The agent may appoint a substute if the
the principal, he should prefer his own. principal has not prohibited him from doing so; but he
shall be responsible for the acts of the substute:

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

EXAMPLES:
(2) When he was given such power, but without
(1) P authorized A to buy specied goods. A must not designang the person, and the person appointed was
sell P goods belonging to him (A) without the full notoriously incompetent or insolvent.
knowledge and assent of P. Such sale is voidable
although the price may have been just. The reason is All acts of the substute appointed against the
that A’s obligaon to P requires him to buy at the lowest prohibion of the principal shall be void.
possible price while his self-interest prompts him to sell
at the highest price obtainable. P, however, may elect to
rafy the sale. Arcle 1893. In the cases menoned in Nos. 1 and 2 of
the preceding arcle, the principal may furthermore
(2) Similarly, if P authorized A to sell goods, A must not bring an acon against the substute with respect to
sell to himself either directly or indirectly. The reason is the obligaons which the laer has contracted under
that his duty to sell at the highest price for the principal the substuon.
conflicts with his interest to buy at the lowest price
possible.

(3) P authorized A to sell specied goods for a certain Sub-agent defined.

price. If A instead sells goods of the same kind and A sub-agent is a person employed or appointed by an
quality belonging to him for the same price to B, A, is agent as his agent, to assist him in the performance of
liable for damages. He should not prefer his own an act for the principal which the agent has been
interests to those of P. empowered to perform.

Arcle 1890. If the agent has been empowered to Eects of substuon.

borrow money, he may himself be the lender at the
current rate of interest. If he has been authorized to (1) Substuon prohibited. — When the substute
is appointed by the agent against the express

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prohibion of the principal, the agent exceeds
the limits of his authority. (Art. 1881.) The law
EXAMPLE:
says that all acts of the substute in such a case
shall be void. A and B were appointed by P to manage the laer’s
business. Is A liable to P for damages in the amount of
(2) Substuon authorized. — If in the contract of
P10,000.00 caused by the fault or negligence of B?
agency, the agent is given the power to appoint
a substute and the principal did not designate (1) The presumpon is that their responsibility is joint.
any parcular person to be appointed, the Hence, A is not liable. But if both A and B were at fault,
substuon has the eect of releasing the agent they shall be liable for P5,000.00 each.
from his responsibility unless the person
appointed is notoriously incompetent or (2) If solidarity has been agreed upon, P may recover
insolvent. P110,000.00 either from A or B. If A pays P5,000.00, P
can sll go against A and B for the balance as long as the
(3) Substuon not authorized, but not prohibited. enre amount has not been paid. (see Art. 1216.)
— If the agent appoints a substute when he
was not given the power to appoint one (Ibid.,
No. 1.), the law recognizes the validity of the Arcle 1896. The agent owes interest on the sums he
substuon if the same is benecial to the has applied to his own use from the day on which he did
principal because the agency has thus been so, and on those which he sll owes aer the
executed in fulllment of its object. exnguishment of the agency.

Arcle 1897. The agent who acts as such is not

EXAMPLE: personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits
P authorized A to manage P’s business aairs during the of his authority without giving such party sucient
me that P was in the province. A allowed T to manage noce of his powers.
the store for him.

(1) Is A responsible for damages caused by the acts of T?

Yes, if T was appointed by A against the prohibion of P When agent may incur personal liability.
that he shall not entrust the management of the store (1) When the agent expressly binds himself, he
to another person; or he was not given the power to thereby obligates himself personally and by his
appoint one; or he was given the power, but T is own act. Thus, the agent may be bound with the
“notoriously incompetent or insolvent.’’ third person when the laer, not having faith in
No, if A was given the power and T was not “notoriously the nancial ability of the principal, enters into
incompetent or insolvent,” or T is the person designated the contract on condion that the agent’s
by P to be appointed as substute. nancial ability is “back of it.”

(2) Is the substuon valid? No, if A was prohibited by P (2) When the agent exceeds his authority, he really
from appoinng a substute. Yes, if A was given the acts without authority and, therefore, the
power, or even if he was not given the power, there was contract is unenforceable against the principal
no prohibion imposed by P. unless the laer raes the act.

(3) Are the acts of T in the name of P valid? No, if T was

appointed by A against the prohibion of P or T acted Arcle 1898. If the agent contracts in the name of the
beyond the scope of his authority. (see Art. 1910.) principal, exceeding the scope of his authority, and the
principal does not rafy the contract, it shall be void if
the party with whom the agent contracted is aware of
Arcle 1894. The responsibility of two or more agents, the limits of the powers granted by the principal. In this
even though they have been appointed simultaneously, case, however, the agent is liable if he undertook to
is not solidary, if solidarity has not been expressly secure the principal's racaon.
spulated.

Arcle 1895. If solidarity has been agreed upon, each of

the agents is responsible for the non-fulllment of
agency, and for the fault or negligence of his fellow Eect where third person aware of limits of agent’s
agents, except in the laer case when the fellow agents powers.
acted beyond the scope of their authority.

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(1) If the agent acts in the name of the principal Scope of agent’s authority includes not only the actual
(Art. 1883, par. 1.) and within the scope of his authorizaon conferred upon the agent by his principal,
authority (Art. 1881.), the agent assumes no but also that which has apparently or impliedly been
liability. The eect of the representaon is to delegated to him.
bind the principal as though he personally
(1) Where authority not in wring. — Every person
entered into the contract.
dealing with an assumed agent is put upon an
(2) If the agent acts in excess of his authority, even inquiry and must discover upon his peril, if he
if he contracts in the name of the principal, the would hold the principal liable, not only the fact
agent is the one personally liable unless there is of the agency but the nature and extent of
subsequent racaon by the principal. authority of the agent.

(3) The agent is not bound nor liable for damages in (2) Where authority in wring. — Nevertheless, if
case he gave noce of his powers to the person the authority of the agent is in wring, such
with whom he has contracted (Art. 1897.) nor in person is not required to inquire further than
case such person is aware of the limits of the the terms of the wrien power of aorney.
powers granted by the principal. The eect is to
make the contract, which is unenforceable as
against the principal, void even as between the EXAMPLE:
agent and the third person, and consequently,
not legally binding as between them. However, P gave A a wrien power of aorney wherein A is
if the agent promised or undertook to secure authorized to sell P’s factory for such price and upon
the principal’s racaon and failed, he is such terms and condions as A may deem reasonable.
personally liable. If the racaon is obtained, However, P and A had an understanding to the eect
then the principal becomes liable. that A should sell the factory for not less than P5 million
and for cash. A sold the factory to B on credit for
P4,500,000.00.
EXAMPLE: Under Arcle 1900, P is bound. As far as B is concerned,
A acted within the scope of his authority. Here, A has
If B, in the preceding example, knew that A was not
the power to make the sale binding on P even though as
authorized to sell P’s car for P130,000.00, the sale is
between them, A has no authority to make such sale.
void even as between A and B. However, if B bought the
car on the assurance of A that he would obtain the
consent of P, A would be liable in case of failure to
obtain such racaon. Arcle 1901. A third person cannot set up the fact that
the agent has exceeded his powers, if the principal has
If P’s consent is subsequently given, then there is raed, or has signied his willingness to rafy the
racaon and the sale will be binding on P. (see Art. agent's acts.
1901.)

Arcle 1902. A third person with whom the agent

Arcle 1899. If a duly authorized agent acts in wishes to contract on behalf of the principal may
accordance with the orders of the principal, the laer require the presentaon of the power of aorney, or
cannot set up the ignorance of the agent as to the instrucons as regards the agency. Private or secret
circumstances whereof he himself was, or ought to have orders and instrucons of the principal do not prejudice
been, aware. third persons who have relied upon the power of
aorney or instrucons shown them.

Arcle 1900. So far as third persons are concerned, an

act is deemed to have been performed within the scope EXAMPLES:
of the agent's authority, if such act is within the terms of
the power of aorney, as wrien, even if the agent has (1) P employed A under a power of aorney to sell a
in fact exceeded the limits of his authority according to parcel of land for not less than P200,000.00. In this case,
an understanding between the principal and the agent. A has no power to bind P by selling the property for less
than the specied amount to T. His statement to T that
he is authorized to sell at a lower price is not admissible
against P.
Scope of agent’s authority as to third persons.

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LAW ON AGENCY – Chapter 2

(2) Suppose, in the same example, the authority given to the agent since the principal cannot be allowed to
to A is to sell at any reasonable price, with a secret enrich himself at the agent’s expense; or
instrucon to keep the minimum price (P200,000.00)
(2) He may rafy the sale on credit in which case it will
secret. A sold the property to T at P180,000.00. T is not
have all the risks and advantages to him
bound by the secret instrucon of P who is bound by
the contract, his liability being based upon the apparent
authority of A. (see Art. 1900.)
EXAMPLE:

P authorized A, his commission agent, to sell certain

Arcle 1903. The commission agent shall be responsible merchandise for P20,000.00 cash. A sold the
for the goods received by him in the terms and merchandise to B on credit for P21,000.00.
condions and as described in the consignment, unless
upon receiving them he should make a wrien P may demand the payment of P20,000.00 in cash.
statement of the damage and deterioraon suered by Should A eventually collect P21,000.00 from B, A need
the same. not turn over the overprice of P1,000.00 as he is
entled to it. (see Art. 1891.)

If P raed the sale on credit and B could pay only up to

Factor or commission agent defined. P19,000.00, A is not liable for the dierence of
P2,000.00.
A factor or commission agent is one whose business is to
receive and sell goods for a commission (also called
factorage) and who is entrusted by the principal with
the possession of goods to be sold, and usually selling in Arcle 1906. Should the commission agent, with
his own name. (See Art. 1868, re disncons between authority of the principal, sell on credit, he shall so
commission agent and broker.) He may act in his own inform the principal, with a statement of the names of
name or in that of the principal. the buyers. Should he fail to do so, the sale shall be
deemed to have been made for cash insofar as the
An ordinary agent need not have possession of the principal is concerned.
goods of his principal, while the commission agent must
be in possession.
EXAMPLE:

Suppose, in the preceding example, A was authorized by

P to sell on credit but he failed to so inform P with a
Arcle 1904. The commission agent who handles goods statement of the name of the buyer.
of the same kind and mark, which belong to dierent
owners, shall disnguish them by countermarks, and In this case, P may demand from A the payment of the
designate the merchandise respecvely belonging to P20,000.00 in cash. As far as the buyer is concerned, the
each principal. sale is on credit and he is not liable to pay before the
arrival of the period agreed upon.
Arcle 1905. The commission agent cannot, without the
express or implied consent of the principal, sell on
credit. Should he do so, the principal may demand from Arcle 1907. Should the commission agent receive on a
him payment in cash, but the commission agent shall be sale, in addion to the ordinary commission, another
entled to any interest or benet, which may result called a guarantee commission, he shall bear the risk of
from such sale. collecon and shall pay the principal the proceeds of the
sale on the same terms agreed upon with the purchaser.

Right of principal where sale on credit made without

authority. Meaning and purpose of guarantee commission.
A commission agent can sell on credit only with the (1) Guarantee commission (also called del credere
express or implied consent of the principal. If such sale commission) is one where, in consideraon of an
is made without authority, the principal is given two increased commission, the factor or commission agent
alternaves: guarantees to the principal the payment of debts arising
(1) He may require payment in cash, in which case, any through his agency. An agent who guarantees payment
interest or benet from the sale on credit shall belong of the customer’s account in consideraon of the higher
commission is called a del credere agent.

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LAW ON AGENCY – Chapter 2

(2) The purpose of the guarantee commission is to
compensate the agent for the risks he will have to bear
in the collecon of the credit due the principal.

Arcle 1907 applies to both cash and credit sales

because it makes no disncon.

Arcle 1908. The commission agent who does not

collect the credits of his principal at the me when they
become due and demandable shall be liable for
damages, unless he proves that he exercised due
diligence for that purpose.

Arcle 1909. The agent is responsible not only for fraud,

but also for negligence, which shall be judged with more
or less rigor by the courts, according to whether the
agency was or was not for a compensaon.

Liability of agent for fraud and negligence/intenonal

wrong.

(1) In the fulllment of his obligaon, the agent is

responsible to the principal not only for fraud
(Art. 1171.) commied by him but also for
negligence. The circumstance that the agency is
or is not gratuitous will be considered by the
courts in xing the liability of the agent for
negligence (not fraud). Agency is presumed to
be for compensaon.

(2) Quasi-delict or tort may be commied by act or

omission. If it causes damage to another, there
being fault or negligence, the guilty party is
liable for the damage done. (Art. 2176.) Arcle
1909 speaks of negligence (simple carelessness).
The agent, to be sure, is also liable for torts
commied willfully. As a general, rule, the
principal is not responsible if the agent’s tort
was intenonal rather than merely negligent.

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AGENCY (CHAPTER 3)

OBLIGATION OF PRINCIPAL

1. ART. 1910
The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.

OBLIGATIONS OF PRINCIPAL TO AGENT

o GR

o primary obligation of the principal to the agent is simply that of complying

with the terms of their employment contract, if one exists.
o The principal may be justified in refusing to perform his part of the
contract when the agent has already breached the contract.

SPECIFIC OBLIGATIONS
o To comply with all the obligations which the agent may have contracted within
the scope of his authority (Arts. 1910, 1881, 1897.) and in the name of the
principal (Arts. 1868, 1883.)
o To advance to the agent, should the latter so request, the sums necessary for the
execution of the agency (Art. 1912.)
o To reimburse the agent for all advances made by him, provided the agent is free
from fault
o To indemnify the agent for all the damages which the execution of the agency
may have caused the latter without fault or negligence on his part (Art. 1913.);
and
o To pay the agent the compensation agreed upon, or if no compensation was
specified, the reasonable value of the agent’s services. (Arts. 1875, 1306.)

LIABILITY OF PRINCIPAL TO THIRD PERSONS

o GR
o where the relation of agency legally exists, the principal will be liable to
third persons for all acts committed by the agent and obligations
contracted by him in the principal’s behalf in the course and within the
actual (express or implied) or apparent scope of his authority, and should
bear the damage caused to third persons.
o becomes liable to the third party when he ratifies an authorized act of his
agent.
o AGENCY BY ESTOPPEL
o may involve the expansion of the authority given to a designated agent or
create authority in the alleged agent though not actually granted.

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LIABILITY OF THIRD PERSONS TO PRINCIPAL

o IN CONTRACT
o A third person is liable to the principal upon contracts entered into by his
agent, in the same manner as though the contract were entered into by the
principal himself.
o IN TORT
o 3 Main factual situations
 Where the third person damages or injures property or interest of
the principal in the possession of the agent;
 Where the third person colludes with the agent to injure or defraud
the principal; and
 Where the third person induces the agent to violate his contract
with the principal to betray the trust reposed upon him by the
principal.
o PROPERTY RECEIVED
o Principal may recover properties from third party if the agent has no
apparent authority to dispose of such.
o Except for negotiable instruments

LIABILITY OF PRINCIPAL FOR MISMANAGEMENT OF BUSINESS BY HIS

AGENT
o GR
o the mismanagement of the business of a party by his agents does not
relieve said party from the responsibility that he had contracted to third
persons.
o It is an equitable maxim that as between two innocent parties, the one who
made it possible for the wrong to be done should be the one to bear the
resulting loss.

LIABILITY OF PRINCIPAL FOR TORT OF AGENT

o GR
o 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.
o Whether the tort is committed willfully or negligently has no effect on the
extent or degree of the principal’s liability.
o BUSINESS HAZARD THEORY
o the hazards of business should be borne by the business directly.
o MOTIVATION-DEVIATION TEST
o Factors:
 satisfactory evidence that the employee in doing the act, in the
doing of which the tort was committed, was motivated in part, at
least, by a desire to serve his employer;
 satisfactory evidence that the act, in the doing of which the tort was
committed, was not an extreme deviation from the normal conduct
of such employee.

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REPRESENTATION, ESSENCE OF AGENCY

o Agent acts in a representative capacity
o Agent acts within limits of his authority

RATIFICATION
o is the adoption or affirmance by a person of a prior act which did not bind him,
but which was done or professed to be done on his account thus giving effect to
the acts as if originally authorized.
o Act is purely voluntary
o Conditions for ratification
o The principal must have the capacity and power to ratify;
o He must have had knowledge or had reason to know of material or
essential facts about the transaction;
o He must ratify the acts in its entirety;
o The act must be capable of ratification; and
o The act must be done in behalf of the principal.
o Forms of ratification
o Express
o Implied
o Persons entitled to ratify
o ratifier has the power or authority to do, on his account, the original act
which is sought to be ratified.
o A principal is incapable of ratifying an act if his own position has, in the
interval between the time the agent performed the act and the time when
the ratification is supposed to have occurred, so altered that he is no
longer capable of doing the original act.
o A voidable act or transaction by reason of incapacity to give consent may
be ratified but the defect must first be removed before a valid ratification
can take place.
o The third party has a right to withdraw from the trans- action prior to
ratification. The principal will not be permitted to ratify after the third
party has already indicated a desire to with- draw from the transaction.
Obviously, there can be no ratification of an illegal transaction.
o Knowledge by ratifier of material facts essential
o Material facts

 those which reasonably ought to be known by the principal, having

in mind the factors of time, place, and circumstance, and especially
the situation of the parties.
o Full and complete knowledge
 In order to bind a principal by ratification, he must have been in
possession of all the facts and must have acted in the light of such
facts.
o Actual knowledge

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o The general rule requires actual knowledge on the part of the principal,
as a condition to the imposition upon him of the obligation of his
agent’s unauthorized acts.
o Burden to show such knowledge
o Party relying on ratification
o When actual knowledge assumed
 where the principal’s reckless disregard of the natural consequences
of known facts induces an inference that he was willing to assume a
risk in respect of the facts.
o Ratification must be entire
o The act must be ratified in its entirety or not at all.
o The acceptance of the result of the act, moreover, ratifies the whole
transaction including the means whereby that result was achieved.
o At the time of accepting the benefits of the act, the person may be ignorant
of the practices resorted to. Even so, he is liable unless he attempts to
undo the thing within a reasonable time after he is advised of it.
o Acts that may be ratified
o Valid/Void Acts
 Valid can be ratified
 Void cannot be ratified
o Voidable acts
 Can be ratified
o Unrevoked acts
 Act or transaction must remain capable of ratification
o Criminal acts
 Subject to qualification
o Tortious acts
 Rare phenomenon
o Acts must be done in behalf of principal
o an act, to be capable of ratification, must be done by one par- ty as agent
for someone else.
o Effects of ratification by principal
o With respect to agent
 Relieves from liability to 3rd party
o With respect to principal
 Assumes responsibility for unauthorized act
o With respect to 3rd persons
 Bound by ratification to the same extent.
o Retroactive effect of Ratification
o equivalent to initial approval or prior authority. Retroactive effect.
o EXCEPT:
 Where to do so would be to defeat rights of third parties which have
accrued between the time of the making of the unauthorized
contract and the time of ratification.

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 Where to do so would be to render wrongful an otherwise rightful

act or omission which has taken place between the making of the
unauthorized contract and the time of its ratification.
 Where to do so would be to allow the circumvention of a rule of law
formulated in the interest of public policy.
 If the third party has withdrawn from the contract, the act or
transaction is no longer capable of ratification.

2. ART. 1911
Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as
though he had full powers.

o ESTOPPEL
o is a bar which precludes a person from denying or asserting anything
contrary to that which has been established as the truth by his own deed or
representation either express or implied.

DISTINGUISH
RATIFICATION ESTOPPEL
Rest on intention, express or implied, Rest on prejudice rather than intention
regardless of prejudice to another
Party is bound because he intended to be Bound notwithstanding the absence of
such intention (other party will be
prejudiced and defraud)
Retroactive (entire transaction is May only extend to such act as can be
affected) shown to be affected (affects relevant
parts)
Doctrine of equitable doctrine Estoppel in pais (principal’s inducement
(confirmation of unauthorized act) to another to act to his prejudice.)
Principal is bound by act whether the conduct constitutes ratification or
estoppel

o WHEN PRINCIPAL SOLIDARILY LIBLE WITH THE AGENT

o agent must have acted in the name of a disclosed principal and the third
person was not aware of the limits of the power granted by the principal.

APPARENT AUTHORITY DISTINGUIHED FROM AUTHORITY BY

ESTOPPEL
APPARENT AUTHORITY AUTHORITY BY ESTOPPEL
which though not actually granted, the arises in those cases where the principal,
principal knowingly permits the agent to by his culpable negligence, permits his
exercise or holds him out as possessing. agent to exercise powers not granted to
him, even though the principal may have
no notice or knowledge of the conduct of

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the agent.
not founded in negligence of the principal negligence of the principal in failing
but in the conscious permission of acts properly to supervise the affairs of the
beyond the powers granted agent, allowing him to exercise powers
not granted to him, and so justifies others
in believing he possesses the requisite
authority.

IMPLIED AGENCY DISTINGUISH FROM AGENCY BY ESTOPPEL

IMPLIED AGENCY AGENCY BY ESTOPPEL
There is actual agency Authority of agent is not real but only
apparent
Principal alone is liable If caused by principal, he is liable
If caused by agent, only the agent is liable

3. ART. 1912
The principal must advance to the agent, should the latter so request,
the sums necessary for the execution of the agency.
Should the agent have advanced them, the principal must reimburse
him therefor, even if the business or undertaking was not successful,
provided the agent is free from all fault.
The reimbursement shall include interest on the sums advanced,
from the day on which the advance was made.

o OBLIGATION TO ADVANCE FUND

o the principal is under obligation to provide the means with which to
execute the agency.
o OBLIGATION TO REIMBURSE AGENT FOR RUNDS ADVANCE
o In case the agent advanced the sums necessary for the execution of the
agency, whether on his own initiative or by virtue of stipulation, the said
advances must be reimbursed by the principal with interest from the day
the advance was made.
o Demand is not necessary in order that delay on the part of the principal
shall exist.
o GR
 where one is employed or directed by another to do an act in his
behalf, not manifestly wrong, the law implies a promise by the
principal to reimburse the agent for expenditures incurred as a
proximate consequence of the good faith execution of the agency,
which includes interest thereon.
o Obligation not affected even if undertaking not successful
 agent cannot be defeated by the fact that “the business or
undertaking was not successful” provided the agent is free from all
fault.

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4. ART 1913
The principal must also indemnify the agent for all the damages
which the execution of the agency may have caused the latter, without fault
or negligence on his part.

o WHERE DAMAGES CAUSED BY THE EXECUTION OF AGENCY.

o the agent should not be required to suffer loss from the doing of an act
apparently lawful in itself, and which he has undertaken to do by the
direction and for the benefit and advantage of his principal.
o WHERE DAMAGES CAUSED BY WRONGFUL ACTS OF THIRD
PERSONS.
o the liability of the principal for damages is limited only to that which the
execution of the agency has caused the agent.
o WHERE AGENT ACTED UPON HIS OWN ACCOUNT.
o no obligation to indemnify where no agency relation exists

5. ART. 1914
The agent may retain in pledge the things which are the object of the
agency until the principal effects the reimbursement and pays the
indemnity set forth in the two preceding articles.

o RIGHT OF AGENT TO RETAIN IN PLEDGE OBJECT OF AGENCY.

o fails to reimburse or indemnify the agent as required in Articles 1912 and
1913, the agent has the right to retain in pledge the things which are the
object of the agency.
o NATURE OF AGENT’S RIGHT OF LIEN
o Right limited to subject matter of agency.
o Right requires possession by agent of subject matter.
 agent in order to have a lien, must have some possession, custody,
control, or disposing power in and over the subject matter in which
the lien is claimed
o Right generally only in favor of agent.
 Sub-agent cannot claim right over the lien

6. ART. 1915
If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all
the consequences of the agency.

 2 PRINCIPALS NATURE OF LIABILITY

o Joint principals must unite in the appointment of an agent
o Solidarily liable for the whole obligation to agent for all consequences of
the agency
o Solidary principal
 REQUISITES FOR SOLIDARY LIABILITY

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o 2 or more principals
o Principals have concurred in the appointment of same agent
o The agent appointed for a common transaction or undertaking
 PRINCIPALS ARE MEMBERS OF NON-PROFIT ASSOCIATION
o Principals are liable personally only under 2 circumstances:
 Members assented to the particular act/transaction in respect of
which personal liability is sought to be fastened.
 Where the member assented by his conduct at the meeting at which
the contract was proposed, nobody dissented.

7. ART. 1916
When two persons contract with regard to the same thing, one of
them with the agent and the other with the principal, and the two contracts
are in- compatible with each other, that of prior date shall be preferred,
without prejudice to the provisions of article 1544.

o RULE WHERE TWO PERSONS CONTRACT SEPARATELY WITH

AGENT AND PRINCIPAL.
o Two persons may contract separately with the agent and the principal with
regard to the same thing.
o If the two contracts are incompatible with each other, the one of prior date
shall be preferred.

8. ART. 1917
In the case referred to in the preceding article, if the agent has acted
in good faith, the principal shall be liable in damages to the third person
whose contract must be rejected. If the agent acted in bad faith, he alone
shall be responsible.

o If the agent acted in good faith and within the scope of his authority, the principal
incurs liability. If the agent acted in bad faith, he alone shall be responsible to
such third person.

9. ART. 1918
The principal is not liable for the expenses incurred by the agent in
the following cases:
1. If the agent acted in contravention of the principal’s instructions,
unless the latter should wish to avail himself of the benefits derived
from the contract;
2. When the expenses were due to the fault of the agent;
3. When the agent incurred them with knowledge that an unfavorable
result would ensue, if the principal was not aware thereof;
4. When it was stipulated that the expenses would be borne by the agent,
or that the latter would be allowed only a certain sum.

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o WHEN PRINCIPAL IS NOT LIABLE FOR EXPENSES INCURRED BY

AGENT
o 1, is to punish the agent (unless ratified)
o 3, agent is guilty of bad faith and lack of diligence
o 4, express stipulation which is not contrary to law, morals, good customs,
public order or public policy is binding between parties.

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Regulatory Framework and Legal Issues sometimes likened to the death of a

Prelim Topics natural person.
BL 223- Accountancy Program (BSA)
CHAPTER 4: Modes of Extinguishment of Modes provided not exclusive
Agency  Article 1919 gives only those causes
of extinction which are peculiar to
Article 1919- Agency is extinguished: agency. (11 Manresa 556.)
(1) By its revocation;  The list is not exclusive, i.e., there are
(2) By the withdrawal of the agent; other causes.
(3) By the death, civil interdiction, insanity  An agency may also be extinguished
or insolvency of the principal or of the by the modes of extinguishment of
agent; obligations in general, when
(4) By the dissolution of the firm or applicable, like loss of the thing and
corporation which entrusted or novation. (Art. 1291.)
accepted the agency;  Other causes are change in law
(5) By the accomplishment of the object or affecting the subject matter or
purpose of the agency; transaction involved in the execution of
(6) By the expiration of the period for the agency, especially if it makes the
which the agency was constituted. required act illegal (2 Am. Jur. 75.) and
change in conditions not anticipated by
Note: the parties like the outbreak of war,
 An agency does not last forever. Like preventing or making impossible the
most consensual agreements, the accomplishment of the purpose of the
relationship usually comes to an end agency. (ibid., 61.)
at some point.
 Termination can take place because of Article 1920- The principal may revoke the
something done by the parties agency at will, and compel the agent to return
themselves or of something beyond the document evidencing the agency. Such
their control, i.e., by operation of law. revocation may be express or implied.

Modes of extinguishing an agency Agency generally revocable at will by principal

Under the law, agency may be terminated:  An agency may be terminated by the
(1) by agreement (Nos. 5, 6.); or subsequent acts of the parties.
(2) by the subsequent acts of the parties  When done by the principal, it is called
which may be either. "revocation" and when done by the
(a) by the act of both parties or agent, it is usually spoken of as
by mutual consent; or "renunciation." (Art. 1919[2].)
(b) by the unilateral act of one  Subject only to the exceptions
of them (Nos. 1, 2.); or provided in Article 1927, the principal
(3) by operation of law. (Nos. 3, 4.) may revoke the agency at will.
 Since the authority of the agent
Continuance and capacity of principal and emanates from the principal, it is
agent enough that the principal should wish
 Agency requires the existence and to terminate the agency.
capacity of both the principal and  Moreover, confidence being the
agent. cardinal basis of the relation, it stands
 Consequently, the death, civil to reason that it should cease when
interdiction, insanity or insolvency of such confidence disappears.
either party terminates the agency  As the law makes no distinction,
(Arts. 39, 1327.) revocation at will is proper whether the
 Under the law, civil interdiction is a agency is gratuitous or with
form of disqualification which deprives compensation.
the offender during the period of his
sentence of the right to manage his
property and dispose of such property REVOCATION BY PRINCIPAL
by any act or any conveyance inter GENERAL RULE:
vivos. (Art. 34, Revised Penal Code.) The principal may:
 Dissolution of a firm or corporation (1) Revoke the agency at will; and
extinguishes its juridical existence. It is (2) Compel the agent to return the document
equivalent to its death, being evidencing the agency.

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although he may thus render himself

Qualifications: liable to the principal, he does not
The right of the principal to terminate the cease to be an agent.
authority of his agent is absolute and
unrestricted, except that he is liable for Article 1921- If the agency has been
damages in case: entrusted for the purpose of contracting with
(1) He revokes the agency in bad faith specified persons, its revocation shall not
[Danon v. Brimo (1921)]; or prejudice the latter if they were not given
(2) He revokes the agency before the notice thereof.
expiration of the period stipulated in
the agency contract. Article 1922- If the agent had general
powers, revocation of the agency does not
Exception: prejudice third persons who acted in good
Agency cannot be revoked if it is coupled with faith and without knowledge of the revocation.
an interest, such that: Notice of the revocation in a newspaper of
(1) A bilateral contract depends upon it; general circulation is a sufficient warning to
(2) It is the means of fulfilling an obligation third persons.
already contracted; or
(3) A partner is appointed manager of a Effect of revocation in relation to third persons
partnership in the contract of (1) Agency to contract with specific
partnership and his removal from the persons
management is unjustifiable.  If the agency is created for the
purpose of contracting with
Renunciation of agency by agent specific persons, its revocation
Agency terminable at will will not prejudice such third
 Just as the principal has the power to person until notice thereof is given
revoke the agency at will, so too, the them. (Art. 1921.)
agent has the power to renounce the  Since the third persons have been
agency relationship giving notice to the made to believe by the principal
principal that he will no longer serve as that the agent is authorized to
an agent. In effect, the agent resigns. deal with them, they have a right
 Thus, if there is no contract existing to presume that the
between the parties or if the contract is representation continues to exist
for no fixed or definite period of time, it in the absence of notification by
is terminable by the agent at will. the principal. Of course, notice is
 Even in the face of an express not required if the third persons
contract, the agent has the power to already know of the revocation.
renounce the agency, since an agency (2) Agency to contract with general public
relationship is voluntary, although  In case the agent has general
under such circumstances, his breach powers (as when the agent has
of contract may create a liability for been appointed to manage a
wrongful termination. (Art. 1928.) business), innocent third persons
dealing with the agent will not be
Form of renunciation prejudiced by the revocation
 It is not always necessary for the before they had knowledge
agent to renounce the agency thereof.
expressly.  In this case however, the fact that
 It may be implied, as for example, the revocation was advertised in a
where he has conducted himself in a newspaper of general circulation
manner clearly incompatible with his would be sufficient warning to
duties as agent as when an agent third persons (Art. 1922.) for the
abandons the object of his agency and publication constitutes notice
acts for himself in committing a fraud upon everybody and this is true
upon his principal, his capacity as whether or not such third persons
agent ceases, or when he files have read the newspaper
complaint against the principal in concerned.
connection with the agency.  Under Article 1921, the notice of
 On the other hand, the mere fact that revocation must be personal;
the agent violates his instructions does under Article 1922, it may be
not amount to a renunciation, and personal. (Art. 1873.)

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common transaction, any one of them may

Article 1923- The appointment of a new revoke the same without the consent of the
agent for the same business or transaction others.
revokes the previous agency from the day on
which notice thereof was given to the former Revocation by one of two or more principals
agency, without prejudice to the provisions of  The appointment of an agent by two
the two preceding articles. (2) or more principals for a common
transaction or undertaking makes
Revocation by appointment of new agent them solidarily liable to the agent for
There is implied revocation of the previous all the consequences of the agency.
agency when the principal appoints a new (Art. 1915.)
agent for the same business or transaction  Consequently, one of the principals is
provided there is incompatibility. granted under this article the right to
(1) In such case, the revocation does not revoke the power of attorney without
become effective as between the the consent of the others.
principal and the agent until it is in  In a solidary obligation, the act of one
same way communicated to the latter. is considered by law as the act of all.
(2) Again, the rights of third persons who
acted in good faith and without Article 1926- A general power of attorney is
knowledge of the revocation will not revoked by a special one granted to another
be prejudiced thereby. ( 1921,1922.) agent, as regards the special matter involved
in the latter.
Article 1924- The agency is revoked if the
principal directly manages the business Partial revocation of general power
entrusted to the agent, dealing directly with  In this article, two (2) agents are
third persons. involved: one to whom a general
power is previously granted and the
Revocation by direct management of business other, to whom a special power is
by principal himself subsequently conferred.
The above article provides for another case of  A specific power naturally prevails
implied revocation. over a general power.
(1) Unless the only desire of the principal
is for him and the agent to manage the Article 1927- An agency cannot be revoked if
business together, the effect of the a bilateral contract depends upon it, or if it is
direct management of the business by the means of fulfilling an obligation already
the principal himself is to revoke the contracted, or if a partner is appointed
agency for there would no longer be manager of a partnership in the contract of
any basis for the representation partnership and his removal from the
previously conferred. (11 Manresa management is unjustifiable.
574.)
(2) If the purpose of the principal in When agency irrevocable
dealing directly with the purchaser and  The general rule is that the principal
himself effecting the sale, for example, may revoke an agency at will. (Art.
is to avoid payment of his agent's 1920.)
commission, the implied revocation is  The reason for the rule is that the
deemed made in bad faith and cannot essence of agency is the agent's duty
be sanctioned without, according to of obedience to the principal.
the agent, the commission which is This rule, however, has exceptions and they
duc him. (Infante vs. Cunanan, 93 Phil. are:
693.) (1) When the agency is created not only
for the interest of the principal but also
Note: for the interest of third persons; and
Article 1924 should be distinguished from (2) When the agency is created for the
Article 1916 which governs the relations as mutual interest of both
between themselves of third persons who (1) the principal and the agent. (Art.
separately contract with the agent and the 1930.)
principal with regard to the same thing.
 In these cases, it is evident that the
Article 1925- When two or more principals agency cannot be revoked by the sole
have granted a power of attorney for a will of the principal. (11 Manresa 572.)

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Article 1927 mentions three (3) reason (Art. 1929.) as when the
instances of irrevocability. withdrawal is based on the
impossibility of continuing with the
Agency coupled with an interest agency without grave detriment to
 An agency coupled with an interest himself (Art. 1928.), or is due to a
cannot be terminated by the sole will fortuitous event (Art. 1174.), the agent
of the principal although it is so cannot be held liable. While the agent
revocable after the interest ceases. is forbidden to prefer his interests to
 In order that, an agency may be those of the principal (Art. 1889.), he is
irrevocable because it is coupled with not required to sacrifice his own
an interest, it is essential that the interest just to serve the principal.
interest of the agent shall be in the
subject matter of the power conferred
and not merely an interest in the Article 1929- The agent, even if he should
exercise of the power because it withdraw from the agency for a valid reason,
entitles him to compensation therefor. must continue to act until the principal has
 Thus, an agency is coupled with an had reasonable opportunity to take the
interest where the agent has parted necessary steps to meet the situation.
with value or incurred liability at the
principal's request, looking to the Obligation of agent to continue to act after
exercise of the power as the means of withdrawal
reimbursement or indemnity. (Mechem  Even when the agent withdraws from
on Agency, Sec. 570, pp. 406-407.) the agency for a valid reason he must
continue to act until the principal has
Article 1928- The agent may withdraw from had reasonable opportunity to take the
the agency by giving due notice to the necessary steps (like the appointment
principal. If the latter should suffer any of a new agent) to remedy the
damage by reason of the withdrawal, the situation caused by the withdrawal.
agent must indemnify him therefor, unless the  The purpose of the law is to prevent
agent should base his withdrawal upon the damage to the principal.
impossibility of continuing the performance of
the agency without grave detriment to himself. Article 1930- The agency shall remain in full
force and effect even after the death of the
Right of agent to withdraw principal, if it has been constituted in the
 Just as the principal may revoke common interest of the latter and of the agent,
generally the agency at will (Art. or in the interest of a third person who has
1920.), the agent may likewise accepted the stipulation in his favor.
withdraw from the agency at any time.
 This rule which applies whether the When death of principal does not terminate
agency is gratuitous or for agency
compensation is based on the  Agency is terminated by the death of
constitutional prohibition against the principal. (Art. 1919[3].)
involuntary servitude. (Art. III, Sec.  Agency, being based on
18[2], Constitution of the Philippines.) representation, there is no one to be
represented where the principal is
(1) Without just cause. already dead.
The law imposes upon the agent the However, there are exceptions to this rule. In
duty to give due notice to the principal the following cases, the agency remains in full
and if the withdrawal is without just force and effect even after the death of the
cause, to indemnify the principal principal:
should the latter suffer damage by (1) If the agency has been constituted in
reason of such withdrawal. The reason the common interest, of the principal
for the indemnity imposed by law is and the agent (see Art. 1927.); and
that the agent fails in his obligation (2) If it has been constituted in the interest
and as such, he must answer for of a third person who has accepted the
losses and damages occasioned by stipulation in his favor. (Art. 1311, par.
the non-fulfillment. (Arts. 1884, 1770) 2.)

(2) With just cause - If the agent Article 1931- Anything done by the agent,
withdraws from the agency for a valid without knowledge of the death of the

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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.

Validity of acts of agent after death of principal

 The death of the principal extinguishes
the agency but in the same way that
revocation of the agency does not
prejudice third persons who have dealt
with the agent in good faith without
notice of the revocation (Arts. 1921,
1922.), such third persons are
protected where the agent acted
without knowledge of the death of the
principal or of any other cause which
extinguishes the agency.

Note
 Under Article 1931 the law requires
not only the third persons to be in
good faith but also the agent.
 However, the agent is required to
"finish the business already begun on
the death of the principal, should delay
entail any danger." (Art. 1884, par. 2.)

Article 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.

Duty of agent's heirs to protect interest of

principal
 If the agent dies, the agency is also
extinguished. (Art. 1919[3].)
 In such case, the law imposes upon
the heirs of the deceased agent not
only the obligation to notify the
principal to enable the latter
reasonable opportunity to take such
steps as may be necessary to meet
the situation (Art. 1929.) but also to
adopt such measures as the
circumstances may demand for the
interest of the principal.
 The heir's duty arises from what may
be termed as "agency by operation of
law." (see 11 Manresa 588.) Of
course, the heirs can continue the
agency only temporarily for, as we
have seen,

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