Agency

I. Basic Concept/Principles
a. Definition- Contract of Agency a contract wherein, (1) A person binds himself to render
some service or to do something; (2) In representation or on behalf of another; (3) With
the consent or authority of the latter[Art. 1868].

Agency may refer to both a contract, as defined in the provision, and the representative
relation created. As a relationship, it is fiduciary (based on trust and confidence), where
the agent is empowered to contract with a third person on behalf of a principal [De Leon
(2010)].

b. Parties
(1) Principal, one whom the agent represents and from whom he derives his authority;
(2) Agent, who acts for and represents the principal, having derivative authority in
carrying out the business of the latter.

Juridical persons such as corporations and partnerships can be principals and agents
[Art. 1919(4)].

c. Elements of a Contract of Agency

(1) There is consent, express or implied, of the parties to establish the relationship;
(2) The object is the execution of a juridical act in relation to third persons;
(3) The agent acts as a representative and not for himself; and
(4) The agent acts within the scope of his authority [Rallos v. Felix Go Chan (1978)].

d. Characteristics of a Contract of Agency

(1) Consensual, perfected by mere consent;
(2) Nominate, has its own name;
(3) Preparatory, entered into as a means to enter into other contracts;
(4) Principal, does not depend on another contract for existence and validity;
(5) Bilateral, if for compensation, giving rise to reciprocal rights and obligations, but
unilateral, if gratuitous, creating obligations only for the agent.

e. Kinds
IN GENERAL
As to manner of creation:
(1) Express;
(2) Implied.
As to cause or consideration:
(1) Gratuitous;
(2) Compensated or onerous.

As to the extent of business covered:

(1) Universal;
(2) General;
(3) Special.
As to the authority conferred:
(1) Couched in general terms;
(2) Couched in specific terms.

As to nature and effect:

(1) Ostensible or representative, where the agent acts in the name and representation
of the principal [Art. 1868];
(2) Simple or commission, where the agent acts in his own name but for the account of
the principal.

As to the kinds of principal:

(1) With a disclosed principal, where, at the time the transaction was contracted by the
agent, the other party thereto has known:
(a) That the agent is acting for a principal; and
(b) The principal’s identity;

(2) Partially disclosed, where the other party knows or has reason to know that the
agent is or may be acting for a principal but is unaware of the principal’s identity;
(3) Undisclosed, where the party has no notice of the fact that the agent is acting as
such for a principal.

AS TO MANNER OF CREATION
EXPRESS AGENCY
An express agency is one where the agent has been actually authorized by the principal,
either:
(1) Orally; or
(2) In writing [Art. 1869].

IMPLIED AGENCY
The appointment and acceptance are implied:
(1) As to the appointment of an agent by the principal:
(a) From his acts;
(b) From his silence or lack of action; or
(c) From his failure to repudiate the agency knowing that another person is acting on his
behalf without authority [Art. 1869].
 (2) As to the acceptance of the agency by the agent:
(a) From his acts which carry out the agency;
(b) From his silence or inaction according to the circumstances (i.e., presence or absence
of the parties) [Arts. 1870, 1871 and 1872].

AS TO EXTENT OF BUSINESS COVERED

(1) Universal agency comprises all acts which the principal can lawfully delegate to an
agent;
(2) General agency comprises all the business of the principal.
(3) Special agency comprises one or more specific transactions [Art. 1876].

For an agency by estoppel to exist, the following must be established:

(1) The principal manifested a representation of the agent’s authority or knowingly allowed
the agent to assume such authority;

(2) The third person, in good faith, relied upon such representation;
(3) Relying upon such representation, such third person has changed his position to his
detriment [De Leon (2010)].
In agency by estoppel, there is no agency. The alleged agent seemed to have apparent or
ostensible authority, but not real authority to represent another.

An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof
of reliance upon the representations, and that, in turn, needs proof that the representations
predated the action taken in reliance [Litonjua v. Eternit Corp. (2006)].

II. Manner of Establishments/ Formation

a. Basic principles- Perfection
Consensual, perfected by mere consent

b. Acceptance-both on the part of the principal and the agent, is either express or implied.
It does not require express appointment and acceptance.

c. General agency vis-à-vis Special agency

General agency Special agency

Scope of authority

All acts connected with the business or Only specific authorized acts or those
employment in which agent is engaged necessarily implied
 Nature of service authorized

Involves continuous service Usually involves single transaction

Authority to bind

Acts within the scope of authority, even in Acts beyond authority given cannot bind
conflict with special instructions, may bind principal
principal

Termination of authority

Notice to third persons required to No notice required, since third parties

terminate apparent authority are required to inquire as to authority

Instructions

Notice to third persons required The instructions, in so far as they grant

authority, are strictly construed

d. Express/Implied agency
As to the principal, the appointment of an agent may be implied:
(1) From his acts;
(2) From his silence or lack of action; or
(3) From his failure to repudiate the agency, knowing that another person is acting on
his behalf without authority.

As to the agent, acceptance may also be implied:

(1) From his acts which carry out the agency;
(2) From his silence or inaction according to the circumstances [Art. 1870];
(3) When both the principal and the agent being present if:
(a) The principal delivers his power of attorney to the agent; and
(b) The agent receives it without any objection [Art. 1871];

(4) When both the principal and the agent being absent if:

(a) The principal transmits his power of attorney to the agent, who receives it without
any objection; or
(b) The principal entrusts to him by letter or telegram a power of attorney with respect
to the business in which he is habitually engaged as an agent, and he did not reply to the
letter or telegram.
 e. Agency by Estoppel
SPECIAL KINDS AGENCY BY ESTOPPEL Through estoppel:
(1) An admission or representation;
(2) Is rendered conclusive upon the person making it; and
(3) Cannot be denied or disproved as against the person relying thereon [Art. 1431].

Ratification Estoppel
Rests on intention Rests on prejudice
Retroacts as if originally authorized Affects only relevant parts of the transaction
Substance is confirmation of Substance is the principal’s inducement for
unauthorized acts after it has been done third party to act to his prejudice

III. The Parties

A. Principal one whom the agent represents and from whom he derives his authority
-Obligations

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. (1727)

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.
(n)

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. (1728)

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. (1729)
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. (1730)

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. (1731)

Art. 1916. When two persons contract with regard to the same thing, one of them with
the agent and the other with the principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without prejudice to the provisions of
Article 1544. (n)

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. (n)

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.

IN GENERAL
In addition to his duties specified under the contract itself, the principal is under
obligation to deal fairly and in good faith with his agent, who owes the same to his
principal.

OBLIGATION TO COMPLY WITH

CONTRACTS
General rule: The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority [Art. 1910, par. 1]. As for any
obligation where in the agent has exceeded his power, the principal is not bound.
Exceptions: The principal is:
(1) Bound by the obligation entered into by the agent in excess of his power, when he
ratifies it expressly or tacitly [Art. 1910, par.2];

(2) Solidarily liable with the agent if the principal allowed the agent to act as though he
had full powers [Art. 1911].
Note: If the agent acts in his own name, but the contract involves things belonging to
the principal, the contract must be considered as entered into between the principal
and the third person [Sy-Juco and Viardo v. Sy-Juco (1920)].

OBLIGATION FOR COMPENSATION OF AGENT

Art. 1875. Agency is presumed to be for a compensation, unless there is proof to the
contrary.
AMOUNT
The principal must pay the agent:
(1) The compensation agreed upon; or
(2) The reasonable value of the agent's services if no compensation was specified.

-Liabilities
Art. 1916. When two persons contract with regard to the same thing, one of them with
the agent and the other with the principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without prejudice to the provisions of
Article 1544. (n)

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. (n)

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. (n)
WHEN PRINCIPAL IS NOT LIABLE, IN
SUMMARY
(1) Void or inexistent contracts [Art. 1409];
(2) Sale of a piece of land or any interest therein when the authority of the agent is not
in writing [Art. 1874];
(3) Acts of the substitute appointed against the prohibition of the principal [Art. 1892];
(4) Acts done in excess of the scope of the agent’s authority [Art. 1898 and 1910];
(5) When the agent acts in his own name, except when the contract involves things
belonging to the principal [Art. 1883];
(6) Unenforceable contracts [Art. 1403].

LIABILITY FOR EXPENSES AND DAMAGES NECESSARY FUNDS

(1) The principal must advance to the agent, should the latter so request, the sums
necessary for the execution of the agency.
(2) In case the agent already advanced them, the principal must reimburse him therefor:

(a) Even if the business or undertaking was not successful;

(b) Provided that the agent is free from all fault [Art. 1912].

The reimbursement shall include the interest on the sums advanced from the day the
advances were made.

WHEN THE PRINCIPAL IS NOT LIABLE FOR EXPENSES

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:
(a) The expenses would be borne by the agent; or
(b) That the latter would be allowed only a certain sum [Art. 1918].

DAMAGES
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 or his
part.
 MULTIPLE PRINCIPALS
If there are two or more principals who appointed the agent for a common transaction
or undertaking, they shall be solidarily liable for all the consequences of the agency
[Art.1915].
Requisites:
(1) There are two or more principals;
(2) The principals have all concurred in the appointment of the same agent; and
(3) The agent is appointed for a common transaction or undertaking.
LIABILITY FOR QUASI-DELICT BY AN AGENT
The principal is solidarily liable to third persons for torts of an agent committed:
(1) At the principal’s direction; or
(2) In the course and within the scope of the agent’s employment.

B. Agent, who acts for and represents the principal, having derivative authority in carrying
out the business of the latter.
-Kinds
KINDS OF AGENTS
AS TO NATURE AND EXTENT OF AUTHORITY
According to the nature and extent of their authority, agents have been classified into:

(1) Universal agents are authorized to do all acts for his principal which can lawfully be
delegated to an agent. So far as such a condition is possible, such an agent may be said
to have universal authority.

(2) General agents are authorized to do all acts pertaining to a business of a certain kind
or at a particular place, or all acts pertaining to a business of a particular class or series.
He has usually authority either expressly conferred in general terms or in effect made
general by the usages, customs or nature of the business which he is authorized to
transact. An agent, therefore, who is empowered to transact all the business of his
principal of a particular kind or in a particular place, would, for this reason, be ordinarily
deemed a general agent.
(3) Special agents are authorized to do some particular act or to act upon some
particular occasion (i.e., acts usually in accordance with specific instructions or under
limitations necessarily implied from the nature of the act to be done) [Siasat v. IAC
(1985)].

SPECIAL TYPES OF AGENTS

(1) Attorney-at-law is one whose business is to represent clients in legal proceedings;
(2) Auctioneer is one whose business is to sell property for others to the highest bidder
at a public sale;
(3) Broker is one whose business is to act as intermediary between two other parties
such as insurance broker and real estate broker;
(4) Factor or commission merchant is one whose business is to receive and sell goods for
a commission, being entrusted with the possession of the goods involved in the
transaction.
(5) Cashier in bank is one whose business is to represent a banking institution in its
financial transactions;
(6) Attorney-in-fact is one who is given authority by his principal to do a particular act
not of a legal character. In its strict legal sense, it means an agent having a special
authority.

Attorneys have authority to bind their clients in any case by any agreement in relation
thereto made in writing, and in taking appeals, and in all matters of ordinary judicial
procedure. But they cannot, without special authority, compromise their client’s
litigation, or receive anything in discharge of a client’s claim but the full amount in cash
[Sec. 23, Rule 138, Rules of Court].

General agent
The general agent possesses the authority to carry out a broad range of transactions in
the name and on behalf of the principal. The general agent may be the manager of a
business or may have a more limited but nevertheless ongoing role—for example, as a
purchasing agent or as a life insurance agent authorized to sign up customers for the
home office. In either case, the general agent has authority to alter the principal’s legal
relationships with third parties. One who is designated a general agent has the authority
to act in any way required by the principal’s business. To restrict the general agent’s
authority, the principal must spell out the limitations explicitly, and even so the principal
may be liable for any of the agent’s acts in excess of his authority.

Normally, the general agent is a business agent, but there are circumstances under
which an individual may appoint a general agent for personal purposes. One common
form of a personal general agent is the person who holds another’s power of attorney.

Ordinarily, the power of attorney is used for a special purpose—for example, to sell real
estate or securities in the absence of the owner. But a person facing a lengthy operation
and recuperation in a hospital might give a general power of attorney to a trusted family
member or friend.

Special Agent
The special agent is one who has authority to act only in a specifically designated
instance or in a specifically designated set of transactions. For example, a real estate
broker is usually a special agent hired to find a buyer for the principal’s land. Suppose
Sam, the seller, appoints an agent Alberta to find a buyer for his property. Alberta’s
commission depends on the selling price, which, Sam states in a letter to her, “in any
event may be no less than $150,000.” If Alberta locates a buyer, Bob, who agrees to
purchase the property for $160,000, her signature on the contract of sale will not bind
Sam. As a special agent, Alberta had authority only to find a buyer; she had no authority
to sign the contract.

Agency Coupled with an Interest

An agent whose reimbursement depends on his continuing to have the authority to act
as an agent is said to have an agency coupled with an interest if he has a property
interest in the business. A literary or author’s agent, for example, customarily agrees to
sell a literary work to a publisher in return for a percentage of all monies the author
earns from the sale of the work. The literary agent also acts as a collection agent to
ensure that his commission will be paid. By agreeing with the principal that the agency is
coupled with an interest, the agent can prevent his own rights in a particular literary
work from being terminated to his detriment.

Subagent
To carry out her duties, an agent will often need to appoint her own agents. These
appointments may or may not be authorized by the principal. An insurance company,
for example, might name a general agent to open offices in cities throughout a certain
state. The agent will necessarily conduct her business through agents of her own
choosing. These agents are subagents of the principal if the general agent had the
express or implied authority of the principal to hire them. For legal purposes, they are
agents of both the principal and the principal’s general agent, and both are liable for the
subagent’s conduct although normally the general agent agrees to be primarily liable

-Rights of the Agent

Rights of agents
1. Right to Remuneration
As per section 219, an agent has a right to receive the agreed remuneration or in
absence of agreement, a reasonable remuneration for rendering the services to the
principal that are not voluntary or gratuitous. He becomes eligible to receive the
remuneration as soon as he completes the work that he undertook.

2. Lien on Goods
Some agents who have the possession of goods, securities or properties of their
principal also have a lien on these goods, securities or properties regarding their
remuneration and also for any expenses or liabilities that they incur. When he is an
unpaid seller, he has a right to stop the goods in transit.

3. Right to be Indemnified
An agent represents his principal to the third parties. As per sections 222 and 223, an
agent has a right to be indemnified by his principal for all charges, expenses, and
liabilities that he incurs during the course of the agency.
-Obligations of the Agent

Art. 1884. The agent is bound by his acceptance to carry out the agency, and is liable for
the damages which, through his non-performance, the principal may suffer.
He must also finish the business already begun on the death of the principal, should
delay entail any danger. (1718)

Art. 1885. In case a person declines an agency, he is bound to observe the diligence of a
good father of a family in the custody and preservation of the goods forwarded to him
by the owner until the latter should appoint an agent or take charge of the goods. (n)

Art. 1886. Should there be a stipulation that the agent shall advance the necessary
funds, he shall be bound to do so except when the principal is insolvent. (n)

Art. 1887. In the execution of the agency, the agent shall act in accordance with the
instructions of the principal.

In default thereof, he shall do all that a good father of a family would do, as required by
the nature of the business. (1719)

Art. 1888. An agent shall not carry out an agency if its execution would manifestly result
in loss or damage to the principal. (n)

Art. 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own. (n)

Art. 1890. If the agent has been empowered to borrow money, he may himself be the
lender at the current rate of interest. If he has been authorized to lend money at
interest, he cannot borrow it without the consent of the principal. (n)

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 agency, even though it
may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be
void. (1720a)

Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;

(2) When he was given such power, but without designating the person, and the person
appointed was notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall be void.
(1721)
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal
may furthermore bring an action against the substitute with respect to the obligations
which the latter has contracted under the substitution. (1722a)

Art. 1894. The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated.
(1723)

Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the
non-fulfillment of agency, and for the fault or negligence of his fellows agents, except in
the latter case when the fellow agents acted beyond the scope of their authority. (n)

Art. 1896. The agent owes interest on the sums he has applied to his own use from the
day on which he did so, and on those which he still owes after the extinguishment of the
agency. (1724a)

Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers. (1725)

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to secure the
principal's ratification. (n)

Art. 1899. If a duly authorized agent acts in accordance with the orders of the principal,
the latter cannot set up the ignorance of the agent as to circumstances whereof he
himself was, or ought to have been, aware. (n)

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms of
the power of attorney, as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal and the agent. (n)
Art. 1901. A third person cannot set up the fact that the agent has exceeded his powers,
if the principal has ratified, or has signified his willingness to ratify the agent's acts. (n)

Art. 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as
regards the agency. Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney or instructions
shown them. (n)

Art. 1903. The commission agent shall be responsible for the goods received by him in
the terms and conditions and as described in the consignment, unless upon receiving
them he should make a written statement of the damage and deterioration suffered by
the same. (n)

Art. 1904. The commission agent who handles goods of the same kind and mark, which
belong to different owners, shall distinguish them by countermarks, and designate the
merchandise respectively belonging to each principal. (n)

Art. 1905. The commission agent cannot, without the express or implied consent of the
principal, sell on credit. Should he do so, the principal may demand from him payment
in cash, but the commission agent shall be entitled to any interest or benefit, which may
result from such sale. (n)

Art. 1906. Should the commission agent, with authority of the principal, sell on credit,
he shall so inform the principal, with a statement of the names of the buyers. Should he
fail to do so, the sale shall be deemed to have been made for cash insofar as the
principal is concerned. (n)

Art. 1907. Should the commission agent receive on a sale, in addition to the ordinary
commission, another called a guarantee commission, he shall bear the risk of collection
and shall pay the principal the proceeds of the sale on the same terms agreed upon with
the purchaser. (n)

Art. 1908. The commission agent who does not collect the credits of his principal at the
time when they become due and demandable shall be liable for damages, unless he
proves that he exercised due diligence for that purpose. (n)

IN GENERAL GOOD FAITH AND LOYALTY TO HIS TRUST

The duty of good faith is also called the fiduciary duty, which imposes upon the agent
the obligation of faithful service. The duty to be loyal to the principal demands that the
agent look out for the best interests of the principal as against his own or those of third
parties (see Art. 1889).

General rule: Until proven otherwise, the presumption arises that an agent has
performed his duty in good faith, and the principal, until notice is received of a breach of
relational duties, may rely upon his agent’s faithfulness.

Exception: The presumption does not arise when there is no relation of trust or
confidence between the parties (e.g., the agent is bound merely as an
instrument/servant, or there is no agency relationship) [De Leon (2010)].

EXERCISE OF REASONABLE CARE

By accepting an employment whose requirements he knows, without stipulating
otherwise the agent impliedly undertakes that:

(1) He possesses a degree of skill reasonably and ordinarily competent for the
performance of the service; and

(2) In performing his undertaking, he will exercise reasonable care, skill and diligence.

OBLIGATION TO CARRY OUT AGENCY

General rule: The agent is:

(1) Bound by his acceptance to carry out the agency;
(2) Liable for damages, which the principal may suffer, in case of non-performance;
(3) Bound to finish the business already begun on the death of the principal should delay
entail danger [Art. 1884].

Exception: An agent shall not carry out an agency if its execution would manifestly result
in loss or damage to the principal [Art. 1888].

OBLIGATION WHEN AGENT DECLINES

In case a person declines an agency, he is bound to observe the diligence of a good

father of a family in the custody and preservation of the goods forwarded to him.
The obligation lasts until the owner, as soon as practicable:

(1) Appoints an agent; or

(2) Takes charge of the goods [Art. 1885].
Declining an agency is different from withdrawal. In the former, no agency was formed.
Withdrawal, on the other hand, presupposes an existing agency.

The obligation of the agent, in case of withdrawal, is to continue to act as such agent
until the principal has had reasonable opportunity to take the necessary steps to meet
the situation [Art. 1929].

OBLIGATION TO ADVANCE NECESSARY FUNDS

General rule: The agent is not bound to advance the necessary funds. The principal is
obliged to advance to the agent, should the latter so request, the sums necessary for the
execution of the agency.

Exception: He shall be bound to do so should there be a stipulation to that effect,

subject to the obligation of the principal to reimburse the agent.
Exception to the Exception: He is not bound to do so, even when there is a stipulation,
when the principal is insolvent [Art. 1886].

Note: Insolvency of the principal is also a ground for extinguishment.

OBLIGATION TO ACT IN
ACCORDANCE WITH
INSTRUCTIONS
In the execution of the agency:
(1) The agent shall act in accordance with the instructions of the principal; or
(2) In default thereof, he shall do all that a good father of a family would do, as required
by the nature of the business [Art. 1887].
Note: The limits of the agent’s authority shall not be considered exceeded should it have
been performed in a manner more advantageous to the principal than that specified by
him [Art. 1882].

Authority Instructions
Sum total of the Private rule of
powers committed or guidance to the agent
permitted to the agent
Relates to the Refers to the manner
transaction or or mode of agent’s
business with which action with respect to
the agent is empowered to act matters within the
permitted scope of
authority

Binds third parties Does not bind third

parties
OBLIGATION TO PREFER
INTEREST OF PRINCIPAL
General rule: The agent shall be liable for damages if, there being a conflict between his
interest and those of the principal, he should prefer his own [Art. 1889].

Exceptions: The agent is not liable for giving preference to his own when:
(1) The principal waives the benefit of this rule, with full knowledge of the facts; or
(2) When the interest of the agent is superior. An example of the latter is where the
agent has security interest in goods of the principal in his possession, he may protect his
interest even if in doing so, he disobeys the principal’s orders or injures his interest [De
Leon (2010)].

A specific application of this subordination of interests is found in Article 1890:

(1) If the agent has been empowered to borrow money, he may himself be the lender at
the current rate of interest.

(2) If he has been authorized to lend money at interest, he cannot borrow it without the
consent of the principal.

OBLIGATION FOR THINGS RECEIVED

Every agent is bound to:

(1) Render an account of his transactions; and
(2) Deliver to the principal whatever he may have received by virtue of the agency, even
though it may not be owing to the principal.

Every stipulation exempting the agent to render an account shall be void [Art. 1891].

WHAT TO DELIVER
The agent has to deliver all money and property which may have come into his hands or
in that of a sub-agent. This includes gifts from third parties in connection with the
agency. It is immaterial whether such money or property is the result of the
performance or violation of the agent’s duty, if it be the fruit of the agency.

If the agent fails to deliver and instead converts or appropriates for his own use the
money or property belonging to the principal, he is liable for estafa.

WHEN OBLIGATION IS NOT APPLICABLE

(1) If the agent or broker acted only as a middleman with the task of merely bringing
together the vendor and the vendee
[Domingo v. Domingo (1971)].

(2) If the agent had informed the principal of the gift or bonus or profit he received from
the purchaser and the principal did not object thereto;
(3) When a right of lien exists in favor of the agent.

OBLIGATIONS OF A COMMISSION AGENT

FACTOR OR COMMISSION AGENT
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 his own name. He may act in his
own name or in that of the principal.
An ordinary agent need not have possession of the goods of the principal, while the
commission agent must be in possession [De Leon (2010)].

-Liabilities of the Agent

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged with more or less rigor by the courts, according to whether the agency
was or was not for a compensation. (1726)

Agent’s Personal Liability for Torts and Contracts

Tort Liability
That a principal is held vicariously liable and must pay damages to an injured third
person does not excuse the agent who actually committed the tortious acts. A person is
always liable for his or her own torts (unless the person is insane, involuntarily
intoxicated, or acting under extreme duress). The agent is personally liable for his
wrongful acts and must reimburse the principal for any damages the principal was
forced to pay, as long as the principal did not authorize the wrongful conduct. The agent
directed to commit a tort remains liable for his own conduct but is not obliged to repay
the principal. Liability as an agent can be burdensome, sometimes perhaps more
burdensome than as a principal. The latter normally purchases insurance to cover
against wrongful acts of agents, but liability insurance policies frequently do not cover
the employee’s personal liability if the employee is named in a lawsuit individually. Thus
doctors’ and hospitals’ malpractice policies protect a doctor from both her own
mistakes and those of nurses and others that the doctor would be responsible for;
nurses, however, might need their own coverage. In the absence of insurance, an agent
is at serious risk in this lawsuit-conscious age. The risk is not total. The agent is not liable
for torts of other agents unless he is personally at fault—for example, by negligently
supervising a junior or by giving faulty instructions. For example, an agent, the general
manager for a principal, hires Brown as a subordinate. Brown is competent to do the job
 but by failing to exercise proper control over a machine negligently injures Ted, a visitor
to the premises. The principal and Brown are liable to Ted, but the agent is not.

Contract Liability
It makes sense that an agent should be liable for her own torts; it would be a bad social
policy indeed if a person could escape tort liability based on her own fault merely
because she acted in an agency capacity. It also makes sense that—as is the general rule
—an agent is not liable on contracts she makes on the principal’s behalf; the agent is not
a party to a contract made by the agent on behalf of the principal. No public policy
would be served by imposing liability, and in many cases it would not make sense.
Suppose an agent contracts to buy $25 million of rolled aluminum for a principal, an
airplane manufacturer. The agent personally could not reasonably perform such
contract, and it is not intended by the parties that she should be liable. (Although the
rule is different in England, where an agent residing outside the country is liable even if
it is clear that he is signing in an agency capacity.)

But there are three exceptions to this rule:

(1) if the agent is undisclosed or partially disclosed,
(2) if the agent lacks authority or exceeds it, or
(3) if the agent entered into the contract in a personal capacity. We consider each
situation.

C. 3rd Parties
-Rights
Art. 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as
regards the agency. Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney or instructions
shown them. (n)

-Obligations

OBLIGATIONS TO THIRD PERSONS

LIABILITY OF AGENT FOR OBLIGATIONS CONTRACTED
General rule: The agent who acts as such is not personally liable to the party with whom
he contracts. The principal is responsible for such acts done within the scope of the
authority granted to the agent, and should bear any damage caused to third persons
[Art. 1910].

Exceptions: He is personally liable when:

 (1) He acts in his own name [Art. 1883];
(2) He expressly binds himself; or
(3) He exceeds the limits of his authority without giving such party sufficient notice of
his powers [Art. 1897].
PRESENTATION OF POWER OF
ATTORNEY
A third person, with whom the agent wishes to contract on behalf of the principal may
require the presentation of:
(1) The power of attorney; or
(2) The instructions as regards the agency.
Private or secret orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instructions shown them [Art. 1902].

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent’s authority, if such act is within the terms of
the power of attorney, as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal and the agent.

RATIFICATION OF ACTS OF AGENT

A third person, who contracts with the agent
(thereby recognizing the authority of the agent), cannot later disaffirm his contract
based on the fact that the agent has exceeded his powers, if the principal has:
(1) Ratified the acts of the agent; or
(2) Signified his willingness to ratify said acts [Art. 1901].

The ratification has retroactive effect, relating back to the time of the act or contract
ratified and is equivalent to original authority [Board of

Liquidators v. Kalaw (1967)].

A principal may not accept the benefits of a transaction and repudiate its burdens. Thus,
a principal who seeks to enforce a sale made by the agent cannot ordinarily allege that
the agent exceeded his authority.
Before ratification, however, the third person may repudiate the contract.

IV. Modes of Extinguishment

IN GENERAL
Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted [Art. 1919].

The provision enumerates only those which are peculiar to agency and is, therefore, not
exclusive. Agency may also be extinguished by the modes of extinguishment of obligations
in general [De Leon (2010)].
The modes of extinguishment may be classified into three:
(1) By agreement (Nos. 5 and 6);
(2) By subsequent acts of the parties:
(a) By the act of both parties or by mutual consent; or
(b) By the unilateral act of one of them
(Nos. 1 and 2);
(3) By operation of law (Nos. 3 and 4).

REVOCATION BY PRINCIPAL
General rule: The principal may:
(1) Revoke the agency at will; and
(2) Compel the agent to return the document evidencing the agency.

Qualifications: The right of the principal to terminate the authority of his agent is absolute
and unrestricted, except that he is liable for damages in case:
(1) He revokes the agency in bad faith [Danon v. Brimo (1921)]; or
(2) He revokes the agency before the expiration of the period stipulated in the agency
contract.

Exception: Agency cannot be revoked if it is coupled with an interest, such that:

(1) A bilateral contract depends upon it;
(2) It is the means of fulfilling an obligation already contracted; or
(3) A partner is appointed manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable.
Art. 1925. When two or more principals have granted a power of attorney for a common
transaction, any one of them may revoke the same without the consent of the others.

MANNER
Revocation may be express or implied.
There is express revocation when the principal clearly and directly makes a cancellation of
the authority of the agent orally or in writing.

There is implied revocation in the following cases:

(1) The appointment of a new agent for the same business or transaction revokes the
previous agency from the day on which notice thereof was given to the former agent,
without prejudice to the requirement of notice to third persons [Art. 1923].
(2) The agency is revoked if the principal directly manages the business entrusted to the
agent, dealing directly with third persons [Art. 1924].
(3) A general power of attorney is revoked by a special one granted to another agent, as
regards the special matter involved in the latter [Art. 1926].
There is implied revocation only where the new appointment is incompatible with the
previous one.

EFFECT OF REVOCATION IN RELATION TO THIRD PARTIES

Art. 1921. If the agency has been entrusted for the purpose of contracting with specified
persons, its revocation shall not prejudice the latter if they were not given notice thereof.
If the agent had general powers, revocation of the agency does not prejudice third persons
who acted:
(1) In good faith; and
(2) Without knowledge of the revocation.
Notice of the revocation in a newspaper of general circulation is a sufficient warning to third
persons [Art. 1922].

WITHDRAWAL BY AGENT
The agent may withdraw from the agency by giving due notice to the principal.
General rule: If the principal should suffer any damage by reason of the withdrawal, the
agent must indemnify him therefor.
Exception: The agent is not liable for damages if he should base his withdrawal upon the
impossibility of continuing the performance of the agency without grave detriment to
himself [Art. 1928].
Art. 1929. The agent, even if he should withdraw from the agency for a valid reason, must
continue to act until the principal has had reasonable opportunity to take the necessary
steps to meet the situation.

DEATH, CIVIL INTERDICTION, INSANITY OR INSOLVENCY

DEATH OF PRINCIPAL
General rule: Death extinguishes agency.
Exceptions:
(1) The agency remains in full force and effect even after the death of the principal, if it has
been constituted:
(a) In the common interest of the principal and agent; or
(b) In the interest of a third person who has accepted the stipulation in his favour [Art.
1930].
(2) 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 [Art. 1931].
(3) The agent must finish business already begun on the death of the principal, should delay
entail any danger [Art. 1884].
DEATH OF AGENT
If the agent dies, his heirs must:
(1) Notify the principal thereof; and
(2) In the meantime adopt such measures as the circumstances may demand in the interest
of the latter [Art. 1932].

ACCOMPLISHMENT OF OBJECT OR PURPOSE

The fulfillment of the purpose for which agency was created ipso facto terminates agency
even though it was expressly made irrevocable. If the purpose has not been accomplished,
the agency continues indefinitely for as long as the intent to continue is manifested through
words or actions of the parties.

DISSOLUTION OF FIRM OR CORPORATION

The dissolution of a partnership or corporation which entrusted (principal) or accepted
(agent) the agency extinguishes its juridical existence, except for the purpose of winding up
its affairs.

It is equivalent to death.
EXPIRATION OF TERM
(1) If created for fixed period, expiration of the period extinguishes agency even if the
purpose was not accomplished.
(2) If no time is specified, the courts may fix the period as under the circumstances have
been probably contemplated by the parties [Art. 1197]. Otherwise, the agency terminates at
the end of a reasonable period of time.

Either party can terminate the relationship at will by giving notice to the other [De Leon
(2010)].
The period contemplated may be implied from terms of agreement, purpose of agency, and
the circumstances of the parties.