CONTRACT

CONTRACT OF
CONTRACT OF AGENCY
OF AGENCY
AGENCY
 Chapter 2: Chapter 3:
Obligations of Obligations of
the Agent the Principal

Chapter 1:
Modes of
Nature, Form
Extinguishment
and Kinds
AGENCY
CHAPTER 1
 WHAT
WHATIS
WHAT IS
ISAGENCY?
AGENCY?
AGENCY?
REPRESENTATIVE
CONTRACT
RELATION

Extend personality of principal through acts of agent.

 CHARACTERISTICS
Consensual
Essential Elements Nominate
Principal
Unilateral/
Consent Object Cause
Bilateral
Preparatory
Representation Fiduciary
Representative
Authority
 AGENCY

Authority
Communication of
Existence Actual, Express,
Implied, Apparent,
By special By public Kinds General, Special,
Parties
information advertisement By Neccesity

Scope of
Principal Agent Character Authority
Manner of Business Nature and effects
Creation
General/S
Bound by acts pecial Ostensible/
of agent Simple
Express/I
Universal/Gener
mplied
al/Special Couched in
Bound by acts Gratuitous/ general/specific
of agent Compensate terms
beyond his Representation
General Rule: WHAT A MAN d
power
MAY DO IN PERSON, HE MAY
DO THROUGH ANOTHER
Exception: Personal and/or
Criminal Acts
General Rule: Sale of a piece
ARTICLE 1874 Special Power to
• To make payment
Except when the authority compromise does not • To ratify obligation contracted
of land through an agent is before agency
of the agent is in writing authorize submission to
VOID • To effect novations
arbitration
When • To convey or acquire an
immovable

SPECIAL • To make gifts or donation

• To accept or repudiate an
inheritance
POWERS • To compromise
• To bind principal in partnership

OF • To bind principal to render

Article 1875 service gratuitously

• To create or convey real rights
General Rule: Agency is presumed to be for
a compensation
Except when there is proof of contrary
ATTORNE over immovable of principal
without special power

Y are • To waive an obligation

gratuitously
• To obligate principal as
necessary guarantor/surety
• To lease realty for more than

: one year
• Any other act of strict dominion

Article 1879
Authority to sell the principal’s property does not include or imply authority to mortgage
and vice versa
SITUATION
MJ gave a power of attorney to LJ authorizing him to sell MJ’s ring for at least
20,000 payable in cash.

If LJ sells the ring If LJ sells the ring

If LJ sells the ring for
to KB in MJ’s name without authority to
25,000 cash, did he
for 20,000 cash, KB for 10,000 cash, is
exceed his power?
does LJ assume the transaction valid?
personal liability?

NO NO NO
CHAPTER 2
 General Obligations of the Agent

When they
decline an
agency
When they accept an
To observe the diligence of
agency:
a good father in the
custody and preservation
of the goods forwarded To carry out To be liable for damages
the agency caused by his non To finish the business
performance already begun on the
death of the principal
Act in accordance with the
principal’s specific instructions
Due to non performance Other
Account for and Deliver all Specific
money and property received Due to negligence and Obligations
by virtue of the agency fraud
NOT TO DO if execution Should he prefer his own interests
manifests a loss or damage rather than the principal’s
to the principal
Should he exceed the authority
given to him
 • If the agent did not undertake to secure the
Authority VS Instructions Rule if the other principal’s ratification, the contract shall be
void and agent will not be liable

• General Rule: The agent who party was aware of • If the agent undertook to secure the principal’s
ratification of the act and the principal does
acts as such shall not be the agent’s acting not ratify the same, the agent shall be liable
• If the principal ratifies the contract, the
liable to the party with beyond the limits of contract shall be enforceable against the
whom he contracts principal
• Exceptions: The agent is his authority
personally liable when;
• He expressly binds himself
in which both the agent
and the principal shall be Rights and • As to third persons, an act is deemed to have
liable to the part whom
the agent has contracted Obligations of the been performed within the scope of the agent’s
authority if such act is within the power of
• He exceeds the limits of third person who attorney
• A third person cannot set up the fact that the
his authority without have contracted with agent has exceeded his powers if the principal
has ratified, or has signified his willingness to
giving such party sufficient
notice of his powers
an agent who has ratify the agent’s acts
• A third person may require the agent to present
exceeded his his power of attorney, or the instructions as
regards the agency
authority
 • If there is a stipulation ✔
To advance
necessary funds • If principal is insolvent ✖

• If expressly stipulated:
Solidarily responsible for In the case of 2 Loan to himself • Expressly empowered (he
the fraud and negligence more agents: when he was may be the lender at the
of his fellow agents Responsibility is authorized to current rate of interest) ✔
• If silent: Joint solidary Other Specific lend money • Without consent ✖
Responsibility Obligations

• When he was not given the power

nor was he prohibited to appoint one To be responsible
✔ for the act of the To pay for interest • Those applied to his own use ✔
• When he was given the power, but subagent he on the sums • Those which he still owes after the
the person appointed was appointed agency is extinguished ✔
notoriously incompetent/insolvent ✔
Obligations of a Authority of a commission
COMMISSION agent to sell on credit
AGENT Effects if the commission
agent sells on credit without
To be responsible for the goods received The commission agent,
by him in the terms and conditions and as General Rule: cannot principal’s
The principal may
consent
however, shall be
described in the consignment unless upon demand payment from entitled to any interest
receiving them he should make a written sell on credit him in cash or benefit, which may
statement of the damage and
deterioration suffered by the same result from such sale

To distinguish by countermarks goods of Exception: allowed with

the same kind and mark which belong to the express or implied
different owners, and designate the
merchandise respectively belonging to consent of the principal
each principal

To bear the risk of collection and to pay the principal the proceeds
Obligation of the commission
of the sale on the same terms agreed upon with the purchaser if he
receives on a sale, in addition to the ordinary commission, another
agent if he is authorized to
called a guarantee commission sell on credit
The commission agent who sells on credit must
To be liable for damages if he does not collect the credits of so inform the principal, with a statement of the
the principal at the time when they become due and names of the buyers. If he failed to do so, the
demandable, unless he proves that he exercised due sale shall be deemed to have been made in cash
diligence for that purpose insofar as the principal is concerned
SITUATION
SITUATION: Peter gives a general power of
attorney to Krista to sell Peter’s goods for
P10,000 cash for a commission. Krista sells the
goods on a 15-day credit term for P11,000 to
Joshua without authority from Peter.

Peter may ratify the sale

Peter may demand the
on credit, in which case,
immediate payment of
when Krista collects the
P10,000 but when Krista
amount of P11,000 from
collects the amount of
Joshua, the said amount
P1,000 from Joshua,
shall be accounted in full
Peter gets the excess of
by Krista to Peter.
P1,000.
CHAPTER 3
 • Primary Obligation:
Primarily Complying with the
based upon terms of their
contract employment contract,
General Obligations of A if there is one.
Principal to his Agent

Should deal
fairly and in
good faith
with his
agent
 • Principal should provide
the means with which to
execute agency even with
an absence of stipulation To advance
• If the principal fails to do to the agent
so, the agent will not be
liable for damage

Though actually not granted, the principal

knowingly permits the agent to exercise Specific Obligations
or holds him out as possessing To comply of the Principal to
• Apparent Authority his Agent
with all
Arises in those cases where the principal • Authority by Estoppel obligations
by his culpable negligence permits his
agents to exercise powers that weren’t
granted to him even though the principal
may have no notice or knowledge of the
conduct
• Demand is not necessary To reimburse
• Cannot be defeated by the the agent for
fact that “the business or all the
undertaking was not advances
successful made by him
 • Since the principal received the benefits, he should
also be the one answering the damages
• The liability of the principal is limited only to that
To indemnify
which the execution of the agency has caused the
the agent for agent
all damages • If he fails to reimburse the agent, the agent has
Specific Obligations of the right to pledge the thing which are the object
the Principal to his Agent of agency

To pay the
agent
compensation
for his
services
 The principals
have all
concurred on the
appointment of
the same agent The agent is
appointed for
There are two or
the same
more principals
transaction or
undertaking

REQUISITES IN
ORDER FOR THE
PRINCIPALS TO
BE SOLIDARILY
LIABLE

TWO PERSON CONTRACT If the two contracts are

SEPARATELY WITH AGENT AND incompatible with each other, the
PRINCIPAL one of prior date shall be preferred
 The agent acted
in
contravention
of the
Principal’s
instructions

The agent incurred

them with the Cases where the
knowledge that an principal is not There is a
unfavorable result liable for stipulation that the
would ensue, if the expenses expenses would be
principal was not incurred by the born by the agent
aware thereof agent

When the
expenses were
due to the fault
of the agent
SITUATION
Situation 1.

On January 1, A who owns a piece of agricultural land gave a general power of attorney to B. On
February 20, A, without the knowledge of B, executed in favor of C a special power of attorney to sel
said piece of land. On February 25, B as attorney-in-fact of A, executed a deed of sale in favor of D. On
the same date, February 25, C under the special power given by A, sold the same piece of land to E.

Assuming that the vendees have not yet registered their respective documents or have taken
possession of the land, which of the two sales is valid and enforceable and who is responsible for
damages if any?

Answer.

The sale of C in favor of E is valid and enforceable because C was specifically granted authority to sell. B
who only had a general power of attorney had NO right to sell since selling ordinarily is not a mere act
of administration. Moreover, under Art. 1878, a special power of attorney is needed to effectuate a sale.
If anyone is liable for damages, it is certainly B who performed an unauthorized sale.
CHAPTER 4
 MODES OF EXTINGUISHMENT OF AGENCY
MNEMONICS:W-A-R-D-E-D

WITHDRAWAL REVOCATION DISSOLUTION DEATH

(SUBSEQUENT ACTS OF THE PARTY) (SUBSEQUENT ACTS OF THE PARTY) (OPERATIONS OF LAW) (OPERATIONS OF LAW)

ACCOMPLISHMENT EXPIRATION
(AGREEMENT) (AGREEMENT)

PRESUMPTION OF CONTINUANCE OF AGENCY

TERMINATION OF AGENCY EVEN IF

THE PERIOD HAS YET TO EXPIRE
CIVIL
INSOLVENCY INTERDICTION
The authority of the agent to act for his deprives offender of the right to manage
principal generally ceases by operation of or dispose of his property during the
law upon an adjudication of insolvency period of sentence
INSANITY DEATH
 the relationship between agent and principal comes to On the death of either the agent or the principal, the agency
an end when principal or agent becomes insane, for a is automatically terminated because a person cannot act on
person of unsound mind cannot contract. behalf of non-existent person.
 REVOCATION

REVOCABLE AT WILL RENUNCIATION OF

BY PRINCIPAL AGENCY BY AGENT
LIABILITY OF PRINCIPAL
FOR DAMAGES CAUSED Agency is also
terminable at will of
Where agency constituted for a fixed the agent through
period
The principal shall be liable for damages
REVOCATION BY express or implied.
occasioned by the wrongful discharge of APPOINTMENT OF
the agent before the expiration of the NEW AGENT
period fixed. Principal appoints new agent for
the same business or transaction
provided that the new agent was
Where no time fixed for continuance of REVOCATION BY ONE given an exclusive authority.
agency OF TWO OR MORE
The principal is at liberty to terminate it PRINCIPALS
at will subject only to the requirements
of good faith.
The appointment of a agent by two
REVOCATION BY DIRECT or more principal for a common
MANAGEMENT OF BUSINESS BY transaction makes them solidarily
PRINICPAL HIMSELF
The agency is revoked if the principal directly liable to the agent.
manages the business entrusted to the agent,
dealing directly with third persons
 EFFECT OF REVOCATION IN NOTICE OF REVOCATION
RELATION TO THIRD PERSONS

AGENCY TO CONTRACT AS TO AGENT

WITH SPECIFIC PERSONS
Actual notice must be brought to the
Personal Notice of customers while notice of publication
Revocation is a MUST
is sufficient to other persons.

AGENCY TO CONTRACT
WITH GENERAL PUBLIC
Notice of Revocation MAY AS TO THIRD PERSONS
not be Personal
Not always necessary so long as the
agent knows of the circumstances
indicating termination of the agency

PARTIAL REVOCATION OF GENERAL POWER

Involves two agents where general power is granted to the first agent and
special power is granted to the second agent
 AGENCY COUPLED WITH INTERST

General Rule:

A principal can revoke a contract Not revocable by the sole

of agency at will. will of the principal
Not merely an interest in
the exercise of the
Exception:
power
1. When the agency is created not only for the
interest of the principal but also for the Revocable when interest
interest of third persons. ceases
2. When the agency is created for the mutual
interest of both the principal and agent. It entitles him to
compensation therefor
To be irrevocable, interest of
the agent shall be in the
subject matter of the power
conferred
 WITHDRAW

RIGHT OF AGENT TO WITHDRAW OBLIGATION OF AGENT TO CONTINUE TO

ACT AFTER WITHDRAWAL
 Agent may withdraw from the agency
at any time Must continue to act as agent until
principal has had reasonable
 Regardless of whether the agency was opportunity to take necessary steps to
gratuitous or with compensation remedy the situation

Based on constitutional prohibition

against involuntary servitude :
Purpose of law is to prevent damage to
1. Without just case principal
2. With just case
 DEATH

WHEN DEATH OF DUTY OF AGENT’S HEIRS

PRINCIPAL DOES NOT TO PROTECT INTEREST
TERMINATE AGENCY OF PRINCIPAL
VALIDITY OF ACTS OF
AGENT AFTER DEATH OF
PRINCIPAL If agent dies, agency also
If the agency has been extinguished
constituted in the common
interest of the principal and the Third persons not prejudiced
agent where agent acted without Law imposes upon his heirs the
knowledge of the death of the obligation to notify the principal
principal (or of any other cause of his death
It has been constituted in the
which extinguishes the agency)
interest of a third person who
has accepted the stipulation in Also obliged to adopt such
Requires the agent to act in measures as the circumstances
his favor. good faith (as well as the third may demand for the interest of
person) the principal