From Atty. Deanabeth C.

Gonzales, Professor Rizal Technological University, CBET

Sept. 13, 2020

For everyone who will get hold of a copy or portions of this material:

This is posted online in the light of the pandemic covid-virus which adversely affect not just the
Philippines but the entire world. It is a privilege for me to teach part-time in a state university for more
than a decade now. I teach subjects in the College of Business and Entrepreneurial Technology
(CBET), subjects which are all part of the Board Exam for CPAs. Being a CPA-Lawyer, I know for a
fact that having a book is a must in studying any law subject. However, teaching in a school where
many students cannot afford to buy a book, my former students in the past years can attest to the fact
that I went out of my way to pay for books in advance and allow some students to pay me in
installments over the entire semester just for them to have a book. Nevertheless, some students still
cannot afford to buy a book, and attended classes by just walking to school. Being a product of the
Public School System in the Philippines, up to college in PUP Sta. Mesa for Accountancy, I fully
understand the money issue in buying books for many students.

With Social Distancing rules and hygienic issues during this pandemic, students are not encouraged to
make use of the university physical library and the online library is not yet that fully operational. Hence,
I decided to post portions of some books online to help those students who cannot afford to buy a
book, specially now that unemployment in the country has risen at all-time high.

Portions of the book were copied by former CBET students from the book Law on Sales, Agency and
Bailments by Hector De Leon (definitely not the latest edition) and from other books/sources (i.e., Law
on Sales, Agency, Pledges and Mortgages by Carlos Suarez, Alexander Suarez, 2008 ed., etc.) when
they were asked to report in class. I wasn’t too happy to see reports which were mostly copied from
the books but I got the softcopies of their reports sent to my email. In the end, I found myself having a
softcopy of many portions of the books on Law of Sales. There is no copyright infringement here
because it is for educational purposes and only portions of the book will be posted to help students who
cannot afford to buy a book in this pandemic times.

Note that the postings will not cover the entire assignment given for each session or particular day.
Rather, the postings will explain only some portions of the assignment for the day based on the books
previously used by the former CBET students. There is no new Civil Code to date so that the contents
of the books still apply. I will not prescribe any book on Sales for this semester in view of the financial
difficulty for most families. Students can buy (but NO available new stock of books in Rex Bookstore
per my online search as of September 10, 2020 nor in National Bookstores) or borrow any edition of
the book on sales by any author. Each student must download the proper civil code provisions from
the internet, make use of whatever postings available in the group/class messenger that can be helpful
for your classmates or do own research. The postings are for personal use of the student only and not
for mass production.

With no intent to have financial gain, but only to help students from the less privilege sector of our
society during this pandemic times, I hope many will benefit from this posting.

It may seem to be a cliché that “The Youth is the Hope of the Fatherland,” spoken by Dr. Jose Rizal.
Yet, in times like this, we need to give hope and to assist all students who will face more challenging
times ahead.

More power to all Filipinos and to all educators who in this pandemic times make extra efforts to
educate all learners.

May God who made heaven and earth continue to bless us all through Jesus Christ, by whose
blood shed on the cross save us all. Maraming salamat po.

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LAW ON AGENCY
Reference: The Law on Sales, Agency,

Pledge and Mortgage by Carlos & Alexander Suarez, 2008

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.

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 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.

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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.

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 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
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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.

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