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Finals Reviewer 2 Sem 2003: Chapter 1. Nature, Form and Kinds of Agency
Finals Reviewer 2 Sem 2003: Chapter 1. Nature, Form and Kinds of Agency
Classifications of Agency: as to… Between 2 persons who are present, when it acceptance
1.) Manner of Creation: deemed implied?
a.) Express: actually authorized, either When the agent receives a power of atty from the
orally or in writing. principal himself personally without objection.
b.) Implied: implied from acts of principal,
from his silence or lack of action or his Is this presumption conclusive?
failure to repudiate the agency knowing NO, it can be rebutted by contrary proof.
that another person is acting on his
behalf w/o authority. Power of attorney: An instrument in writing by which
2.) Character: one person, as principal, appoints another as his agent
a.) Gratuitous: agent receives no and confers upon him the authority to perform certain
compensation for his services. specified acts or kinds of acts on behalf of the principal.
b.) Onerous: agent does receive Its primary purpose is to evidence the authority of the
compensation. agent to 3rd parties w/ whom the agent deals.
3.) Extent of business covered:
a.) General: comprises all the business of Construction
the principal. A power of atty is strictly construed and strictly
b.) Special: comprises one or more specific pursued. The instrument will be held to grant only those
transactions. powers which are specified, and the agent may neither
4.) Authority conferred: go beyond nor deviate from the power of atty. The only
a.) Couched in general terms: deemed to exception is when strict construction will destroy the
comprise only acts of administration. very purpose of the power.
b.) Couched in specific terms: authorizes
only the performance of a specific act/s. Meaning of “present”
5.) Nature and effects: Not limited to face-to-face encounters. 2 persons
a.) Representative: agent acts in name and conversing on the phone are also considered as both
representation of principal. “present”.
b.) Simple/Commission: agent acts in his
own name but for the account of the Art. 1872. Between persons who are absent,
principal. the acceptance of the agency cannot be implied
from the silence of the agent, except:
Can agency be presumed? 1.) When the principal transmits his power
Generally NO because the relationship between the of attorney to the agent, who receives it
principal and agent must exist as a fact. The only without any objection;
exceptions to this rule are when agency arises by 2.) When the principal entrusts to him by
operation of law or agency is presumed to prevent letter or telegram a power of attorney
unjust enrichment. with respect to the business in which he
is habitually engaged as an agent, and he
Form: Generally, NO formal requirements. Agent’s did not reply to the letter or telegram.
authority may be oral or written, it may be in public or
private writings. The only exception is when the law 2 Ways of Giving Notice of Agency
requires a specific form (e.g. sale of real property or any 1.) By special information; or
interest therein by an agent.) 2.) By public advertisement.
Note: The authority to look for buyers does not carry Remedy of the 3rd person with whom the agent
with it the authority to sell. contracted in case the oblig is not complied with:
If the case falls under the general rule, he can sue
Art. 1882. The limits of the agent’s authority the agent. But when the contract involves things
shall not be considered exceeded should it have belonging to the principal, he can sue the principal. But
been performed in a manner more advantageous if it cannot be determined w/o litigation who is liable, he
to the principal than that specified by him. can sue both.
the sub-agent. Reason for general rule: Because an agent who acts as
such within the scope of his authority represents the
principal so that his contract is really the principal’s.
Art. 1893. In the cases mentioned in Nos. 1 and
2 of the preceding article, the principal may Exceptions:
furthermore bring an action against the substitute 1.) When the agent binds himself; or
with respect to the obligations which the latter 2.) When he exceeds the limits of his authority
has contracted under the substitution. without giving the third party sufficient notice of
his powers.
When can the principal sue the substitute?
Under the premises given in the previous provision, Reasons for exceptions:
the principal can sue both the agent and the substitute. 1.) When the agent expressly binds himself, he
thereby obligates himself personally and by his
Art. 1894. The responsibility of two or more own act.
agents, even though they have been appointed 2.) When the agent exceeds his authority, he really
simultaneously, is not solidary, if solidarity has not acts without authority and therefore, the
been expressly stipulated. contract is unenforceable against the principal.
The agent becomes personally liable because y
If solidarity is not stipulated, what is the liability to 2 or his wrong or omission, he deprives the 3rd party
more agents? JOINT. with whom he contracts of any remedy against
Each is liable only for proportionate part of debt. the principal.
Art. 1895. If solidarity has been agreed upon, Art. 1898. If the agent contracts in the name of
each of the agents is responsible for the non- the principal, exceeding the scope of his authority,
fulfillment of the agency, and for the fault or and the principal does not ratify the contract, it
negligence of his fellow agents, except in the shall be void if the party with whom the agent
latter case when the fellow agents acted beyond contracted is aware of the limits of the powers
the scope of their authority. granted by the principal. In this case, however,
the agent is liable if he undertook to secure the
What happens if solidarity has been agreed upon? principal’s ratification.
Then each of the agents becomes solidarily liable for:
1.) The non-fulfillment of the agency; or Art. 1899. If a duly authorized agent acts in
2.) The fault or negligence of the fellow agent accordance with the orders of the principal, the
provided the latter acted within the scope of his latter cannot set up the ignorance of the agent as
authority. to circumstances whereof he himself was, or ought
But the innocent agent has a right later on to recover to have been aware.
from the guilty or negligent agent.
This article refers to the liability of the principal
What happens if the fellow agent acted beyond the towards 3rd persons.
scope of his authority?
Then the innocent agent cannot be liable at all to the What happens if the principal appoints an agent who is
principal even if solidarity had been agreed upon. ignorant?
Then the fault is the principal’s alone. Equity
Art. 1896. The agent owes interest on the sums demands that the principal should be bound by the acts
he has applied to his own use from the day on of the agent if the latter acts within the scope of his
which he did so, and on those which he still owes authority and in accordance with the instructions of the
after the extinguishment of the agency. former.
Art. 1897. The agent who acts as such is not Art. 1900. So far as third persons are
personally liable to the party with whom he concerned, an act is deemed to have been
contracts, unless he expressly binds himself or performed within the scope of the agent’s
exceeds the limits of his authority without giving authority, is such act is within the terms of the
such party sufficient notice of his powers. power of attorney, as written, even if the agent
has in fact exceeded the limits of his authority
Principal Agent 3rd Party (wrong party to complain if according to an understanding between the
the principal doesn’t complain principal and the agent.
of the agent’s acts)
Requisite for article to apply:
General rule: “an agent who acts as such is not Authority to agent must be in writing.
personally liable to the party with whom he contracts.”
“Scope of agent’s authority” includes:
Art. 1902. A third person with whom the agent What the commission agent must do to avoid liability:
wishes to contract on behalf of the principal may Make a written statement of the damage and
require the presentation of the power of attorney, deterioration if the goods received by him do not agree
or the instructions as regards the agency. Private w/ the description in the consignment.
or secret orders and instructions of the principal
do not prejudice third persons who have relied Agent v. Depositary:
upon the power of attorney or instructions shown Agent Depositary
them.
Cannot commingle goods Can commingle goods of
of the same kind. the same kind.
Duty of a 3rd person who deals w/ an agent:
3rd person deals w/ an agent at his peril. He is bound
Art. 1904. The commission agent who handles
to inquire as to the extent of the agent’s authority, and
goods of the same kind and mark, which belong to
this is especially true where the act of the agent is of an
different owners, shall distinguish them by
unusual nature. Ignorance of the agent’s authority is no
countermarks, and designate the merchandise
excuse. It is his duty to require the agent to produce his
respectively belonging to each principal.
power of attorney to ascertain the scope of his authority.
He may also ask for the instructions of the principal.
Purpose of this provision:
rd Prevent any possible confusion or deception.
Do secret orders or private instructions prejudice 3
persons?
Art. 1904 gives the general rule. Exceptions:
No, he cannot be prejudiced by any secret
1.) By custom;
understanding between the principal and the agent.
2.) Collecting banks.
Such secret orders cannot be invoked as against 3rd
parties if the agent had apparent authority.
Right of the principal in case the commission agent sold Art. 1908. The commission agent who does not
goods on credit without authority: [CR] collect the credits of his principal at the time when
2 alternatives: they become due and demandable shall be liable
1.) He may require payment in cash, in w/c case, for damages, unless he proves that he exercised
any interest or benefit from the sale on credit due diligence for that purpose.
shall belong to the agent since the principal
cannot be allowed to enrich himself at the Obligation of the commission agent under this article:
agent’s expense; or The commission agent who has made an authorized
2.) He may ratify the sale on credit, in w/c case it sale on credit must collect the credits due the principal
will have all the risks and advantages to him. at the time they become due and demandable. If he fails
to do so, he shall be liable for damages unless he can
Art. 1906. Should the commission agent, with show that the credit could not be collected
authority of the principal, sell on credit, he shall so notwithstanding the exercise of due diligence on his
inform the principal, with a statement of the part. In such a case, the principal’s remedy is to proceed
names of the buyers. Should he fail to do so, the against the debtor.
sale shall be deemed to have been made for cash
insofar as the principal is concerned. Does this article apply to a case where there is a
guarantee commission?
Obligation of the commission agent where a sale on No, because the agent already assumed the risks of
credit was authorized: collection by accepting the guarantee commission.
An authorized sale on credit shall be deemed to have
been on a cash basis insofar as the principal is Art. 1909. The agent is responsible not only for
concerned if the agent fails to inform the principal of fraud, but also for negligence, which shall be
such sale on credit with a statement of the names of the judged with more or less rigor by the courts,
buyers. according to whether the agency was or was not
for a compensation.
Reason for this article: Prevent the agent from stating
that the same was on credit when in fact it was made Is the agent liable for fraud? Yes, in all cases.
for cash.
For negligence? Yes, but this shall be adjudged with
Art. 1907. Should the commission agent receive rigor by the courts.
on a sale, in addition to the ordinary commission,
another called a guarantee commission, he shall Why does the court have to take into consideration
bear the risk of collection and shall pay the whether the agency was gratuitous or for compensation?
principal the proceeds of the sale on the same In order to fix the liability of the agent for negligence
terms agreed upon with the purchaser. only (not fraud).
What is the extent of liability covered under this article? Meaning of Presumption of continuance of agency:
Damages. When once shown to have existed, an agency
relation will be presumed to have continued in the
What is good faith referred to in this article? absence of anything to show its termination.
Good faith here means that the agent had no
knowledge that the principal is dealing with a 3rd person. Who has the burden of proving the
revocation/termination of agency?
Note: If the contract is one of sale, article 1544 governs The burden of proving a revocation or other
and not arts. 1916 and 1917. termination of agency is on the party asserting it.
Art. 1918. The principal is not liable for the Note: Even if the reason for extinguishing the agency is
expenses incurred by the agent in the following not true, the agent can’t insist on reinstatement. The
cases: [F*CKS] agent can only demand damages.
1.) If the agent acted in contravention of the
principal’s instructions, unless the latter Modes of extinguishing an agency, generally: [ASO]
should wish to avail himself of the benefits 1.) Agreement;
derived from the contract; 2.) Subsequent acts of the parties which may be
2.) When the expenses were due to the fault of either:
the agent; a.) By the act of both parties or by mutual
3.) When the agent incurred them with consent;
knowledge that an unfavorable result would b.) By the unilateral act of one of them.
ensue, if the principal was not aware thereof; 3.) By operation of law.
4.) When it was stipulated that the expenses
would be borne by the agent, or that the latter Modes of extinguishment, specifically: [WR-DEAD]
would be allowed only a certain sum. 1.) Withdrawal of the agent;
2.) Revocation;
Instances wherein the principal is not liable for expenses 3.) Death, civil interdiction, insanity or insolvency of
incurred by the agent? the principal or of the agent;
In the instances enumerated under this article. 4.) Expiration of the period for which the agency
was constituted;
Reasons why the principal is not liable for the agent’s 5.) Accomplishment of the object or purpose of the
expenses: Under… agency; and
1.) To punish the agent, but when the principal has 6.) Dissolution of the firm/corp which entrusted or
availed of the benefits, he is deemed to have accepted the agency;
impliedly ratified the agent’s acts.
2.) “Kasi, kasalanan niya, eh.” Necessary characteristics of the parties for the
3.) The agent is guilty of bad faith and lack of continuance of the agency: [PCS]
diligence; 1.) Present;
4.) An express stipulation which is not contrary to 2.) Capacitated;
law, morals, good customs, public order or 3.) Solvent.
public policy is binding between the parties.
Why is presence necessary?
Because the general rule in art 1919 is that death of
any of the parties extinguishes agency. However in the
case where you have several principals and/or several
Chapter 4. Modes of Extinguishment of
agents, whether the death of one principal or of one
Agency agent terminates the agency would depend on the
intention of the parties. Generally the death of one of
several principals does not revoke the agent’s authority
Art. 1919. Agency is extinguished: [WR-DEAD] nor does the death of one of several agents put an end
1.) By its revocation; to the agency. The intention of the parties controls.
What happens when the object or the purpose of the What happens if the principal’s authority terminates?
agency is accomplished? A position which flows from a trust relationship
As between the parties, the principal and the agent, whether directly or indirectly, terminates as a matter of
the fulfillment of the purpose for which the agency was law with the destruction of the trust. Consequently, a
created ipso facto terminates the agency. sub-agent’s authority terminates with the termination of
the principal’s authority.
What happens when the term for which the agency was
supposed to continue expires? In case of loss of the subject matter, does the principal
When an agency is created for a fixed period, the incur any liability?
expiration of such period ends the agency, even though It depends. If the loss was brought about by the
the purpose for which the agency was created has not principal as in the case where the principal sells the
been accomplished. subject matter to another party notwithstanding that an
agency had been constituted in reference to it, then he
What happens if no time is specified? may be liable for damages for his wrongful terminating
The agency terminates at the end of a reasonable act. But if the subject matter is lost without the fault of
period of time. the principal, no liability is assumed by him.
Can the period be implied? Yes, from… Will a change of conditions affect the agency?
1.) The terms of the agreement; General rule: When there is a basic change in the
2.) Purpose of the agency; and circumstances surrounding the transaction not
3.) The circumstances of the parties. contemplated by the parties which would reasonably
lead the agent to believe that the principal would not
What happens if the subject matter of the agency is lost desire him to act, authority of agent is terminated.
or destroyed? Exceptions:
May an agency be terminated by a subsequent act of the What kind of notice should you give 3rd persons?
agent? Yes, it’s called withdrawal or renunciation. 1.) As to former customers, actual notice must e
given to them because they always assume the
Does it matter if the agency is gratuitous or with continuance of the agency relationship.
compensation when we speak of revocation by the 2.) As to other persons, notice by publication is
principal? No, art 1920 makes no distinction. enough.
Art. 1922. If the agent had general powers, What does the above article provide?
revocation of the agency does not prejudice third It provides for another case of implied revocation.
persons who acted in good faith and without
knowledge of the revocation. Notice of the Effect of direct management of the business by the
revocation in a newspaper of general circulation is principal himself:
a sufficient warning to third persons. Generally, it revokes the agency because there would
no longer be any basis for the representation previously
Effect of revocation in relation to 3rd persons if the agent conferred.
was authorized to contract with the public in general: Exception: when the only desire of the principal in
In case the agent has general powers, innocent 3rd doing so is for him and the agent to manage the
parties dealing with the agent will not e prejudiced by business together.
the revocation before they had knowledge thereof. In
this case, however, the fact that the revocation was Art. 1925. When two or more principals have
advertised in a newspaper of general circulation would granted a power of attorney for a common
be sufficient to 3rd persons for publication constitutes transaction, any one of them may revoke the same
notice upon everybody and this is true whether or not without the consent of the others.
such 3rd persons have read the newspaper concerned.
Rationale: Since the appointment of an agent by 2 or
Notice required in art. 1921 v. that in art. 1922: more principals for a common transaction or undertaking
Art. 1921 Art. 1922 makes them solidarily liable to the agent for all
Must be personal. May be personal. consequences of the agency, then each one of the
Revocation must be known Even if 3rd person doesn’t principals should be granted the right to revoke the
Can an agency, coupled with an interest, be terminated Does the agent have a right to renounce or withdraw
by the sole will of the principal? No. from the agency at any time?
Yes. Even without the consent of the principal. But, in
Requisite for agency to be irrevocable for being coupled the latter case, he may be subject to liability for breach
with a interest: of contract or for tort.
Interest of the agent must be in the subject matter of
the power conferred and not merely an interest in the Basis: Constitutional prohibition against involuntary
exercise of the power. servitude.
Instances of an agency coupled with an interest: Obligation of agent if he withdraws from agency without
1.) When the agent has parted with value or just cause:
incurred liability at the principal’s request, and 1.) Notify principal (even if w/ just cause); and
he is looking to the exercise of the power as the 2.) Indemnify the principal should the latter suffer
means of reimbursement or indemnity. any damage by reason of such withdrawal.
2.) When the interest in the thing concerning which
the power is to be exercised arises from an Reason for indemnity: To answer for losses and
assignment, pledge or lien created by the damages occasioned by the non-fulfillment of his
principal with the agent being given the power obligation as agent.
What happens when the agent sues the principal? Does this article only require the agent to be in good
Equivalent to withdrawal of the agent. faith? No, both agent and 3rd person must be.
Art. 1929. The agent, even if he should Art. 1932. If the agent dies, his heirs must
withdraw from the agency for a valid reason, must notify the principal thereof, and in the meantime
continue to act until the principal has had adopt such measures as the circumstances may
reasonable opportunity to take the necessary demand in the interest of the latter.
steps to meet the situation.
In case of death of agent, what must the heirs do?
Obligation of agent after withdrawal: 1.) Notify the principal to enable the latter
Even when withdrawal is for a valid reason, he must reasonable opportunity to take such steps as
continue to act until the principal has had reasonable may be necessary to meet the situation; and
opportunity to take the necessary steps like the 2.) Adopt such measures as the circumstances may
appointment of a new agent to remedy the situation demand in the interest of the principal.
caused by the withdrawal. This is to prevent damage or
prejudice to the principal. Can the heirs continue the agency?
General rule: No, since an agency calls for personal
Art. 1930. The agency shall remain in full force services on the part of the agent.
and effect even after the death of the principal, if Exceptions:
it has been constituted in the common interest of 1.) Agency by operation of law, or a presumed or
the latter and of the agent, or in the interest of a tacit agency;
third person who has accepted the stipulation in 2.) Agency is coupled with an interest in the subject
his favor. matter of the agency.