Agency |1

Class Notes:
Agency:

THE CONCEPT OF AGENCY

Purpose
In a contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another with the
latter's consent. The underlying principle of the contract of agency is to
accomplish results by using the services of others — to do a great variety of
things like selling, buying, manufacturing, and transporting. Its purpose is to
extend the personality of the principal or the party for whom another acts and
from whom he or she derives the authority to act. It is said that the basis of
agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal. By this
legal fiction, the actual or real absence of the principal is converted into his
legal or juridical presence — qui facit per alium facit per se.
The powers of an agent are particularly broad in the case of one acting
as a general agent or manager; such a position presupposes a degree of
confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are incidental or
appurtenant to the business entrusted to his care and management. In the
absence of an agreement to the contrary, a managing agent may enter into
any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management
– Rallos v. Felix Go Chan

Definition
Art. 1868. By the contract of agency a person binds himself to render some
service or to so something in representation or on behalf of another, with the
consent or authority of the latter.

Art. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency,
knowling that another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.

Art. 1870. Acceptance by the agent may also be express, or implied from his
acts which carry out the agency, or from his silence or inaction according to
the circumstances.

Art. 1876. An agency is either general or special. The former comprises all the
business of the principal. The latter, one or more specific transactions.

1. Legal Relationship

Agency is basically personal, representative, and derivative in

nature. The authority of the agent to act emanates from the powers granted
to him by his principal; his act is the act of the principal if done within the
scope of the authority. Qui facit per alium facit per se. "He who acts through
another acts himself."
By reason of the very nature of the relationship between principal
and agent, agency is extinguished by the death of the principal or of the agent
and any act of an agent after the death of his principal is void ab initio, except
as explicitly provided for in the New Civil Code: (1) when the agency is coupled
with an interest (Art. 1930); and (2) when the agent performed an act for the
 Agency |2
Class Notes:
principal without knowledge of the principal's death and the third person who
contracted with him acted in good faith. (Art. 1931)
– Rallos v. Felix Go Chan

The relations of an agent to his principal are fiduciary and it is an

elementary and very old rule that in regard to property forming the subject-
matter of the agency, he is estopped from acquiring or asserting a title
adverse to that of the principal. His position is analogous to that of a trustee
and he cannot consistently, with the principles of good faith, be allowed to
create in himself an interest in opposition to that of his principal or cestui que
trust.
– Severino v. Severino

2. Contract
Art. 1868
Art. 1305, 1318

A. ELEMENTS OF AGENCY
Art. 1868

The elements of the contract of agency are:

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

 There is no Agency in impersonation. The element of representation

is absent. He is not acting in another name, but under another name.
 Spouses in themselves can enter into a contract of agency.
 Both parties must have capacity to give consent. If any special
capacity is required for the act entrusted to the agent, it is the
principal and not the agent who must have such special capacity, in
addition to the general capacity to contract.
 No particular capacity is required for the agent, so long as he has
sufficient intelligence and freedom of will.
 Binding effect: The agent is the representative of his principal. Hence,
the principal is deemed a purchaser in bad faith if the agent
purchased property in bad faith. Notice to the agent is notice to the
principal.

Art. 1868, Art. 1869, Art. 1870

Art. 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.

REINSTATEMENT OF CONTRACT OF AGENCY; MUST BE WITH THE CONSENT

OR AUTHORITY OF THE PRINCIPAL. — By affirming this ruling of the trial court,
 Agency |3
Class Notes:
respondent appellate court, in effect, compels American Air to extend its
personality to Orient Air. Such would be violative of the principles and
essence of agency, defined by law as a contract whereby "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." In an
agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court.
The Agreement itself between the parties states that "either party may
terminate the Agreement without cause by giving the other 30 days' notice by
letter, telegram or cable." We, therefore, set aside the portion of the ruling of
the respondent appellate court reinstating Orient Air as general sales agent of
American Air.
– Orient Air Service v. CA

In the absence of consent to the acts of the supposed agent or

authority therefor, no agency whatsoever was created… The basis for agency
is representation. Here, there is no showing that Brigida consented to the acts
of Deganos or authorized him to act on her behalf, much less with respect to
the particular transactions involved. Petitioners' attempt to foist liability on
respondent spouses through the supposed agency relation with Deganos is
groundless and ill-advised. – Bordador v. Luz

The relationship between the movie corporation and the plaintiff was
not that of principal and agent because the principle of representation was in
no way involved. Plaintiff was not employed to represent the defendant
corporation in its dealings with third parties. He was a mere employee hired
to perform a certain specific duty or task, that of acting as special guard and
staying at the main entrance of the movie house to stop gate crashers and to
maintain peace and order within the premises.
– De La Cruz v. Northern Theatrical
Petitioners were the rice buyers themselves; they were not mere
agents of respondents in their rice dealership. The question of whether a
contract is one of sale or of agency depends on the intention of the parties.
The declarations of agents alone are generally insufficient to
establish the fact or extent of their authority. The law makes no presumption
of agency; proving its existence, nature and extent is incumbent upon the
person alleging it. In the present case, petitioners raise the fact of agency as
an affirmative defense, yet fail to prove its existence.
– Tuazon v. Heirs of Ramos

That the authorization given to CSC contained the phrase "for and in
our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is
the intention of the parties. That no agency was meant to be established by
the CSC and STM is clearly shown by CSC's communication to petitioner that
SLDR No. 1214M had been "sold and endorsed" to it. The use of the words
"sold and endorsed" means that STM and CSC intended a contract of sale and
not an agency. Hence, on this score, no error was committed by the
respondent appellate court when it held that CSC was not STM's agent and
could independently sue petitioner.
– Victorias Milling v. CA
 Agency |4
Class Notes:
B. EFFECT OF AGENCY: INTEGRATION AND EXTENSION

Authority to Act
Article 1897 presents two instances when an agent becomes
personally liable to a third person. The first is when he expressly binds himself
to the obligation and the second is when he exceeds his authority. In the last
instance, the agent can be held liable if he does not give the third party
sufficient notice of his powers.
Respondent EDWIN does not fall within any of the exceptions
contained in this provision. The Deed of Assignment clearly states that
respondent EDWIN signed thereon as the sales manager of Impact Systems.
The position of manager is unique in that it presupposes the grant of broad
powers with which to conduct the business of the principal
– Eurotech v. Cuison

The CA is incorrect when it considered the fact that the "supposed

friends of [petitioner], the actual borrowers, did not present themselves to
[respondent]" as evidence that negates the agency relationship — it is
sufficient that petitioner disclosed to respondent that the former was acting
in behalf of her principals, her friends whom she referred to respondent. For
an agency to arise, it is not necessary that the principal personally encounter
the third person with whom the agent interacts. The law in fact contemplates,
and to a great degree, impersonal dealings where the principal need not
personally know or meet the third person with whom her agent transacts:
precisely, the purpose of agency is to extend the personality of the principal
through the facility of the agent.
– Doles v. Angeles

Agent Not Real Party-in-Interest

AGENCY; AGENTS ARE NOT PARTIES TO CONTRACT OF SALE. —

Petitioners are not parties to the contract of sale between their principals and
NHA. They are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or
on behalf of their principals. The rendering of such service did not make them
parties to the contracts of sale executed in behalf of the latter. Since a
contract may be violated only by the parties thereto as against each other, the
real parties-in-interest, either as plaintiff or defendant, in an action upon that
contract must, generally, either be parties to said contract.
AGENT AS ASSIGNEE MAY BRING ACTION FOUNDED ON CONTRACT
MADE FOR HIS PRINCIPAL. — Thus, an agent, in his own behalf, may bring an
action founded on a contract made for his principal, as an assignee of such
contract. We find the following declaration in Section 372 (1) of the
Restatement of the Law on Agency (Second): Section 372. Agent as Owner of
Contract Right (1) Unless otherwise agreed, an agent who has or who acquires
an interest in a contract which he makes on behalf of his principal can,
although not a promisee, maintain such action thereon as might a transferee
having a similar interest.
– Uy and Roxas v. CA

The legal situation is, however, different where an agent is

constituted as an assignee. In such a case, the agent may, in his own behalf,
sue on a contract made for his principal, as an assignee of such contract. The
rule requiring every action to be prosecuted in the name of the real party-in-
interest recognizes the assignment of rights of action and also recognizes that
when one has a right assigned to him, he is then the real party-in-interest and
may maintain an action upon such claim or right.
– Angeles v. PNR
 Agency |5
Class Notes:
A SUIT AGAINST AN AGENT, ABSENT COMPELLING REASONS, IS NOT
A SUIT AGAINST THE PRINCIPAL. — In any case, the parent-subsidiary
relationship between PNB and PNB-IFL is not the significant legal relationship
involved in this case since the petitioner was not sued because it is the parent
company of PNB-IFL. Rather, the petitioner was sued because it acted as an
attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. As suit
against an agent cannot, without compelling reasons, be considered as a suit
against the principal. Under the Rules of Court, every action must be
prosecuted or defended in the name of the real party-in-interest, unless
otherwise authorized by law or these Rules. In mandatory terms, the Rules
require that "parties-in-interest without whom no final determination can be
had, an action shall be joined either as plaintiffs or defendants." In the case at
bar, the injunction suit is directed only against the agent, not the principal.
– PNB v. Ritratto
 Agency |6
Class Notes:
Notice to Agent is Notice to Principal

BINDING EFFECT OF ACTS OF CORPORATE OFFICERS. — A corporation

cannot evade the binding effect produced by a telegram sent by its board
secretary, and the addressee of such telegram cannot be blamed for relying
upon it, because if every person dealing with a corporation were held duty-
bound to disbelieve every act of its responsible officers no matter how regular
it should appear on its face, corporate transactions would speedily come to a
standstill.
If a private corporation intentionally or negligently clothes its o;cers
or agents with apparent power to perform acts for it, the corporation will be
estopped to deny that such apparent authority is real, as to innocent third
persons dealing in good faith with such o;cers or agents.
WHEN NOTICE OF FACTS BY A CORPORATE OFFICER IS NOTICE TO
CORPORATION. — Knowledge of facts acquired or possessed by an officer or
agent of a corporation in the course of his employment, and in relation to
matters within he communicates such knowledge or not.
– Francisco v. GSIS

AUTHORITY OF AGENT TO SELL A PIECE OF LAND OR INTEREST

THEREON MUST BE IN WRITING TO BIND PRINCIPAL. — When the sale of a
piece of land or any interest thereon is through an agent, the authority of the
latter shall be in writing otherwise, the sale shall be void. Thus the authority of
an agent to execute a contract for the sale of real estate must be conferred in
writing and must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing terms
and conditions which are in the contract he did execute. A special power of
attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an appointee
of an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear
and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the
document.
– Sunace International v. NLRC

CONTRACTS ARE BINDING ONLY TO PARTIES OR THOSE PRIVY

THERETO; CASE AT BAR. — The finding of the Court of Appeals solely on the
basis of the above-quoted telefax message, that Sunace continually
communicated with the foreign "principal" (sic) and therefore was aware of
and had consented to the execution of the extension of the contract is
misplaced. The message does not provide evidence that Sunace was privy to
the new contract executed after the expiration on February 1, 1998 of the
original contract. That Sunace and the Taiwanese broker communicated
regarding Divina's allegedly withheld savings does not necessarily mean that
Sunace ratified the extension of the contract. . . . There being no substantial
proof that Sunace knew of and consented to be bound under the 2-year
employment contract extension, it cannot be said to be privy thereto. As such,
it and its "owner" cannot be held solidarily liable for any of Divina's claims
arising from the 2-year employment extension as [Article 1311 of the] New
Civil Code provides.
AGENCY, IMPLIEDLY REVOKED WHEN THE PRINCIPAL DIRECTLY
MANAGES THE BUSINESS ENTRUSTED TO THE AGENT AND DEALS DIRECTLY
WITH THIRD PERSONS; CASE AT BAR. — As Sunace correctly points out, there
was an implied revocation of its agency relationship with its foreign principal
when, after the termination of the original employment contract, the foreign
 Agency |7
Class Notes:
principal directly negotiated with Divina and entered into a new and separate
employment contract in Taiwan. Article 1924 of the New Civil Code reading
"the agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons," thus applies.

Bad Faith of the Agent is Bad Faith of the Principal

The petitioner contends that he cannot be considered to have acted

in bad faith because there is no direct proof showing that Irespe and
Aportadera, his alleged agents, had knowledge of the first sale to Laureta.
Even if Irespe and Aportadera did not have actual knowledge of the
first sale, still, their actions have not satisfied the requirement of good faith.
Bad faith is not based solely on the fact that a vendee had knowledge of the
defect or lack of title of his vendor. In the instant case, Irespe and Aportadera
had knowledge of circumstances which ought to have put them on inquiry.
Both of them knew that Mata's certificate of title together with other papers
pertaining to the land was taken by soldiers under the command of Col. Claro
L. Laureta. Added to this is the fact that at the time of the second sale Laureta
was already in possession of the land. Irespe and Aportadera should have
investigated the nature of Laureta's possession. If they failed to exercise the
ordinary care expected of a buyer of real estate they must suffer the
consequences.
The rule of caveat emptor requires the purchaser to be aware of the
supposed title of the vendor and one who buys without checking the vendor's
title takes all the risks and losses consequent to such failure.
The principle that a person dealing with the owner of the registered
land is not bound to go behind the certificate and inquire into transactions the
existence of which is not there intimated should not apply in this case. It was
of common knowledge that at the time the soldiers of Laureta took the
documents from Mata, the civil government of Tagum was not yet established
and that there were no officials to ratify contracts of sale and make them
registrable. Obviously, Aportadera and Irespe knew that even if Mata
previously had sold the disputed property such sale could not have been
registered.
There is no doubt then that Irespe and Aportadera, acting as agents
of Caram, purchased the property of Mata in bad faith. Applying the principle
of agency, Caram, as principal, should also be deemed to have acted in bad
faith.
– Caram v. Laureta

Extinguished by Death

There are various ways of extinguishing agency, but here We are

concerned only with one cause — death of the principal: Paragraph 3 of Art.
1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil
Code provides:
"ART. 1919. Agency is extinguished:
"xxx xxx xxx
"3. By the death, civil interdiction, insanity or insolvency of
the principal or of the agent; . . . ." (Underline supplied)
By reason of the very nature of the relationship between principal
and agent, agency is extinguished by the death of the principal or of the agent
and any act of an agent after the death of his principal is void ab initio, except
as explicitly provided for in the New Civil Code:
(1) when the agency is coupled with an interest (Art. 1930); and
(2) when the agent performed an act for the principal without
knowledge of the principal's death and the third person who
contracted with him acted in good faith. (Art. 1931)
– Rellos v. felix Go Chan
 Agency |8
Class Notes:

NATURE OF AGENCY: GENERAL AND SPECIFIC

Distinguishing General Agency and Agency Couched in General Terms

As to Scope: General Agency

1876. An agency is either general or special.

The Former Comprises all the business of the principal. The latter, one or
more specific transactions.

AGENCY; WHEN PRINCIPAL IS NOT LIABLE FOR EXPENSES INCURRED BY

AGENT; CASE AT BAR. — Respondent Guevarra's authority to settle claims is
embodied in the Memorandum of Management Agreement dated February
18, 1987 which enumerates the scope of respondent Guevarra's duties and
responsibilities as agency manager for San Fernando, Pampanga. . . . In
settling the claims mentioned above, respondent Guevarra's authority is
further limited by the written standard authority to pay, which states that the
payment shall come from respondent
Guevarra's revolving fund or collection. . . . The instruction of petitioner as the
principal could not be any clearer. Respondent Guevarra was authorized to
pay the claim of the insured, but the payment shall come from the revolving
fund or collection in his possession. Having deviated from the instructions of
the principal, the expenses that respondent Guevarra incurred in the
settlement of the claims of the insured may not be reimbursed from
petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code.

A perusal of the Special Power of Attorney would show that petitioner

(represented by third-party defendant Austria) and respondent Guevarra
intended to enter into a principal-agent relationship. Despite the word
"special" in the title of the document, the contents reveal that what was
constituted was actually a general agency. The agency comprises all the
business of the principal, but, couched in general terms, it is limited only to
acts of administration.

A general power permits the agent to do all acts for which the law does not
require a special power. Thus, the acts enumerated in or similar to those
enumerated in the Special Power of Attorney do not require a special power
of attorney. Article 1878, Civil Code, enumerates the instances when a special
power of attorney is required. The pertinent portion that applies to this case
provides that:
"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;
xxx xxx xxx
"(15) Any other act of strict dominion."

The payment of claims is not an act of administration. The settlement of

claims is not included among the acts enumerated in the Special Power of
Attorney, neither is it of a character similar to the acts enumerated therein. A
special power of attorney is required before respondent Guevarra could settle
the insurance claims of the insured.

Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the insured
may not be reimbursed from petitioner Dominion. This conclusion is in accord
with Article 1918, Civil Code.
– Dominion Insurance v. CA
 Agency |9
Class Notes:

As to Authority: Agency Couched in General Terms

Art. 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.

Distinguishing Special Agency and Agency Couched in Specific Terms

As to Scope: Special Agency

Art. 1876. Supra

As to Authority: Special Power of Attorney

1. Transactions Covered

Art. 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) The effect novations which put an end to obligations

A SPECIAL POWER OF ATTORNEY CAN BE INCLUDED IN THE GENERAL POWER

WHEN IT IS SPECIFIED THEREIN THE ACT OR TRANSACTION FOR WHICH THE
SPECIAL POWER IS REQUIRED. — There was no need to execute a separate
and special power of attorney since the general power of attorney had
expressly authorized the agent or attorney in fact the power to sell the
subject property. The special power of attorney can be included in the general
power when it is specified therein the act or transaction for which the special
power is required.

"Whether the instrument be denominated as "general power of attorney" or

"special power of attorney," what matters is the extent of the power or
powers contemplated upon the agent or attorney in fact. If the power is
couched in general terms, then such power cannot go beyond acts of
administration. However, where the power to sell is specific, it not being
merely implied, much less couched in general terms, there cannot be any
doubt that the attorney in fact may execute a valid sale. An instrument may
be captioned as "special power of attorney" but if the powers granted are
couched in general terms without mentioning any speci<c power to sell or
mortgage or to do other specific acts of strict dominion, then in that case only
acts of administration may be deemed conferred."
– Veloso v. CA

COMPROMISE AGREEMENT; REQUIREMENTS OF SPECIAL POWER OF

ATTORNEY. — The requirements of a special power of attorney in Article 1878
of the Civil Code and of a special power of attorney in Rule 138 of the Rules of
Court refer to the nature of the authorization and not its form. The
requirements are met if there is a clear mandate from the principal
specifically authorizing the performance of the act. As early as 1906, the Court
in Strong vs. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be
either oral or written, the one vital thing being that it shall be express. And
more recently, the Court stated that, if the special authority is not written,
then it must be duly established by evidence.
– Lim Pin v. Liao Tan
2. Effect of Absence of Specific Authorization
 A g e n c y | 10
Class Notes:
COMPROMISE; SPECIAL POWER OF ATTORNEY. — It is true that a compromise
is, in itself, a contract. It is as such that the Civil Code speaks of it in Article
2028. Moreover, under Article 1878 of the Civil Code, a third person cannot
bind another to a compromise agreement unless he, the third person, has
obtained a special power of attorney for that purpose from the party intended
to be bound.

ABSENCE OF DOES NOT RENDER AGREEMENT VOID BUT MERELY

UNENFORCEABLE. — However, although the Civil Code expressly requires a
special power of attorney in order that one may compromise an interest of
another, it is neither accurate nor correct to conclude that its absence renders
the compromise agreement void. In such a case, the compromise is merely
unenforceable. This results from its nature as a contract.

COMPROMISE; RATIFICATION BY CLIENT OF COMPROMISE MADE BY HIS

ATTORNEY. — When it appears that the client, on becoming aware of the
compromise and the judgment thereon, fails to repudiate promptly the action
of his attorney, he will not afterwards be heard to contest its validity (Rivero
vs. Rivero, 59 Phil. 15).
– Duñgo v. Lopena

The law specifically requires that "juridical persons may compromise only in
the form and with the requisites which may be necessary to alienate their
property." Under the corporation law the power to compromise or settle
claims in favor of or against the corporation is ordinarily and primarily
committed to the Board of Directors. The right of the Directors "to
compromise a disputed claim against the corporation rests upon their right to
manage the affairs of the corporation according to their honest and informed
judgment and discretion as to what is for the best interests of the
corporation." This power may however be delegated either expressly or
impliedly to other corporate officials or agents. Thus it has been stated, that
as a general rule an officer or agent of the corporation has no power to
compromise or settle a claim by or against the corporation, except to the
extent that such power is given to him either expressly or by reasonable
implication from the circumstances. It is therefore necessary to ascertain
whether from the relevant facts it could be reasonably concluded that the
Board of Directors of the HI Cement Corporation had authorized its lawyers to
enter into the said compromise agreement.

The infirmity of these arguments is in their assumption that Atty. Cardenas as

administrative manager had authority to bind the corporation or to
compromise the case. Whatever authority the officers or agents of a
corporation may have is derived from the board of directors, or other
governing body, unless conferred by the charter of the corporation. A
corporate officer's power as an agent of the corporation must therefore be
sought from the statute, the charter, the by-laws, or in a delegation of
authority to such officer, from the acts of the board of directors, formally
expressed or implied from a habit or custom of doing business. In the case at
bar no provision of the charter and by-laws of the corporation or any
resolution or any other act of the board of directors of HI Cement Corporation
has been cited, from which We could reasonably infer that the administrative
manager had been granted expressly or impliedly the power to bind the
corporation or the authority to compromise the case. Absent such authority
to enter into the compromise, the signature of Atty. Cardenas on the
agreement would be legally ineffectual.

In order to ratify the unauthorized act of an agent and make it binding on the
corporation, it must be shown that the governing body or officer authorized
to ratify had full and complete knowledge of all the material facts connected
 A g e n c y | 11
Class Notes:
with the transaction to which it relates. The acts or conduct for which the
corporation may be liable under the doctrine of estoppel must be those of the
corporation, its governing body or authorized officers, and not those of the
purported agent who is himself responsible for the misrepresentation.
– Vicente v. Geraldez

PRINCIPAL IS CHARGEABLE WITH THE KNOWLEDGE OR NOTICE TO HIS AGENT

RECEIVED; RULE NOT APPLICABLE WHERE AGENT IS COMMITTING FRAUD
AGAINST THE PRINCIPAL. — It may be argued that petitioner knew of the
compromise agreement since the principal is chargeable with and bound by
the knowledge of or notice to his agent received while the agent was acting as
such. But the general rule is intended to protect those who exercise good faith
and not as a shield for unfair dealing. Hence there is a well-established
exception to the general rule as where the conduct and dealings of the agent
are such as to raise a clear presumption that he will not communicate to the
principal the facts in controversy. The logical reason for this exception is that
where the agent is committing a fraud, it would be contrary to common sense
to presume or to expect that he would communicate the facts to the
principal. Verily, when an agent is engaged in the perpetration of a fraud upon
his principal for his exclusive benefit, he is not really acting for the principal
but is really acting for himself, entirely outside the scope of his agency.
Indeed, the basic tenets of agency rest on the highest considerations of
justice, equity and fair play, and an agent will not be permitted to pervert his
authority to his own personal advantage, and his act in secret hostility to the
interests of his principal transcends the power afforded him.
– Cosmic Lumber v. CA

There is no question therefore that Julian was vested with the power to
mortgage the pieces of property identi9ed in the SPA. However, as to whether
the subject property was among those identi9ed in the SPA, so as to render
Julian's mortgage of the same valid, is a question we still must resolve. After
an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City. There was also nothing
in the language of the SPA from which we could deduce the intention of Perla
to include the subject property therein. We cannot attribute such alleged
intention to Perla who executed the SPA when the language of the instrument
is bare of any indication suggestive of such intention. Contrariwise, to adopt
the intent theory advanced by the respondent, in the absence of clear and
convincing evidence to that effect, would run afoul of the express tenor of the
SPA and thus defeat Perla's true intention.

Equally relevant is the rule that a power of attorney must be strictly construed
and pursued. The instrument will be held to grant only those powers which
are specified therein, and the agent may neither go beyond nor deviate from
the power of attorney. Having arrived at the conclusion that Julian was not
conferred by Perla with then authority to mortgage the subject property
under the terms of the SPA, the real estate mortgages Julian executed over
the said property are therefore unenforceable.
– Mercado v. Allied Banking Corporation

3. Effect of Specific Authorization

SPECIAL POWER OF ATTORNEY TO MORTGAGE REAL PROPERTY IS LIMITED TO

SUCH AUTHORITY. — A special power of attorney to mortgage real estate is
limited to such authority to mortgage and does not bind the grantor
personally to other obligations contracted by the grantee, in the absence of
 A g e n c y | 12
Class Notes:
any ratification or other similar act that would estop the grantor from
questioning or disowning such other obligations contracted by the grantee.

The authority granted by defendants-appellants (except Valeriana) unto their

brother, Maximo, was merely to mortgage the property jointly owned by
them. They did not grant Maximo any authority to contract for any loans in
their names and behalf. Maximo alone, with Valeriana who authorized him to
borrow money, must answer for said loans and the other defendants-
appellants' only liability is that the real estate authorized by them to be
mortgaged would be subject to foreclosure and sale to respond for the
obligations contracted by Maximo. But they cannot be held personally liable
for the payment of such obligations, as erroneously held by the trial court.

LOANS INCURRED IN CONNECTION WITH SAID MORTGAGE CANNOT BE

CHARGED AGAINST OWNERS OF THE PROPERTY MORTGAGED. — The fact
that Maximo presented to the plaintiff bank Valeriana's additional special
power of attorney expressly authorizing him to borrow money, Exh. E-1, aside
from the authority to mortgage executed by Valeriana together with the other
defendants-appellants also in Maximo's favor, lends support to our view that
the bank was not satisfied with the authority to mortgage alone. For
otherwise, such authority to borrow would have been deemed unnecessary
and a surplusage.

CO-OWNERS NOT IN ESTOPPEL IN INSTANT CASE. — Where there was no

express rati>cation by defendants-appellants of the loans incurred by Maximo
from plaintiff bank, secured by the real property owned by them and for
which his only special power of attorney was to mortgage, nor had they
benefited from said loans, no estoppel can be claimed by plaintiff bank as
against defendants.
– PNB v. Sta. Maria

BANKS AND BANKING; BILLS AND NOTES; PRINCIPAL AND AGENT. — The right
of an agent to indorse commercial paper is a very responsible power and will
not be lightly inferred. A salesman with authority to collect money belonging
to his principal does not have the implied authority to indorse checks received
in payment. Any person taking checks made payable to a corporation, which
can act only by agents does so at his peril, and must abide by the
consequences if the agent who indorses the same is without authority.

When a bank accepts the indorsements on checks made out to a drug

company of a salesman of the drug company and the indorsements of the
salesman's wife and clerk, and credits the checks to the personal account of
the salesman and his wife, permitting them to make withdrawals, the bank
makes itself responsible to the drug company for the amounts represented by
the checks, unless it is pleaded and proved that after the money was
withdrawn from the bank, it passed to the drug company which thus suffered
no loss.
– Insular Drug v. PNB

THE SPECIAL POWER OF ATTORNEY REQUIRED TO TRANSFER OWNERSHIP OF

AN IMMOVABLE REFERS TO THE NATURE OF AUTHORIZATION; JUSTIFIED IN
CASE AT BAR. — True, Article 1878 requires a special power of attorney for an
agent to execute a contract that transfers the ownership of an immovable.
However, the Court has clarified that Article 1878 refers to the nature of the
authorization, not to its form. Even if a document is titled as a general power
of attorney, the requirement of a special power of attorney is met if there is a
clear mandate from the principal specifically authorizing the performance of
the act. In Veloso v. Court of Appeals, the Court explained that a general
power of attorney could contain a special power to sell that satisJes the
 A g e n c y | 13
Class Notes:
requirement of Article 1878, thus: In this case, Simona expressly authorized
Mauricio in the GPA to "sell, assign and dispose of any and all of my property,
real, personal or mixed, of any kind whatsoever and wheresoever situated, or
any interest therein. . . ." as well as to "act as my general representative and
agent, with full authority to buy, sell, negotiate and contract for me and in my
behalf." Taken together, these provisions constitute a clear and specific
mandate to Mauricio to sell the Properties. Even if it is called a "general
power of attorney," the specific provisions in the GPA are sufficient for the
purposes of Article 1878. These provisions in the GPA likewise indicate that
Simona consented to the sale of the Properties.
– Bravo-Guerrero v. Bravo

Clarifying the Terms

A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised

Rules of Court states that "when the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and,
therefore, there can be between the parties and their successors-in-interest,
no evidence of the terms of the agreement other than the contents of the
writing", except in cases specifically mentioned in the same rule. Petitioners
have failed to show that their agreement falls under any of these exceptions.
The respondent was given ample authority to transact with the Department in
behalf of the petitioners. Equally without merit is the petitioners' proposition
that the transaction involved two separate contracts because there were two
purchase orders and two deliveries. The petitioners' evidence is overcome by
other pieces of evidence proving that there was only one transaction.
– Siasat v. IAC
 A g e n c y | 14
Class Notes:
Establishing Agency

Oral or written
Art. 1869. Supra

1. Oral
– Air France v. CA

2. Written

Art 1874. When a sale of piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall
be void.

APPLICATION:
 A g e n c y | 15
Class Notes:
Express or Implied Agency and Agency by Estoppel

1. Express Agency
2. Implied Agency
 Implied Agency from Acts of the Principal
Art. 1869. Supra.

More importantly, petitioner's stance goes against the basic

axiom in Civil Law that no one may contract in the name of
another without being authorized by the latter, unless the
former has by law a right to represent him. From this
principle, among others, springs the relationship of agency
which, as with other contracts, is one founded on mutual
consent: the principal agrees to be bound by the acts of the
agent and the latter in turn consents to render service on
behalf or in representation of the principal.
– Uniland Resource v. DBP

 Implied from Acts of the Agent

Art 1870. Supra

Art 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.

Art 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.

3. Agency by Estoppel
 Based on Statute

Art 1873. If the 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.

 Based on Jurisprudence

It is a basic rule in the law of agency that a principal is

subject to liability for loss caused to another by the latter's
reliance upon a deceitful representation by an agent in the
course of his employment (1) if the representation is
authorized; (2) if it is within the implied authority of the
agent to make for the principal; or (3) if it is apparently
authorized, regardless of whether the agent was authorized
by him or not to make the representation.
 A g e n c y | 16
Class Notes:

By their continued silence, Zenaida, Milagros and Minerva

have caused the Pahuds to believe that they have indeed
clothed Eufemia with the authority to transact on their
behalf. Clearly, the three co-heirs are now estopped from
impugning the validity of the sale from assailing the
authority of Eufemia to enter into such transaction.
– Pahud v. CA

Equally barren of merit is petitioners' contention that

respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the following
must be established:
(1) the principal manifested a representation of the agent's
authority or knowlingly 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.

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. Such
proof is lacking in this case. In their communications to the
petitioners, Glanville and Delsaux positively and
unequivocally declared that they were acting for and in
behalf of respondent ESAC.
– Lintojua v. Eternit

The doctrine of apparent authority is a species of the

doctrine of estoppel. Article 1431 of the Civil Code provides
that "[t]hrough estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying
thereon." Estoppel rests on this rule: "Whenever a party
has, by his own declaration, act, or omission, intentionally
and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be
permitted to falsify it."
– Nogales v. Capitol Medical

4. Distinguishing Implied Agency and Agency by Estoppel

The Court of Appeals recognized the existence of an "agency by

estoppel citing Article 1873 of the Civil Code. Apparently, it
considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queaño got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaño's impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds
him 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 honest belief that he is what he appears to be. The Court of
Appeals is correct in invoking the said rule on agency by estoppel.
 A g e n c y | 17
Class Notes:
– Naguiat v. CA
It bears stressing that apparent authority is based on estoppel and
can arise from two instances: First, the principal may knowingly
permit the agent to so hold himself out as having such authority, and
in this way, the principal becomes estopped to claim that the agent
does not have such authority; second, the principal may so clothe the
agent with the indicia of authority as to lead a reasonably prudent
person to believe that he actually has such authority. There can be
no apparent authority of an agent without acts or conduct on the
part of the principal and such acts or conduct of the principal must
have been known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as claimant and
such must have produced a change of position to its detriment. The
apparent power of an agent is to be determined by the acts of the
principal and not by the acts of the agent.

For the principle of apparent authority to apply, the petitioner was

burdened to prove the following: (a) the acts of the respondent
justifying belief in the agency by the petitioner; (b) knowledge
thereof by the respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with ordinary care and
prudence.

For an act of the principal to be considered as an implied ratification

of an unauthorized act of an agent, such act must be inconsistent
with any other hypothesis than that he approved and intended to
adopt what had been done in his name. Ratification is based on
waiver — the intentional relinquishment of a known right.
Ratification cannot be inferred from acts that a principal has a right
to do independently of the unauthorized act of the agent. Moreover,
if a writing is required to grant an authority to do a particular act,
ratification of that act must also be in writing.
– Woodchild v. Roxas

Now, to address the issues raised by petitioner in his petition,

petitioner claims that he is a third party proceeding against the
liability of a presumed principal and claims relief, alternatively, on
the basis of implied agency or agency by estoppel. Article 1869 of the
Civil Code states that implied agency is derived from the acts of the
principal, from his silence or lack of action, or his failure to repudiate
the agency, knowing that another person is acting on his behalf
without authority. Implied agency, being an actual agency, is a fact to
be proved by deductions or inferences from other facts.

On the other hand, apparent authority is based on estoppel and can

arise from two instances. First, the principal may knowingly permit
the agent to hold himself out as having such authority, and the
principal becomes estopped to claim that the agent does not have
such authority. Second, the principal may clothe the agent with the
indicia of authority as to lead a reasonably prudent person to believe
that the agent actually has such authority. In an agency by estoppel,
there is no agency at all, but the one assuming to act as agent has
apparent or ostensible, although not real, authority to represent
another.

The law makes no presumption of agency and proving its existence,

nature and extent is incumbent upon the person alleging it. Whether
or not an agency has been created is a question to be determined by
the fact that one represents and is acting for another.
 A g e n c y | 18
Class Notes:

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.

There can be no apparent authority of an agent without acts or

conduct on the part of the principal and such acts or conduct of the
principal must have been known and relied upon in good faith and as
a result of the exercise of reasonable prudence by a third person as
claimant, and such must have produced a change of position to its
detriment.
– Yun Kwan Byung v. PAGCOR

Apparent authority, or what is sometimes referred to as the "holding

out” theory, or doctrine of ostensible agency or agency by estoppel
has its origin from the law of agency. It imposes liability, not as the
result of the reality of a contractual relationship, but rather because
of the actions of a principal or an employer in somehow misleading
the public into believing that the relationship or the authority exists.

In this case, PSI publicly displays in the lobby of the Medical City
Hospital the names and specializations of the physicians associated
or accredited by it, including those of Dr. Ampil and Dr. Fuentes. We
concur with the Court of Appeals' conclusion that it "ia now estopped
from passing all the blame to the physicians whose names it proudly
paraded in the public directory leading the public to believe that it
vouched for their skill and competence." Indeed, PSI's act is
tantamount to holding out to the public that Medical City Hospital,
through its accredited physicians, offers quality health care services.
By accrediting Dr. Ampil and Dr. Fuentes and publicly advertising
their qualifications, the hospital created the impression that they
were its agents, authorized to perform medical or surgical services
for its patients.
– Professional Service v. Agana
 A g e n c y | 19
Class Notes:
The Agent

The Rights of the Agent

1. Compensation
Art. 1875. Agency is presumed to be for a compensation, unless
there is a proof to the contrary.

 Procuring Cause

AGENCY; BROKERAGE; COMMISSION AGENT NOT ENTITLED

TO COMMISSIONS FOR UNSUCCESSFUL EFFORTS. — B
agreed to pay D could sell B's factory for P1,200,000. No
definite period of time was fixed within which D should
effect the sale. D found a person who intended to purchase
such a factory as B was selling; but before such would-be
purchaser definitely decided to buy the factory in question
at the fixed price of P1,200,000, B (the owner of the factory)
had affected the sale for P1,300,000 through another
broker. Thereafter D brought an action against B to recover
P60,000 (5% of P1,2000,000) "for services rendered,"
claiming that he could have effected the sale of said factory
if B had not sold it to someone else. Held: "for D is not
entitled to recover anything; complaint dismissed, and
defendant absolved from all liability thereunder.

The broker must be the efficient agent or the procuring

cause of the sale. The means employed by him and his
efforts must result in the sale. He must find the purchaser,
and the sale must proceed from his efforts acting as broker.

In all cases, under all and varying forms of expression the

fundamental and correct doctrine is, that the duty assumed
by the broker is to bring the minds of the buyer and seller to
an agreement for a sale, and the price and terms on which it
is to be made, and until that is done his right to commissions
does not accrue. A broker is never entitled to commissions
for unsuccessful efforts. The risk of a failure is wholly his.
The reward comes only with his success.

The undertaking to procure a purchaser requires of the

party so undertaking, not simply to name or introduce a
person who may be willing to make any sort of contract in
reference to the property, but to produce a party capable,
and who ultimately becomes the purchaser.
– Danon v. Brimo & Co.

AGENT DISTINGUISHED FROM A BROKER. — An agent

receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by
bringing the buyer and the seller together, even if no sale is
eventually made.

The fact that Hahn invested his own money to put up these
service centers and showrooms does not necessarily prove
that he is not an agent of BMW. For as already noted, there
are facts in the record which suggest that BMW exercised
control over Hahn's activities as a dealer and made regular
inspections of Hahn's premises to enforce compliance with
BMW standards and specifications . . . In addition, BMW
 A g e n c y | 20
Class Notes:
held out private respondent Hahn as its exclusive distributor
in the Philippines, even as it announced in the Asian region
that Hahn was the "official BMW agent" in the Philippines.
– Hahn v. CA

AGENT RECEIVES COMMISSION UPON THE SUCCESSFUL

CONCLUSION OF SALE. — It is readily apparent that private
respondents are trying to evade payment of the commission
which rightfully belong to petitioners as brokers with
respect to the sale. There was no dispute as to the role that
petitioners played in the transaction. At the very least,
petitioners set the sale in motion. They were not able to
participate in its consummation only because they were
prevented from doing so by the acts of the private
respondents. In the case of Alfred Hahn v. Court of Appeals
and Bayerische Motoren Werke Aktiengesellschaft (BMW)
we ruled that, "An agent receives a commission upon the
successful conclusion of a sale. On the other hand, a broker
earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made." Clearly,
therefore, petitioners, as brokers, should be entitled to the
commission whether or not the sale of the property subject
matter of the contract was concluded through their efforts.
– Tan v. Gullas

In relation thereto, we have held that the term "procuring

cause" in describing a broker's activity, refers to a cause
originating a series of events which, without break in their
continuity, result in the accomplishment of the prime
objective of the employment of the broker — producing a
purchaser ready, willing and able to buy on the owner's
terms. To be regarded as the "procuring cause" of a sale as
to be entitled to a commission, a broker's efforts must have
been the foundation on which the negotiations resulting in a
sale began. Verily, Estrada was instrumental in the sale of
the Maxicare health plans to Meralco. Without her
intervention, no sale could have been consummated.
– Philippine Health-Care Providers v. Estrada

AN AGENT RECEIVES HIS COMMISSION ONLY UPON THE

SUCCESSFUL CONCLUSION OF A SALE. — It is dictum that in
order for an agent to be entitled to a commission, he must
be the procuring cause of the sale, which simply means that
the measures employed by him and the efforts he exerted
must result in a sale. In other words, an agent receives his
commission only upon the successful conclusion of a sale.
Conversely, it follows that where his efforts are
unsuccessful, or there was no effort on his part, he is not
entitled to a commission.

AN AGENT WHO WAS THE EFFICIENT PROCURING CAUSE OF

THE SALE IS ENTITLED TO A COMMISSION
NOTWITHSTANDING THAT THE SALE TOOK PLACE AFTER HIS
AUTHORITY HAD LAPSED. — In Prats vs. Court of Appeals,
this Court held that for the purpose of equity, an agent who
is not the e>cient procuring cause is nonetheless entitled to
his commission, where said agent, notwithstanding the
expiration of his authority, nonetheless, took diligent steps
to bring back together the parties, such that a sale was
 A g e n c y | 21
Class Notes:
finalized and consummated between them. In Manotok
Brothers vs. Court of Appeals, where the Deed of Sale was
only executed after the agent's extended authority had
expired, this Court, applying its ruling in Prats, held that the
agent (in Manotok) is entitled to a commission since he was
the efficient procuring cause of the sale, notwithstanding
that the sale took place after his authority had lapsed. The
proximate, close, and causal connection between the
agent's efforts and the principal's sale of his property cannot
be ignored.

CONSIDERED REVOKED IF THE PRINCIPAL DIRECTLY

MANAGES THE BUSINESS ENTRUSTED TO THE AGENT. — It is
clear that since petitioner refused to reduce his commission,
Medicard directly negotiated with Unilab, thus revoking its
agency contract with petitioner. We hold that such
revocation is authorized by Article 1924 of the Civil Code
which provides: "Art. 1924. The agency is revoked if the
principal directly manages the business entrusted to the
agent, dealing directly with third persons." Moreover, as
found by the lower courts, petitioner did not render services
to Medicard, his principal, to entitle him to a commission.
There is no indication from the records that he exerted any
effort in order that Unilab and Medicard, after the
expiration of the Health Care Program Contract, can renew
it for the third time. In fact, his refusal to reduce his
commission constrained Medicard to negotiate directly with
Unilab. We find no reason in law or in equity to rule that he
is entitled to a commission. Obviously, he was not the agent
or the "procuring cause" of the third Health Care Program
Contract between Medicard and Unilab.
– Sanchez v. Medicard

Oral evidence is presented to the effect that while the

agents agreed to cancel the written authority given them by
their principal, they did so merely upon the principal's verbal
assurance that, should the property subject of their contract
of agency be sold to their own buyer, they would be given
the commission agreed upon. Held: The cancellation of the
written authority being in writing, parole evidence is not
admissible under section 22 of Rule 123.

If there is other evidence which would justify the agents'

claim for commission, even if such parol evidence is
disregarded, they are entitled to such commission.

The principal took advantage of the agents' services

consisting in locating a buyer for the principal's land. The
principal, perhaps by stratagem, advised the agents that she
was no longer interested in the deal and was able to prevail
upon them to sign a document agreeing to the cancellation
of the written authority she had originally given the agents,
believing that she could evade payment of their
commission. Then she sold the property to the buyer found
by the agents. Held: The principals act is unfair as would
amount to bad faith, and cannot be sanctioned without
according to the agents the reward which is due them.
 A g e n c y | 22
Class Notes:
 Prats Doctrine and Manotok Test

ALTHOUGH AGENT IS NOT THE EFFICIENT PROCURING

CAUSE, HE MAY BE COMPENSATED FROM EFFORTS EXERTED
TO BRING PRINCIPAL AND BUYER TOGETHER. — In an action
by a real estate broker to recover commission from the
principal, although the Court of Appeals' factual findings
provide no basis in law to grant relief to the broker, since
said court found that the broker was not the efficient
procuring cause in bringing about the sale, nevertheless,
relief in equity may be granted where it appears that the
agent had diligently taken steps to bring back together the
principal and the prospective buyer.
– Prats v. CA

AGENT'S COMMISSION; WHEN ENTITLED' RULE;

APPLICATION IN CASE AT BAR. — In an earlier case, this
Court ruled that when there is a close, proximate and causal
connection between the agent's efforts and labor and the
principal's sale of his property, the agent is entitled to a
commission. We agree with respondent Court that the City
of Manila ultimately became the purchaser of petitioner's
property mainly through the efforts of private respondent.
Without discounting the fact that when Municipal
Ordinance No. 6603 was signed by the City Mayor on May
17, 1968, private respondent's authority had already
expired, it is to be noted that the ordinance was approved
on April 26, 1968 when private respondent's authorization
was still in force. Moreover, the approval by the City Mayor
came only three days after the expiration of private
respondent's authority. It is also worth emphasizing that
from the records, the only party given a written authority by
petitioner to negotiate the sale from July 5, 1966 to May 14,
1968 was private respondent.

At first sight, it would seem that private respondent is not

entitled to any commission as he was not successful in
consummating the sale between the parties, for the sole
reason that when the Deed of Sale was finally executed, his
extended authority had already expired. By this alone, one
might be misled to believe that this case squarely falls within
the ambit of the established principle that a broker or agent
is not entitled to any commission until he has successfully
done the job given to him.

Going deeper however into the case would reveal that it is

within the coverage of the exception rather than of the
general rule, the exception being that enunciated in the case
of Prats vs. Court of Appeals.

 Forfeiture of Right

The duties and liabilities of a broker to his employer are

essentially those which an agent owes to his principal.
Consequently, the decisive legal provisions are found in
Articles 1891 and 1909 of the New Civil Code. The aforecited
provisions demand the utmost good faith, fidelity, honesty,
candor and fairness on the part of the agent, the real estate
broker in this case, to his principal, the vendor. The law
 A g e n c y | 23
Class Notes:
imposes upon the agent the absolute obligation to make a
full disclosure or complete account to his principal of all his
transactions and other material facts relevant to the agency,
so much so that the law as amended does not countenance
any stipulation exempting the agent from such an obligation
and considers such an exemption as void. The duly of an
agent is likened to that of a trustee. This is not a technical or
arbitrary rule but a rule founded on the highest and truest
principle of morality as well as of the strictest justice.

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 a
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 custom allows it,
because the rule is to prevent the possibility of any wrong,
not to remedy or repair an actual damage.
– Domingo v. Domingo

2. Lend to/Borrow Money from the Agency

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.

3. Appoint a Substitute

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 designation 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.

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 substitution.

 Substitute Agent: Alternative Not Designate

Faustino Mercado, is an agent himself and as such cannot

further delegate his agency to another. Otherwise put, an
agent cannot delegate to another the same agency. The
legal maxim potestas delegata non delegare potest; a power
once delegated cannot be re-delegated, while applied
primarily in political law to the exercise of legislative power,
is a principle of agency. For another, a re-delegation of the
agency would be detrimental to the principal as the second
agent has no privity of contract with the former. In the
instant case, petitioner has no privity of contract with
 A g e n c y | 24
Class Notes:
Paciencia Regala, owner of the fishpond and principal of
Faustino Mercado.

Moreover, while the Civil Code under Article 1892 3377

allows the agent to appoint a substitute, such is not the
situation in the instant case. The SPA clearly delegates the
agency to petitioner to pursue the case and not merely as a
substitute. Besides, it is clear in the aforecited Article that
what is allowed is a substitute and not a delegation of the
agency.
– Baltazar v. Ombudsman

PETITIONER HELD CIVILLY LIABLE TO THE OWNER OF THE

JEWELRY. — Petitioner is not entirely free from any liability
towards Quilatan. The rule is that an accused acquitted of
estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant. Then too, an agent
who is not prohibited from appointing a sub-agent but does
so without express authority is responsible for the acts of
the sub-agent. Considering that the civil action for the
recovery of civil liability arising from the offense is deemed
instituted with the criminal action, petitioner is liable to pay
complainant Quilatan the value of the unpaid pieces of
jewelry.
– Serona v. People

4. Retain in Pledge Objects of the Agency

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.

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

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.
 A g e n c y | 25
Class Notes:
The Obligations of the Agent
1. Act within the scope of authority.
 In general
Art. 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.

Art. 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.

Facts: RECCI’s Board of Directors appointed its President,

Roxas, authority to sell Lot No. 491-A-3-B-2. Roxas sold the
lot to WHI. WHI entered into an agreement with Roxas
where they agreed to grant right of way and to sell
additional square meters from its current adjacent property
to allow the Vendee full access and full use of the property.
Respondent denied authorizing its then president Roxas to
sell a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085, and to create a lien or burden thereon.

Issue: WON RECCI is bound by the agreement.

Ruling: No. Generally, the acts of the corporate officers

within the scope of their authority are binding on the
corporation. However, under Article 1910 of the New Civil
Code, acts done by such officers beyond the scope of their
authority cannot bind the corporation unless it has ratified
such acts expressly or tacitly, or is estopped from denying
them. Thus, contracts entered into by corporate officers
beyond the scope of authority are unenforceable against the
corporation unless ratified by the corporation.
– Woodchild vs. Roxas

Based on the surrounding circumstances, she relied on her

belief that the van was brand new. In fine, she was the
innocent victim of the petitioner's fraudulent nondisclosure
or concealment. The petitioner cannot pin criminal liability
for his fraudulent omission on his general manager, Azotea.
The two are equally liable for their collective fraudulent
silence. Case law has it that wherever the doing of a certain
act or the transaction of a given affair, or the performance
of certain business is confided to an agent, the authority to
so act will, in accordance with a general rule often referred
to, carry with it by implication the authority to do all of the
collateral acts which are the natural and ordinary incidents
of the main act or business authorized.
– Guinhawa vs. People

 As Regards Third Persons

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.
 A g e n c y | 26
Class Notes:
 Authority of Corporate Officers
WHERE SIMILAR ACTS WERE APPROVED BY DIRECTORS;
CASE AT BAR. — Where similar acts have been approved by
the directors as a matter of general practice, custom, and
policy, the general manager may bind the company without
formal authorization of the board of directors. In varying
language, existence of such authority is established, by
proof of the course of business, the usages and practices of
the company and by the knowledge which the board of
directors has, or must be presumed to have, of acts and
doings of its subordinates in and about the affairs of the
corporation. In the case at bar, the practice of the
corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading
activities for and in NACOCO's behalf without prior board
approval. If the by-laws were to be literally followed, the
board should give its stamp of prior approval on all
corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law
requirement of prior approval. Under the given
circumstances, the contracts executed by the general
manager are valid corporate acts.

RATIFICATION BY CORPORATION OF UNAUTHORIZED

CONTRACT OF ITS OFFICERS. — Ratification by a corporation
of an unauthorized act or contract by its officers or others
relates back to the time of the act or contract ratified, and is
equivalent to original authority; and that the corporation
and the other party to the transaction are in precisely the
same position as if the act or contract had been authorized
at the time. "The adoption or ratification of a contract by a
corporation is nothing more nor less than the making of an
original contract. The theory of corporate ratification is
predicated on the right of a corporation to contract, and any
ratification or adoption is equivalent to a grant of prior
authority.
– Board of Liquidators vs. Heirs of Maximo Kalaw

TRANSFER OR SALE OF CORPORATE PROPERTY BY THE

CORPORATION'S TREASURER WITHOUT ANY AUTHORITY
FROM THE BOARD OF DIRECTORS IS NULL AND VOID.
Indubitably, a corporation may act only through its board of
directors or, when authorized either by its bylaws or by its
board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern
the relation between the corporation and its officers or
agents, subject to the articles of incorporation, bylaws, or
relevant provisions of law. Thus, this Court has held that " 'a
corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent
that the authority to do so has been conferred upon him,
and this includes powers which have been intentionally
conferred, and also such powers as, in the usual course of
the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or
agent to believe that it has conferred.' " Furthermore, the
 A g e n c y | 27
Class Notes:
Court has also recognized the rule that "persons dealing
with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in
case either is controvert, the burden of proof is upon them
to establish it." Unless duly authorized, a treasurer, whose
powers are limited, cannot bind the corporation in a sale of
its assets. In the case at bar, Respondent Motorich
categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of land.
Consequently, petitioner had the burden of proving that
Nenita Gruenberg was in fact authorized to represent and
bind Motorich in the transaction. Petitioner failed to
discharge this burden. Its offer of evidence before the trial
court contained no proof of such authority. It has not shown
any provision of said respondent's articles of incorporation,
bylaws or board resolution to prove that Nenita Gruenberg
possessed such power. That Nenita Gruenberg is the
treasurer of Motorich does not free petitioner from the
responsibility of ascertaining the extent of her authority to
represent the corporation. Petitioner cannot assume that
she, by virtue of her position, was authorized to sell the
property of the corporation. Selling is obviously foreign to a
corporate treasurer's function, which generally has been
described as "to receive and keep the funds of the
corporation and to disburse them in accordance with the
authority given him by the board or the properly authorized
officers." Neither was such real estate sale shown to be a
normal business activity of Motorich. The primary purpose
of Motorich is marketing, distribution, export and import in
relation to a general merchandising business. Unmistakably,
its treasurer is not cloaked with actual or apparent authority
to buy or sell real property, an activity which falls way
beyond the scope of her general authority.
– San Juan vs. CA

COMMERCIAL LAW; CORPORATION CODE; CORPORATE

POWERS OF ALL CORPORATIONS SHALL BE EXERCISED BY
THE BOARD OF DIRECTORS; RATIONALE. — Section 23 of the
Corporation Code expressly provides that the corporate
powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to
do certain acts in his behalf, so may the board of directors of
a corporation validly delegate some of its functions to
individual officers or agents appointed by it. Thus, contracts
or acts of a corporation must be made either by the board
of directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the rule
is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of
such director, are held not binding on the corporation.
– AF Realty vs. Dieselman

CORPORATIONS; BINDING EFFECT OF ACTS OF CORPORATE

OFFICERS. —A corporation cannot evade the binding effect
produced by a telegram sent by its board secretary, and the
addressee of such telegram cannot be blamed for relying
 A g e n c y | 28
Class Notes:
upon it, because if every person dealing with a corporation
were held duty-bound to disbelieve every act of its
responsible officers no matter how regular it should appear
on its face, corporate transactions would speedily come to a
standstill.

WHEN CORPORATION ESTOPPED TO DENY APPARENT

AUTHORITY OF ITS OFFICERS. — If a private corporation
intentionally or negligently clothes its officers or agents with
apparent power to perform acts for it, the corporation will
be estopped to deny that such apparent authority is real, as
to innocent third persons dealing in good faith with such
officers or agents.

WHEN NOTICE OF FACTS BY A CORPORATE OFFICER IS

NOTICE TO CORPORATION. — Knowledge of facts acquired
or possessed by an officer or agent of a corporation in the
course of his employment, and in relation to matters within
he communicates such knowledge or not.

SILENCE OF CORPORATION AS RATIFICATION OF

AGREEMENT. — The silence of the corporation, taken
together with the unconditional acceptance of three
subsequent remittances from plaintiff, constitutes a binding
ratification of the original agreement between them.

MAXIM THAT THE ONE WHO MADE IT POSSIBLE FOR A

WRONG TO BE DONE SHOULD SUFFER. — The equitable
maxim that between two innocent parties the one who
made it possible for the wrong to be done should be the one
to bear the resulting loss, applies when—as in the instant
case—a corporation allows one of its officers, now alleged
to be without the proper authority, to send a telegram
binding the corporation. – Francisco vs. GSIS

2. Act in Accordance with Instructions.

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.

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.

3. Carry out the Agency.

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.

Facts: Private respondent decided to visit his relative in Bombay,

India. Since petitioner had no direct flights from Manila to Bombay,
private respondent had to take a flight to Hongkong via PAL, and
upon arrival in Hongkong he had to take a connecting flight to
Bombay on board the petitioner. Prior to his departure, private
respondent checked in at respondent PAL's counter in Manila his two
pieces of luggage confident that upon reaching Hongkong, the same
 A g e n c y | 29
Class Notes:
would be transferred to the petitioner's flight bound for Bombay.
When private respondent arrived in Bombay he discovered that his
luggage was missing and that upon inquiry from the petitioner's
representative, he was told that the same might have been diverted
to London. After waiting for his luggage for one week, petitioner
finally advised him to file a claim. Back in the Philippines, private
respondent filed with the trial court his complaint for damages and
attorney's fees against petitioner. Respondent PAL disclaimed any
liability. The trial court rendered its decision in favor of the private
respondent. Petitioner appealed to the Court of Appeals which,
however, affirmed the trial court's findings in toto.

Issue: WON PAL should be held liable.

Ruling: The contractual relationship between petitioner and

respondent PAL is one of agency, the former being the principal,
since it was the one which issued the confirmed ticket, and the latter
the agent. Since the instant petition was based on breach of contract
of carriage, private respondent can only sue petitioner alone, and not
respondent PAL, since the latter was not a party to the contract.
However, respondent PAL is not relieved from any liability due to any
of its negligent acts. It is but logical, fair and equitable to allow
petitioner to sue respondent PAL for indemnification, if it is proven
that the latter's negligence was the proximate cause of private
respondent's unfortunate experience, instead of totally absolving
respondent PAL from any liability.

AGENT RESPONSIBLE FOR ANY NEGLIGENCE AND LIABLE FOR

DAMAGES WHICH THE PRINCIPAL MAY SUFFER. — Parenthetically,
the Court of Appeals should have been cognizant of the well-settled
rule 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 its negligent act. Hence, the Court
of Appeals erred when it opined that BA, being the principal, had no
cause of action against PAL, its agent or sub-contractor. Also, it is
worth mentioning that both BA and PAL are members of the
International Air Transport Association (IATA), wherein member
airlines are regarded as agents of each other in the issuance of the
tickets and other matters pertaining to their relationship. Therefore,
in the instant case, the contractual relationship between BA and
PAL is one of agency, the former being the principal, since it was the
one which issued the confirmed ticket, and the latter the agent.
– British Airways vs. CA

4. Advance Funds
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.

5. Prefer Interest of the Principal Over Personal Interest

 In General
Art. 1889. Supra

 Property Administered
PRINCIPAL AND AGENT; ADVERSE TITLE; ESTOPPEL. — The
relations of an agent to his principal are fiduciary and in
regard to the property forming the subject-matter of the
agency, he is stopped from acquiring or asserting a title
adverse to that of the principal.
 A g e n c y | 30
Class Notes:
REAL PROPERTY; CONVEYANCE BY AGENT TO PRINCIPAL. —
An action in personam will lie against an agent to compel
him to return or transfer to his principal, or the latter's
estate, the real properly committed to his custody as such
agent and also it execute the necessary documents of
conveyance to effect such retransfer.

REGISTRATION OF LAND. — The principal's right of action to

compel a reconveyance is not extinguished through the
registration of the land in favour of the agent; though the
final decree of registration may not be reopened after the
expiration of one year from the date of its entry, there
appears to be no reason why the agent should not be
compelled, through a suit in equity, to make such reparation
as may lie within his power for the breach of trust
committed by him, and as long as the land stands registered
in his name such reparation may take the form of a
conveyance or transfer of the title to the cestui que trust,
i.e., the principal.

The relations of an agent to his principal are fiduciary and it

is an elementary and very old rule that in regard to property
forming the subject-matter of the agency, he is estopped
from acquiring or asserting a title adverse to that of the
principal. His position is analogous to that of a trustee and
he cannot consistently, with the principles of good faith, be
allowed to create in himself an interest in opposition to that
of his principal or cestui que trust. Upon this ground, and
substantially in harmony with the principles of the Civil Law,
the English Chancellors held that in general whatever a
trustee does for the advantage of the trust estate inures to
the benefit of the cestui que trust.
– Severino vs. Severino

Agency is defined in article 1709 in broad term, and we have

not come across any commentary or decision dealing
directly with the precise meaning of agency as employed in
article 1459. But in the opinion of Manresa, agent in the
sense there used is one who accepts another's
representation to perform in his name certain acts of more
or less transcendency, while Scaevola says that the agent's
incapacity to buy his principal's property rests in the fact
that the agent and the principal form one juridical person. In
this connection Scaevola observes that the fear that greed
might get the better of the sentiments of loyalty and
disinterestedness which should animate an administrator or
agent, is the reason underlying the various classes of
incapacity enumerated in article 1459. And as American
courts commenting on similar prohibition at common law
put it, the law does not trust human nature to resist the
temptations likely to arise out of antagonism between the
interest of the seller and the buyer.

So the ban of paragraph 2 of article 1459 connotes the idea

of trust and confidence; and so where the relationship does
not involve considerations of good faith and integrity the
prohibition should not and does not apply. To come under
the prohibition, the agent must be in a fiduciary relation
with his principal.
 A g e n c y | 31
Class Notes:
A person who acts as a go-between or middleman between
the vendor and the vendee, bringing them together to make
the contract themselves, without any power or discretion
whatsoever which he could abuse to his advantage and to
the owner's prejudice, is not an agent within the meaning of
article 1459 of the Civil Code.
– Araneta, Inc. vs. De Paterno

 Double Sales
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.

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.

Art. 1544. If the same thing should have been sold to

different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.

6. Render Account/Delivery.
Art. 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he may have
receive 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.

AGENCY; ARTICLES 1891 AND 1909 OF THE NEW CIVIL CODE; DUTY
OF AGENT TO PRINCIPAL. — The duties and liabilities of a broker to
his employer are essentially those which an agent owes to his
principal. Consequently, the decisive legal provisions are found in
Articles 1891 and 1909 of the New Civil Code. The aforecited
provisions demand the utmost good faith, fidelity, honesty, candor
and fairness on the part of the agent, the real estate broker in this
case, to his principal, the vendor. The law imposes upon the agent
the absolute obligation to make a full disclosure or complete account
to his principal of all his transactions and other material facts
relevant to the agency, so much so that the law as amended does not
countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void. The duly of an
agent is likened to that of a trustee. This is not a technical or arbitrary
rule but a rule founded on the highest and truest principle of
morality as well as of the strictest justice.
 A g e n c y | 32
Class Notes:
EFFECT OF BREACH OF LOYALTY. — 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 a 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 custom allows it, because the rule is to prevent the
possibility of any wrong, not to remedy or repair an actual damage.

TAKING OF SECRET PROFIT, TANTAMOUNT TO BREACH. — By taking

such profit or bonus or gift or propina from the vendee, the agent
thereby assumes a position wholly inconsistent with that of being an
agent for his principal, who has a right to treat him, insofar as his
commission is concerned, as if no agency had existed. 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.

LIABILITY FOR ESTAFA. — Because of his responsibility under the

aforecited Article 1720, an agent is likewise liable for estafa for
failure to deliver to his principal the total amount collected by him in
behalf of his principal and cannot retain the commission pertaining
to him by subtracting the same from his collections.

PRINCIPAL ENTITLED TO RECOVERY OF COMMISSIONS PAID. —

Where a principal has paid an agent or broker a commission while
ignorant of the fact that the latter has been unfaithful, the principal
may recover back the commission paid, since an agent or broker who
has been unfaithful is not entitled to any compensation. If the agent
does not conduct himself with entire fidelity towards his principal,
but is guilty of taking a secret profit or commission in regard the
matter in which he is employed, he loses his right to compensation
on the ground that he has taken a position wholly inconsistent with
that of agent for his employer, and which gives his employer, upon
discovering it, the right to treat him so far as compensation, at least,
is concerned as if no agency had existed. This may operate to give to
the principal the benefit of valuable services rendered by the agent,
but the agent has only himself to blame for that result.

ACCOUNTABILITY OF AGENT FOR ALL PROFITS RECEIVED. — As a

general rule, it is a breach of good faith and loyalty to his principal for
an agent, while the agency exists, so to deal with the subject matter
thereof, or with information acquired during the course of the
agency, as to make a profit out of it for himself in excess of his lawful
compensation; and if he does so he may be held as a trustee and may
be compelled to account to his principal for all profits, advantages,
rights, or privileges acquired by him in such dealings, whether in
performance or in violation of his duties, and be required to transfer
them to his principal upon being reimbursed for his expenditures for
the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue, or had
accrued, to the agent, or unless with such knowledge he has allowed
the agent so as to change his condition that he cannot be put in
status quo. The application of this rule is not affected by the fact that
the principal did not suffer any injury by reason of the agent's
dealings, or that he in fact obtained better results; nor is it affected
by the fact that there is a usage or custom to the contrary, or that
the agency is a gratuitous one.
 A g e n c y | 33
Class Notes:
WHEN INAPPLICABLE. — The duty embodied in Article 1891 of the
New Civil Code will not apply if the agent or broker acted only as a
middleman with the task of merely bringing together the vendor and
vendee, who themselves thereafter will negotiate on the terms and
conditions of the transaction. Neither would the rule apply if the
agent or broker had informed the principal of the gift or bonus or
profit he received from the purchaser and his principal did not object
thereto. Herein defendant-appellee Gregorio Domingo was not
merely a middleman of the petitioner-appellant Vicente Domingo
and the buyer Oscar de Leon. He was the broker and agent of said
petitioner-appellant only. And herein petitioner-appellant was not
aware of the gift of One Thousand Pesos (P1,000.00) received by
Gregorio Domingo form the prospective buyer; much less did he
consent to his agent's accepting such a gift.
– Domingo vs. Domingo

As a sales agent, private complainant Federico entered into

negotiations with prospective clients for and on behalf of his
principal, LMICE. When negotiations for the sale or refill of fire
extinguishers were successful, private complainant Federico
prepared the necessary documentation. Purchase orders, invoices,
and receipts were all in the name of LMICE. It was LMICE who had
the primary duty of picking up the empty fire extinguishers, filling
them up, and delivering the re:lled tanks to the clients, even though
private complainant Federico personally helped in hauling and
carrying the fire extinguishers during pick-up from and delivery to
clients. All profits made and any advantage gained by an agent in the
execution of his agency should belong to the principal. In the instant
case, whether the transactions negotiated by the sales agent were
for the sale of brand new fire extinguishers or for the refill of empty
tanks, evidently, the business belonged to LMICE. Consequently,
payments made by clients for the fire extinguishers pertained to
LMICE.

Since LMICE is the lawful owner of the entire proceeds of the check
payment from the City Government of Puerto Princesa, then the
petitioners who collected the payment on behalf of LMICE did not
receive the same or any part thereof in trust, or on commission, or
for administration, or under any other obligation involving the duty
to make delivery of, or to return, the same to private complainant
Federico, thus, the RTC correctly found that no fiduciary relationship
existed between petitioners and private complainant Federico. A
fiduciary relationship between the complainant and the accused is an
essential element of estafa by misappropriation or conversion,
without which the accused could not have committed estafa.

7. Pay interest.
Art. 1896. The agent who 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.

8. Responsibility for Fraud or Negligence

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.

In stressing that it was acting only as a collecting agent for Golden

Savings, Metrobank seems to be suggesting that as a mere agent it
 A g e n c y | 34
Class Notes:
cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that — 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.

The negligence of Metrobank has been sufficiently established. To

repeat for emphasis, it was the clearance given by it that assured
Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited. Metrobank
misled Golden Savings. There may have been no express clearance,
as Metrobank insists (although this is refuted by Golden Savings) but
in any case that clearance could be implied from its allowing Golden
Savings to withdraw from its account not only once or even twice but
three times. The total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
– Metrobank vs. CA
 A g e n c y | 35
Class Notes:
The Liability of Agents

1. When Solidary
Article 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.

 Joint Agency – Several agents are appointed to act

collectively.
 Each agent is responsible for his own acts to the principal.
 The declaration of one agent to a third person in relation to
the agency does not become effective until the others make
the same declaration to the same person or ratify the
declaration already made by the first agent.
 All must act toward the same end to bind the principal
 But the knowledge of a fact by one of them is considered as
knowledge of all.
 If not solidary – Each agent is liable only for his own acts or
omissions.

Article 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.
 Solidary Agency – there being several agents for the same
purpose, each once acts independently of the others, and
can bind the principal without the intervention of the
others.
 An act of an agent beyond the scope of the agency does not
concern the other agents.

2. When Personally Liable

a. Expressly Bound or In Excess of 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.

 The fact that the agent has also bound himself to pay
the debt does not relieve from liability the principal for
whose benefit the debt was incurred. The individual
liability of the agent constitutes a further security in
favour of the creditor and does not affect or preclude
the liability of the principal.

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.

 If the principal receives the benefits from the

unauthorized acts of the agent, it is evident that he
tacitly ratifies them.
 A g e n c y | 36
Class Notes:
 Liability of the Agent who exceeded scope of authority
and Principal did not ratify the act:
Principal knows Principal does not
know
Principal is not entitled Agent is liable for
to recover damages damages.
from agent
Unless the agent
undertook to secure
the principal’s
ratification

Article 1897 reinforces the familiar doctrine that an agent, who

acts as such, is not personally liable to the party with whom he
contracts. The same provision, however, presents two instances
when an agent becomes personally liable to a third person. The
first is when he expressly binds himself to the obligation and the
second is when he exceeds his authority. In the last instance, the
agent can be held liable if he does not give the third party
sufficient notice of his powers. – Eurotech v. Cuison

DBP vs CA
FACTS: Juan B. Dans, 76 years of age, together with his family,
applied for a loan worth Php 500, 000 at the Development Bank
of the Philippines on May 1987. The loan was approved by the
bank dated August 4, 1987 but in the reduced amount of Php
300, 000. Mr. Dans was advised by DBP to obtain a mortgage
redemption insurance at DBP MRI pool. DBP deducted the
amount to be paid for MRI Premium that is worth Php 1476.00.
The insurance of Mr. Dans, less the DBP service fee of 10%, was
credited by DBP to the savings account of DBP MRI-Pool.
Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Mr. Dans died of cardiac arrest.
DBP MRI notified DBP was not eligible for the coverage of
insurance for he was beyond the maximum age of 60. The wife,
Candida, filed a complaint to the Regional Trial Court Branch I
Basilan against DBP and DBP MRI pool for ‘Collection of Sum of
Money with Damages’. Prior to that, DBP offered the
administratrix (Mrs. Dans) a refund of the MRI payment but she
refused for insisting that the family of the deceased must receive
the amount equivalent of the loan. DBP also offered and ex
gratia for settlement worth Php 30, 000. Mrs. Dans refused to
take the offer. The decision of the RTC rendered in favor of the
family of the deceased and against DBP. However, DBP appealed
to the court.

ISSUE: Whether or not the DBP MRI Pool should be held liable on
the ground that the contract was already perfected.

HELD: No. DBP MRI Pool is not liable. Though the power to
approve the insurance is lodged to the pool, the DBP MRI Pool
did not approve the application of the deceased. There was no
perfected contract between the insurance pool and Mr. Dans.
DBP was wearing two legal hats: as a lender and
insurance agent. As an insurance agent, DBP made believed that
the family already fulfilled the requirements for the said
insurance although DBP had a full knowledge that the
application would never be approved. DBP acted beyond the
scope of its authority for accepting applications for MRI. If the
 A g e n c y | 37
Class Notes:
third person who contracted is unaware of the authority
conferred by the principal on the agent and he has been
deceived, the latter is liable for damages. The limits of the
agency carries with it the implication that a deception was
perpetrated—Articles 19-21 come into play.
However, DBP is not entitled to compensate the family
of the deceased with the entire value of the insurance policy.
Speculative damages are too remote to be included in the cost of
damages. Mr. Dans is entitled only to moral damages. Such
damages do not need a proof of pecuniary loss for assessment.
The court granted only moral damages (Php 50, 000) plus
attorney fees’s (Php 10, 000) and the reimbursement of the MRI
fees with legal interest from the date of the filing of the
complaint until fully paid.

b. Act in 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 transaction 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.

 This rule is applicable only to cases where it is material

to the third person to know with whom he is
contracting.
 When the things involved are those belonging to the
principal, it shall be deemed that the contract is made
on behalf of the principal.

Beaumont vs. Prieto

FACTS:
Defendant Benito Legarda was one of the owners of fee simple
of the Nagtajan Hacienda, while defendant Benito Valdes was his
attorney-in-fact and acted as such by virtue of a power of
attorney duly executed under notarial seal & presented in the
office of the register of deeds. On 4 December 1911, Valdes sent
Borck the following letter:

MANILA, December 4, 1911.

Mr. W. BORCK,
Real Estate Agent,
Manila, P.I.

SIR: In compliance with your request I herewith give you an

option for three months to buy the property of Mr. Benito
Legarda known as the Nagtahan Hacienda, situated in the
district of Sampaloc, Manila, and consisting of about, 1,993,000
sq. meters of land, for the price of its assessed government
valuation.
 A g e n c y | 38
Class Notes:

B. VALDES.

On 19 January 1912 (offer/option still stood), Borck, in writing,

accepted the terms of the offer and requested of Valdes to be
allowed to inspect the property, titles, and other documents
pertaining to the property, and offered to pay the defendant
immediately as soon as a reasonable examination could be made
of said documents. Defendants, however, refused to deliver to
him the documents and to execute any instrument of
conveyance in his favor. Plaintiff avers that, by reason of such
refusal, he incurred great expense and suffered great losses. He
filed a complaint (first against Valdes, later amended to include
Legarda) praying that defendants be ordered to execute a public
instrument in his favor evidencing the contract/obligation, to
convey in absolute sale to him the property (specific
performance), to render an account of rents & profits collected
from 19 January (accounting), & damages in case of impossibility
of specific performance.

While this complaint was not yet amended, the defendant

Valdes filed a demurrer, on the grounds that there was a
misjoinder of parties on account of the erroneous inclusion
therein of the defendant Valdes, that the complaint did not set
forth fact that constituted a cause of action against said
defendant, and that it was ambiguous, unintelligible and vague.
This demurrer was overruled on April 11, 1912. The defendant
Benito Legarda also interposed a demurrer to the amended
complaint on the grounds that the facts therein set forth did not
constitute a right of action against him. This demurrer was
likewise overruled on June 26, 1912.

Meanwhile, on 22 June 1912, ruling on a petition made in

voluntary insolvency proceedings brought by Borck, and in view
of the agreement entered into in said proceedings by all of the
latter's creditors, ordered that the plaintiff Borck be substituted
in the instant proceedings by Hartford Beaumont, as the
trustee appointed therein and representative of the said
plaintiff's creditors, the assignee of his rights, in said
proceedings.

CFI decided in favor of Borck: Instrument constituted a contract

by which the principal defendant undertook to convey to the
plaintiff the property; plaintiff entitle to specific performance
and net income; ordered to execute & deliver to plaintiff good &
sufficient conveyance, free of all encumbrance, of the property.

Plaintiff's cause of action is based on the failure of Valdes, as the

agent/attorney-in-fact of Legarda, to perform the obligation
contracted by Valdes to sell to Borck the property belonging to
Legarda. He seeks to require fulfillment of the said obligation
 A g e n c y | 39
Class Notes:
and to secure payment of a proper indemnity for damages
because of failure to timely comply.

(Note: Remember that Valdes signed the letter to Borck in his

own name (thereby appearing that he acted in his own name),
altough Borck knew that Valdes was Legarda's agent or attoney-
in-fact.)

ISSUE:
WON Borck has a cause of action against Legarda, the principal

HELD:
YES. Although, according to article 1717 of the Civil Code (now
Article 1883) when the agent acts in his own name he is not
personally liable to the person with whom he enters into a
contract when things belonging to the principal are the object
thereof, yet such third person has a right of action not only
against the principal but also against the agent, when the rights
and obligations which are the subject-matter of the litigation
cannot be legally and juridically determined without hearing
both of them.

In this case, the Court treated the notarized power of attorney

registered in the register of deeds as constuting prima facie
proof of the fact that Benito Valdes is the attorney-in-fact of
Benito Legarda, and that he is vested with the powers specified
therein, on account of Legarda's not having denied under oath
the genuiness and due execution of the said document, it was
therefore incumbent upon Legarda himself to prove that he had
not executed the said power of attorney in Valdes' favor and
that he had not conferred upon him, by virtue thereof, the
powers therein mentioned.

c. Special Obligations of Commission Agents

Article 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.

Article 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.

Article 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.

Article 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,
 A g e n c y | 40
Class Notes:
the sale shall be deemed to have been made for cash insofar as
the principal is concerned.

Article 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.

Article 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.
 A g e n c y | 41
Class Notes:
The Principal

Obligations of the Principal

1. Comply with Obligations
Article 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.

a. Acts Within the Scope of Authority

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 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.

b. Ratified Acts
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 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.

Filipinas Life v. Pedroso

Facts:
Pedroso is a policyholder of a 20-year endowment life insurance issued by petitioner
Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her
insurance agent. Valle collected her monthly premiums. Valle told her that the
Filipinas Life Escolta Office was holding a promotional investment program for
policyholders. It was offering 8% prepaid interest a month for certain amounts
deposited on a monthly basis. Enticed, she initially invested and issued a... post-
dated check P10,000. Valle issued Pedroso his personal check for P800 for the 8%[5]
prepaid interest and a Filipinas Life "Agent's Receipt" Subsequently, she called the
Escolta office. Francisco Alcantara... the administrative assistant, who referred her to
the branch manager, Angel Apetrior. Pedroso inquired about the promotional
investment and Apetrior confirmed that there was such a promotion. She was... even
told she could "push through with the check" she issued. From the records, the
check, with the endorsement of Alcantara at the back, was deposited in the account
of Filipinas Life with the Commercial Bank and Trust Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioner's duly authorized
representatives Apetrior Alcantara,... agent Valle. Pedroso waited for the maturity of
her initial investment. A month after, her investment of P10,000 was... returned to
her after she made a written request for its refund.

To collect the amount, Pedroso personally went to... the Escolta branch where
Alcantara gave her the P10,000 in cash. After a second investment, she made 7 to 8
more investments in varying amounts, totaling P37,000 but at a lower rate of 5%[8]
prepaid interest a month. Upon maturity of Pedroso's subsequent... investments,
 A g e n c y | 42
Class Notes:
Valle would take back from Pedroso the corresponding yellow-colored agent's
receipt he issued to the latter.

Pedroso told respondent, Palacio, also a Filipinas Life insurance policyholder, about
the investment plan. Palacio made a total investment of P49,550... but at only 5%
prepaid interest.

However, when Pedroso tried to withdraw her investment,... Valle did not want to
return some P17,000 worth of it. Palacio also tried to withdraw hers, but Filipinas
Life, despite demands, refused to return her money. They went to Filipinas Life
Escolta Office to collect their respective investments,... But their attempts were
futile. Hence, respondents filed an action for the recovery of a sum of money. The
RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and
Alcantara jointly and solidarily liable to the respondents.

On appeal, the Court of Appeals affirmed the trial court's ruling and subsequently
denied the motion for reconsideration.

Filipinas Life does not dispute that Valle was its agent, but claims that it was only a
life insurance company and was not engaged in the business of collecting investment
money. It contends that the investment scheme offered to respondents by Valle,
Apetrior and Alcantara was... outside the scope of their authority as agents of
Filipinas Life such that, it cannot be held liable to the respondents.

On the other hand, respondents contend that Filipinas Life authorized Valle to solicit
investments from them.

In fact, Filipinas Life's official documents and facilities were used in consummating
the transactions. These transactions, according to respondents, were confirmed by...
its officers Apetrior and Alcantara.

Issues:

did the Court of Appeals err in holding petitioner and its co-defendants jointly and
severally liable to the herein respondents?

Ruling:

The petition lacks merit. The Court of Appeals committed no reversible error nor
abused gravely its discretion in rendering the assailed decision and resolution.

Pedroso and Palacio had invested P47,000 and P49,550, respectively. These were
received by Valle and remitted to Filipinas Life, using Filipinas Life's official receipts,
whose authenticity were not disputed. Valle's authority to solicit... and receive
investments was also established by the parties. When respondents sought
confirmation, Alcantara, holding a supervisory position, and Apetrior, the branch
manager, confirmed that Valle had authority

While it is true that a person dealing with an agent is put upon... inquiry and must
discover at his own peril the agent's authority, in this case, respondents did exercise
due diligence in removing all doubts and in confirming the validity of the
representations made by Valle.

Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle...
he general rule is that the principal is responsible for the acts of its agent done within
the scope of its authority, and should bear the damage caused to third persons

When the agent exceeds his authority, the agent... becomes personally liable for the
damage.[14] But even when the agent exceeds his authority, the principal is still
 A g e n c y | 43
Class Notes:
solidarily liable together with the agent if the principal allowed the agent to act as
though the agent had full powers.

Filipinas Life cannot profess ignorance of Valle's acts. Even if Valle's representations
were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara
and Apetrior expressly and knowingly ratified Valle's acts. It cannot even be denied
that Filipinas Life... benefited from the investments deposited by Valle in the account
of Filipinas Life

In our considered view, Filipinas Life had clothed Valle with apparent authority;
hence, it is now estopped to deny said authority. Innocent third persons should not
be prejudiced if the... principal failed to adopt the needed measures to prevent
misrepresentation,... much more so if the principal ratified his agent's acts beyond
the latter's authority. The act of the agent is considered that of the principal itself.

WHEREFORE, the petition is DENIED for lack of merit

Manila Memorial v. Linsangan

FACTS: Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden
State at the Holy Cross Memorial Park owned by petitioner (MMPCI).
According to Baluyot, a former owner of a memorial lot under Contract No.
25012 was no longer interested in acquiring the lot and had opted to sell his
rights subject to reimbursement of the amounts he already paid. The contract
was for P95,000.00. Baluyot reassured Atty. Linsangan that once
reimbursement is made to the former buyer, the contract would be
transferred to him.

Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount
to be reimbursed to the original buyer and to complete the down payment to
MMPCI. Baluyot issued handwritten and typewritten receipts for these
payments. Contract No. 28660 has a listed price of P132,250.00. Atty.
Linsangan objected to the new contract price, as the same was not the
amount previously agreed upon. To convince Atty. Linsangan, Baluyot
executed a document confirming that while the contract price is P132,250.00,
Atty. Linsangan would pay only the original price of P95,000.00.

Later on, Baluyot verbally advised Atty. Linsangan that Contract No. 28660
was cancelled for reasons the latter could not explain. For the alleged failure
of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint for Breach of Contract and Damages against the former.

MMPCI alleged that Contract No. 28660 was cancelled conformably with the
terms of the contract because of non-payment of arrearages. MMPCI stated
that Baluyot was not an agent but an independent contractor, and as such
was not authorized to represent MMPCI or to use its name except as to the
extent expressly stated in the Agency Manager Agreement. Moreover, MMPCI
was not aware of the arrangements entered into by Atty. Linsangan and
Baluyot, as it in fact received a down payment and monthly installments as
indicated in the contract.

The trial court held MMPCI and Baluyot jointly and severally liable. The Court
of Appeals affirmed the decision of the trial court.

ISSUES:
1. Whether or not there was a contract of agency between Baluyot and
MMPCI?
2. Whether or not MMPCI should be liable for Baluyot’s act?
 A g e n c y | 44
Class Notes:
HELD:
First Issue. Yes. By the 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. As properly found both by the trial
court and the Court of Appeals, Baluyot was authorized to solicit and remit to
MMPCI offers to purchase interment spaces obtained on forms provided by
MMPCI. The terms of the offer to purchase, therefore, are contained in such
forms and, when signed by the buyer and an authorized officer of MMPCI,
becomes binding on both parties.

Second Issue. No. While there is no more question as to the agency

relationship between Baluyot and MMPCI, there is no indication that MMPCI
let the public, or specifically, Atty. Linsangan to believe that Baluyot had the
authority to alter the standard contracts of the company. Neither is there any
showing that prior to signing Contract No. 28660, MMPCI had any knowledge
of Baluyot's commitment to Atty. Linsangan. Even assuming that Atty.
Linsangan was misled by MMPCI's actuations, he still cannot invoke the
principle of estoppel, as he was clearly negligent in his dealings with Baluyot,
and could have easily determined, had he only been cautious and prudent,
whether said agent was clothed with the authority to change the terms of the
principal's written contract.

To repeat, the acts of the agent beyond the scope of his authority do not bind
the principal unless the latter ratifies the same. It also bears emphasis that
when the third person knows that the agent was acting beyond his power or
authority, the principal cannot be held liable for the acts of the agent. If the
said third person was aware of such limits of authority, he is to blame and is
not entitled to recover damages from the agent, unless the latter undertook
to secure the principal's ratification.

RATIFICATION BY CORPORATION OF UNAUTHORIZED

CONTRACT OF ITS OFFICERS. — Ratification by a corporation of
an unauthorized act or contract by its officers or others relates
back to the time of the act or contract ratified, and is equivalent
to original authority; and that the corporation and the other
party to the transaction are in precisely the same position as if
the act or contract had been authorized at the time (2 Fletcher,
p. 858, citing cases). "The adoption or ratification of a contract
by a corporation is nothing more nor less than the making of an
original contract. The theory of corporate ratification is
predicated on the right of a corporation to contract, and any
ratification or adoption is equivalent to a grant of prior
authority" – Board of Liquidators v. Heirs of Kalaw

Generally, the acts of the corporate officers within the scope of

their authority are binding on the corporation. However, under
Article 1910 of the New Civil Code, acts done by such officers
beyond the scope of their authority cannot bind the corporation
unless it has ratified such acts expressly or tacitly, or is estopped
from denying them. Thus, contracts entered into by corporate
officers beyond the scope of authority are unenforceable against
the corporation unless ratified by the corporation. The
petitioner’s contention that by receiving and retaining the
P5,000,000 purchase price of Lot No. 491-A-3-B-2, the
respondent effectively and impliedly ratified the grant of a right
of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to
the petitioner an option to sell a portion thereof, is barren of
merit. It bears stressing that the respondent sold Lot No. 491-A-
3-B-2 to the petitioner, and the latter had taken possession of
 A g e n c y | 45
Class Notes:
the property. As such, the respondent had the right to retain the
P5,000,000, the purchase price of the property it had sold to the
petitioner. For an act of the principal to be considered as an
implied ratification of an unauthorized act of an agent, such act
must be inconsistent with any other hypothesis than that he
approved and intended to adopt what had been done in his
name. Ratification is based on waiver — the intentional
relinquishment of a known right. Ratification cannot be inferred
from acts that a principal has a right to do independently of the
unauthorized act of the agent. Moreover, if writing is required to
grant an authority to do a particular act, ratification of that act
must also be in writing. Since the respondent had not ratified the
unauthorized acts of Roxas, the same are unenforceable. Hence,
by the respondent’s retention of the amount, it cannot thereby
be implied that it had ratified the unauthorized acts of its agent,
Roberto Roxas. – Woodchild v. Roxas

c. When estopped
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.

Rural Bank of Milanor v. Ocfemia

FACTS:
The evidence presented by the respondents through the testimony of Marife
O. Niño, shows that she is the daughter of Francisca Ocfemia and the late
Renato Ocfemia who died on July 23, 1994. The parents of her father, Renato
Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia.

Marife O. Niño knows the five (5) parcels of land which are located in
Bombon, Camarines Sur and that they are the ones possessing them which
were originally owned by her grandparents. During the lifetime of her
grandparents, respondents mortgaged the said five (5) parcels of land and
two (2) others to the Rural Bank of Milaor.

The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able
to redeem the mortgaged properties consisting of 7 parcels of land and so the
mortgage was foreclosed and thereafter ownership thereof was transferred to
the bank. Out of the 7 parcels that were foreclosed, 5 of them are in the
possession of the respondents because these 5 parcels of land were sold by
the bank to the parents of Marife O. Niño as evidenced by a Deed of Sale
executed in January 1988.

The aforementioned 5 parcels of land subject of the deed of sale, have not
been, however transferred in the name of the parents of Merife O. Niño after
they were sold to her parents by the bank because according to the Assessor's
Office the five (5) parcels of land, subject of the sale, cannot be transferred in
the name of the buyers as there is a need to have the document of sale
registered with the Register of Deeds of Camarines Sur.

In view of the foregoing, Marife O. Niño went to the Register of Deeds of

Camarines Sur with the Deed of Sale in order to have the same registered. The
Register of Deeds, however, informed her that the document of sale cannot
be registered without a board resolution of the Bank. Marife Niño then went
to the bank, showed to it the Deed of Sale, the tax declaration and receipt of
tax payments and requested the bank for a board resolution so that the
property can be transferred to the name of Renato Ocfemia the husband of
petitioner Francisca Ocfemia and the father of the other respondents having
died already.
 A g e n c y | 46
Class Notes:

Despite several requests, the bank refused her request for a board resolution
and made many alibis. She was told that the bank had a new manager and it
had no record of the sale.

ISSUE:
Whether the board of directors of a rural banking corporation be compelled
to confirm a deed of absolute sale of real property which deed of sale was
executed by the bank manager without prior authority of the board of
directors of the rural banking corporation

HELD:
Yes, the board of directors can be compelled to confirm a deed of absolute
sale even though the bank manager executed such deed without prior
authority from the banking corporation.

The Supreme Court ruled that the bank acknowledged, by its own acts or
failure to act, the authority of the manager to enter into binding contracts.
After the execution of the Deed of Sale, respondents occupied the properties
in dispute and paid the real estate taxes due thereon. If the bank
management believed that it had title to the property, it should have taken
some measures to prevent the infringement or invasion of its title thereto and
possession thereof.

In this light, the bank is estopped from questioning the authority of the bank
manager to enter into the contract of sale. If a corporation knowingly permits
one of its officers or any other agent to act within the scope of an apparent
authority, it holds the agent out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agent's
authority.

Unquestionably, petitioner has authorized Tena to enter into the Deed of

Sale. Accordingly, it has a clear legal duty to issue the board resolution sought
by respondents. Having authorized her to sell the property, it behooves the
bank to confirm the Deed of Sale so that the buyers may enjoy its full use.

Cuison v. CA
FACTS: Kue Cuison is a sole proprietorship engaged in the purchase and sale of
newsprint, bond paper and scrap.

Valiant Investment Associates delivered various kinds of paper products to a

certain Tan. The deliveries were made by Valiant pursuant to orders allegedly
placed by Tiac who was then employed in the Binondo office of petitioner.
Upon delivery, Tan paid for the merchandise by issuing several checks payable
to cash at the specific request of Tiac. In turn, Tiac issued nine (9) postdated
checks to Valiant as payment for the paper products. Unfortunately, sad
checks were later dishonored by the drawee bank.

Thereafter, Valiant made several demands upon petitioner to pay for the
merchandise in question, claiming that Tiac was duly authorized by petitioner
as the manager of his Binondo office, to enter into the questioned
transactions with Valiant and Tan. Petitioner denied any involvement in the
transaction entered into by Tiac and refused to pay Valiant.

Left with no recourse, private respondent filed an action against petitioner for
the collection of sum of money representing the price of the merchandise.
After due hearing, the trial court dismissed the complaint against petitioner
for lack of merit. On appeal, however, the decision of the trial court was
 A g e n c y | 47
Class Notes:
modified, but was in effect reversed by the CA. CA ordered petitioner to pay
Valiant with the sum plus interest, AF and costs.

ISSUE: WON Tiac possessed the required authority from petitioner sufficient
to hold the latter liable for the disputed transaction

HELD: YES
As to the merits of the case, it is a well-established rule that one who clothes
another with apparent authority as his agent and holds him 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 honest belief that he is what he appears to be

It matters not whether the representations are intentional or merely

negligent so long as innocent, third persons relied upon such representations
in good faith and for value. Article 1911 of the Civil Code provides:

“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.”

The above-quoted article is new. It is intended to protect the rights of

innocent persons. In such a situation, both the principal and the agent may be
considered as joint tortfeasors whose liability is joint and solidary.

It is evident from the records that by his own acts and admission, petitioner
held out Tiac to the public as the manager of his store in Binondo. More
particularly, petitioner explicitly introduced to Villanueva, Valiant’s manager,
as his (petitioner’s) branch manager as testified to by Villanueva. Secondly,
Tan, who has been doing business with petitioner for quite a while, also
testified that she knew Tiac to be the manager of the Binondo branch. Even
petitioner admitted his close relationship with Tiu Huy Tiac when he said that
they are “like brothers” There was thus no reason for anybody especially
those transacting business with petitioner to even doubt the authority of Tiac
as his manager in the Binondo branch.

Tiac, therefore, by petitioner’s own representations and manifestations,

became an agent of petitioner by estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon (Article 1431, Civil Code of the
Philippines). A party cannot be allowed to go back on his own acts and
representations to the prejudice of the other party who, in good faith, relied
upon them. Taken in this light,. petitioner is liable for the transaction entered
into by Tiac on his behalf. Thus, even when the agent has exceeded his
authority, the principal is solidarily liable with the agent if the former allowed
the latter to fact as though he had full powers (Article 1911 Civil Code), as in
the case at bar.

Finally, although it may appear that Tiac defrauded his principal (petitioner) in
not turning over the proceeds of the transaction to the latter, such fact
cannot in any way relieve nor exonerate petitioner of his liability to private
respondent. For it is an equitable maxim that as between two innocent
parties, the one who made it possible for the wrong to be done should be the
one to bear the resulting loss

2. Advance/Reimburse
Article 1912. The principal must advance to the agent, should the
latter so request, the sums necessary for the execution of the agency.
 A g e n c y | 48
Class Notes:
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.

Article 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.

3. Indemnify
Article 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.

4. Compensate
Article 1875. Agency is presumed to be for a compensation, unless
there is proof to the contrary.

Liability of Principals
1. Be Solidarily Liable
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.

Article 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.

De Castro v. CA
FACTS:
Private respondent Artigo sued petitioners Constante and Amor De Castro
to collect the unpaid balance of his broker’s commission from the De Castros.
The appellants, De Castros, were co-owners of 4 lots in Cubao, Quezon City.
The appellee, Artigo, was authorized by appellants to act as real estate broker in the
sale of these properties for the amount of P23,000,000.00, 5% of which will be given
to the agent as commission. Appellee first found the Times Transit Corporation and 2
lots were sold. In return, he received P48,893.76 as commission.
Appellee apparently felt short changed because according to him, his total
commission should be P352,500.00 which is 5% of the agreed price of P7,050,000.00
paid by Times Transit Corporation to appellants for the 2 lots and that it was he who
introduced the buyer to appellants and unceasingly facilitated the negotiation which
ultimately led to the consummation of the sale. Hence, he sued to collect the
balance of P303,606.24 after having received P48,893.76 in advance.
Appellants argued that appellee is selfishly asking for more than what he
truly deserved as commission to the prejudice of other agents who were more
instrumental to the consummation of the sale and that there were more or less 18
others who took active efforts.
The De Castros argued that Artigo’s complaint should have been dismissed
for failure to implead all the co owners of the 2 lots. . The De Castros contend that
 A g e n c y | 49
Class Notes:
failure to implead such indispensable parties is fatal to the complaint since Artigo, as
agent of all the four co-owners, would be paid with funds co-owned by the four co-
owners.
It was shown also that Constante Amor De Castro signed the authorization
of Artigo as owner and representative of the co-owners.

ISSUE:
Whether or not the complaint merits dismissal for failure to implead other
co-owners as indispensable parties

HELD:
No. The De Castros’ contentions are devoid of legal basis. The CA explained
that it is not necessary to implead the co-owners since the action is exclusively based
on a contract of agency between Artigo and Constante. The rule on mandatory
joinder of indispensable parties is not applicable to the instant case.
Constante signed the note as owner and as representative of the other co-
owners. Under this note, a contract of agency was clearly constituted between
Constante and Artigo. Whether Constante appointed Artigo as agent, in Constante’s
individual or representative capacity, or both, the De Castros cannot seek the
dismissal of the case for failure to implead the other co-owners as indispensable
parties. The De Castros admit that the other co-owners are solidarily liable under the
contract of agency, citing Article 1915 of the Civil Code, which reads:

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.

The solidary liability of the four co-owners, however, militates against the
De Castros’ theory that the other co-owners should be impleaded as indispensable
parties.
When the law expressly provides for solidarity of the obligation, as in the
liability of co-principals in a contract of agency, each obligor may be compelled to
pay the entire obligation. The agent may recover the whole compensation from any
one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any
of the solidary debtors. This article reads:

Art. 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected.

2. Contract Involves Things Belonging to Principal

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 transaction 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.

Syjuco v. Syjuco
FACTS:
 A g e n c y | 50
Class Notes:
 1902: Defendant Santiago Sy-juco was appointed by plaintiffs Vicente
and Cipriana as administrator of their property, and acted as such
until June 30, 1916, when his authority was cancelled.
o Santiago is the son of Vicente and Cipriana.
 Vicente and Cipriana allege that during Santiago’s administration,
Santiago acquired the property claimed in the complaint in his
capacity as the plaintiff’s administrator with their money and for
their benefit.
 TC → Ordered Santiago to return to the plaintiffs: the launch1
Malabon, two cascos2, an automobile, a typewriting machine, the
house occupied by Santiago, and the price of the piano.
 Both parties appealed from this judgment.

WON the properties bought by Santiago in his own name, as an

administrator, belong to him.

RULING:
No. Except the second casco (no. 2545).

As to the launch Malabon

 Santiago bought it in his own name from the Pacific Commercial Co.,
and afterwards registered it at the Custom House.
 But this does not necessarily show that he bought it for himself and
with his own money.
 This transaction was within the agency which he had received from
the plaintiffs. The fact that he has acted in his own name may be
only, as we believe it was, a violation of the agency on his part.
 The question is not in whose favor the document of sale of the
launch is executed nor in whose name same was registered, but with
whose money was said launch bought.
 The plaintiffs' testimony that it was bought with their money and for
them is supported by the fact that, immediately after its purchase,
the launch had to be repaired at their expense, although said
expense was collected from the defendant.
 Santiago invoked the case of Martinez v. Martinez.
o Martinez, Jr., bought a vessel in his own name and in his
name registered it at the Custom House. This court then said
that although the funds with which the vessel was bought
belonged to Martinez Sr., Martinez Jr. is its sole and
exclusive owner.
 But the Court ruled that this is not applicable to the case at bar.
o In said case the relation of principal and agent, which exists
between the plaintiffs and the defendant in the present
case, did not exist between Martinez, Sr., and Martinez, Jr.
By this agency the plaintiffs herein clothed the defendant
with their representation in order to purchase the launch in
question.

1
launch, n. A large motorboat, used especially for short trips.
2
casco, n. A flat-bottomed, square-ended boat once used in the Philippines as a lighter to ferry
goods between ship and shore
 A g e n c y | 51
Class Notes:
o However, the defendant acted without this representation
and bought the launch in his own name thereby violating
the agency. If the result of this transaction should be that
the defendant has acquired for himself the ownership of the
launch, it would be equivalent to sanctioning this violation
and accepting its consequences.
o But not only must the consequences of the violation of this
agency not be accepted, but the effects of the agency itself
must be sought.
o If the defendant contracted the obligation to but the launch
for the plaintiffs and in their representation, but virtue of
the agency, notwithstanding the fact that he bought it in his
own name, he is obliged to transfer to the plaintiffs the
rights he received from the vendor, and the plaintiffs are
entitled to be subrogated in these rights.
 From the rule established in Article 1717 of the Civil Code that, when
an agency acts in his own name, the principal shall have no right of
action against the person with whom the agent has contracted,
cases involving things belonging to the principal are excepted.
o According to this exception (when things belonging to the
principal are dealt with), the agent is bound to the
principal although he does not assume the character of
such agent and appears acting in his own name
o This means that in the case of this exception the agent's
apparent representation yields to the principal's true
representation and that, in reality and in effect, the contract
must be considered as entered into between the principal
and the third person; and, consequently, if the obligations
belong to the former, to him alone must also belong the
rights arising from the contract.
 The money with which the launch was bough having come from the
plaintiff, the exception established in article 1717 is applicable to the
instant case.

As to Casco no. 2584

 Santiago’s allegation that it was constructed at his instance and with
his money is not supported by the evidence.
 In fact the only proof presented to support this allegation is his own
testimony contradicted, on the on hand, by the plaintiffs' testimony
and, on the other hand, rebutted by the fact that, on the date this
casco was constructed, he did not have sufficient money with which
to pay the expense of this construction.

As to the automobile
 There is sufficient evidence to show that its prices was paid with
plaintiffs' money. Defendant's adverse allegation that it was paid
with his own money is not supported by the evidence.

As to Casco no. 2545

 A g e n c y | 52
Class Notes:
 Upon examination of the evidence relative to this casco, it was found
that it belonged to the plaintiffs but sold it afterwards to the
defendant by means of a public instrument.
 The plaintiffs have not adduced sufficient proof of such deceit (on
the part of Santiago, when they signed) which would destroy the
presumption of truth which a public document carries with it.
Attorney Sevilla, who acted as the notary in the execution of this
instrument, testifying as a witness in the case, said that he never
verified any document without first inquiring whether the parties
knew its content.
 Our conclusion is that this casco was lawfully sold to the defendant
by the plaintiffs.
 (Fun fact: This casco had been leased and was sunk while in the
lessee’s hands before the complaint in this case was filed. As such,
the issue of ownership is determinative of who may enforce the
responsibility of damages for losses on the lessee.)

PNB v. Aguledo
 A g e n c y | 53
Class Notes:
The Third Party Dealing with the Agent

Rights of Third Parties

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.

Obligation of Third Paties

1. The Keeler Rules
Keeler Electric vs. Rodriguez

2. Later Jurisprudence
BA Finance v. CA
Bacaltos Coal Mines v. CA

Extinguishing the Agency

Article 1919. 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.

Revocation
1. In General
Article 1920. The principal may revoke the agency at will, and compel
the agent to return the document evidencing the agency. Such
revocation may be express or implied.

Article 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.

Barreto v. Santa Marina

2. When Not Binding on Third Persons

a. When Notice is Required
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.

Lustan v. CA

b. Third Person in Good Faith Without Knowledge of Revocation

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.

3. Appointment of a New Agent

Article 1923. The appointment of a new agent for the same
business or transaction revokes the previous agency from the
 A g e n c y | 54
Class Notes:
day on which notice thereof was given to the former agent,
without prejudice to the provisions of the two preceding articles.

4. Direct Management by the Principal

Article 1924. The agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly
with third persons.

CMS Logging v. CA
Sanchez c. Medicard

5. Special Revokes General in Part

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.

6. When Agency Cannot be Revoked

Article 1927. An agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an obligation
already contracted, or if a partner is appointed manager of a
partnership in the contract of partnership and his removal from
the management is unjustifiable.

Del Rosario v, Abad

Coleongco v. Claparols
Lim v. Saban
Valenzuela v. CA

Withdrawal
Article 1928. The agent may withdraw from the agency by giving due notice to
the principal. If the latter should suffer any damage by reason of the
withdrawal, the agent must indemnify him therefor, unless the agent should
base his withdrawal upon the impossibility of continuing the performance of
the agency without grave detriment to himself.

Valera v. Velasco

Death/Civil Interdiction/Insanity/Insolvency of the Principal

Art. 1919. Supra

Rallos v. Felix Go Chan

a. Agency Couples with an Interest

Republic v. Evangelista
Eulogio v. Abad

b. Contract between Agent without Knowledge and Third Person in

Good Faith
Article 1931. Anything done by the agent, without knowledge of the
death of the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith.

Rallos v. Felix Go Chan