USJR LAW – AGENCY 2018 1
Orient Air Service v. CA:
AGENCY
PRE-MIDTERMS QUICKIE
(VILLANUEVA 2018)
CHAPTER 1
NATURE, OBJECTIVE & KINDS
OF AGENCY
Article 1317 – No one may contract in the name
of another without being authorized by the latter,
or unless he has by law a right to represent him.
A contract entered into in the name of another by
one who has no authority or legal representation,
or who has acted beyond powers or, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has
been executed before it is revoked by the other
contracting party.
Article 1403 (1) – The Following Contracts are
unenforceable, unless they are ratified:
(1) Those entered into in the name of
another person by one who has
been given no authority or legal
representation, or who has acted
beyond his powers
>No authority to represent, or in excess of
authority given, contract of agency is
unenforceable
Article 1868 – By Contract of Agency a person
binds himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
latter.
Philpotts v. Phil Manufacturing Co:
“Agent who binds himself to enter into juridical
acts in the name of the principal, and thereby
emphasizes the characteristic of the contract as
part of being unilateral”
Rallos v. Felix Go & Sons Realty:
Principal = Mandante
Agent = Mandatario
(PURPOSE OF EVERY CONTRACT OF
AGENCY)
“The personality of the principal is extended
through the facility of the agent; but the same
can only be effected with the consent of the
principal.”
Litonjua Jr. v. Eternit Corp:
“The agent, by legal fiction, becomes the
principal, authorized to perform all acts which
the latter would have him do.”
“Can only be effected with consent; cannot be
compelled by law or by any court”
Doles v. Angeles:
Argument: No agency since principal never
confirmed agency to the third parties
SC: “It is sufficient that agent disclosed to the
third party that the former was acting in behalf of
her principals.”
>No such requirement of requiring the principal
to personally meet the third party to confirm the
existence of a contract of agency
Eurotech Industrial Technologies v. Cuizon:
“The Underlying Principle of a Contract of
Agenecy is to accomplish results by using the
services of others”
Philex Mining Corp. v. Commissioner of Internal
Revenue:
ESSENCE OF AN AGENCY: “Agent’s ability
to represent his principal and bring about
business relations between the latter and third
parties.”
Doctrine of Representation – “By this Legal
fiction of representation, the actual or legal
absence of the principal is converted into his
legal or juridical presence.”
Personal Nature of Contract of Agency:
“Ongoing legal relationship which imposes
personal obligations on both parties”
 “Co-owners of the same property are not
ELEMENTS OF A CONTRACT OF automatically agents to one another.”
AGENCY
(WORCC) Victorias Milling Co. v. CA:
Agent acts Within the Agent is not On emphasizing that the Basis of Agency is
scope of his authority personally liable Representation
Object/Subject Matter Execution of a
juridical act in Principal – actual intention to appoint or an
relation to third intention naturally inferable from his words or
parties actions

Service: The Legal Agent – Intention to accept the appointment and

undertaking of the act on it
agent to enter into
juridical acts with EXCEPTION: Agency by Estoppel
third persons on
behalf of the CAPACITY OF PARTIES:
principal Principal must have capacity to contract
Agent, assuming no personal liability, does not
Unilateral Personal need to possess full capacity to act in so far as
Obligation “to do” third persons are concerned.
Agent acts as Basis of Agency
Representative Principal(w/ capacity) Contract of Agency:
Consent Express or implied Agent(w/o capacity) VOIDABLE
Intention of the
parties to establish Contract with Third
the relationship Party: VALID
Consideration/Commission Compensation or
commission that >If Principal has
the principal capacity to Contract,
agreed or agent’s capacity is
committed to pay immaterial since he is
to the agent for the acting in behalf of the
latter’s services principal
Principal(w/o capacity) Contract of Agency:
Art 1875 Agent(w/ capacity) VOIDABLE
Agency is
presumed to be for Contract with Third
a compensation, Party: VOIDABLE
unless there is
proof to the
contrary Article 1919 – Agency is extinguished:
(3) by the death, civil interdiction, insanity or
NOTE: For purposes of perfection of contract, insolvency of the principal or of the agent.
only Consent, Object, and Consideration are
required. Principle of Relativity – Since agency is
essentially a personal relationship based on the
> If agent acts for himself in dealing with third purpose of representation, then when either party
parties, both principal and third party have no dies or becomes legally incapacitated, then the
cause of action towards each other. agency relation should ipso jure cease

Bordador v. Luz: Contract of Agency as a Preparatory Contract:

Basis of Agency is Representation -Through the agent, Contracts and other juridical
relationships of the principal with third parties
are effected
Dizon v. CA:
 USJR LAW – AGENCY 2018 3

Public Policy – Third parties who act in good “Although the sale of the object of the agency to
faith with an agent have a right to expect their sell was perfected three days after the expiration
contracts would be valid and binding on the of the agency period, the agent was still entitled
principal to receive the commission stipulated, being the
efficient procuring cause in bringing about the
>Agent + Third Party who contract, unaware of sale.”
the principal’s incapacity, is valid.
ESSENTIAL CHARACTERISTICS OF
AGENCY
CONSIDERATION IN CONTRACT OF
AGENCY: Nominate
>The Compensation or commission that the Principal It can stand on its own
principal agreed or committed to pay the agent without need of
for the latter’s services another contract to
validate it
>If a party is claiming that the contract of agency Consensual Perfected by mere
was gratuitous, he/she claiming such shall have consent
the burden of proving the gratuitous nature of the Unilateral Only the fulfillment of
contract the primary obligations
of the agent shall give
NOTE: CONTRACT OF AGENCY IS rise upon the
PRESUMED TO BE FOR A subordinate obligation
COMPENSATION! of the principal to pay
the former
Urban Bank v. Pena: Primarily Onerous Agent expects
The intent of the principal to compensate the compensation for his
agent for services performed on behalf of the services in the form of
former will inferred from the principal’s request commission
for the agent’s services. Personal
Representation Most distinguishing
De Castro v. CA: characteristic
The mere fact that the other agent’s intervened in Qui facit per alim facit
the consummation of the sale and were thus paid, per se
could not vary the terms of the contract that the (He who acts through
original agent is entitled to 5% Commission another acts himself)
Derivative
Contract of Agency as a Commercial Contract: Fiduciary Relations are based on
>Customary and Equitable Trust and Confidence
Therefore, compensation must be part of the
Revocable Legal consequence of
meeting of the minds
being a fiduciary
contract. Neither
BASIS FOR AGENT’S COMPENSATION Principal nor the agent
Mere rendering of the Entitled to can be legally made to
service compensation after remain in the
rendering such service, relationship when they
regardless of the chosose to have it
results terminated
Compensation upon No results, despite Preparatory Created in order for an
results rendering of the agent to enter into
service, no juridical acts
compensation
Progressive Pliable legal
relationship which
may be able to achieve
commercial ends
Manotok Brothers Inc v. CA:
>Conflict-of-Interest Situation, Agent must part of the
choose what is favorable to the principal agent.
Universal NOTE:
>Agent cannot purchase for himself, the property Agency Depends on the
of the principal which has been given to his Authorized to nature of the
management for sale or disposition, unless: do all acts for business of the
-There is express consent of the his principal principal
principal which can
lawfully be
-Agent purchases the property after the delegated to
agency is terminated an agent

Orient Air Services v. CA: General Rule: Unless so expressly stated, when
“Decision of the lower court ordering the an agency is constituted, it only covers the
principal airline company to reinstate defendant powers to execute acts of administration in
as its general sales agent for passenger relation to the business, venture or transaction
transportation in the Philippines in accordance referred to in the commission.
with said GSA agreement was unlawful since
courts have no authority to compel the principal Note: A Special Power of Attorney executed in a
to reinstate a contract of agency it has foreign country is generally not admissible in
terminated.” evidence as a public document in our local courts
unless it is certified in accordance with the rules
KINDS OF AGENCY of court by an officer in the foreign service of the
Art 1875 – An agency is either general or Philippines stationed in the foreign country
special. The former comprises all the business of where it was executed
the principal. The latter, one or more specific
transactions. Atty: “Consul of the Philippines in the particular
Business or Litigation Acts of Country”
Transactions Matters Administration
Covered or Acts of AGENCY DISTINGUISHED FROM OTHER
Ownership CONTRACTS
General Attorney-at- General Power Agency vs No Element of
Agency Law of Attorney Employment Contract Representation
Encompasses The Covers only Agency vs Contract for No Element of Control
all of the appointment acts of a Piece-of-Work
business of of an agent administration; Agency vs Agency – Basis is
the principal to represent power to pursue Management Representation
the principal the ordinary or Agreement
on legal regular course Management
matters of business of Agreement – Basis is
the principal employment
Special Attorney-in- Special Power Agency vs Contract of Art 1466 – In
Agency Fact of Attorney Sale Construing a contract
Covers only All agents Covers acts of containing provisions
one or more appointed by dominion or characteristic of both
specific a principal to Strict the contract of sale and
transactions act on ownership; the contract of agency
juridical Extraordinary to sell, the essential
relations that conditions or clauses of the whole
have nothing those pursued instrument shall be
to do with not in the considered
legal matters ordinary course
and do not of business Quiroga v. Parsons: “A
constitute a true agent does not
practice of assume personal
law on the responsibility for the
 USJR LAW – AGENCY 2018 5

payment of the price of FORMALITIES OF AGENCY

the object of the
agency; his obligation Art 1869 – Agency may be express, or implied
is merely to turnover to from the acts of the principal, from his silence or
the principal the lack of action, or his failure to repudiate the
proceeds of the sale agency, knowing that another person is acting on
once he receives them his behalf without authority. Agency may be
from the buyer oral, unless the law requires a specific form

Ker & Co. v. Lingad: Art 1870 – Acceptance by the agent may also be
Essence of Contract of express, or implied from his acts, which carry out
Sale: agreement to the agency, or from his silence or inaction
transfer or transfer of according to the circumstances
title for a price;
relinquishment of title, 1. Perfection from the side of the Principal
ownership and control -Acts
-Silence or Inaction
Essence of a Contract -Failure to repudiate the agency knowing
of Agency to Sell: The someone is acting in his name
delivery to an agent of
the property but still Ideal Form: Written Power of Attorney
owned by the principal (NOTE: Not required, merely ideal) Hence, it
and can alter such, not may still be valid in any form, unless the law
the agent specifically requires it to be in a particular form
Agency vs Contract of Agent – Power to enter
Brokerage into contracts in behalf Equitable PCI-Bank v. Ku:
of the principal “Law firm allowed the employee of its client to
occasionally receive its email, and not having
Broker – No power to formally objected to the receipt by said employee
enter into contracts for of a court process, or taken any steps to put a
others; No Fiduciary stop to it, it was construed to mean that an
Obligations to the agency relationship had been established, to
parties (middleman); which receipt of the court process by said
may negotiate in behalf employee was legally deemed to be service to the
of a party but cannot law firm”
perfect a contract in
behalf of a party Conde v. CA:
“Buyers-a-retro failed for several years to clear
Note: A broker may be their title to the property purchased and allowed
given powers and the seller-a-retro to remain in possession in spite
authority of an agent of the expiration of the period of redemption,
and in fact is already an then the execution of the memorandum of
agent but still bears the repurchase by the buyers’ son-in-law, which
title of broker stood unrepudiated for many years, constituted
an implied agency from their silence or lack of
Note: Efficient or Procuring Cause Doctrine action, or their failure to repudiate the agency”
cannot overcome express stipulations in the
agreement providing when exactly the broker is 2. Perfection from the side of the Agent
entitled to have earned his commission Acceptance of the agency may be:
-Express
-Implied
-Silence or Inaction according to the
circumstances

CHAPTER 2 Principle behind “Implied Acceptance”

-One who accepts an agency, in order to avoid
liability, cannot later on claim that he had not
accepted the designation
However, The Principal should never presume
that a designated person has accepted the agency
by mere silence so that he should be vigilant in
protecting his rights.
Instances where there is deemed to be
MEETING OF THE MINDS of the Principal
and the Agent:
Article 1871 – Between persons who are present,
the acceptance of the agency may also be implied
if the principal delivers his power of attorney to
the agent and the latter receives it without any
objection
Article 1872 – Between Persons who are absent,
the acceptance of the agency cannot be implied
from the silence of the agent, except:
(1) When the Principal transmits his
power of attorney to the agent, who
receives it without any objection
(2) When 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
NOTE: Other than the two situations above,
there can be no implied acceptance from the
silence or inaction on the part of the purported
agent.
NOTE: “Power of Attorney” constitutes a
written instrument by the phrase “principal
delivers/transmits”. Including electronic
documents and electronic mails.
3. Perfection as it affects Third Persons
Article 1873 - If a person specially informs
another or states by public advertisement that he
has given a power of attorney to a third person,
the latter thereby becomes a duly authorized
agent, in the former case with respect to the
person who received the special information, and
in the latter case with regard to any person. The
power shall continue to be in full force until the
notice is rescinded in the same manner in which
it was given.
Article 1921 - If the agency has been entrusted
for the purpose of contracting with specified
persons; its revocation shall not prejudice the
latter if they were not given notice thereof.
Article 1922 - If the agent had general powers,
revocation of the agency does not prejudice third
persons who acted in good faith and without
knowledge of the revocation. Notice of the
revocation in a newspaper of general circulation
is a sufficient warning to third persons.
NOTE: Principal informs another person that he
has given a power of attorney to a third person
(the agent), the latter thereby becomes a duly
authorized agent with respect to the person who
received the special information
NOTE: Principal states by advertisement that he
as given a power of attorney to a particular
individual (the agent), the latter becomes a duly
authorized agent with regard to any person
RULES ON EXISTENCE OF AGENCY, AS
TO THIRD PARTIES
Lopez v. Tan Tioco:
“Agency arrangement is never presumed”
Yoshizaki v. Joy Training Center of Aurora Inc:
“Persons dealing with an agent must ascertain
not only the fact of agency, but also the nature
and extent of the agent’s authority”
Harry E. Keeler Electric Co. v. Rodriguez:
“A third person must act with ordinary prudence
and reasonable diligence to ascertain whether the
agent is acting and dealing with him within the
scope of his powers”
People v. Yabut:
“Perfection of a contract of agency may take an
implied form, the existence of an agency
relationship is never presumed.”
NOTE: Ordinary prudence and Reasonable
Diligence, ascertain:
(1) Existence of Agency
(2) Extent of Scope of Authority
AGENCY BY ESTOPPEL

Article 1873 - If a person specially informs
another or states by public advertisement that he
has given a power of attorney to a third person,
the latter thereby becomes a duly authorized
agent, in the former case with respect to the
person who received the special information, and
in the latter case with regard to any person. The
power shall continue to be in full force until the
notice is rescinded in the same manner in which
it was given.
Article 1911 - Even when the agent has
exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the
latter to act as though he had full powers.
Macke v. Camps:
“One who clothes another apparent authority as
his agent and holds out to the public as such,
cannot be permitted to deny the authority of such
person to act as his agent, to the prejudice of
innocent third parties dealing with such person in
good faith and in the following pre-assumptions
or deductions, which the law expressly directs to
be made from particular facts, are deemed
conclusive”
NOTE: NAGUAIT v. CA:
“If by the interaction between a purported
principaland a purported agent in the presence of
a third person, the latter was given the
impression of the existence of a principal-agency
relation, and the purported principal did nothing
to correct the third party’s impression, an agency
by estoppel is deemed to have been constituted.”
NOTE: LITONJUA JR. v. ETERNIT CORP:
REQUISITES OF AGENCY BY ESTOPPEL
(1) 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 upons such representation, such third
persons has changed his position to his detriment
FORMAL REQUIREMENTS ON GRANT
OF POWERS TO AGENT
USJR LAW – AGENCY 2018 7
1. General Principles on Contracts Entered
into by Agents
Article 1317 - No one may contract in the name
of another without being authorized by the latter,
or unless he has by law a right to represent him.
A contract entered into in the name of another by
one who has no authority or legal representation,
or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other
contracting party
Article 1403 (1) - The following contracts are
unenforceable, unless they are ratified:
(1) Those entered into in the name of
another person by one who has been
given no authority or legal
representation, or who has acted beyond
his powers;
NOTE: (According to Villanueva) The formal
requirements pertaining to the contracts of
agency, and issues relating to the powers of
agents to enter into contracts in the name of the
principal, go into the issues of “enforceability”
and not into issues of “nullity”.
2. General Powers of Attorney
Article 1877 - An agency couched in general
terms comprises only acts of administration,
even if the principal should state that he
withholds no power or that the agent may
execute such acts as he may consider
appropriate, or even though the agency should
authorize a general and unlimited management.
NOTE: Despite the fact that the principal states:
-He withholds no power from the agent
-Agent may execute acts he considers
appropriate
-Authorizes general and unlimited
management
Absent of the grant of special power of attorney,
the agent is deemed to have been granted only a
general power of attorney, and his powers cover
only acts of administration
Acts of Administration
-To act in the ordinary course of business
-A matter that from the nature of the business is
expected to occur and for which action is
expected without much changing the course of
the business
3. Must Powers of Attorney be in writing?
Kuenzle and Streiff v. Collector of Customs:
“The clearest manner by which there is specific
grant of power of strict ownership is that it be in
writing, otherwise, Art 1877 must prevail, that
presumption of agent may must only pursue acts
of administration”
Bordador v. Luz:
Minimum Requirement of due diligence of
third party: Demand written authority coming
grom the principal
Otherwise, such third party would be grossly and
inexcusably negligent
Veloso v. CA:
“Every contract entered into by the agent on
behalf of the principal to a Verbal Special Power
of Attorney would not be void, but rather
unenforceable, for the principal has every
authority to pursue the resulting contract.”
Linan v. Puno:
“The real intention of the parties is primarily to
be determined from the language used. The
intention of the parties must be sustained rather
than defeated. If the contract be open to two
constructions, one of which would uphold while
the other would overthrow it, the former is to be
chosen.”
NOTE: Construction of Power of Attorney:
Determined not from the title of the instrument,
but from the nature of the power given under the
operative provisions of such instrument.
Patrimonio v. Gutierrez:
“The only reliable manner by which to prove the
existence of a special power of attorney is
through a written instrument signed by the
principal”
4. Special Powers of Attorney
Article 1878 - Special powers of attorney are
necessary in the following cases:
(1) To make such payments as are not usually
considered as acts of administration;
(2) To effect novations which put an end to
obligations already in existence at the time the
agency was constituted;
(3) To compromise, to submit questions to
arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an
action or to abandon a prescription already
acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for
charity or those made to employees in the
business managed by the agent;
(7) To loan or borrow money, unless the latter
act be urgent and indispensable for the
preservation of the things which are under
administration;
(8) To lease any real property to another person
for more than one year;
(9) To bind the principal to render some service
without compensation;
(10) To bind the principal in a contract of
partnership;
(11) To obligate the principal as a guarantor or
surety;
(12) To create or convey real rights over
immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted
before the agency;
(15) Any other act of strict dominion.

Article 1879 - A special power to sell excludes
the power to mortgage; and a special power to
mortgage does not include the power to sell.
Article 1880 - A special power to compromise
does not authorize submission to arbitration.
NOTE: An agent has special power of attorney,
not based on the name or title given in the deed
issued, but only when the act or contract
enumerated specifically under Article 1878 has
been literally named in the grant of commission
by the principal.
Orbeta v. Sendiong:
“A document captioned as “General Power of
Attorney” cannot militate against its being
construed to grant special power of attorney
since a general power of attorney may includes a
special power if such special power is mentioned
or referred to in the general power.”
ATTY: Other than the Sale of land, where the
authority of the agent must be in writing
otherwise the sale shall be void (1874), the
general rule of special power of attorney when it
comes to immovable property, if not followed,
only renders the resulting contracts
unenforceable.
NOTE: Article 1874 does not cover an agency to
purchase a piece of land or an interest therein;
and that if the special power of the agent who
acts for the buyer is not in writing, the resulting
sale would be valid.
Jimenez v. Rabot:
“A power of attorney to convey real property
need not be in a public document, it need only be
in writing, since a private document is competent
to create, transmit, modify, or extinguish a right
in real property.”
VILLANUEVA: Under Article 1874, if the
agent of the seller does not meet the requirement
of being supported by a written special power of
attorney, the contract of sale is unenforceable
rather than void, or to consider them “void as to
the principal” and therefore subject to ratification
on the part of the principal.
USJR LAW – AGENCY 2018 9
Article 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.
Article 1901 - A third person cannot set up the
fact that the agent has exceeded his powers, if the
principal has ratified, or has signified his
willingness to ratify the agent's acts.
Doctrine of Implied Powers – The grant of
express powers or special power of attorney must
necessarily include all power implied or
incidental to such express powers, even if they
amount to acts of ownership or strict dominion
Article 1926 - A general power of attorney is
revoked by a special one granted to another
agent, as regards the special matter involved in
the latter.
NOTE: The grant of specific power of attorney
exclude from the agent the power to execute all
other acts of administration. If the principal
decides to detail the powers he grants to the
agent, then he means to exclude all other powers
of administration other than those that are
incidental to those specifically granted.
Pineda v. CA:
“When an agent has been granted an express
power of attorney, then the agent cannot execute
any other act, whether it be an act of
administration or an act of ownership outside the
language of the power of attorney”
 CHAPTER 3 Agent who Declines Agent who withdraws
POWER & AUTHORITY, DUTIES & Agency from the agency for a
OBLIGATIONS, RIGHTS OF THE AGENT valid reason
He (Person who He must continue to
General Obligation of Agent who Accepts the declined the agency) is act until the principal
Agency bound to observe the has had reasonable
diligence of a good opportunity to take the
Article 1884 - The agent is bound by his father of a family in necessary steps to meet
acceptance to carry out the agency, and is liable the custody and the situation
for the damages which, through his non- preservation of the
performance, the principal may suffer. goods forwarded to
him by the owner until
He must also finish the business already begun the latter should
on the death of the principal, should delay entail appoint an agent,
any danger. within a reasonable
period
>Once the agent accepts the principal’s NOTE: Both these instances constitute a rare
appointment, the agent is bound to comply with instance where a duty of diligence is owed by a
his duty of diligence or care person to another outside of an existing
contractual bond.
>Obligations arising from Contracts have the
force and effect of law between the contracting GENERAL RULE ON AGENT’S POWER
parties and should be complied with in good faith AND AUTHORITY

Remedy of Principal should an agent refuse to
comply with his obligations:
-Sue the agent for damages
NOTE: Action for specific performance is not
available for personal obligations to do
NOTE: The obligatory force of the duty of the
agent to act with diligence exceeds the formal
termination of the agency relationship, which
automatically comes about by the death of the
principal.
Article 1881 - The agent must act within the
scope of his authority. He may do such acts as
may be conducive to the accomplishment of the
purpose of the agency.
Article 1882 - 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.
Article 1887 - In the execution of the agency, the
agent shall act in accordance with the
instructions of the principal.

Obligation of agent who declines Agency
Article 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.
No Contract of Agency, No Ovligation, No
liability: Art 1885 is the exception:
NOTE: He (Person who declined the agency) 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 (reasonable period)
In default thereof, he shall do all that a good
father of a family would do, as required by the
nature of the business.
Article 1888 - An agent shall not carry out an
agency if its execution would manifestly result in
loss or damage to the principal.
Article 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.
Article 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.

Twin measures of how agent should act
Duty of Obedience – The agent must act in
accordance with the instructions of the principal.
It is the foremost duty of every agent to follow
the instructions of the principal.
Breach of Duty of Obedience:
(1) Agent becomes personally liable for damages
for breach of duty of obedience
(2) Principal is not personally bound by the terms
of contracts with third parties since agent had not
given the principal’s consent
(3) Agent may become personally liable for the
contract or transaction
Duty of Diligence – In default of guiding
instructions, the agent shall do all that a good
father of a family would do, as required by the
nature of the business. The agent is expected to
use his business discretion as the principal would
or could, if personally present.
Tan Tiong Teck v. SEC:
“An agent is not deemed to have exceeded his
authority should he perform the agency in a
manner more advantageous to the principal than
that indicated by the principal”
Breach of Duty of Diligence:
Agent becomes personally liable to the principal
for the damages caused to the principal by reason
of his fraud or negligence
Responsibility for Fraud or Negligence
Article 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.
Cadwalladerv. Smith bell:
“The agent, by means of misrepresentation of the
market conditions induces his principal to sell to
him the property consigned to his custody, at a
price less than that for which he has already
contracted to sell part of it, and who thereafter
disposed of the whole at an advance, was held to
be liable to the principal for the difference. The
Court held that such conduct on the part of the
USJR LAW – AGENCY 2018 1
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agent constituted fraud, entitling the principal to
annul the contract of sale.”
Duty of Loyalty – Agency relation is essentially
fiduciary in character, that requires the agent to
observe utmost good faith and loyalty to the
principal
Article 1889 – The agent shall ne liable for
damages if, there being a conflict between his
interests and those of the principal, he should
prefer his own.
Breach of Duty of Loyalty:
The Principal has the right to demand that the
agent should turn-over to him whatever contract,
property, or business has been acquired by the
agent in breach of his duty of loyalty.
In jurisprudence, A guilty agent is made to
forfeit the commission that otherwise should be
due to him, as penalty for violation of his duty of
loyalty.
In criminal law, the agent who refuses or fails to
return to the principal the funds or property
received may be held liable for estafa.
Severino v. Severino:
“The agent is estopped from acquiring or
asserting a title adverse to that of the principal”
Aboitiz v. De Silva:
“An agent cannot represent both himself and his
principal”
VILLANUEVA: Whether the agent has used his
own funds or property, or those of the
principal’s, he would still be in breach of this
fiduciary duty, and under Art 1891, he 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.”
Miguel v. CA:
“If the agent violates his duty as fiduciary, a
constructive trust arises.”
Art. 1455 – When any trustee, guardian, or other
person holding fiduciary relationship uses trust
funds for the purchase of property and causes the
conveyance to be made to him or to a third
person, a trust is established by operation of law
in favor of the person to whom the funds belong.
CONFLICT OF INTERESTS SITUATIONS
(1) Purchase of principal’s property
Article 1491 – The following persons cannot
acquire by purchase, even at a public or judicial
auction, either in person or through the mediation
of another
(2) Agents, the property whose
administration or sale may have been
entrusted to them, unless the consent of
the principal has been given
Article 1492 – The prohibition in the two
preceding articles are applicable to sales in legal
redemption, compromise and renunciation
Barton v. Leyte Ashpalt:
“No agent shall purchase for himself or for
another that which he has been ordered to sell, it
was held that a sale by a broker to himself
without the consent of the principal would be
void and ineffectual whether the broker has been
guilty of fraudulent conduct or not.
Consequently, such broker is not entitled to
receive any commission under the contract,
much less any reimbursement of expenses
incurred in pursuing and closing such sales.”
(2) When Agent Empowered to Borrow or
Lend Money
Article 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.
>Empowered to borrow – agent may be lender
If Agent charges a higher interest:
return to principal the difference
>Empowered to lend – agent cannot be borrower
If Agent borrows for himself, agent is
liable for interest the principal would
have earned from third parties +
damages the principal may have
suffered.
OBLIGATION TO RENDER AN ACCOUNT
AND TURN-OVER TO PRINCIPAL WHAT
IS RECEIVED BY VIRTUE OF THE
AGENCY
Article 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.
>The duty to account and to turn over to
the principal all profits and gains
received in the pursuit of the agency is
an integral part of the agent’s fiduciary
duty of loyalty
Domingo v. Domingo:
“An agent who takes a secret profit in the nature
of a bonus, gratuity or personal benefit from the
vendee, without revealing the same to his
principal, the vendor, is guilty of breach of his
loyalty to the principal and forfeits his right to
collect the commission from his principal, even
if the principal does not suffer any injury by
reason of such breach of fidelity, or that he
obtained better results or that the agency is a
gratuitous one, or that usage or customs allows
it; because the rule is to prevent the possibility of
any wrong, not to remedy or repair an actual
damage. The fact that the principal may have
been benefited by the valuable services of the
said agent does not exculpate the agent who has
only himself to blame for such a result by reason
of his treachery or perfidy.”
Specific Obligation Rules on Funds
1. Obligation to Advance Funds
Article 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
NOTE: According to the above provision, the
only time that an agent is legally bound to
advance personal funds in the pursuit of the
agency is when such obligation has been
expressly agreed upon in the creation of the
contract of agency.
 USJR LAW – AGENCY 2018 1
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instructions of then every contracts of

2. Liability of Agent for interest the principal, agent has the the substitute
clearly, the power to were his own.
Article 1896 – The agent owes interest on the sub-agent is appoint a sub- All acts of the
sums he has applied to his own use from the day really an agent agent; but in substitute
on which he did so, and on those which he still of the such a case, shall be void.
owes after the extinguishment of the agency principal as the agent is Principal has
well, and responsible no cause of
Interest on: privity exists for acts of the action towards
-Sums agent applied to his own use between the substitute. the substitute,
-Sums owing to the principal that remain principal and but must go to
outstanding at the time of extinguishment of the the sub-agent. the agent.
agency The agent
does not bear
Power of the Agent to appoint a substitute personal
responsibility
Article 1892 - The agent may appoint a for the fraud
substitute if the principal has not prohibited him or negligence
from doing so; but he shall be responsible for the of the sub-
acts of the substitute: agent, for the
agent merely
(1) When he was not given the power to acted within
appoint one; the scope of
his author
(2) When he was given such power, but when he
without designating the person, and the appointed the
person appointed was notoriously sub-agent.
incompetent or insolvent.
EXCEPTION:
All acts of the substitute appointed against the Article
prohibition of the principal shall be void. (1721) 1892(2):
“When the
Article 1893 - In the cases mentioned in Nos. 1 agent has been
and 2 of the preceding article, the principal may given power ,
furthermore bring an action against the substitute but without
with respect to the obligations which the latter the principal
has contracted under the substitution. designating a
person, and
the person
EFFECTS WHEN AGENT APPOINTS A appointed was
SUBSTITUTE notoriously
incompetent
Substitute Substitute Substitute or insolvent.”
pursuant to not granted against
the nor prohibition
instructions prohibited by of the
of the the principal principal
principal
When the Under 1892, Agent is
agent appoints when there is personally
a substitute no prohibition liable for the
agent in on the part of acts of the
accordance the principal substitute, as
with the on the matter, though the
 CONSIDERATINO OF THE FIDUCAIRY
DUTIES OF THE AGENT AS TO THIRD
PARTIES
Article 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.
Article 1901 - A third person cannot set up the
fact that the agent has exceeded his powers, if the
principal has ratified, or has signified his
willingness to ratify the agent's acts.
Article 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
Article 1911 - Even when the agent has
exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the
latter to act as though he had full powers.
VILLANUEVA: As to third parties in good
faith, the written instructions of the principal are
the binding powers of the agent, and cannot be
overcome by non-written instructions of the
principal not made known to them.
Outside of the written power of attorney of an
agent, third parties who deal with such agent are
not supposed to presume that the agent is fully
authorized.
1. Effects on the agent of Contracts entered
into within the scope of his authority
Article 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.
Article 1910 - The principal must comply with
all the obligations which the agent may have
contracted within the scope of his authority.
(a) General Rule: Agent is not personally
liable to third parties
Principle of Relativity – A contract is binding
only as between the parties and their successors-
in-interest. Consequently, a person acting as a
mere representative of another acquires no rights
whatsoever, nor does he incur any liabilities
arising from the said contract between his
principal and another party.
(b) Exception: When the agent expressly
makes himself personally liable
-The personal liability of the agent arises from
voluntary contractual commitment. The liability
of the agent with the principal is merely joint, not
solidary.
(c) Exception: When agent is guilty of fraud
or negligence
Article 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
Two-level effect of fraud or negligence:
One, in so far as the principal is concerned, and
the other, in so far as third parties are concerned
National Power Corp. v. National Merch. Corp:
“An agent becomes liable when by his wrong or
omission, he deprives the third person with
whom he contracts of any remedy against the
principal; otherwise, the third person would be
defrauded if he would not be allowed to recover
from the agent.”
NOTE: Art 1909 should not be read to conclude
that because the agent becomes liable personally
on a contract entered into or pursued in the name
of the principal tainted with fraud or negligence,
the principal is therefore exempted from liability.
Art 1909 presumes that the fraudulent or
negligent act of the agent were in pursuit of the
business or affairs of the principal, and since the
acts of the agent are by law those of the
principal, it means that both the principal and the
agent are deemed joint torfeasors, and are
deemed iable solidarily insofar as third parties
are concerned. The remedy of the principal is to

sue the agent for damages sustained due to
agent’s fraudulent or negligent acts.
British Airways v. CA:
“When one airline company (BA) subcontracts a
leg of the international trip of its passenger to
another airline company (PAL), the contract of
air transportation was exclusively between
passenger and BA, with PAL merely acting as its
agent on the manila to hong kong leg of the
journey. The well-settled rule is that an agent is
also responsible for any negligence in the
performance of its function and is liable for
damages which the principal may suffer by
reason of the agent’s negligent act.”
2. Effects of Acts done by agent without
authority or in excess of his authority
Article 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.
General Rule: The principal is not liable;
Agent may be liable
Effects:
(1) Void as to the principal, if such third party
with whom the agent contracted was aware of the
limits of the powers granted by the principal
(2) In such case, agent is personally liable to
third party if he undertook to secure the
principal’s ratification
(3) IF he did not undertake to secure the
principal’s ratification, the agent does not
become liable on the contract since the third
party has no one to blame but himself, knowing
fully well the limits to the agent’s authority
NOTE: Liability of an agent who exceeds the
scope of his authority depends upon whether the
third person was aware of the limits of the
agent’s power.
Safic Alcan v. Imperial Vegetable & DBP v. CA:
USJR LAW – AGENCY 2018 1
5
“The agent is not bound nor liable for damages
in case he gave notice of his power to the person
with whom he contracted, nor in case such
person is aware of the limit of the agent’s power.
The resulting contract would be void even as
between the agent and the third party, and
consequently not legally binding as between
them. However, if the agent promised or
undertook to secure the principal’s ratification
and failed, he is personally liable. If the
ratification is obtained, then the principal
becomes liable.
Eurotech Industrial Technologies v. Cuizon:
“A claim interposed under Article 1898 would
not allow the third party to recover against both
the principal and the agent.”
VILLANUEVA: Although Art 1898 describes
the contract entered into by the agent in the name
of the principal without or in excess of authority
as being “void”, if the party with whom the agent
contracted is unaware of the limits of its powers
granted by the principal, the contract is
unenforceable under Art 1403(1).
Exception: Principal may be bound
>Principal Ratifies Contract or
transaction (1898,1910)
>As to third parties who relied upon
the terms of the power of attorney as
written, even if in fact the agent had
exceeded the limits of his authority
according to an understanding
between the principal and the agent
(1900,1901)
Cason v. Richards:
“Money was received by the agent, and that
money is turned over to the principal with notice
that it is the money of the depositor, the principal
was held to be bound to deliver to the depositor,
even if his agent was not authorized to receive
such deposit, since there was, in effect,
ratification of the unauthorized act of the agent.”
NOTE: Art 1901 states that a third person
cannot setup the fact that the agent has exceeded
his powers, if the principal has ratified, or has
signified his willingness to ratify the agent’s act.
Phil. Products Co. v. Primateria:
“When the agent exceeds his authority, the
matter can be raised only by the principal, and
when not so raised, recovery can be made by the
third person only against the principal.”
Commissioner of Public Highways v. San Diego:
“Lack of authority may be questioned only by
the principal or client, since it is within the right
or prerogative of the principal to ratify even the
unauthorized acts of the agent.”
NOTE: Art 1897 does not hold that in case of
excess of authority, both the agent and the
principal are liable to the other contracting party.
3. Consequences when the agent acts in his
own name
Article 1883 – If an agent acts in his own name,
the principal has no right of action against the
persons with whom the agent has contracted;
neither have such persons against the principal
In such case the agent is the one directly bound
in favor of the person with whom he has
contracted, as if the transactions were his own,
except when the contract involves things
belonging to the principal.
The Provisions of this article shall be understood
to be without prejudice to the actions between
the principal and agent.
Exception: When the property involved in the
contract belongs to the principal
>Principal is bound even when the
contract was entered into in the name of
the agent, which is a necessary rule to
protect third persons against possible
collusion between the agent and the
principal.
Remedy of the Principal: Recover damages
from the agent
4. When Two or more agents appointed by
same principal
Liability:
(a) Joint, when nothing is stipulated
(b) Solidary, if so stipulated
5. When third party liable to the agent himself
(Even on contracts entered into pursuant to the
agency arrangement)
(a) Where the agent contracts in his own
name, on a matter that it within the
scope of the agency
(b) Where the agent possesses a
beneficial interest in the subject matter
of the agency, such as a factor selling
under a del credere commission
(c) Where a third party commits a tort
against the agent
SPECIFIC OBLIGATION RULES FOR
COMMISSION AGENTS
1. Nature of Factor or Commission Agent
Commission Agent – One who receives and sells
goods for a commission, and who is entrusted by
the principal with the possession of the goods to
be sold, and usually selling in his own name.
Ordinary Agent: Need not have possession of
goods
Commission Agent: Must have possession of the
goods
2. Specific Obligations of a Commission Agent
(a) Take Custody of Goods
(b) Not to commingle similar goods
belonging to different principals
(c) Not to sell on credit without
principal’s authorization
(d) Inform the Principal of every pre-
authorized sale on credit
(e) Bear the risk of collection under Del
Credere Commission set-up
(f) Collect Credits of the principal
(g) Return goods unsold
 USJR LAW – AGENCY 2018 1
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In Principal’s behalf – UNAUTHORIZED AND

UNENFORCEABLE (1403)
>May be ratified; validated from the
beginning

(Slides from Lecture) In Agent’s behalf – VALID, whether or not the

Qualifications to bind the principal
(1) Where the principal’s acts have contributed
to deceive a third person in good faith
(2) Where the limitations upon the power created
by the principal could not have been known by a
third person
subject matter belongs to the principal, provided
that at the time of the delivery is to be made, the
“agent” can transfer legally the ownership of the
thing. Otherwise, he will be held liable for
breach of guaranty against eviction (1883 does
not apply)

(3) Where the principal has placed in the hands

of the agent instruments signed by him in blank

Doctrine of Agency by Necessity (5 conditions)

(1) The real existence of an emergency

(2) Inability of the agent to communicate with

the principal

(3) Exercise of the additional authority for the

principal’s own protection

(4) Adoption of fairly reasonable means,

premises duly considered

(5) Ceasing of the authority the moment the

emergency no longer demands the same

(Missing the prior slide)

Effects
With Authority:
In Principal’s Behalf – VALID (Principal is
bound; agent not personally liable unless he
bound himself)

In Agent’s behalf – Apply Art 1883 (Generally,

not binding on principal; agent and stranger are
the only parties; except regarding things
belonging to the principal)

Without Authority: