LAW ON SALES – Notes19

Ref. book: Law on Sales, by Hector De Leon.

AGENCY
Art. 1868. 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.
Concept of contract of agency.
Article 1868 defines the contract of agency. The definition, which is very broad enough
to include all situations in which one person is employed to render service for another, excludes,
however, from its concept the relationship of employer and employee (Art. 1700), of master and
servant (Art. 1680), and of employer and independent contractor (Art. 1713).
Agency is a relationship which implies a power in an agent to contract with a third person
on behalf of a principal. It is this power to affect the principal’s contractual relations with third
persons that differentiates the agent from the employee, the servant, and the independent
contractor.
EXAMPLES:
P, owner of a land, wants to construct a building on it. He may do any of the ff:
(1) He may hire C, a building contractor, to construct the building with the materials and
labor to be furnished by C; or
(2) He himself may construct the building, buying the necessary materials and
employing W, etc. (workers) who shall construct the building under his direction and
supervision; or
(3) He may secure the services of A to supervise and to act for him in all matters
connected with the construction work.
“Agency” is sometimes used in a sense other than to denote the relationship of principal
and agent.
(1) Thus, it may be used to denote the place at which the business is transacted. When
used in the sense of place of business, the relationship of principal and agent is not
necessarily implied.
(2) Likewise, the term may be used in the sense of instrumentality by which a thing is
done.
(3) It is also used to refer to the exclusive right of a person to sell a product of another in
a specific territory.
Characteristic of a contract of agency.
(1) Consensual because it is perfected by mere consent
(2) Principal because it can stand alone without the need of another contract;
(3) Nominate because it has its own name;
(4) Unilateral if it is gratuitous because it creates obligations for only one of the parties,
i.e., the agent; or bilateral if it is for compensation because it gives rise reciprocal
rights and obligations; and
 (5) Preparatory because it is entered into as a means to an end, i.e., the creation of
other contracts.
Essential elements of agency.
(1) There is consent, express or implied, of the parties to establish the relationship;
(2) The object is the execution of a juridical act in relation to this persons,
(3) The agent acts as a representative and not for himself; and
(4) The agent acts within the scope of his authority,
In addition, the parties must be competent under the law to act as principal and agent.

Nature, basis, and purpose of agency.

The word “agency” when used in its broadest meaning is both a contract and a
representative relation.
(1) Since agency is a contract, the following requisites must concur: (a) consent of the
contracting parties; (b) object which is the subject matter of the contract; and (c)
cause which is established. (Art. 1318.) Article 1868 defines agency from the
viewpoint of a contract.

(2) Agency is also a representative relation. The agent renders some service or does
something “in representation or on behalf of another.” (Art. 1868) Representation
constitutes the basis of agency.

(3) The purpose of agency is to extend the personality of the principal through the acts
of the agent. It enables the activity of man which is naturally limited in its exercise by
his physiological conditions to be extended, permitting him to perform or carry on
many different activities through another, when his physical presence is impossible
or inadvisable, at the same time in different places. (see 11Manresa 434)

Parties to the contract.

The two (2) parties to the contract are the:
(1) Principal. – one whom the agent represents and from whom he derives his
authority; he is the person represented; and
(2) Agent. – One who acts for and represents another; he is the person acting in
a representative capacity. The agent may be performing his tasks as
attorney, proxy, delegate, or representative.
Agency implies the contemporaneous existence of both the principal and agent and
there is no agency unless one is acting for and in behalf of another with the latter’s express or
implied consent or authorization. The principal or agent may be either a natural person or a
judicial entity.
Capacity of the parties.
(1) Any person who is capacitated under the law (see Art. 11327, 1329) to act in his own right
may be a principal.
(2) In this case of the agent, since he assumes no personal liability, he does not have to
process full capacity to act insofar as third persons are concerned. But persons who are
absolutely incapacitated, such as insane persons, cannot be agents. Insofar as his
obligations to his principal are concerned, the agent must be competent to bind himself.
Acts that may/may not be delegated to agents.
(1) In general. – The general rule is that what a man may do in person, he may do through
another. Thus,
(2) Exemption. – Some acts, however, cannot be done through an agent.
(a) Personal acts. - if personal performance is required by law or public policy or the
agreement of the parties, the doing of the act by a person on behalf of another does
not constitute performance by the latter.
1.) The right to vote during election cannot be delegated because voting is
considered a purely personal act under the law. A member of the board of
directors of a corporation cannot validly act by proxy because his right to attend
the board meetings is personal to him. (Sec. 25, last par., Corporation Code.)
2.) The making of a will is a strictly personal act; it cannot be accomplished through
the instrumentality of an agent or an attorney. (Art. 784.)
3.) Obviously, statements which are required to be made under oath should be
made personally.
4.) Under the Corporation Code, a member of the board of directors or trustless of a
corporation cannot validly act by proxy because his right to attend board
meetings is personal to him. (see Sec. 25, last par., B.P. Blg. 68.)
5.) An agent cannot delegate to a sub-agent the performance of acts which he has
been appointed to perform in person. (see Art. 1892-1893.)

(b) Criminal acts or acts not allowed by law. – An attempt to delegate to another
authority to do an act which, if done by the principal would be illegal, is void. (2 C.J.
1039.)
Nature of relations between principal and agent.
(1) Relations fiduciary in character. – The relations of an agent to his principal are
fiduciary in character since they are based on trust and confidence, on a degree
which varies considerably from situation to situation.
(2) Agent estopped from asserting interest adverse to his principal . – In regard to
property forming the subject matter of the agency, the agent is estopped form
asserting or acquiring a title adverse to that 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.
(3) Agent must not act for an adverse party.- An agent cannot serve two (2) masters,
unless both (e.g., real estate broker) with no independent initiative.
(4) Agent must not use or disclose secret information. –Requirements of good faith and
loyalty demand of the agent the duty not to use divulge confidential information
obtained in the course of his agency for his own benefit to the principal’s injury and
expense.
Agency distinguished from similar contracts.
 (1) Loan. – An agent may be given funds by the principal to advance the latter’s business,
while a borrower is given money for purposes of his own and he must generally return it
whether or not his own business is successful. A lot, however, depends on the intent of
the parties. (2 C.J. 1030.)
(2) Lease of service. –In agency, the basis is representation, while in lease of service (Arts.
1644, 1689.) it is employment. In agency, the agent exercises discretionary powers,
while in lease of service, the lessor (like a servant) ordinarily performs only ministerial
functions.
(3) Independent contact. –Where one party to a contract undertakes to accomplish a certain
result (as the construction of a house) according to his own methods and without being
subject to the other party’s control except as to the result of the work, the contract is one
for a piece of work (Art.1713.) and not agency. (Fressel vs. Mariano Uy Chaco Sons &
Co., 34 Phil. 122.)
In the agency, the agent is subject to control and direction of the principal whom he
presents. In a contract for a piece of work, the independent contractor exercises his
employment independently, and not in representation of the employer.
(4) Partnership. –While an agent acts only for his principal, a partner acts not only for his co-
partners and the partnership but also as principal of himself. (Arts. 1767, 1803.)
(5) Negotiorium gestio. –In both agency and negotiorium gestio or the management of the
business or affairs of an absentee (Art. 2144.), there is representation. The distinction
lies in the fact that in the first, the presentation is expressly conferred, while in the
second, it is not only without the authority of the owner of the business but is without his
knowledge. While the agent acts according to the express will of the principal, the gestor
acts according to the presumed will of the owner by exercising ‘all the diligence of a
good father of a family.’ (Art. 2145.)
Agency is a contract, while negotiorum gestio is a quasi-contract. Hence, their juridicial
relations are different.
(6) Brokerage. – A commission agent is one engaged in the purchase or sale for another of
personal property which, for this purpose is placed in his possession and at his disposal. A
broker has no relation with the thing he buys or sells. He is merely an intermediary between
the purchaser and the vendor.

(7) Sale. –An agency to sell is different from sale. (Art. 1458, Civil Code.) For the
distinctions between the two and example, see Article 1466, Sales. (par. 1.)
Art. 1869. Agency may be express, or implied from the acts of the principals, 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.
Agency may be oral, unless the law requires a specific form.
Kinds of agency. Agency may be classified as follows
(1) As to manner of its creation:
(a) Express. – One where the agent has been actually authorized by the principal either
orally or in writing (Art. 1869.); or
 (b) Implied. - One which is implied 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 (Ibid.) or from the acts of the agent which carry out the
agency, or from his silence or inaction according to the circumstances. (Art. 1870)
The enumeration of cases of implied agency in Articles 1869 and 1870 is not exclusive.
An implied agency is an actual agency as much as an express agency.
(2) As to its character:
(a) Gratuitous. –One where the agent receives no compensation for his services. (Lbid.)
(b) Compensated or Onerous. – One where the agent receives compensation for his
services. (lbid.)
(3) As to extent of business cobered:
(a) General. –One which comprises all the business of the principal (Art. 1876.); or
(b) Special. –One which comprises one or more specific transactions. (Ibid)

(4) As authority conferred:

(a) Couched in general terms. –One which is created in general terms and is deemed to
comprise only acts of administration (Art. 1877.); or

(b) Couched in specific terms. –One authorizing only the performance of a specific act or
acts. (see Art. 1878.)

(5) As to its nature and effects:

(a) Ostensible or Representative. –One where the agent acts in the name and
representation of the principal; or
(b) Simple or Commission. –One where the agent acts for the account of the principal
but in his own name. (see Art. 1882.)

Form of agency.
In general, there are no formal requirements governing the appointment of an agent. The
agent’s authority may be oral or written. An instance when the law requires a specific form for
the agency is Article 1874.
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.
Form of acceptance by agent.
Since agency is a contract, there must be consent by both parties. An agency is either
express or implied, and this is true on the part of the principal (Art. 1869.) as well as on
that of the agent. (Art. 1870.)

CHAPTER 2
 OBLIGATIONS OF THE AGENT
Art. 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may suffer.
He must also finish the business already begun on the death of the principal,
should delay entail any danger.
Art. 1885. In case a person declines an agency, he is bound to observe the
diligence of a good father of a family in the custody and preservation of the goods
forwarded to him by the owner until the latter should appoint an agent or take charge of
the goods.
1. Necessity of Acceptance.
The moment the agent accepts the agency, expressly or impliedly, said acceptance gives birth
to contractual relations between the principal and the agent. If after acceptance, the agents fail
to perform his duties as such, the principal may sue him for damages for breach of contract.
However, the agent cannot be compelled to accept an agency. He is free to refuse to refuse the
trust and confidence reposed in him. This he may do so by informing the principal of his
rejection. But if goods are forwarded to him, and decline the agency, he is duty bound to
observe the diligence of a good father of a family I the custody or preservation of the goods until
the principal has appointed a new agent or he himself takes charge of the goods.
2. Death of the principal.
Death of the principal terminates the agency. However, should delay entail any danger, the
agent must finish the business already begun on the death of the principal, and otherwise the
agent will answer for damages.
3. Obligation of the agent who accepts the agency.
a. To carry out the agency.
b. To act within the scope of his authority.
c. To act in behalf of the principal.

4. Obligation of the agent who declines the agency.

a. To notify the principal that he is declining the agency.
b. To preserve the goods forwarded to him until the principal appoints another agent.

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.
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.
1. Instructions explained.
These are orders given by the principal to his agent in relation to the business of his agency. If
the agent acts within his authority but fails to follow the instructions of the principal, the contract
with the third person binds the principal, but the agent may be held answerable for damages to
the principal. Conversely, if the agent followed the instructions of the principal and has not
exceeded his authority, the principal cannot successfully invoke the failure in the
accomplishment of the object for which the agency is constituted (Gutierrez Hermanas vs. Oria
Hermanas, 30 Philo. 491).
2. How the agent will execute the agency.
a. If with instruction from the principal: The agent shall act in accordance with the
instruction of the principal. The act must be for the benefit and not to the detriment of the
principal.
b. If without instruction from the principal: The agent must act with the diligence of the good
father of family, as required by the nature of the business.

Art. 1888. An agent shall not carry out an agency if its execution would manifestly
result in loss or damage to the principal.
1. Agent is an extension of the personality of the principal
In agency, the agent is an extension of that of the principal. Such being the case, the agent is
forbidden to do an act which the principal would not to do. If an act would manifestly result in
loss or damage to him, it is obvious that the principal will not execute the act. Therefore, being
an agent, he must not carry out the agency if he knew that it would manifestly result in loss or
damage to him, it is obvious that the principal will not execute the act. Therefore, being an
agent, he must not carry out the agency if he knew that it would manifestly result in loss or
damage to the principal.
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.
1. Agent must not compete with the principal under the principle of loyalty
It is a well settled rule that an agent is a fiduciary with respect to matters within the scope of
agency. It is based on utmost trust and confidence. Therefore, the agent is bound to execute the
agency in good faith and loyalty to his principal. Short of this expectation is considered a
betrayal. In any event, whenever there is a conflict of interest, the agent is called upon to
sacrifice his interest and give it to the principal.
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.
1. Agent’s authority to lend money to the principal.
If the agent has been empowered to borrow money, he may himself be the lender at the current
rate of interest and this rule cannot cause prejudice to the principal because the interest is at the
current rate.
2. Agent’s authority to borrow money to the principal.
If the agent is authorized to lend money, he cannot be the borrower, except with the consent of
the principal.
Art. 1891. Every agent is bound to render an account of his transactions and to deliver
to the principal whatever he may have received by virtue of the agency, even though it
may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall be
void.
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall be
void.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal
may furthermore bring an action against the substitute with respect to the obligations
which the latter has contracted under the substitution.
1. Delegation of authority.
As a rule, the agent may appoint a sub-agent or a substitute unless prohibited by the principal.
2. Appointment of a substitute.
a. The agent who appoints a substitute or sub-agent without authority from the principal,
but not prohibited is liable for the acts of the sub-agent if the principal suffers damages.
b. If the agent is given power to appoint a sub-agent without designating the person, the
agent is liable if the sub-agent is notoriously incompetent or insolvent.
c. If the agent is given power to appoint a sub-agent, and the principal designated the
person appointed as a sub-agent, the agent is not liable for the acts of the sub-agent.
d. If the agent appoints a substitute against the expressed will of the principal, the acts of
said substitute or sub-agent is without legal effect, hence, they are void or inexistent.
(Manresa, 419-420)

3. Liability of a sub-agent or substitute.

The appointed sub-agent falling under Article 1890, paragraphs 1 and 2, is liable to the principal
with respect to the obligations which the latter has contracted under the substitutions.
 Art. 1894. The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated.
Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the
non-fulfillment of agency, and for the fault or negligence of his fellow agents, except in
the latter case when the fellow agents acted beyond the scope of their authority.
1. Nature of the liability of two or more agents to the principal.
As a rule, each agent is liable only for his own acts, or omission, even though they have been
appointed at the same time or simultaneously. However, the parties may agree that their
obligation is solidary. If agreed, each of the agents is liable for the non-performance of the
agency, except when the other agents acted beyond the scope of their authority.
2. Extent of liability in case solidary responsibility is agreed upon.
Each of the agents shall be responsible for:
a. Non-fulfillment of the agency, because there is a breach of contract.
b. Damages bought about by the fault or negligence of one of the agents while acting for the
agency.
Be noted that if the act of an agent is not related to the agency or is beyond the limits of
the agency, he alone shall be responsible.
Art. 1896. The agent owes interest on the sums he has applied to his own use from the
day on which he did so, and on those which he still owes after the extinguishment of the
agency.
1. Agent’s liability for failure to deliver funds or property after the termination of agency.
The agent is duty bound to deliver agency funds or property to his principal upon the
termination of agency, and if he should fail, he should account for its value or the amount he
failed to return plus interest.
Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers.
1. Agent exceeds his authority without giving notice to third person.
As a rule, the moment the agent executes the agency, he must do so within the scope of
his authority, and in the name of his principal. And if he does so, he will escape personal
liability, and it is the principal who is liable, except:
a. If the agent binds himself either as a principal or surety in which case he shall be liable to
third person with whom he contracted.

b. If the agent exceeded the limit of his authority without giving notice to such excess of
authority without giving notice to such excess of authority to third person. But if the agent
gave notice to the third person, and despite the notice, the third person still contracted with
him, the agent is not liable.
 Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the principal.
In this case, however, the agent is liable if he undertook to secure the principal's
ratification.
Art. 1899. If a duly authorized agent acts in accordance with the orders of the principal,
the latter cannot set up the ignorance of the agent as to circumstances whereof he
himself was, or ought to have been, aware.
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.
Art. 1901. A third person cannot set up the fact that the agent has exceeded his powers,
if the principal has ratified, or has signified his willingness to ratify the agent's acts.
Ratification by the principal of unauthorized contract entered by the agent.
Ratification cleanses the contract from all its defect from the moment it was constituted. If the
contract entered by the agent is unauthorized or disauthorized but later ratified by the principal,
or has signified his willingness to ratify the agent’s act, they become enforceable. Third persons
can no longer set the defense that the agent exceeded his power.
Art. 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as
regards the agency. Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney or instructions
shown them. (n)
Art. 1903. The commission agent shall be responsible for the goods received by him in
the terms and conditions and as described in the consignment, unless upon receiving
them he should make a written statement of the damage and deterioration suffered by
the same. (n)
1. Commission agent and broker defined.
a. Commission agent is one who receives goods, chattels, or merchandise, for sale,
exchange for a compensation or commission, to be paid by the owner from the sale of
goods.
b. Broker is a middleman or intermediary who, in behalf of others, and for commission or
fee, negotiates contracts or transactions relative to real or personal properties.

Art. 1904. The commission agent who handles goods of the same kind and mark, which
belong to different owners, shall distinguish them by countermarks, and designate the
merchandise respectively belonging to each principal. (n)
Art. 1905. The commission agent cannot, without the express or implied consent of the
principal, sell on credit. Should he do so, the principal may demand from him payment in
cash, but the commission agent shall be entitled to any interest or benefit, which may
result from such sale.
 Art. 1906. Should the commission agent, with authority of the principal, sell on credit,
he shall so inform the principal, with a statement of the names of the buyers. Should he
fail to do so, the sale shall be deemed to have been made for cash insofar as the
principal is concerned.

The law on SALES, AGENCY, PLEDGE and MORTGAGES

(2008 Edition) By Carlos B. Suarez, Alexander Q. Suarez

CHAPTER 3 – OBLIGATIONS OF THE PRINCIPAL

(Articles 1910-1981)

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

As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly. (1727)

1. When principal is bound.

The principal is duty bound to comply with all the obligations contracted by his agent
provided the agent contracted:
a. In the name of the principal; and
b. Within the scope of his authority.

2. When principal is not bound.

a. If the agent acts in his own name, except when the contract involves things
belonging to the principal; or
b. If the agent exceeds his power, except when the principal ratifies it expressly or
impliedly.

3. Principal is bound by the agent’s dishonesty

As long as the agent acts within his authority, the principal is bound even by his
dishonesty. Thus, it was ruled that errors of a business agent in the payment of taxes
shall bind the principal who shall be held liable for a fraudulent tax return without
prejudice to going after the erring agent. (Dy Peb. Vs. Collector of Internal Revenue, L –
19375, cited in J. Nolledo; Sales, Agency and Bailments).

ART 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the later to acts as though he
had full powers.

1. Liability of the principal to third persons.

a. If the agent acted within the scope of his authority and in the name of the
principal, the latter is bound by, and liable for, the acts of the agent.
b. If the agent acts in the name of the principal but in excess of his authority, the
principal is not liable, except:
 1. If the principal allowed the agent to act as though he had full powers. In which
case, the principal and the agent are liable solidarily.

2. Where estoppel lies.

When the principal allows the agent to act as if he had full powers, he will be guilty of
estoppel. Both the agent and the principal are guilty; the agent because he knows that
he has no authority to act; the principal, because he permits him to act with knowledge
that he did not give him the authority to act.

ART 1912. The principal must advance to the agent, should the latter so request,
the sums necessary for the execution of the agency.

Should the agent have advanced them, the principal must reimburse him therefor,
even if the business or undertaking was not successful, provided the agent is
free from all fault.

The reimbursement shall include interest on the sums advanced, from the day on
which the advance was made. (1728)

1. Expenses of Agency.

Expenses incurred in carrying out the agency must be for the account of the principal.
The principal is obliged therefore to advance, upon request, the necessary funds for the
execution of the agency. However, the parties may agree that the agent shall advance
the funds, in such a case, the agent is obliged, except if the principal is insolvent.

2. Advances made by the agent.

If the agent used his own money for the furtherance of agency, he shall be entitled to be
reimbursed of the expenses incurred, plus the interest from the day on which the
advances was made. This right is given to the agent even if the undertaking was not
successful, provided that:
a. The agent is free from all fault.
b. There is no agreement that the expenses shall be borne by the agent.

3. When interest will begin to run.

The law provides that the reimbursement shall include interest on the amount advanced
from the date of such advance or may begin from the commencement of the agency
itself, if the latter is of such a nature that it required the agent to set aside funds for its
performance. The reason : the agent in such case is deprived of the use of his money.
(11 Manresa 542)

ART. 1913. The principal must also indemnify the agent for all the damages which
the execution of the agency may have caused the latter, without fault or
negligence on his part. (1729)
1. Agent is entitled to indemnity for damages caused by the execution of agency.
Damages suffered by the agent in the execution of the agency must be paid for by the
principal. This assumes that the agent acted within the scope of his authority and that
he is not guilty of fault or negligence.

2. Example:
P appointed A as his agent to sell P’s car for P10,000. While A was the driving the car,
going to a prospective buyer, a 6 x 6 truck sideswiped the car causing damage to the
same and to A because he was bodily injured. In this case, A may demand from P
indemnity for all the damage caused.

ART. 1914. The agent may retain in pledge the things which are the objects of the
agency until the principal effects the reimbursement and pays the indemnity set
forth in the two preceding articles.

This rule is a protection to the rights for reimbursement as stated in the preceding
article. It is a pledge by operation of law. This is the same as the rule of retention until
the price of the sale is fully paid.

This lien or right of retention is in the nature of legal pledge. Hence, the agent may
cause the sale of the things retained in order to recover his claim. Should the proceed of
such sale is more than the amount due, the excess must be given to the principal.

ART. 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency. (1731).

Liability of two principals to a common agent.

The liability of two or more principals who appoints an agent for a common transaction
is solidary. Be it noted that that the transaction is a community of interest to all of them.
Such that the if these two principals appointed an agent with an undertaking distinct
from one another, or the powers were conferred at various times by each of the
principals, or the things or services as object of agency be different, there is lacking the
community of interest required for solidarity. (`11 Manresa 551)

Illustrative Case:
a. P1 and P2 appointed A to sell their specific car for P10,000, with 10%
commission. A executed the contract of agency satisfactorily and therefore he is
entitled 10% commission, that is, P1,000. Can A hold P1 or P2 liable for this
amount?

Answer:
Yes, because the transaction is common, the principal’s obligation is solidary.
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 in the preceding article, if the agent has acted in
good faith, the principal shall be liable in damages to third person whose contract
must be rejected. If the agent acted in bad faith, he alone shall be responsible.

Order of priority.
When the same thing is sold by the principal and the agent to two different persons, the
following rules be observed;
a. If movable
1. The first one who took actual possession in good faith.
2. If none of the two took actual possession, the contract with a prior date shall
be preferred.
b. If immovable:
1. The first to register the sale in good faith.
2. If none registered the sale, the first one who took actual possession in good
faith.
3. In the absence of both, the oldest title in good faith.

2. Right of the aggrieved party.

a. Against the agent if he acted in bad faith.
b. Against the principal if the agent acted in good faith.

ART. 1918. The principal is not liable for the expense 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
ensure, 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.

Reimbursement of the agent.

As a rule, where an agent is employed by a principal and such agent incurred expenses
in the execution of the agency, the principal is bound to reimburse the agent of all
legitimate and necessary expenses that may be incurred, except:
 a. When the agent breached his obligation by acting against the principal’s
instruction.
b. If the agent is guilty of fault or negligence in the performance of agency.
c. Expenses in the execution of the agency, knowing that an unfavorable result will
ensue.
d. When it is stipulated that in any event the agent is liable.

The law on SALES, AGENCY, PLEDGE and MORTAGES

(2008 Edition) Carlos B. Suarez, Alexander Q. Suarez

CHAPTER 4 – MODES OF EXTINGUISHMENT OF AGENCY

ART. 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. (1732a)

1. Modes of extinguishing an agency. (EDWARD)

a. Expiration.
Where the time for the continuance of the agency is fixed by its terms, the agency
is extinguished after the expiration of that period.

b. Death, civil interdiction, insanity or insolvency of the principal or agent.

1. Death of the principal – no one is to be represented after his death, subject to
the exceptions laid down in Article 1930 of the Civil Code.
2. Death of the agent – there is no one to represent the principal after the death
of the agent.
3. Civil interdiction – accessory penalty depriving the offender during the time of
its sentence of the right to manage his property by any act or any conveyance
intervivos. Therefore, if the principal of the agent are civilly interdicted, the
agency is extinguished.
4. Insanity – agency is extinguished because the principal or the agent are
deprived the capacity to act.
5. Insolvency – agency is extinguished if the principal or the agent becomes
insolvent.

c. Withdrawal of the agent.

The withdrawal of the agent terminating the agency may be express or implied. It
was held that a suit by the agent against his principal for recovery of what is due
 the agent after liquidation of accounts is equivalent to renunciation of the agency
by the agent, and this is called implied revocation.

d. Accomplishment of the objective.

When the object of the agency is already accomplished the agency is
extinguished.

e. Revocation.
A contract of agency is revocable at will because agency is fiduciary in nature.
Such that when the principal loses confidence in the agent, he has right to revoke
the agency even if a period or term has been stipulated within the agency is to
last.

As cited by American and Spanish jurisprudence, it is even the right of the

principal to revoke the agency at anytime he pleases, and for the agent, he cannot
ask damages of any kind because the exercise of a legal right cannot give rise to
any liability for damages to the agent. However, the principal is liable for damages
on exceptional cases, to wit:

a. Revocation is done in bad faith, as cited in the case of Danon vs. Rimo &
Co., 42 Phil, 133, wherein the principal revoked the agency to avoid
payment of compensation to the agent.
b. When it is agreed that the principal will answer for losses suffered, due to
the principal’s action of terminating an agency at will.

2. Other causes of extinguishing an agency.

a. By agreement of the parties.
b. Transfer or sale of the object of the agency.
c. Loss or destruction of the object of agency.
d. Continuation becomes illegal.
e. War, when allegiance of either partly becomes in conflict.
(2 Am. Jur. 37, 50, 59, 60, 61)

ART. 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. (1733a)

1. Revocation of agency.
The agent’s authority to act for the principal remains as long as the confidence reposed
in him by the principal exists. But as soon as this confidence disappears, the principal
may revoke the power so conferred. In conjunction with this, the principal may compel
the agent to return the document evidencing the agency.

2. Exceptions to the rule that an agency is revocable at will.

a. When there is stipulation to the contrary.
b. When a bilateral contract depends upon the agency.
 c. When the agency is a means of fulfilling the obligation already contracted.
d. When the agency has been constituted for the benefits of the principal and the
agent.
e. When the agency carries an stipulation in favor of a third person who has
accepted the stipulation in his favor.
f. Partner appointed as a manager in the Articles of Partnership, and removal is
unjustifiable. (Article 1927, 1930, Civil Code.)

ART. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons. Its revocation shall not prejudice the latter if they were not
given notice thereof. (1734)

ART. 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.
1. Notice of revocation to third persons.

a. Authority of the agent is to deal with specific person.

If the principal has given third persons special invitation, or if the notification to
them is by special information, the principal upon termination must also inform
this third person by special information. Otherwise, he will be held liable to the
third person acting in good faith relying upon such agency. This notice required
by the revocation may be written or oral.
b. Authority of the agent is to deal with the public or any person.
If the principal informs the public of the agency by public information, its
revocation must also be made publicly. If no notice is given he will not be relieved
of his obligation to third person acting in good faith. Notice of the revocation in a
newspaper of general circulation is a sufficient warning to third persons. Be it
noted that notice need not be given to persons with knowledge of the revocation.

ART. 1923. The appointed of a new agent for the same business or transaction
revokes the previous agency from the day on which notice thereof was given to
the former agent, without prejudice to the provisions of the two preceding
articles. (1735a)

1. Revocation by appointing a new agent.

The appointed of a new agent revokes the first agency only in case of incompatibility
between the first and the second agency, and only from the day on which notice thereof
is given to the former agent. If no notice is sent to the first agent, it is understood that
the first agency still exists.

2. Example:
P appointed A, as his agent, to sell a specific car on Jan. 1. On Jan. 5, P appointed X,
to sell the same car as covered by the first agency. In this case, P’s obligation is to
notify A about the appointment of X as the new agent, implying that he is revoking the
first agency executed between him and A. hence, if A is not notified, it is understood
that the first agency till exists. (Garcia vs. De Manzano, 39 Phil. 577)

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

Direct management by the principal.

This is another implied revocation. The agency is impliedly revoked if the principal
directly manages the business entrusted to the agent. But when the principal motive is
only to help the agent in the management of the business, agency is not revoked.

ART. 1925. When two or more principals have granted a power of attorney for a
common transaction, any one of them may revoke the same without the consent
of the others.

Revocation by one or two or more principals.

According to Article 1915, when two or more persons appoint an agent for a common
transaction or undertaking, they shall be solidarity liable to the agent for all the
consequences of the agency. Since their obligation is solidary, that is, one of the
principals can be made answerable to the agent for all the consequences of agency, it
is but proper that any one of the principals can also revoke the agency even without the
consent of the others. Be it noted that the non-revoking principals may let the agent
continue the contract of agency with respect to his interest.

ART. 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.

Implied revocation of the agent’s authority

This is another implied revocation. The appointment of a new agent for the same
business or transaction revokes a previous agency. Our Supreme Court held that if a
new appointment is made, whether it enlarges or limits the authority of the agent, the
same I held to revoke the former power of attorney in case of inconsistency.

This article contemplates only a partial revocation of the agency.

Example: P appoints A, as his general agent (with general powers), to administer his
properties situated in Malolos, Bulacan, and a ten (10) hectares of agricultural land
situated in Capas, Tarlac. Subsequently, P appointed X to administer and sell that land
situated in Capas, Tarlac. In this case, the authority of A to administer the property in
Bulacan will continue, but the one in Capas is impliedly revoked because the general
power given to A is considered revoked by the special power granted to the other agent.

ART. 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.

1. Instances where the principal cannot revoke the agency without being liable for
damages.
As a rule, the agency can be revoked at anytime because it is revocable “at will”. In the
following cases revocation is forbidden; otherwise, he will answer for damages, to wit:

a. A bilateral contract depends upon the agency:

Example: P appointed A as his agent to sell sliced ham to the public. P and A
agreed that the latter will lease the ice storage of X to freeze the sliced ham for
one year, the expected time when the ham will last. In here, P cannot revoke the
agency at will because a bilateral contract (Lease Contract) depends upon the
agency. If he will revoke the contract, he will answer for damages.

b. If the agency is a means of fulfilling an obligation already contracted.

Example: D is indebted to C for P10,000. D meantime has no money. So, D
appoints C as his agent to sell a parcel of land belonging to D for P10,000 and
apply the proceeds of the sale to the obligation of D to C. D cannot revoke the
contract of agency because there was already an obligation before the agency. In
short, the agency is the means of fulfilling an obligation already contracted.

c. If a partner is appointed manager of a partnership and his removal is unjustifiable.

2. Revocation could still be made for a just cause.

In the case of Vicente Coleoneo vs. Eduardo Claparals (L-18616,10 SCRA 577), THE
Supreme Court, speaking through Mr. Justice J. B. L. Reyes, said: “It is not open to
serious, doubt that the irrevocability of the power of attorney may not be used to shield
the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the
agent for that would amount to holding that a power coupled with an interest authorizes
the agent to commit frauds against the principal.”

The conclusion therefore, is that an agency coupled with an interest may still be
revoked in cases of fraud , bad faith, breach of confidence, or betrayal of trust,
committed by the agent, (Citation, J. Nobello, Sales, Agency, and Bailments) (A. Padilla:
Agency, text and Case)
Art. 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. (1736a)

Art. 1929. The agent, even if he should withdraw from the agency for a valid
reason, must continue to act until the principal has had reasonable opportunity to
take the necessary steps to meet the situation. (1737a)
1. Withdrawal by the agent.
If the principal can revoke the agency at will, the agent can also put to an end the
agency at his will and pleasure, by giving notice to the principal, renouncing the power
conferred upon him by the principal. But if the principal suffered damages by reason of
the withdrawal, the agent must indemnify him, except:
a. If the agency cannot be continued without grave detriment to the agent.
b. When the duration of the agency is indefinite and the agent gives reasonable
notice to his principal.
c. For causes attributable to the principal. (2 C. J.S. 1169, 1170)

2. Continuation of agency even after withdrawal.

The agent even after a valid and reasonable withdrawal, shall continue the agency until
the principal has had opportunity to take the necessary steps to meet the situation.

Art. 1930. The agency shall remain in full force and effect even after the death of
the principal, if it has been constituted in the common interest of the latter and of
the agent, or in the interest of a third person who has accepted the stipulation in
his favor.
1. Death of the principal.
As a rule, the death of the principal extinguishes the agency, except:
a. When the agency is constituted in the common interest of the principal and the
agent.

Example:
D borrowed from C P10,000, and a security he gave a specific ring to C which the
latter can sell if D cannot pay his debt at the time of maturity. In this case, if D
dies, agency of C is not terminated but will continue until the sale of the ring
because I is for the benefit of both the principal and the agent.

b. When the agency is constituted in the common interest of a third person who has
accepted the stipulation in his favor.

Example:
D owes C P10,000 payable as soon as possible. After the obligation is contracted,
D sells his land to A and appoints the latter as his agent in paying with the
purchase price what D owes C. In this case, even if D dies, the agency of A shall
continue to exist because this is for the benefit of C, a third person.

2. The principle “coupled with interest” must be appointed and be proven

Even of the power of attorney should state that the agency is one coupled with an
interest, the cout shall disregard said statement if in fact, the agency I not really coupled
with an interest. The Court held: A mere statement in the power of attorney that he
agency created is one coupled with an interest is insufficient. It must be stated in what
such interest consists. The fact that P (owner) mortgaged the improvements of his land
to A (agent) is not enough interest that would render the power of attorney irrevocable.
In fact no mention of the mortgage was made in the power of attorney. The death of P
terminated the agency of A and therefore, the sale made after the death was null and
void. (Del Rosario vs. Abad, L-1881, cited in Agency, Text and Cases by A. Padilla)

Art. 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. (1738)

1. Acts done by the agent after the death of the principal.

Acts done by the agent in good faith after the principal’s death are valid and binding
upon the representative heirs, or estate of the principal.
2. When estate of the principal not bound.
a. When the third person is aware of the death of the principal.
b. When the agent is aware of the death of the principal.
3. Effect of the contract and their status if entered into after the death of the
principal.
If the cause for revocation unknown to the agent is the death of the principal, the estate
of the principal (and his heirs) must respect and honor the contracts entered by the
agent. Thus, it was held by the Supreme Court that the death of the principal does not
render the act of an agent unenforceable, where the latter had no knowledge of such
death. (Navidad Herrera vs. Lucy Kim Guan, L-17043)

In this regard, explaining Article 1931, the Supreme Court, speaking through Justice
Cecillia Muñoz-Palma said:

“An act done by the agent after the death of the principal is valid and effective only
under two conditions: 1) That the agent acted without knowledge of the death of the
principal, and 2) That the third person who contracted with the agent himself acted in
good faith. Good faith here means that the third person was not aware of the death of
the principal at the time he contracted with said agent. These two requisites must
concur. The absence of one will render the act of the agent invalid and unenforceable”.
(Rallos vs. Felix Go Chan and Sons really Corporation, 74 O.G. 2823)

Art. 1932. If the agent dies, his heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances may demand in the interest
of the latter.

Agency by operation of law.

This obligation conferred to the heirs of the agent or his legal representative is
called presumed agency, or tacit agency, or an agency by operation of law.

The best opinion is that advance by the Supreme Court of Spain which has
declared repeatedly before and after the promulgation of our Civil Code that the
contract of agency is very personal and the same is extinguished from the
moment either party ceases to exist (11 Manresa, 588 – 589, cited in A, Padilla;
Agency, Text and Cases)