Agency (2011) - Casis

U.P.
LAW CENTENNIAL TEXTBOOK PROJECT
Analysis of
Philippine Agency Law
and Jurisprudence
ROMMEL J. CASIS
U.P. COLLEGE OF LAW
UNIVERSITY OF THE PHILIPPINES

COLLEGE OF LAW
Diliman, Quezon City
Philippine Copyright © 2011
by
UNVERSITY OF THE PMLHIPINES

COLLEGE OF LAW
and
ROMMEL J. CASIS
ISBN No. 978-971-15-0431-1
No part of this book may be reproduced in any form, or by any

electronic or mechanical means, including information storage
and retrieval systems, without permission in writing from the
author and the publisher, except by a reviewer who may quote
brief passages in a review.
Cover design by Aristotle L. Roxas
Published by U.P. College of Law

AUTHOR'S PROFILE
Rommel J. Casis received his Master of Laws (LL.M) from

Columbia University in 2010, specializing in International
Law, Climate Change Law and Environmental Law. He
earned the distinction of being a Harlan Fiske Stone
Scholar (magna cum laude equivalent). He also received a
Certificate of Achievement from the Parker School of
Foreign and Comparative Law of Columbia Law School.
As a law student, he was part of the Order of the Purple

Feather, the honor society of the UP College of Law, for
all his years in law school. He was in the top ten of his
graduating class and received the Dean's Medal for
Academic Excellence apart from other awards both for
academic and extra-curricular work.
Professor Casis began teaching in the UP College of Law

in 2005 and became a full-time faculty member in 2008.
Prior to joining the full-time faculty, he was engaged in

corporate law practice as part of an international law firm
for six years. His practice revolved around mergers and
acquisitions, foreign investment structuring, real estate
and property transactions and corporate governance and
compliance.
Professor Casis has taught the course, "Agency and

Partnership" in the UP College Law since 2005. He has
also taught courses on Torts and Damages, Credit
Transactions, Obligations and Contracts, Transportation
and Public Utilities and Land Titles and Deeds.
PREFACE
This volume forms part of the Centennial Textbook

Writing Project ("Project") launched by the UP College of
Law as part of its centennial celebration.
This volume is written in the "treatise" format, which is

defined under the Project as a systematic, extensive, and
in depth discourse on a field of law that is written in a
thematic manner wherein the provisions of law and
jurisprudence are woven seamlessly into the discussion.
This format was chosen because it provides a more
efficient yet comprehensive presentation of Agency law
and jurisprudence. The thematic approach, as opposed to
the fragmented "provision by provision" approach,
creates fertile ground for analysis as connections between
various rules are more readily seen. In this format, each
provision of law or every rule enunciated by the Court is
not viewed in isolation but is considered in the context of
how it relates to the whole system of Agency law and
jurisprudence.
This volume is intended primarily as a teaching tool.

When used in tandem with a problem-based method of
classroom participation, students should be able to see
immediately the practical application of the relevant rules
in everyday life. Legal education after all should go
beyond mere memorization of rules and recitation of
cases and into the analysis and application of rules to
actual problems.
At the end of each chapter, some questions for further

discussion are indicated which a law professor may wish
to use for his class to test the depth of his students'
understanding of the concepts and principles. Most of
these questions are not as simple as they initially appear.
The idea is to challenge the student's appreciation of the
rules. There may be more than one way to answer the
questions. But while there may be many possible correct
answers, a few answers are more correct than others and
there can be many wrong answers. The purpose of the
discussion is to determine which is which.
This volume includes an Appendix listing some sample

multiple-choice questions on Agency. These questions,
with some modifications, were actual exam questions.
This is intended to give students some practice to test
their knowledge of Agency law. Perhaps those teaching
Agency or administering multiple choice questions for the
first time may benefit from these as well.
Although the Table of Contents is quite detailed, an Index

and a Table of Cases are also included to aid in navigating
through this volume's pages.
This volume would not have been possible without the

research assistance of Mr. Leo Quesada and Ms. Mary
Grace Anne Rosales and administrative support of Mario
Dela Cruz and Josephine Dela Cruz. I am grateful for
their help as well as the honor given to me by the UP
College of Law to write this book.
Rommel J. Casis
Quezon City, Philippines 2011
TABLE OF CONTENTS
I. THE CONCEPT OF AGENCY
A. Purpose and Definition ................................................ 1

1. Purpose .................................................................... 1
a. Accomplishment of More Tasks .................... 1
b. Multiple and Simultaneous Areas
of Activity ......................................................... 2
c. Improved Performance ................................... 3
d. Multiple Businesses ........................................ 3
2. Definition ................................................................. 4
a. Legal Relationship ........................................... 5
b. Contract ............................................................. 8
B. Elements of Agency ................................................... 10
1. Consent to Establish Relationship ...................... 12
2. Object is the Execution of a Juridical Act .......... 18
3. Agent Acts as Representative .............................. 20
4. Agent Acts within the Scope of Authority ........ 21
C. Effect of Agency: Integration and Extension .......... 22
1. Authority to Act .................................................. 23
2. Agent not Real Party-In-Interest ....................... 24
3. Notice to Agent is Notice to Principal .............. 31
4. Bad Faith of Agent is Bad Faith of Principal ......... 33
D. Nature of Agency: General and Special .................. 35
1. Distinguishing General Agency and
Agency Couched in General Terms .................... 35
a. As to Scope: General Agency ........................ 36
b. As to Authority: Agency Couched
in General Terms ............................................. 38
2. Distinguishing Special Agency and
Agency Couched in Specific Terms ................... 39
a. As to Scope: Special Agency .......................... 39
viii I Analysis of Philippine Agency Law and Jurisprudence
b. As to Authority: Special Power

of Attorney ...................................................... 39
i. Transactions Covered ............................... 39
ii. Effect of Absence of Specific
Authorization ............................................ 44
iii. Effect of Specific Authorization ................... 55
3. Clarifying the Terms ............................................. 62
II. ESTABLISHING AGENCY
A. Oral or Written ............................................................. 67

1. Oral ......................................................................... 67
2. Written ..................................................................... 71
a. Application ..................................................... 71
i A sale ......................................................... 71
ii Land or Any Interest Therein .................. 77
b. Effect ................................................................. 77
c. Form in Case of Corporations ........................ 89
B. Express/Implied Agency and
Agency by Estoppel ................................................... 96
1. Express Agency ...................................................... 97
2. Implied Agency ...................................................... 97
a. Implied from Acts of the Principal ................ 97
b. Implied from Acts of the Agent ....................... 100
3. Agency by Estoppel ................................................. 103
a. Based on Statute ................................................. 103
b. Based on Jurisprudence ................................... 105
4. Distinguishing Implied Agency
and Agency by Estoppel ......................................... 115
III. THE AGENT
A. The Rights of Agents ..................................................... 126

Table of Contents I ix
1. Compensation .......................................................... 126

a. Procuring Cause ................................................. 127
b. Prats Doctrine and Manotok Test...................... 142
c. Forfeiture of Right ............................................. 152
2. Lend to/Borrow Money from the Agency ....... 153
3. Appoint a Substitute ............................................... 154
a. When Allowed ................................................... 155
b. Responsibility for Acts of the Substitute ........ 155
i. The First Scenario ........................................ 155
ii. The Second Scenario .................................... 157
c. Validity of Acts of the Substitute .................... 158
d. Substitute Not Sub-Agent ................................. 159
4. Retain in Pledge Objects of the agency ................. 166
B. The Obligations of Agents ............................................ 167
1. Act Within the Scope of Authority ........................ 167
a. In G eneral ........................................................... 167
i. Conducive Acts ............................................ 169
ii. Advantageous Acts ..................................... 170
b. As Regards Third Persons ................................ 172
c. Authority of Corporate Officers ...................... 173
2. Act in Accordance with Instructions .................... 183
3. Carry Out the Agency ............................................. 184
a. In General ........................................................... 184
b. Continuing the Business .................................. 187
c. In Case of Withdrawal ...................................... 188
d. When not Required to Carry Out ........ 189
4. Advance Funds ........................................................ 189
5. Prefer Interest of the Principal
Over Personal Interest ............................................. 190
a. In General ........................................................... 190
b. Property Administered ..................................... 191
c. Double Sales ....................................................... 193
6. Render Account/Deliver ........................................ 195
x Analysis of Philippine Agency Law and Jurisprudence
7. Pay Interest ............................................................... 201

8. Responsibility for Fraud or Negligence ............... 202
C. The Liability of Agents ................................................. 205
1. When Solidary .......................................................... 206
2. When Personally Liable .......................................... 207
a. Expressly Bound or in Excess
of Authority ........................................................ 207
b. Act in Own Name .............................................. 211
c. Special Obligations of
Commission Agents .......................................... 212
IV. THE PRINCIPAL
A. Obligations of the Principal ........... ...... 219

1. Comply with Obligations ....... ............... 219
a. Acts within the Scope of Authority ................. 219
b. Ratified Acts .................................................. 220
c. When Estopped .................... 232
2. Advance/Reimburse ............................................... 240
3. Indem nify .................................................................. 241
4. Compensate .............................................................. 242
B. Liability of Principal ...................................................... 243
1. Be Solidarily Liable .................................................. 243
2. Contract Involves Things
Belonging to Principal ............................................. 246
V. THE THIRD PARTY DEALING

WITH THE AGENT
A. Rights of Third Parties .................................................. 254

1. Require Presentation of
Authority or Instructions ........................................ 254
2. Reliance on Representation .................................... 255
Table of Contents I xi
B. Obligation of Third Parties ........................................... 255

1. The Keeler Rules ........................................................ 255
a. Fundamental Principles .................................... 259
b. Duty to Inquire ................................................... 261
c. Burden of Proof .................................................. 262
d. Standard of Care ................................................ 262
2. Later Jurisprudence ................................................ 263
a. Fundamental Principles .................................... 264
b. Duty to Inquire ................................................... 266
c. Burden of Proof .................................................. 270
d. Standard of Care ................................................ 272
VI. EXTINGUISHING THE AGENCY
A . Revocation ...................................................................... 276

1. In General ................................................................. 276
2. When Not Binding on Third Persons ................... 279
a. When Notice is Required .............. 279
b. Third Person in Good Faith
without Knowledge of Revocation ................. 282
3. Appointment of a New Agent .............................. 284
4. Direct Management by the Principal .................... 285
5. Special Revokes General in Part ............................ 288
6. When Agency Cannot be Revoked .......... 290
B. Withdrawal ..................................................................... 304
C. Death/Civil Interdiction/Insanity/
Insolvency of the Principal ........................................... 307
1. Agency Coupled with an Interest ......................... 309
2. Contract between Agent without
Knowledge and Third Person in Good Faith ...... 309
D. Dissolution /Accomplishment /Expiration ............. 310
xi I Analysis of Philippine Agency Law and Jurisprudence
VII. DISTINGUISHING AGENCY FROM

OTHER CONTRACTS
A . In General ....................................................................... 312

1. Determined by Acts ................................................. 313
2. The Element of Control ........................................... 315
B. Distinguished from Partnership .................................. 318
C. Distinguished from Service Providers ........................ 320
1. Lessor of Services ..................................................... 320
2. Independent Contractor ......................................... 324
D. Distinguished from Sale ............................................... 328
E. Distinguished from Brokerage .................................... 341
Appendix: Sample Multiple Choice Questions ............... 347

Table of C ases ...................................................................... 362
Index ....................................................................................... 371
DEDICATION
To my Mother,
Rosalia J. Casis,
God's agent in my life,
without whom none of this would be possible.
Thank you for the inspiration.

I. THE CONCEPT OF AGENCY
A. Purpose and Definition
1. Purpose
The purpose of agency is to allow a person to act on

behalf of another. The term "agency" itself is indicative of
this.
The etymology of the word agent or agency tells us much.
The words are derived from the Latin verb, ago, agere; the
noun agens, agentis. The word agent denotes one who
acts, a doer, a force or power that accomplishes things.'
In an agency relationship, the party for whom another

acts or the person represented is called the principal,while
the person who acts on behalf of a principal is called an
agent. Contracts may make use of other terms to describe
the parties, but as far as the law is concerned, the parties
to an agency relationship are the principal and the agent.
a. Accomplishment of More Tasks
Through agency, the principal can accomplish more tasks

by having more people involved in the work.
The basic theory of the agency device is to enable a

person, through the services of another, to broaden the
scope of his activities and receive the product of another's
efforts, paying such other for what he does but retaining
SHARoLD GILL REusCLN AND WILuAM A. GREGORY, THE LAW OF AGENCY

AND PARTNEmtSH (Second Edition) (1990) 1-2.
2 1 Analysis of Philippine Agency Law and Jurisprudence
for himself whatever net benefit resulting from the work

performed.2
In Eurotech v. Cuison,3 the Court said that "[t]he under-

lying principle of the contract of agency is to accomplish
results by using the services of others -to do a great
variety of things like selling, buying, manufacturing, and
transporting."4 Simply put, the Court is saying that
through agency the principal can accomplish more
compared to a situation where that person has to do
everything himself.
b. Multiple and Simultaneous Areas of Activity
By employing agents, a principal can be in many places as

the number of agents he appoints. In this manner, the
principal can accomplish several things at the same time.
The end result is the possibility of completing more tasks
in less time. In a competitive business atmosphere, the
ability to deal with several clients simultaneously is a
critical advantage over those who can only deal with one
client at a time.
Of course, a person can simply hire workers if the only

consideration is having more hands to do the work. But
as will be discussed later in this volume, the nature of the
agency relationship allows the agent to accomplish more
than what an ordinary worker could. This is because of
the agent's power to enter into contracts on behalf of his
principal.
2 Id., at 3.
3 G.R. No. 167552, April 23, 2007.
4 Eurotech v. Cuison, G.R. No. 167552 April 23, 2007, citing 'euschlein and
Gregory, Agency and Partnership (1979 edition), p. 1."
The Concept of Agency I 3
c. Improved Performance
Hiring agents may also improve the performance of the

principal's business because agency allows the principal
to be represented by someone who may be more adept at
the skills required by his business or by someone who has
an established network or reputation.
There are instances where the principal has the capital to

start a business but may not have the expertise to run it.
It may also be possible that the principal prefers to handle
the overall business plan but prefers to delegate specific
projects to his agents. By allowing the principal to focus
on what he does best or delegating to others what he is
not good at, agency improves the performance of a
business.
d. Multiple Businesses
Employing agents also allows the principal to handle

several businesses at the same time. With agents assigned
to each of his businesses, he can divide his time among
his businesses as the need arises. Should one of his
businesses require greater or his personal attention, his
other businesses need not suffer because he can entrust
them to his agents. It is also entirely possible for the
principal to simply reap the benefits of his businesses and
not directly manage any of them.
Although agency can be used even for non-commercial

purposes, as one of the forms of business organizations it
is primarily a commercial relationship.5 As Mechem
argues:
5 FLOYD R. MECHM, OUTLNS OF To LAW op AGENCY (Fourth Edition) §2

(1952).
However, except in a few situations ... the operation of

agency principles in a noncommercial context is insigni-
6
ficant, both in bulk and in importance.
Thus, for all these reasons, the agency relationship

expands the capacity of persons to engage in commercial
transactions.
As a result of these benefits, the agency relationship can

be seen in a number of contexts.
Today, most of the world's work is performed by agents.
The division of labor, the ready means of transportation
and the growth of cooperative enterprises largely in the
form of corporations, both public and private, dictate the
need for agents. The kinds of persons functioning as
7
agents in commercial activity are numerous and varied.
2. Definition
Considering its usage in the Civil Code and in

jurisprudence the term "agency" can have several
meanings. For instance, Article 1868 refers to the term as
a type of contract. On the other hand, Article 1869 uses
the term in two different senses. First, it says that agency
may be express or implied. When it does so, it is referring
to the manner the relationship is established. Second,
Article 1869 also says that agency may be oral. When it
does so, it is referring to the agency contract or the
manner by which authorization or acceptance is made.
The term can also be used to refer to the business itself
6 Id.
7 RBuscHLE & GREGORY,supra note 1, at 3.
The Concept of Agency 1 5
behind handled by the agent as it is used in Article 18708

and 1876.9
But as a juridical concept, "agency" can refer to a (1) legal

relationship or a (2) contract.
a. Legal Relationship
Generally speaking, a relationship is the nature of the

association between two or more people.10 On the other
hand, a legal relation is the connection in law between one
person or entity and another."1 As a legal relationship,
agency is the connection between the principal and the
agent.
According to Mechem:
Agency is a legal relation, founded upon the express or

implied contract of the parties-or created by law-by
virtue of which one party-called the Agent-is
employed and authorized to represent and act for the
other, called the Principal-in business dealings with
12
third persons.
Mechem defines agency as a legal relationship founded on

a contract or created by law. This is correct because it is
possible to have a legal relationship without a contract if
law creates the relationship. This definition focuses on the
8 ARTICLE 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. (n)
9 ARTICLE 1876. An agency is either general or special.
The former comprises all the business of the principal. The latter, one or
1
more specific transactions. (1712)
0 Black's Law Dictionary (9th ed. 2009).
11Id.
12
MEcHi, Our~mw oF THE LAW op AGXNcY 3 (1903).
6 1 Analysis of Phflippine Agency Law and Jurisprudence
effect of the relationship, which is the granting of

authority on the agent, but limits the application of the
concept to business dealings.
The Restatement provides:

Agency is a fiduciary relationship that arises when one
person (a "principal") manifests assent to another (an
"agent") that the agent shall act on the principal's behalf
and subject to the principal's control, and the agent
manifests assent or otherwise consents to so act.' 3
The Restatement explains that the relationship between

principal and agent is a fiduciary relationship. It also
adds the element of control on the part of the principal
and defines the concept based on the manner it is created.
It further explains that:

This definition states the elements of the relationship
widely referred to as "common-law agency" or "true
agency." The definition excludes cognate relationships in
which, although the legal consequences of one person's
actions are attributed to another person, one or more of
14
the defining elements of agency are not present.
(citations omitted)
On the other hand, American Jurisprudence defines the

term "agency" as:
The term "agency" means a fiduciary relationship by
which a party confides to another the management of
some business to be transacted in the former's name or on
his or her account, and by which such other assumes to
13
Restatement (Third) of Agency § 1.01 (2006).
14 Restatement (Third) of Agency § 1.01 (b) Usage (2006).
do the business and render an account of it.15 (dtations

omitted)
Under this definition, it is sufficient that one party

confides to another the management of some business.
But the business must be transacted in the name of the
owner and there is accountability on the part of the agent.
While the foregoing are definitions from U.S. common

law, it is important to be aware of such definitions for at
least two reasons. First, because the Court has a
propensity to cite U.S. cases on agency, it is important to
keep in mind how U.S. law understands the concept.
Second, it is good to have a comparative perspective when
it comes to legal concepts to allow for an objective
evaluation of one's own legal system. Comparing one's
own legal system with others, is a way for the legal
scholar to see his own legal system from a more balanced
perspective.
As far as Philippine jurisprudence is concerned, there is at

least one case where the Court defined agency as a
relationship. In Rallos v. Felix Go Chan,16 the Court defined
the "relationship of agency" as one "whereby one party,
called the principal (mandante), authorizes another, called
the agent (mandatario), to act for and in his behalf in
transactions with third persons.' 7 Thus, the Court
considered agency from the point of view of the principal.
This in contrast from how the Civil Code defines the
contract of agency which is from the point of view of the
agent.
153 AM. JuR. 2d Agency § 1 (2011).

16 G.R. No. L-24332, January 31,1978.
17 Rallos v. Felix Go Chan, G.R.No. L-24332, January 31,1978.
8 1 Analysis of Ph/Iippine Agency Law and Jurlsprudence
In Rallos, the Court did not describe the agency

relationship as a fiduciary relationship. But the fact that
agency is a fiduciary relationship is also established by
jurisprudence. In Severino v. Severino,18 the Court said:
The relations of an agent to his principal are fiduciary and

it is an elementary and very old rule that in regard to
property forming the subject-matter of the agency, he is
estopped from acquiring or asserting a title adverse to
that of the principal. His position is analogous to that of a
trustee and he cannot consistently, with the principles of
good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust.19
As a fiduciary, the agent is obliged to act primarily for the

benefit of his principal in matters related to his agency.
b. Contract
The Civil Code in Article 1868 defines agency as a

contract:
ARTICLE 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. (1709a)
This article was taken from Article 1709 of the old Civil
Code which stated:
ARTICLE 1709. By the contract of agency, one person

binds himself to render some service, or to do something
for the account or at the request of another.
18 G.R. No. 18058, January 16,1923.

19 Severino v. Severino, G.R. No. 18058, January 16,1923.
It can be seen that Article 1868 is more precise because the

language used in Article 1709 can admit of other relations
(e.g. independent contractor) apart from agency.
As defined by the Civil Code, a contract is a meeting of

the minds between two persons whereby one binds
himself, with respect to the other, to give something or to
render some service. 2° Being a contract, agency requires
the essential elements of consent, subject matter and
21
cause.
As will be discussed later in this volume, the element of

consent is crucial in the establishment of agency.
But there are instances where the legal relationship of

agency can arise without the consent of either principal or
agent. To be clear, in these cases, there is strictly
speaking, no contract of agency 22 there being no consent.
But a legal relationship of agency is created by operation
of law. Thus, the Civil Code merely defines the usual
way an agency relationship is established, that is by
contract. But a legal relationship of agency can arise -or
that one can be considered a principal or agent of
another-without a contract.
As to subject matter, in a contract of agency this would be

the performance of acts by the agent in representation of
the principal.
20 Article 1305, Civil Code. Unless otherwise indicated, all articles cited are
from the Civil Code.
21 Article 1318.
22 At least as defined under Article 1868.
Taking merely the text of Article 1868 into consideration,

it is possible for one to interpret it in such a way that the
phrase "in representation or on behalf of another" only
qualifies the phrase "to do something." This means that
the rendering of some service need not be in
representation or on behalf of another.
However, jurisprudence clarifies that representation is the

juridical basis of agency, 23 such that the mere rendering of
service does not create an agency. In Eurotech, the Court
stated that, "the basis of agency is representation, that is,
the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts
have the same legal effect as if they were personally
executed by the principal." 24
As to cause, an agency is presumed to be for compen-

sation.25 In addition to compensation, a person may also
request appointment as an agent to protect his interests.26
B. Elements of Agency
Analyzing Article 1868, there are two elements to a

contract of agency:
23Rallos v. Felix Go Chan, G.RL No. L-24332, January 31,1978; Bordador v. Lu.z,
G.RL No. 130148, December 15, 1997; Victorias Milling v. CA, G.R. No.
117356, June 19,2000; Dominion Insurance v. CA, G.R. No. 129919, February
6,2002.
24
Eurotech v. Cuison, G.R. No. 167552, April 23, 2007, citing Padilla, Agency
Text and Cases, (1986 edition), p. 2.
25
Article 1875 of the Civil Code.
26 See discussion on "agency coupled with an interest" in this chapter.
a. A person must bind himself to render some

service or to do something in representation or
on behalf of another person; and
b. With the consent of the other person.
While the Civil Code seems to require only two elements

to constitute agency, in a number of cases, 27 the Court has
enumerated four essential elements of agency, as follows:
(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 a third person;
(3) the agent acts as a representative and not for
himself; and
(4) the agent acts within the scope of his authority.
In arriving at these elements in Rallos, the Court seemed

to have primarily relied 28 on Articles 1868 and 1881. 29
Admittedly, the first, third and fourth elements can be

derived from these articles although Articles 1869 and
1870 should be added as basis of the fact that consent may
be express or implied.
27
Loadmasters v. Glodel, G.R. No. 179446, January 10, 2011; Manila Memorial v.
Linsangan, G.R. No. 151319, November 22, 2004; Eurotech v. Cuison, G.R.
No. 167552, April 23, 2007; Tuazon v. Heirs of Ramos, G.R. No. 156262, July
14,2005; Yu Eng Cho v. Pan American World Airways, Inc., G.R. No. 123560,
March 27,2000,385 Phil. 453,465 (2000); Rallos v. Felix Go On, G.R. No. L-
24332, January 31, 1978.
28 See n. 5 of Rallos v. Felix Go On.
29 ARTICLE 1881.The agent must act within the scope of his authority. He
may do such acts as may be conducive to the accomplishment of the
purpose of the agency. (1714a).
These so-called elements of agency require further scru-

tiny.
1. Consent to Establish the Relationship
The importance of consent on the part of the parties was

underscored in the case of Orient Air Service v. CA, 30
where the Court ruled that the agency relationship could
not, in any way, be compelled by law or by any court.31
Of course, while the Court is correct in saying that courts
cannot compel parties to enter into a contract of agency,
the Civil Code does provide for agency relationships
created by operation of law.
The Bordador v. Luz 32 case is illustrative of the importance

of consent to establish an agency relationship. In this
case, the petitioners were engaged in the business of
purchase and sale of jewelry and Brigida Luz, one of the
respondents, was their regular customer. On several
occasions Deganos, the brother of Luz received several
pieces of gold and jewelry from petitioners. Eleven of the
receipts stated that they were received for a certain
Evelyn Aquino, a niece of Deganos, and the remaining six
indicated that they were received for Brigida Luz.
Deganos was supposed to sell the items at a profit and
thereafter remit the proceeds and return the unsold items
to petitioners. Deganos remitted only a portion of the
sum he owed. He neither paid the balance of the sales
proceeds, nor did he return any unsold item to
petitioners. Petitioners claimed that Deganos acted as the
30 G.R. No. 76931, May 29,1991.

31 OrientAir Service v. CA, G.R. No. 76931, May 29,1991.
32 G.R. No. 130148, December 15,1997.
agent of Brigida Luz when he received the subject items

of jewelry and, because he failed to pay for the same,
Brigida, as principal, and her spouse were solidarily liable
with him.
The Court ruled that the evidence did not support the
theory of petitioners that Deganos was an agent of Brigida
Luz and that the latter should consequently be held
solidarily liable with Deganos in his obligation to
petitioners. In ruling in this manner, the Court stated that:
The basis for agency is representation. Here, there is no

showing that Brigida consented to the acts of Deganos
or authorized him to act on her behalf, much less with
respect to the particular transactions involved. Peti-
tioners' attempt to foist liability on respondent spouses
through the supposed agency relation with Deganos is
groundless and ill-advised.33 (emphasis supplied)
In this case, the following facts were established:
a. the alleged principal had previous transactions

with the petitioners;
b. the alleged principal was the sister of the
alleged agent;
c. six (6) of the seventeen (17) receipts for the
jewelry indicated that they were received for the
alleged principal; and
d. in the barangay proceedings the alleged
principal appeared as witness for the alleged
agent and signed the compromise agreement.
Despite these facts, which seem to imply an agency
relationship, the Court still ruled that absent any showing
33 Bordadorv. Luz, G.R. No. 130148, December 15, 1997.

of consent on the part of the alleged principal for the

alleged agent to act on her behalf, no agency relationship
was established.
Although the relationship between principal and agent is

a fiduciary relationship, the mere closeness of the
relationship does not mean that an agency relationship
exists absent consent of the parties. In Apex Mining Co.,
Inc. v. Southeast Mindanao Gold Corp, 34 one of the issues
was whether Southeast Mindanao Gold Mining
Corporation ("SMGMC") was the agent of Marcopper
Mining Corporation ("MMC"). In this case, MMC
assigned to SMGMC an exploration permit. Under the
applicable rules, MMC could only do so if SMGMC was
its agent. The Court pointed out that even though
SMGMC is a 100% subsidiary corporation of MMC, there
is no evidence showing that the former is the duly
authorized agent of the latter. The Court reiterated that
"for a contract of agency to exist, it is essential that the
principal consents that the other party, the agent, shall act
on its behalf, and the agent consents so as to act."
The intention of the parties is important in determining

the existence of agency. More specifically, "there must be,
on the part of the principal, an actual intention to appoint,
an intention naturally inferable from the principal's
words or actions. In the same manner, there must be an
intention on the part of the agent to accept the
appointment and act upon it.' % In Tuazon v. Heirs of
Ramos, 3 6 the Court ruled that "[a]bsent such mutual intent,
34 G.R. Nos. 152613 & 152628, June 23,2006.

35
Tuazon v. Heirs of Ramos, G.R. No. 156262, July 14, 2005.
36G.R. No. 156262, July 14, 2005.
there is generally no agency. 3 7 This case arose from the

alleged failure of spouses Tuazon to pay Bartolome
Ramos. In this case, the heirs of Ramos alleged that
between the period of May 2, 1988 and June 5, 1988, the
spouses Tuazon purchased a total of 8,326 cavans of rice
from the deceased Bartolome Ramos. However, only 4,437
cavans were paid for leaving unpaid 3,889 cavans valued
at P1,211,919.00. In payment, the spouses Tuazon issued
several Traders Royal Bank checks all of which bounced
due to insufficiency of funds. The heirs alleged that before
issuing said checks, the spouses Tuazon already knew
that they had no available fund to support the checks, and
they failed to provide for the payment of these despite
repeated demands made on them. Civil and criminal
cases were filed by the heirs against the spouses Tuazon
which were later consolidated and amended to include
Spouses Anastacio and Mary Buenaventura as additional
defendants. The trial court acquitted the defendants in all
three of the consolidated criminal cases. Thus, they
appealed only its decision finding them civilly liable to
the heirs. The Court of Appeals affirmed the ruling of the
trial court and held that the spouses Tuazon had failed to
prove the existence of an agency between them and the
heirs.
The Court found no reversible error and ruled that the

spouses Tuazon were the rice buyers themselves and that
they were not mere agents of Ramos in their rice
dealership. It reiterated that the question of whether a
contract is one of sale or of agency depends on the
intention of the parties.
37 Id.
In Victorias Milling v. CA,38 the Victorias Milling Co., Inc.

("VMC") issued to its buyer, St. Therese Merchandising
( STM"), certain receipts as proof of purchases of sugar.
STM in turn sold its rights under one of these receipts to
Consolidated Sugar Corp. ("CSC"). STM issued a letter of
authority in favor of CSC stating that the latter is allowed,
for and in behalf of the former 25,000 bags of sugar. But
VMC only allowed the withdrawal of 2,000 bags. CSC
filed a suit for specific performance. VMC alleged that
CSC cannot sue the former as it is a mere agent of STM
relying heavily on the letter of authority. The Court ruled
that CSC was a buyer and not an agent of STM. In
deciding in this manner, the Court stated that:
On the part of the principal, there must be an actual

intention to appoint or an intention naturally inferable
from his words or actions; and on the part of the agent,
there must be an intention to accept the appointment
and act on it, and in the absence of such intent, there is
generally no agency. (citations omitted, emphasis
supplied)39
Thus, to say that there is consent to enter into an agency

relationship, there must be intent to enter into this
relationship.
Some may argue that the said rule in Victorias Milling is

mere obiter dictum as the ruling of the Court on the
absence of an agency relationship appears to be primarily
based on the absence of control by STM over CSC.
However, this objection may be overcome by at least two
reasons:
Victorias Milling v. CA, G.R. No. 117356, June 19, 2000.

39Id.
First, the Court in VictoriasMilling also said:

The question of whether a contract is one of sale or
agency depends on the intention of the parties as
gathered from the whole scope and effect of the language
employed. That the authorization given to CSC contained
the phrase 'for and in our (STM's) behalf' did not
establish an agency. Ultimately, what is decisive is the
intention of the parties. That no agency was meant to be
established by CSC and STM is dearly shown by CSC's
communication to petitioner that SLDR No. 1214M had
been "sold and endorsed" to it. The use of the words "sold
and endorsed" means that STM and CSC intended a
contract of sale, and not an agency. Hence, on this score,
no error was committed by the respondent appellate
court when it held that CSC was not STM's agent and
could independently sue petitioner. 40 (citations omitted,
emphasis supplied)
Thus, the requirement of intent played a crucial role in the

Court's decision.
Second, the rule stated in Victorias Milling was

subsequently adopted as doctrine in the case of Dominion
Insurance v. CA. 41 Citing Victorias Milling, the Court in
Dominion said:
On the part of the principal, there must be an actual
intention to appoint or an intention naturally inferrable
from his words or actions; and on the part of the agent,
there must be an intention to accept the appointment and
act on it, and in the absence of such intent, there is
generally no agency. 42
4 Id.
41
Dominion Insurance v. CA, G.R. No. 129919, February 6, 2002. However, it
could also be argued that the existence of an agency relationship was not
the issue in this case but whether or not it was a special or general agency.
42 DominionInsurance v. CA, G.R. No. 129919, February 6, 2002.
In Doles v. Angeles,43 the Court cited Victorias Milling when

it said that:
The question of whether an agency has been created is

ordinarily a question which may be established in the
same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one of
intention."
In determining intent, it should be noted that what was

used as basis in the case of Victorias Milling was the
communication between the alleged agent and petitioner
while in Dominion Insurance, it was the executed
document between the parties.
It seems that the presence of intent to enter into an agency

contract is a crucial consideration in determining if such a
contract exists. However, as can be gleaned from the
discussion in Chapter VII of this volume, the fact that the
parties intended an agency relationship will not
necessarily prevent the Court from ruling that another
type of contract existed (e.g. sales) if it believes that the
necessary elements of such contract exist.
2. Object is the Execution of a Juridical Act

in Relation to a Third Person
As discussed previously, the subject matter of a contract

of agency is representation. The basis of agency is
representation.45 If a person is called an agent but is not
43 G.R. No. 149353, June 26,2006.

" Doles v. Angeles, G.R. No. 149353, June 26, 2006.
45
Doles v. Angeles, G.R. No. 149353, June 26, 2006, citing Amon Trading Co. v.
Court of Appeals, G.R. No. 158585, December 13, 2005; Victorfas Milling Co.,
Inc. v. Court of Appeals, 389 Phil. 184 (2000); Tuazon v. Heirs of Ramos, G.R.
No. 156262, July 14, 2005.
given the power to represent the principal, then he is not

an agent nor is a contract of agency established. 46 If a
person is called an agent but is called upon to perform
acts, which are not in representation of the alleged
principal, then he is not an agent nor is a contract of
agency established.
But it is not necessary that the third person with whom

the agent is to transact be identified nor is it required that
the specific juridical relation be specified upon
establishment of the agency. Part of the functions of the
agent may be to seek out and identify possible customers
and clients and to determine the nature of contracts to be
entered into.
In De La Cruz v. Northern Theatrical,47 an employee was

seeking reimbursement from his employer on the ground
that he was an agent. In this case, Northern Theatrical
Enterprises Inc., operated a movie house and employed
Domingo De la Cruz as a special guard whose duties
were to guard the main entrance of the cine, to maintain
peace and order and to report the commission of
disorders within the premises. As such guard, he carried a
revolver. One afternoon, Benjamin Martin wanted to enter
the movie house without a ticket. Infuriated by the refusal
of De la Cruz to let him in, Martin attacked him with a
bolo. De la Cruz in self-defense shot the gatecrasher. De
la Cruz was charged with homicide but was acquitted.
Because he employed a lawyer to defend him, he
46
However, an agency by estoppel may arise with respect to third persons
who may rely on such identification of a person as an agent depending on
the circumstances. See discussion under Agency by Estoppel in chapter II.
47 G.R. No. L-7089 August 31,1954.
demanded from Northern Theatrical, reimbursement of

his expenses but was refused. Thus, he filed an action to
recover not only the amounts he had paid his lawyers but
also moral damages on the theory that he was an agent of
Northern Theatrical and that as such agent he was
entitled to reimbursement of the expenses incurred by
him in connection with the agency.
The Court agreed with the trial court in ruling that the
relationship between Northern Theatrical and De la Cruz
was not that of principal and agent "because the principle
of representation was in no way involved."48 It added:
Plaintiff was not employed to represent the defendant
corporation in its dealings with third parties. He was a
mere employee hired to perform a certain specific duty or
task, that of acting as special guard and staying at the
main entrance of the movie house to stop gate crashers
and to maintain peace and order within the premises.49
However, this case should not be interpreted to mean that

an employee could not be an agent. For as long as an
employee has the power to represent his employer and
enter into. binding transactions, he is both an employee
and an agent.
3. Agent Acts as Representative and Not for Himself
An agent is a representative of the principal. If he enters

into contracts for himself then he is not acting as agent.
But that the appointed agent actually represents the
principal should not be an element for the establishment
of an agency contract. It is a consequence of the contract.
48De la Cruz v. Northern Theatrical,G.R. No. L-7089, August 31,1954.

49 Id.
If a principal appoints an agent and the agent accepts, the

subsequent act of the agent acting for himself under
circumstances of conflict of interest does not invalidate
the original contract but constitutes a breach thereof. The
agent has an obligation to represent his principal's
interest and not his own but it is not an element for the
establishment of the contract of agency. After all, an
agency contract can be established without the agent
acting as agent. All that is necessary is a meeting of the
minds between the parties.
4. Agents Act within the Scope of Authority
The fourth element required for a contract of agency as

provided by Philippine case law is that the agent must act
within the scope of his authority. Similar to the third
element, this fourth element is a consequence of the
agency relationship and is not a condition for its
existence.
It is possible for an agency relationship to exist even
without this element. For instance, under Article 1869, an
implied agency may exist even if an agent acts outside of
his authority, provided the principal remains silent, does
not act or fails to repudiate the agency.
That an agent goes beyond the scope of his authority only

goes into the validity of the act and not necessarily the
existence of the agency relationship. For instance, if the
principal authorizes his agent to sell his car for no less
than P200,000 but the agent sells it for P100,000, that sale
would be beyond the authority of the agent. But does it
mean the agency relationship no longer exists? What if
the principal authorized the agent to sell ten cars at a

fixed amount and the agent sells nine at the prescribed
amount and one at an amount less than what he is
authorized to accept? Does the single sale extinguish the
agency relationship? What if that sale was entered into
first? Does that mean that the remaining nine tran-
sactions were invalid or does it mean that the agency
relationship only arose after the first unauthorized
transaction? It is not difficult to imagine that requiring
that the agent acts within a scope of his authority to
create an agency relationship would make the
determination of whether an agency relationship exists
on a per transaction basis. In this regard, it would be
best to consider Article 1881 not as a provision providing
for a requisite for the establishment of an agency
relationship but one that merely provides for an
obligation on the part of the agent.
Thus, it seems that while some Philippine cases list four

elements of a contract of agency, in reality there are only
two: (1) consent on the part of the principal and agent to
establish an agency relationship and (2) the purpose of
the contract is representation. These two elements
correspond to the statutory definition of a contract of
agency.
C. Effect of Agency: Integration and Extension
The establishment of an agency relationship results in 1)

the integration of the personality of the principal into
that of the agent and 2) the extension of the personality
of the principal through the agent.
Integration means that the personality of the principal is

merged with that of the agent. Extension means that the
personality of the principal is reproduced in the persons
of his agents. The integration of personalities of the
principal and agent and the extension of the personality
of the principal to his agent have several consequences.
1. Authority to Act
In an agency relationship, the agent, by legal fiction,

becomes the principal, authorized to perform all acts
which the latter would have him do.50
In Eurotech v. Cuison,51 the Court added that "[b]y this

legal fiction, the actual or real absence of the principal is
converted into his legal or juridical presence- qui facit per
aliumfacitper se." 52 Because of this rule that "he who does
a thing by an agent is considered as doing it himself," a
principal becomes liable for obligations contracted by the
agent53 provided that the act is within the authority of the
agent.
In Doles v. Angeles,5 4 the Court pointed out that:
For an agency to arise, it is not necessary that the

principal personally encounters the third person with
whom the agent interacts. The law in fact contemplates,
and to a great degree, impersonal dealings where the
principal need not personally know or meet the third
person with whom her agent transacts: precisely, the
50 Orient Air Services v. CA, G.R. No. 76931, May 29, 1991; Eternit v. Litonjua
G.R. No. 144805, June 8, 2006.
5 G.R. No. 167552, April 23,2007.
R Eurotechv. Cuison, G.R. No. 167552, April 23,2007.
3 PrudentialBank v. CA, G.R. No. 108957, June 14,1993.
54 G.R. No. 149353, June 26, 2006.
24 I Analysis of Philippine Agency Law and Jurisprudence
purpose of agency is to extend the personality of the

principal through the facility of the agent.55
Of course, an agent cannot perform all acts on behalf of

his principal. Personal acts such as the right to vote, the
making of a will, or making an oath are all examples of
acts that cannot be delegated to agents.5 6
2. Agent Not Real Party-In-Interest
As a mere extension of the personality of the principal, the

agent is not a party to the contract with the third party.
Therefore, the liability of the third party is to the principal
and not to the agent and neither should the third party
enforce his rights under the contract on the agent.
In Uy and Roxas v. CA,'57 the Court had occasion to rule on

whether the agents were the real parties-in-interest. In
this case, William Uy and Rodel Roxas were agents
authorized to sell eight parcels of land by the owners
thereof. By virtue of such authority, Uy and Roxas offered
to sell the parcels to National Housing Authority ("NHA")
to be utilized and developed as a housing project. The
NHA Board passed a Resolution approving the
acquisition of said lands, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering the
subject lands. But of the eight parcels, only five were paid
for by the NHA because of the report it received from the
Land Geosciences Bureau of the Department of
Environment and Natural Resources that the remaining
55 Doles v. Angeles,
G.R. No. 149353, June 26, 2006.
56
DE LEON AND DE LEON J& COMMENTS AND CASE ON PARTNERSHIP, AGENCY
AND TRusTs 334 (2010).
57 G.R. No. 120465, September 9,1999.
area is located at an active landslide area and therefore,

not suitable for development into a housing project. Thus,
the NHA issued another Resolution cancelling the sale
over the three parcels of land and through another
Resolution, offered the amount of P1.225 million to the
landowners as dafios perjuicios. Uy and Roxas filed a
Complaint for Damages against NHA and its General
Manager, Robert Balao.
The Court ruled that:

Petitioners are not parties to the contract of sale between
their principals and NHA. They are mere agents of the
owners of the land subject of the sale. As agents, they only
render some service or do something in representation or
on behalf of their principals. The rendering of such
service did not make them parties to the contracts of sale
executed in behalf of the latter. Since a contract may be
violated only by the parties thereto as against each other,
the real parties-in-interest, either as plaintiff or defendant,
in an action upon that contract must, generally, be parties
to said contract.
Neither has there been any allegation, much less proof,

that petitioners are the heirs of their principals.5
(emphasis supplied)
However, the Court recognized that "an agent, in his own

behalf, may bring an action founded on a contract made
for his principal, as an assignee of such contract."5 9
Unfortunately for Uy and Roxas, they were not able to
show that they were assignees of their principals to the
subject contracts. The Court found that:
58Uy and Roxas v. CA, G.R. No. 120465, September 9,1999.

s9Id.
While they alleged that they made advances and that they
suffered loss of commissions, they have not established
any agreement granting them "the right to receive pay-
ment and out of the proceeds to reimburse [themselves]
for advances and commissions before turning the balance
over to the principal[s]." 60
In Angeles v. Philippine National Railways, 61 the main issue

was whether a letter designated an individual as an agent
or as an assignee. In this case, Philippine National
Railways ("PNR") informed Gaudencio Romualdez
("Romualdez") that it has accepted the latter's offer to buy
the PNR's scrap or unserviceable rails. After paying the
stated purchase price, Romualdez addressed a letter to
Atty. Cipriano Dizon, PNR's Acting Purchasing Agent
informing him that he has authorized Lizette Wijanco-
Angeles ("Lizette") to be his "lawful representative in the
withdrawal of the scrap/unserviceable rails" awarded to
him. The PNR subsequently suspended the withdrawal in
view of what it considered as documentary discrepancies
coupled by reported pilferages of over P500,000.00 worth
of PNR scrap properties in Tarlac. Consequently, the
spouses Angeles demanded the refund of the amount of
P96,000.00. The PNR, however, refused to pay. Sub-
sequently, the spouses Angeles filed suit against the PNR
and its corporate secretary, Rodolfo Flores, among others,
for specific performance and damages. The trial court
dismissed the complaint ruling that Lizette was merely a
representative of Romualdez in the withdrawal of scrap
or unserviceable rails awarded to him and not an assignee
to the latter's rights with respect to the award.
6OId.
61 GR No. 150128, August 31, 2006.
The Court explained that:

Where agency exists, the third party's (in this case,
PNR's) liability on a contract is to the principal and not
to the agent and the relationship of the third party to the
principal is the same as that in a contract in which there
is no agent. Normally, the agent has neither rights nor
liabilities as against the third party. He cannot thus sue
or be sued on the contract. Since a contract may be
violated only by the parties thereto as against each other,
the real party-in-interest, either as plaintiff or defendant
in an action upon that contract must, generally, be a
contracting party.62 (emphasis supplied)
But if the agent was constituted as an assignee it made a

world of difference. The Court said:
The legal situation is, however, different where an agent
is constituted as an assignee. In such a case, the agent
may, in his own behalf, sue on a contract made for his
principal, as an assignee of such contract. The rule
requiring every action to be prosecuted in the name of the
real party-in-interest recognizes the assignment of rights
of action and also recognizes that when one has a right
assigned to him, he is then the real party-in-interest and
may maintain an action upon such claim or right.63
After scrutinizing the letter, the Court found that Lizette

was to act just as a "representative" of Romualdez in the
"withdrawal of rails," and not an assignee. The Court
thus ruled that she had no standing to sue in the said case
and neither did her husband.
However, although the general rule is that it is the

principal and not the agent who is the proper party to a
case, the fact that a person is merely an agent will not
6
2 Angeles v. PNR G.RL No. 150128, August 31,2006.
63Id.
excuse him from possible criminal liability. In Ong v.

CA," Edward Ong executed trust receipts on behalf of
ARMAGRI International Corporation ("ARMAGRr').
When the trust receipts became due and demandable,
ARMAGRI failed to pay or deliver the goods to Solid
Bank despite several demand letters, hence the suit. Ong
was convicted for two counts of the crime of estafa for
violation of the Trust Receipts Law.
Ong argued that in signing the trust receipts, he merely

acted as an agent of ARMAGRI. He asserted that he did
not assume personal responsibility for the undertakings of
ARMAGRI which was the entrustee.
The Court ruled:

The Trust Receipts Law recognizes the impossibility of
imposing the penalty of imprisonment on a corporation.
Hence, if the entrustee is a corporation, the law makes the
officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The
reason is obvious: corporations, partnerships, associations
and other juridical entities cannot be put to jail. Hence,
the criminal liability falls on the human agent responsible
for the violation of the Trust Receipts Law.
In the instant case, the Bank was the entruster while

ARMAGRI was the entrustee. Being the entrustee,
ARMAGRI was the one responsible to account for the
goods or its proceeds in case of sale. However, the
criminal liability for violation of the Trust Receipts Law
falls on the human agent responsible for the violation.
Petitioner, who admits of being the agent of ARMAGRI, is
the person responsible for the offense for two reasons.
First, petitioner is the signatory to the trust receipts, the
loan applications and the letters of credit. Second, despite
"G.R. No. 119858, April 29,2003.

being the signatory to the trust receipts and the other

documents, petitioner did not explain or show why he is
not responsible for the failure to turn over the proceeds of
the sale or account for the goods covered by the trust
receipts.65 (emphasis supplied)
The Court explained that even if Ong acted on behalf of

ARMAGRI, "it is a well-settled rule that the law of agency
governing civil cases has no application in criminal cases.
When a person participates in the comnnission of a crime,
he cannot escape punishment on the ground that he
simply acted as an agent of another party."6
The integration of personalities notwithstanding, as the

Court pointed out in PNB v. Ritratto Group,67 a suit against
an agent cannot without compelling reasons be consi-
dered a suit against the principal. In this case, a sub-
sidiary company of PNB, PNB International Finance Ltd.
("PNB-IFL"), organized and doing business in Hong
Kong, extended a letter of credit in favor of the Ritratto
Group et al. secured by real estate mortgages constituted
over four parcels of land in Makati. Pursuant to the terms
of the real estate mortgages, PNB-IFL, through its
attorney-in-fact, PNB, notified Ritratto Group et al. of the
foreclosure of all the real estate mortgages and that the
properties subject thereof were to be sold at a public
auction at the Makati City Hall. Two days before the
scheduled auction, Ritratto Group et al. filed a complaint
for injunction with prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining
order. The Executive Judge of the Regional Trial Court of
65
Ong v. CA, G.R. No. 119858, April 29,2003.
6Id.
67G.R. No. 142616, July 31, 2001.
30 i Analysis of Philippine Agency Law and Jurisprudence
Makati issued a 72-hour temporary restraining order.

Later, the trial court judge issued an Order for the
issuance of a writ of preliminary injunction. The Court of
Appeals denied the petition for certiorari. PNB argued
that the case should have been dismissed because the suit
filed against PNB had no cause of action because the latter
was not the real party-in-interest.
The Court found that:
The contract questioned is one entered into between

respondent and PNB-JFL, not PNB. In their complaint,
respondents admit that petitioner is a mere attorney-in-
fact for the PNB-IFL with full power and authority to,
inter alia, foreclose on the properties mortgaged to secure
their loan obligations with PNB-IFL. In other words,
herein petitioner is an agent with limited authority and
specific duties under a special power of attorney
incorporated in the real estate mortgage. It is not privy to
the loan contracts entered into by respondents and PNB-
IFL.68 (emphasis supplied)
The Court ruled that Ritratto did not have any cause of
action against PNB. Apart from ruling that there is no
reason to pierce the corporate veil in this case, it found the
parent-subsidiary relationship between PNB and PNB-IFL
irrelevant. It said:
In any case, the parent-subsidiary relationship between

PNB and PNB-IFL is not the significant legal relationship
involved in this case since the petitioner was not sued
because it is the parent company of PNB-IFL. Rather, the
petitioner was sued because it acted as an attorney-in-fact
of PNB-IFL in initiating the foreclosure proceedings. A
suit against an agent cannot without compelling reasons
be considered a suit against the principal. Under the
68
PNB v. Ritratto Group, G.R. No. 142616, July 31, 2001.
Rules of Court, every action must be prosecuted or

defended in the name of the real party-in-interest, unless
otherwise authorized by law or these Rules. In
mandatory terms, the Rules require that "parties-in-
interest without whom no final determination can be had,
an action shall be joined either as plaintiffs or
defendants." In the case at bar, the injunction suit is
directed only against the agent, not the principal. 69
3. Notice to Agent is Notice to Principal
Another consequence of the integration and extension

principles is that knowledge of or notice to the agent is
imputable to the principal.
In Franciscov. GSIS,70 the Court quoting Ballentinesaid:

Knowledge of facts acquired or possessed by an officer or
agent of a corporation in the course of his employment,
and in relation to matters within the scope of his
authority, is notice to the corporation, whether he
communicates such knowledge or not. 71
Although, generally, notice to the agent is notice to the

principal, it does not mean that notice to the principal is
also notice to the agent. In Sunace Internationalv. NLRC, 72
the Court pointed out that:
The theory of imputed knowledge ascribes the knowledge
of the agent, Sunace, to the principal, employer Xiong, not
the other way around. The knowledge of the principal-
foreign employer cannot, therefore, be imputed to its
agent Sunace. 73
69Id.
70 G.R. No. L-18287, March 30,1963.
71
Franciscov. GSIS, G.R. No. L-18287, March 30, 1963.
72 G.R. No. 161757, January 25,2006.
73 Sunace Internationalv. NLRC, G.R. No. 161757, January 25,2006.
In Cosmic Lumber v. CA,74 the Court had occasion to rule

on whether the principal is chargeable with and bound by
the knowledge of or notice to his agent, received while the
agent was acting as such. The Court admitted that this in
fact was the general rule. But it further explained that
this rule was intended to protect those who exercise good
faith and not as a shield for unfair dealing. Thus, the
Court clarified:
Hence, there is a well-established exception to the general

rule as where the conduct and dealings of the agent are
such as to raise a clear presumption that he will not
communicate to the principal the facts in controversy.
The logical reason for this exception is that where the
agent is committing a fraud, it would be contrary to
common sense to presume or to except that he would
communicate the facts to the principal. Verily, when an
agent is engaged in the perpetration of a fraud upon his
principal for his own exclusive benefit, he is not really
acting for the principal but is really acting for himself,
entirely outside the scope of his agency. Indeed, the basic
tenets of agency rest on the highest considerations of
justice, equity and fair play, and an agent will not be
permitted to pervert his authority to his own personal
advantage, and his act in secret hostility to the interests of
his principal transcends the power afforded him. 5
(citations omitted, emphasis supplied)
Thus, because of the integration and extension of

personality resulting from a contract of agency, the
general rule is that notice to the agent is considered notice
to the principal. However, the exception is when "the
conduct and dealings of the agent are such as to raise a
clear presumption that he will not communicate to the
74 G.R. No. 114311, November 29,1996.

75Id.
principal the facts in controversy."7 6 Thus, any notice to

the agent, which if known by the principal may create
liability on the part of the agent, cannot be considered as
notice to the principal.
In addition, it must be said that the Court does not always

look upon this theory of imputed knowledge with favor.
In New Life Enterprisesv. CA, 77 the Court said:
The terms of the contract are clear and unambiguous. The

insured is specifically required to disclose to the insurer
any other insurance and its particulars which he may
have effected on the same subject matter. The knowledge
of such insurance by the insurer's agents, even assuming
the acquisition thereof by the former, is not the "notice"
that would stop the insurers from denying the claim.
Besides, the so-called theory of imputed knowledge, that
is, knowledge of the agent is knowledge of the principal,
aside from being of dubious applicability here has
likewise been roundly refuted by respondent court whose
factual findings we find acceptable.78
4. Bad faith of the Agent is Bad Faith of the Principal
Another effect of the integration of personalities of the

agent and principal is that the bad faith of the agent may
be deemed to be the bad faith of the principal. Certainly,
a wrong committed by an agent against a third party will
not always be imputed to the principal. But there is
authority for the view that the bad faith of the agent may
be considered bad faith of the principal.
76Id.
77 G.R. No. 94071, March 31,1992.
78 New Life Enterprises v. CA, G.R No. 94071, March 31,1992.
In Caram v. Laureta,79 the suit involved an action for

nullity, recovery of ownership and/or reconveyance with
damages and attorney's fees against Marcos and Codidi
Mata, Fermin Z. Caram Jr. and the Register of Deeds filed
by Claro Laureta. In this case, Marcos Mata conveyed a
large tract of agricultural land covered by an Original
Certificate of Title in favor of Claro Laureta. The deed of
absolute sale in favor of Laureta was not registered
because it was not acknowledged before a notary public
or any other authorized officer because there was no
authorized officer before whom the sale could be
acknowledged as the civil government in Tagum, Davao
was not organized at that time. However, Mata delivered
to Laureta the peaceful and lawful possession of the
premises of the land together with the pertinent papers.
Since that time, Laureta had been in continuous, adverse
and notorious occupation of said land, without being
molested, disturbed or stopped. Later, the same parcel of
land was sold by Mata to Fermin Z. Caram Jr. through a
deed of sale in favor of Caram acknowledged before Atty.
Abelardo Aportadera. Mata, filed a petition for the
issuance of a new Owner's Duplicate of the Original
Certificate of Title which was granted. Thereafter, the
second sale between Mata and Caram Jr. was registered
with the Register of Deeds. The trial court, whose
decision was affirmed by the Court of Appeals ruled in
favor of Laureta. In his petition for certiorari before the
Court, Caram Jr. argued that he could not be considered
to have acted in bad faith because there was no direct
proof showing that Irespe and Aportadera, his alleged
agents, had knowledge of the first sale to Laureta. The
7
9G.R. No. L-28740, February 24,1981.
Court ruled that there was no doubt that Irespe and

Aportadera, acting as agents of Caram, purchased the
property of Mata in bad faith and said that, "[aipplying
the principle of agency, Caram, as principal, should also
be deemed to have acted in bad faith."8 0
D. Nature of Agency: General and Special
Based on jurisprudence, there appears to be some

confusion regarding "general" and "special" agencies
under Philippine law. The confusion mainly stems from
the use of the terms, "general agency" as opposed to
"agency couched in general terms," and "special agency"
as opposed to "special power of attorney."
The concept of general agency is not the same as the

concept of agency couched in general terms although an
agency can be both a general agency and an agency
couched in general terms. In the same manner, the
concept of a special agency is not the same as the concept
of special power of attorney although a special agency
may have a special power of attorney.
1. Distinguishing General Agency and

Agency Couched in General Terms
A general agency refers to scope of business covered

while an agency couched in general terms refers to type of
authority conferred on the agent.
80 Caram v. Laureta, G.R. No. L-28740, February 24,1981.

a. As to Scope: General Agency
The scope of a general agency comprises all the business

of the principal. 81 Therefore, a general agent is someone
who manages all the business of his principal. Thus,
general agency pertains to the scope of the principal's
business granted to the agent.
There are at least two ways of interpreting "all the

business of the principal." One view is that if a principal
owns several businesses, a general agent would manage
all of them. If the principal owns ten businesses but the
agent only manages nine, then he is not a general agent.
Thus, the general agent under this view is someone who
the principal entrusted to take his place in all of his
businesses. Another view is that the general agent is one
who manages the entirety of a particular business of the
principal. Under this view, a principal who owns two
distinct businesses, it is sufficient that the agent manages
one of them completely.
Under U.S. common law:

A general agent is authorized to do all acts connected
with the business or employment in which he or she is
engaged ... Continuity of service rather than the extent of
discretion or responsibility is the hallmark of the general
agent.8 2 (citations omitted)
It would seem that based on this definition, a general

agent under U.S. law is "authorized to do all acts
connected with the business or employment in which he
81Article 1876.
823 AM. JuR. 2d Agency § 6.
or she is engaged." But what is determinative of his

general agency is his continuity of service rather than
extent of responsibility.
In Dominion Insurance v. CA,83 the issue was the scope of

the agent's authority. n this case, Rodolfo S. Guevarra
instituted a civil case for a sum of money against
Dominion Insurance Corporation seeking to recover the
sum of P156,473.90 which he claimed to have advanced in
his capacity as manager of Dominion Insurance to satisfy
certain claims filed by its clients.
The Court ruled that the "Special Power of Attorney"

would show that the parties intended to enter into a
principal-agent relationship but despite the word
"special" in the title of the document, the contents reveal
that what was constituted was actually a general agency.
The Court went on to examine the language of the
"Special Power of Attorney." It found that it was
comprehensive enough to cover all the business of the
principal.
Thus, to cover all the business of the principal it is not

necessary for it to say that the power granted to the agent
covered "all the business of the principal." It seems that
based on this case it is sufficient that the listed authorized
transactions apparently cover all that it is required to run
the business of the principal.
As for the agent in this case, although the agency covered

all of the business of the principal it was couched in
general terms which meant that his authority was limited
83 Dominion Insurancev. CA, G.R. No. 129919, February 6,2002.

only to acts of administration. The payment of claims,

being an act of strict dominion, requires a special power
of attorney. Thus, although he was a general agent he was
not authorized to pay the claims 8 4
b. As to Authority: Agency Couched in

General Terms
The phrase "agency couched in general terms" refers to

the type of authority granted to the agent. This type of
agency only grants the agent the authority to perform acts
of administration.8 5 The agency is limited to acts of
administration even if the principal should state that he
withholds no power or that the agent may execute such
acts as he may consider appropriate, or even though the
agency should authorize a general and unlimited
management.8 6 An example of an agency couched in
general terms would be if the principal authorizes the
agent to "manage his business." In this scenario, the
agent is only authorized to perform acts of administration
in connection with the business.
The problem however is determining if a particular act is

an act of administration. One way to determine this
would be to examine the nature of the business of the
principal. If the nature of the business requires the agent
to perform certain acts repeatedly and without need of
express authorization from the principal for each
transaction, then the act is arguably an act of
84 Fortunately for the agent, although he acted beyond his authority, the
Court allowed him to recover the amounts he advanced on the basis of
Article 1246.
85
Article 1877.
86Id.
administration. Generally, such acts should also not fall

within any of those transactions listed under Article 1878
explained further in the following discussion.
2. Distinguishing Special Agency and

Agency Couched in Specific Terms
a. As to Scope: Special Agency
The term "specific agency" refers to the scope of the

agent's authority and comprises one or more specific
transactions.8 7 This means that the agent does not handle
all of the business of the principal but specific aspects of
his business. Otherwise, he would be a general agent.
b. As to Authority: Special Power of Attorney
i. Transactions Covered
Under Article 1878 of the Civil Code, certain transactions

require specific authorization or a special power of
attorney if it is to be entered into by agents.88 A special
power of attorney then is not the name of a document but
a description of the nature of the power granted to the
agent. If the authority granted to the agent is a power
involving strict dominion then, it is a special power of
attorney. The transactions covered by Article 1878 are, as
follows:
(1) To make such payments as are not usually

considered as acts of administration;
87 Article 1876.
88 Article 1878.
(2) To effect novations which put an end to

obligations already in existence at the time the
agency was constituted;
(3) To compromise, to submit questions to
arbitration, to renounce the right to appeal from
a judgment, to waive objections to the venue of
an action or to abandon a prescription already
acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for charity
or those made to employees in the business
managed by the agent;
(7) To loan or borrow money, unless the latter act
be urgent and indispensable for the
preservation of the things which are under
administration;
(8) To lease any real property to another person for
more than one year;
(9) To bind the principal to render some service
without compensation;
(10) To bind the principal in a contract of
partnership;
(11) To obligate the principal as a guarantor or
surety;
(12) To create or convey real rights over immovable
property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted

before the agency;
(15) Any other act of strict dominion.
Therefore, to be authorized to perform any of these

transactions an agent must be specifically authorized to
do so. The agency authority must be "couched in specific
terms" so to speak.
What matters is the specificity of the authority granted

and not the name given to the instrument issued in favor
of the agent. In Veloso v. CA, 8 9 the issue was the validity
of a sale made by an agent by virtue of a document
denominated as "General Power of Attorney." In this
case, Veloso alleged that he was the absolute owner of the
subject property and that he never authorized anybody,
not even his wife, to sell it. He alleged that he was in
possession of the title but when his wife, Irma, left for
abroad, he found out that his copy was missing. Upon
verification with the Registry of Deeds he discovered that
his title was already canceled in favor of Aglaloma
Escario. The transfer of property was supported by a
General Power of Attorney and Deed of Absolute Sale,
executed by Irma Veloso, his wife and appearing as his
attorney-in-fact, and Aglaloma Escario. Veloso denied
having executed the power of attorney and alleged that
his signature was falsified. Thus, Veloso filed an action for
annulment of documents, reconveyance of property with
damages and preliminary injunction and/or restraining
order.
89 G.R. No. 102737, August 21,1996.

The Court ruled against Veloso stating:
An examination of the records showed that the assailed

power of attorney was valid and regular on its face. It was
notarized and as such, it carries the evidentiary weight
conferred upon it with respect to its due execution. While
it is true that it was denominated as a general power of
attorney, a perusal thereof revealed that it stated an
authority to sell, to wit:
2. To buy or sell, hire or lease, mortgage or

otherwise hypothecate lands, tenements and
hereditaments or other forms of real property,
more specifically TCT No. 49138, upon such terms
and conditions and under such covenants as my
said attorney shall deem fit and proper.
Thus, there was no need to execute a separate and special

power of attorney since the general power of attorney had
expressly authorized the agent or attorney in fact the
power to sell the subject property. The special power of
attorney can be included in the general power when it is
specified therein the act or transaction for which the
special power is required. 90 (emphasis supplied)
The Court further pointed out that the 'General Power of

Attorney" was accepted by the Register of Deeds when the
title to the subject property was cancelled and transferred
in the name of private respondent. The Court quoted LRC
Consulta No. 123, Register of Deeds of Albay, Nov. 10,
1956:
Whether the instrument be denominated as "general
power of attorney" or "special power of attorney," what
matters is the extent of the power or powers
contemplated upon the agent or attorney in fact. If the
power is couched in general terms, then such power
cannot go beyond acts of administration. However, where
the power to sell is specific, it not being merely implied,
9
o Veloso v. CA, G.R. No. 102737, August 21,1996.
much less couched in general terms, there cannot be any
doubt that the attorney in fact may execute a valid sale.
An instrument may be captioned as "special power of
attorney" but if the powers granted are couched in
general terms without mentioning any specific power to
sell or mortgage or to do other specific acts of strict
dominion, then in that case, only acts of administration
may be deemed conferred.91 (emphasis supplied)
It must be emphasized that the requirement of a special

power of attorney refers to the nature of the authorization
and not to its form. 92 In Lim Pin v. Liao Tan,93 the Court
said:
The requirements of a special power of attorney in Article

1878 of the Civil Code and of a special authority in Rule
138 of the Rules of Court refer to the nature of the
authorization and not its form. The requirements are met
if there is a clear mandate from the principal specifically
authorizing the performance of the act. As early as 1906,
this Court in Strong v. Gutierrez-Repide (6 Phil. 680)
stated that such a mandate may be either oral or written,
the one vital thing being that it shall be express. And
more recently, We stated that, if the special authority is
not written, then it must be duly established by evidence:
... the Rules require, for attorneys to compromise

the litigation of their clients, a special authority.
And while the same does not state that the special
authority be in writing the Court has every reason
to expect that, if not in writing, the same be duly
established by evidence other than the self-serving
assertion of counsel himself that such authority
was verbally given him. (Home Insurance
Company vs. United States Lines Company, et at,
91Id.
92Gozun v. Mercado, G.R. No. 167812, December 19, 2006, 511 SCRA 305
(2006); Lim Pin v. Liao Tan, G.R. No. L-47740, July 20, 1982, 200 Phil 685
(1982).
9 Lim Pin v. Liao Tan, G.R. No. L-47740, July 20,1982, 200 Phil 685 (1982).
21 SCRA 863; 866; Vicente vs. Geraldez, 52 SCRA

210; 225).
In addition to the list in Article 1878, the Civil Code

further clarifies in Article 1879 that a special power to sell
excludes the power to mortgage and a special power to
mortgage does not include the power to sell. 94
In addition, Article 1880 provides that a special power to

compromise does not authorize submission to
arbitration. 95 However, unlike the rule in Article 1879,
Article 1880 does not explicitly state that the converse is
also true.
ii. Effect of Absence of Specific Authorization
Article 1878 does not provide the consequence for failure

to comply with the requirement for a specific
authorization but only states that a special power of
attorney is "necessary" in the listed cases. Does this mean
that failure to comply with this requirement makes the act
of the agent void, voidable or unenforceable?
In some cases, 96 the Court has ruled that when an agent

performs a transaction covered by Article 1878 without a
specific authorization to do so, that transaction is
unenforceable.
In Duilgo v. Lopena,97 one of the questions posed before the

Court was whether a compromise agreement was valid.
94Article 1879.
9 Article 1880.
96Dungo v. Lopena, G.R. No. L-18377, December 29, 1962; Vicente v. Geraldey,
G.R. No. L-32473, July 31,1973.
97 G.R. No. L-18377, December 29,1962.
In this case, Anastacio Dufigo and Rodrigo Gonzales

purchased three parcels of land from the Adriano Lopena
and Rosa Ramos for the total price of P269,804.00,
P28,000.00 of which was given as down payment with the
agreement that the balance of P241,804.00 would be paid
in 6 monthly installments. To secure the payment of the
balance, Dufigo and Gonzales executed over the same
three parcels of land a Deed of Real Estate Mortgage in
favor of Lopena and Ramos with the condition that failure
of the vendees to pay any of the installments on their
maturity dates shall automatically cause the entire unpaid
balance to become due and demandable. The vendees
defaulted on the first installment. Thus, Lopena and
Ramos, filed a complaint for the foreclosure of the
aforementioned real estate mortgage with the Court of
First Instance. Meanwhile, two other civil cases were filed
in the same lower court against Dufigo and Gonzales. The
plaintiff in one was Dionisio Lopena, and in the other
case, the complainants were Bernardo Lopena and Maria
de la Cruz. Both complaints involved the same cause of
action as that of Lopena and Ramos. As a matter of fact,
all three cases arose out of one transaction. In view of the
identical nature of the above three cases, they were
consolidated by the lower court into just one proceeding.
Before the cases could be tried, a compromise agreement
was submitted to the lower court for approval. Lopena,
Ramos and Gonzales signed it. Dufigo did not sign it.
However, Gonzales represented that his signature was for
both himself and Dufigo. Moreover, Dufigo's counsel of
record, Atty. Manuel 0. Chan, the same lawyer who
signed and submitted for him the answer to the
complaint, was present at the preparation of the
compromise agreement and this counsel affixed his

signature thereto. The lower court approved this
compromise agreement. Subsequently, Dufigo and
Gonzales signed a Tri-Party Agreement as debtors,
Lopena and Rosa Ramos as creditors, and, one Emma
Santos as payor. When Dufigo and Gonzales failed to pay
the balance of their indebtedness, Lopena and Ramos
filed a Motion for the Sale of Mortgaged Property which
was granted by the court. Dufigo filed a motion to set
aside all the proceedings on the ground that the
compromise agreement was void ab initio with respect to
him because he did not sign the same.
The Court reiterated the rule under Article 1878 of the

Civil Code, that a third person cannot bind another to a
compromise agreement unless he has obtained a special
power of attorney for that purpose from the party
intended to be bound. The Court stated however that
although the Civil Code expressly requires a special
power of attorney in order that one may compromise an
interest of another, it is neither accurate nor correct to
conclude that its absence renders the compromise
agreement void. The Court explained that because the
compromise agreement is a contract it must be governed
by the rules and the law merely states that it is merely
unenforceable.
In ruling in this manner, the Court relied on Article 1403

which states that unenforceable contracts include those
entered into in the name of another person by one who
has been given no authority or legal representation, or
who has acted beyond his powers. Being an unenforce-
able contract, it could be ratified. The Court found that
the subsequent Tri-Party Agreement ratified the com-

promise agreement.
Therefore, based on this case, an agent who performs one

of the acts listed under Article 1878 but does not have a
special power of attorney, can have his act ratified by the
principal.
In Vicente v. Geraldez,98 the validity of a compromise

agreement was again in issue. In this case, Hi Cement
Corporation ("Hi Cement") filed with the Court of First
Instance a complaint for injunction and damages against
Juan Bernabe, Ignacio Vicente and Moises Angeles. Hi
Cement alleged that the three parcels of land claimed by
Bernabe, Vicente, and Angeles where within the mining
claim covered by its Placer Lease Contract No. V-90.
However, the latter refused to allow entry of Hi Cement
representatives into the area and as a result of which it
had suffered irreparable damages due to its failure to
work on and develop its claims and to extract minerals,
which further resulted to resulting in its inability to
comply with its contractual commitments. Later, the
counsels of the parties executed and submitted to the
court for its approval a compromise agreement the
essential provisions of which state:
1. That the plaintiff is willing to buy the properties

subject of litigation and the defendants are willing to sell
their respective properties;
2. That this Honorable Court authorizes the plaintiff

and the defendants to appoint their respective
98G.R. No. L-32473, July 31,1973.

commissioners that is one for the plaintiff and one for

each defendant;
3. That the parties hereby agree to abide by the decision

of the Court based on the findings of the Commissioners;
xxx xxx xxx
The trial court approved the compromise agreement. But

after the commissioners submitted their report, Hi
Cement rejected the compromise agreement.

1. Special powers of attorney are necessary, among
other cases, in the following: to compromise and to
renounce the right to appeal from a judgment. Attorneys
have authority to bind their clients in any case by any
agreement in relation thereto made in writing, and in
taking appeals, and in all matters of ordinary judicial
procedure, but they cannot, without special authority,
compromise their clients' litigation, or receive anything
in discharge of their clients' claims but the full amount in
cash.
The Compromise Agreement dated January 30, 1969 was

signed only by the lawyers for petitioners and by the
lawyers for private respondent corporation. It is not
disputed that the lawyers of respondent corporation had
not submitted to the Court any written authority from
their client to enter into a compromise.
This Court has said that the Rules "require, for attorneys
to compromise the litigation of their clients, a special
authority. And while the same does not state that the
special authority be in writing the court has every
reason to expect that, if not in writing, the same be duly
established by evidence other than the self-serving
assertion of counsel himself that such authority was
verbally given him."" (citations omitted, emphasis

supplied)
In the case of juridical persons, the Court ruled:

The law specifically requires that 'Juridical persons may
compromise only in the form and with the requisites
which may be necessary to alienate their property."
Under the Corporation Law, the power to compromise or
settle claims in favor of or against the corporation is
ordinarily and primarily committed to the Board of
Directors. The right of the Directors "to compromise a
disputed claim against the corporation rests upon their
right to manage the affairs of the corporation according to
their honest and informed judgment and discretion as to
what is for the best interests of the corporation." This
power may however be delegated either expressly or
impliedly to other corporate officials or agents. Thus it
has been stated, that as a general rule an officer or agent
of the corporation has no power to compromise or settle
a claim by or against the corporation, except to the
extent that such power is given to him either expressly
or by reasonable implication from the circumstances.1 °°
Thus, in the case of corporations, the authority to

compromise must emanate from the Board of Directors.
With respect to ratification, the Court ruled that:
In order to ratify the unauthorized act of an agent and
make it binding on the corporation, it must be shown that
the governing body or officer authorized to ratify had full
and complete knowledge of all the material facts
connected with the transaction to which it relates 1 01
99 Id.
100 Id.
101Id.
While this case did not expressly characterize the

compromise agreement as unenforceable, it can be
presumed from the tenor of the Court's ruling that it was
not valid because it was not ratified.
However, in Cosmic Lumber v. CA, 102 the Court ruled that

a compromise agreement was void, not merely
unenforceable. In this case, the principal authorized the
agent "to initiate, institute and file any court action for the
ejectment of third persons" for specified parcels of land,
"to appear at the pre-trial conference and enter into any
stipulation of facts and/or compromise agreement so far
as it shall protect the rights" of the principal. The agent
executed a compromise agreement selling a portion of the
land in question but for some reason it was not executed.
When the principal was informed of the compromise
agreement, it sought to nullify the same on the ground
that although the agent had authority to enter into a
compromise agreement, such authority was in connection
with, and limited to, the eviction of third
persons/squatters thereat, in order that the principal may
take material possession of the entire lot.103 The Court
agreed with the principal stating that:
When the sale of a piece of land or any interest thereon is

through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. Thus, the
authority of an agent to execute a contract for the sale of
real estate must be conferred in writing and must give
him specific authority, either to conduct the general
business of the principal or to execute a binding contract
containing terms and conditions which are in the contract
he did execute. A special power of attorney is necessary
102Cosmic Lumber v. CA, G.R. No. 114311, November 29,1996.

10 G.R No. 114311, November 29,1996.
The Concept of Agency 51
to enter into any contract by which the ownership of an

immovable is transmitted or acquired either gratuitously
or for a valuable consideration. The express mandate
required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers
of the agent in clear and unmistakable language. When
there is any reasonable doubt that the language so used
conveys such power, no such construction shall be given
the document.10 4 (citations omitted, emphasis supplied)
In the case of Cosmic Lumber, there was a special power of

attorney to compromise. Hence, the requirement of
Article 1878 was complied with. But, the compromise
agreement constituted a sale of a piece of land, therefore
the requirement of Article 1874 must be complied with. In
this case, the Court found that there was in fact no written
authorization to sell the land in question.
Note however that Article 1878(5) states:
(5) To enter into any contract by which the ownership of

an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
This means that generally, the failure of an agent to have

a specific authorization for a contract transferring the
ownership over an immovable will make the said contract
unenforceable. Except that if the contract is a sale of land,
the absence of a written power of attorney specifically
authorizing the sale will make the said contract void.
104 Id.
Thus, to reconcile Article 1874 and Article 1878(5) the

rules must be as follows:
1. If the contract involves a sale of land, then there

must be a written and specific authorizationto sell
that parcel of land;
2. If the contract involves the sale of an immovable
other than land, there must be a specific
authorization;
3. If the contract involves transmittal of ownership
over an immovable other than land, there must
be a specific authorization;
4. If the contract involves a transmittal of owner-
ship over land other than through a sale, there
must be a specific authorization.
The first rule applies Article 1874, while second, third and
fourth rules apply Article 1878(5). The threshold question
therefore is whether the contract involves the sale of land.
In the case of Cosmic Lumber, the Court found that the
compromise agreement amounted to a sale of land. It
should be noted that the agreement in this case specific-
ally indicated the parcel, provided for the price and
recognized the ownership and possession of the buyer.
Although also involving land, the same cannot be said for
the compromise agreements in the cases of Dungo and
Vicente. The terms of the compromise agreements in these
cases did not constitute a sale.
In Mercado v. Allied Banking Corporation,05 the Court had

opportunity to apply the rule on strict construction of a
special power of attorney. In this case, Perla Mercado,
105 G.R. No. 171460, July 27,2007.
owner of several pieces of real property executed a

Special Power of Attorney ("SPA") in favor of her
husband, Julian Mercado over several pieces of real
property registered under her name, authorizing the latter
to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease

and deal otherwise over the different parcels of land
described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered

by Transfer Certificates of Title Nos. xxx
xxx xxx
b) Susana Heights, Muntinlupa covered by

Transfer Certificates of Title Nos. T-108954-600
Square Meters and RT-106338-805 Square Meters
of the Registry of Deeds of Pasig (now Makati);
c) Personal property- 1983 Car with Vehicle

Registration No. R-16381; xxx xxx xxx
2. To sign for and in my behalf any act of strict

dominion or ownership, any sale, disposition, mortgage,
lease or any other transactions including quit-claims,
waiver and relinquishment of rights in and over the
parcels of land situated in General Trias, Cavite, covered
by Transfer Certificates of Title Nos. T-112254 and T-
112255 of the Registry of Deeds of Cavite, in conjunction
with his co-owner and in the person of ATrY. AUGUSTO
F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or

ownership over the above-mentioned properties, rights
and interest therein. (Emphasis supplied.)
Julian obtained a loan from Allied Bank in the amount of

P3,000,000.00, secured by real estate mortgage constituted
on "TCT No. RT-18206 (106338) which covers a parcel of
land with an area of 805 square meters, registered with

the Registry of Deeds of Quezon City." Julian obtained an
additional loan in the sum of P5,000,000.00 from Allied
Bank, using the subject property as security. However,
there was no property identified in the SPA as TCT No.
RT-18206 (106338) and registered with the Registry of
Deeds of Quezon City. Instead, the SPA listed property
covered by TCT No. RT-106338 registered with the
Registry of Deeds of Pasig.
Julian defaulted on the payment of his loan obligations

and Allied Bank initiated extra-judicial foreclosure
proceedings over the subject property which was
subsequently sold at public auction wherein Allied Bank
was declared as the highest bidder. The petitioners in
this case initiated an action for the annulment of Real
Estate Mortgage constituted over the subject property on
the ground that the same was not covered by the SPA and
that the said SPA, at the time the loan obligations were
contracted, no longer had force and effect since it was
previously revoked by Perla on 10 March 1993, as
evidenced by the Revocation of SPA signed by the latter.
After an examination of the literal terms of the SPA, the

Court found that the subject property was not among
those enumerated therein. Thus the Court ruled:
Equally relevant is the rule that a power of attorney must
be strictly construed and pursued. The instrument will
be held to grant only those powers which are specified
therein, and the agent may neither go beyond nor deviate
from the power of attorney. Where powers and duties are
specified and defined in an instrument, all such powers
and duties are limited and are confined to those which are
specified and defined, and all other powers and duties
are excluded. This is but in accord with the disinclination

of courts to enlarge the authority granted beyond the
powers expressly given and those which incidentally flow
or derive therefrom as being usual and reasonably
necessary and proper for the performance of such express
powers.
Even the commentaries of renowned civilist Manresa

supports a strict and limited construction of the terms of
a power of attorney:
The law, which must look after the interests of all,

cannot permit a man to express himself in a vague
and general way with reference to the right he
confers upon another for the purpose of alienation
or hypothecation, whereby he might be despoiled
of all he possessed and be brought to ruin, such
excessive authority must be set down in the most
formal and explicit terms, and when this is not
done, the law reasonably presumes that the
principal did not mean to confer it.106
In this case, the Court refused to go into the intent of the

party executing the SPA on the basis of the rule "where
the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to
ascertain the true intent of the parties, is not
countenanced."1 07
iii. Effect of Specific Authorization
In BPI v. De Coster,108 the question was whether the agent

who happened to be the husband of the principal was
authorized to make his wife liable as a surety for the
payment of the preexisting debt of a third person.
106 Mercado v. Allied Banking Corporation,G.R. No. 171460, July 27, 2007.
107 Id.
108 G.R. No. 23181, March 16,1925.
In this case, Gabriela Poizat issued in favor of her

husband Jean Poizat a power of attorney authorizing him,
among other things to:
Loan or borrow any sums of money or fungible things at

the rate of interest and for the time and under the
conditions which he might deem convenient, collecting or
paying the capital or the interest on their respective due
dates; executing and signing the corresponding public or
private documents related thereto, and making all these
transactions with or without mortgages, pledges or
personal guaranty. 109
Several years later, Jean signed in the name of Gabriela a

promissory note in favor of BPI for a sum of money, and
that to secure the payment of the note, as attorney in fact
for his wife, the husband signed a real estate mortgage in
favor of the bank. BPI filed an action on the basis of the
promissory note and obtained a judgment in its favor.
The judgment was not paid so BPI filed an action on the
basis of the mortgage. Garbiela argued that Jean had no
authority to execute the promissory note and that the debt
in question was a preexisting debt of her husband and of
the firm of J. M. Poizat & Co., to which she was not a
party, and for which she was under no legal obligation to
pay.
In this case, the Court found that there is no provision in

the power of attorney which authorized or empowered
the agent to sign anything or to do anything which would
make his wife liable as a surety for a preexisting debt. It
ruled that where in an instrument powers and duties are
specified and defined, all of such powers and duties are
109 BPIv. De Coster, G.R. No. 23181, March 16,1925.

limited and confined to those which are specified and

defined, and that all other powers and duties are
excluded.
This rule stated in BPI v. De Coster is useful but may be

misunderstood in cases where an instrument contains
both general and special authorities or powers of
attorney.110 In reality, a document called a "special power
of attorney" may in fact include authorizations couched in
general terms. The rule in BPI v. De Coster should not be
construed to mean that if an instrument contains both
special and general powers of attorney, it does not mean
that the general powers indicated are excluded. It only
means that whatever specific authority not included in
the instrument is excluded.
In PNB v. Sta. Maria,"' the Court explained that the

reason for this rule is "the disinclination of courts to
enlarge an authority granted beyond the powers
expressly given and those which incidentally flow or
derive therefrom as being usual or reasonably necessary
and proper for the performance of such express
12
powers."
Thus, one effect of having a special power of attorney is

that it excludes all authorities not so specified. The Court
in BPI v. De Coster further said that:
It is very apparent from the face of the instrument that the
whole purpose and intent of the power of attorney was to
110 In this volume, the term "Power of attorney" unless quoted from another
source refers not to a document but to an authority given to an agent.
M"G.R. No. L-24765, August 29,1969.
112 Id.
empower and authorize the husband to look after in her

name to transact any and all of her business. But nowhere
does it provide or authorize him to make her liable as a
surety for the payment of the preexisting debt of a third
person.L
In the other words, even if the authority granted to the

agent appears to be plenary, the fact that specific
authorities or powers of attorney are listed, means that
those not listed are not included. Non-specified autho-
rities cannot be assumed from those specified.
A number of other rulings further illustrate this point.
In Insular Drug v. PNB,114 the agent was a salesman and

acted as collector for the principal. He was instructed to
receive checks and to deposit them to the account of the
principal. Instead, the agent deposited the checks to his
personal account, from which he and his wife withdrew
the said funds. In its defense, the bank in question argued
that the agent had implied authority to indorse all checks
made out in the name of his principal. The Court ruled
against this and said that:
The right of an agent to indorse commercial paper is a
very responsible power and will not be lightly inferred. A
salesman with authority to collect money belonging to his
principal does not have the implied authority to indorse
checks received in payment. Any person taking checks
made payable to a corporation, which can act only by
agents does so at his peril, and must abide by the
consequences if the agent who indorses the same is
without authority." 5
"3 G.R. No. 23181, March 16,1925.

114 G.R. No. 38816, November 3,1933.
115 Id.
In Hodges v. Salas,116 one of the issues was whether the

agent was authorized to borrow money and invest it as he
wished, without being obliged to apply it necessarily for
the benefit of his principals. In this case, Carlota and Paz
Salas executed a power of attorney in favor of their
brother-in-law, Felix Yulo to enable him to obtain a loan
and secure it with a mortgage on real property they
owned. Acting under the power of attorney, Felix
obtained a loan of P28,000 from the Hodges, binding his
principals jointly and severally to pay it within 10 years,
together with interest thereon at 12 %per annum payable
annually in advance, to which effect he signed a
promissory note for said amount and executed a deed of
mortgage of the real property his principals owned. The
loan not being paid in full, Hodges filed an action to
foreclose the mortgage. The relevant issue before the
Court was whether Yulo was authorized to borrow
money and invest it as he wished, without being obliged
to apply it necessarily for the benefit of his principals.
The pertinent clauses of the power of attorney from which

may be determined the intention of the principals in
authorizing their agent to obtain a loan, securing it with
their real property, were quoted at the beginning. The
terms thereof are limited; the agent was thereby
authorized only to borrow any amount of money which
he deemed necessary. There is nothing, however, to
indicate that the defendants had likewise authorized him
to convert the money obtained by him for his personal
use. With respect to a power of attorney of special
character, it cannot be interpreted as also authorizing the
agent to dispose of the money as he pleased, particularly
116 G.R. No. L-42958, October 21,1936.

when it does not appear that such was the intention of the
principals, and in applying part of the funds to pay his
11 7
personal obligations, he exceeded his authority.
In Bravo-Guerrero v. Bravo,118 spouses Mauricio and

Simona Bravo owned two parcels of land. Mauricio and
Simona had three children-Roland, Cesar and Lily.
Cesar died without issue. Lily Bravo married David Diaz,
and had a son, David B. Diaz, Jr. ("David Jr."). Roland had
six children, Elizabeth, Edward, Roland Jr., Senia,
Benjamin, and Ofelia. Simona executed a General Power
of Attorney ("CPA") appointing Mauricio as her attorney-
in-fact authorizing him to "mortgage or otherwise
hypothecate, sell, assign and dispose of any and all of
[his] property, real, personal or mixed, of any kind
whatsoever and wheresoever situated, or any interest
therein .... " Later, Mauricio mortgaged the properties to
the Philippine National Bank ("PNB") and Development
Bank of the Philippines ("DBP") for P10,000 and P5,000,
respectively. Subsequently, Mauricio executed a Deed of
Sale with Assumption of Real Estate Mortgage ("Deed of
Sale") conveying the properties to "Roland A. Bravo,
Ofelia A. Bravo and Elizabeth Bravo" ("Vendees"). The
sale was conditioned on the payment of P1,000 and on the
assumption by the Vendees of the PNB and DBP
mortgages over the properties. The Deed of Sale was
notarized but was not annotated on the titles. Neither was
it presented to PNB and DBP such that the mortgage
loans and the receipts for loan payments issued by PNB
and DBP continued to be in Mauricio's name even after
his and Simona's death. In 1997, Edward, represented by
117 Id.
118G.R. No. 152658, July 29,2005.
his wife, Fatima, filed an action for the judicial partition of

the properties claiming that he and the other
grandchildren of Mauricio and Simona are co-owners of
the properties by succession but the other heirs refused to
share with him the possession and rental income. Later,
Edward amended his complaint to include a prayer to
annul the Deed of Sale, which he claimed was merely
simulated to prejudice the other heirs. In 1999, David Jr.,
fied a complaint-in-intervention impugning the validity
of the Deed of Sale and praying for the partition of the
properties among the surviving heirs of Mauricio and
Simona.
The Court noted that although "Article 1878 requires a

special power of attorney for an agent to execute a
contract that transfers the ownership of an immovable...
the Court has clarified that Article 1878 refers to the
nature of the authorization, not to its form."''1 9 The Court
added that, "[e]ven if a document is titled as a general
power of attorney, the requirement of a special power of
attorney is met if there is a clear mandate from the
principal specifically authorizing the performance of the
20
act."
Applying the said principles to this case, the Court found

that:
In this case, Simona expressly authorized Mauricio in the

GPA to "sel, assign and dispose of any and all of my
property, real, personal or mixed, of any kind whatsoever
and wheresoever situated, or any interest therein ..." as
well as to "act as my general representative and agent,
119 Id.
12D Id.
with full authority to buy, sell, negotiate and contract for

me and in my behalf." Taken together, these provisions
constitute a clear and specific mandate to Mauricio to sell
the Properties. Even if it is called a "general power of
attorney," the specific provisions in the GPA are sufficient
for the purposes of Article 1878. These provisions in the
GPA likewise indicate that Simona consented to the sale
of the Properties.l n (citation omitted)
Likewise in Veloso v. CA,122 the Court ruled that an agent

was authorized to sell real property because although the
instrument issued was called a "General Power of
Attorney" it included a specific authorization to sell real
property. The Court further stated that:
special power is required.m
Therefore, an instrument called a general power of

attorney may be sufficient to authorize an agent to sell real
property, provided that such authority is specified in the
instrument.
3. Clarifying the Terms
An instrument or power of attorney cannot create a

general and special agency at the same time. An agency is
either general or special and cannot be both. An agent is
either a general or special agent but never both. Either
In Id.
122 GIL No. 102737, August 21,1996.
12 Id.
the agent is manager of all or some of the business of the

principal, but not both.124
In contrast, it is possible for a single instrument or power

of attorney to embody both general and special powers of
attorney.
To avoid confusing the terms, it may be best to limit the

use of "general agency" and "special agency" as referring
to the mutually exclusive terms referring to the scope of
transactions covered by the agency. So an agency must be
either general or special as to its scope. This is to
distinguish it from an agency with a "general power of
attorney" or with a "special power of attorney" which
may exist in the same instrument regardless of its
nomenclature. To further avoid confusion it may be best
to refer to the document itself conferring the authority as
an "instrument" and not "power of attorney." 125
Adhering to these rules would result in clarity in

decisions. For instance, in Siasat v. IAC, 126 the Court ruled
that the document embodying the agreement between the
parties instituted one of them as general agent of the
latter.
The particular document involved stated as follows:

Mrs. Tessie Nacianceno,
124 That is not unless there is a timing element. It may be that for certain
periods he handles all but in another period he only handles some. In this
case, however, there is technically two agencies with the same principal
and agent.
125 In this volume, the author adheres to such usage except when quoting
cases or other authorities.
126 Siasat v.LAC, G.R. No. L-67889, October 10, 1985.
This is to formalize our agreement for you to represent

United Flag Industry to deal with any entity or
organization, private or government in connection with
the marketing of our products - flags and all its
accessories.
For your service, you will be entitled to a commission of
thirty (30%) percent.
Signed,
Mr. Primitivo Siasat

Owner and Gen. Manager
Assuming that the business of the principal only involved

the manufacture and sale of flags, it can be seen that the
alleged agent in this case was in fact a general agent as
she was authorized to transact with anybody regarding
the said business of the alleged agent.
However, in explaining why the agent in this case was a

general agent, the Court said:
Indeed, it can easily be seen by the way general words
were employed in the agreement that no restrictions
were intended as to the manner the agency was to be
carried out or in the place where it was to be executed.
The power granted to the respondent was so broad that it
practically covers the negotiations leading to, and the
execution of, a contract of sale of petitioners' merchandise
with any entity or organization. 1' (emphasis supplied)
This justification does not seem to correspond to the

code's definition of a general agency but seems to be
describing an agency couched in general terms. As
mentioned, a general agency pertains to the scope of the
authority. An agency couched in general terms pertains
12Id.
to the nature of the authority granted to the agent. The

above quoted statements of the Court discuss the nature
of the authority granted to the agent and not the scope of
the business covered by agency.
However, whether or not the agency in the said case was

characterized as a general agency or an agency couched in
general terms would not have changed the ruling that the
alleged agent was authorized to transact on behalf of the
principal. It is just unfortunate that the terms appear to
have been confused.
In Veloso v. CA, 128 the Court said:

special power is required. 29
It seems, the Court used "special power of attorney" in

this paragraph both as a document and as the nature of
the authority of the agent. Also, the terms "general power
of attorney" and "general power" were both used to refer
to the instrument and not the nature of the power
granted. To be more precise, the Court could have stated
the same paragraph in this manner:
Thus, there was no need to execute a separate instrument
denominated as a "Special Power of Attorney" since the
instrument titled "General Power of Attorney" had
12 G.R. No. 102737, August 21,1996.

129 Veloso v. CA, G.R. No. 102737, August 21,1996.
power to sell the subject property. A special power of

attorney can be included even in an instrument called
' General Power of Attorney" when it is specified therein
the act or transaction for which the special power is
required.
Questions for Discussion
1. If the purpose is the accomplishment of more tasks, why is

having agents better than hiring workers?
2. Is agency a legal relationship or a contract? Can it be both?
Is it possible to have a legal relationship without a contract?
3. Should the definition of agency under Article 1868 be
amended? How would you write it? Would it be better if it:
is defined as a legal relationship?
,4.Is Labor Law a part of the law on Agency?
5. Do you agree with jurisprudence that says that agency has
four elements? Why/Why not?
!6.What if A and B never intended to enter into an agency
relationship and that A merely wanted to hire B as a,
worker? What if B, with the consent of A performs acts
usually performed by agents? Should the lack of intent:
govern and prevent the establishment of an agency
relationship?
7. In Bordador v. Luz, did not the alleged principal clothe the
alleged agent with authority?
8. What is the benefit of classifying agency into general or
special agency?
9. How do you distinguish between an act of administration
and an act of strict dominion?
10. What is the effect on a contract involving a transaction
covered by Article 1878 entered into by an agent without a
special power of attorney?
II. ESTABLISHING THE AGENCY
A. Oral or Written
1. Oral
Article 1869 provides that "[algency may be oral, unless

the law requires a specific form." What is referred to as
being "oral" is of course the agency contract or the
manner by which authorization or acceptance is made.
Thus, it is probably more accurate to render the rule as:
The contract of agency may be constituted orally and the
authorization made by the principal or the acceptance
made by the agent may be made orally, provided the law
does not require a specific form under the circumstances.
Generally, it is quite simple to create an agency

relationship. For as long as the parties understand each
other, an agency relationship can be established simply by
having a conversation with a person. The simplicity of
creating an agency relationship is demonstrated by the
case of Air Francev. CA.' In this case:
Jose Gana sought the assistance of Teresita Manucdoc, a
Secretary of the Sta. Clara Lumber Company where Jose
Gana was the Director and Treasurer, for the extension of
the validity of their tickets, which were due to expire on 8
May 1971. Teresita enlisted the help of Lee Ella, Manager
of the Philippine Travel Bureau, who used to handle
travel arrangements for the personnel of the Sta. Clara
Lumber Company. Ella sent the tickets to Cesar Rillo,
Office Manager of AIR FRANCE. The tickets were
returned to Ella who was informed that extension was not
I G.R. No. L-57339, December 29,1983.

possible unless the fare differentials resulting from the

increase in fares triggered by an increase of the exchange
rate of the US dollar to the Philippine peso and the
increased travel tax were first paid. Ella then returned the
tickets to Teresita and informed her of the impossibility of
extension.
In the meantime, the GANAS had scheduled their

departure on 7 May 1971 or one day before the expiry
date. In the morning of the very day of their scheduled
departure on the first leg of their trip, Teresita requested
travel agent Ella to arrange the revalidation of the tickets.
Ella gave the same negative answer and warned her that
although the tickets could be used by the GANAS if they
left on 7 May 1971, the tickets would no longer be valid
for the rest of their trip because the tickets would then
have expired on 8 May 1971. Teresita replied that it will
be up to the GANAS to make the arrangements. With that
assurance, Ella, on his own, attached to the tickets
validating stickers for the Osaka/Tokyo flight, one a JAL
sticker and the other an SAS (Scandinavian Airways
System) sticker. The SAS sticker indicates thereon that it
was "Revalidated by: the Philippine Travel Bureau,
Branch No. 2" (as shown by a circular rubber stamp) and
signed "Ador", and the date is handwritten in the center
of the circle. Then appear under printed headings the
notations: JL 108 (Flight), 16 May (Date), 1040 (Time), OK
(status). Apparently, Ella made no more attempt to
contact AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed

from Manila in the afternoon of 7 May 1971 on board AIR
FRANCE Flight 184 for Osaka, Japan.
However, for the Osaka/Tokyo flight on 17 May 1971,

Japan Airlines refused to honor the tickets because of
their expiration, and the GANAS had to purchase new
tickets. They encountered the same difficulty with respect
to their return trip to Manila as AIR FRANCE also refused
to honor their tickets. They were able to return only after
pre-payment in Manila, through their relatives, of the
readjusted rates. They finally flew back to Manila on
Establishing the Agency 1 69
separate Air France Flights on 19 May 1971 for Jose Gana

and 26 May 1971 for the rest of the family.
On 25 August 1971, the GANAS commenced before the

then Court of First Instance of Manila, Branch III, Civil
Case No. 84111 for damages arising from breach of
2
contract of carriage.
The Court ruled that Air France was not in breach of its
contract because the dishonoring of the tickets was in
accordance with the applicable rules which was binding
on the Ganas, arguing that:
The GANAS cannot defend by contending lack of

knowledge of those rules since the evidence bears out
that Teresita, who handled travel arrangements for the
GANAS, was duly informed by travel agent Ella of the
advice of Rillo, the Office Manager of Air France, that the
tickets in question could not be extended beyond the
period of their validity without paying the fare
differentials and additional travel taxes brought about by
the increased fare rate and travel taxes. 3 (emphasis
supplied)
The Court further ruled that:
The ruling relied on by respondent Appellate Court,

therefore, in KLM vs. Court of Appeals, 65 SCRA 237 (1975),
holding that it would be unfair to charge respondents
therein with automatic knowledge or notice of conditions
in contracts of adhesion, is inapplicable. To all legal
intents and purposes, Teresita was the agent of the
GANAS and notice to her of the rejection of the request
for extension of the validity of the tickets was notice to the
4
GANAS, her principals.
2 Air Francev. CA, G.R. No. L-57339, December 29,1983.

3 Id.
4 Id.
The Court ruled that notice to Teresita was notice to the

Ganas because the former was the agent of the latter.
Recalling the facts as stated by the Court, Teresita
Manucdoc, was a Secretary of the Sta. Clara Lumber
Company where Jose Gana was the Director and
Treasurer. The facts did not state that Teresita was a
secretary of Jose Gana directly nor does it state how Jose
Gana asked her to perform this task for him. The facts
merely state that Jose Gana sought the assistance of
Teresita. It is not difficult to imagine that what might
have transpired was simply a case where an officer of the
company simply requested one of the staff to arrange the
travel arrangements of his family.
There may have been other facts not mentioned in the

ponencia which led the Court to rule that an agency
relationship was established between Jose Gana and
Teresita. But it may be argued that the fact that Jose Gana
sought Teresita's assistance should not be sufficient to
create an agency relationship between them. It may be
said that there must be an actual intent to establish an
agency relationship. It must be noted that Teresita never
entered into a contract on behalf of Jose Gana. All she did
was communicate on his behalf.
These comments notwithstanding, nevertheless, based on

this case, a simple request for assistance made by one
which was accepted by another may be enough under
circumstances to constitute an agency relationship.
To reiterate, the general rule is that an agency relationship

may be constituted orally. The difficulty however is in
proving the existence of an oral agreement establishing an
agency. If either party disputes it, the acts of the parties

contemporaneous with or subsequent to the alleged
agreement would have to be considered.
2. Written
The law specifically requires authorization of the agent in

writing when the power vested in the agent involves the
sale of a piece of land or any interest therein. Article 1874
provides:
ARTICLE 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void.
(n)
a. Application
i. A Sale
This rule applies when the transaction involves a sale.
Of course, what determines the nature of the transaction

is the effect of the agreement and not the name given to
the instrument. Under the Civil Code, a contract of sale is
one where one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate
thing, and the other to pay a price certain in money or its
equivalent.5 Thus, if the basic elements of a sale are
complied with, it is a contract of sale regardless of what
the instrument is called.
5 Article 1458.
In Cosmic Lumber v. CA, 6 the instrument in question was a

compromise agreement entered into by an agent. In this
case, Cosmic Lumber executed a Special Power of
Attorney appointing Paz G. Villamil-Estrada with the
authority:
to initiate, institute and file any court action for the
ejectment of third persons and/or squatters of the entire
lot 9127 and 443 and covered by TCT Nos. 37648 and
37649, for the said squatters to remove their houses and
vacate the premises in order that the corporation may
take material possession of the entire lot, and for this
purpose, to appear at the pre-trial conference and enter
into any stipulation of facts and/or compromise
agreement so far as it shall protect the rights and7
interest of the corporation in the aforementioned lots.
(emphasis supplied)
Villamil-Estrada, by virtue of her power of attorney,

instituted an action for the ejectment of Isidro Perez and
recover the possession of a portion of Lot No. 443 before
the Regional Trial Court. Later, Villamil-Estrada entered
into a Compromise Agreement the terms of which include
her principal's acknowledgment of ownership and
possession by Perez of a portion of Lot No. 443 in
consideration of a sum of money. Cosmic Lumber argued
that it never authorized its agent to sell any of its property
or any part thereof. The Court agreed with Cosmic
Lumber, ratiocinating that:
The authority granted Villamil-Estrada under the special
power of attorney was explicit and exclusionary: for her
to institute any action in court to eject all persons found
on Lots Nos. 9127 and 443 so that petitioner could take
6 G.R. No. 114311, November 29,1996.

7 Cosmic Lumber v. CA, G.R. No. 114311, November 29,1996.
Establishing the Agency j 73
material possession thereof, and for this purpose to

appear at the pre-trial and enter into any stipulation of
facts and/or compromise agreement but only insofar as
this was protective of the rights and interests of petitioner
in the property. Nowhere in this authorization was
Villamil-Estrada granted expressly or impliedly any
power to sell the subject property nor a portion thereof.
Neither can a conferment of the power to sell be validly
inferred from the specific authority "to enter into a
compromise agreement" because of the explicit limitation
fixed by the grantor that the compromise entered into
shall only be "so far as it shall protect the rights and
interest of the corporation in the aforementioned lots." In
the context of the specific investiture of powers to
Villamil-Estrada, alienation by sale of an immovable
certainly cannot be deemed protective of the right of
petitioner to physically possess the same, more so when
the land was being sold for a price of P80.00 per square
meter, very much less than its assessed value of P250.00
per square meter, and considering further that petitioner
never received the proceeds of the sale. 8 (emphasis
supplied)
In this case, because the compromise agreement

amounted to a sale of land, Article 1874 was applied and
the compromise agreement was rendered void because
the agent did not have written authority to sell the land
even if she had written authority to perform other acts.
De Leon and De Leon, Jr. argue that as worded, Article 1874

does not require that the authority of an agent in an
agency to purchase land need not be in writing.9 However,
Article 1874 refers to "a sale of a piece of land.., through
an agent" and a sale can refer to the act of buying or
selling something. A "sale through an agent" can mean
8 Id.
9 DE LEON AND DE LEON JR., COMMENTS AND CASEs ON PARTNERsHI, AGENcY
AND TRusrs 389 (2010).
either the agent buying or selling something for his

principal. If the intention was to limit the requirement to
an agent selling land, then more specific language could
have been employed in the same manner that the
provision specifies "land" and did not use the term "real
property." Thus, the language of Article 1874 is broad
enough to be interpreted to cover either the buying or
selling of a parcel of land entered into by an agent on
behalf of his principal.
What is important is that a principal entered into the

contract through his agent. This means that an agent
merely negotiating for his principal need not have
authority in writing provided it is the principal himself
who executes the contract. As explained by the Court in
Rodriguez v. CA,'O Article 1874 refers "to sales made by an
agent for a principal and not to sales made by the owner
personally to another, whether that other be acting
personally or through a representative."'" In other words,
a sale is only through an agent if the agent is the signatory
to a contract on behalf of the principal. The application of
the principle is further demonstrated in the case of
Oesmer v. Paraiso Development.12 In this case, the six
petitioners along with two others were brothers and
10G.R. No. L-29264, August 29,1969.

n It may be argued that the latter part of the quoted statement ("whether that
other be acting personally or through a representative") implies that Article
1874 only applies to sales through an agent and not to purchases through
an agent. However, it may also be argued that the statement does not state
that Article 1874 does not apply to the "other" party acting though an
agent. All that the statement says is that Article 1874 does not apply to the
principal selling directly whether or not the other party is acting through
an agent or not. In which case the statement is too ambiguous to limit the
broad language of Article 1874.
12 G.R. No. 157493, February 5, 2007.
Establishing the Agency I 75
sisters and the co-owners of undivided shares of two

parcels of agricultural and tenanted land. Both lots were
unregistered and originally owned by their parents who
declared the lots for taxation purposes under two tax
declarations. When their parents died, the petitioners
acquired the lots as heirs of the former by right of
succession. In 1989, Rogelio Paular, brought along one of
the petitioners (Ernesto) to meet with Sotero Lee,
President of Paraiso Development Corporation for the
purpose of brokering the sale of petitioners' properties to
Paraiso Development. Pursuant to said meeting, two of
the petitioners (i.e. Ernesto and Enriqueta) signed the
Contract to Sell in consideration of P100,000.00, as option
money. Sometime thereafter, the other four petitioners
(i.e. Rizalino, Leonora, Bibiano, Jr., and Librado) also
signed the said Contract to Sell. However, two of the
brothers, Adolfo and Jesus, did not sign the document.
Later, the petitioners informed Paraiso Development of
their intention to rescind the Contract to Sell and to return
the amount of P100,000.00 given as option money.
Paraiso Development did not respond. Later, petitioners
together with Adolfo and Jesus filed a Complaint for
Declaration of Nullity or for Annulment of Option
Agreement or Contract to Sell with Damages before the
trial court. This court ruled that the Contract to Sell was
valid only with respect to Ernesto. In contrast, on appeal,
the appellate court ruled that the Contract to Sell was
valid as to the six signatories.
The petitioners asserted that the signatures of five of them

(Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora)
on the margins of the supposed Contract to Sell did not
confer authority on Ernesto as agent to sell their
respective shares in the questioned properties, and hence,

for lack of written authority the supposed Contract to Sell
is void as to them. The Court ruled against the petitioners
stating:
It is true that the signatures of the five petitioners,
namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora, on the Contract to Sell did not confer authority
on petitioner Ernesto as an agent authorized to sell their
respective shares in the questioned properties because of
Article 1874 of the Civil Code, which expressly provides
that.
Art. 1874. When a sale of a piece of land or any

interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale
shall be void.
The law itself explicitly requires a written authority

before an agent can sell an immovable. The conferment of
such an authority should be in writing, in as clear and
precise terms as possible. It is worth noting that
petitioners' signatures are found in the Contract to Sell.
The Contract is absolutely silent on the establishment of
any principal-agent relationship between the five
petitioners and their brother and co-petitioner, Ernesto as
to the sale of the subject parcels of land. Thus, the
Contract to Sell, although signed on the margin by the
five petitioners, is not sufficient to confer authority on
petitioner, Ernesto to act as their agent in selling their
shares in the properties in question.
However, despite petitioner Ernesto's lack of written

authority from the five petitioners to sell their shares in
the subject parcels of land, the supposed Contract to Sell
remains valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is not

only petitioner Ernesto who signed the said Contract to
Sell; the other five petitioners also personally affixed their
signatures thereon. Therefore, a written authority is no
longer necessary in order to sell their shares in the

subject parcels of land because, by affixing their
signatures on the Contract to Sell, they were not selling
their shares through an agent but, rather, they were
13
selling the same directly and in their own right.
(emphasis supplied)
Thus, the Court explained that the written authority

required under Article 1874 did not apply to this case
because the alleged principals themselves signed the
contract.
Interestingly, this case involved a Contractto Sell and not a

Contract of Absolute Sale. It seems then that the Court
considers Article 1874 applicable to contracts to sell which
is preparatory to a contract of sale.
ii. Land or Any Interest Therein
It must be noted that Article 1874 requires that the

determinate thing sold must be a parcel of land. Article
1874 does not use the term "immovable" or "real
property." Therefore, the intention of the rule must be to
limit its application to the sale of land.
In addition, the rule further applies to the sale of "any

interest" on a piece of land. An example of such interest
is a usufruct or mortgage.
b. Effect
The effect of not having the authority of the agent to sell

land in writing is that the sale is void. Being a void
13 Oesmer v. Paraiso Development, G.R. No. 157493, February 5,2007.

contract, it cannot be subject to ratification. 14 In AF Realty

v. Dieselman,15 AF Realty argued that the sale of land by
an unauthorized agent may be ratified where, there is
acceptance of the benefits involved. In this case, AF Realty
argued that the receipt by a director of Dieselman of the
P300,000.00 as partial payment of the lot effectively binds
Dieselman. The Court was not persuaded. It said:
Involved in this case is a sale of land through an agent.

Thus, the law on agency under the Civil Code takes
precedence. This is well stressed in Yao Ka Sin Trading vs.
Court ofAppeals:
Since a corporation, such as the private respondent,
can act only through its officers and agents, all acts
within the powers of said corporation may be
performed by agents of its selection; and, except so
far as limitations or restrictions may be imposed by
special charter, by-law, or statutory provisions, the
same general principles of law which govern the
relation of agency for a natural person govern the
officer or agent of a corporation, of whatever status
or rank, in respect to his power to act for the
corporation; and agents when once appointed, or
members acting in their stead, are subject to the
same rules, liabilities, and incapacities as are agents
of individuals and private persons. (Italics
supplied)
Pertinently, Article 1874 of the same Code provides:

ART. 1874. When a sale of piece of land or any
interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale
shall be void.
Considering that respondents, Cruz, Jr., Cristeta Polintan

and Felicisima Ranullo were not authorized by
14 AF Realty v. Dieselman Freight,G.R. No. 111448, January 16, 2002; San Juan
Structuralv. CA, G.K No. 129459, September 29,1998.
15 G.R. No. 111448, January 16, 2002.
respondent Dieselman to sell its lot, the supposed contract

is void. Being a void contract, it is not susceptible of
ratification by clear mandate of Article 1409 of the Civil
Code, thus:
ART. 1409. The following contracts are inexistent and
void from the very beginning.
xx x
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to

set up the defense of illegality be waived.
Thus, a contract of sale for a parcel of land or interest

therein while perfectly valid, may be rendered void if the
agent who negotiated the sale did not have a written
authority. It does not matter if the agent was authorized
orally because the Civil Code requires that the authority
be in writing.
However, the requirement that the agent's authority be in

writing may be subject to interpretation. Does it mean
that the agent's appointment be in writing? Or does it
mean only that the agent's authority to sell the land be in
writing even if his original appointment as agent is made
orally? Considering that the rationale behind the rule is
to protect the parties involved in the sale, it should be
sufficient that the authority in writing reflect the identity
of the agent, a proper description of the land and terms of
the sale, if any. In effect, such an instrument would be a
special power of attorney even if the appointment of the
agent, originally, was merely oral.
It must be stated also that the rule requiring a written

authorization admits no exception.
However, in Pahud v. CA, 16 the Court upheld a deed of

sale even if the agent did not have any written authority.
In this case, spouses Pedro San Agustin and Agatona
Genii owned a 246-square meter parcel of land and they
died intestate, survived by their eight (8) children:
Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva,
Isabelita and Virgilio. In 1992, Eufemia, Ferdinand and
Raul executed a Deed of Absolute Sale of Undivided Shares
conveying in favor of Pahuds their respective shares from
the lot they inherited from their deceased parents for
P525,000.00. Eufemia also signed the deed on behalf of her
sister, Isabelita on the basis of a special power of attorney
and also for Milagros, Minerva, and Zenaida but without
their apparent written authority. The deed of sale was
also not notarized. The Pahuds paid P35,792.31 to the Los
Bafios Rural Bank where the subject property was
mortgaged. The bank issued a release of mortgage and
turned over the owner's copy of the OCT to the Pahuds.
The Pahuds made more payments to Eufemia and her
siblings totaling to P350,000.00. When Eufemia and her
co-heirs drafted an extra-judicial settlement of estate to
facilitate the transfer of the title to the Pahuds, Virgilio
refused to sign it.
In 1993, Virgilio's co-heirs filed a complaint for judicial

partition of the subject property before the trial court. In
1994, in the course of the proceedings for judicial
partition, a Compromise Agreement was signed with
seven (7) of the co-heirs agreeing to sell their undivided
shares to Virgilio for P700,000.00. The compromise
agreement was, however, not approved by the trial court
16 G.R. No. 160346, August 25, 2009.

because Atty. Dimetrio Hilbero, lawyer for Eufemia and

her six (6) co-heirs, refused to sign the agreement because
he knew of the previous sale made to the Pahuds.
Later Eufemia acknowledged having received P700,000.00

from Virgilio, who then sold the entire property to
spouses Isagani Belarmino and Leticia Ocampo
(Belarminos) sometime in 1994. The Belarminos
immediately constructed a building on the subject
property. The Pahuds immediately confronted Eufemia
who confirmed to them that Virgilio had sold the
property to the Belarminos. Aggrieved, the Pahuds filed a
complaint in intervention in the pending case for judicial
partition.
The Court reiterated that:
In several cases, we have repeatedly held that [in] the

absence of a written authority to sell a piece of land [the
sale] is, ipso jure, void, precisely to protect the interest of
an unsuspecting owner from being prejudiced by the
unwarranted act of another. 17
Thus, the Court said:
Based on the foregoing, it is not difficult to conclude, in

principle, that the sale made by Eufemia, Isabelita and her
two brothers to the Pahuds sometime in 1992 should be
valid only with respect to the 4/8 portion of the subject
property. The sale with respect to the 3/8 portion,
representing the shares of Zenaida, Milagros, and
Minerva, is void because Eufemia could not dispose of the
interest of her co-heirs in the said lot absent any written
authority from the latter, as explicitly required by law.
This was, in fact, the ruling of the CA. s
17
Pahudv. CA, G.R. No. 160346, August 25, 2009.
IsG.R. No. 160346, August 25,2009.
But despite the clear language of Article 1874 the Court

upheld the validity of the disputed portion of the sale:
While the sale with respect to the 3/8 portion is void by
express provision of law and not susceptible to
ratification, we nevertheless uphold its validity on the
basis of the common law principle of estoppel. 19
(emphasis supplied)
The Court further explained:
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or

representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was

not armed with the requisite special power of attorney to
dispose of the 3/S portion of the property. Initially, in their
answer to the complaint in intervention, Eufemia and her
other co-heirs denied having sold their shares to the
Pahuds. During the pre-trial conference, however, they
admitted that they had indeed sold 7/8 of the property to
the Pahuds sometime in 1992. Thus, the previous denial
was superseded, if not accordingly amended, by their
subsequent admission. Moreover, in their Comment, the
said co-heirs again admitted the sale made to petitioners.
Interestingly, in no instance did the three (3) heirs

concerned assail the validity of the transaction made by
Eufemia to the Pahuds on the basis of want of written
authority to sell. They could have easily filed a case for
annulment of the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to remain
silent and left the task of raising the validity of the sale
as an issue to their co-heir, Virgilio, who is not privy to
the said transaction. They cannot be allowed to rely on
Eufemia, their attorney-in-fact, to impugn the validity of
the first transaction because to allow them to do so would

be tantamount to giving premium to their sister's
dishonest and fraudulent deed. Undeniably, therefore,
the silence and passivity of the three co-heirs on the
issue bar them from making a contrary claim.
It is a basic rule in the law of agency that a principal is

subject to liability for loss caused to another by the latter's
reliance upon a deceitful representation by an agent in the
course of his employment (1) if the representation is
authorized; (2) if it is within the implied authority of the
agent to make for the principal; or (3) if it is apparently
authorized, regardless of whether the agent was
authorized by him or not to make the representation.
By their continued silence, Zenaida, Milagros and

Minerva have caused the Pahuds to believe that they
have indeed clothed Eufemia with the authority to
transact on their behalf. Clearly, the three co-heirs are
now estopped from impugning the validity of the sale
and from assailing the authority of Eufeina to enter into
such transaction.
Accordingly, the subsequent sale made by the seven co-

heirs to Virgilio was void because they no longer had any
interest over the subject property which they could
alienate at the time of the second transaction. Nemo dat
quod non habet. Virgilio, however, could still alienate his
1/8 undivided share to the Belarninos.20 (emphasis
supplied)
It would seem that the Court validated the contract with

the Pahuds on the following grounds:
the admission made by the heirs regarding the

sale of 7/8 of the property to the Pahuds;
20 Pahudv. CA, G.R. No. 160346, August 25, 2009.

* failure of the three heirs (who did not authorized

Eufemia) to assail the validity of the transaction;
and
0 the apparent authority given by the three heirs to

Eufemia by reason of their continued silence.
With all due respect to the Court, the reasons cited do not
justify validating an otherwise void contract. Article 1874
is clear in stating that absent a written authorization, a
sale of land entered into by an agent is void.
Regarding the admission, the fact that the heirs admitted

that a contract of sale was executed does not transform the
void contract into a valid one. At best, it was an
admission of the fact that the contract was entered into
and not an assertion of its legality. Even if it were an
assertion of its legality, such could not possibly override
the clear language of the law. If the law declares a thing
void, the mere statement of parties do not make it valid.
The same can be said for the silence of the three heirs.
The fact that they failed to assail the void contract does
not make it valid. Otherwise, the negligence of parties
would make void contracts valid. Therefore, the act or
omission of the heirs after the sale cannot make valid a
void contract. As the Court itself admitted, there can be
no ratification of a void contract.
The apparent authority allegedly vested by the heirs also

does not validate the contract because this doctrine only
goes into the existence of either an implied agency or
agency by estoppel. Even assuming that an implied
agency or an agency by estoppel was created, the contract
would still be void because what is required is a written

authority to sell. The mere existence of an agency
relationship is not sufficient to validate the sale. What the
law requires is a specific authority to sell.
Justice Carpio-Morales in her concurring and dissenting
opinion said:
Equity cannot supplant or contravene the law.
Article 1432 of the Civil Code expressly states that the

principles of estoppel are adopted "insofar as they are not
in conflict with the provisions of this Code", among other
laws.
Indeed, estoppel, being a principle in equity, cannot be

applied in the presence of a law clearly applicable to the
case. The Court is first and foremost a court of law. While
equity might tilt on the side of one party, the same cannot
be enforced so as to overrule positive provisions of law in
favor of the other. 21 (citations omitted, emphasis supplied)
Justice Carpio-Morales then discussed rationale behind

the rule:
Moreover, the evident purpose of the legal requirement of

such written authority is not only to safeguard the interest
of an unsuspecting owner from being prejudiced by the
unauthorized act of another, but also to caution the buyer
to assure himself of the specific authorization of the
putative agent. In other words, the drafters of the law
already saw the risky predicament of selling lands
through agents which, in the absence of a specific law,
would otherwise ultimately depend on equity to resolve
disputes such as the present case. The law undoubtedly
seeks to prevent the following confusion:
Case law tells us that the elements of estoppel are:
first, the actor who usually must have knowledge,
n G.R. No. 160346, August 25,2009.

notice or suspicion of the true facts, communicates

something to another in a misleading way, either
by words, conduct or silence; second, the other in
fact relies, and relies reasonably or justifiably, upon
that communication; third, the other would be
harmed materially if the actor is later permitted to
assert any claim inconsistent with his earlier
conduct; and fourth, the actor knows, expects or
foresees that the other would act upon the
information given or that a reasonable person in
the actor's position would expect or foresee such
action.
The depicted scenario is precisely the misunderstanding

between parties to such type of sale which the lawmakers
sought to avoid in prescribing the conditions for the
validity of such sale of land. The present case is a classic
example of a tedious litigation which had ensued as a
result of such misunderstanding. This is what the law
endeavors to avert. It is not for the Court to suspend the
application of the law and revert to equitable grounds
in resolving the present dispute.22 (citations omitted,
emphasis supplied)
Finally, Justice Carpio-Morales pointed out that Article

1431 which was cited as basis of the estoppel ruling was
inapplicable.
The ponencia cites acts or omissions on the part of the

three sisters which came after the fact such as their
"admission" and "continued silence" which, however,
could not retroact to the time of the previous sale as to
consider petitioners to have accordingly relied on such
admission or representation before buying the property
from Eufemia. The application of the principle of estoppel
is proper and timely in heading off shrewd efforts at
renouncing one's previous acts to the prejudice of
another who had dealt honestly and in good faith. It is
thus erroneous to conclude that Zenaida, Milagros and
Minerva have caused petitioners to believe that they have
Establshing the Agency i 87
clothed Eufernia with the authority to transact on their

behalf.
Could the three sisters ratify the previous sale through

their subsequent acts or onssions? I opine they cannot.
The ponenca concedes that, "the sale with respect to the
3/8 portion is void by express provision of law and not
susceptible to ratification".
The previous sale being violative of an express mandate

of law, such cannot be ratified by estoppel. Estoppel
cannot give validity to an act that is prohibited by law
or one that is against public policy. Neither can the
defense of illegality be waived. An action or defense
for the declaration of the inexistence of a contract does
not prescribe. Amid the confusion from the double
dealing made by their sibling, Eufemia, the three sisters
expectedly kept mum about it. Succinctly, their
"continued silence" cannot be taken against them.
Bargaining away a provision of law should not be
countenanced.
Neither can their "admission" to a question of law bind

them. The ponencia highlights the admission made by
Eufemia and her co-heirs during the pre-trial conference
before the trial court and in their Comment on the present
petition that they had earlier sold 7/s of the property to
petitioners. These statements could not mean, however, as
an admission in petitioners' favor that Zenaida, Milagros
and Minerva validly sold their respective shares to
petitioners. They could only admit to the statement of fact
that the sale took place, but not to the conclusion of law
that the sale was valid, precisely because the validity of
the sales transaction is at issue as it was contested by the
parties.
Further, the textbook citation of the rule involving a

principal's responsibility for an agent's misrepresentation
within the scope of an agent's authority as annotated by
the cited author under Article 1900 of the Civil Code is
inapplicable. The qualifying phrase "in the course of his
employment" presupposes that an agency relationship is
existing. The quoted rule clearly recites that a principal is

held liable if the "deceitful representation" (not the
agency relationship) is authorized either expressly,
impliedly, or apparently. In this case, there was no agency
relationship to speak of.z3
With all due respect to the majority, it would seem that

the Opinion of Justice Carpio Morales is more in accord
with the law. Indeed, the equitable doctrine of estoppel
cannot supersede the clear language of the law.
However, it should be clarified that the rule under Article

1874 requiring a written authority for the sale of land
should not be confused with the rule requiring a special
power of attorney. Under Article 1878 of the Civil Code,
the agent's authority to enter into certain transactions
involving acts of strict dominion must be embodied in a
special power of attorney. In particular, item 5 of Article
1878 requires a special power of attorney to enter into any
contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a
valuable consideration. 24
In addition, it must be noted that Article 1874 does not

say that the agency relationship does not exist nor does it
say that the agency contract is invalid if the authority to
sell the piece of land is not in writing. The effect of
absence of written authority only goes into the validity of
the sale.
Z3Id.
24
See discussion in Chapter I.
c. Form in the Case of Corporations
It must be noted that Article 1874 does not prescribe a

particular form for the power of attorney. In Angeles v.
PNR,25 the Court pointed out that, "[iln the absence of
statute, no form or method of execution is required for a
valid power of attorney; it may be in any form clearly
showing on its face the agent's authority."26
But in the case where the principal is a corporation,

jurisprudence explains that the written authorization
generally must be in the form of a board resolution.
In AF Realty v. Dieselman,27 the Court had occasion to

explain the authorization required in case of corporations.
In this case, a member of the board of directors of
Dieselman, Manuel Cruz, Jr., issued a letter to Cristeta
Polintan, a real estate broker, authorizing her to negotiate
the sale of a lot owned by Dieselman at P3,000.00 per
square meter, or a total of P6,282,000.00. However, Cruz,
Jr. had no written authority from Dieselman to sell the lot.
Polintan, through a letter, authorized Felicisima Noble to
sell the same lot. Noble offered the lot to AF Realty &
Development, Inc. at P2,500.00 per square meter which
was accepted Zenaida Ranullo, board member and vice
president of AF Realty. Ranullo issued a check in the
amount of P300,000.00 payable to the order of Dieselman
which Polintan received and for which she signed an
"Acknowledgment Receipt" indicating that the amount of
P300,000.00 representing the partial payment of the
25 G.R. No. 150128, August 31, 2006.

2 Angeles v. PNR, G.R. No. 150128, August 31, 2006.
2 AF Realty v. Dieselman Freight,G.R. No. 111448, January 16, 2002.
property. Later, Manuel F. Cruz, Sr., president of

Dieselman, acknowledged receipt of the said P300,000.00
as "earnest money" but required AF Realty to finalize the
sale at P4,000.00 per square meter. AF Realty replied that
it has paid an initial down payment of P300,000.00 and is
willing to pay the balance. Mr. Cruz, Sr. terminated the
offer and demanded from AF Realty the return of the title
of the lot earlier delivered by Polintan. AF Realty filed
with the Regional Trial Court, a complaint for specific
performance and damages.
The Court ruled against AF Realty. It said that:

Section 23 of the Corporation Code expressly provides
that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts
of a corporation must be made either by the board of di-
rectors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of
authorized duties of such director, are held not to be
binding on the corporation. 28 (citation omitted, emphasis
supplied)
The Court found that it was undisputed that Cruz, Jr. had
no written authority from the board of directors of
Dieselman to sell or to negotiate the sale of the lot, much
less to appoint other persons for the same purpose. Cruz,
Jr.'s lack of such authority also precluded him from
28 AF Realty v. Dieselman Freight,G.R. No. 111448, January 16,2002.

conferring any authority to Polintan who also could not

authorize Noble. Thus, the acts of Cruz, Jr., Polintan and
Noble could not bind Dieselman in the purported contract
of sale. 29
It should be noted that Cruz, Jr. was a member of the

Board of Directors, the body authorized to act for the
corporation. Had all the directors signed the letter to
Polintan, it would have been a valid delegation. In this
case, even a director requires a board resolution to
authorize him to authorize another for the sale in
question. A possible exception is if the by-laws of the
corporation authorized members of the board to delegate
such authority.
The case of Litonjua v. Etemit,30 also involved a sale of

land by a corporation. In this case, the manufacturing
operations of Eternit Corporation were conducted on
eight parcels of land. Eteroutremer S.A. Corporation
("ESAC"), a corporation organized and registered under
the laws of Belgium owned ninety percent of the shares of
stocks of Eternit. Jack Glanville was the General Manager
and President of Eternit and Claude Frederick Delsaux
was the Regional Director for Asia of ESAC. Because of
the political situation in the Philippines in 1986, ESAC
wanted to stop its operations in the country and
instructed Michael Adams, a member of Eternit's Board
of Directors, to dispose of the eight parcels of land.
Adams engaged the services of Lauro Marquez who
offered the parcels of land and the improvements thereon
to Eduardo Litonjua, Jr. of the Litonjua & Company, Inc.
29
See Questions for Discussion at the end of this chapter involving this case.
30 G.R. No. 144805, June 8, 2006.
In a letter, Marquez declared that he was authorized to

sell the properties for P27,000,000.00 and that the terms of
the sale were subject to negotiation. Litonjua, Jr., and his
brother Antonio Litonjua offered to buy the property for
P20,000,000.00 cash. Marquez apprised Glanville of the
Litonjua siblings' offer and relayed the same to Delsaux in
Belgium, but the latter did not respond. Later, Glanville
telexed Delsaux in Belgium, inquiring on his position or
counterproposal to the offer of the Litonjua siblings. It
was only on February 12, 1987 that Delsaux sent a telex to
Glanville stating that, based on the "Belgian/Swiss
decision," the final offer was "US$1,000,000.00 and
P2,500,000.00 to cover all existing obligations prior to final
liquidation." Litonjua, Jr. accepted the counterproposal of
Delsaux and the Litonjua brothers deposited the amount
of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow
Agreement to expedite the sale. Because the political
situation in the Philippines had improved Marquez
received a telephone call from Glanville, advising that the
sale would no longer proceed. Glanville followed it up
with a letter confirming that he had been instructed by his
principal to inform Marquez that "the decision has been
taken at a Board Meeting not to sell the properties on
which Eternit Corporation is situated." Delsaux himself
later sent a letter confirming that the ESAC Regional
Office had decided not to proceed with the sale of the
subject land. The Litonjuas wrote Eternit demanding
payment for damages they had suffered on account of the
aborted sale that the latter rejected. The Litonjuas then
filed a complaint for specific performance and damages
against Eternit.
The Court ruled against Eternit because it failed to prove

the authority of the agents to offer the corporation's
properties for sale. It said:
It was the duty of the petitioners to prove that [Eternit]

had decided to sell its properties and that it had
empowered Adams, Glanville and Delsaux or Marquez to
offer the properties for sale to prospective buyers and to
accept any counter-offer. Petitioners likewise failed to
prove that their counter-offer had been accepted by
[Eternit], through Glanville and Delsaux. It must be
stressed that when specific performance is sought of a
contract made with an agent, the agency must be
31
established by clear, certain and specific proof.
The Court cited Section 23 of the Corporation Code and

explained:
Indeed, a corporation is a juridical person separate and

distinct from its members or stockholders and is not
affected by the personal rights, obligations and
transactions of the latter. It may act only through its
board of directors or, when authorized either by its by-
laws or by its board resolution, through its officers or
agents in the normal course of business. The general
principles of agency govern the relation between the
corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions
of law.32 (Citations omitted, emphasis supplied)
The Court also cited Section 36 of the Corporation Code

and explained:
The property of a corporation, however, is not the

property of the stockholders or members, and as such,
may not be sold without express authority from the board
of directors. Physical acts, like the offering of the
31 Litonjua v. Eternit,G.R. No. 144805, June 8, 2006.

32Id.
properties of the corporation for sale, or the acceptance of

a counter-offer of prospective buyers of such properties
and the execution of the deed of sale covering such
property, can be performed by the corporation only by
officers or agents duly authorized for the purpose by
corporate by-laws or by specific acts of the board of
directors. Absent such valid delegation/authorization,
the rule is that the declarations of an individual director
authorized duties of such director, are not binding on
the corporation.
While a corporation may appoint agents to negotiate for

the sale of its real properties, the final say will have to be
with the board of directors through its officers and agents
as authorized by a board resolution or by its by-laws. An
unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly
or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be
an agent thereof but without written authority from the
corporation is null and void. The declarations of the
agent alone are generally insufficient to establish the fact
or extent of his/her authority.33 (citations omitted,
emphasis supplied)
Applying the said principles to the facts of the case, the

Court pointed out that:
In this case, the petitioners as plaintiffs below, failed to
adduce in evidence any resolution of the Board of
Directors of [Eternit] empowering Marquez, Glanville or
Delsaux as its agents, to sell, let alone offer for sale, for
and in its behalf, the eight parcels of land owned by
[Eternit] including the improvements thereon...
Moreover, the evidence of petitioners shows that Adams

and Glanville acted on the authority of Delsaux, who, in
turn, acted on the authority of respondent ESAC, through
its Committee for Asia, the Board of Directors of

respondent ESAC, and the Belgian/Swiss component of
the management of respondent ESAC. As such, Adams
and Glanville engaged the services of Marquez to offer to
sell the properties to prospective buyers. Thus, on
September 12, 1986, Marquez wrote the petitioner that he
was authorized to offer for sale the property for
P27,000,000.00 and the other terms of the sale subject to
negotiations. When petitioners offered to purchase the
property for P20,000,000.00, through Marquez, the latter
relayed petitioners' offer to Glanville; Glanville had to
send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners' offer. However, as
admitted by petitioners in their Memorandum, Delsaux
was unable to reply immediately to the telex of Glanville
because Delsaux had to wait for confirmation from
respondent ESAC. When Delsaux finally responded to
Glanville on February 12, 1987, he made it clear that,
based on the "Belgian/Swiss decision" the final offer of
respondent ESAC was US$1,000,000.00 plus P2,500,000.00
to cover all existing obligations prior to final liquidation.
The offer of Delsaux emanated only from the
"Belgian/Swiss decision," and not the entire management
or Board of Directors of respondent ESAC. While it is true
that petitioners accepted the counter-offer of respondent
ESAC, [Eternit] was not a party to the transaction
between them; hence, EC was not bound by such
acceptance.
While Glanville was the President and General Manager

of [Eternit], and Adams and Delsaux were members of its
Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of
such authority is needed to bind [Eternit] to any
agreement regarding the sale of the subject properties.
Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent Eternit.
Admittedly, respondent ESAC owned 90% of the shares
of stocks of respondent EC; however, the mere fact that a
corporation owns a majority of the shares of stocks of
another, or even all of such shares of stocks, taken
alone, will not justify their being treated as one

corporation.
xxx xxx xxx
It appears that Marquez acted not only as real estate

broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on
February 26, 1987, he confirmed, for and in behalf of the
petitioners, that the latter had accepted such offer to sell
the land and the improvements thereon. However, we
agree with the ruling of the appellate court that
Marquez had no authority to bind [Eternit] to sell the
subject properties. A real estate broker is one who
negotiates the sale of real properties. His business,
generally speaking, is only to find a purchaser who is
willing to buy the land upon terms fixed by the owner.
He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser
of real property does not include an authority to sell. 34
Thus, in Litonjua v. Eternit, the Court strictly construed the

requirement that the agent must have written authority
from the board of directors of the corporation. It didn't
matter that the agents in this case were actually officers of
the corporation and its parent corporation.
B. Express/Implied Agency and Agency by Estoppel
As a contract, the establishment of an agency requires the

consent of the parties. This consent may be manifested
expressly or impliedly.
34d.
1. Express Agency
Article 18693 provides that an agency may be express or

implied. What is being referred to as being express or
implied is the manner by which the agency is established.
More particularly, the article is referring to how the
principal authorizes the agent or how the agent accepts
the appointment.
In the ordinary course of things, an agency relationship is

established or a contract of agency is created by the
express act of the principal authorizing the agent to act on
his behalf and by the express act of the agent accepting
such authority. This is the usual manner by which an
agency is created. However, this is not the only way an
agency is created.
2. Implied Agency
Articles 1869 and 187036 provide that an agency relation-

ship may be implied from the acts of the principal or that
of the agent.
a. Implied from the Acts of the Principal
Pursuant to Article 1869, the act of the principal may be in

the form of his silence, lack of action or failure to
repudiate the agency knowing that another person is
35 ARTICLE 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without
authority.
Agency may be oral, unless the law requires a specific form. (1710a)
36ARTICLE 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. (n)
98 I Analy si of Philippine Agency Law and Judprudence
acting on his behalf without authority. This article

contemplates a situation where a person who is not
authorized to act as agent nevertheless performs the acts
of an agent on behalf of another. That a person is not
authorized may mean that there is no contract of agency
at all or the act performed is beyond the scope of the
contract.
The difficulty in applying this provision lies in deter-

mining the reasonable period for inaction on the part of
the alleged principal. Obviously, the alleged principal
must be aware of the unauthorized acts of the alleged
agent in order for the article to apply. But the question is:
how long does the principal need to know about the
unauthorized agent's actions for the provision to apply?
For instance, when the alleged principal finds out about
the unauthorized acts of the alleged agent, must he act to
repudiate the said acts within the same day? If he allows
a few days to pass, will an implied agency be created even
if a third party has not entered into any transaction with
the purported agent? In addition, in what manner is the
alleged principal supposed to repudiate the alleged
agency relationship? Is notifying the alleged agent
sufficient? Should he notify third parties the alleged
agent contacted? What if he notifies all except one? Is he
required to publish the repudiation?
For an implied agency to be established under Article

1869, the following requisites should concur:
a. the alleged principal should be aware of the acts

of the alleged agent;
b. the alleged principal has had reasonable oppor-

tunity under the circumstances to repudiate the
acts of the alleged agent;
c. a third party has transacted with the alleged
agent without being made aware of the alleged
agent's lack of authority; and
d. there were no facts or circumstances that should
have raised any suspicion on the part of the third
person that the agent was not authorized.
In Uniland Resources v. DBP,3 7 the petitioner invoked

Article 1869 of the new Civil Code contending that an
implied agency existed. In this case, the authority of
Uniland Resources to broker for DBP was at issue.
Uniland Resources argued that it "should have been
stopped, disauthorized and outrightly prevented from
dealing" with the property of DBP from the beginning.
On the contrary, these steps were never necessary. In the

course of petitioner's dealings with the DBP, it was
always made dear to petitioner that only accredited
brokers may look for buyers on behalf of respondent DBP.
This is not a situation wherein a third party was
prejudiced by the refusal of respondent DBP to
recognize petitioner as its broker. The controversy is
only between the DBP and petitioner, to whom it was
emphasized in no uncertain terms that the arrangement
sought did not exist. Article 1869, therefore, has no room
for operation in this case. (emphasis supplied)38
37 G.R. No. 95909, August 16,1991.

38Id.
The Court's argument was that both the alleged principal

and alleged agent knew that the agent was not authorized
to act and that no third party is prejudiced by the alleged
principal's non-recognition of the alleged agency. In this
scenario the Court argued that Article 1869 did not apply.
The aforementioned requisites enumerated earlier are in
accordance with the ruling of the Court.
b. Implied from the Acts of the Agent
Article 1870 provides that the acceptance by the agent

may be implied from his acts which carry out the agency
or from his silence or inaction according to the
circumstances.
This article does not specify whether the appointment

made by the principal was express or implied but it is
reasonable to expect that such appointment must have
been express. The appointment certainly could not have
been implied as provided under Article 1869 because in
that article, the acts of the agent came before the implied
acceptance of the principal. It is more reasonable to
expect that Article 1870 contemplates a situation where
the principal expressly appoints the agent but the latter
only impliedly accepts.
An implied agency established by the agent carrying out

the functions of an agent is not difficult to determine. But
an implied agency established by silence or inaction is
problematic.
How much time does an alleged agent have to reject the

agency before an implied agency is established by his
silence or inaction? If he does not act, no third party may
Establisbing the A ncy 1 101
be prejudiced. 39 But even if he does not enter into any

contract, the principal may be prejudiced because he
thought the alleged agent was in fact acting as his agent.
Had he known, the principal may have appointed another
agent or acted on his own and not lost opportunities as
time passed.
Thus, it is reasonable for an implied agency under Article

1870 to be established through the silence or inaction of
the alleged agent if the latter does not inform the principal
of his rejection of the agency relationship:
a. within a reasonable amount of time under the

circumstances; and
b. prior to the principal suffering damage as a result

of the delay on the part of the agent in informing
the principal of his rejection of the agency
relationship.
Articles 1871 and 1872 provide two specific instances

whereby the agent is deemed to have impliedly accepted
the agency. Article 1871 states:
ARTICLE 1871. Between persons who are present, the
acceptance of the agency may also be implied if the
principal delivers his power of attorney to the agent and
the latter receives it without any objection. (n)
On the other hand Article 1872 states:
39 Not unless the principal promised the said third party that the alleged
agent will liaise with him and the delay or failure of the alleged agent to do
so causes the third party some damage.
ARTICLE 1872. Between persons who are absent, the

acceptance of the agency cannot be implied from the
silence of the agent, except:
(1) When the principal transmits his power of attorney to

the agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or

telegram a power of attorney with respect to the
business in which he is habitually engaged as an
agent, and he did not reply to the letter or telegram.
(n)
The difference between these two provisions is that under

Article 1871, the agent impliedly accepts the agency in the
presence of the principal, which is not the case under
Article 1872. In addition, Article 1872 indicates that the
general rule is that an acceptance cannot be implied if the
non-objection of the agent is not made in the presence of
the principal. Thus, the two scenarios listed under Article
1872 are more by way of exception.
Under Article 1871, the principal delivers his power of

attorney to the agent who personally receives it without
any objection. To be reasonable, the agent must be aware
of the contents of the document containing the
power of attorney. His mere physical receipt of the
document without specific knowledge as to its contents
should not be sufficient to bind him.
Under Article 1872, the principal either transmits the

power of attorney or entrusts it by letter or telegram.
Article 1872 further adds that in the case of entrusting the
power of attorney by letter or telegram, an implied
acceptance arises only when the power of attorney
pertains to a business that the agent is habitually engaged
in. Interestingly, in the case of transmittal, this is not a

requirement. There are a number of interesting questions
that may arise in the event this provision is applied to
modem communications technology.4°
3. Agency by Estoppel
a. Based on Statute
Article 1873 of the Civil Code provides:

ARTICLE 1873. If a person specially informs another or
states by public advertisement that he has given a power
of attorney to a third person, the latter thereby becomes a
duly authorized agent, in the former case with respect to
the person who received the special information, and in
the latter case with regard to any person.
The power shall continue to be in full force until the

notice is rescinded in the same manner in which it was
given. (n)
The provision establishes an agency by estoppel or one

wherein a real agency relationship does not exist but one
is established with respect to a third person who relied on
the representations of the alleged principal or agent. This
is different from an implied agency wherein an actual
agency exists.
The case contemplated by Article 1873 is one where there

is no agency relationship but an alleged principal informs
a specific third person or states by public advertisement
that he has given a power of attorney to an alleged agent.
In the case of the third person specifically informed, the
alleged agent is deemed an actual agent whereas in the
40
See Questions for Discussion at the end of the chapter.
case of the public advertisement the alleged agent is an

agent as far as anybody is concerned.
Some may argue that Article 1873 creates an implied

agency and not an agency by estoppel because of the
second paragraph of Article 1873 which states:
The power shall continue to be in full force until the
notice is rescinded in the same manner in which it was
given.
The said paragraph may be interpreted to mean that an

actual power is granted to the alleged agent which exists
until rescinded. Also, in the case of information via public
advertisement, the alleged agent is treated as an agent as
far as everyone is concerned.
However, treating Article 1873 as a means of establishing

an implied agency runs afoul of the basic requirement of
agency-consent. To establish an implied agency under
Article 1873 would be to create an agency without the
consent of the agent. In practical terms, this would mean
that a person could be forced to become someone's agent
simply by public advertisement or by specific information
provided to a third person.
All that Article 1873 creates is an agency by estoppel

intended to protect the interest of a third person against
an alleged principal. At best, an agency relationship may
be deemed created only for the benefit of the third person
although no contract of agency exists between the
principal and alleged agent.
However, if the agent carries out the agency, the situation

may fall under Article 1870, which creates an implied
agency. Also, if the alleged agent is made aware of the

specific information or the public advertisement, an
implied agency may also be established by his silence or
inaction under the circumstances. But the mere represent-
ation made by the alleged principal without any act of
acceptance or act implying acceptance on the part of the
alleged agent does not establish an implied agency.
Interestingly, there is no corresponding rule in case a

person claims he is the agent of another either by specific
information or by public advertisement. But other pro-
visions cover the situation. In such a scenario, if the
alleged principal finds out and does nothing, an implied
agency may be created under Article 1869. If the alleged
principal is completely unaware then the third person has
no recourse as to him. Jurisprudence requires the third
person to investigate the exact authority of the agent and
the Civil Code grants him the right to require
presentation of the authority granted to the agent.41 Thus,
if he fails to inquire into the authority of an alleged agent,
then he only has himself to blame. If the individual
actually was an agent but claims an authority he does not
have, then the rules governing unauthorized acts of
agents will apply.
b. Based on Jurisprudence
In addition to the statutory basis of agency by estoppel,

there appears to have developed a body of jurisprudence
on a form of agency by estoppel based on the general
doctrine of estoppel.
41 See Article 1902 and "Chapter V, The Third Party Dealing With the Agent"
For instance, in Pahud v. CA, 42 the Court applied Article

1431 of the Civil Code 43 and ruled that despite the absence
of a written authority, the parties were barred from
questioning the authority of their alleged agent because
they clothed the latter with authority by their silence. The
Court was therefore relying on the doctrine of estoppel
and not Article 1873.
In Litonjua v. Eternit,44 the Court ruled that for an agency

by estoppel to exist, the following must be established:45
(1) the principal manifested a representation of the

agent's authority or knowingly allowed the
agent to assume such authority;
(2) the third person, in good faith, relied upon such
representation;
(3) relying upon such representation, such third
person has changed his position to his
detriment.
The Court added that an agency by estoppel is similar to

the doctrine of apparent authority, and requires proof of
reliance upon the representations, and that, in turn, needs
proof that the representations predated the action taken in
reliance.46 The enumerated elements and the statement of
42 G.R. No. 160346, August 25,2009.

43 ARTICLE 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
44G.R. No. 144805, June 8,2006.
45
Litonjua v. Eternit, G.R. No. 144805, June 8, 2006, citing Carolina-Georgia
Carpetand Textiles, Inc. v. Peiloni, 370 So. 2d 450 (1979).
46 Litonjua v. Eternit G.R. No. 144805, June 8,2006.
the doctrine of apparent authority were based on U.S.

jurisprudence 47 and not on Article 1873.
In Nogales v. Capitol Medical, the Court had opportunity

to discuss the doctrine of apparent authority. In this case,
Corazon Nogales ("Corazon"), 37 years old and
experiencing her fourth pregnancy, was under the
exclusive prenatal care of Dr. Oscar Estrada ("Dr.
Estrada") beginning on her fourth month of pregnancy. In
Corazon's last trimester of pregnancy, Dr. Estrada noted
an increase in her blood pressure and development of leg
edema indicating preeclampsia, which is a dangerous
complication of pregnancy. On her ninth month, Corazon
started to experience mild labor pains prompting Corazon
and Rogelio Nogales ("Spouses Nogales") to see Dr.
Estrada at his home. After examining Corazon, Dr.
Estrada advised her immediate admission to the Capitol
Medical Center ("CMC"). The Court narrated what
transpired at the hospital, as follows:
On 26 May 1976, Corazon was admitted at 2:30 a.m. at the

CMC after the staff nurse noted the written admission
request of Dr. Estrada. Upon Corazon's admission at the
CMC, Rogelio Nogales ("Rogelio") executed and signed
the "Consent on Admission and Agreement" and
"Admission Agreement." Corazon was then brought to
the labor room of the CMC.
Dr. Rosa Uy ("Dr. Uy"), who was then a resident

physician of CMC, conducted an internal examination of
Corazon. Dr. Uy then called up Dr. Estrada to notify him
of her findings.
47 The Court in Litonjua cited Carolina-Georgia Carpet and Textiles, Inc. v.

Pelloni, 370 So. 2d 450 (1979).
48 G.R. No. 142625, December 19, 2006.
Based on the Doctor's Order Sheet, around 3:00 a.m., Dr.

Estrada ordered for 10 mg. of valium to be administered
immediately by intramuscular injection. Dr. Estrada later
ordered the start of intravenous administration of
syntocinon admixed with dextrose, 5%, in lactated
Ringers' solution, at the rate of eight to ten micro-drops
per minute.
According to the Nurse's Observation Notes, Dr. Joel

Enriquez ("Dr. Enriquez'), an anesthesiologist at CMC,
was notified at 4:15 a.m. of Corazon's admission.
Subsequently, when asked if he needed the services of an
anesthesiologist, Dr. Estrada refused. Despite Dr.
Estrada's refusal, Dr. Enriquez stayed to observe
Corazon's condition.
At 6:00 a.m., Corazon was transferred to Delivery Room

No. 1 of the CMC. At 6:10 a.m., Corazon's bag of water
ruptured spontaneously. At 6:12 a.m., Corazon's cervix
was fully dilated. At 6:13 a.m., Corazon started to
experience convulsions.
At 6:15 a.m., Dr. Estrada ordered the injection of ten

grams of magnesium sulfate. However, Dr. Ely Villaflor
("Dr. Villaflor"), who was assisting Dr. Estrada,
administered only 2.5 grams of magnesium sulfate.
At 6:22 a.m., Dr. Estrada, assisted by Dr. Villaflor, applied

low forceps to extract Corazon's baby. In the process, a
1.0 x 2.5 cm. piece of cervical tissue was allegedly torn.
The baby came out in an apnic, cyanotic, weak and
injured condition. Consequently, the baby had to be
intubated and resuscitated by Dr. Enriquez and Dr.
Payumo.
At 6:27 a.m., Corazon began to manifest moderate vaginal

bleeding which rapidly became profuse. Corazon's blood
pressure dropped from 130/80 to 60/40 within five
minutes. There was continuous profuse vaginal bleeding.
The assisting nurse administered hemacel through a
gauge 19 needle as a side drip to the ongoing intravenous
injection of dextrose.
At 7:45 a.m., Dr. Estrada ordered blood typing and cross

matching with bottled blood. It took approximately 30
minutes for the CMC laboratory, headed by Dr. Perpetua
Lacson ("Dr. Lacson"), to comply with Dr. Estrada's order
and deliver the blood.
At 8:00 a.m., Dr. Noe Espinola ("Dr. Espinola"), head of

the Obstetrics-Gynecology Department of the CMC, was
apprised of Corazon's condition by telephone. Upon
being informed that Corazon was bleeding profusely, Dr.
Espinola ordered immediate hysterectomy. Rogelio was
made to sign a "Consent to Operation."
Due to the inclement weather then, Dr. Espinola, who was

fetched from his residence by an ambulance, arrived at
the CMC about an hour later or at 9:00 a.m. He examined
the patient and ordered some resuscitative measures to be
administered. Despite Dr. Espinola's efforts, Corazon
died at 9:15 a.m. The cause of death was "hemorrhage,
post partum." 49 (citations omitted)
Rogelio filed a complaint for damages against CMC, Dr.

Estrada, Dr. Villaflor, Dr. Uy, Dr. Enriquez, Dr. Lacson,
Dr. Espinola, and a certain Nurse J. Dumlao for the death
of Corazon. The lower courts held Dr. Estrada solely
responsible.
The issue before the Court was the liability of CMC for
the death of Corazon. More specifically, the question
became whether CMC was automatically exempt from
liability considering that Dr. Estrada was an independent
contractor-physician. The Court ruled:
In general, a hospital is not liable for the negligence of an
independent contractor-physician. There is, however, an
exception to this principle. The hospital may be liable if the
physician is the "ostensible" agent of the hospital. This
9 G.R. No. 142625, December 19, 2006.

exception is also known as the "doctrine of apparent

authority.50
The Court quoted from the case of Gilbert v. Sycamore

Municipal Hospital,51 in explaining the application of the
doctrine of apparent authority in the case of hospitals:
[U]nder the doctrine of apparent authority a hospital can

be held vicariously liable for the negligent acts of a
physician providing care at the hospital, regardless of
whether the physician is an independent contractor,
unless the patient knows, or should have known, that
the physician is an independent contractor. The elements
of the action have been set out as follows:
For a hospital to be liable under the doctrine of

apparent authority, a plaintiff must show that: (1)
the hospital, or its agent, acted in a manner that
would lead a reasonable person to conclude that
the individual who was alleged to be negligent was
an employee or agent of the hospital; (2) where the
acts of the agent create the appearance of authority,
the plaintiff must also prove that the hospital had
knowledge of and acquiesced in them; and (3) the
plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care
and prudence.
The element of "holding out" on the part of the hospital

does not require an express representation by the
hospital that the person alleged to be negligent is an
employee. Rather, the element is satisfied if the hospital
holds itself out as a provider of emergency room care
without informing the patient that the care is provided
by independent contractors.
The element of justifiable reliance on the part of the

plaintiff is satisfied if the plaintiff relies upon the
hospital to provide complete emergency room care,
50 G.R. No. 142625, December 19,2006.

51156 l1.2d 511, 622 N.E.2d 788 (1993).
Establishing the Agency 111
rather than upon a specific physician5 2 (emphasis

supplied)
Thus, under the doctrine of apparent authority, the

hospital can be made liable for the negligent act of a
physician even if the latter is an independent contractor.
However, the doctrine will not apply if the patient knew
or should have known that the physician was an
independent contractor.
For the hospital to be liable, the plaintiff must prove the

following:
a. the hospital, or its agent, acted in a manner that

would lead a reasonable person to conclude that
the individual who was alleged to be negligent
was an employee or agent of the hospital;
b. where the acts of the agent created the
appearance of authority, the plaintiff must also
prove that the hospital had knowledge of and
acquiesced in them;5 3 and
c. the plaintiff acted in reliance upon the conduct of
the hospital or its agent, consistent with ordinary
care and prudence.
The Gilbert case clarifies that as to the first element,

express representations from the hospital are not
necessary and the mere failure to inform the patient that
the care is provided by independent contractors would be
sufficient. On the other hand, the third element is
s2 Nogales v. Capitol Medical, G.R. No. 142625, December 19,2006, citing Gilbert
v. Sycamore Municipal Hospital,156 11L2d 511, 622 N.E.2d 788 (1993).
5 Under the Civil Code, compliance with this element may actually create an
implied agency and not just an agency by estoppel.
satisfied if patient relies on the hospital for complete

emergency room care rather than upon a specified
physician.
The Court further explained that "[t]he doctrine of

apparent authority essentially involves two factors to
determine the liability of an independent-contractor
physician."54
The first factor focuses on the hospital's manifestations
and is sometimes described as an inquiry whether the
hospital acted in a manner which would lead a
reasonable person to conclude that the individual who
was alleged to be negligent was an employee or agent of
the hospital. In this regard, the hospital need not make
express representations to the patient that the treating
physician is an employee of the hospital; rather a
representation may be general and implied.
The doctrine of apparent authority is a species of the

doctrine of estoppel. Article 1431 of the Civil Code
provides that "[tlhrough estoppel, an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon." Estoppel rests on this rule:
'Whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it."5
(emphasis supplied)
In connection with this factor the Court ruled that "CMC

impliedly held out Dr. Estrada as a member of its medical
staff."56
54 Nogales v. CapitolMedical, G.RL No. 142625, December 19,2006.

5 Id.
6 Id.
Through CMC's acts, CMC clothed Dr. Estrada with

apparent authority thereby leading the Spouses Nogales
to believe that Dr. Estrada was an employee or agent of
CMC. CMC cannot now repudiate such authority.
First, CMC granted staff privileges to Dr. Estrada. CMC

extended its medical staff and facilities to Dr. Estrada.
Upon Dr. Estrada's request for Corazon's admission,
CMC, through its personnel, readily accommodated
Corazon and updated Dr. Estrada of her condition.
Second, CMC made Rogelio sign consent forms printed

on CMC letterhead. Prior to Corazon's admission and
supposed hysterectomy, CMC asked Rogelio to sign
release forms, the contents of which reinforced Rogelio's
belief that Dr. Estrada was a member of CMC's medical
staff.
xxx xxx xxx
Third, Dr. Estrada's referral of Corazon's profuse vaginal

bleeding to Dr. Espinola, who was then the Head of the
Obstetrics and Gynecology Department of CIMC, gave the
impression that Dr. Estrada, as a member of CMC's
medical staff, was collaborating with other CMC-
employed specialists in treating Corazon. 57
As to the second factor:
The second factor focuses on the patient's reliance. It is

sometimes characterized as an inquiry on whether the
plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care and
prudence.
The records show that the Spouses Nogales relied upon a

perceived employment relationship with CMC in
accepting Dr. Estrada's services. Rogelio testified that he
and his wife specifically chose Dr. Estrada to handle
Corazon's delivery not only because of their friend's
recommendation, but more importantly because of Dr.

Estrada's "connection with a reputable hospital, the
[CMC]." In other words, Dr. Estrada's relationship with
CMC played a significant role in the Spouses Nogales'
decision in accepting Dr. Estrada's services as the
obstetrician-gynecologist for Corazon's delivery. More-
over, as earlier stated, there is no showing that before and
during Corazon's confinement at CMC, the Spouses
Nogales knew or should have known that Dr. Estrada
was not an employee of CMC.
Further, the Spouses Nogales looked to CMC to provide

the best medical care and support services for Corazon's
delivery. The Court notes that prior to Corazon's fourth
pregnancy, she used to give birth inside a clinic.
Considering Corazon's age then, the Spouses Nogales
decided to have their fourth child delivered at CMC,
which Rogelio regarded one of the best hospitals at the
time. This is precisely because the Spouses Nogales feared
that Corazon might experience complications during her
delivery which would be better addressed and treated in
a modem and big hospital such as CMC. Moreover,
Rogelio's consent in Corazon's hysterectomy to be
performed by a different physician, namely Dr. Espinola,
is a dear indication of Rogelio's confidence in CMC's
surgical staff.-
Thus, in Nogales v. Capitol Medical,59 the Court established

two requisites to create an agency by estoppel against
hospitals in relation to physicians who are independent
contractors:
1. Manifestation - The hospital acted in a manner

which would lead a reasonable person to
conclude that the individual who was alleged to
58Id.
WgId.
be negligent was an employee or agent of the

hospital; and
2. Reliance - The plaintiff acted in reliance upon the

conduct of the hospital or its agent, consistent
with ordinary care and prudence.
Based on the foregoing cases, it would seem that this

body of jurisprudence creates a form of agency by
estoppel apart from that defined by statute and
corresponds to the U.S. common law concept of agency by
estoppel. According to American Jurisprudence:
While agency, as between the principal and agent, is a
matter of their mutual consent, an agency by estoppel
may be created insofar as third persons are concerned
from acts and appearances which lead third persons to
believe that it has been created. Agency by estoppel may
be apparent only and exist because of the estoppel of the
principal or agent to deny the same after the third party
has relied on such appearance, so that such third party
would be prejudiced if the fact were shown to be
otherwise. A party who has knowingly permitted others
to treat one as his or her agent is estopped to deny
agency. 60(citations omitted, emphasis supplied)
4. Distinguishing Implied Agency and

Agency by Estoppel
As two distinct concepts, the difference between implied

agency and agency by estoppel is clearly laid out in the
Civil Code. Unfortunately, there appears to be some
conceptual confusion in some cases.
60 3 AM. JUR. 2d Agency § 17 (2011).

In Naguiat v. CA and Queano,61 the Court ruled that the

existence of an agency relationship was supported by
ample evidence. This means that there was an actual
agency relationship, either an express or implied agency.
The facts pointed out by the Court to support this were as
follows:
As correctly pointed out by the Court of Appeals,
Ruebenfeldt was not a stranger or an unauthorized
person. Naguiat instructed Ruebenfeldt to withhold from
Queafio the checks she issued or indorsed to Queafio,
pending delivery by the latter of additional collateral.
Ruebenfeldt served as agent of Naguiat on the loan
application of Queafio's friend, Marilou Farralese, and it
was in connection with that transaction that Queafio came
to know Naguiat. It was also Ruebenfeldt who
accompanied Queafto in her meeting with Naguiat and on
that occasion, on her own and without Queafio asking for
it, Ruebenfeldt actually drew a check for the sum of
P220,000.00 payable to Naguiat, to cover for Queafto's
alleged liability to Naguiat under the loan agreement.6
But the Court also said that the Court of Appeals was
correct in invoking the rule on agency by estoppel. The
Court said:
The Court of Appeals recognized the existence of an
agency by estoppel citing Article 1873 of the Civil Code.
Apparently, it considered that at the very least, as a
consequence of the interaction between Naguiat and
Ruebenfeldt, Queaflo got the impression that Ruebenfeldt
was the agent of Naguiat, but Naguiat did nothing to
correct Queaflo's impression. In that situation, the rule is
clear. One who clothes another with apparent authority as
his agent, and holds him out to the public as such, cannot
be permitted to deny the authority of such person to act
61 G.R. No. 118375, October 3,2003.

2
6 Naguiatv. CA and Queno, G.R. No. 118375, October 3, 2003.
as his agent, to the prejudice of innocent third parties

dealing with such person in good faith, and in the honest
belief that he is what he appears to be.63 (citations
omitted)
By implication, the Court seems to be saying that there

was both an express/implied agency and agency by
estoppel under Article 1873. Conceptually this is not
possible. Perhaps what the Court meant was that there
was ample evidence for an actual agency relationship but
even assuming there was not enough evidence for an
express or implied agency, there was at the very least an
agency by estoppel.
In Woodchild v. Roxas,64 it was alleged by a third person

that the principal clothed the agent with apparent
authority. In rejecting this argument the Court
ratiocinated:
It bears stressing that apparent authority is based on
estoppel and can arise from two instances: first, the
principal may knowingly permit the agent to so hold
himself out as having such authority, and in this way,
the principal becomes estopped to claim that the agent
does not have such authority; second, the principal may
so clothe the agent with the indicia of authority as to
lead a reasonably prudent person to believe that he
actually has such authority. There can be no apparent
authority of an agent without acts or conduct on the part
of the principal and such acts or conduct of the principal
must have been known and relied upon in good faith
and as a result of the exercise of reasonable prudence by
a third person as claimant and such must have produced
a change of position to its detriment. The apparent power
of an agent is to be determined by the acts of the principal
63 Id.
" G.R. No. 140667, August 12, 2004.
and not by the acts of the agent.65 (citations omitted

emphasis supplied)
The first instance referred to by the Court appears to

correspond to Article 1869 of the Civil Code which
provides for an implied agency and not an agency by
estoppel. This portion of the Court's discussion appears
to have been quoted from Banker's Protective Life Insurance
Co. v. Addison 66 which in turn was citing Wewerka v.
Lantron67 which stated:
In Great American Casualty Co. v. Eichelberger, 37 S.W.2d
1050, 1052, writ refused, the Waco Court of Civil
Appeals, speaking through Justice Alexander, and citing
1 Words and Phrases, Third Series, page 507 defined
'apparent authority' as follows: 'By apparent authority is
meant such authority as a reasonably prudent man, using
diligence and discretion in view of the principal's
conduct, would naturally and reasonably suppose the
agent to possess.'
In the same opinion it is further stated. 'Apparent

authority is based on estoppel, and can arise from but
two sources: First, the principal may knowingly permit
the agent to so hold himself out as having such authority,
and in this way the principal becomes estopped to claim
that the agent does not have such authority. * * * Second,
the principal may so clothe the agent with the indicia of
authority as to lead a reasonably prudent person to
believe that he actually has such authority.'
The reliance on the apparent authority as a common law

doctrine stated in the U.S. case may not be appropriate in
65 Woodchild v. Roxas, G.R. No. 140667, August 12, 2004, citing Banker's
Protective Life Insurance Co. v. Addison, 273 S.W.2d 694 (1951). There appears
to be an error in citation because 273 S.W.2d 694 is the citation for Clapp v.
Knox County. The correct citation is 237 S.W.2d 694.
66 237 S.W.2d 694 (1951).
67 174 S.W.2d 630 (1943).
defining the concept in this jurisdiction considering that it

overlaps with the Civil Code definition of implied agency.
While the Civil Code definition of implied agency may be
based on the general doctrine of estoppel it is certainly
not the same as "agency by estoppel" which is defined
elsewhere in the Civil Code. Therefore, the doctrine of
apparent authority in this jurisdiction is not identical with
doctrine in U.S. common law and citation of U.S. cases
must be handled with caution.
In Yun Kwan Byung v. PAGCOR, 68 the Court ruled that

there was no implied agency because PAGCOR did not
hold itself out to the public as the principal of ABS
Corporation. It said that PAGCOR's actions did not
mislead the public into believing that an agency can be
implied from the arrangement with the junket operators,
nor did it hold out ABS Corporation with any apparent
authority to represent it in any capacity. Obviously, the
Court was referring to the concept of agency by estoppel
and not implied agency even though it mentioned the
latter and not the former.
In ProfessionalServices v. Agana (2007),69 the Court equated

the concepts of apparent authority, and ostensible agency
with agency by estoppel. According to the Court, agency by
estoppel "imposes liability, not as the result of the reality
of a contractual relationship, but rather because of the
actions of a principal or an employer in somehow
68 G.R. No. 163553, December 11, 2009.

69 G.R. No. 126297, January 31, 2007.
misleading the public into believing that the relationship

or the authority exists.' 70 The Court added:
The concept is essentially one of estoppel and has been

explained in this manner:
The principal is bound by the acts of his agent with

the apparent authority which he knowingly
permits the agent to assume, or which he holds the
agent out to the public as possessing. The question
in every case is whether the principal has by his
voluntary act placed the agent in such a situation
that a person of ordinary prudence, conversant
with business usages and the nature of the
particular business, is justified in presuming that
such agent has authority to perform the particular
act in question.7l
The Court also said:

Our jurisdiction recognizes the concept of an agency by
implication or estoppel. Article 1869 of the Civil Code
reads:
ART. 1869. Agency may be express, or implied from the

acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another
person is acting on his behalf without authority.
Thus, the Court in this case fused the concepts of implied

agency and agency by estoppel and used the provision on
implied agency as basis for both concepts. Considering
however the factual circumstances employed by the
70 ProfessionalSeroicesv. Agana; G.RI No. 126297, January 31, 2007 citing Irving
v. Doctors Hospitalof Lake Worth, Inc., 415 So. 2d 55 (1982), quoting Arthur v.
St. Peters Hospital,169 N.J. 575,405 A. 2d 443 (1979).
71 Id. citing Irving v. Doctors Hospital of Lae Worth, Inc., 415 So. 2d 55 (1982),
citing Hudson r. C., Loan Assn., Inc. v. Horowytz, 116 N.J.L. 605, 608, 186 A
437 (Sup. Ct 1936).
Court, what is contemplated was agency by estoppel and

not implied agency under Article 1869. The Court said:
In this case, PSI publicly displays in the lobby of the
Medical City Hospital the names and specializations of
the physicians associated or accredited by it, including
those of Dr. Ampil and Dr. Fuentes. We concur with the
Court of Appeals' conclusion that it "is now estoppel
from passing all the blame to the physicians whose names
it proudly paraded in the public directory leading the
public to believe that it vouched for their skill and
competence." Indeed, PSI's act is tantamount to holding
out to the public that Medical City Hospital, through its
accredited physicians, offers quality health care
services. By accrediting Dr. Ampil and Dr. Fuentes and
publicly advertising their qualifications, the hospital
created the impression that they were its agents,
authorized to perform medical or surgical services for its
patients. As expected, these patients, Natividad being one
of them, accepted the services on the reasonable belief
that such were being rendered by the hospital or its
employees, agents, or servants. 72(emphasis suipplied)
Clearly the factual considerations fit the requirements of

Article 1873 on agency by estoppel and not Article 1869.
This ruling is further reiterated in the Court's 2008 Reso-

lution 73 on the motion for reconsideration. The Court
said:
Clearly, PSI is estoppel from passing the blame solely to
Dr. Ampil. Its act of displaying his name and those of
the other physicians in the public directory at the lobby
of the hospital amounts to holding out to the public that
it offers quality medical service through the listed
physicians. This justifies Atty. Agana's belief that Dr.
Ampil was a member of the hospital's staff. It must be
72 G.R. No. 126297, January 31, 2007.

73 G.R No. 126297, February 11, 2008.
stressed that under the doctrine of apparent authority, the

question in every case is whether the principal has by his
voluntary act placed the agent in such a situation that a
person of ordinary prudence, conversant with business
usages and the nature of the particular business, is
justified in presuming that such agent has authority to
perform the particular act in question. 74 (emphasis
supplied)
In the 2010 Resolution of the Court En Bancds on the

second motion for reconsideration, the Court ruled that:
There is, however, ample evidence that the hospital ...

held out to the patient ... that the doctor ... was its agent.
Present are the two factors that determine apparent
authority: first, the hospital's implied manifestation to
the patient which led the latter to conclude that the
doctor was the hospital's agent; and second, the
patient's reliance upon the conduct of the hospital and
the doctor, consistent with ordinary care and prudence. 76
(emphasis supplied)
Clearly the concept relied upon by the Court was agency

by estoppel and not implied agency.
In the foregoing cases, it seems there is a tendency for

courts to equate implied agency with agency by estoppel
or have both concepts fall within the concept of apparent
authority. This fusion of concepts results in greater
confusion when U.S. common concepts are adopted in toto
in Philippine cases. This fusion of common law concepts
with Philippine Civil Code concepts creates a mismatch of
ideas creating uncertainty and instability in the doctrines.
74Id.
75 G.R. No. 126297, February 2,2010.
76
Professional Services v. Agana, G.R. No. 126297, February 2, 2010 citing
Nogales v. CapitolMedical Center, et al., G.R. No. 142625, 19 December 2006,
511 SCRA 204.
Not until the Civil Code is amended, it would be best to

simply rely on Civil Code definitions and allow common
law concepts to have persuasive effect in cases where the
Civil Code is silent. But where the Civil Code speaks, the
common law should be silent.
1. Should Article 1869 be amended? Why?

2. Is it possible for both appointment and acceptance to be
implied?
3. A tells B, "I am appointing you as my agent." B says
"Okay." If B does not know what being an agent means is a
contract of agency established? What if C heard this, is an
agency by estoppel created with respect to C? What if C
was aware that B did not understand what being an agent
meant?
4. The principal tells his agent, in view of the third party, that
he is authorizing him to sell a parcel of land. If the agent
executes a deed of sale with the third party, is the sale
valid? What if instead of land, a building is involved?
What if instead of selling, the agent is authorized to buy a
parcel of land or a building?
5. Does it matter that the contract in Oesmer v. Paraiso
Development is a Contract to Sell and not a Contract of
Sale?
6. A was negotiating the sale of P Corporation's lot to T. A
presented to T a notarized document titled "Special Power
of Attorney" signed by the president of Corporation P
authorizing A to sell the lot on behalf of Corporation P.
Will the sale through A be valid?
7. In the case of AF Realty v. Dieselman wasn't the August 2,
1988, acknowledgment by Manuel F. Cruz, Sr., president of
i4 Analysis of Philippine Agency Law and Jurisprudence
Diesehrian, of the receipt of P300,000.00 as "~earnest money"

implied that the agents who were acting on behalf of
Dieselman was in fact authorized? If so, would this have
change the ruling?
S. In the case of AF Realty v. Dieselman, how could the sale t
idas -have occurred in July, when Cruz Sr. was still
negotiating with AP Realty until August?, Should this rie,
questions on the validity of the sale to Mias?
9. Corporation A, owns 100% of Corporation B. Corporation
A, by-letter, instructed Mr. X the President and Chairman
of the Board of B to sell the latter,?s parcel of land. X with
the help of Y and Z, directors of B, negotiated the sale with
Corporation C. X signed the Deed of Sale on behalf of B'
with Yand Z signing as witnesses. If B has 5 directors is the
sale valid?
10. A found out that B was performing acts of agency on his
behalf even though he did not authorize him. B was
negotiating with C, I, andEB on A's behalf. A was able to
warn,ICand D)that B was unauthorized but failed to inform
E in time before E entered into a contract with B. Is there.
an implied agency, and agency by estoppel or neither of the
two?
1.Is it possible for an implied agency to exist if there is an
existing contract of agency? Can you describe a situation
when this may occur?
12. Keeping in mind the discussion under Articles 1871 and,
1872, how should the Court treat a case where a power of
attorney is sent via electronic mail? Will it be considered a
transmittal or a letter? What about a message via a mobile,
phone? What if the authorization is made via sociall
networking sites (e.g. Facebook, Twitter)? If the principaL
and agent were "chatting" online and -the principal sends:
the power of attorney via e-mail, would that be covered by'
Article 1871 or Article 1872?
'13._ Is an agency established inthe following cases:
a. P goes: toA's house, and hands him an SPA in a sealed

envelope. A says .-
anks."
b.; P sends an e-mail to A appointing him as an agent. A,
reads it but does not respond.
14. Is an agency by estoppel created if P e-mails a mailing list;
telling the membersof that list thatA (not part of thelist) is,
her agent? Assuming an agency by estoppel is-created, A is
an agent as far as who is concerned? What if some of the e-,
mails are no longer valid? What if A finds out but does.
nothing?
:15. What if A specially informs T that A is his principal. Is
there an agency by estoppel? What if A by public
advertisement states that.P is her principal. Is there an
agec by estoppel?,
III. THE AGENT
A. Rights of Agents
1. Compensation
Article 1875 of the Civil Code' states that agency is

presumed to be for a compensation, unless there is proof
to the contrary. Thus, an agent need not prove that he
accepted the agency for a fee. If the principal disputes
that the agency was for a fee, he must prove that it wasn't.
However, as to the amount of compensation, the agent
may need to provide evidence of what they agreed upon.
Otherwise, the usual or customary rate given to agents
under similar circumstances or for similar transactions
may be applied.
Article 1875 also implies that an agency relationship may

exist without any compensation being due to the agent.
Thus, compensation is not an element of the agency
contract. That a person represents another for free does
not excuse that person from liability as an agent. The
advantage of an agent not receiving compensation is that
he may be adjudged with less rigor for liability for fraud
or negligence pursuant to Article 1909.2
1 ARTICLE 1875. Agency is presumed to be for a compensation, unless there

is proof to the contrary.
2 ARTICLE 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation. (1726)
The Agent I 127
a. Procuring Cause
In Danon v. Brimo & Co., 3 the Court explained that the

agent must be the efficient procuring cause of a sale in
order to be entitled to commission. In this case, Antonio
Brimo, told Julio Danon, that the former desired to sell his
factory, the Holland American Oil Co., for the sum of
P1,200,000. He agreed and promised to pay Danon a
commission of 5% provided the latter could sell said
factory for that amount. No definite period of time was
fixed within which Danon should effect the sale. Another
broker, Sellner, was also negotiating the sale, or trying to
find a purchaser for the same property and Danon was
informed of that fact. It was probable that Danon was
aware that he was not alone in the field, and his whole
effort was to forestall his competitor by being the first to
find a purchaser and effect the sale. Immediately after his
conversation with Brimo, Danon went to see Mauro
Prieto, president of the Santa Ana Oil Mill ("Santa Ana")
and offered to sell to him Brimo's property at P1,200,000.
Sta Ana at that time was in need of such a factory and
Prieto, its president, instructed the manager, Samuel
Kane, to see Brimo and ascertain whether he really
wanted to sell said factory, and, if so, to get permission
from him to inspect the premises. Kane inspected the
factory and, presumably, made a favorable report to
Prieto. The latter asked for an appointment with Brimo to
perfect the negotiation. In the meantime, Sellner, the other
broker referred to, had found a purchaser for the same
property, who ultimately bought it for P1,300,000. For
that reason, Prieto, the would be purchaser found by
3 G.R. No. 15823, September 12,1921.

128 1 Analysis of Phflippine Agency Law and Jurisprudence
Danon, never came to see Brimo to perfect the proposed

negotiation.
The issue before the Court was whether the agent

performed all that was required to entitle him to a
commission.
The Court ruled in the negative because all that was

proven was that the agent found a person who might have
bought the factory if the principal had not sold it so to
someone else. The evidence did not show that the agent's
buyer had definitely decided to buy the property in
question at the fixed price. The Court explained:
The board of directors of said corporation had not

resolved to purchase said property; and even if its
president could legally make the purchase without
previous formal authorization of the board of directors,
yet said president does not pretend that he had definitely
and formally agreed to buy the factory in question on
4
behalf of his corporation at the price stated.
The Court found that the agent's services "did not in any
way contribute towards bringing about the sale of the
factory in question" and was therefore not "the efficient
agent or procuring cause of the sale."
The Court quoted from Sibbald v. Bethlehem Iron,5 where

the Court of Appeals of New York said:
In all the cases, under all and varying forms of expression,
the fundamental and correct doctrine is, that the duty
assumed by the broker is to bring the minds of the
buyer and seller to an agreement for a sale, and the price
4 Danon v. Brimo & Co., G.R. No. 15823, September 12,1921.

5 83 N. Y., 378; 38 Am. Rep., 441.
The Agent 1 129
and terms on which it is to be made, and until that is

done his right to commissions does not accrue.
xxx xxx xxx
It follows, as a necessary deduction from the established

rule, that a broker is never entitled to commissions for
unsuccessful efforts. The risk of a failure is wholly his.
The reward comes only with his success.
xxx xxx xxx
it matters not that after his failure, and the termination

of his agency, what he has done proves of use and
benefit to the principal. In a multitude of cases that must
necessarily result [sic]. He may have introduced to each
other parties who otherwise would have never met; he
may have created impressions, which under later and
more favorable circumstances naturally lead to and
materially assist in the consummation of a sale; he may
have planted the very seed from which others reap the
harvest; but all that gives him no claim.6 (emphasis
supplied)
Thus, the Court ruled that although Danon could

probably have effected the sale of Brimo's factory had it
not been sold to someone else, he is not entitled to the
commission agreed upon because he had no intervention
whatsoever in the much sale in question.
In Hahn v. CA, 7 the distinction between an "agent" and

"broker" had an impact on whether a person was entitled
to a commission or not. It ruled that "[a]n agent receives a
commission upon the successful conclusion of a sale. On
the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is
6 Id.
7 G.R. No. 113074, January 22,1997.
eventually made."8 Based on this ruling, in the earlier

case of Danon v. Brimo & Co, the agent may have a reason
for asking for a commission if he was merely a broker. It
must be noted that the Court in that case referred to Julio
Danon as a broker.
In Tan v. Gullas,9 the issue was whether the broker was

entitled to his commission. In this case, spouses Eduardo
and Norma Gullas, were the registered owners of a parcel
of land who executed a special power of attorney ("SPA")
authorizing Manuel Tan and his associates Gregg Tecson
and Alexander Saldafia, to negotiate for the sale of the
land at P550.00 per square meter, at a commission of 3%
of the gross price. The SPA was non-exclusive and
effective for one month from June 29, 1992. On the same
date, Tan contacted Edsel Ledesma, construction manager
of the Sisters of Mary of Banneaux, Inc. ("Sisters of
Mary"), a religious organization interested in acquiring a
property in the area. In the morning of July 1, 1992, Tan
visited the property with Ledesma. Thereafter, the two
men accompanied Sisters Michaela Kim and Azucena
Gaviola, representing the Sisters of Mary, to see Eduardo
Gullas in his office. The Sisters, who had already seen and
inspected the land, found the same suitable for their
purpose and expressed their desire to buy it. However,
they requested that the selling price be reduced to P530.00
per square meter instead of P550.00 per square meter.
Eduardo referred the prospective buyers to his wife. On
July 3, 1992, the spouses Gullas agreed to sell the property
to the Sisters of Mary, and subsequently executed a
8 Id.
9 G.R. No. 143978, December 3, 2002.
The Agent I 131
special power of attorney in favor of Eufemia Cafiete,

giving her the special authority to sell, transfer and
convey the land at a fixed price of P200.00 per square
meter. On July 17, 1992, Cafiete executed a deed of sale in
favor of the Sisters of Mary for the price of P20,822.800.00,
or at the rate of P200.00 per square meter. On July 3, 1992,
in the afternoon, Tan et al. went to see Eduardo Gullas to
claim their commission, but the latter told them that he
and his wife have already agreed to sell the property to
the Sisters of Mary. The spouses Gullas refused to pay the
broker's fee and alleged that another group of agents was
responsible for the sale of land to the Sisters of Mary. Tan
et al. filed a complaint against the spouses to recover their
broker's fee in the sum of P1,655,412.60, as well as moral
and exemplary damages and attorney's fees.
The Court cited the case of Schmid and Oberly v. RJL

Martinez Fishing Corporation,o where it defined a broker
as:
one who is engaged, for others, on a commission,

negotiating contracts relative to property with the
custody of which he has no concern; the negotiator
between other parties, never acting in his own name but
in the name of those who employed him. ... a broker is
one whose occupation is to bring the parties together, in
matters of trade, commerce or navigation.1"
The Court found that it was established that Tan et al., as

brokers, were authorized by spouses Gullas to negotiate
for the sale of their land within a period of one month
reckoned from June 29, 1992. The authority given to Tan
10 Cited in the case as 166 SCRA 493 (1988).

11 Schmid and Oberly v. RIL Martinez FishingCorporation,166 SCRA 493 (1988).
et al. was non-exclusive, which meant that spouses

Gullas were not precluded from granting the same
authority to other agents with respect to the sale of the
same property. In fact, they authorized another agent in
the person of Mr. Bobby Pacana to sell the same property.
The Court ruled that the argument of the spouses Gullas

that Pacana was the one entitled to the stipulated 3%
commission was untenable, considering that it was Tan et
al. who were responsible for the introduction of the
representatives of the Sisters of Mary to Eduardo Gullas.
The Court found that the spouses failed to prove their

contention that Pacana began negotiations way ahead of
Tan et al. In addition, there was nothing on record which
established the existence of a previous negotiation among
Pacana, Mrs. Gullas and the Sisters of Mary.
Thus, the Court ruled:

Indeed, it is readily apparent that private respondents are
trying to evade payment of the commission which
rightfully belong to petitioners as brokers with respect to
the sale. There was no dispute as to the role that
petitioners played in the transaction. At the very least,
petitioners set the sale in motion. They were not able to
participate in its consummation only because they were
prevented from doing so by the acts of the private
respondents. In the case of Alfred Hahn v. Court of Appeals
and Bayerische Motoren Werke Aktiengesellschaft (BMW), we
ruled that, "An agent receives a commission upon the
successful conclusion of a sale. On the other hand, a
broker earns his pay merely by bringing the buyer and
the seller together, even if no sale is eventually made."
Clearly, therefore, petitioners, as brokers, should be
entitled to the commission whether or not the sale of the
property subject matter of the contract was concluded
The Agent I 133
through their efforts. 12 (citation omitted, emphasis

supplied, alteration in the original)
Thus, in this case the Court ruled that Tan et al. were
brokers which entitled them to a commission regardless
of whether the sale was concluded through their efforts
because it is sufficient that they "set the sale in motion".
In Philippine Health-Care Providers, Inc. v. Estrada,13 the

Court had opportunity to apply Tan v. Gullas, in
determining whether an agent was entitled to
commission.
In this case, Philippine Health-Care Providers

("Maxicare"), engaged in selling health insurance plans,
allegedly contracted the services of Carmela Estrada who
was doing business under the name of Cara Health
Services to promote and sell the prepaid group practice
health care delivery program called "Maxicare Plan" with
the position of Independent Account Executive. Maxicare
formally appointed Estrada as its "General Agent",
evidenced by a letter-agreement which provided for
Estrada's compensation in the form of commission: It
stated:
In consideration of the performance of your functions and
duties as specified in this letter-agreement, [Maxicare]
shall pay you a commission equivalent to 15 to 18% from
individual, family, group accounts; 2.5 to 10% on tailored
fit plans; and 10% on standard plans of commissionable
amount on corporate accounts from all membership dues
collected and remitted by you to [Maxicare]. 14
12 Tan v. Gullas, G.R. No. 143978, December 3, 2002.

13G.R. No. 171052, January 28, 2008.
14 PhilippineHealth-CareProviders,Inc. v. Estrada, G.R. No. 171052, January 28,
2008.
Estrada submitted proposals and made representations to

the officers of Meralco regarding the Maxicare Plan but
when Meralco decided to subscribe to the Maxicare Plan,
Maxicare directly negotiated with Meralco regarding the
terms and conditions of the agreement and left Estrada
out of the discussions on the terms and conditions.
Meralco eventually subscribed to the Maxicare Plan and
signed a Service Agreement directly with Maxicare for
medical coverage of its qualified members.
Estrada demanded from Maxicare that it be paid

commissions for the Meralco account and nine (9) other
accounts. Maxicare denied Estrada's claims for
commission. Estrada filed a complaint against Maxicare
and its officers. Both the Regional Trial Court and the
Court of Appeals ruled that Estrada was entitled to
commission.
At the very least, Estrada penetrated the Meralco market,

initially dosed to Maxicare, and laid the groundwork for
a business relationship. The only reason Estrada was not
able to participate in the collection and remittance of
premium dues to Maxicare was because she was
prevented from doing so by the acts of Maxicare, its
officers, and employees.15 (emphasis supplied)
The Court quoted from Tan v. Gullas:
[O]ne who is engaged, for others, on a commission,

negotiating contracts relative to property with the custody
of which he has no concern; the negotiator between the
other parties, never acting in his own name but in the name
of those who employed him. [A] broker is one whose
Is Id.
The Agent I 135
occupation is to bring the parties together, in matter of

trade, commerce or navigation.
An agent receives a commission upon the successful

conclusion of a sale. On the other hand, a broker earns his
pay merely by bringing the buyer and the seller together,
16
even if no sale is eventually made.

In relation thereto, we have held that the term "procuring
cause" in describing a broker's activity, refers to a cause
originating a series of events which, without break in
their continuity, result in the accomplishment of the
prime objective of the employment of the broker-
producing a purchaser ready, willing and able to buy on
the owner's terms. To be regarded as the "procuring
cause" of a sale as to be entitled to a commission, a
broker's efforts must have been the foundation on which
the negotiations resulting in a sale began. Verily,
Estrada was instrumental in the sale of the Maxicare
health plans to Meralco. Without her intervention, no sale
could have been consummated. 17 (emphasis supplied)
In this case, the Court seems to have established a

different standard for determining whether a broker is a
procuring cause of a sale. It is sufficient that the broker's
act set in motion a series of events which produced a
buyer willing and able to buy on the seller's terms. The
brokers efforts must be the foundation of the negotiations.
While it seems that Tan v. Gullas and PhilippineHealth-Care

Providers v. Estrada appear to lower the requirements in
the case of brokers, it must be noted that in both cases a
sale was actually consummated. Theoretically, even if the
16 Id.
17 Id.
brokers on those two cases were considered agents, they

would have been entitled to commissions.
8 an agent filed an action to recover
In Sanchez v. Medicard,1
his commission. In this case, Medicard Philippines, Inc.
("Medicard"), appointed Carlos Sanchez as its special
corporate agent. Through his efforts, Medicard and
United Laboratories Group of Companies ("Unilab")
executed a Health Care Program Contract pursuant to
which Unilab paid Medicard a fixed monthly premium
for the health insurance of its personnel. Through
Sanchez' initiative, the agency contract between Medicard
and Unilab was renewed for another year. Prior to the
expiration of the renewed contract, Medicard proposed to
Unilab, through Sanchez, an increase of the premium for
the next year. Unilab rejected the proposal "for the reason
that it was too high," prompting Dr. Montoya, Medicard's
president and general manager to request Sanchez to
reduce his commission, but the latter refused. Unilab
confirmed its decision not to renew the health program
contract with Medicard. But in order not to prejudice its
personnel by the termination of their health insurance,
Unilab, negotiated with Dr. Montoya and other officers of
Medicard, to discuss ways in order to continue the
insurance coverage of those personnel. Unilab and
Medicard entered into a new agreement. Sanchez filed
with the Regional Trial Court a complaint for sum of
money for his commission under the new agreement.
Is G.P No. 141525, September 2,2005.

The Agent 1 137

It is dictum that in order for an agent to be entitled to a
commission, he must be the procuring cause of the sale,
which simply means that the measures employed by him
and the efforts he exerted must result in a sale. In other
words, an agent receives his commission only upon the
successful conclusion of a sale. Conversely, it follows
that where his efforts are unsuccessful, or there was no
effort on his part, he is not entitled to a commission. 9
Thus, in a case involving a sale, unless there is a

stipulation to the contrary, an agent is entitled to
commission if he was the procuringcause of the sale or that
his efforts resulted in a sale. In this case, because Sanchez
refused to reduce his commission, Medicard directly
negotiated with Unilab, thus revoking its agency contract
with Sanchez. In addition, Sanchez, did not render
services to Medicard to entitle him to a commission.
There is no indication from the records that he exerted

any effort in order that Unilab and Medicard, after the
expiration of the Health Care Program Contract, can
renew it for the third time. In fact, his refusal to reduce his
commission constrained Medicard to negotiate directly
with Unilab. We find no reason in law or in equity to rule
that he is entitled to a commission. Obviously, he was not
the agent or the "procuring cause" of the third Health
Care Program Contract between Medicard and Unilab. 20
The ruling in Sanchez v. Medicard notwithstanding, the

agent who is the procuring cause of the sale may be
entitled to commission, even if the sale was concluded
19 Id.
20Id.
after the termination of the agency relationship under

certain conditions.
In Infante v. Cunanan,21 Consejo Infante, was the owner of

two parcels of land together with a house built thereon.
She "contracted the services of Jose Cunanan and Juan
Mijares... to sell" her property for P30,000 subject to the
condition that the purchaser would assume the mortgage
on the property. As commission she agreed to pay 5%
commission of the purchase price plus whatever
overprice they may obtain for the property. The agents
found Pio Noche who was willing to buy the property but
when they introduced him to the principal she informed
them that she was no longer interested in selling the
property and succeeded in making them sign a document
stating therein that the written authority she had given
them was already cancelled. However, subsequently, the
principal dealt directly with the buyer and sold the
property to him for P31,000. Upon learning of this
transaction, the agents demanded from principal the
payment of their commission, but she refused and so they
brought the action.
The Court ruled that the agents were entitled to their

commission even if the sale was consummated after their
authority had been revoked. The Court explained:
It is a fact found by the Court of Appeals that after
petitioner had given the written authority to respondents
to sell her land for the sum of P30,000, respondents found
a buyer in the person of one Pio S. Noche who was
willing to buy the property under the terms agreed upon,
and this matter was immediately brought to the
21G.R. No. L-5180, August 31,1953.

The Agent I 139
knowledge of petitioner. But the latter, perhaps by way

of stratagem, advised respondents that she was no
longer interested in the deal and was able to prevail
upon them to sign a document agreeing to the cancel-
lation of the written authority.
That petitioner had changed her mind even if

respondents had found a buyer who was willing to
close the deal, is a matter that would not give rise to a
legal consequence if respondents agree to call off the
transaction in deference to the request of petitioner. But
the situation varies if one of the parties takes advantage
of the benevolence of the other and acts in a manner that
would promote his own selfish interest. This act is unfair
as would amount to bad faith. This act cannot be
sanctioned without according to the party prejudiced
the reward which is due him. This is the situation in
which respondents were placed by petitioner. Petitioner
took advantage of the services rendered by respondents,
but believing that she could evade payment of their
commission, she made use of a ruse by inducing them to
sign the deed of cancellation... This act of subversion
cannot be sanctioned and cannot serve as basis for
petitioner to escape payment of the commission agreed
upon.2 2 (emphasis supplied)
Hence, the agent may be entitled to commission even if

the sale is consummated after the revocation of his
authority, if the revocation was done in bad faith by the
principal to avoid payment of commission. It is arguable
that the same rule should apply in a case where the
principal delays entering into the sale in order to wait for
the expiration of the agency.
In Lim v. Saban,23 the Court had opportunity to reiterate

the rule in Infante v. Cunanan. In this case, Eduardo
22Id.
23 G.Rt No. 163720, December 16,2004.
Ybaftez was the owner of a 1,000-square meter lot in Cebu

City. He issued an instrument titled "Agreement and
Authority to Negotiate and Sell" to Florencio Saban
wherein Ybafiez authorized Saban to look for a buyer of
the lot for P200,000.00 and to mark up the selling price to
include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as
well as Saban's commission for the sale. Because of
Saban's efforts, Ybafiez and his wife were able to sell the
lot to Genevieve Lim ("Lim") and the spouses Benjamin
and Lourdes Lim. The price of the lot as indicated in the
Deed of Absolute Sale was P200,000.00. In reality
however, the vendees agreed to purchase the lot at the
price of P600,000.00, inclusive of taxes and other
incidental expenses of the sale. After the sale, Lim
remitted to Saban the amounts of P113,257.00 for payment
of taxes due on the transaction as well as P50,000.00 as
broker's commission. Lim also issued, in the name of
Saban four postdated checks in the aggregate amount of
P236,743.00. Subsequently, Ybafiez sent a letter to Lim
asking him to cancel all the checks issued by her in
Saban's favor and to "extend another partial payment" for
the lot in his favor. Saban filed a complaint for collection
of sum of money and damages against Ybafiez and Lim
with the Regional Trial Court.
The Court affirmed the ruling of the Court of Appeals

finding that the agency was not revoked because Ybafiez
requested that Lim make stop payment orders for the
checks payable to Saban only after the consummation of
the sale. At that time, Saban had already performed his
obligation as Ybafiez's agent when, through his efforts,
The Agent I 141
Ybafiez executed the Deed of Absolute Sale of the lot with

Uim and the Spouses Lim.
The Court ruled that to deprive the agent of his

commission subsequent to the sale which was
consummated through his efforts would be a breach of his
contract of agency with the principal which expressly
stated that the agent would be entitled to any excess in
the purchase price after deducting the sum due to the
principal and the transfer taxes and other incidental
expenses of the sale. It further stated that:
In Macondray & Co. v. Seliner, the Court recognized the

right of a broker to his commission for finding a suitable
buyer for the seller's property even though the seller,
himself consummated the sale with the buyer. The Court
held that it would be in the height of injustice to permit
the principal to terminate the contract of agency to the
prejudice of the broker when he had already reaped the
benefits of the broker's efforts.
In Infante v. Cunanan, et al., the Court upheld the right of

the brokers to their commissions although the seller
revoked their authority to act in his behalf after they had
found a buyer for his properties, and negotiated the sale
directly with the buyer whom he met through the
brokers' efforts. The Court ruled that the seller's
withdrawal in bad faith of the brokers' authority cannot
unjustly deprive the brokers of their commissions as the
seller's duly constituted agents.
The pronouncements of the Court in the aforecited cases

are applicable to the present case, especially considering
that Saban had completely performed his obligations
under his contract of agency with Ybaflez by finding a
suitable buyer to preparing the Deed of Absolute Sale
between Ybaftez and Lim and her co-vendees. Moreover,
the contract of agency very dearly states that Saban is
entitled to the excess of the mark-up of the price of the lot
after deducting Ybafiez's share of P200,000.00 and the

taxes and other incidental expenses of the sale. 24 (citations
omitted)
Thus, it would seem that based on the cases discussed, an

agent is entitled to commission when he is the procuring
cause of the sale. This is true even if the agency is
subsequently revoked provided that a sale is consum-
mated between his principal and the buyer he produced.
b. PratsDoctrine and Manotok Test
Although the general rule is that in case of a sale, the

agent must be the procuring cause in order to be entitled
to compensation, jurisprudence also provides for cases
where he is entitled to recover even if he was not the
procuring cause.
In Prats v. CA, 25 Alfonso Doronila, owner of 300 hectares

of land offered his property in 1967 to the Social Security
System ("SSS") at P4.00 per square meter. SSS responded
with a counter offer of P3.25 per square meter which
Doronila accepted. The proposed transaction was then
sent to the SSS Administrator for study and comment but
nothing happened to the proposed transaction. In 1968,
Doronila granted Antonio Prats authority to sell the same
property for a period of 60 days provided, that should
negotiations have been started with a buyer, said period
is automatically extended until said negotiation is
terminated, but not more than 15 days. Prats began
communicating with SSS. After the end of 60 days, Prats
was given the extension of 30 days and later another 15
24 Lim v. Saban, G.R. No. 163720, December 16,2004.

2
5G.R. No. L-39822, January 31,1978.
The Agent 1 143
days but Doronila received no offer of purchase. Later,

Doronila again offered the property to the SSS for P4.00
per square meter. SSS gave a counter offer of P3.25 per
square meter. Doronila agreed and a Deed of Absolute
Sale was executed. Prats filed an action for a sum of
money to recover his commission.
The Court ruled:

it is clear that the offer of defendant Doronila to sell the
300 hectares of land in question to the Social Security
System was formally accepted by the System only on June
20, 1968 after the exclusive authority, Exhibit A, in favor
of the plaintiff, petitioner herein, had expired. The
respondent court's factual findings that petitioner was
not the efficient procuring cause in bringing about the
sale (prescinding from the fact of expiration of his
exclusive authority) which are admittedly final for
purposes of the present petition, provide no basis in law
to grant relief to petitioner. 26 (emphasis supplied)
Prats was not entitled to compensation but the Court on

the basis of equity still awarded him with a sum of
money. The Court explained:
In equity, however, the Court notes that petition[er] [had]
diligently taken steps to bring back together respondent
Doronila and the SSS, among which may be mentioned
the following:
xxx xxx xxx
Prats communicated with the Office of the Presidential

Housing Commission on February 23, 1968 offering the
Doronila property. Prats wrote a follow-up letter on April
18, 1968 which was answered by the Commission with
the suggestion that the property be offered directly to the
26
Pratsv. CA, G.R. No. L-39822, January 31,1978.
SSS. Prats wrote the SSS on March 16, 1968, inviting

Chairman Ramon Gaviola, Jr. to discuss the offer of the
sale of the property in question to the SSS. On May 6,
1968, Prats made a formal written offer to the Social
Security System to sell the 300-hectare land of Doronila at
the price of P6.00 per square meter. Doronila received on
May 17, 1968 from the SSS Administrator a telegram that
the SSS was considering the purchase of Doronila's
property for its housing project. Prats and his witness
Raagas testified that Prats had several dinner and lunch
meetings with Doronila and/or his nephew, Atty. Manuel
D. Asencio, regarding the progress of the negotiations
with the SSS.
Atty. Asencio had declared that he and his uncle, Alfonso

Doronila, were invited several times by Prats, sometimes
to luncheons and sometimes to dinner. On a Sunday, June
2, 1968, Prats and Raagas had luncheon in Sulu Hotel in
Quezon City and they were joined later by Chairman
Gaviola of the SSS.
The Court has noted on the other hand that Doronila

finally sold the property to the Social Security System at
P3.25 per square meter which was the very same price
counter-offered by the Social Security System and
accepted by him in July, 1967 when he alone was dealing
exclusively with the said buyer long before Prats came
into the picture but that on the other hand Prats' efforts
somehow were instrumental in bringing them together
again and finally consummating the transaction at the
same price of P3.25 square meter, although such
finalization was after the expiration of Prats' extended
exclusive authority. Still, such price was higher than that
stipulated in the exclusive authority granted by Doronila
to Prats.
Under the circumstances, the Court grants in equity the

sum of One Hundred Thousand Pesos (PIO0,000.00) by
compensation for his efforts and assistance in the
transaction, which however was finalized and
consummated after the expiration of his exclusive
authority and sets aside the P1O,000.00-attorneys' fees
The Agent I 145
award adjudged against him by respondent court. 27

(emphasis supplied)
It seems that the basis of the award to Prats was that he

was "somehow instrumental in bringing the parties
together again and finally consummating the transaction"
although the finalization came after the effectivity of the
authority of the agent. Under the circumstances, the Court
granted in equity P100,000 as compensation for his efforts
and assistance in the transaction. 28
Thus, based on the Prats case, an agent who was not the
procuring cause of the sale may nevertheless be awarded
a sum of money if he were somehow instrumental in
bringing the parties together again and finally
consummating the transaction. The Prats doctrine has
been applied in a few other cases.
In Manotok Brothers v. CA, 29 the sole issue was whether the

agent was entitled to commission. In this case, Manotok
Brothers, Inc. was the owner of a certain parcel of land
and building which were formerly leased by the City of
Manila and used by the Claro M. Recto High School.
Manotok Brothers authorized Salvador Saligumba in
writing to negotiate with the City of Manila the sale of the
property for not less than P425,000.00. Manotok Brothers
agreed to pay Saligumba a 5% commission in the event
that the sale is finally consummated and paid. Manotok
Brothers extended the authority of Saligumba for 120
days. Thereafter, another extension was granted to him
v Id.
28 This amount is less than 10% of the compensation he would have been
entitled to if he were the procuring cause of the sale.
2 G.R. No. 94753, April 7,1993.
for 120 more days. Finally, through another letter,

Manotok Brothers with Rufino Manotok, its President, as
signatory, authorized Saligumba to finalize and
consummate the sale of the property to the City of Manila
for not less than P410,000.00. With this letter came another
extension of 180 days.
The Municipal Board of the City of Manila eventually

passed Ordinance No. 6603, appropriating the sum of
P410,816.00 for the purchase of the property which
Saligumba was authorized to sell. Said ordinance
however, was signed by the City Mayor only 183 days
after the last letter of authorization. Notwithstanding the
realization of the sale, Saligumba never received any
commission, which should have amounted to P20,554.50.
Saligumba filed a complaint against Manotok Brothers,
alleging that he had successfully negotiated the sale of the
property.
The Court ruled in favor of Saligumba. It explained that

although it would initially seem that Saligumba was not
entitled to any commission because he was not successful
in consummating the sale between the parties since by the
time the Deed of Sale was finally executed, his extended
authority had already expired. It said:
By this alone, one might be misled to believe that this case

squarely falls within the ambit of the established principle
that a broker or agent is not entitled to any commission
until he has successfully done the job given to him.
Going deeper, however into the case would reveal that it

is within the coverage of the exception rather than of the
general rule, the exception being that enunciated in the
case of Prats vs. Court of Appeals. In the said case, this
The Agent I 147
Court ruled in favor of claimant-agent, despite the

expiration of his authority, when a sale was finally
consummated.
In its decision in the above cited case, this Court said, that
while it was respondent court's (referring to the Court of
Appeals) factual findings that petitioner Prats (claimant-
agent) was not the efficient procuring cause in bringing
about the sale (prescinding from the fact of expiration of
his exclusive authority), still petitioner was awarded
compensation for his services. 30 (citations omitted)
After quoting the relevant portion of the Court's ratio in

Prats,the Court ruled that in this case there is more reason
to pay the agent his commission. This is because in Prats,
the agent was not even the efficient procuring cause while
in this case he was. It seems that in this case, the only
problem really was the expiration of the agent's authority.
The Court went on to establish a rule that "[w]hen there is

a close, proximate and causal connection between the
agent's efforts and labor and the principal's sale of his
property, the agent is entitled to commission."31
It would seem therefore that in this case the Court did not
merely rely on the Prats doctrine but created a new test -
the Manotok test-to determine if the agent is entitled to
commission. In addition, in Prats the agent did not
receive the 10% stipulated commission but in Manotok the
agent received the entire 5% commission.
To reiterate, the test involves determining whether there

is a close, proximate connection between the agent's
efforts and the sale. It is submitted that this is the proper
30
Manotok Brothers v. CA, G.R. No. 94753, April 7,1993.
31 G.R. No. 94753, April 7,1993.
test for determining whether an agent is entitled to

commission. The characterization of the agent as the
procuring cause of the sale should not be based on
whether the sale is consummated within the period of
authority of the agent. What is crucial is the effect of the
agent's efforts on the sale. However, the time period may
be taken into account if the agency contract expressly
stipulated that the deed of sale be executed within an
agreed upon time period. In such a case, the Court may
still opt to apply the Manotok test and determine that the
agent was still the procuring cause of the sale under the
circumstances or at the very least apply the Pratsdoctrine
and award an amount based on equity.
The question however is whether an unauthorized agent

or someone who is not an agent at all, is entitled to
commission? In Uniland Resources v. DBP,3 2 the sale was
eventually consummated between parties introduced by a
middleman who had no authority, express or implied,
from the seller to broker the transaction. The issue was
whether this person was entitled to a commission.
In this case, Marinduque Mining Corporation obtained a

loan from the DBP and as security therefor, mortgaged
certain real properties to the latter, among them two lots,
a warehouse lot and an office building lot. The lots were
previously mortgaged to Caltex and the mortgage in
favor of DBP was entered as a second mortgage. The
account of the Marinduque Mining Corp., with the DBP
was later transferred to the Assets Privatization Trust
("APT"). To recover its investment on the Marinduque
32 G.R. No. 95909, August 16, 1991.

The Agent I 149
Account, APT offered for sale to the public through DBP

its right of redemption on said two lots by public bidding.
The bidding guidelines set by DBP provided that any bid
to purchase either of the two lots would be considered
only should there be two bids or a bid for the two items
which, when combined, would fully cover the sale of the
two lots in question. The aforesaid bidding was held on
May 5, 1987 with only one bidder, the Counsel Realty
Corp. which was an affiliate of Glaxo Philippines and the
client of Uniland Resources, which offered a bid only for
one of the lots. The said bid was rejected by DBP. Seeing,
that it would make a profit if it redeemed the two lots and
then offer them for sale, DBP retrieved the account from
APT and, on the last day for the exercise of its right of
redemption, redeemed said lots from Caltex thus
acquiring them as its physical assets. The public bidding
for the sale of the two lots was held and again, there was
only one bidder, Clarges Realty Corp. which was another
affiliate of Glaxo Philippines, for only the warehouse lot
and for the amount of P24,070,000.00, which is slightly
higher than the amount previously offered by Counsel
Realty Corp., for the original bidding. No bid was
submitted for the office building lot. DBP approved the
sale of the warehouse lot to Clarges Realty Corp. The
office building lot was later sold by DBP in a negotiated
sale to the Bank of P.I. as trustee for the "Perpetual Care
Fund of the Manila Memorial Park". The DBP admittedly
paid the 5% broker's fee on this sale to the DBP
Management Corporation, which acted as broker for said
negotiated sale. After the sale, Uniland Resources
through its President, wrote two letters to DBP, asking for
the payment of its broker's fee in instrumenting the sale
of its warehouse lot to Clarges Realty Corp. The claim

was referred to the Bidding Committee which issued a
decision denying the claim. Uniland Resources filed suit
to recover from DBP the broker's fee.

It is obvious that petitioner was never able to secure the
required accreditation from respondent DBP to transact
business on behalf of the latter. The letters sent by
petitioner to the higher officers of the DBP and the APT
are merely indicative of petitioner's desire to secure such
accreditation. At best these missives are self-serving; the
most that they prove is that they were sent by petitioner
and received by respondent DBP, which clearly never
agreed to be bound thereto. As declared by the trial court
even when it found in favor of petitioner, there was no
express reply from the DBP or the APT as to the
accreditation sought by petitioner. From the very begin-
ning, therefore, petitioner was aware that it had no
express authority from DBP to find buyers of its
properties.33 (citation omitted, emphasis supplied)
However, Uniland Resources also invoked equity

considerations. In response the Court said:
in equity, the Court recognizes the efforts of petitioner in

bringing together respondent DBP and an interested and
financially-able buyer. While not actively involved in the
actual bidding and transfer of ownership of the
warehouse property, petitioner may be said to have
initiated, albeit without proper authority, the tran-
saction that eventually took place. The Court is also
aware that respondent DBP was able to realize a
substantial profit from the sale of its two properties.
While purely circumstantial, there is sufficient reason to
believe that the DBP became more confident to venture
and redeem the properties from the APT due to the
33 Uniland Resources v. DBP G.R. No. 95909, August 16,1991.

The Agent I 151
presence of a ready and willing buyer, as communicated

and assured by petitioner.
In Prats v. Court of Appeals, there was a finding that the

petitioner therein, as the agent, was no longer the efficient
procuring cause in bringing about the sale proceeding
from the fact of expiration of his exclusive authority.
There was therefore no basis in law to grant the relief
sought Nevertheless, this Court in equity granted the
sum of P100,000.00, out of the P1,380,000.00 claimed as
commission, by way of compensation for the efforts and
assistance rendered by the agent in the transaction prior
to the expiration of his authority. These consist in offering
the lot for sale to the eventual buyer, sending follow-up
letters, inviting the buyer to dinner and luncheon
meetings, etc.
Parallel circumstances obtain in the case at bar. It was

petitioner who advised Glaxo, Philippines of the
availability of the warehouse property and aroused its
interest over the same. Through petitioner, respondent
DBP was directly informed of the existence of an
interested buyer. Petitioner's persistence in commu-
nicating with respondent DBP reinforced the serious-
ness of the offer. This piece of information no doubt had
a bearing on the subsequent decisions made by
respondent DBP as regards the disposition of its pro-
perties.34 (citation omitted, emphasis supplied)
Thus, the Court in equity, granted Uniland Resources the

sum of One Hundred Thousand Pesos (P100,000.00) for
the role it played in the transaction between respondent
DBP and buyer Glaxo, Philippines. However the Court
emphasized "that the circumstances that came into play in
this case [did] not meet the minimum legal standards
required for the existence of an agency relationship and
34GR. No. 95909, August 16,1991.

that the award is based purely on equity consider-

ations."m
c. Forfeiture of Right
While an agent is generally entitled to commission for
successful transactions, he may forfeit this right for acts
inimical to the interest of his principal.
In Domingo v. Domingo,36 Vicente Domingo granted

Gregorio Domingo, a real estate broker, the exclusive
agency to sell his lot at Piedad Estate at the rate of P2.00
per square meter (or for P176,954) for a commission of 5%
on the total price. Gregorio found Oscar De Leon who
submitted a written offer, which was very much lower
than the price of P2.00 per square meter. Vicente
instructed Gregorio to tell Oscar de Leon to raise his offer.
Oscar de Leon raised his offer to P109,000 which Vicente
agreed to.
Pursuant to a promise made to the agent, the buyer gave
to the former, "as a gift or propina" the sum of P1,000.00
for succeeding in persuading the principal to sell his lot at
a lower price. The agent did not disclose this to his
principal.
When the deed of sale was not executed as scheduled,
Oscar told Gregorio that he did not receive his money
from his brother in the United States, for which reason he
was giving up the negotiation. Later, Gregorio discovered
a deed of sale executed by Amparo Diaz, wife of Oscar,
over their house and lot at No. 40 Denver Street, Cubao,
Quezon City, in favor of Vicente as down payment by
35 UnilandResources v. DBP, G.R. No. 95909, August 16,1991.

36 G.E. No. L-30573, October 29,1971.
The Agent 1 153
Oscar on the purchase price of Vicente's lot at Piedad

Estate. Gregorio demanded payment of his commission
and conferred with Oscar, who told him that Vicente
went to him and asked him to eliminate Gregorio in the
transaction and that he would sell his property to him for
P104,000. The lower courts ruled in favor of Gregorio.
In this case, the Court ruled against Gregorio, stating that:

Hence, an agent who takes a secret profit in the nature of
a bonus, gratuity or personal benefit from the vendee,
without revealing the same to his principal, the vendor, is
guilty of a breach of his loyalty to the principal and
forfeits his right to collect the commission from his
principal, even if the principal does not suffer any
injury by reason of such breach of fidelity, or that he
obtained better results or that the agency is a gratuitous
one, or that usage or custom allows it; because the rule is
to prevent the possibility of any wrong, not to remedy or
repair an actual damage. 37 (emphasis supplied)
Thus, the mere receipt of any gift from the third party to
the transaction may disqualify the agent from receiving
his commission.
2. Lend Money to/ Borrow Money from the Agency
Article 1890 of the Civil Code38 provides that if the agent

has been empowered to borrow money, he may himself
be the lender at the current rate of interest. Thus, the law
allows agents to lend money to the agency, if as agent, he
is authorized to borrow money on behalf of his principal.
37Id.
38ARTICLE 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. (n)
Because the agency has no separate juridical personality,

the agent is in effect lending money to his principal. But
the loan must be subject to the current rate of interest.
The language employed by the article does not allow for
an exception for stipulations to the contrary. Thus, even if
the agent is authorized to borrow money at a higher rate
of interest, the agent can only lend to the agency at the
current rate of interest.
The same article also allows the agent to borrow money

from the agency if as agent, he was authorized to lend
money on behalf of the principal at interest. However,
there must be consent on the part of the principal.
3. Appoint Substitute
Articles 1892 and 1893 provide the rules regarding the
appointment of a substitute by the agent. These articles
state:
ARTICLE 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. (1721)
ARTICLE 1893. In the cases mentioned in Nos. I 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. (1722a)
The Agent I 155
a. When Allowed
The Civil Code allows the agent to appoint a substitute

for as long as the principal does not prohibit it. The law
therefore presumes that the agent is authorized to appoint
a substitute. Therefore, if a principal does not want any
other person acting on his behalf, he must prohibit the
agent from doing so.
b. Responsibility for Acts of Substitute
As a general rule, if the agent validly appoints a

substitute, the principal will be responsible for the subs-
titute's acts. Therefore, the substitute becomes the agent
of the principal.
The exceptions to this rule are two scenarios:
1. when the agent appoints a substitute although

"he was not given the power to appoint one"; or
2. when the agent is given the power to appoint a

substitute, without designating the person who
he can appoint, yet he appoints as substitute
someone who is notoriously incompetent or
insolvent.
In these two scenarios it is the agent, and not the principal

who is responsible for the acts of the substitute.
i. The First Scenario
The first scenario requires that the agent be "not given the
power" to appoint a substitute. One interpretation of this
requisite is that the agent becomes responsible for the acts
of the substitute when he appoints one despite the

prohibition of the principal. This follows from the rule
that an agent is empowered to appoint a substitute for as
long as there is no prohibition from the principal. Thus,
the only time an agent is not given the power to appoint a
substitute is when he is prohibited from doing so. When
an agent appoints a substitute anyway despite this
prohibition, he becomes responsible for the acts of the
substitute.
But there is another way to interpret the phrase, "not

given the power." It can be interpreted to mean that the
agent is not expressly provided authority to appoint a
substitute. Under this interpretation, the agent becomes
responsible for the acts of the substitute when he appoints
one without express authority of the principal. This
means that while an agent can validly appoint a substitute
even without express authority from the principal, if he
does so, he becomes responsible for the acts of the
substitute. This means that a substitute appointed without
express authority from the principal does not become the
agent of the principal.
Two considerations support the second interpretation.

First, the second scenario pertains to an agent "given such
power, but without designating the person." Thus, it
refers to the power referred to in the first scenario and
implies that it is an express power considering the
qualification "without designating the person". So the
first scenario pertains to a situation where there is no
express power given to the agent, but in the second, an
express power is given but without designating who to
appoint.
The Agent I 157
Second, interpreting the first scenario as covering a

situation where an agent did not have express authority
to appoint a substitute, protects the principal from the
possible harmful effects of an appointment without his
knowledge. As mentioned, the Civil Code allows the
agent to appoint a substitute even if the principal did not
expressly authorize it. Theoretically, the agent can even
appoint substitutes without the knowledge of the
principal. However, under the second interpretation to
the first scenario, he is protected because if an agent
appoints a substitute without express authority, the agent
is responsible for the acts of the substitute.
ii. The Second Scenario
The second scenario has two requisites:
* the agent is given power to appoint "but without

designating the person to appoint"; and
* the agent appoints as substitute someone who is

notoriously incompetent or insolvent."
The first requisite could simply be interpreted to mean

that the authority granted to the agent did not identify a
specific person or persons to appoint as substitute(s).
Therefore the principal left it up to the agent to determine
who is qualified to be a substitute.
The second requisite is that despite his unlimited

authority to choose, the agent chose a substitute who was
"notoriously incompetent or insolvent." It is not clear
from the provision if the notoriety pertains to both
incompetence and insolvency. It would also be
interesting to see how the courts would operationalize

notorious incompetence or insolvency. But for purposes
of applying the provision, it may be sufficient to show
that the person appointed has a history or record of
failures in previous business ventures similar to what he
was appointed to as substitute.
c. Validity of Acts of Substitute
If the principal prohibits the appointment of a substitute,

all acts of a substitute are void. 39 But in these cases, who
can third persons dealing with the substitute sue? The
article itself does not provide for a rule. Thus, the other
rules of agency may govern.
The substitute is in effect a person acting as an agent but

is not authorized to do so by the principal. If the principal
is aware that a substitute is acting on his behalf without
authority and he fails to repudiate the said acts, then an
implied agency may be established.40 In this case, the act
of the substitute will not be void. On the other hand, if
the principal was not aware of the acts of the substitute or
once aware of them, he repudiates them, then the third
person's recourse may be against the agent and/or the
substitute. If the agent appointed a substitute despite the
principal's prohibition, then he may be liable to the third
person because he was the person which made the fraud
possible. If the substitute was aware of the principal's
prohibition then he should also be liable.
39 Article 1892.
40 See Article 1869.
The Agent 1 159
If the principal expressly gives the agent the power to

appoint a substitute then the acts of the substitute are
valid and binding on the principal.
As discussed earlier, if the agent appoints a substitute

despite the absence of an express authority or if the
substitute is notoriously incompetent or insolvent, Article
1892 provides that it is the agent who is "responsible for
the acts of the substitute." But making the agent
"responsible" for the acts of the substitute is not the same
as saying that the acts of the substitute are neither valid
nor binding on the principal. Thus, it is not clear from the
provision if under these two scenarios the acts of the
substitute are valid. The validity of transactions made by
such substitutes may need to be weighed under their
particular circumstances.
However, should the acts of the substitute under the two

scenarios be declared valid, Article 1893 grants the
principal the right to "bring an action against the
substitute with respect to the obligations which the latter
has contracted under the substitution."
d. Substitute Agent. Alternate Not Delegate
What Article 1892 allows is a substitute to the agent.

Therefore the substitute is an agent of the principal, not
an agent of the agent. The Court in Baltazar v.
Ombudsman,41 has clarified this.
In this case, Paciencia Regala owned a fishpond which her

attorney-in-fact, Faustino Mercado leased to Eduardo
41 G.R. No. 136433, December 6,2006.

Lapid for a 3-year period. Lapid in turn sub-leased the

fishpond to Rafael Lopez during the last seven months of
the original lease. Ernesto Salenga was hired by Lapid as
fishpond watchman and was re-hired by Lopez. Salenga,
sent a demand letter to Lopez and Lourdes Lapid for
unpaid salaries and non-payment of the 10% share in the
harvest. Lopez wrote a letter to Salenga informing the
latter that for the last two months of the sub-lease, he had
given the rights over the fishpond to Mario Palad and
Ambit Perez. This prompted Salenga to file a Complaint
before the Provincial Agrarian Reform Adjudication
Board. Jose Jimenez, Jr., Legal Officer of the Department
of Agrarian Reform ("DAR") Region III, signed the
complaint as counsel for Salenga. The case was assigned
to Toribio lao, Jr., Provincial Adjudicator of DARAB.
While the agrarian case was pending, Antonio Baltazar,
an alleged nephew of Faustino Mercado, filed a
Complaint-Affidavit with the Office of the Ombudsman
against Eulogio Mariano, Jose Jimenez, Jr., Toribio llao, Jr.
and Ernesto Salenga for violation of Republic Act No.
3019.
One of the issues was the authority of Baltazar to file a

case before the Ombudsman. Baltazar asserted that he
was duly authorized by Mercado to institute the suit and
presented a "Special Power of Attorney" from Faustino
Mercado.
The Court ruled that the "Special Power of Attorney" was

not sufficient authorization. The Court explained:
For one, petitioner's principal, Faustino Mercado, is an
agent himself and as such cannot further delegate his
agency to another. Otherwise put, an agent cannot
The Agent I 161
delegate to another the same agency. The legal maxim

potestas delegata non delegare potest; a power once delegated
cannot be re-delegated, while applied primarily in
political law to the exercise of legislative power, is a
principle of agency. For another, a re-delegation of the
agency would be detrimental to the principal as the
second agent has no privity of contract with the former.
In the instant case, petitioner has no privity of contract
with Paciencia Regala, owner of the fishpond and
principal of Faustino Mercado.
Moreover, while the Civil Code under Article 1892 allows

the agent to appoint a substitute, such is not the
situation in the instant case. The SPA dearly delegates
the agency to petitioner to pursue the case and not merely
as a substitute. Besides, it is clear in the aforecited Article
that what is allowed is a substitute and not a delegation of
the agency. 42 (citations omitted, emphasis supplied)
Confusion regarding the term "sub-agent" may be

explained by the improper application of the U.S.
common law concept of "sub agent". According to
American Jurisprudence:
A subagent is a person employed by the agent to assist
him or her in conducting the principal's affairs.
Once a third party is validly appointed as subagent, the

principal is liable for the subagent's actions. The agent's
authority to appoint a subagent may be inferred from
those powers, customs, and usages positively established,
but if the agent has no authority, express or implied, to
make the person so appointed the agent of the principal,
that person is simply the agent of the agent, and not of
the principal. Also, if an agent, who has undertaken to do
the business of the principal, employs another person on
the agent's own account to assist in the agent's
42 Id.
undertakings, the person so appointed is an agent of the

agent. 43 (citations omitted)
It seems that under U.S. law a sub-agent can either be the

agent of the principal or just the agent of the agent. The
difference lies in whether the agent was authorized to
appoint a sub-agent. Therefore, the term sub-agent may be
a functional equivalent of the substitute agent under the
Civil Code provided, that what is referred to is not a
delegation of the agency. In other words, the appointment
of a substitute is more akin to the designation of an
alternate agent rather than a delegation of the agency.
In the case of Serona v. People,44 the Court employed the

term "sub-agent" when referring to the "substitute" under
Article 1892. In this case, Leonida Quilatan delivered
pieces of jewelry to Virgie Serona to be sold on
commission basis. By oral agreement of the parties, Serona
was to remit payment or return the pieces of jewelry if not
sold to Quilatan, within 30 days from receipt of the items.
Because of Serona's failure to pay, Quilatan required her
to execute an acknowledgment receipt indicating their
agreement and the total amount due. But unknown to
Quilatan, Serona had earlier entrusted the jewelry to one
Marichu Labrador for the latter to sell on commission
basis. Serona was not able to collect payment from
Labrador, which caused her to likewise fail to pay her
obligation to Quilatan. Subsequently, Quilatan, after
sending a formal letter of demand to Serona executed a
complaint affidavit against her. Thereafter, an information
for estafa under Article 315, paragraph 1(b) of the Revised
'33 AM. JuR. 2d Agency § 7 (2011).

" G.R. No. 130423, November 18,2002.
The Agent 1 163
Penal Code was filed against Serona. The lower courts

convicted Serona. The Court reversed the ruling and
acquitted Serona because the second element of
misappropriation or conversion appeared to be lacking.
The Court said that Serona did not ipso facto commit the
crime of estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on
commission basis. It disagreed with the lower courts'
conclusion that this fact alone is sufficient ground for
holding that Serona disposed of the jewelry as if it were
hers, thereby committing conversion and a clear breach of
trust. The Court explained:
It must be pointed out that the law on agency in our
jurisdiction allows the appointment by an agent of a
substitute or sub-agent in the absence of an express
agreement to the contrary between the agent and the
principal. In the case at bar, the appointment of Labrador
as petitioner's sub-agent was not expressly prohibited by
Quilatan, as the acknowledgment receipt, Exhibit B, does
not contain any such limitation. Neither does it appear
that petitioner was verbally forbidden by Quilatan from
passing on the jewelry to another person before the
acknowledgment receipt was executed or at any other
time. Thus, it cannot be said that petitioner's act of
entrusting the jewelry to Labrador is characterized by
abuse of confidence because such an act was not
proscribed and is, in fact, legally sanctioned. 45
Thus, the Court was saying that because the Civil Code
allowed an agent's appointment of a substitute in the
absence of an express prohibition, the agent's act of
entrusting the jewelry to a substitute was not an abuse of
confidence.
45 Serona v. People, G.R No. 130423, November 18,2002.

The Court cited the case of People v. Nepomuceno,46 where

the accused-appellant was acquitted of estafa on similar
facts. The Court said:
Accused-appellant therein undertook to sell two diamond

rings in behalf of the complainant on commission basis,
with the obligation to return the same in a few days if not
sold. However, by reason of the fact that the rings were
delivered also for sale on commission to sub-agents who
failed to account for the rings or the proceeds of its sale,
accused-appellant likewise failed to make good his
obligation to the complainant thereby giving rise to the
charge of estafa. In absolving the accused-appellant of the
crime charged, we held:
Where, as in the present case, the agents to whom

personal property was entrusted for sale,
conclusively proves the inability to return the same
is solely due to malfeasance of a sub-agent to
whom the first agent had actually entrusted the
property in good faith, and for the same purpose
for which it was received; there being no
prohibition to do so and the chattel being delivered
to the sub-agent before the owner demands its
return or before such return becomes due, we hold
that the first agent cannot be held guilty of estafa
by either misappropriation or conversion. The
abuse of confidence that is characteristic of this
offense is missing under the circumstances. 47
The Court also distinguished the case from People v.

Flores,48 and U.S. v. Panes,49 the cases used by the lower
courts to justify the conviction.
In Flores, the accused received a ring to sell under the

condition that she would return it the following day if not sold
and without authority to retain the ring or to give it to a
46Id. citing CA 46 O.G. 6128 (1949).

47Id.
48 Id. citing 47 O.G. 6210 (1949).
49 Id. citing 37 Phil. 116 (1917).
The Agent I 165
sub-agent. The accused in Panes, meanwhile, was obliged

to return the jewelry he received upon demand, but passed
on the same to a sub-agent even after demand for its return
had already been made. In the foregoing cases, it was held
that there was conversion or misappropriation.50
There is nothing in the decision which is inconsistent with

the interpretation that a substitute is an alternate of the
agent and not an agent of the agent although at first
blush, it may appear that Serona delegated her authority
to Labrador. The Court said:
In the case at bar, it was established that the inability of
petitioner as agent to comply with her duty to return
either the pieces of jewelry or the proceeds of its sale to
her principal Quilatan was due, in turn, to the failure of
Labrador to abide by her agreement with petitioner.
Notably, Labrador testified that she obligated herself to
sell the jewelry in behalf of petitioner also on commission
basis or to return the same if not sold. In other words, the
pieces of jewelry were given by petitioner to Labrador to
achieve the very same end for which they were delivered
to her in the first place. Consequently, there is no
conversion since the pieces of jewelry were not devoted to
a purpose or use different from that agreed upon.51
The first sentence of the quoted paragraph can give rise to

the impression that there is a delegation of authority
because of the phrase, "her agreement with the
petitioner." But this "agreement" is not necessarily a
delegation because as the same paragraph points out,
Labrador took on the very same obligation as Serona. It
was the same contract entered into by Serona. The
agreement can therefore be interpreted as Serona
0/d.
1Id.
designating an alternate and not a delegation of the

agency.
It may be argued that the practical effect of designating an

alternate agent and delegating the agency is the same, in
the sense that both the designee and the delegate are
authorized to act as the agent acted. However, the
distinction is important at least as far as privity of contract
is concerned. In the case of the alternate, the validity of
actions filed by the principal or the third party against
each other for the acts of the alternate seem clear. The
same cannot be said for the acts of the delegate.
4. Retain in Pledge Objects of Agency
Article 1914 provides:

ARTICLE 1914. The agent may retain in pledge the things
which are the object of the agency until the principal
effects the reimbursement and pays the indemnity set
forth in the two preceding articles. (1730)
The two preceding articles referred to in Article

1914 state:
ARTICLE 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)
The Agent 1 167
ARTICLE 1913. The principal must also indemnify the

agent for all the damages which the execution of the
agency may have caused the latter, without fault or
negligence on his part. (1729)
Thus, based on Article 1914 there are two grounds by

which an agent may lawfully retain in pledge the things,
which are the object of the agency:
1. if the agent advances funds for the execution of

the agency; or
2. if the agent has suffered injury caused by the

execution of the agency.
Under any of these two conditions, the agent may retain

in pledge the objects of the agency until the principal
reimburses funds advanced or pays the indemnity.
B. Obligations of Agent
1. Act Within Scope of Authority
a. In General
An agency is established so that an agent may act on

behalf of a principal. But the agent's ability to bind his
principal is limited by the authority granted to him. An
agent must act within the scope of authority granted to
him in order for his act to be valid.
Article 1881 of the Civil Code provides that the agent

must act within the scope of his authority and that he may
do such acts as may be conducive to the accomplishment
of the purpose of the agency.
168 I Analysis of Phippine Agency Law and Jurisprudence
In Woodchild v. Roxas,5 2 the agent was authorized by his

principal to sell a lot "at a price and under such terms and
conditions which he deemed most reasonable and
advantageous" to his principal. The Deed of Sale
executed included a provision granting the vendee a right
of way passing through another lot owned by the
principal and an option to purchase a portion thereof.
Later, the principal denied authorizing the agent to grant
the right of way and the option to purchase in the board
resolution issued in favor of the agent. The board
resolution stated:
RESOLVED, as it is hereby resolved, that the corporation,
thru the President, sell to any interested buyer, its 7,213
sq. meter property at the Sumulong Highway, Antipolo,
Rizal, covered by Transfer Certificate of Title No. N-
78086, at a price and on terms and conditions which he
deems most reasonable and advantageous to the
corporation;
FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS,

President of the corporation, be, as he is hereby
authorized to execute, sign and deliver the pertinent sales
documents and receive the proceeds of sale for and on
behalf of the company.
Based on this resolution the Court ruled that the agent

was not specifically authorized to grant a right of way or
to agree to sell to a portion thereof. It found that the
authority of the agent, under the resolution, did not
include the authority to sell a portion of the adjacent lot,
or to create or convey real rights thereon. Regarding an
implied authority it said:
52 G.R. No. 140667, August 12, 2004.

The Agent I 169
Neither may such authority be implied from the authority

granted to Roxas to sell Lot No. 491-A-3-B-2 to the
petitioner "on such terms and conditions which he deems
most reasonable and advantageous." Under paragraph 12,
Article 1878 of the New Civil Code, a special power of
attorney is required to convey real rights over immovable
property. Article 1358 of the New Civil Code requires that
contracts which have for their object the creation of real
rights over immovable property must appear in a public
document. The petitioner cannot feign ignorance of the
need for Roxas to have been specifically authorized in
writing by the Board of Directors to be able to validly
grant a right of way and agree to sell a portion of Lot No.
491-A-3-B-1. The rule is that if the act of the agent is one
which requires authority in writing, those dealing with
him are charged with notice of that fact.53

Powers of attorney are generally construed strictly and
courts will not infer or presume broad powers from deeds
which do not sufficiently include property or subject
under which the agent is to deal. The general rule is that
the power of attorney must be pursued within legal
strictures, and the agent can neither go beyond it; nor
beside it. The act done must be legally identical with
that authorized to be done.5' (emphasis supplied)
Thus, this case demonstrates a strict application of the rule
that the agent must act within the scope of his authority.
i. Conducive Acts
Pursuant to Article 1881, it is not necessary that the power

of attorney55 granted to the agent specifically describe the
53
Woodchild v. Roxas, G.R. No. 140667, August 12, 2004.
54 G.R. No. 140667, August 12, 2004.
5 5In this volume,
"power of attorney" refers to the authority granted to an
agent by his principal and should not be confused with an actual document
act performed. The article considers acts "conducive to the

accomplishment of the purpose of the agency" as falling
within the scope of the agent's authority. Therefore, such
conducive acts are considered within the scope of the
agent's authority. This is a very useful rule on the part of
principals and agents because the principal need not list
everything his agent is allowed to do, nor does the agent
have to go to the principal for detailed authorization for
each new act he needs to perform. For as long as these
acts meet the standard of "conduciveness," these acts will
be considered as being performed within the scope of the
agent's authority.
ii. Advantageous Acts
In addition, Article 188256 provides that the limits of the

agent's authority are not considered exceeded if he
performed it in a manner more advantageous to the
principal than that specified. Therefore, the law considers
it within the scope of the authority of the agent to perform
acts more advantageous to the principal than what is
indicated in the power of attorney. For instance, if the
principal authorizes the agent to sell a parcel of land for
P1,000,000, the third person who buys the land for
P2,000,000 cannot later impugn the contract for being
or instrument, because the authority, except under certain situations may

be granted orally. The term should also not be confused with a "special
power of attorney" referred to in Article 1878 because a "power of
attorney" may be general or special unless indicated otherwise.
56 ARTICLE 1882. The limits of the agent's authority shall not be considered
exceeded should it have been performed in a manner more advantageous
to the principal than that specified by him. (1715)
The Agent I 171
beyond the scope of the authority of the agent.5 7 The

agent's act of selling at a higher price may be described as
an advantageous act, which is considered valid under this
article.
However, the allowance for conducive and advantageous

acts must not be considered as plenary authority on the
part of the agent to perform any act for as long as it is
conducive to the accomplishment of the purposes of the
agency or that it is more advantageous to the principal.
The principal may in the first place challenge whether a
particular act is in fact conducive or advantageousto him.
In addition, Article 1881 and 1882 must be read together

with other provisions, which prescribe limits to the
agent's authority. For instance, as Woodchild v. Roxas has
demonstrated, a transaction requiring a special power of
attorney under Article 1878 may not be performed
without the relevant specific authority being granted on
the grounds that it is conducive to the accomplishment of
the purpose of the agency or that it is more advantageous
to the principal to allow the agent to do so.
In addition to conducive and advantageous acts, there is

authority for the view that certain collateral acts are
impliedly within the authority of the agent. In Guinhawa
v. People,58 the Court said:
Case law has it that wherever the doing of a certain act or

the transaction of a given affair, or the performance of
57
However, if the principal established a ceiling price for a valid reason then
selling the item for a higher amount would be beyond the scope of the
agent's authority.
5s G.R. No. 162822, August 25, 2005.
certain business is confided to an agent, the authority to

so act will, in accordance with a general rule often
referred to, carry with it by implication the authority to
do all of the collateral acts which are the natural and
ordinary incidents of the main act or business
authorized.5 (emphasis supplied)
But similar to conducive and advantageous acts, the validity

of collateral acts is without prejudice to the specific
requirements for particular transactions.
b. As Regards Third Persons
Article 190060 of the Civil Code provides that as 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 had in fact exceeded the limits
of his authority according to an understanding between
the principal and the agent.
This provision contemplates a situation wherein the

principal provided limitations to the authority of the
agent orally or in some other document apart from the
written power of attorney. For instance, a written power
of attorney may authorize the agent to sell the principal's
products, but orally the principal also tells the agent that
he cannot sell at a discount. Although it would be
beyond the actual scope of the authority of the agent to
59 Guinhawa v. People, G.R. No. 162822, August 25, 2005, citing Park v.
MoormanManufacturing Company, 40 A.L.R 2d 273 (1952).
60 ARTICLE 1900. So far as third persons are concerned, an act is deemed to
have been performed within the scope of the agent's authority, if such act
is within the terms of the power of attorney, as written, even if the agent
has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent. (n)
The Agent I 173
sell at a discount, as far third persons are concerned, the

agent is acting within the scope of his authority. The rule
however should not apply if the third person dealing with
the agent was aware of the understanding between the
principal and agent.
c. Authority of Corporate Officers
There have been a number of cases decided by the Court

explaining the authority of corporate officers to act for the
corporation.
In Board of Liquidators v. Heirs of Maximo Kalaw,61 the main

issue was the authority of the general manager of the
corporation to enter into particular contracts without
prior authority from the board of directors.
In this case, Maximo Kalaw, was the general manager and

board chairman of National Coconut Corporation
("NACOCO"). NACOCO was engaged in copra trading
activities and Kalaw entered into many contracts.
Unfortunately, several devastating typhoons made it
extremely difficult for NACOCO to fulfill its obligations
under these contracts. Kalaw submitted the contracts to
NACOCO's board for approval which it eventually did.
NACOCO was only able to partially comply with its
contracts and one of the buyers sued. This suit ended in
an out of court settlement. NACOCO filed suit to recover
from Kalaw and the directors the sum equivalent to what
it paid for the settlement. It was argued that Kalaw was
not authorized to enter into the contracts.
61 G.R. No. L-18805, August 14,1967.

The Court began by explaining the nature of the general

manager's position:
A rule that has gained acceptance through the years is
that a corporate officer "intrusted with the general
management and control of its business, has implied
authority to make any contract or do any other act which
is necessary or appropriate to the conduct of the
ordinary business of the corporation." As such officer,
"he may, without any special authority from the Board
of Directors, perform all acts of an ordinary nature,
which by usage or necessity are incident to his office, and
may bind the corporation by contracts in matters arising
in the usual course of business." 62 (citations omitted,
emphasis supplied)
Based on the Court's reasoning in this case, it is possible

for any corporate officer "intrusted with the general
management and control" of the corporation's business
(e.g. president, CEO, manager) to perform an act without
prior approval from the board of directors provided that
the act is "necessary or appropriate to conduct the
ordinary business of the corporation." The Court added
that such acts must be of "an ordinary nature, which by
usage or necessity are incident to his office."
In the Board of Liquidators case, the Court looked at the

nature of the business of the corporation and the previous
practice of the corporation and determined that the
contracts in question were within the general authority
granted to the corporate officer.
62 G.R No. L-18805, August 14,1967.

The AgentI 175
In the same case, the Court also ruled that:
Settled jurisprudence has it that where similar acts have

been approved by the directors as a matter of general
practice, custom, and policy, the general manager may
bind the company without formal authorization of the
board of directors. In varying language, existence of such
authority is established, by proof of the course of
business, the usages and practices of the company and
by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation.
So also,
... authority to act for and bind a corporation

may be presumed from acts of recognition in
other instances where the power was in fact
exercised.
... Thus, when, in the usual course of business

of a corporation, an officer has been allowed
in his official capacity to manage its affairs,
his authority to represent the corporation may
be implied from the manner in which he has
been permitted by the directors to manage its
business.6 (citations omitted, emphasis
supplied)
Thus, based on this case, if it has been the practice of the

board of directors to allow the corporate officer to act
without prior board approval, then such acts of the officer
without prior authority are considered within his
authority. The problem is if the by-laws of the
Corporation require prior board approval for such acts.
Should general practice supersede the written by-laws?
In the Board of Liquidators case, the answer was in the
affirmative because in this case the by-laws limited the

authority of the corporate officer:
(b) To perform or execute on behalf of the Corporation
upon prior approval of the Board, all contracts necessary
and essential to the proper accomplishment for which the
Corporation was organized.
It must be said however, that in the Board of Liquidators

case, the Court made much of the fact that the board of
directors was fully aware of what its corporate officer was
doing. Thus, there was also a finding of ratification on
the part of the corporation.
In San Juan v. Court of Appeals,64 the issue revolved around

the authority of the corporate treasurer to enter into the
disputed contract of sale on behalf of the corporation.
In this case, San Juan Structural and Steel Fabricators,

Inc.'s ("San Juan") entered into an agreement with
Motorich Sales Corporation ("Motorich") allegedly
represented by its treasurer Nenita Lee Gruenberg for
purchase of a parcel of land. San Juan paid the
downpayment in the sum of P100,000 with the balance to
be paid on or before March 2, 1989. On that date San Juan
was ready with the amount but Motorich's treasurer,
Nenita Lee Gruenberg, did not appear. San Juan filed a
complaint for damages.
The Court ruled that the contract was not binding on

Motorich because it never authorized or ratified the sale.
It explained that because the corporation has a separate
juridical personality distinct from its stockholders, the
64GL No. 129459, September 29,1998.

The Agent 1 177
property of the corporation is not the property of the

stockholders and may not be sold without express
authorization from the board of directors. The Court
cited Section 23 of the Corporation Code, which states:
SEC. 23. The Board of Directors or Trustees. - Unless

otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be
exercised, all business conducted and all property of such
corporations controlled and held by the board of directors
or trustees to be elected from among the holders of stocks,
or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and
until their successors are elected and qualified.
The Court further ruled that:
Indubitably, a corporation may act only through its board

of directors or, when authorized either by its bylaws or by
its board resolution, through its officers or agents in the
normal course of business. The general principles of
agency govern the relation between the corporation and
its officers or agents, subject to the articles of
incorporation, bylaws, or relevant provisions of law.
Thus, this Court has held that "a corporate officer or agent
may represent and bind the corporation in transactions
with third persons to the extent that the authority to do so
has been conferred upon him, and this includes powers
which have been intentionally conferred, and also such
powers as, in the usual course of the particular business,
are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has
caused persons dealing with the officer or agent to believe
that it has conferred.'65 (emphasis supplied, citations
omitted)
5Id.
In this case, the Court ruled that it was not proven that the
treasurer was authorized to enter into the contract. There
was nothing in the articles of incorporation, bylaws or
board resolutions, which would indicate that the treasurer
had the authority. Besides, the Court found that "[s]elling
66
is obviously foreign to a corporate treasurer's function."
In AF Realty v. Dieselman,67 a member of the board of

directors of the corporation issued a letter authorizing a
real estate broker to look for buyers and negotiate the sale
of a parcel of land owned by the corporation. The Court
stated the relevant rule as follows:
Section 23 of the Corporation Code expressly provides
that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts
of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director
authorized duties of such director, are held not binding
on the corporation. 68 (citations omitted, emphasis
supplied)
The Court ruled that the director had no written authority

from the board to sell or negotiate the sale of the lot much
less to appoint other persons for the same purpose.
66 Id.
67 G.R. No. 111448, January 16,2002.
68 d.
The Agent I 179
In Francisco v. GSIS 69 the issue was whether alleged

acceptance made by a corporate officer was binding on
the corporation. In this case, Trinidad Francisco, in
consideration of a loan in the amount of P400,000.00,
mortgaged in favor of Government Service Insurance
System ("GSIS"), a parcel of land payable within 10 years.
Later, GSIS extrajudicially foreclosed the mortgage on the
ground that up to that date Francisco was in arrears on
her monthly installments in the amount of P52,000. GSIS
itself was the buyer of the property in the foreclosure sale.
Subsequently, Trinidad's father, Atty. Vicente Francisco,
sent a letter to the general manager of the defendant
corporation offering to pay P30,000 in consideration of
setting aside the foreclosure and proposed an arrange-
ment for paying for the balance. On the same day, Atty.
Francisco received a telegram apparently from the general
manager of GSIS which stated:
GSIS BOARD APPROVE YOUR REQUEST RE

REDEMPTION OF FORECLOSED PROPERTY OF YOUR
DAUGHTER
Subsequently, Atty. Francisco remitted a check for

P30,000 accompanied by a letter which stated:
I am sending you herein BPI Check No. B-299484 for

Thirty thousand pesos (P30,000.00) in accordance with my
letter of February 20th and your reply thereto of the same
date, which reads:
-GSIS BOARD APPROVED YOUR REQUEST RE

REDEMPTION OF FORECLOSED PROPERTY OF YOUR
DAUGHTER"
69G.R. No. L-18287, March 30,1963.

GSIS received the amount and issued an official receipt.

Francisco thereafter remitted P44,121.29 to GSIS which
received the amount and issued a receipt. Trinidad
further remitted subsequent payments to GSIS totaling
P24,604.91.
Thereafter, GSIS sent three letters, one signed by its

assistant general manager, and the other two letters,
signed by the general manager, asking Francisco for a
proposal for the payment of her indebtedness, because
according to GSIS, the one-year period for redemption
had expired. In reply, Atty. Francisco sent a letter,
protesting against GSIS' request for proposal of payment
and inviting its attention to the concluded contract
generated by his offer, and its acceptance by telegram of
the same date, the compliance of the terms of the offer
already commenced by Francisco, and the misapplication
by GSIS of the remittances she had made, and requesting
the proper corrections. GSIS countered that Francisco
should pay attorney's fees, publication expenses, filing
fee, and surcharge for the foreclosure work done and that
the telegram should be disregarded in view of its failure
to express the contents of the board resolution due to the
error of its minor employees in couching the correct
wording of the telegram. A copy of the excerpts of the
resolution of the Board of Directors was attached to GSIS'
letter, showing the approval of Francisco's offer was:
... subject to the condition that Mr. Vicente J. Francisco
shall pay all expenses incurred by the GSIS in the
foreclosure of the mortgage. 70
The Agent 1 181
Francisco filed suit for specific performance and damages.
The Court ruled that GSIS was bound by the acceptance.

It explained:
The terms of the offer were clear, and over the signature
of defendant's general manager, Rodolfo Andal, plaintiff
was informed telegraphically that her proposal had been
accepted. There was nothing in the telegram that hinted at
any anomaly, or gave ground to suspect its veracity, and
the plaintiff, therefore, cannot be blamed for relying upon
it. There is no denying that the telegram was within
Andal's apparent authority, but the defense is that he did
not sign it, but that it was sent by the Board Secretary in
his name and without his knowledge. Assuming this to be
true, how was appellee to know it? Corporate tran-
sactions would speedily come to a standstill were every
person dealing with a corporation held duty-bound to
disbelieve every act of its responsible officers, no matter
how regular they should appear on their face.'
The Court cited Ramirez v. OrientalistCo.,72 where it said:
In passing upon the liability of a corporation in cases of

this kind it is always well to keep in mind the situation
as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no
information as to what occurs in corporate meetings; and
he must necessarily rely upon the external manifes-
tations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the
corporation strictly to the liability fixed upon it by its
agents in accordance with law; and we would be sorry to
announce a doctrine which would permit the property of
a man in the city of Paris to be whisked out of his hands
and carried into a remote quarter of the earth without
recourse against the corporation whose name and
authority had been used in the manner disclosed in this
71 Id.
72 Cited in the case as 38 Phil. 634, 654-655.
case. As already observed, it is familiar doctrine that if a

corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as
against anyone who has in good faith dealt with the
corporation through such agent, be estopped from
denying his authority; and where it is said "if the
corporation permits" this means the same as "if the thing
is permitted by the directing power of the corporation. '7
(emphasis supplied)
Thus, the Court was saying that third persons have every
right to rely on corporate communications, particularly in
this case where there was nothing to alert Francisco of any
anomaly. If the telegram was sent by the board secretary
and not by the general manager, there was no way for
Francisco to know that.
GSIS also alleged error in the wording of the telegram.

But the Court said:
This alleged mistake cannot be taken seriously, because
while the telegram is dated 20 February 1959, the
defendant informed Atty. Francisco of the alleged mistake
only on 31 May 1960, and all the while it accepted the
various other remittances, starting on 28 February 1959,
sent by the plaintiff to it in compliance with her
performance of her part of the new contract. 74
The Court also pointed out that despite being notified of

the contents of the telegram it pocketed the remittances.
Thus, in this case the act of the general manager (i.e. the
telegram) was sufficient to bind the corporation.
7Id.
74Id.
The Agent 1 183
2. Act in Accordance with Instructions
Not only must an agent act within specific limits of

authority, but he also must perform such acts in the
manner dictated by his principal. Article 1887 of the Civil
Code 75 provides that in the execution of the agency, the
agent is obliged to act in accordance with the instructions
of the principal. If there are no instructions, he is obliged
to do all that a good father of a family would do, as
required by the nature of the business.
The principal may indicate to his agent the way he wants

his transactions handled. For instance, the principal may
instruct his agent regarding customer relations,
advertising, marketing, etc.
If the principal does not provide instructions, the rule is

that the diligence of a good father of a family is expected
and such diligence is determined by the nature of the
business.
The same diligence is required in cases where the person

who was supposed to be the agent refuses the agency. In
this case, the person who declined the agency is bound to
observe the diligence of a good father of a family in the
custody and preservation of the goods forwarded to him
by the owner until the latter should appoint an agent.76
7
ARTICLE 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. (1719)
76
Article 1885, Civil Code.
But the owner of the goods must as soon as practicable

77
either appoint an agent or take charge of the goods.
Under Article 1899,78 if the 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. In other
words, if an agent was simply following instructions but a
third person is injured in some way, the principal cannot
blame the agent if the injury was caused by circumstances
the agent was unaware of but the principal was aware of.
For instance, the agent may be selling a certain a product
which is ruined when used in a particular way. If the
agent does not know this, but his principal does, the
principal cannot pin the blame on the agent for not
informing the customer who unknowingly misused the
product, provided the agent was following the
instructions of his principal.
3. Carry Out the Agency
a. In General
Article 1884 of the Civil Code 79 provides, that the agent is

bound by his acceptance to carry out the agency, and is
7 Id.
78 ARTICLE 1899. If a duly authorized agent acts in accordance with the
orders of the principal, the latter cannot set up the ignorance of the agent as
to circumstances whereof he himself was, or ought to have been, aware. (n)
79 ARTICLE 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. (1718)
The Agent 1 185
liable for the damages, which through his nonperfor-

mance, the principal may suffer.
Once the agent accepts the authorization granted by the

principal, he is bound to carry out his duties as agent. If
he does not and the principal suffers injury, he is liable for
damages to the latter. This duty to carry out continues
with respect to work begun prior to the death of the
principal if delay should entail any danger.
In British Airways v. Court of Appeals,80 the Court applied

Article 1884 to justify a third party complaint filed by a
principal against his agent. In this case, Gop Mahtani
bought airline tickets from British Airways for his flight
from Manila to Bombay. Because British Airways had no
direct flights from Manila to Bombay, he had to take a
flight to Hongkong via Philippine Airlines ("PAL"), and
take a connecting flight to Bombay on board British
Airways. Mahtani checked in at the PAL counter in
Manila his two pieces of luggage. Unfortunately, when
Mahtani arrived in Bombay he discovered that his
luggage was missing and that upon inquiry from the
British Airways representatives, he was told that the same
might have been diverted to London.
Upon his return to the Philippines, Mahtani filed his

complaint for damages and attorney's fees against British
Airways. The latter filed a third-party complaint against
PAL alleging that the reason for the non-transfer of the
luggage was due to the latter's late arrival in Hongkong,
thus leaving hardly any time for the proper transfer of
80 G.R. No. 121824, January 29,1998.

Mahtani's luggage to the BA aircraft bound for Bombay.

The lower courts dismissed the third party complaint.
The Court disagreed. It said:

In resolving this issue, it is worth observing that the
contract of air transportation was exclusively between
Mahtani and BA, the latter merely endorsing the Manila
to Hongkong leg of the former's journey to PAL, as its
subcontractor or agent. In fact, the fourth paragraph of
the "Conditions of Contracts" of the ticket issued by BA to
Mahtani confirms that the contract was one of continuous
air transportation from Manila to Bombay.
4 ... carriage to be performed hereunder by

several successive carriers is regarded as a single
operation.
Prescinding from the above discussion, it is undisputed

that PAL, in transporting Mahtani from Manila to
Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been

cognizant of the well-settled rule that an agent is also
responsible for any negligence in the performance of its
function and is liable for damages which the principal
may suffer by reason of its negligent act. Hence, the
Court of Appeals erred when it opined that BA, being the
principal, had no cause of action against PAL, its agent or
sub-contractor.
Also, it is worth mentioning that both BA and PAL are

members of the International Air Transport Association
(IATA), wherein member airlines are regarded as agents
of each other in the issuance of the tickets and other
matters pertaining to their relationship. Therefore, in the
instant case, the contractual relationship between BA
and PAL is one of agency, the former being the
principal, since it was the one which issued the
The Agent I 187
confirmed ticket, and the latter the agent.81 (citations

omitted, emphasis supplied)
Accordingly, to deny BA the procedural remedy of filing

a third-party complaint against PAL for the purpose of
ultimately determining who was primarily at fault as
between them, is without legal basis. After all, such
proceeding is in accord with the doctrine against
multiplicity of cases which would entail receiving the
same or similar evidence for both cases and enforcing
separate judgments therefor. It must be borne in mind
that the purpose of a third-party complaint is precisely to
avoid delay and circuity of action and to enable the
controversy to be disposed of in one suit. It is but logical,
fair and equitable to allow BA to sue PAL for
indemnification, if it is proven that the latter's negligence
was the proximate cause of Mahtani's unfortunate
experience, instead of totally absolving PAL from any
82
liability.
Thus, 1884 was applied in this case to allow the principal

to file an action against his agent.
b. Continuing Business
Article 1884 also provides that the agent must finish the
business already begun even if the principal subsequently
dies, should delay entail any danger. The application of
this rule can be problematic because of the ambiguity of
the terms used. What exactly is meant by "business
already begun"? What if the business involves selling the
principal's ten cars and the agent was able to sell five of
them before the death of the principal? Will this provision
81 British Airways v. Courtof Appeals, G.R. No. 121824, January 29,1998.

82Id.
now require the agent to continue working until the

remaining five cars are sold? Or will it only apply if the
agent was completing the sale of the sixth car when the
principal died? In such case, the agent must continue
until the completion of the sixth sale if the other element
is present, that delay will entail any danger. What does
this second element mean? What kind of danger is
referred to and danger to whom? Perhaps the general
idea behind the provision is that the agent must continue
carrying out duties which were pending when the
principal died if non-continuation on his part will cause
economic prejudice to the interest of his principal. As to
the extent of the work the agent is obliged to complete, it
should only be to the extent necessary to avoid the danger
contemplated.
c. In Case of Withdrawal
The obligation to carry out the agency does not
immediately end if the agent withdraws. Article 192983
requires that in such a case, the agent must continue to act
until the principal has had reasonable opportunity to take
the necessary steps to meet the situation. To determine
whether there has been "reasonable opportunity"
depends on what are the "necessary steps to meet the
situation." In the old Civil Code, the agent is required to
continue to act as agent "until the principal is able to take
the necessary measures to fill his place."8 4 The current
language of the Civil Code is perhaps more advantageous
to the agent because he does not have to wait until he is
83 ARTICLE 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)
4 Article 1737, old Civil Code.
The Agent 1 189
replaced. It is sufficient that the principal has had

opportunity to take measures necessary to protect his
interest whether this is in the form of appointing a new
agent or some other measure.
d. When Not Required to Carry Out
The Civil Code excuses the agent from carrying out the
agency if doing so would manifestly result in loss or
damage to principal. Under Article 1888,85 an agent is
required not to carry out an agency if its execution would
manifestly result in loss or damage to the principal.
Thus, the agent who fails to carry out the agency may use
this provision as a defense. But he must prove that
carrying out the agency would manifestly result in loss or
damage to the principal. An example would be a situation
wherein the price for the product sold by the principal
through an agent is expected to increase exponentially in
a few months, or the items, which the principal wishes to
buy, will decrease tremendously in a few weeks. The
agent would be justified in delaying entering into
transactions to take advantage of the price changes,
provided that the delay will not itself cause greater
damage to the principal.
4. Advance Funds
Article 1886 of the Civil Code86 provides that if it is

stipulated that the agent shall advance the necessary
85 ARTICLE 1888. An agent shall not carry out an agency if its execution
would manifestly result in loss or damage to the principal. (n)
86 ARTICLE 1886. Should there be a stipulation that the agent shall advance
the necessary funds, he shall be bound to do so except when the principal
is insolvent. (n)
funds then he must do so, except if the principal is

insolvent.
The rule therefore is that the agent is only obligated to

advance funds for the agency if two conditions are met:
1. there must be a stipulation that the agent must

advance funds; and
2. the principal is solvent.
The first condition seems to imply that there must be a

written power of attorney. However, it is entirely possi-
ble for a stipulation to be made orally as well. The
problem is in cases where the authorization or appoint-
ment of the agent is required to be in written form.
Should the stipulation on the obligation to advance also
be written? Should it also be found in the same document
as the authorization? If it is proven that such stipulation
was in fact made then it should be binding on the agent
whether or not such stipulation was made in writing or
not. However, in order to constitute notice to third
persons, the latter must be made in the written power of
attorney or such third person must be aware of such the
stipulation if made orally.
5. Prefer Interest of Principal Over Personal Interest
a. In General
An agency is a fiduciary relationship which means that in

case of a conflict of interest between the agent and the
principal, the agent must prefer the interest of his
principal over his own, otherwise he will be liable for
The Agent j 191
damages. Article 1889 of the Civil Code87 makes the

agent liable for damages if in case of conflict of interest he
prefers his own interest over the interest of his principal.
It should be noted that the article does not state that the
agency is dissolved or the contract is invalidated if the
agent prefers his own interest.
b. Property Administered
Pursuant to Article 1491(2)88 of the Civil Code, agents

cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of
another the property whose administration or sale may
have been intrusted to them, unless the consent of the
principal has been given.
While Severino v. Severino,89 was decided prior to Article

1491, it demonstrates the effect of the fiduciary
relationship of agency on the agent's ability to acquire the
property entrusted to him. In this case, Melecio Severino
owned several parcels of land which was administered by
Guillermo Severino. After Melecio's death, Guillermo
Severino continued to occupy the land. Later, cadastral
87 ARTICLE 1889. The agent shall be liable for damages if, there being a
conflict between his interests and those of the principal, he should prefer
his own. (n)
88 ARTICLE 1491. The following persons cannot acquire by purchase, even at
a public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be
under his guardianship;
(2) Agents, the property whose administration or sale may have been
intrusted to them, unless the consent of the principal has been given;
xxx xxx xxx
89 G.R. No. 18058, January 16,1923.
proceedings were instituted for the registration of the

land titles within the surveyed area and eventually the
court decreed the title in Guillermo Severino's favor.
Fabiola Severino filed an action to compel Guillermo to
convey to her four parcels of land or for payment of
damages. Felicitas Villanueva, in her capacity as adminis-
tratrix of the estate of Melecio Severino, filed a complaint
in intervention claiming the same relief as Fabiola, except
in so far as she prayed that the conveyance be made, or
damages paid, to the estate.
The Court ruled against Guillermo. It found that

Guillermo came into the possession of the property as the
agent of Melecio.
The Court explained:

The relations of an agent to his principal are fiduciary and
it is an elementary and very old rule that in regard to
property forming the subject-matter of the agency, he is
estopped from acquiring or asserting a title adverse to
that of the principal. His position is analogous to that of a
trustee and he cannot consistently, with the principles of
good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust.90
In Araneta, Inc. v. De Patemo,91 the Court explained the

rationale behind the precursor of Article 1491 which was
Article 1459 of the old Civil Code, in this wise:
The agent's incapacity to buy his principal's property
rests in the fact that the agent and the principal form one
juridical person. In this connection, Scaevola observes that
the fear that greed might get the better of the sentiments
90 G.R. No. 18058, January 16,1923.

91G.R. No. L-2886, August 22,1952.
The Agent I 193
of loyalty and disinterestedness which should animate an

administrator or agent, is the reason underlying the
various classes of incapacity enumerated in article 1459.
And as American courts commenting on similar
prohibition at common law put it, the law does not trust
human nature to resist the temptations likely to arise out
of antagonism between the interest of the seller and the
buyer.92 (emphasis supplied)
c. Double Sales
The rule on double sales involving principals and agents

can be found in Articles 1916, 1917 and 1544:
ARTICLE 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. (n)
ARTICLE 1917. In the case referred to in the preceding

article, if the agent has acted in good faith, the principal
shall be liable in damages to the third person whose
contract must be rejected. If the agent acted in bad faith,
he alone shall be responsible. (n)
ARTICLE 1544. If the same thing should have been sold

to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in
good faith, if it should be movable property.
Should it be immovable property, the ownership shall

belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall

pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who
92d.
presents the oldest title, provided there is good faith.

(1473)
The situation contemplated by these provisions involves a

case where the principal and agent contract with different
persons for the same thing and the contracts are
incompatible. For instance, the principal and agent may
sell the same property to two different people. The rule is
that the contract "of a prior date" will prevail. This rule is
however, subject to the provisions of Article 1544, which
provides for certain rules depending on the nature of the
property sold. If the property sold is a movable then it is
the person who first takes possession in good faith who
shall prevail. If the property is an immovable then it is
the person who first records it in good faith in the register
of deeds. If there is no such record, the person who first
had possession on good faith will prevail. If there is no
such possession, then the person who presents the oldest
title will prevail. Therefore the rule under Article 1916
will only apply in the following cases:
a. none of the buyers had obtained possession over

the movable; or
b. none of the buyers had recorded, possessed or

has title over the immovable.
If the agent was in good faith in entering into his contract

with a third person, the principal is liable for damages to
the person whose contract would have to be rejected
based on the said rules. But if the agent was in bad faith
he will be liable for damages to such third person. Under
Article 1889 he would also be liable to the principal for
damages.
The Agent I 195
6. Render Account/Deliver
Article 1891 of the Civil Code93 provides that 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 and that every stipulation exempting the
agent from the obligation to render an account shall be
void.
If the agent receives any item by virtue of his agency, he is

bound to account for such items and to deliver such items
to the principal even if such things were given to him.
This means that if an agent receives a gift from a client he
must report it and deliver it to his principal.
This obligation in effect discourages agents from soliciting

or accepting gifts from third persons he deals with on
behalf of the principal because he is bound to turn this
over to the principal.
In Domingo v. Domingo,94 the Court pointed out how

Article 1891 is different from the old Civil Code
provision. 95
93 ARTICLE 1891. Every agent is bound to render an account of his

transactions and to deliver to the principal whatever he may have received
by virtue of the agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an
account shall be void. (1720a)
94 G.R. No. L-30573, October 29,1971.
95 ARTICLE 1720. Every agent is bound to give an account of his transactions
and to pay to the principal all that which he may have received by virtue of
the agency, even though what has been so received was not owed to the
principal.
The modification contained in the first paragraph of

Article 1891 consists in changing the phrase "to pay" to
"to deliver", which latter term is more comprehensive
than the former.
Paragraph 2 of Article 1891 is a new addition designed to

stress the highest loyalty that is required to an agent -
condemning as void any stipulation exempting the agent
from the duty and liability imposed on him in paragraph
one thereof.96
Taking Article 1891 with Article 190997 together, the Court

said:
The aforecited provisions demand the utmost good faith,
fidelity, honesty, candor and fairness on the part of the
agent, the real estate broker in this case, to his principal,
the vendor. The law imposes upon the agent the absolute
obligation to make a full disclosure or complete account
to his principal of all his transactions and other material
facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation
exempting the agent from such an obligation and
considers such an exemption as void. The duty of an
agent is likened to that of a trustee. This is not a technical
or arbitrary rule but a rule founded on the highest and
truest principle of morality as well as of the strictest
justice.
Hence, an agent who takes a secret profit in the nature of

a bonus, gratuity or personal benefit from the vendee,
without revealing the same to his principal, the vendor, is
guilty of a breach of his loyalty to the principal and
forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury
by reason of such breach of fidelity, or that he obtained
96G.R. No. L-30573, October 29,1971.

97ARTICLE 1909. The agent is responsible not only for fraud, but also for
according to whether the agency was or was not for a compensation. (1726)
The Agent 1 197
better results or that the agency is a gratuitous one, or that

usage or custom allows it; because the rule is to prevent
the possibility of any wrong, not to remedy or repair an
actual damage. By taking such profit or bonus or gift or
propina from the vendee, the agent thereby assumes a
position wholly inconsistent with that of being an agent
for his principal, who has a right to treat him, insofar as
his Commission is concerned, as if no agency had existed.
The fact that the principal may have been benefited by the
valuable services of the said agent does not exculpate the
agent who has only himself to blame for such a result by
reason of his treachery or perfidy.98 (citations omitted,
emphasis supplied)
However, the Court also clarified that the duty embodied

in Article 1891 of the New Civil Code will not apply:
" if the agent or broker acted only as a middleman

with the task of merely bringing together the
vendor and vendee, who themselves thereafter
will negotiate on the terms and conditions of the
transaction; or
" if the agent or broker had informed the principal

of the gift or bonus or profit he received from the
purchaser and his principal did not object
thereto. 99
In the first case, the reason for the rule does not exist
because anything received from either party will not
affect the terms and conditions of the transaction.
Furthermore, a middleman is an agent of both parties or
an agent of none of the parties. Thus, the receipt of gifts
98 G.R. No. L-30573, October 29,1971.

99 Domingo v. Domingo, citing 12 AM. JUR. 2d, 835-841, 908-912; and Raymond
v. Davis, Jan. 3,1936,199 NE 321,102 ALR, 1112-1115, 1116-1121.
from the transacting parties will not amount to a breach of

a fiduciary duty.
In Murao v. People,1 ° Pablito Murao, the sole owner of

Lorna Murao Industrial Commercial Enterprises
("LMICE"), a company engaged in the business of selling
and refilling fire extinguishers, entered into a Dealership
Agreement with Chito Federico for the marketing,
distribution, and refilling of fire extinguishers. Failing to
comply with the conditions under the Dealership
Agreement, Federico, nonetheless, was still allowed to act
as a part-time sales agent for LMICE entitled to a
percentage commission from the sales of fire extin-
guishers. Federico's first successful transaction as sales
agent of LMICE involved two fire extinguishers sold to
Landbank which issued a check, after deducting from the
original sales price the 15% discount granted by Federico
to Landbank and the 3% withholding tax. Federico
encashed the check and remitted only P2,436.40 while he
kept P3,500.00 for himself as his commission from the
sale. Federico subsequently facilitated a transaction with
the City Government of Puerto Princesa for the refill of
202 fire extinguishers. Because of the considerable cost,
the City Government of Puerto Princesa requested that
the transaction be split into two purchase orders. When
Federico was refused his commission he filed a complaint
for estafa against Murao and Neio Huertazuela. The
lower courts found Murao and Huertazuela guilty. The
Court reversed the ruling finding that two essential
elements of the crime of estafa by misappropriation or
conversion under Article 315(1)(b) of the Revised Penal
100 G.R. No. 141485, June 30, 2005.

The Agent I 199
Code to be missing. These elements are: (1) That money,

goods or other personal property be received by the
offender in trust, or on commission, or for administration,
or under any other obligation involving the duty to make
delivery of, or to return, the same; and (2) That there be a
misappropriation or conversion of such money or
property by the offender. The Court explained:
The findings of the RTC and the Court of Appeals that

petitioners committed estafa rest on the erroneous belief
that private complainant Federico, due to his right to
commission, already owned 50% of the amount paid by
the City Government of Puerto Princesa to LMICE by
virtue of Check No. 611437, so that the collection and
deposit of the said check by petitioners under the account
of LMICE constituted misappropriation or conversion of
private complainant Federico's commission.
However, his right to a commission does not make

private complainant Federico a joint owner of the
money paid to LMICE by the City Government of Puerto
Princesa, but merely establishes the relation of agent
and principal. It is unequivocal that an agency existed
between LMICE and private complainant Federico.
Article 1868 of the Civil Code defines agency as a special
contract whereby "a person binds himself to render some
service or to do something in representation or on behalf
of another, with the consent or authority of the latter."
Although private complainant Federico never had the
opportunity to operate as a dealer for LMICE under the
terms of the Dealership Agreement, he was allowed to act
as a sales agent for LMICE...
As a sales agent, private complainant Federico entered

into negotiations with prospective clients for and on
behalf of his principal, LMICE....
All profits made and any advantage gained by an agent

in the execution of his agency should belong to the
principal. In the instant case, whether the transactions
negotiated by the sales agent were for the sale of brand

new fire extinguishers or for the refill of empty tanks,
evidently, the business belonged to LMICE. Conse-
quently, payments made by clients for the fire
extinguishers pertained to LMICE. When petitioner
Huertazuela, as the Branch Manager of LMICE in Puerto
Princesa City, with the permission of petitioner Murao,
the sole proprietor of LMICE, personally picked up Check
No. 611437 from the City Government of Puerto Princesa,
and deposited the same under the Current Account of
LMICE with PCIBank, he was merely collecting what
rightfully belonged to LMICE. Indeed, Check No. 611437
named LMICE as the lone payee. Private complainant
Federico may claim commission, allegedly equivalent to
50% of the payment received by LMICE from the City
Government of Puerto Princesa, based on his right to just
compensation under his agency contract with LMICE,
but not as the automatic owner of the 50% portion of the
said payment.
Since LMICE is the lawful owner of the entire proceeds

of the check payment from the City Government of
Puerto Princesa, then the petitioners who collected the
payment on behalf of LMICE did not receive the same
or any part thereof in trust, or on commission, or for
administration, or under any other obligation involving
the duty to make delivery of, or to return, the same to
private complainant Federico, thus, the RTC correctly
found that no fiduciary relationship existed between
petitioners and private complainant Federico. A fiduciary
relationship between the complainant and the accused is
an essential element of estafa by misappropriation or
conversion, without which the accused could not have
committed estafa. 101 (citations omitted, emphasis
supplied)
In essence, what the Court here is saying is that because

"[a]ll profits made and any advantage gained by an agent
in the execution of his agency should belong to the
Il Murao v. People, G.R. No. 141485, June 30,2005.

The Agent 1 201
principal,"'1 2 the principal was entitled even to the

portion of the payment of the client which would have
comprised the agent's commission. There was no estafa
because the funds belonged to the principal and there was
therefore no conversion or misappropriation.
7. Pay Interest
Article 1896 of the Civil Code' °3 provides that 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.
The obligation to pay interest pertains to funds the agent

applied to personal use. At first blush, this may seem to
imply that the agent may from time to time use agency
funds for personal purposes but these transactions are
considered loans for which he must pay interest. Article
1890 provides that an agent is only entitled to borrow
funds from the agency, if the agent has been authorized to
lend money at interest. Therefore, authorization is
required. However, if the agent does use agency funds
for personal use, there is no reason why the agent should
not be required to pay interest apart from other penalties
arising from using agency funds despite lack of
authorization.
102 Id., citing Pederson v. Johnson, 169 Wis. 320,172 N.W. 723 (1919)
103 ARTICLE 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. (1724a)
8. Responsible for Fraud or Negligence
Article 1909 of the Civil Code °4 provides that the agent is

responsible for fraud or for negligence. The provision
does not specify if the responsibility is for fraud or
negligence to the principal or third party. But there is
jurisprudence, which applied the provision as an agent's
responsibility to his principal. In Metropolitan Bank v.
CA, 105 Eduardo Gomez opened an account with Golden
Savings and Loan Association ("Golden") and deposited
over a period of two months 38 treasury warrants all
drawn by the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and counter-
signed by its Auditor. Six of these were directly payable
to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez
as second indorser. On various dates, all these warrants
were subsequently indorsed by Gloria Castillo as Cashier
of Golden and deposited to its savings account in the
Metrobank branch in Calapan, Mindoro. They were then
sent for clearing by the branch office to the principal office
of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. Castillo went to the Calapan
branch several times to ask whether the warrants had
been cleared and was told to wait. Later, however,
"exasperated" over Gloria's repeated inquiries and also as
an accommodation for a "valued client," Metrobank
finally decided to allow Golden to withdraw from the
104 ARTICLE 1909. The agent is responsible not only for fraud, but also for
according to whether the agency was or was not for a compensation.
(1726)
105 G.R. No. 88866, February 18,1991.
The Agent I 203
proceeds of the warrants. In turn, Golden subsequently

allowed Gomez to make withdrawals from his own
account. After all the withdrawals had been made,
Metrobank informed Golden that 32 of the warrants had
been dishonored by the Bureau of Treasury and
demanded the refund by Golden of the amount it had
previously withdrawn, to make up the deficit in its
account. Its demand rejected, Metrobank sued Golden.
The Court found that Metrobank was negligent in giving

Golden the impression that the treasury warrants had
been cleared and that, consequently, it was safe to allow
Gomez to withdraw the proceeds thereof from his
account with it.
Without such assurance, Golden Savings would not have
allowed the withdrawals; with such assurance, there was
no reason not to allow the withdrawal. Indeed, Golden
Savings might even have incurred liability for its refusal
to return the money that to all appearances belonged to
the depositor, who could therefore withdraw it any time
and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury

warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no clearing
facilities of its own. It relied on Metrobank to determine
the validity of the warrants through its own services. The
proceeds of the warrants were withheld from Gomez
until Metrobank allowed Golden Savings itself to
withdraw them from its own deposit. It was only when
Metrobank gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them from his
own account.
The argument of Metrobank that Golden Savings should

have exercised more care in checking the personal
circumstances of Gomez before accepting his deposit does
not hold water. It was Gomez who was entrusting the

warrants, not Golden Savings that was extending him a
loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not
withdraw its proceeds. There was no question of Gomez's
identity or of the genuineness of his signature as checked
by Golden Savings. In fact, the treasury warrants were
dishonored allegedly because of the forgery of the
signatures of the drawers, not of Gomez as payee or
indorser. Under the circumstances, it is clear that Golden
Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary careless-

ness. The amount involved was not trifling-more than
one and a half million pesos (and this was 1979). There
was no reason why it should not have waited until the
treasury warrants had been cleared; it would not have
lost a single centavo by waiting. Yet, despite the lack of
such clearance-and notwithstanding that it had not
received a single centavo from the proceeds of the
treasury warrants, as it now repeatedly stresses-it
allowed Golden Savings to withdraw-not once, not
twice, but thrice-from the uncleared treasury warrants
in the total amount of P968,000.00.
Its reason? It was "exasperated" over the persistent

inquiries of Gloria Castillo about the clearance and it also
wanted to "accommodate" a valued client. It "presumed"
that the warrants had been cleared simply because of "the
lapse of one week." For a bank with its long experience,
this explanation is unbelievably naive. 10 6 (citations
omitted)
The Court rejected Metrobank's argument that being a

mere collecting agent it cannot be liable to its principal
citing Article 1909. It said:
106 Metrobank v. CA, G.R. No. 88866, February 18,1991.

The Agent I 205
The negligence of Metrobank has been sufficiently

established. To repeat for emphasis, it was the clearance
given by it that assured Golden Savings it was already
safe to allow Gomez to withdraw the proceeds of the
treasury warrants he had deposited. Metrobank misled
Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted
by Golden Savings) but in any case, that clearance could
be implied from its allowing Golden Savings to withdraw
from its account not only once or even twice but three
times. The total withdrawal was in excess of its original
balance before the treasury warrants were deposited,
which only added to its belief that the treasury warrants
had indeed been cleared. 107
Thus, in this case, the Court applied Article 1909 where

the agent's own negligence caused damage to itself. The
application of Article 1909 in this case was to prevent
recovery by the agent from his principal.
Article 1909 also provides that the agent's liability for

fraud or negligence shall be judged with more or less
rigor by the courts, according to whether the agency was
or was not for a compensation. 10 8 This implies that if the
agent was compensated for his services, the amount of
damages he is liable for in case of fraud or negligence
may be more as compared to if he rendered his services
gratuitously. The provision may also be interpreted to
mean that an agent who is paid is required to exercise a
higher degree of diligence than an agent who is not.
C. Liability of Agents
Because an agent is merely representing his principal, he

should not be personally liable for acts he performed as
107 Id.
108 Article 1909.
an agent. But there are instances wherein an agent does

become liable.
1. When Solidary
If a principal simultaneously appoints more than one

agent, such agents are only solidarily liable if there is an
express stipulation.'l ° If there is such an express stipu-
lation, any of the agents can be held responsible for non-
fulfillment of the agency or injuries caused by fault or
negligence caused by the other agents."' However, if the
injury caused by fault or negligence resulted from an act
beyond the scope of the authority of the said agent, the
other agents are not solidarily liable.11 2
The simultaneous appointment of agents is similar to the

appointment of joint agents under U.S. law.
An agency conferred on two or more persons by a single

act of authorization is presumptively joint, in the absence
of a clear showing of a contrary intent, and must be
exercised only by the unanimous action of the designated
agents. In such case, the principal is deemed to have
bargained for and desired the combined personal ability,
experience, judgment, integrity, and other personal
qualities of the agents. However, the presumption will
give way to a clearly expressed intention that the agents
will have the power to act severally. Moreover, one of two
or more joint agents may be delegated the task of
110 ARTICLE 1894. The responsibility of two or more agents, even though
they have been appointed simultaneously, is not solidary, if solidarity has
not been expressly stipulated. (1723)
Il ARTICLE 1895. If solidarity has been agreed upon, each of the agents is
responsible for the non-fulfillment of the agency, and for the fault or
negligence of his fellows agents, except in the latter case when the fellow
agents acted beyond the scope of their authority. (n)
112 Id.
The Agent I 207
conducting the formalities or ministerial acts in

connection with the duties of the agency." 3 (citations
omitted)
Based on this authority, if there is a joint agency, agency

acts are performed by unanimous action by the designated
agents unless otherwise stipulated. There is no such
requirement for agents appointed simultaneously under
the code.
2. When Personally Liable
a. Expressly Bound or In Excess of Authority
As a general rule, when the agent transacts as an agent, he

114
is not personally liable for the obligation entered into.
Because the agent is merely representing his principal,
only the principal should be held liable. But the agent can
be held liable for obligations he entered into as an agent
in the following cases: 115
a. when the agent expressly binds himself;
b. when the agent exceeds the limits of his authority

without giving the person he is transacting with
sufficient notice of his powers;
c. when the following elements are present:
113 3 AM. JuR. 2d Agency § 172(2011)

114 ARTICLE 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient
notice of his powers. (1725)
115 Articles 1897 and 1898.
" the person transacting with the agent is aware

of the limits of the agent's authority;
" the agent exceeded the scope of his authority;
* the agent undertook to secure the principal's

ratification; and
* the principal does not ratify the contract.
The first two cases are covered by Article 1897,116 while

the third is covered by Article 1898.117 Explaining Article
1897, in Eurotech v. Cuizon,118 the Court stated:
Article 1897 reinforces the familiar doctrine that an agent,
who acts as such, is not personally liable to the party with
whom he contracts. The same provision, however,
presents two instances when an agent becomes personally
liable to a third person. The first is when he expressly
binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be
held liable if he does not give the third party sufficient
notice of his powers. 119
The Court ruled that the agent in this case acted within
the scope of his authority, which made Article 1897
inapplicable. In addition, the Court took note of the fact
that third party is seeking to recover both from principal
116 Article 1897.

117 ARTICLE 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is
aware of the limits of the powers granted by the principal. In this case,
however, the agent is liable if he undertook to secure the principal's
ratification. (n)
18 G.R. No. 167552, April 23, 2007.
119 Id.
The Agent 1 209
and agent, which is not what is contemplated under

Article 1897. It said:
To reiterate, the first part of Article 1897 declares that the

principal is liable in cases when the agent acted within the
bounds of his authority. Under this, the agent is
completely absolved of any liability. The second part of
the said provision presents the situations when the agent
himself becomes liable to a third party when he expressly
binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person.
However, it must be pointed out that in case of excess of
authority by the agent, like what petitioner claims exists
here, the law does not say that a third person can recover
from both the principal and the agent.12m (emphasis
supplied)
In DBP v. CA,121 Juan Dans applied for a loan with the

Development Bank of the Philippines ("DBP"). Dans, then
76 years of age, was advised by DBP to obtain a mortgage
redemption insurance ("MRI") with the DBP Mortgage
Redemption Insurance Pool ("DBP MRI Pool"). From the
proceeds of the loan, DBP deducted the payment for the
MRI premium. The MRI premium of Dans, less the DBP
service fee of 10%, was credited by DBP to the savings
account of the DBP MRI Pool. Accordingly, the DBP MRI
Pool was advised of the credit. Later, Dans died of
cardiac arrest. The DBP MRI Pool notified DBP that Dans
was not eligible for MRI coverage, being over the
acceptance age limit of 60 years at the time of application.
DBP apprised Candida Dans of the disapproval of her late
husband's MRI application. Dans' estate, filed a com-
1m Id.
121 G.R. No. 109937, March 21,1994.
plaint against DBP and the insurance pool for "Collection

of Sum of Money with Damages."
The Court ruled against DBP. It explained that in dealing

with Dans, DBP was wearing two legal hats: the first as a
lender, and the second as an insurance agent. The Court
then applied Article 1897.
The DBP is not authorized to accept applications for MRI

when its clients are more than 60 years of age. Knowing
all the while that Dans was ineligible for MRI coverage
because of his advanced age, DBP exceeded the scope of
its authority when it accepted Dan's application for MRI
by collecting the insurance premium, and deducting its
agent's commission and service fee.
The liability of an agent who exceeds the scope of his

authority depends upon whether the third person is
aware of the limits of the agent's powers. There is no
showing that Dans knew of the limitation on DBP's
authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of

the limits of the authority conferred by the principal on
the agent and he (third person) has been deceived by the
non-disclosure thereof by the agent, then the latter is
liable for damages to him .... The rule that the agent is
liable when he acts without authority is founded upon the
supposition that there has been some wrong or omission
on his part either in misrepresenting, or in affirming, or
concealing the authority under which he assumes to act ...
Inasmuch as the non-disclosure of the limits of the agency
carries with it the implication that a deception was
perpetrated on the unsuspecting client, the provisions of
Articles 19, 20 and 21 of the Civil Code of the Philippines
come into play.m (citations omitted)
In Dans v. DBP, G.R. No. 109937, March 21,1994.

The Agent I 211
b. Act in Own Name
Article 1883 provides for the consequences when the

agent acts in his own name. It states:
ARTICLE 1883. If an agent acts in his own name, the
principal has no right of action against the persons with
whom the agent has contracted; neither have such
persons against the principal.
In such case, the agent is the one directly bound in favor

of the person with whom he has contracted, as if the
transaction were his own, except when the contract
involves things belonging to the principal.
The provisions of this article shall be understood to be

without prejudice to the actions between the principal
and agent. (1717)
An agent "acts in his own name" when he enters into a

contract covering the subject matter of the agency without
notice to the third party that he was acting as an agent. In
this scenario, the third person believes in good faith that
he is dealing with the agent only. This situation is often
referred to as an agency with an undisclosed principal.
In this situation, the agent is directly bound as a party to

the contract. The principal and the contracting party have
no right of action against each other because the contract
is deemed between the agent and the third person.
However, the second paragraph of Article 1883 states that

the agent is directly bound "except when the contract
involves things belonging to the principal." But this does
not mean that if the agent acts in his own name using
property belonging to his principal he is no longer liable.
He remains liable to both the principal and third person.
Otherwise, agents who use the property of their

principals for personal contracts would be able to escape
liability. This exception is not intended to countenance
fraudulent behavior but merely to bind the principal to
the contract even if he was not a party.
In Beaumont v. Prieto,123 the agent issued a note whereby

he granted a prospective buyer of a parcel of land
belonging to his principal, an option to purchase the said
property. He signed the note in his own name. The
buyer accepted the offer. Later, the buyer sued both the
agent and the principal for failure to provide documents
pertaining to the proposed sale. The agent sought to
dismiss the complaint on the ground of misjoinder as he
believed he should not be a party to the case. The Court
ruled that there was no misjoinder because the exception
"does not say that such person does not have, and cannot
bring an action against the agent also."1 24
c. Special Obligations of Commission Agents
Articles 1903 to 1908, pertains to commission agents. A

commission agent, also known as factor, pertains to an
agent entitled to the possession of the goods of the
principal. 125 - Mechem defines a factor as one whose
business it is to receive and sell goods for a
commission." 126 He adds:
He is often called a commission merchant. If he
guarantees payment for the goods he sells, he is said to
SG.R. No. 8988, March 30,1916.

124 Id.
12 AmROSIO PADLLA, CIVI LAW: CvIL CoDE ANNOrATED VOL VI (1987) 376.
12 Mechem (1903) §23.
The Agent I 213
act under a del credere commission. When authorized to

sell a cargo which he accompanies on the voyage, he is
called a super-cargo.'l
In Lindstrom v. Baybankm28 the Superior Court of

Massachusetts defined a "factor" as:
a commercial agent, employed by a principal to sell

merchandise consigned to him for that purpose, for and
in behalf of the principal, but usually in his own name,
being intrusted with the possession and control of the
goods and being renumerated by a commission,
commonly called "factorage."12 9
Thus, a commission agent is one who receives goods from

his principal, for sale to third persons. For this service the
agent is entitled to commission for goods sold.
Commission agents have the following obligations:
1. They are responsible for the goods received in the

terms and conditions and as described in the
consignment, unless upon receiving them they should
make a written statement of the damage and deterioration
130
suffered by the same.
This means that the agent is estopped from claiming that

the goods he received was not as described in the
consignment. If there is damage or deterioration, the
agent should have made a written statement of the same.
If he does not, he cannot later on return the goods to his
w Id.
lu No. 911644, Jan. 26, 1993. Not Reported in N.E2d, 1993 WL 818593
(Massuper.)
W Lindstrom v. Baybank, citing Black's Law Dictionary 4th ed.
M Article 1903.
principal on the ground of such defect or damage. The

agent's failure to issue the written statement may give rise
to a presumption that the goods deteriorated or were
damaged while under the agent's custody. The rule may
also be applied to a case where a third party returns the
goods on the ground of deterioration or damage through
no fault of the third party. In such a case, the agent may
have to bear the loss.
This rule is adopted from Article 265 of the Code of

Commerce, 131 which stated:
ARTICLE 265. The agent shall be liable for the goods and
merchandise he may receive, in the terms and with the
conditions and descriptions he has been informed of in
the consignments, unless he proves, in receiving the same,
the averages and deterioration it has suffered, comparing
its condition with the contents of the bill of lading or
charter or of the instructions received from the principal.
2. If handling goods of the same kind and mark, which

belong to different owners the commission agent must:132
* distinguish them by countermarks, and
* designate the merchandise respectively belonging

to each principal.
Under this rule the commission agent is prohibited from

commingling goods belonging to different owners. 133 That
the goods be "of the same kind and mark" implies that the
131 PADILLA,supra note 125, at 376.

B2Article 1904.
m PADILLA, supra note 125, at 376.
The Agent I 215
rule applies when the goods appear to be identical

although belonging to different owners.
This rule was adopted from Article 268 of the Code of

Commerce' 34 which stated:
ARTICLE 268. Agents cannot handle goods of the same
kind belonging to different parties, bearing the same
mark, without distinguishing them by a countermark, in
order to avoid confusion and for the purpose of
designating the respective property of each principal.
3. The commission agent cannot sell on credit without

the consent of the principal. 135 If he sells on credit without
consent, 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. 136
There must be an express authority from the principal for

the commission agent to sell on credit. This rule is
adopted from Article 270 of the Code of Commerce 137
which stated:
ARTICLE 270. An agent cannot, without authority from
the principal, loan or sell on credit or on time, the
principal being permitted in such cases to require cash
payment of the agent, leaving him any interest, profit, or
advantage which may arise from said credit on time.
4. If he sells on credit with the authority of the principal

he shall so inform the principal, with a statement of the
names of the buyers. 138 If he does not inform the
134 Id., at 381.
13 Article 1905.
I Id.
137 PADILLA, supra note 125, at 383.
138Article 1906.
principal, the sale shall be deemed to have been made for

cash insofar as the principal is concerned. 139
This rule is adopted from Article 271 of the Code of

Commerce' 40 which stated:
ARTICLE 271. If an agent, with the due authority, sells on
time, he must so state it in the account or in the
communication to the principal, informing him of the
names of the purchasers; and should he not do so, the sale
shall be considered as made for cash, in so far as the
principal is concerned.
5. If the commission agent receives on a sale, in

addition to the ordinary commission, a guarantee
141
commission, he shall:
* bear the risk of collection and
pay the principal the proceeds of the sale on the

same terms agreed upon with the purchaser.
The additional commission justifies the additional risk on

the part of the commission agent. In this case, the agent
becomes a guarantor of the payment of debts of
purchasers. This rule implies that ordinarily, a
commission agent does not guaranty such debts. This rule
is adopted from Article 272 of the Code of Commerce, 142
which stated:
ARTICLE 272. If an agent receives for a sale, besides the
ordinary commission, another one called a guaranty
1N Id.
140 PADLA, supra note 125, at 383.
141 Article 1907.
142 PADLLA, supra note 125, at 384.
The Agent I 217
commission, the risks of the collection shall be for his

account, being obliged to pay the principal the proceeds
of the sale at the same periods as agreed upon with the
purchaser.
6. If the commission agent does not collect the credits of

his principal at the time when they become due and
demandable he is liable for damages except when he
proves that he exercised due diligence for that purpose. 143
The commission agent has a duty to collect credits when

they become due. This rule is adopted from Article 273 of
the Code of Commerce, 144 which stated:
ARTICLE 273. An agent who does not make the collection
of the credits of his principal at the period they are
demandable, shall be liable for the losses arising from his
negligence or delay unless he proves that he at the proper
time made use of the legal remedies to recover the
payment.
'Queotionis for Discussion

1. Atty. A is a well kown awyer who works probno lfor thi
poor.' M P hired him t6 represent him in a labor dispute
where P claimed he was ,illegally dismissed. T lost the casev
When A sent I bill T refused'to pay claiming that their
arrangemtent was pro bon because he was,poor-and needy.,
A never told 1i that he was going to charge him for his'
-serices. IsA entitld to compensation?
A asked B,"Wou0d- you ll2.- tobe one 'ofmy Agents?" B
agreed and began to work for A alng with the other agets'
without askg how Wmuh
ommission will be. After
several'.succeful tactisB aked for his commissin
143 Artide 1908.

144 PADLLA, supra note 125, at 384.
A said, "When you work for me, you work for prestige and
not commission." Is B entitled to commission? What if all
the agents of A don't earn commissions?
3. If the agent in Sanchez v. Medicard is considered a broker,'
would he be entitled to commission?
4. Does the requirement of a written authority under Articles
1874 apply to sales through a broker?
5. In Woodchild v. Roxas, was not the grant of the right of way
* and option to purchase an "act conducive" to the agency
and therefore within the authority of the agent?
6. Can you provide specific examples of how a principal may
give instructions to an agent on how to conduct the
business? In what types of businesses are these examples
often seen?
7. Corporate officer A entered into contracts with client B
without prior approval from the Board of Directors of
Corporation C. The by-laws of C require prior approval
from the Board of Directors for these particular contracts
but in times past has allowed officer A to enter into such
contracts without prior approval. Can a member of the'
board attack the validity of the contracts later on? What if
it is B who impugns the contract?
8. What could be the reason behind the rule that an agent is
presumed to be authorized to appoint a substitute?
9. Under Article 1887, is it possible for the principal to instruct
his agent to exercise diligence less than that of a good father
of a family?
10. How do you explain the second sentence of Article 1884?
11. If the commission agent sells on credit even though he is
not authorized to do so, is the transaction unenforceable? If
he sells on credit with authorization but does not inform his
principal of the names of the buyers, is the transaction
unenforceable?
IV. THE PRINCIPAL
A. Obligations of Principal
1. Comply with Obligations
Article 1910 of the Civil Code1 provides that the principal

must comply with all the obligations that the agent
contracted within the scope of his authority. If the agent
acted beyond the scope of his authority, the principal is
only bound to comply if he ratifies the agent's act.
a. Acts within the Scope of Authority
Pursuant to Articles 18812 and 1882,3 conducive acts and

advantageous acts are deemed within the scope of the
agents authority even if not expressly specified in the
power of attorney.4 However, the fact that the agent's
acts are conducive or advantageous will not cure the
defect if the law requires that the authority for such act be
expressly or specifically conferred.5 Also, Article 19006
1 ARTICLE 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)
2 ARTICLE 1881. The agent must act within the scope of his authority. He
may do such acts as may be conducive to the accomplishment of the
purpose of the agency. (1714a)
3 ARTICLE 1882. The limits of the agent's authority shall not be considered
exceeded should it have been performed in a manner more advantageous
to the principal than that specified by him. (1715)
4 See discussion in Chapter I.
5 See Article 1878.
have been performed within the scope of.the agent's authority, if such act
20 Analysis of Philippine Agency Law and Jurisprudence
binds the principal to the scope of authority described in

the written power of attorney even if by virtue of an
understanding between agent and principal, the agent in
fact exceeded his authority.
In addition to conducive and advantageousacts, there is also

authority for the view that the agent is authorized to do
"collateral acts which are the natural and ordinary
incidents of the main act or business authorized." 7 Thus,
the principal may be bound to comply with such
collateral acts.
b. Ratified Acts
In addition to ratification under Article 1910, Article 1901

of the Civil Code8 provides that when the principal has
ratified or has signified his willingness to ratify the agent's
unauthorized act, the third person dealing with the agent
is bound by such act. This means that the principal can
bind the third person to the unauthorized act of his agent
by simply signifying his willingness to ratify, without
actually ratifying it. Of course, eventually the principal
would have to ratify the act. But the provision gives
binding effect to the unauthorized act even prior to actual
ratification. While the provision's purpose is to bind the
third person to the agent's act, it is reasonable that the
understanding between the principal and the agent (n)
7 Guinhawa v. People, G.R. No. 162822, August 25, 2005. See discussion in
Chapter M.
8 ARTICLE 1901. A third person cannot set up the fact that the agent has
exceeded his powers, if the principal has ratified,, or has signified his
willingness to ratify the agent's acts. (n)
The Principal 1 221
same should apply to the principal. Ifa principal's

willingness to ratify the unauthorized act binds a third
person, certainly it should bind him as well.
In Filipina Life v. Pedroso,9 Teresita Pedroso was a policy

holder of a 20-year endowment life insurance issued by
Filipinas Life Assurance Company ("Filipinas Life").
Pedroso alleged that since 1972, Renato Valle was the
insurance agent who collected her monthly premiums.
On January 1977, Valle told her that the Filipinas Life
Escolta Office was holding a promotional investment
program offering 8% prepaid interest a month for certain
amounts deposited on a monthly basis. Pedroso invested
and issued a post-dated check for P10,000 and in return,
Valle issued Pedroso his personal check for P800 for the
8% prepaid interest and a Filipinas Life "Agent's Receipt"
No. 807838. Subsequently, she confirmed the existence of
the promotion with the branch manager, Angel Apetrior.
Pedroso inquired about the promotional investment and
Apetrior confirmed that there was such a promotion.
Pedroso's check was deposited in the account of Filipinas
Life with the Commercial Bank and Trust Company,
Escolta Branch. Relying on the representations made by
the Filipinas Life's duly authorized representatives
Apetrior and Alcantara, as well as having known agent
Valle for quite some time, Pedroso waited for the
maturity of her initial investment. A month after, her
investment of P10,000 was returned to her after she made
a written request for its refund. After a second
investment, she made 7 to 8 more investments in varying
amounts, totaling P37,000 but at a lower rate of 5%
9 G.R. No. 159489, February 4,2008.

prepaid interest a month. Upon maturity of Pedroso's

subsequent investments, Valle would take back from
Pedroso the corresponding yellow-colored agent's receipt
he issued to the latter. Pedroso told Jennifer Palacio, also
a Filipinas Life insurance policyholder, about the
investment plan. Palacio made a total investment of
P49,550 but only at 5% prepaid interest. However, when
Pedroso tried to withdraw her investment, Valle did not
want to return some P17,000 worth of it. Palacio also tried
to withdraw hers, but Filipinas Life, despite demands,
refused to return her money. Pedroso et al. filed an action
for the recovery of a sum of money. Filipinas Life claimed
that the investment scheme offered by its agents was
outside the scope of their authority.
The Court ruled against Filipinas Life. It explained:

It appears indisputable that respondents Pedroso and
Palacio had invested P47,000 and P49,550, respectively.
These were received by Valle and remitted to Filipinas
Life, using Filipinas Life's official receipts, whose
authenticity were not disputed. Valle's authority to
solicit and receive investments was also established by the
parties. When respondents sought confirmation,
Alcantara, holding a supervisory position, and Apetrior,
the branch manager, confirmed that Valle had authority.
While it is true that a person dealing with an agent is put
upon inquiry and must discover at his own peril the
agent's authority, in this case, respondents did exercise
due diligence in removing all doubts and in confirming
the validity of the representations made by Valle.
Filipinas Life, as the principal, is liable for obligations

contracted by its agent Valle. 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. The general rule is
that the principal is responsible for the acts of its agent
The Principal 1 223
done within the scope of its authority, and should bear

the damage caused to third persons. When the agent
exceeds his authority, the agent becomes personally liable
for the damage. But even when the agent exceeds his
authority, the principal is still solidarily liable together
with the agent if the principal allowed the agent to act
as though the agent had full powers. In other words, the
acts of an agent beyond the scope of his authority do not
bind the principal, unless the principal ratifies them,
expressly or impliedly. Ratification in agency is the
adoption or confirmation by one person of an act
performed on his behalf by another without authority.
Filipinas Life cannot profess ignorance of Valle's acts.

Even if Valle's representations were beyond his authority
as a debit/insurance agent, Filipinas Life thru Alcantara
and Apetrior expressly and knowingly ratified Valle's
acts. It cannot even be denied that Filipinas Life
benefited from the investments deposited by Valle in
the account of Filipinas Life. In our considered view,
Filipinas Life had clothed Valle with apparent authority;
hence, it is now estopped to deny said authority.
Innocent third persons should not be prejudiced if the
principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal
ratified his agent's acts beyond the latter's authority.
The act of the agent is considered that of the principal
itself. Qui per alium facit per seipsumfacere videtur. "He who
does a thing by an agent is considered as doing it
himself."' 0 (citations omitted, emphasis supplied)
Thus, in this case, the Court ruled that Filipinas Life

ratified the acts of its agent by benefitting from the
alleged unauthorized investments.1
10FilipinasLife v. Pedroso,G.R. No. 159489, February 4, 2008.

11The Court in this case considered the act of accepting benefits both as
ratification and estoppel on the part of the agent This raises interesting
questions whether an agency by estoppel can exist if there is an actual
agency.
The Court made a similar ruling in Franciscov. GSIS. 12 In

this case, the corporate principal wanted to invalidate the
agent's acceptance of an offer of compromise by alleging
that the telegram wherein the acceptance was made was
sent not by the agent but by his secretary and that there
was "mistake in couching the correct wording." The Court
rejected these arguments stating that "there was nothing
in the telegram that hinted at any anomaly or gave
ground to suspect its veracity" and the third person
should not be blamed for relying on it. More importantly,
the principal accepted the remitted amount from the third
person and kept silent about the telegram not being in
accordance with the true facts as it later alleged in court.
The Court ruled that "[t]his silence, taken together with
the unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a binding
ratification of the original agreement" and cited Article
1393, which states:
ARTICLE 1393. Ratification may be effected expressly or

tacitly. It is understood that there is a tacit ratification if,
with knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who
has a right to invoke it should execute an act which
necessarily implies an intention to waive his right. (1311a)
But in some cases, the Court considered the mere

acceptance of benefits from a disputed contract as not
sufficient basis for ratification.
12 G.R. No. L-18287, March 30,1963. A more detailed discussion of the facts
of this case is found in Chapter IlL
The Principal 225
For instance, in Manila Memorial v. Linsangan,13 the Court

did not consider the acceptance and encashment of checks
as sufficient basis for ratification. In this case, Florencia
Baluyot offered Atty. Pedro Linsangan a lot at the Holy
Cross Memorial Park owned by Manila Memorial Park
Cemetery Inc. ("MMPCI"). According to Baluyot, a former
owner of a memorial lot was no longer interested in
acquiring the lot and had opted to sell his rights subject to
reimbursement of the amounts he already paid. Baluyot
reassured Atty. Linsangan that once reimbursement is
made to the former buyer, the contract would be
transferred to him. Atty. Linsangan agreed and gave
Baluyot the amount to be reimbursed to the original
buyer and to complete the down payment to MMPCI.
Baluyot issued handwritten and typewritten receipts for
these payments. Baluyot informed Atty. Linsangan that
he would be issued a new contract covering the subject lot
in the name of the latter instead of the old contract. Atty.
Linsangan protested, but Baluyot assured him that he
would still be paying the old price. Subsequently, Baluyot
brought an "Offer to Purchase Lot" with a new contract
price. Atty. Linsangan objected to the new contract price,
as the same was not the amount previously agreed upon.
To convince Atty. Linsangan, Baluyot executed a
document confirming that Atty. Linsangan would pay
only the original price. Atty. Linsangan issued 12
postdated checks in favor of MMPCI and the next year,
Atty. Linsangan again issued 12 postdated checks in favor
of MMPCI. Later, Baluyot verbally advised Atty.
Linsangan that the contract was cancelled for reasons the
former could not explain, and presented to him another
13 G.R. No. 151319, November 22, 2004.

proposal for the purchase of an equivalent property. Atty.

Linsangan filed a Complaint for Breach of Contract and
Damages against MVPCI.
The Court ruled in favor of MMPCI because the contract

entered into by Atty. Linsangan and Baluyot was outside
of the latter's authority.
The Court also did not agree with the trial court's ruling
that MMPCI's acts of accepting and encashing the checks
issued by Atty. Linsangan as well as allowing Baluyot to
receive checks drawn in the name of MMPCI confirm and
ratify the contract of agency.
Ratification in agency is the adoption or confirmation by

one person of an act performed on his behalf by another
without authority. The substance of the doctrine is
confirmation after conduct, amounting to a substitute for
a prior authority. Ordinarily, the principal must have full
knowledge at the time of ratification of all the material
facts and circumstances relating to the unauthorized act
of the person who assumed to act as agent. Thus, if
material facts were suppressed or unknown, there can be
no valid ratification and this regardless of the purpose or
lack thereof in concealing such facts and regardless of the
parties between whom the question of ratification may
arise. Nevertheless, this principle does not apply if the
principal's ignorance of the material facts and
circumstances was willful, or that the principal chooses
to act in ignorance of the facts. However, in the absence
of circumstances putting a reasonably prudent man on
inquiry, ratification cannot be implied as against the
principal who is ignorant of the facts. 14 (citations
omitted, emphasis supplied)
14 ManilaMemorial v. Linsangan, G.E. No. 151319, November 2Z 2004.

The Principal 1 227
Based on this case, in order for there to be ratification, the

principal must have full knowledge at the time of
ratification of all the material facts. If the principal did
not know all of the material facts, there is no ratification.
The exception is when the principal's ignorance was
willful.
In this case, the Court found that:
Atty. Linsangan failed to show that MMPCI had

knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as stated in
the Offer to Purchase signed by Atty. Linsangan and
MMPCI's authorized officer. The down payment of
P19,838.00 given by Atty. Linsangan was in accordance
with the contract as well. Payments of P3,235.00 for at
least two installments were likewise in accord with the
contract, albeit made through a check and partly in cash.
In view of Baluyot's failure to give her share in the
payment, MMPCI received only P1,800.00 checks, which
were clearly insufficient payment. In fact, Atty. Linsangan
would have incurred arrearages that could have caused
the earlier cancellation of the contract, if not for MMPC's
application of some of the checks to his account.
However, the checks alone were not sufficient to cover his
obligations.
If MMPCI was aware of the arrangement, it would have

refused the latter's check payments for being insufficient.
It would not have applied to his account the P1,800.00
checks. Moreover, the fact that Baluyot had to practically
explain to MMPCI's Sales Manager the details of her
"arrangement" with Atty. Linsangan and admit to having
made an error in entering such arrangement confirm that
MMCPI had no knowledge of the said agreement. It was
only when Baluyot filed her Answer that she claimed that
5
MMCPI was fully aware of the agreement.'
15 ManilaMemorial v. Linsangan,G.R. No. 151319, November 22, 2004.

Thus, in this case, despite the acceptance of the checks, the

Court ruled that there was no ratification because of lack
of knowledge on the part of the principal.
Similarly, the Court ruled that there was no ratification in

the case of Woodchild v. Roxas.16 In this case, the principal
questioned the validity of terms and conditions included
in a Deed of Absolute Sale over a lot executed by its agent
by arguing that the agent was not specifically authorized
to agree to such terms. The controversial provisions
involved the grant of a right of way and sale of a portion
of another lot should the right of way not be sufficient.
The third person alleged that the principal never objected
to the agent's acceptance of the terms, allowed the agent
to execute, the Deed of Sale and received the purchase
price without any objections to the terms and conditions.
The Court ruled in favor of the principal pointing out that
the agent was not specifically authorized to agree to the
controverted terms nor could such authority be implied
from the authority granted to the agent to sell the lot "on
such terms and conditions which he deems most
reasonable and advantageous." This is because the
controversial terms involved real rights over immovable
property, which under Article 1878 of the Civil Code
requires a special power of attorney. The Court ratio-
cinated that the third person cannot feign ignorance of the
need for specific authorization on the part of the agent
because "[t]he rule is that if the act of the agent is one
16 G.R. No. 140667, August 12, 2004. A more detailed discussion of the facts of
this case is found in Chapter MII.
The Principal 1 229
which requires authority in writing, those dealing with

him are charged with notice of that fact.' 7
The third person in this case also argued that, in allowing

the agent to execute the deed of sale the principal gave the
agent apparent authority. The Court ruled however that
absent estoppel or ratification, apparent authority cannot
remedy the lack of written power.' 8 Apparent or implied
authority only goes into whether an agency exists or not.
Even if there was an implied agency the law still requires
that the agent be specifically authorized for the
transaction in question.
As to ratification, the argument made was that by
receiving and retaining the purchase price of the lot, the
principal effectively and impliedly ratified the grant of a
right of way and to grant an option to sell a portion
thereof. The Court rejected this argument on the ground
that there was a sale and that the third person had taken
possession of the property. Therefore, the principal, had
the right to retain the purchase price of the property. The
Court ruled that "[flor an act of the principal to be
considered as an implied ratification of an unauthorized
act of an agent, such act must be inconsistent with any
other hypothesis than that he approved and intended to
17Woodchild v.Roxas, citing State v. Sellers and Resolute Insurance Company, 258
N.W.2d 292 (1977). However, Article 1878 does not require the special
power of attorney to be in writing. It is Article 1874 which requires a
written authority for agents to sell land or any interest therein.
IsThe Court referred to a "statement of frauds" as basis for stating that a
written power is required. Perhaps what the Court meant was the statute
of frauds. Perhaps it would have been more appropriate to refer to Article
1878.
adopt what had been done in his name."'19 The Court

ruled further that "[rlatification cannot be inferred from
acts that a principal has a right to do independently of the
unauthorized act of the agent"2 0 and that "if a writing is
required to grant an authority to do a particular act,
ratification of that act must also be in writing."21
With all due respect to the Court, there may have been
ratification in this case. It may be appropriate to point out
that the principal was not forced to accept the Deed of
Absolute Sale or to receive payment pursuant thereto. It
could have at any time rejected the provisions regarding
the right of way and the option to purchase. In fact, the
Deed of Absolute Sale was not the first time the said
provisions were brought to the attention of the principal.
The third person sent a letter offering to purchase the said
property which included the terms in question. Even if
the principal did not pay attention to this letter, the rule
that notice to the agent is notice to the principal should
not be overlooked. Thus, despite the knowledge of these
provisions the principal allowed the agent to execute the
contract.
The Court argued that there was a sale and the principal
had the right to retain the purchase price because the
buyer took possession. But the question arises: Is the
principal's right to retain independent of the act of the
19Woodchild v. Roxas, G.R. No. 140667, August 12, 2004, citing The Board of
Supervisors v. Schack, 18 L.E.2d 556 (1897); American Food Corporation v.
Central CarolinaBank & Trust Company, 291 S.W.2d 892.
20Woodchild v. Roxas, G.R. No. 140667, August 12, 2004.
n Id.citing REuscHuN AND GREGORY, THE LAW oF AGENCY AND PARTNERSHIP,
2nd ed., p. 75.
The Principal 1 231
agent? Isn't it precisely because there was a sale, that the

seller had the right to payment and the buyer, the right to
the property under the terms and conditions set forth in
the Deed of Absolute Sale? The "sale" involved not
merely the transfer of ownership over the lot but also the
appurtenant terms and conditions set forth in the
contract.
Furthermore, the buyer was made to believe that the

principal agreed to everything in the Deed of Absolute
sale. At no point prior to the acceptance of the payment
did the seller object to the questioned provisions. To
belatedly inform the buyer that the seller does not intend
to honor the entire contract is bad faith on the part of the
principal.
The Court required that the acceptance and retention of

the purchase price be inconsistent with any other
hypothesis than the intention to ratify. But what is the
other possible valid reason for the acceptance and
retention if not acceptance of the terms of the Deed of
Absolute Sale? Regarding this argument the Court
simply said:
It bears stressing that the respondent sold Lot No. 491-A-
3-B-2 to the petitioner, and the latter had taken possession
of the property. As such, the respondent had the right to
retain the P5,000,000, the purchase price of the property it
had sold to the petitioner.
If the amount accepted by the principal is not in the

concept of payment and therefore acceptance of the terms
of the Deed of Sale, why was it accepted? Looking at the
quoted reason of the Court, the only other possibility was
that it was some form of security for the principal because
the buyer was given possession over the lot. If that was
the case then the Court should have ordered the buyer to
return the lot and the principal to return the purchase
price. But it would not be just for the seller to reap the
benefits of the sale and not honor his obligations to the
buyer.
c. When Estopped
Article 1911 of the Civil Coder provides that in cases

where the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers. In this case,
there is an actual agency relationship except that the
power exercised by the agent is in excess of his authority.
Nevertheless, despite the fact that the act is unauthorized,
the principal is still solidarily liable. Thus, this is not a
case of agency by estoppel because there is an actual
agency. Neither is the agency necessarily implied because
the rule will apply even with an express agency in place.
What the rule covers is not the existence of an agency but
the absence of express authority. Despite the absence of
express authority the principal is solidarily liable because
he allowed the agent to act as if he had authority. The act
of the principal may be characterized as a failure to
repudiate which indicates an implied authority. At the
very least, the principal is estopped from denying the
authority of the agent because of such failure.
22 ARTICLE 1911.Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter
to act as though he had full powers. (n)
The Principal 1 233
In Rural Bank of Milaor v. Ocfmia,23 the Court applied the

principle of estoppel to bind the principal. In this case,
Felicisimo and Juanita Ocfemia mortgaged seven parcels
of land to the bank. They were unable to redeem, so the
mortgage was foreclosed and ownership transferred to
the bank. The bank sold five parcels of land to Renato
and Juanita Ocfemia. To register the transfer, the
Ocfemias needed from the bank, a board resolution
confirming the Deed of Sale and the authority of Fe Tena,
the bank manager to enter into the transaction. But the
bank refused to issue it. The Ocfemias filed an action for
mandamus and damages. The lower courts ordered the
bank to issue a board resolution confirming the Deed of
Sale executed in favor of Renato Ocfemia.
In failing to file its answer specifically denying under oath

the Deed of Sale, the bank admitted the due execution of
the said contract. Such admission means that it
acknowledged that Tena was authorized to sign the Deed
of Sale on its behalf. 24
In addition to this procedural lapse, the Court found

another basis for ruling that Tena was authorized.
In any event, the bank acknowledged, by its own acts or

failure to act, the authority of Fe S. Tena to enter into
binding contracts. After the execution of the Deed of Sale,
respondents occupied the properties in dispute and paid
the real estate taxes due thereon. If the bank management
believed that it had title to the property, it should have
taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.
23 G.R. No. 137686, February 8,2000.

7ARural Bank of Milaorv. Ocfemia, G.R. No. 137686, February 8, 2000.
Likewise, Tena had previously transacted business on

behalf of the bank, and the latter had acknowledged her
authority. A bank is liable to innocent third persons
where representation is made in the course of its normal
business by an agent like Manager Tena, even though
such agent is abusing her authority. Clearly, persons
dealing with her could not be blamed for believing that
she was authorized to transact business for and on behalf
of the bank. 25 (emphasis supplied, citation omitted)
The Court cited Board of Liquidators v. Kalaw,26 where it

said:
Settled jurisprudence has it that where similar acts have

been approved by the directors as a matter of general
practice, custom, and policy, the general manager may
bind the company without formal authorization of the
board of directors. In varying language, existence of such
authority is established, by proof of the course of
business, the usages and practices of the company and
by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation.
So also,
... authority to act for and bind a corporation may

be presumed from acts of recognition in other
instances where the power was in fact exercised.
.... Thus, when, in the usual course of business of a

corporation, an officer has been allowed in his
official capacity to manage its affairs, his authority
to represent the corporation may be implied from
the manner in which he has been permitted by
the directors to manage its business. 27 (emphasis
supplied)
25id.
26 Id. citing Boardof Liquidatorsv. Kalaw, 20 SCRA 987,1005, August 14,1967.
27Id.
The Principal 1 235
The Court also cited Francisco v. GSIS,2 where the Court

said:
... Corporate transactions would speedily come to a
standstill were every person dealing with a corporation
held duty-bound to disbelieve every act of its responsible
officers, no matter how regular they should appear on
their face. This Court has observed in Ramirez vs.
OrientalistCo., 38 Phil. 634,654-655, that -
In passing upon the liability of a corporation in

cases of this kind it is always well to keep in mind
the situation as it presents itself to the third party
with whom the contract is made. Naturally he can
have little or no information as to what occurs in
corporate meetings; and he must necessarily rely
upon the external manifestation of corporate
consent. The integrity of commercial transactions
can only be maintained by holding the corporation
strictly to the liability fixed upon it by its agents in
accordance with law; and we would be sorry to
announce a doctrine which would permit the
property of man in the city of Paris to be whisked
out of his hands and carried into a remote quarter
of the earth without recourse against the
corporation whose name and authority had been
used in the manner disclosed in this case. As
already observed, it is familiar doctrine that if a
corporation knowingly permits one of its officers,
or any other agent, to do acts within the scope of
an apparent authority, and thus holds him out to
the public as possessing power to do those acts,
the corporation will, as against anyone who has in
good faith dealt with the corporation through such
agent, be estopped from denying his authority; and
where it is said 'if the corporation permits this
means the same as 'if the thing is permitted by the
directing power of the corporation.29
28Id. citing Franciscov. GSIS, 7 SCRA 577; 583-584, March 30, 1963.
29Id.
Thus, the Court ruled that the bank was estopped from
questioning the authority of the bank manager to enter
into the contract of sale.
Interestingly, the transaction involved a sale of a parcel of

land. Pursuant to Article 1874, when a sale of a piece of
land or any interest therein is through an agent, the
authority of the agent must be in writing. While the bank
may be estopped to deny the apparent authority it
granted to its agent, there is no escaping the clear
requirement under the Civil Code. It would be a different
matter if the Article and By-laws of the bank or a previous
board resolution authorized the bank manager to execute
deeds of sale of land owned by the bank. In which case,
the bank's argument meant that they were only disputing
the bank manager's authority in this particular case.
Similarly, in Cuison v. CA, 30 the issue was whether the

agent had sufficient authority from the principal. In this
case, Kue Cuison was a sole proprietorship with stores in
Baesa, Quezon City and Sto. Cristo Binondo, Manila,
engaged in the purchase and sale of newsprint, bond
paper and scrap. Valiant Investment Associates delivered
various kinds of paper products to Lilian Tan of LT
trading allegedly pursuant to orders made by Tiu Huy
Tiac employed in the Sto. Cristo Branch of Cuison. In
payment, Tiac issued checks which were later dishonored.
Valiant demanded payment from Cuison who denied
involvement in the transaction. Valiant filed an action for
collection.
30 G.R. No. 88539, October 26,1993.

The Principal I 237
The issue before the Court was whether Tiu Huy Tiac
possessed authority to enter into the disputed transaction.
one who clothes another with apparent authority as his

agent and holds him out to the public as such cannot be
permitted to deny the authority of such person to act as
his agent, to the prejudice of innocent third parties
dealing with such person in good faith and in the honest
belief that he is what he appears to be.31
The Court found that Cuison held out Tiu Huy Tiac to the
public as the manager of his store in Sto. Cristo, Binondo,
Manila. More particularly, he explicitly introduced Tiu
Huy Tiac to Bernardino Villanueva, Valiant's manager, as
his branch manager. Secondly, Lilian Tan, who had been
doing business with Cuison for quite a while, also
testified that she knew Tiu Huy Tiac to be the manager of
Cuison's Sto. Cristo, Binondo branch. This general
perception of Tiu Huy Tiac as the manager of Cuison's
Sto. Cristo store was made manifest by the fact that Tiu
Huy Tiac is known in the community to be the
"kinakapatid" of Cuison. Cuison, himself admitted his
close relationship with Tiu Huy Tiac when he said in
open court that they were "like brothers". Thus the Court
ruled that there was no reason for anybody especially
those transacting business with Cuison to even doubt the
authority of Tiu Huy Tiac as his manager in the Sto.
Cristo, Binondo branch.
31 Cuisonv. CA, G.R. No. 88539, October 26,1993, citing MacAk et al. v. Camps, 7
Phil. 553 [1907] and PhilippineNational Bank v. Courtof Appeals, 94 SCRA 357
[1979].
Thus, the Court ruled that because of his representations,

Cuison was estopped from disclaiming liability for the
transaction entered into by Tiu Huy Tiac on his behalf. It
said that it did not matter whether the representations
were intentional or merely negligent so long as innocent
third persons relied upon such representations in good
faith and for value.
The Court cited Manila Remnant Co., Inc. v. Court of

Appeals,3 2 where it said:
More in point, we find that by the principle of estoppel,

Manila Remnant is deemed to have allowed its agent to
act as though it had plenary powers. Article 1911 of the
Civil Code provides:
Even when the agent has exceeded his

authority, the principal is solidarily liable
with the agent if the former allowed the latter
to act as though he had full powers.
The above-quoted article is new. It is intended to protect

the rights of innocent persons. In such a situation, both
the principal and the agent may be considered as joint
tortfeasors whose liability is joint and solidary.
Authority by estoppel has arisen in the instant case

because by its negligence, the principal, Manila
Remnant, has permitted its agent, A.U. Valencia and Co.,
to exercise powers not granted to it. That the principal
might not have had actual knowledge of the agent's
misdeed is of no moment."33 (emphasis supplied)
32 Id. citing Manila Remnant v. CA, 191 SCRA 622 [1990].

3Id.
The Principal 1 239
The Court further stated that:

Tiu Huy Tiac, therefore, by petitioner's own represent-
ations and manifestations, became an agent of petitioner
by estoppel. Under the doctrine of estoppel, an admission
or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon. A party cannot be allowed to
go back on his own acts and representations to the
prejudice of the other party who, in good faith, relied
upon them.
Taken in this light, petitioner is liable for the transaction

entered into by Tiu Huy Tiac on his behalf. Thus, even
when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers, as in the case at
bar. 34 (citations omitted)
Two observations may be made about this case. First, the

Court's discussion focused on the existence of an agency
relationship between Cuison and Tiu Huy Tiac which is
different from the existence of authority on the part of the
latter to enter into the disputed transaction. Tiu Huy Tiac
may very well be the agent of Cuison but it did not
necessarily follow that his agency involved the
transactions in question. As manager of Cuison's store, it
may be presumed that he had authority to enter into such
transactions. But the Court did not discuss this. It may
also be said that Tiu Huy Tiac was granted an agency
couched in general terms such that he could perform acts
of administration. If the transactions were considered as
acts of administration then he was authorized to do so.
But the Court discussed none of these issues.
34 Cuison v. CA, G.R. No. 88539, October 26,1993.

Second, the Court characterized the relationship between

Cuison and Tiu Huy Tiac as an agency by estoppel.
While the facts as found by the Court may support the
existence of an agency by estoppel, as defined by statute
and jurisprudence,35 there appears to be an implied
agency and not merely an agency by estoppel. As
discussed in Chapter II of this volume, agency may be
implied from the acts of the principal or from the acts of
the agent. Agency may be implied from the principal's
silence, lack of action or failure to repudiate the agency
knowing that another person is acting on his behalf
without authority. Agency may also be implied from the
acts of the agent which carry out the agency. Both are
present in this case.
2. Advance/Reimburse
Under Article 1912 of the Civil Code, 36 the principal must

advance to the agent the sums necessary for the execution
of the agency upon the agent's request. If the agent
advances the necessary funds, the principal must
reimburse the agent even if the business or undertaking
was not successful, provided the agent is free from all
fault. The agent is entitled to interest on the sums
advanced from the day the advance was made.
35 See discussion in Chapter H for the distinction between the statutory and
jurisprudential basis for agency by estoppel.
36 ARTICLE 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)
The Principal 1 241
However, Article 1918 of the Civil Code exempts the

principal from reimbursing certain expenses of the agent.
These are:
a. expenses incurred in contravention of principal's

instructions and the principal does not wish to
avail himself of the benefits derived from the
contract;
b. expenses due to fault of the agent;
c. expenses incurred by the agent with the

knowledge that an unfavorable result would
ensue and the principal was unaware;
d. when there is a stipulation that expenses would

be borne by the agent or that he would be
allowed only a certain sum.
Item (d) should not mean that the principal is exempt

from reimbursement in all cases where there is a
stipulation that the agent is only allowed a certain sum for
expenses. A reasonable interpretation of the provision is
that the principal is exempted from reimbursing expenses
beyond the stipulated amount.
3. Indemnify
Article 1913 of the Civil Code 37 provides that the principal

must indemnify the agent for all the injury38 which the
37 ARTICLE 1913. The principal must also indemnify the agent for all the
damages which the execution of the agency may have caused the latter,
without fault or negligence on his part. (1729)
38
Article 1913 uses the term "damages" but the more precise term would be
injury which is defined by jurisprudence as the illegal invasion of legal
execution of the agency may have caused the latter,

without fault or negligence on his part. The provision
appears to contemplate a situation where the agent
suffered damage as a result of performing his duties as an
agent. Such damage must not be the result of the agent's
fault or negligence.
Two questions can arise from the application of this

provision. First, should the damage be a direct
consequence of the execution of the agency or is it
sufficient that such damage is incurred during the
execution of the agency? Equity would seem to dictate
that the latter should be the rule provided that the
damage would not have arisen had the agent not been
performing his duties.
Second, if the damage is caused by fault or negligence of a
third person, can the principal refuse to indemnify? The
use of the term "must" seems to imply that this refusal
would not be valid.
4. Compensate
Pursuant to Article 1875 of the Civil Code, the principal
has the obligation to compensate the agent even if this is
not specified in the power of attorney because under the
39
Civil Code agency is presumed to be for compensation.
As discussed in Chapter III of this volume, jurisprudence
has established rules regarding the circumstances when
right (Custodio v. CA, G.R. No. 116100, February 9,1996). Damages "are the
recompense or compensation awarded for the damage suffered" while
damage is the loss, hurt, or harm which results from the injury. (Custodio v.
CA, G.R. No. 116100, February 9,1996).
39 ARTICLE 1875. Agency is presumed to be for a compensation, unless
there is proof to the contrary. (n)
The Principal 1 243
an agent is entitled to compensation. First, it must be

determined whether the person is an agent or a broker.
For this, the authority granted to the agent and the terms
of compensation would need to be analyzed. In the case
of sales, an agent is generally required to be the procuring
agent of the sale while a broker is generally required only
to bring the parties together. Second, if the person is an
agent, then it must be determined if he has completed the
task required of him. There are cases where in equity the
Court granted the agent compensation even if the
transaction was not completed within the period of
agency. But even where the agent's authority has
expired, the Court has granted the agent his commission
if there is a close, proximate connection between the
agent's efforts and the sale.4°
B. Liability of the Principal
The principal is liable for the valid acts of the agent.

These include acts within the scope of the agent's
authority, those he ratified and those acts he is estopped
to deny. But in addition to these acts, the Civil Code
provides for specific rules on the nature and scope of the
principal's liability in relation to his agent.
1. Be Solidarily Liable
Under Article 1911 of the Civil Code,4 ' the principal can
be held solidarily liable with the agent in cases where the
agent has exceeded his authority, if the principal allowed
40 See discussion in Chapter M for a more detailed discussion of these

principles.
41ARTICLE 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter
to act as though he had full powers. (n)
the agent to act as if he had full powers. This may appear

to be a form of implied agency. But in an implied agency,
it is the principal who is liable for the contract and not the
agent. Under this provision, the principal is solidarily
liable with his agent.
In addition, under Article 1915 of the Civil Code, 42 a

principal may also be solidarily liable with another or
others as principals if they appointed the agent for a
common transaction or undertaking.
In De Castro v. CA, 43 an agent sued two out of four co-

owners of a parcel of land to recover his unpaid
commission for the sale of two parcels of land. Previously
one of the four co-owners issued to the agent a
handwritten note authorizing him to sell the properties.
The defendants argued that the agent's complaint should
have been dismissed for failure to implead the other co-
owners of the lots. The Court found that the said co-
owner signed the note as owner and as representativeof the
other co-owners. This means that all the four co-owners
were the agent's principals. More importantly, the Court
found that the co-owners admitted that they were
solidarily liable under the contract of agency. Therefore,
the defendants could not seek the dismissal for failure to
implead the other principals as indispensable parties.
The Court went on to discuss Article 1915 after making

this determination. The Court cited Tolentino who wrote:
42ARTICLE 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)
43 G.R No. 115838, July 18, 2002.
The Principal 1 245
The rule in this article applies even when the

appointments were made by the principals in separate
acts, provided that they are for the same transaction. The
solidarity arises from the common interest of the
principals, and not from the act of constituting the
agency. By virtue of this solidarity, the agent can recover
from any principal the whole compensation and
indemnity owing to him by the others. The parties,
however, may, by express agreement, negate this solidary
responsibility. The solidarity does not disappear by the
mere partition effected by the principals after the
accomplishment of the agency.
If the undertaking is one in which several are interested,

but only some create the agency, only the latter are
solidarily liable, without prejudice to the effects of
negotiorum gestio with respect to the others. And if the
power granted includes various transactions some of
which are common and others are not, only those 44
interested in each transaction shall be liable for it.
(emphasis supplied, citation omitted)
Interestingly, the Court cited Tolentino to reiterate the

effect of solidary liability -that the agent can recover
from any of the principals. But the quoted paragraphs
also provide for rules as to the manner of appointment
required by Article 1915. First, the principals may be
solidarily liable even if they appoint the agent via
separate acts provided that the appointment is for the
same transaction. Second, if there are several interested
parties in the undertaking, only those who create the
agency are solidarily liable. Thus, in a case where the
undertaking is the sale of a parcel of land owned in
common by several individuals, only those who authorize
the agent to sell can be solidarily liable under Article 1915.
"De Castro v. CA, G.R. No. 115838, July 18, 2002, citing ARTURo M.
TOLENTNO, COMMENTARIES AND JURSRUDENCE ON THE CIVIL CODE OF THE
PHn]PINES, Vol. 5, pp. 428-429,1992 ed.
In the case of De Castro,the Court found that the co-owner

signed the power of attorney as co-owner and as
representative of the others. Assuming he was authorized
to do so, this means that all four co-owners issued the
power of attorney.
Nevertheless, it seems clear that the rules from Tolentino's

discussion are obiter dicta considering that the Court
already made a ruling on the solidary nature of the
defendant's liability prior to the quote. This ruling was
based on the Court's finding that there was an admission
on the part of the defendants that they were solidarily
liable.
2. Contract Involves Things Belonging to Principal
As a general rule, if an agent acts in his own name, the

contract is deemed between the agent and the third party
and they do not have a right of action against the
principal. The principal is an outsider to the contract.
The third person cannot compel the principal to comply
with the obligation entered into by his agent. Therefore,
the general rule is that the principal is not bound, when
the agent acts in his own name.
The exception is provided by the second paragraph of

Article 1883-a contract that involves things belonging to
the principal.
Article 1883 provides:

ARTICLE 1883. If an agent acts in his own name, the
principal has no right of action against the persons with
whom the agent has contracted; neither have such
persons against the principal.
The Principal I 247
In such case, the agent is the one directly bound in favor

of the person with whom he has contracted, as if the
transaction were his own, except when the contract
involves things belonging to the principal.
The provisions of this article shall be understood to be

without prejudice to the actions between the principal
and agent. (1717)
As discussed in Chapter HI of this volume, the situation

covered by Article 1883 is often referred to as a case of
"agency with an undisclosed principal." As discussed in
that chapter, a contract of this nature does not mean that
the agent escapes from liability. If that were so, the
exception would allow the agent to commit fraud against
his principal without consequence on his part. The
exception, therefore is not an exception to the liability of
agents but to the non-liability of principals for contracts
entered into by agents in their own name.
Jurisprudence provides two rules regarding this

exception:
1. Principal and third persons have a right of action

against each other.
Thus, the principal is considered a party to the contract

even if the agent entered into it in his own name. This
means that the principal can enforce rights under the
contract even though it is not a party. 45 In addition, the
principal is entitled to the benefit of the transaction. 46
45 NFA v. LAC, G.R. No. 75640, April 5,1990.

"Syjuco v. Syjuco, G.R. No. 13471, January 12,1920.
In Syjuco v. Syjuco, 47 the agent was the administrator of

the properties of his principals and used their funds to
acquire property in his own name. The Court ruled that
the agent must transfer ownership over the property to
his principals. The Court explained that under the
exception "the agent is bound to the principal although he
does not assume the character of an agent and appears
acting in his own name."48 It further said:
This means that in case of this exception, the agent's

apparent representation yields to the principal's true
representation and that, in reality and in effect, the
contract must be considered as entered into between the
principal and the third person; and, consequently, if the
obligations belong to the former, to him alone must also
belong the rights arising from the contract.49
In Gold Star Mining v. Lim-Jimena,50 the Court applied the

principle to a case involving co-owners. In this case,
Ananias Lincallo bound himself to turn over to Victor
Jimena one-half (1/2) of the proceeds from all mining
claims that he would purchase with the money to be
advanced by the latter. This agreement was later on
modified to include in the equal sharing arrangement not
only the proceeds from several mining claims, but also the
lands constituting the same, and so as to bind thereby
their "heirs, assigns, or legal representatives." However,
instead of turning over half of the mining rights to Jimena,
Lincallo assigned mining rights over part of the claims to
Gold Star Mining Co., Inc. Subsequently, the mining
claims in question were made subject-matter of contracts
47G.R. No. 13471, January 12,1920.

48Id.
49 Id.
5oG.R.No. L-25301, October 26,1968.
The Principal 1 249
entered into by Lincallo in his own name and for his

benefit alone without the slightest intimation of Jimena's
interests over the same. Lincallo and Alejandro Marquez,
as separate owners of particular mining claims, entered
into an agreement with Gold Star Mining Co., Inc.,
regarding allotment to Lincallo of 45% of the royalties due
from the corporation. Later, Lincallo, Marquez and Panfilo
Manguerra, leased certain mining claims to Jacob
Cabarrus, who, in turn, transferred his rights under the
lease contract to Marinduque Iron Mines Agents, Inc. By
virtue of another contract, 43% of the royalties due from
Marinduque Iron Mines Agents, Inc., were agreed upon to
be paid to Lincallo. Jimena repeatedly apprised Gold Star
Mining Co., Inc., and Marinduque Iron Mines Agents, Inc.,
of his interests over the mining claims so assigned and/or
leased by Lincallo and, accordingly, demanded
recognition and payment of his one half share in all the
royalties allocated and paid and, thereafter, to be paid to
the latter. Both corporations, however, ignored Jimena's
demands. Jimena commenced a suit against Lincallo for
recovery of his advances and his one-half share in the
royalties. Gold Star Mining Co., Inc., and Marinduque
Iron Mines Agents, Inc., together with Tolentino, were
later joined as defendants.
The issue before the Court was whether the Jimenas 5l had
a cause of action against Gold Star Mining. The Court
ruled that they did. The Court quoted the decision of the
Court of Appeals where it said:
51
Victor was replaced by his widow and children during pendency of the
trial.
From another standpoint, equally valid and acceptable, it

can be said that Lincallo, in transferring the mining claims
to Gold Star (without disclosing that Jimena was a co-
owner, although Gold Star had knowledge of this fact as
shown by the proofs heretofore mentioned) acted as
Jimena's agent with respect to Jimena's share of the
claims.
Under such conditions, Jimena has an action against Gold

Star, pursuant to Article 1883, New Civil Code, which
provides that the principal may sue the person with
whom the agent dealt with in his (agent's) own, name,
when the transaction 'involves things belonging to the
52
principal.
2. The principal is not bound by the contract if the act is

beyond the scope of agent's authority. 3
Jurisprudence explains that the exception under Article

1883 does not apply in all cases involving the property of
the principal but only if the act of agent is within the
scope of his authority.54
In PNB v. Agudelo, 55 two principals executed special

powers of attorney on two different occasions to
authorize the agent to sell, alienate and mortgage all their
real estate. But nothing in the powers of attorney
expressly authorized the agent to contract any loan nor to
constitute a mortgage on the properties belonging to the
respective principals, to secure his obligations. The agent,
on two separate occasions executed in favor of PNB
mortgages on the lot in the name of the principals, to
52 Gold Star Mining v. Lim-Jimena, G.R No. L-25301, October 26, 1968, 25
SCRA 597 (1968).
53 PNB v. Agudelo, G.R No. 39037, October 30,1933.
54Id.
55 Id.
The Principal I 251
secure the payment of credits, loans, commercial

overdrafts, which he might obtain. The mortgage deeds as
well as the corresponding promissory notes were
executed in the agent's own name and signed by him in
his personal capacity, authorizing the mortgage creditor,
PNB, to take possession of the mortgaged properties, by
means of force if necessary, in case he failed to comply
with any of the conditions stipulated therein. One of the
principals later sold the relevant parcel of land to the
other principal. The issue was whether the principal was
liable for the payment of the loans obtained by the agent
from PNB for the security of which he constituted a
mortgage on the aforesaid real estate belonging to the
principal. The Court ruled that the agent executed the
promissory notes evidencing the aforesaid loans, under
his own signature, without authority from his principals
and, therefore, were not binding upon the latter. The
Court noted that there was nothing to show that he
executed the promissory notes in question for the account,
and at the request, of his respective principals.
As regards the exception, the Court ruled that the

exception only applied if the agent acted within the scope
of authority. In this case, the agent was not authorized to
execute promissory notes even in the name of his
principal nor to constitute a mortgage on her real
properties to secure such promissory notes. Thus the
Court provided a rule that:
...when an agent negotiates a loan in his personal
capacity and executes a promissory note under his own
signature, without express authority from his principal,
giving as security therefore real estate belonging to the
latter, also in his own name and not in the name and
representation of the said principal, the obligation so

contracted by him is personal and does not bind his
aforesaid principal. 56
Thus, the Court carved out an exception to the exception

or provided a condition for the application of the
exception. To be clear however, the Court is saying that
even if property of the principal is involved, the contract
entered into by the agent in his own name will not bind
the principal if the agent exceeded the scope of his
authority.
1. How can one determine if the agent's acts are conducive,

advantageous or collateral? How can one distinguish
these three categories of acts?
2. How do you determine the material facts required for,
ratification?
'3. Does it mean that an agent express authorty for
certain acts and implied authority for other acts, have both
an express and implied: agency with the same principalor
does an express agency cover acts expressly and impliedly
authorized?
4. In Filipinas Life v. Pedroso, do yoU agree that there was'
ratification? Why? Applying the rule in Manila Memorial v.
Linsanganwas there ratification in that case?
5. Considering the rule that ratification requires full
knowledge by the principal of all the material facts, can;
there be partial ratification to the extent that the principal
_was partially aware?
SG.R. No. 39037, October 30,1933.

The Principal 1 253
6. In Rural Bank of Miaorv. Ocfemia, is not the sale void if the'

agent was in fact not authorized? If the bank denied the:
existence of the authority should the burden of proof be on
the part of the Ocfemias?
7. In Cuison v. CA, is there an agency by estoppel or implied
agency?
8. Would the ruling in De Castro v. CA be the same if the'
defendants were not co-owners? Why/Why not?
V. THE THIRD PARTY DEALING
WITH THE AGENT
A. Rights of the Third Party
1. Require Presentation of Authority or Instructions
Article 1902 of the Civil Code' provides that a third

person dealing with an agent may require the
presentation of the power of attorney, or the instructions
as regards the agency. Thus, the agent is obligated to
disclose his specific authority as well other orders given
to him by his principal.
In addition, Article 1902, provides that 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.
As far as the party dealing with the agent is concerned,

the agent's acts are deemed within the scope of his
authority, if it is within the written authority 2 as
presented to him. Therefore, the principal is bound even
if by virtue of an understanding between the principal
I ARTICLE 1902. A third person with whom the agent wishes to contract
on behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret orders
and instructions of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown them. (n)
have been performed within the scope of the agent's authority, if such act
understanding between the principal and the agent. (n)
Third Parties Dealing With Agents I 255
and agent, the agent actually exceeded his authority. 3 The

agent may also be personally liable to such third party
when he exceeds the limits of his authority because he did
4
not give such party sufficient notice of his powers.
2. Reliance on Representation
If an alleged principal specially informs a person that he

has given a power of attorney to an alleged agent, the
latter is a duly authorized agent as far as that person is
concerned and an agency by estoppel is created.5 The
alleged principal is liable for the acts of the agent by
6
estoppel.
B. Obligations of the Third Party
1. The Keeler Rules
Although Article 1902 gives the party dealing with an

agent the right to demand presentation of authority and
instructions, there is a body of jurisprudence providing
among other things, a duty on the part of the person
3 Id.
4 ARTICLE 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient
notice of his powers. (1725)
5 ARTICLE 1873. If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third person, the
latter thereby becomes a duly authorized agent, in the former case with
respect to the person who received the special information, and in the latter
case with regard to any person.
The power shall continue to be in full force until the notice is rescinded in
the same manner in which it was given. (n)
6 See Chapter I for discussion on agency by estoppel.
dealing with the agent to ascertain the authority of the

agent.
In Keeler Electric v. Rodriguez, 7 the principal sued the party

dealing with the agent for payment of amounts due the
former. The third party's defense was that he paid the
agent as evidenced by a receipt signed by the agent.
In this case, Harry E. Keeler Electric Co., Inc., ("Keeler")

was engaged in the electrical business, and in the sale of
what is known as the "Matthews" electric plant.
Montelibano approached Keeler at its Manila office,
claiming that he was from Iloilo and that he could find
purchasers for the "Matthews" plant. Keeler told
Montelibano, that for any plant that he could sell or any
customer that he could find he would be paid a
commission of 10% for his services, if the sale was
consummated. Through Montelibano's efforts, Keeler
sold one of the Matthews plants to Domingo Rodriguez.
It was shipped from Manila to Iloilo, and later installed
on Rodriguez's premises by Juan Cenar, Keeler's
employee. But without the knowledge of Keeler,
Rodriguez paid the purchase price to Montelibano who
issued a receipt. Claiming he was never paid, Keeler
commenced an action against Rodriguez.
The Court ruled that there was nothing on the face of the
receipt to show that the recipient was the agent of, or that
he was acting for the principal. It was his personal receipt
and his personal signature. Outside of the fact that the
agent received the money and signed this receipt, there
7 G.R. No. 19001, November 11, 1922.

Third Parties Dealing With Agents 1 257
was no evidence that he had any authority, real or

apparent, to receive or receipt for the money. The Court
thereafter cited Mechem:
In approaching the consideration of the inquiry whether

an assumed authority exists in a given case, there are
certain fundamental principles which must not be over-
looked. Among these are, as has been seen, (1) that the
law indulges in no bare presumptions that an agency
exists: it must be proved or presumed from facts; (2) that
the agent cannot establish his own authority, either by
the representations or by assuming to exercise it; (3) that
an authority cannot be established by mere rumor or
general reputation; (4) that even a general authority is not
an unlimited one; and (5) that every authority must find
its ultimate source in some act or omission of the
principal. An assumption of authority to act as agent for
another of itself challenges inquiry. Like a railroad
crossing, it should be in itself a sign of danger and
suggest the duty to 'stop, look, and listen.' It is therefore
declared to be a fundamental rule, never to be lost sight of
and not easily to be overestimated, that persons dealing
with an assumed agent, whether the assumed be a
general or special one, are bound at their peril, if they
hold the principal, to ascertain not only the fact of the
agency but the nature and extent of the authority, and in
case either is controverted, the burden of proof is upon
them to establish it.8
... It is, moreover, in any case entirely within the power

of the person dealing with the agent to satisfy himself
that the agent has authority he assumes to exercise, or to
decline to its relations with him.
The person dealing with the agent must also act with
ordinary prudence and reasonable diligence. Obviously,
if he know[s] or has good reason to believe that the
agent is exceeding his authority, he cannot claim
8 Keeler Electric v. Rodriguez, G.R. No. 19001, November 11, 1922, citing
MECHEm ON AGENcY, vol. 1, sec. 746.
protection. So if the suggestions of probable limitations

be of such a clear and reasonable quality, or if the
character assumed by the agent is of such a suspicious
or unreasonable nature, or if the authority which he
seeks to exercise is of such an unusual or improbable
character, as would suffice to put an ordinarily prudent
man upon his guard, the party dealing with him may
not shut his eyes to the real state of the case, but should
either refuse to deal with the agent at all, or should
ascertain either refuse to deal with the agent at all, or
should ascertain from the principal the true condition of
affairs. 9
And not only must the person dealing with the agent
ascertain the existence of the conditions, but he must
also, as in other cases, be able to trace the source of his
reliance to some word or act of the principal himself if
the latter is to be held responsible. As has often been
pointed out, the agent alone cannot enlarge or extend his
authority by his own acts or statements, nor can he
alone remove limitations or waive condition imposed
by his principal's consent or concurrence must be
shown.10 (emphasis supplied)
In this case, the Court found that although Montelibano

was in fact an agent of Keeler it did not mean that he was
authorized to receive payment. Thus, strictly construed,
the rules in this case should only apply if there is in fact
an agency relationship but there is a dispute as to the
authority of the agent.
The rules discussed in the Keeler Electric case can be

categorized into four main headings, i.e. fundamental
principles, duty to inquire, burden of proof and standard
of care. It must be noted that the Keeler case was decided
prior to the effectivity of the current Civil Code
9 Id., at section 752.

10 Id., at section 757.
Third Paties Dealing With Agents 1 259
provisions on agency and aside from the comments of

Mechem, the only other agency rule cited was the second
paragraph of then Article 1727 of the Civil Code, 1 which
stated:
The principal shall be liable as to matters with respect to
which the agent has exceeded his authority only when he
ratifies the same expressly or by implication.
However, the Keeler rules have been reiterated or re-stated

in succeeding cases.
a. Fundamental Principles
The Keeler rules provide fundamental principles in

determining whether an authority assumed by an agent
exists.
i. The law indulges in no bare presumptions that an

agency exists: it must be proved or presumed from
facts.
This means that it cannot simply be presumed that an

agency exists. That a person may act like an agent or a
principal does not necessarily mean that an agency exists.
This follows from the requirement that an agency requires
consent from both principal and agent.
However, the Civil Code does allow for consent of the

principal or agent to be impliedly given, in which case an
implied agency exists.
11This corresponds to the second paragraph of Article 1910 of the current

Civil Code.
ii. The agent cannot establish his own authority,

either by the representations or by assuming to
exercise it.
This means that an agent is not deemed authorized

simply on the basis of the agent's representations or by
the agent performing the impugned acts.
If there was nothing else apart from the representation or

acts of the agent, the principle is true in this jurisdiction.
However, if the principal was aware of such repre-
sentations or acts and did not repudiate them, the
principal may be estopped from denying such authority.
Of course, such silence on the part of the principal should
not be sufficient to cure a fatal defect such as the absence
of a written authority in a transaction involving the sale
of land of the principal through his agent.12
iii. An authority cannot be established by mere rumor

or general reputation.
This means that even if a person is widely believed in a

community to be authorized to perform certain acts for
his principal, it is not sufficient basis for the third party to
believe that he was in fact authorized. 13 However, if this
reputation or rumor was created by acts of the alleged
principal apparently clothing the alleged agent with
authority, then the principal may be estopped to deny that
12 See Article 1874 of the Civil Code and discussion in Chapter II.
13 However, in Cuison v. CA, the Court found that the "general perception"
that the alleged agent was a manager was "made manifest" by the fact that
he was "known in the community" to be the kinakapatid of the alleged
principal.
authority. But such estoppel, is not sufficient to validate a

14
contract declared void by law.
iv. Even a general authority is not an unlimited one.
In this jurisdiction, "general authority" properly refers to

an agency couched in general terms.' 5 The grant of such
authority does not mean that the agent can do anything
because acts of strict dominion require a special power of
attorney. 16
v. Every authority must find its ultimate source in

some act or omission of the principal.
This means that the principal must either authorize the

acts of his agent expressly or impliedly.
b. Duty to Inquire
The Keeler rules establishes the duty on the part of the

party dealing with the agent to inquire into and ascertain
the fact that there is really an agency relationship as well
as the nature and extent of the authority granted to the
agent. This is perhaps the central obligation established
by the Keeler rules. In Keeler, the Court citing Mechem
stated:
An assumption of authority to act as agent for another of

itself challenges inquiry. Like a railroad crossing, it
should be in itself a sign of danger and suggest the duty
to 'stop, look, and listen.' It is therefore declared to be a
14 Such as in a case where an agent has no written authority to sell the land of
the principal.
15It cannot refer to a general agency because the term '%mulin'ted" properly
pertains to the nature of authority and not to the scope of business covered.
16 See discussion in Chapter II.
fundamental rule, never to be lost sight of and not easily

to be overestimated, that persons dealing with an
assumed agent, whether the assumed be a general or
special one, are bound at their peril, if they hold the
principal, to ascertain not only the fact of the agency but
the nature and extent of the authority, and in case either
is controverted, the burden of proof is upon them to
establish it.17 (emphasis supplied)
To reiterate, there are three things a third party is

required to inquire into when dealing with an agent.
These are:
* the fact that an agency relationship actually

exists;
* the nature of the agency or authority granted to
the agent; and
• the extent of the authority granted to the agent.
c. Burden of Proof
The Keeler rules also provide that if the nature and extent
of the authority of the agent is controverted, it is the third
party dealing with such agent who has the burden of
proving such nature and extent of authority. Thus, in a
suit where the alleged principal or alleged agent denies
the authority granted to the latter, it is the third person
who must establish it.
d. Standard of Care
The Keeler rules also provide a standard of care that the

third party dealing with the agent must comply with-
17
Keeler Electric v. Rodriguez, G.R. No. 19001, November 11, 1922, citing
MECHEM ON AGENCY, vol. I, section 757.
that is to act with ordinaryprudence and reasonablediligence.

This implies that the third party dealing with the agent is
not expected to display expert legal knowledge but only
that of an ordinary prudent person. The rules however
add that if the third party knew or had good reason to
believe that the agent is exceeding his authority, he
cannot claim protection. These reasons include:
" suggestions of probable limitations be of such a

clearand reasonablequality; or
* the character assumed by the agent is of such a

suspicious or unreasonable nature; or
" the authority which he seeks to exercise is of such

an unusual or improbable character, as would
suffice to put an ordinarily prudent man upon his
guard.
In these instances "the party dealing with him may not

shut his eyes to the real state of the case, but should either
refuse to deal with the agent at all, or should ascertain
either refuse to deal with the agent at all, or should
ascertain from the principal the true condition of
affairs.'n
18
99~f~
2. Later Jurisprudence
A number of subsequent cases quote the Keeler rules

directly or reiterate the substance of these rules such that
they now form part of the corpus of jurisprudence on
agency.
18 Id.
a. Fundamental Principles
i. No presumption of agency
In Tuazon v. Heirs of Ramos, 19 the Court citing People v.

Yabut,20 stated, that "[t]he law makes no presumption of
agency; proving its existence, nature and extent is
incumbent upon the person alleging it."21 In Tuazon, the
Court applied the principle by pointing out that the
petitioners raised the fact of agency as an affirmative
defense, yet failed to prove its existence.
ii. Insufficiency of declarations of agent
In Tuazon v. Heirs of Ramos,22 the Court citing Litonjua v.

Fernandez23 said that "[t]he declarations of agents alone are
generally insufficient to establish the fact or extent of their
authority."2 4
The official statement of the agent as to his authority or

his testimony in court is not sufficient to establish his
authority. In BA Finance v. CA, 25 at issue was the
sufficiency of a letter from a credit investigator from BA
Finance undertaking to guarantee a loan purportedly on
behalf of BA Finance. The Court ruled:
19G.R. No. 156262, July 14, 2005.

20 G.R. No. L-42847, April 29,1977.
21Tuazon v. Heirs of Ramos, G.R. No. 156262, July 14,2005.
22G.R. No. 156262, July 14, 2005.
23 G.R. No. 148116, April 14, 2004. This case in turn was citing Yu Eng Chzo v.
Pan American, G.R. No. 123560, March 27, 2000 which cited BA Finance v.
CA G.R. No. 94566, July 3, 1992 which cited Keeler v. Rodriguez. Therefore
this statement can be directly traced to the Keeler case.
24 Tuazon v. Heirs of Ramos, G.R No. 156262, July 14, 2005.
75 G.R. No. 94566, July 3,1992.
Third Paties Dealing With Agents 1 265
The sole allegation of the credit administrator in the

absence of any other proof that he is authorized to bind
petitioner in a contract of guaranty with third persons
should not be given weight. The representation of one
who acts as agent cannot by itself serve as proof of his
authority to act as agent or of the extent of his authority as
.6
agent
It further found that:
Wong's testimony that he had entered into similar

transactions of guaranty in the past, for and in behalf of
the petitioner, lacks credence due to his failure to show
documents or records of the alleged past transactions. The
actuation of Wong in claiming and testifying that he has
the authority is understandable. He would naturally take
steps to save himself from personal liability for damages
to respondent bank considering that he had exceeded his
authority. 27
In Yu Eng Cho v. Pan American,28 the evidence presented

was an affidavit issued by an alleged agent stating that
she was a duly authorized ticketing agent of Pan
American. However, the Court found that the affidavit
had weak probative value in light of alleged agent's
testimony in court to the contrary. It further said:
At any rate, even if such affidavit is to be given any

probative value, the existence of the agency relationship
cannot be established on its sole basis. The declarations of
the agent alone are generally insufficient to establish the
fact or extent of his authority.2
26 BA Financev. CA, G.R. No. 94566, July 3,1992 citing Velasco v. La Urbana, 58
Phil. 681.
27 BA Financev. CA, G.R. No. 94566, July 3,1992.
28 G.R. No. 123560, March 27,2000.
29
Yu Eng Cho v. PanAmerican, G.R. No. 123560, March 27,2000.
In Doles v. Angeles, 30 the Court pointed out that:
Though the fact or extent of authority of the agents may

not, as a general rule, be established from the declarations
of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as
against the asserted principal and the third persons
interested in the transaction in which he or she is
engaged. 31
Thus, while as far as a third person is concerned, an

agency cannot be established by the mere statements of an
agent, said agent may be estopped to deny such
statements as far as the third person or principal is
concerned. But such estoppel does not bind the principal.
b. Duty to Inquire
In BA Finance v. CA, 32 Renato Gaytano, doing business

under the name Gebbs International, applied for and was
granted a loan with Traders Royal Bank in the amount of
P60,000.00. As security, the Gaytano spouses executed a
deed of suretyship whereby they agreed to pay jointly
and severally to the bank the amount of the loan
including interests, penalty and other bank charges. In a
letter, Philip Wong as credit administrator of BA Finance
Corporation for and in behalf of the latter, undertook to
guarantee the loan of the Gaytano spouses. Because the
Gaytano spouses refused to pay their obligation, the bank
filed a complaint for sum of money against the Gaytano
spouses and BA Finance as alternative defendant.
30 Doles v. Angeles, G.R. No. 149353, June 26, 2006.

31Id.
32 G.R. No. 94566, July 3,1992.
The Court after citing Keeler, stated that the burden was
on the Trader's Royal Bank to satisfactorily prove that the
credit administrator with whom they transacted acted
within the authority given to him by BA Finance. It found
that the only evidence presented by the bank was the
testimony of Philip Wong, credit administrator, who
testified that he had authority to issue guarantees as can
be deduced from the wording of the memorandum given
to him by BA Finance on his lending authority. After
analyzing the Memorandum, it ruled that although Wong
was clearly authorized to approve loans even up to
P350,000.00 without any security requirement, nothing in
the said memorandum expressly vested on the credit
administrator power to issue guarantees.
In Manila Memorial v. Linsangan,33 the Court said that:
[A] person dealing with an agent is put upon inquiry and

must discover upon his peril the authority of the agent. If
he does not make such an inquiry, he is chargeablewith the
knowledge of the agent's authority and his ignorance of that
authority will not be any excuse. 34
Therefore, even if the third party dealing with the agent

does not inquire into the authority of the agent it will be
presumed that he knew the actual authority granted to
the agent. Should the agent not be authorized to enter
into the transaction with him, he will be presumed to
have knowingly entered into a transaction wherein the
agent was not authorized.
3 G.R. No. 151319, November 22, 2004. A more detailed discussion of the
facts of this case is found in Chapter IV.
34 Id.
Corollarily, a presumption also arises in favor of the

principal, to wit:
The principal, on the other hand, may act on the
presumption that third persons dealing with his agent
will not be negligent in failing to ascertain the extent of
his authority as well as the existence of his agency. 35
It seems therefore that jurisprudence does not impose

upon the principal the duty to inform the third party of
the agent's authority. It is up to the person dealing with
the agent to find out for himself. But if such third person
asks about the agent's authority, the principal has a duty
to disclose. But the third party must first ask or inquire.
In National Power Corporationv. National Merchandising,36

the Court clarified, the rule that every person is put upon
inquiry and must discover upon his peril the authority of
the agent.
In this case, National Power Corporation ("NPC") and

National Merchandising Corporation ("Namerco") as the
representative of the International Commodities Corpo-
ration ("ICC") executed in Manila a contract for the
purchase by the NPC from ICC of four thousand long
tons of crude sulfur. It was stipulated in the contract of
sale that the seller would deliver the sulfur at Iligan City
within sixty days from notice of the establishment in its
favor of a letter of credit and that failure to effect delivery
would subject the seller and its surety to the payment of
liquidated damages. NPC advised John Z. Sycip, the
president of Namerco, of the opening of a letter of credit
35
Manila Memorial v. Linsangan,G.R. No. 151319, November 22,2004.
36G.R. Nos. L-33819and L-33897, October 23,1982.
in favor of ICC. The New York supplier was not able to

deliver the sulfur due to its inability to secure shipping
space. As a result, there was a shutdown of the NPC's
fertilizer plant because there was no sulfur. NPC sued
ICC and Namerco for the recovery of the stipulated
liquidated damages.
The Court agreed with the trial court that Namerco was
liable for damages because under Article 1897 of the Civil
Code, the agent who exceeds the limits of his authority
without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such
party. It was proven that even before the contract of sale
was signed, Namerco was already aware that its principal
was having difficulties in booking shipping space. In a
cable one day before the contract of sale was signed, ICC
advised Namerco that the latter should not sign the
contract unless it (Namerco) wished to assume sole
responsibility for the shipment.
The Court explained that the rule relied upon by

Namerco that every person dealing with an agent is put
upon inquiry and must discover upon his peril the
authority of the agent would apply in this case only if the
principal is sought to be held liable on the contract
entered into by the agent. It said:
Here, it is the agent that it sought to be held liable on a

contract of sale which was expressly repudiated by the
principal because the agent took chances, it exceeded its
authority, and, in effect, it acted in its own name. 37
37 NPC v. Namerco, G.R. Nos. L-33819 and L-33897, October 23,1982.

c. Burden of Proof
In a number of cases, 38 the Court has reiterated that:
It is a settled rule that persons dealing with an agent are

bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to
establish it.39 (emphasis supplied)
Thus, the person dealing with the agent has the burden of
proof when the fact of agency and the nature and extent
of authority is controverted. It is therefore not a duty on
the part of the alleged principal to prove that the person is
not authorized but it is for the third person to prove such
authority.
However, this does not mean that the third person always
has the burden of proving the existence of an agency
relationship. The general rule is still that the burden of
proving the existence of an agency relationship properly
rests on the shoulders making the allegation. This rule
was reiterated in Apex Mining Co., Inc. v. Southeast
Mindanao Gold Mining Corp.40 In this case, Marcopper
Mining Corp ("MMC) was issued Exploration Permit No
133 ("EP133") by the Bureau of Mines and Geo-Sciences
("BMG"). Later MMC assigned EP 133 to Southeast
Mindanao Gold Mining Corporation ("SEM"), a domestic
corporation which is alleged to be a 100% owned
38
ManilaMemorial v. Linsangan,G.R. No. 151319, November 22,2004; Litonjua
v. Fernandez, G.R. No. 148116. April 14, 2004 Yu Eng Cho v. Pan American,
G.R. No. 123560, March 27,2000.
39 G.I. No. 151319, November 22, 2004.
40 G.R. Nos. 152613 & 152628, June 23, 2006.
subsidiary of MMC. Under the rules at that time, the

validity of the assignment hinged on SEM being an agent
of MMC.
The existence of the elements of agency is a factual matter

that needs to be established or proven by evidence. The
burden of proving that agency is extant in a certain case
rests in the party who sets forth such allegation. This is
based on the principle that he who alleges a fact has the
burden of proving it. It must likewise be emphasized that
the evidence to prove this fact must be dear, positive and
convincing. 41
Thus, it was incumbent upon either MMC or SEM to

prove that a contract of agency actually existed between
them so as to allow SEM to use and benefit from EP 133 as
the agent of MMC. The Court found that because SEM did
not claim nor submit proof that it was the designated
agent of MMC to represent the latter in its business
dealings or undertakings, SEM cannot be considered as an
agent of MMC which can use EP 133 and benefit from it.
In San Juan Structural v. CA, 42 the relevant issue was the

authority of the corporation's treasurer to sign an
instrument selling the corporation's parcel of land. After
citing Keeler, the Court ruled that the buyer had the
burden of proving that the corporate officer involved was
in fact authorized. The Court went on to say that the fact
that the agent was a treasurer of the corporation does not
free the buyer from the responsibility of ascertaining her
41 Apex Mining Co., Inc. v. Southeast Mindanao Gold Mining Corp., G.R. Nos.
152613 & 152628, June 23, 2006.
42 San Juan v. CA, G.R. No. 129459, September 29,1998.
authority to represent the corporation. The buyer could

not assume that the agent by virtue of her position had
authority to sell particularly since selling is foreign to the
corporate treasurer's function.
d. Standard of Care
In Bacaltos Coal Mines v. CA,43 the issue was whether the

agent was authorized by his principal to enter into a Trip
Charter Party.
In this case, Rene Savellon, the agent of Bacaltos entered

into a Trip Charter Party Agreement with San Miguel
Corporation. Unfortunately, the vessel was able to make
only one trip. Thus, SMC filed against Bacaltos and Rene
Savellon a complaint for specific performance and
damages.
Before ruling on whether the agent in this case authorized

to enter into the contract, the Court paraphrased
Mechem's quoted statements in Keeler stating:
Every person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the
agent. If he does not make such inquiry, he is chargeable
with knowledge of the agent's authority, and his
ignorance of that authority will not be any excuse.
Person[s] dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at
their peril, if they would hold the principal, to ascertain
not only the fact of the agency but also the nature and
extent of the authority, and in case either is controverted,
44
the burden of the proof is upon them to establish it.
43 G.R. No. 114091, June 29,1995.

44 Bacaltos Coal Mines v. CA, G.R. No. 114091, June 29,1995.
The Court also quoted American Jurisprudence:
A third person dealing with a known agent may not act

negligently with regard to the extent of the agent's
authority or blindly trust the agent's statements in such
respect. Rather, he must use reasonable diligence and
prudence to ascertain whether the agent is acting and
dealing with him within the scope of his powers. The
mere opinion of an agent as to the extent of his powers, or
his mere assumption of authority without the foundation,
will not bind the principal; and a third person dealing
with a known agent must bear the burden of determining
for himself, by the exercise of reasonable diligence and
prudence, the existence or non-existence of the agent's
authority to act in the premises. In other words, whether
the agency is general or special, the third person is bound
to ascertain not only the fact of agency, but the nature and
extent of the authority. The principal, on the other hand,
may act on the presumption that third persons dealing
with his agent will not be negligent in failing to ascertain
the extent of his authority as well as the existence of his
45
agency.
and Keeler Electric v. Rodriguez:
The person dealing with the agent must also act with
ordinary prudence and reasonable diligence. Obviously, if
he knows or has good reason to believe that the agent is
exceeding his authority, he cannot claim protection. So if
the suggestions of probable limitations be of such a clear
and reasonable quality, or if the character assumed by the
agent is of such a suspicious or unreasonable nature, or if
the authority which he seeks to exercise is of such an
unusual or improbable character, as would suffice to put
an ordinarily prudent man upon his guard, the party
dealing with him may not shut his eyes to the real state of
the case, but should either refuse to deal with the agent at
45 Id. citing 3 AM JuR 2d Agency 83 [1986].

all, or should ascertain from the principal the true

conditions of affairs.46
The Court went on to analyze the written power of

attorney granted to the agent and considered it a special
power of attorney because it specifically authorized the
performance of a specific power. The Court ruled that
had the third party dealing with the agent exercise due
diligence and prudence, it should have known that there
is absolutely nothing on the face of the documents that
confers upon the agent the authority to enter into a Trip
Charter Party. The Court also ruled that because the
powers granted to the agent under the power of attorney
was based on another contract, the third party should
have required its presentation "to determine what it is
and how it may be used" by the agent. Furthermore, the
Court found the third party negligent in its failure to
verify if the principal owned a vessel. The Court said that
it should have required the presentation of pertinent
documentary proof of ownership of the vessel to be
chartered. As a result of its findings, the Court absolved
the principal from liability and made the agent solely
liable for the amounts adjudged.
In Eternit v. Litonjua,47 the Court ruled that the third party

dealing with agents was not diligent in determining the
latter's authority. It said:
The petitioners cannot feign ignorance of the absence of
any regular and valid authority of [Eternit] empowering
Adams, Glanville or Delsaux to offer the properties for
sale and to sell the said properties to the petitioners. A
person dealing with a known agent is not authorized,
under any circumstances, blindly to trust the agents;
46 Id. citing Keeler Electricv. Rodriguez.

47 G.R. No. 144805, June 8,2006.
statements as to the extent of his powers; such person

must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent
acts within the scope of his authority. The settled rule is
that, persons dealing with an assumed agent are bound at
their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted,
the burden of proof is upon them to prove it. In this case,
the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent
EC. 4 (citation omitted, emphasis supplied)
1. Are the Keeler rules appropriate considering the current

Civil Code provisions?
2. Is it proper to place the burden on third parties to
ascertain the existence of agency -and the scope and
nature of authority of the agent? Should not the burden
of proof on the nature and extent of agency authority be
on the part of the principal -considering that it is in the
best position to produce agency-related documents?
3. What could have prompted placing such a burden on
third parties?
4. Is the rule that the agent's authority cannot be established
by mere rumor or general reputation consistent with the
Court's ruling in Cuison v. CA discussed in Chapter IV?
5. Would it be better to codify the Keeler rules?
6. In Bacaltos Coal Mines v. CA, did the Court require
ordinary diligence from the third party dealing with the
agent or a greater degree of diligence?
48
Eternit v. Litonjua, G.R. No. 144805, June 8, 2006.
VI. EXTINGUISHING THE AGENCY
Pursuant to Article 1919 of the Civil Code, an agency may

be extinguished in the following manner:
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; or
6. By the expiration of the period for which the

agency was constituted.
A. Revocation
1. In General
Article 1920 of the Civil Code' provides that the principal

may revoke the agency at will and compel the agent to
return the document evidencing the agency.
The revocation may be availed of even if the period fixed

2
in the contract of agency has not yet expired.
1 ARTICLE 1920. The principal may revoke the agency at will, and compel
the agent to return the document evidencing the agency. Such revocation
may be express or implied. (1733a)
Extinguishing the Agency I 277
Thus,
A contract of agency is generally revocable as it is a

personal contract of representation based on trust and
confidence reposed by the principal on his agent. As the
power of the agent to act depends on the will and license
of the principal he represents, the power of the agent
ceases when the will or permission is withdrawn by the
principal. Thus, generally, the agency may be revoked
by the principal at will. 3 (emphasis supplied)
In Barreto v. Santa Marina,4 the Court, citing the precursor

of Article 1920 in old Civil Code and the Article 279 of
the Code of Commerce, explained that:
The contract of agency can subsist only so long as the

principal has confidence in his agent, because, from the
moment such confidence disappears and although there
be a fixed period for the exercise of the office of agent, a
circumstance that does not appear in the present case, the
principal has a perfect right to revoke the power that he
had conferred upon the agent owing to the confidence he
had in him and which for sound reasons had ceased to
exist.
xxx XXX XXX
From the mere fact that the principal no longer had

confidence in the agent, he is entitled to withdraw it and
to revoke the power he conferred upon the latter, even
before the expiration of the period of the period of the
6
engagement or of the agreement made between them.
(emphasis supplied)
2 CMS Logging v. CA, G.R. No. 41420, July 10,1992.

3 Republic v. Evangelista, G.L No. 156015, August 11, 2005.
4 G.R. No. 8169, December 29,1913.
s ARTICLE 1733. The principal may revoke the agent's power at will and
compel him to return the instrument which evidences the agency.
6 G.R. No. 8169, December 29,1913.
As a general rule, because the principal has this absolute

right to revoke the agency, the agent can not object or
claim damages arising from such revocation, 7 unless it is
shown that such was done in order to evade the payment
8
of agent's commission.
The article does not require the return of the written

power of attorney before revocation becomes effective.
The return of the written power of attorney is merely
another right granted to the principal. This view is
further supported by the second sentence of the article,
which states that revocation may be express, or implied.
If the return of the written power of attorney is required
for revocation then there is no such thing as implied
revocation.
The article does not provide for a rule in case the principal
revokes the agency but does not order the return of the
written power of attorney and the agent uses it for a
transaction. The act of the agent may still be binding on
the principal if an implied agency is established in the
case where the principal knew that the agent was using
the written power of attorney to enter into transactions on
his behalf and he did not repudiate it.
The Civil Code provides that if there is more than one

principal, any one of them may revoke the same without
the consent of the others.9
7 CMS Logging v. CA, G.R. No. 41420, July 10, 1992, citing PADILLA, CIVIL
LAW, Vol. VI, p. 297.
8 Id. citing Infante vs. Cunanan,93 Phil. 691.
9 ARTICLE 1925. When two or more principals have granted a power of
attorney for a common transaction, any one of them may revoke the same
without the consent of the others. (n)
2. When Not Binding on Third Persons
Even if the agency is revocable at will there are cases

where the revocation is not necessarily binding on third
persons.
a. When Notice is Required
Under Article 1921 of the Civil Code,10 when 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. Therefore, in
addition to revocation, there must be notice to such third
persons for whom the agency was established in the first
place. It should be noted that the article does not
explicitly require that the fact that the agency has been
entrusted to deal with specified persons be indicated in a
written power of attorney. It seems that it is sufficient
that the parties are aware of this fact.
In Lustan v. CA,11 Adoracion Lustan was the registered

owner of a parcel of land. Lustan leased the property to
Nicolas Parangan for a term of ten years and an annual
rent of P1,000.00. During the period of lease, Parangan
was regularly extending loans in small amounts to Lustan
to defray her daily expenses and to finance her daughter's
education. Later, Lustan executed a Special Power of
Attorney ("SPA") in favor of Parangan to secure an
agricultural loan from Philippine National Bank ("PNB")
with the aforesaid lot as collateral. Subsequently, a second
10 ARTICLE 1921. If the agency has been entrusted for the purpose of con-
tracting with specified persons, its revocation shall not prejudice the latter
if they were not given notice thereof. (1734)
11G.R. No. 111924, January 27,1997.
SPA was executed by Lustan, by virtue of which,

Parangan was able to secure four additional loans. The
last three loans were without the knowledge of Lustan
and all the proceeds were used by Parangan for his own
benefit. These encumbrances were duly annotated on the
certificate of title. Later, Lustan signed a Deed of Pacto de
Retro Sale in favor of Parangan which was superseded by
the Deed of Definite Sale which Lustan signed upon
Parangan's representation that the same merely
evidenced the loans extended by him unto the former.
Afraid that her property might be prejudiced by the
continued borrowing of Parangan, Lustan demanded the
return of her certificate of title. Parangan asserted his
rights over the property which allegedly had become his
by virtue of the aforementioned Deed of Definite Sale.
Thus, Lustan filed an action for cancellation of liens,
quieting of title, recovery of possession and damages
against Parangan.
The issue before the Court was whether or not Lustan's

property is liable to PNB for the loans contracted by
Parangan by virtue of the SPA. The Court ruled that the
mortgages could be enforced against Lustan.
The Court explained its ruling first by pointing out that

"[t]hird persons who are not parties to a loan may secure
the latter by pledging or mortgaging their own
property.' 2 It said:
So long as valid consent was given, the fact that the loans
were solely for the benefit of Parangan would not
invalidate the mortgage with respect to petitioner's
12 Lustan v. CA,G.R. No. 111924, January 27, 1997, citing Article 2085 of the
Civil Code.
Extiguishing the Agency 1 281
property. In consenting thereto, even granting that

petitioner may not be assuming personal liability for the
debt, her property shall nevertheless secure and
13
respond
for the performance of the principal obligation.
In this case, Lustan's parcel of land was mortgaged to

PNB on five occasions by virtue of the Special Powers of
Attorney executed by her in favor of Parangan. Lustan's
argument that the last three mortgages were void for lack
of authority were not accepted by the Court. The Court
explained:
She totally failed to consider that said Special Powers of

Attorney are a continuing one and absent a valid
revocation duly furnished to the mortgagee, the same
continues to have force and effect as against third
persons who had no knowledge of such lack of
authority. 14
The Court then quoted Article 1921 as basis.
Thereafter, the Court explained that the SPA executed by

Lustan in favor of Parangan duly authorized the latter to
represent and act on behalf of the former. Thus, it said
that Lustan clothed Parangan with authority to deal with
PNB on her behalf and in the absence of any proof that
the bank had knowledge that the last three loans were
without the express authority of Lustan, it cannot be
prejudiced thereby. It reiterated the rule that:
As far as third persons are concerned, an act is deemed to
have been performed within the scope of the agent's
authority if such is within the terms of the power of
attorney as written even if the agent has in fact exceeded
13d.
14 Id.
the limits of his authority according to the understanding

5
between the principal and the agent.'
The Court found that the SPA particularly provided that

the same was good not only for the principal loan but also
for subsequent commercial, industrial, agricultural loan
or credit accommodation that the attorney-in-fact may
obtain and until the power of attorney is revoked in a
public instrument and a copy of which is furnished to
PNB.
In Rallos v. Yangco, 16 the principal advertised that a

particular person was his agent and gave special notice to
third persons of that fact and gave a special invitation to
deal with such agent. The Court ruled that the principal
had the duty to give due and timely notice to such third
persons of the termination of the relationship and the
principal is responsible to third persons for whatever
goods may have been in good faith and without
negligence sent to the agent without knowledge, actual or
constructive, of the termination of such relationship.
b. Third Person in Good Faith without Knowledge of

Revocation
Under Article 1922 of the Civil Code, 7 if the agent had

general powers, revocation of the agency does not
prejudice third persons who acted in good faith in dealing
with the agent and without knowledge of the revocation.
15Id. citing Eugenio vs. CA, 239 SCRA 207.

16 G.R No. 6906, September 27,1911.
17 ARTICLE 1922. If the agent had general powers, revocation of the agency
does not prejudice third persons who acted in good faith and without
knowledge of the revocation. Notice of the revocation in a newspaper of
general circulation is a sufficient warning to third persons. (n)
The meaning of an "agent with general powers" can be

construed in a number of ways. It can refer to:
a. a general agent who manages all of the business

of the principal;
b. an agent performing only acts of administration

over the principal's business or one without
specific powers for the exercise of acts of strict
dominion; or
c. an agent authorized to transact with the general

public.
It seems that the third interpretation is most likely the

intention of the framers considering the article before it or
Article 1921, which states:
ARTICLE 1921. If the agency has been entrusted for the
purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were not
given notice thereof. (1734)
It seems that Article 1922 is the counterpart of Article

1921. If Article 1921 pertains to an agency created for
dealing with specific persons, Article 1922 contemplates
an agency established to transact with the general public.
If an agency was established for transacting with specific
persons then such persons must be given notice of the
revocation of the agency before it can be binding on them.
If the agency was established for transactions with the
general public, then third persons must have knowledge
of the revocation in order to be binding on them. Thus,
Article 1922 also provides that publication of the
revocation in a newspaper of general circulation is

considered sufficient notice to third persons.
3. Appointment of New Agent
Under Article 1923 of the Civil Code, 18 the appointment 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.
The revocation under this article does not take effect upon
the appointment of the new agent but upon notification of
the old agent. Thus, the notice is the operative act and not
the appointment, if the notice came after the appointment.
If the notice came before the date of effectivity of the
appointment, a literal interpretation of the provision
would revoke the prior agency on the day notice was
given to the former agent even if the new agent's
appointment has not taken effect. Not unless this was the
intention of the principal, it may be more reasonable to
consider the notice to be an advance notice of the
revocation of the former agency and should not be
considered the point in time the former agency is
revoked.
Article 1923 also provides that the application of the rule

is "without prejudice to the provisions of the two
preceding articles." This means that the binding effect of
the revocation on third persons depends on whether the
I8ARTICLE 1923. The appointment 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)
F.xtgsbng the Agency 1 285
agency was entrusted for the purpose of contracting with

specified persons or whether the agent has general
powers.
This proviso further buttresses the argument that the rule

regarding the effect of notice is for the benefit of the agent
in cases where the notice came after the appointment.
The rule therefore finds no application with respect to the
agent should the notice come before the appointment.
4. Direct Management by the Principal
Under Article 1924 of the Civil Code, 19 the agency is

revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third
persons. However, the intent of the principal should be
taken into account. A principal working on his business
from time to time should not be taken as a revocation.
The appointment of an agent does not necessarily require
the complete abdication by the principal of his right to
participate in his business.
In CMS Logging v. CA, 20 CMS was a forest concessionaire

engaged in the logging business, while DRACOR was
engaged in the business of exporting and selling logs and
lumber. CMS and DRACOR entered into a contract of
agency whereby the former appointed the latter as its
exclusive export and sales agent for all logs that the
former may produce, for a period of five years. For its
services, DRACOR was to receive 5% commission of the
19 ARTICLE 1924. The agency is revoked if the principal directly manages

the business entrusted to the agent, dealing directly with third persons. (n)
20 G.R. No. 41420, July 10, 1992.
gross sales of logs. About six months prior to the

expiration of the agreement, while on a trip to Tokyo,
Japan, CMS's president, Atty. Carlos Moran Sison, and
general manager and legal counsel, Atty. Teodoro
Dominguez, discovered that DRACOR had used Shinko
Trading Co., Ltd. ("Shinko") as agent, representative or
liaison officer in selling CMS's logs in Japan for which
Shinko earned a commission of U.S. $1.00 per 1,000 board
feet from the buyer of the logs. CMS claimed that this
commission paid to Shinko was in violation of their
agreement. After this discovery, CMS sold and shipped
logs directly to several firms in Japan without the aid or
intervention of DRACOR. CMS sued DRACOR for the
commission received by Shinko and for moral and
exemplary damages, while DRACOR counterclaimed for
its commission from the sales made by CMS of logs to
Japanese firms.
The relevant issue before the Court was whether

DRACOR was entitled to its commission from the sales
made by CMS to Japanese firms.
The principal may revoke a contract of agency at will, and

such revocation may be express, or implied, and may be
availed of even if the period fixed in the contract of
agency has not yet expired. As the principal has this
absolute right to revoke the agency, the agent can not
object thereto; neither may he claim damages arising from
such revocation, unless it is shown that such was done in
order to evade the payment of agent's commission. 2
(citations omitted)
21 CMS Loggingv. CA. G.R. No. 41420, July 10,1992.

The Court ruled that when CMS sold its logs directly to
several Japanese firms it constituted an implied
revocation of the contract of agency under Article 1924 of
the Civil Code. In addition, because the contract of
agency was revoked by CMS when it sold its logs to
Japanese firms without the intervention of DRACOR, the
latter was no longer entitled to its commission from the
proceeds of such sale and is not entitled to retain
whatever moneys it may have received as its commission
for said transactions. DRACOR was also not entitled to
collect damages from CMS, because damages are
generally not awarded to the agent for the revocation of
the agency, and the case at bar is not one falling under the
exception mentioned, which is to evade the payment of
the agent's commission.
In this case, CMS' act of dealing directly with its clients

may correctly be considered a revocation, given that it
believed that DRACOR violated its contract of agency.
However, it is another thing entirely to say that the mere
act of a principal dealing with customers directly
constitutes a revocation because the same act may simply
be interpreted as the principal engaging in his own
business. The correct application of the CMS Logging case
is in a situation where the principal believes that the agent
is in breach of its contract of agency and as a result of
which decides to deal with customers directly.
In Sanchez v. Medicard,22 the principal negotiated directly

with a third party that the agent originally dealt with and
the Court considered it a revocation under Article 1924.
22 G.R. No. 141525, September 2, 2005.

But in this case, the principal undertook the negotiations

after the agent refused to reduce its commissions. The
principal negotiated directly "[iun order not to prejudice
its personnel." 23 So what was involved in this case was
not the mere "taking over" by the principal of the agent's
job.
Thus, both CMS Logging and Sanchez should not be

construed as saying that any direct involvement of the
principal in the business entrusted to the agent revokes
the agency. In both these cases, there are other factors
which implied a revocation of the agency and not simply
the direct management of the principal.
5. Special Authority Revokes General Authority

in Part
Under Article 1926 of the Civil Code, 24 a general power of

attorney is revoked by a special one granted to another
agent, as regards the special matter involved in the latter.
This means that the general agency is not completely
revoked but only the part that is now covered by the
special agency.
Although the article refers to "general power of attorney"

and "special power of attorney," it is not referring to an
agency couched in general terms and one couched in
specific terms. It is referring to "general agency" and
"special agency". As discussed previously, 25 a general
231d.
24ARTICLE 1926. A general power of attorney is revoked by a special one
granted to another agent, as regards the special matter involved in the lat-
25
ter. (n)
See Chapter I.
Extinguishing the Agency 1 289
agency comprises all of the business of the principal while

a special agency comprises only one or some out of all the
business of the principal. Thus, if after a first agent is
granted a general agency, a second agent is given a
special agency, the first agency continues except that the
first agent is no longer authorized to perform the powers
now granted to the second agent. The result is that both
agents are now special agents.
This rule has no application with an agency couched in

general terms and a subsequent special power of attorney.
In the first place, there is no authority in the agency
couched in general terms which conflicts with the special
power of attorney. An agency couched in general terms
covers only acts of administration while a special power
of attorney covers acts of strict dominion. Thus, there is
nothing in the agency couched in general terms for the
special power of attorney to revoke.
It is however possible to apply the rule in a certain case

involving a general agency and a special power of
attorney. If the general agency (i.e. comprising all the
business of the principal) granted to the first agent
included acts of strict dominion, then a special power of
attorney granted to another agent covering the same acts
will revoke the prior authority given to the first agent.
However, there is no application for the rule if the general
agency does not include acts of strict dominion.
Furthermore, in the case where it does apply (a general
agency granted powers involving strict dominion
followed by a special power of attorney given to another),
there are actually two special powers of attorney. The
first special power of attorney was granted to the first
agent as part of his general agency and the second power

of attorney was given to another agent. Thus, what is
actually happening is that a first special power of attorney
is revoked by a second power of attorney. Clearly, this is
not squarely the case contemplated by the provision.
Therefore it is more reasonable to interpret Article 1926 as

referring to a situation where there is a general agency
created by the principal followed by a special agency
created by the same principal.
6. When Agency Cannot be Revoked
Under Article 1927 of the Civil Code, an agency cannot be

revoked if:
a. a bilateral contract depends upon it; or
b. it is the means of fulfilling an obligation already

contracted; or
c. a partner is appointed manager of a partnership

in the contract of partnership and his removal
from the management is unjustifiable.
In addition, under Article 1930 of the Civil Code, 26 the

agency remains 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
26ARTICLE 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. (n)
in his favor. Jurisprudence has referred to both provi-

sions as defining an agency coupled with an interest.
In Del Rosario v. Abad,27 the Court explained the

requirements for an agency coupled with an interest. In
this case Tiburcio del Rosario, grantee of a homestead
patent, obtained a loan from Primitivo Abad. As security
for the payment he mortgaged the improvements of the
parcel of land in favor of Abad and executed an
"irrevocable special power of attorney coupled with
interest" in favor of the mortgagee, authorizing him,
among others, to sell and convey the parcel of land.
Thereafter del Rosario and his family moved to Santiago,
Isabela, where he died leaving the mortgage debt unpaid.
Abad, acting as attorney-in-fact of del Rosario, sold the
parcel of land to his son Teodorico Abad for and in
consideration of the token sum of P1.00 and the payment
by the vendee of the mortgage debt of del Rosario to
Abad. Teodorico took possession of the parcel of land and
was issued a new title covering the same. Subsequently,
the heirs of del Rosario brought suit against Primitivo and
Teodorico to recover possession and ownership of the
parcel of land, damages, attorney's fees and costs.
The Court noted that the written power of attorney

executed by the principal provided, among others, that it
was coupled with an interest in the subject matter thereof
in favor of the agent and is therefore irrevocable. But the
Court ruled that this did not create an agency coupled
with an interest nor did it clothe the agency with an
irrevocable character. The rule stated by the Court was
27G.R. No. L-10881, September 30,1958.

that "[a] mere statement in the power of attorney that it is

coupled with an interest is not enough."28 In other words,
the power of attorney must state what that interest is.
In this case, even if the interest of the agent was stated it

would not have mattered because the agency had nothing
to do with the interest of the agent. The agent's interest
here was that it was the mortgagee of the improvement of
a parcel of land. The Court noted that '[t]he mortgage on
the improvements of the parcel of land [had] nothing to
do with the power of attorney." 29 Hence, based on this
case in order for an agency to be coupled with an interest
two things must concur:
a. the interest must be specified in the power of

attorney; and
b. the interest must be pertinent to the power

granted to the agent.
In Lim v. Saban,30 the Court ruled that the agency in

question was not one coupled with an interest. The Court
said:
Stated differently, an agency is deemed as one

coupled with an interest where it is established for
the mutual benefit of the principal and of the agent,
or for the interest of the principal and of third
persons, and it cannot be revoked by the principal so
long as the interest of the agent or of a third person
subsists. In an agency coupled with an interest, the
agent's interest must be in the subject matter of the
28G.R. No. L-10881, September 30,1958.

29Id.
30 G.R. No. 163720, December 16, 2004.
power conferred and not merely an interest in the

exercise of the power because it entitles him to
compensation. When an agent's interest is confined
to earning his agreed compensation, the agency is
not one coupled with an interest, since an agent's
interest in obtaining his compensation as such agent
is an ordinary incident of the agency relationship.
A number of rules can be gleaned from the Court's

discussion here. First, an agency coupled with an interest
is one where there is mutual benefit on the part of:
a. the principal and agent; or
b. the principal and third persons.
Second, that the agency coupled with an interest cannot

be revoked for as long as the interest Of the agent or third
person exists.
Third, the agent's interest "must be in the subject matter

of the power conferred and not merely an interest in the
exercise of the power because it entitles him to
'31
compensation."
Fourth, if the agent's interest is confined to compensation

then it is not an agency coupled with an interest.
In Valenzuela v. CA, 32 Arturo Valenzuela was a General

Agent of Philippine American General Insurance
Company, Inc. ("Philamgen") since 1965. As agent, he
was entitled to receive the full agent's commission of
32.5% from Philamgen. From 1973 to 1975, Valenzuela
31 G.R. No. 163720, December 16, 2004.

32 G.R. No. 83122, October 19,1990.
solicited marine insurance from one of his clients, the

Delta Motors, Inc. in the amount of P4.4 Million from
which he was entitled to a commission of 32%. But
Valenzuela did not receive his full commission. During
the period of 1976 to 1978, premium payments amounting
to P1,946,886.00 were paid directly to Philamgen and
Valenzuela's commission to which he is entitled
amounted to P632,737.00. In 1977, Philamgen started to
become interested in and expressed its intent to share in
the commission due to Valenzuela on a fifty-fifty basis but
Valenzuela refused. On February 8, 1978, Philamgen and
its President, Bienvenido Aragon insisted on the sharing
of the commission with Valenzuela followed by another
sharing proposal dated June 1, 1978. When Valenzuela
refused, Philamgen and its officers, Bienvenido Aragon,
Carlos Catolico and Robert Parnell:
(a) reversed the commission due him by not

crediting in his account the commission earned
from the Delta Motors, Inc. insurance;
(b) placed agency transactions on a cash-and-carry

basis;
(c) threatened the cancellation of policies issued by

his agency; and
(d) started to leak out news that Valenzuela has a

substantial account with Philamgen.
These acts resulted in the decline of his business as

insurance agent and on December 27, 1978, Philamgen
terminated the General Agency Agreement of Valenzuela.
As a result, Valenzuela filed a complaint.
The Court ruled that, "the principal cause of the

termination of Valenzuela as General Agent of Philamgen
arose from his refusal to share his Delta commission"w
and that the agency is one coupled with an interest and
should not be freely revocable at the unilateral will of
Philamgen. The Court explained the basis of its finding
that the agency was coupled with an interest in this
manner:
The private respondents by the simple expedient of
terminating the General Agency Agreement appropriated
the entire insurance business of Valenzuela. With the
termination of the General Agency Agreement,
Valenzuela would no longer be entitled to commission on
the renewal of insurance policies of clients sourced from
his agency. Worse, despite the termination of the agency,
Philamgen continued to hold Valenzuela jointly and
severally liable with the insured for unpaid premiums.
Under these circumstances, it is clear that Valenzuela had
an interest in the continuation of the agency when It was
unceremoniously terminated not only because of the
commissions he should continue to receive from the
insurance business he has solicited and procured but
also for the fact that by the very acts of the respondents,
he was made liable to Philamgen in the event the
insured fail to pay the premiums due. They are estopped
by their own positive averments and claims for damages.
Therefore, the respondents cannot state that the agency
relationship between Valenzuela and Philamgen is not
coupled with interest. 'There may be cases in which an
agent has been induced to assume a responsibility or
incur a liability, in reliance upon the continuance of the
authority under such circumstances that, if the authority
be withdrawn, the agent will be exposed to personal loss
or liability. 34 (citation omitted, emphasis supplied)
3
3Valenzuela v. CA, G.R. No. 83122, October 19,1990.
34Id.
The Court explained the rules further by stating thus:

Furthermore, there is an exception to the principle that an
agency is revocable at will and that is when the agency
has been given not only for the interest of the principal
but for the interest of third persons or for the mutual
interest of the principal and the agent. In these cases, it is
evident that the agency ceases to be freely revocable by
the sole will of the principal. The following citations are
apropos:
The principal may not defeat the agent's right to

indemnification by a termination of the contract of
agency.
Where the principal terminates or repudiates the

agent's employment in violation of the contract of
employment and without cause ... the agent is
entitled to receive either the amount of net losses
caused and gains prevented by the breach, or the
reasonable value of the services rendered. Thus, the
agent is entitled to prospective profits which he
would have made except for such wrongful
termination provided that such profits are not
conjectural, or speculative but are capable of
determination upon some fairly reliable basis. And
a principal's revocation of the agency agreement
made to avoid payment of compensation for a
result which he has actually accomplished.
If a principal violates a contractual or quasi-

contractual duty which he was his agent, the agent
may as a rule bring an appropriate action for the
breach of that duty. The agent may in a proper case
maintain an action at law for compensation or
damages ... A wrongfully discharged agent has a
right of action for damages and in such action the
measure and element of damages are controlled
generally by the rules governing any other action
for the employer's breach of an employment
contract. 5 (citations omitted)
In Republic v. Evangelista,36 the Court explained that the

reason for the irrevocability of an agency coupled with an
interest is that:
the agency becomes part of another obligation or

agreement. It is not solely the rights of the principal but
also that of the agent and third persons which are
affected. Hence, the law provides that in such cases, the
agency cannot be revoked at the sole will of the
37
principal.
In this case, Dante Legaspi was the owner of a land

located in Bulacan. In November 1999, Gen. Jose
Calimlim, representing the Republic of the Philippines,
and as then head of the Intelligence Service of the Armed
Forces of the Philippines and the Presidential Security
Group, entered into a Memorandum of Agreement
("MOA") with Ciriaco Reyes granting the latter a permit
to hunt for treasure in a land in Bigte, Norzagaray,
Bulacan. Diciano signed the MOA as a witness. Reyes,
started, digging, tunneling and blasting works on the said
land of Legaspi. Calimlim assigned about 80 military
personnel to guard the area and encamp thereon to
intimidate Legaspi and other occupants of the area from
going near the subject land. Legaspi executed a special
power of attorney ("SPA") appointing his nephew, Paul
Gutierrez, as his attorney-in fact authorizing him to deal
with the treasure hunting activities on Legaspi's land and
to file charges against those who may enter it without the
latter's authority. Legaspi agreed to give Gutierrez 40% of
the treasure that may be found in the land. Gutierrez filed
a case for damages and injunction against Reyes,
36G.R. No. 156015, August 11, 2005.

37 Republic v. Evangelista,G.R. No. 156015, August 11, 2005.
Calimlim and Diciano for illegally entering Legaspi's

land. He hired the legal services of Atty. Homobono
Adaza. Their contract provided that as legal fees, Atty.
Adaza shall be entitled to 30% of Legaspi's share in
whatever treasure may be found in the land. In addition,
Gutierrez agreed to pay Atty. Adaza P5,000.00 as
appearance fee per court hearing and defray all expenses
for the cost of the litigation. Upon the filing of the
complaint, then Executive Judge Perlita Tria Tirona issued
a 72-hour temporary restraining order ("TRO") against
Reyes et al. The case was subsequently raffled to the RTC
of Quezon City, Branch 223, then presided by Judge
Victorino Evangelista who issued another 72-hour TRO.
Reyes et al. filed a Motion to Dismiss contending that
there was no real party-in-interest as the SPA of Gutierrez
to bring the suit was already revoked by Legaspi earlier,
as evidenced by a Deed of Revocation. The trial court
granted the application for a writ of preliminary
injunction on the following grounds: (1) the diggings and
blastings appear to have been made on the land of
Legaspi, hence, there was an urgent need to maintain the
status quo to prevent serious damage to Legaspi's land;
and, (2) the SPA granted to Gutierrez continues to be
valid. The Court of Appeals affirmed the decision. The
relevant issue before the Court was whether the special
power of attorney had been revoked.
The Court agreed with the trial and appellate courts that
the agency granted by Legaspi to Gutierrez was coupled
with an interest as a bilateral contract depended on it. It
said:
It is clear from the records that Gutierrez was given by

Legaspi, inter alia, the power to manage the treasure
hunting activities in the subject land; to file any case
against anyone who enters the land without authority
from Legaspi; to engage the services of lawyers to carry
out the agency; and, to dig for any treasure within the
land and enter into agreements relative thereto. It was
likewise agreed upon that Gutierrez shall be entitled to
40% of whatever treasure may be found in the land.
Pursuant to this authority and to protect Legaspi's land
from the alleged illegal entry of petitioners, agent
Gutierrez hired the services of Atty. Adaza to prosecute
the case for damages and injunction against petitioners.
As payment for legal services, Gutierrez agreed to assign
to Atty. Adaza 30% of Legaspi's share in whatever
treasure may be recovered in the subject land. It is clear
that the treasure that may be found in the land is the
subject matter of the agency; that under the SPA,
Gutierrez can enter into contract for the legal services of
Atty. Adaza; and, thus Gutierrez and Atty. Adaza have
an interest in the subject matter of the agency, i.e., in the
treasures that may be found in the land. This bilateral
contract depends on the agency and thus renders it as
one coupled with interest, irrevocable at the sole will of
the principal Legaspi. When an agency is constituted as
a clause in a bilateral contract, that is, when the agency
is inserted in another agreement, the agency ceases to be
revocable at the pleasure of the principal as the agency
shall now follow the condition of the bilateral
agreement. Consequently, the Deed of Revocation
executed by Legaspi has no effect. The authority of
Gutierrez to file and continue with the prosecution of the
case at bar is unaffected. 38 (citations omitted, emphasis
supplied)
With all due respect to the Court, the interest of the agent
in this case, may not be sufficient to justify characterizing
the agency as one coupled with an interest. The interest
identified by the Court was the agent's and lawyer's
38
Republic v. Evangelista,G.RL No. 156015, August 11, 2005.
interest "in the treasures that may be found in the land."

Both agent and lawyer would be entitled to a percentage
of such treasures as part of their compensation. Thus, it
does not appear to be an interest apart from
compensation. As discussed in Lim v. Saban,39 an agent's
interest "must be in the subject matter of the power
conferred and not merely an interest in the exercise of the
power because it entitles him to compensation." 40
In Coleongco v. Claparols,41 the Court clarified that an

agency coupled with an interest may be revoked under
certain circumstances. In this case, Eduardo Claparols,
operated a nail factory. Kho To owned "ABCD
Commercial" which handled the marketing of nails.
Losses compelled Claparols to look for someone to
finance his imports of nail wire. At first, Kho To agreed to
do the financing, but he introduced Vicente Coleongco.
Claparols agreed and they executed a contract whereby
Coleongco undertook to finance and put up the funds
required for the importation of the nail wire, which
Claparols bound himself to convert into nails at his plant.
It was agreed that Coleongco would have the exclusive
distribution of the product, and the "absolute care in the
marketing of these nails and the promotion of sales all
over the Philippines", except the Davao Agency. It also
provided that Coleongco would "share the control of all
the cash" from sales or deposited in banks and that he
would have a representative in the management. It also
provided that all contracts and transactions should be
jointly approved by both parties and that profits and
39 G.R. No. 163720, December 16, 2004.
4 Id.
41G.R. No. L-18616, March 31,1964.
Ext shing the Agency I 301
losses would be shared "on a 50-50 basis". Two days

after the execution of the basic agreement, Claparols
executed in favor of Coleongco, at the latter's behest, a
special power of attorney
to open and negotiate letters of credit, to sign contracts,

bills of lading, invoices, and papers covering transactions;
to represent appellee and the nail factory; and to accept
payments and cash advances from dealers and
distributors. Thereafter, Coleongco also became the
assistant manager of the factory, and took over its
business transactions, while Claparols devoted most of
his time to the nail manufacture processes. 42
Later Claparols was surprised by the service of an alias

writ of execution to enforce a judgment obtained against
him by the Philippine National Bank, despite the fact that
he had submitted an amortization plan to settle the
account. Claparols immediately left for Manila to confer
with the bank authorities and found out that the
execution had been procured because of derogatory
information against him that had reached the bank from
Coleongco. Coleongco wrote to the bank and charged
Claparols with taking machines mortgaged to the bank,
and added:
In my humble personal opinion I presume that Mr.
Eduardo L. Claparols is not serious in meeting his
obligations with your bank, otherwise he had not taken
these machines and equipments a sign of bad faith since
the factory is making a satisfactory profit of my
administration. 3
42
Coleongco v. Claparols,G.R. No. L-18616, March 31,1964.
'3 Id.
Claparols managed to arrange matters with the bank and

to have the execution levy lifted. Claparols revoked the
power of attorney and informed Coleongco by registered
mail, demanding a full accounting at the same time. He
also asked auditors to go over the books and records of
the business with a view to adjusting the accounts of the
associates. This was because he was told by his machinery
superintendent, Romulo Agsam, that in the course of the
preceding New Year celebrations, Coleongco had drawn
Agsam aside and proposed that the latter should pour
acid on the machinery to paralyze the factory. The
examination by the auditors, found that Coleongco owed
the Claparols Nail Factory the amount of P81,387.37. In
addition, Claparols had found in the factory files certain
correspondence between Coleongco and Kho To whereby
the former proposed to Kho that the latter should cut his
monthly advances to Claparols from P2,000 to P1,000 a
month, because:
I think it is time that we do our plan to take advantage of
the difficulties of Eddie with the banks for our benefit. If
we can squeeze him more, I am sure that we can extend
our contract with him before it ends next year, and
perhaps on better terms. If we play well our cards we
might yet own his factory.44
Coleongco filed a suit against Claparols charging breach

of contract, asking for accounting, and praying for
damages and attorney's fees.
Coleongco alleged that the power of attorney was made

to protect his interest under a financing agreement, and
was one coupled with an interest that the principal had no
legal power to revoke. The Court did not agree because

the financing agreement contained clauses for the
protection of the agent's interest, and did not call for the
execution of any power of attorney. Therefore, the Court
was saying that in order for an agency coupled with an
interest to exist, the agency must be essential to protecting
the interest involved or that the interest must require the
agency for it to be exercised.
Nevertheless, the Court also pointed out that:
it must not be forgotten that a power of attorney can be

made irrevocable by contract only in the sense that the
principal may not recall it at his pleasure; but coupled
with interest or not, the authority certainly can be
revoked for a just cause, such as when the attorney- in-
fact betrays the interest of the principal, as happened in
this case. 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
45
principal.
Thus, the fact that an agency is coupled with an interest

does not mean that it absolutely cannot be revoked while
the interest subsists. An agency coupled with an interest
can be revoked for a just cause. When the agent has acted
in bad faith or commits a breach of confidence or a
betrayal or trust, the principal may revoke the agency
even if it were coupled with an interest.
In this case, the Court found that Coleongco acted in bad

faith towards his principal Claparols.
45 G.R. No. L-18616, March 31,1964.

His letters to the Philippine National Bank (Exhibits 35

and 36) attempting to undermine the credit of the
principal and to acquire the factory of the latter, without
the principal's knowledge; Coleongco's letter to his
cousin, Kho To (Exhibit 32), instructing the latter to
reduce to one-half the usual monthly advances to
Claparols on account of nail sales in order to squeeze said
appellee and compel him to extend the contract entitling
Coleongco to share in the profits of the nail factory in
better terms, and ultimately "own his factory", a plan
carried out by Kho's letter, Exhibit "33", reducing the
advances to Claparols; Coleongco's attempt to have
Romulo Agsam pour acid on the machinery; his illegal
diversion of the profits of the factory to his own benefit;
and the surreptitious disposition of the Yates band resaw
machine in favor of his cousin's Hong Shing Lumber
Yard, made while Claparols was in Baguio in July and
August of 1956, are plain acts of deliberate sabotage by
the agent that fully justified the revocation of the power
of attorney (Exhibit "C") by Claparols and his demand for
an accounting from his agent Coleongco.46
B. Withdrawal
If the principal can revoke the agency, the agent can

withdraw from the agency. Under Article 1928 of the
Civil Code, 47 the agent may withdraw from the agency by
giving due notice to the principal.
Article 1928 also provides that if the principal should

suffer any damage by reason of the withdrawal, the agent
must indemnify him therefore, unless the agent should
base his withdrawal upon the impossibility of continuing
" Coleongco v. Claparols,G.R. No. L-18616, March 31,1964.

47 ARTICLE 1928. The agent may withdraw from the agency by giving due
notice to the principal. If the latter should suffer any damage by reason of
the withdrawal, the agent must indemnify him therefore, unless the agent
should base his withdrawal upon the impossibility of continuing the per-
formance of the agency without grave detriment to himself. (1736a)
Extnguishing the Agency I 305
the performance of the agency without grave detriment to

himself.
In Valera v. Velasco,48 the Court had occasion to rule on the

effect of a suit between principal and agent on the agency.
In this case, Federico Valera appointed Miguel Velasco as
attorney-in-fact with authority to manage his property in
the Philippines, consisting of the usufruct of a real
property located on Echague Street, City of Manila.
Velasco managed Valera's property, reported his
operations, and rendered accounts of his administration.
Because a misunderstanding arose between them, Velasco
brought suit against Valera. Judgment was rendered in
Velasco's favor and after the writ of execution was issued,
the sheriff levied upon the Valera's right of usufruct, sold
it at public auction and adjudicated it to Velasco in
payment of all of his claim.
Subsequently, Valera sold his right of redemption to one

Eduardo Hernandez. Later, Hernandez conveyed the
same right of redemption, for the sum of P200, to Valera.
Thereafter, Salvador Vallejo, who had an execution upon
a judgment against Valera rendered in a civil case against
him, levied upon said right of redemption, which was
sold by the sheriff at public auction to Salvador Vallejo
and was definitely adjudicated to him. Later, he
transferred said right to redemption to Velasco.

The misunderstanding between the plaintiff and the
defendant over the payment of the balance of P1,000 due
G.IGNo. 28050, March 13,1928.

the latter, as a result of the liquidation of the accounts

between them arising from the collections by virtue of the
former's usufructuary right, who was the principal, made
by the latter as his agent, and the fact that the said
defendant brought suit against the said principal on
March 28, 1928 for the payment of said balance more than
prove the breach of the juridical relation between them;
for although the agent has not expressly told his principal
that he renounced the agency, yet neither dignity nor
decorum permits the latter to continue representing a
person who has adopted such an antagonistic attitude
towards him. When the agent filed a complaint against
his principal for the recovery of a sum of money arising
from the liquidation of the accounts between them in
connection with the agency, Federico Valera could not
have understood otherwise than that Miguel Velasco
renounced the agency because his act was more
expressive than words and could not have caused any
doubt. (2 C.J., 543.) In order to terminate their relations by
virtue of the agency, the defendant, as agent, rendered his
final account on March 31, 1923 to the plaintiff, as
principal.49 (emphasis supplied)
Briefly, then, the fact that an agent institutes an action

against his principal for the recovery of the balance in his
favor resulting from the liquidation of the accounts
between them arising from the agency and renders a final
account of his operations is equivalent to an express re-
account of his operations, is equivalent to an express
renunciation of the agency and terminates the juridical
°
relation between them.5
Applying these principles to the facts in this case, the

Court ruled:
49Id.
50
Valera v. Velasco, G.R No. 28050, March 13,1928.
Extinguishing the Agency 1 307
If, as we have found, the defendant-appellee Miguel

Velasco, in adopting a hostile attitude towards his
principal, suing him for the collection of the balance in his
favor, resulting from the liquidation of the agency
accounts, ceased ipso facto to be agent of the plaintiff-
appellant, said agent's purchase of the aforesaid
principal's right of usufruct at public auction held by
virtue of an execution issued upon the judgment rendered
in favor of the former and against the latter, is valid and
legal, and the lower court did not commit the fourth and
fifth assignments of error attributed to it by the plaintiff-
appellant.5'
C. Death/Civil Interdiction/Insanity/Insolvency of
Principal
Article 1919 of the Civil Code provides that the death,

civil interdiction, insanity or insolvency of the principal or
of the agent extinguishes the agency.
In Rallos v. Felix Go Chan,5 2 the Court said that "[b]y

reason of the very nature of the relationship between
principal and agent, agency is extinguished by the death
of the principal or the agent."-5 3 The Court expounded on
this further:
Manresa commenting on Art. 1709 of the Spanish Civil
Code explains that the rationale for the law is found in the
juridical basis of agency which is representation. There
being an integration of the personality of the principal
into that of the agent it is not possible for the
representation to continue to exist once the death of either
is establish. Pothieragrees with Manresa that by reason of
the nature of agency, death is a necessary cause for its
extinction. Laurent says that the juridical tie between the
51Id.
52 G.R. No. L-24332, January 31,1978.
53Id.
principal and the agent is severed ipso jure upon the death
of either, without necessity for the heirs of the principal to
notify the agent of the fact of death of the former.
The same rule prevails at common law -the death of the

principal effects instantaneous and absolute revocation of
the authority of the agent unless the power be coupled
with an interest. This is the prevalent rule in American
Jurisprudence where it is well-settled that a power
without an interest conferred upon an agent is dissolved
by the principal's death, and any attempted execution of
the power afterwards is not binding on the heirs or
representatives of the deceased.5 4 (citations omitted)
The Court ruled that "[a]ny act of an agent after the death
of his principal is void ab initio unless the same falls under
the exceptions provided for in the aforementioned
Articles 1930 and 1931."55
If the principal dies, the Civil Code does not indicate a

duty on the part of his heirs to notify the agent. But if it is
the agent who dies, his heirs must notify the principal and
"in the meantime adopt such measures as the
circumstances may demand in the interest of the
[principal]. "56
But in the case of death of the principal, there are

scenarios wherein the authority of the agent still subsists.
1. Agency Coupled with an Interest
As discussed earlier in this chapter, the agency remains in

full force and effect even after the death of the principal, if
54/id.
%G.R. No. L-24332, January 31,1978.
56
Article 1932.
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.57
2. Contract between Agent without Knowledge and

Third Person in Good Faith
Under Article 1931, if a contract is entered into between

an agent who did not know about the death of the
principal and a third person in good faith, it would be
valid even if executed after the death of the principal.
In Rallos v. Felix Go Chan,58 the Court explained that there

are 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.
The same rule would apply even if the cause of the

extinguishment of the agency was something other than
the death of the principal. Strictly speaking, the agency
no longer exists but the law simply gives effect to the act
of the agent.
But in interpreting this provision the Court stated that

because Article 1931 is an exception to the general rule, it
should be strictly construed. 59
5
7Article 1930.
G.R. No. L-24332, January 31,1978.
59 d.
D. Dissolution/ Accomplishment/ Expiration
Article 1919 also provides that the agency is extinguished:
* by the dissolution of the firm or corporation

which entrusted or accepted the agency;
" by the accomplishment of the object or purpose

of the agency; or
* by the expiration of the period for which the

agency was constituted.
1. What if the principal revokes the agency but fails to order

the return of the written power of attorney which is
subsequently used by the agent. Is the principal bound
by the contract entered into by his former agent and on
what legal basis?
12. Under Article 1921, when 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. Will this provision apply if the
power attorney stated: "Authority is granted to the agent'
to deal with persons living in the city of Valenzuela,
Metro Manila"?
3. Is the ruling in Lustan v. CA in conflict with BPI v. De
Coster discussed in Chapter I?
4. What if an agent who has general powers as provided
under Article 1922 had his authority revoked and notice
of the same was published in a newspaper of general
circulation. Is the revocation binding on third persons
Extingulshing the Agency 311
who acted in good faith and without actual knowledge of,

the revocation?
5. A was appointed by P to deal with specified persons.
Later P appointed B to take over A's agency effective
Tuesday. A received the notice of B's appointment on
Monday. When is A's agency revoked?
6. In Republic v. Evangelista, the agent's interest was said to
be the treasures which may be found in the property. But
the interest of the agent is a percentage which would
form his commission. Is not this ruling inconsistent with
the rules stated in Lim v. Saban?
VII. DISTINGUISHING AGENCY FROM
OTHER CONTRACTS
A. In General
Philippine law books on Agency would often include a

discussion on distinguishing the contract of agency with
other contracts or legal relationships.' Certainly, a
contract of agency may have similarities with other
contracts and courts in case of dispute must be able to
determine the nature of the contract in order to adjudicate
claims.
The need to distinguish should not be interpreted to mean

that once a contract is determined to be an agency
contract, it could not be also another type of contract.
With the growing complexity of commercial transactions,
it is not uncommon for contracts to be a hybrid of several
different contracts or contain the basic features of many
types of contracts.
The proper question to ask therefore may not simply be

whether a contract in question is a contract of agency.
Perhaps in many cases the proper question to ask is:
"Based on the issue to be determined, does an agency
relationship exist between the relevant parties?" If the
answer is in the affirmative, then the appropriate rules on
1 This volume is no exception because the author understands the need to

explain the distinctions between a contract of agency and contracts often
confused with it. However, this discussion is placed at the end because
before one can compare a contract of agency with other contracts, one must
first know the entire breadth and scope of the law on Agency.
Distinguishing Agency From Other Contracts 1 313
agency should apply. However, the difficulty arises in

cases where features of other types of contracts are also
present and the ruling whether a contract of agency exists
or some other contract is determinative of the outcome.
In such cases, the courts would have to make a judgment
whether to consider a contract one of agency although the
agreement contains features of another type of contract.
In certain cases, jurisprudence seems to have created a
hierarchy, such that if the features of a particular contract
are present, the contract is barred from being considered
also as another type of contract even if features of the
latter type are also present.
1. Determined by Acts
The manner by which parties refer to their contract or to

themselves in relation to the contract, does not determine
the nature of the contract. What is determinative is the
nature of the acts performed by the parties or the nature
of the relationship between the parties.
In Doles v. Angeles, 2 the Court demonstrated how this

principle applies. In this case, Ma. Aura Tina Angeles
filed with the Regional Trial Court a complaint for
Specific Performance with Damages against Jocelyn
Doles. Angeles alleged that Doles was indebted to the
former in the concept of a personal loan and that by virtue
of a "Deed of Absolute Sale", Doles, as seller, ceded to
Angeles, as buyer, a parcel of land including improve-
ments to satisfy her personal loan with Angeles. She
further alleged that this property was mortgaged to
2 G.P. No. 149353, June 26, 2006.

National Home Mortgage Finance Corporation

("NHMFC") to secure Doles's loan with that entity which
Angeles shall assume and pay the monthly amortization.
She further alleged that despite repeated demands, Doles
refused to cooperate with Angeles to execute the
necessary documents and other formalities required by
the NHMFC to effect the transfer of the title over the
property. Doles, for her part denied that she borrowed
money from Angeles, and averred that she referred her
friends to Angeles whom she knew to be engaged in the
business of lending money in exchange for personal
checks through her capitalist, Arsenio Pua. She alleged
that her friends borrowed money from Angeles and
issued personal checks in payment of the loan but the
checks bounced for insufficiency of funds. She further
alleged that Angeles threatened to file a criminal case
against her such that she was forced to issue eight checks
to answer for the bounced checks of the borrowers she
referred. She alleged finally that she was forced by
Angeles to execute an "Absolute Deed of Sale" over her
property to avoid criminal prosecution and that the said
deed had no valid consideration.
The Court ruled that, Angeles was merely an agent of Pua

and Doles was the agent of the borrowers. Thus Doles
and Angeles were not privy to the contract of loan
between their principals. Because the sale was predicated
on that loan, then the sale was void for lack of
consideration. In so ruling, the Court had to address the
argument that Doles admitted that she was "re-lending"
the money loaned from Angeles to other individuals for
profit. In response, the Court said that the manner in
which the parties designated the relationship was not

controlling. It added:
If an act done by one person in behalf of another is in its
essential nature one of agency, the former is the agent of
the latter notwithstanding he or she is not so called. The
question is to be determined by the fact that one repre-
sents and is acting for another, and if relations exist which
will constitute an agency, it will be an agency whether the
parties understood the exact nature of the relation or
not.3 (citations omitted, emphasis supplied)
If one acts in representation of another he is an agent

regardless of what he is called. The contract is one of
agency even if it is called by some other name. The fact
that the parties may not be aware of all the nuances of an
agency relationship does prevent the establishment of
such relationship between them. It is sufficient that the
parties understand that one of them is acting in
representation of the other and they have given their
consent to this arrangement whether expressly or
impliedly. This understanding must however include the
acceptance that the acts of the representative or agent are
binding on the person represented.
2. The Element of Control
In Victorias Milling v. CA, 4 the Court said that:

One factor which most clearly distinguishes agency from
other legal concepts is control; one person-the agent-
agrees to act under the control or direction of another -
the principal. Indeed, the very word "agency" has come to
connote control by the principal. The control factor, more
3 Id.
4 Victorias Milling Co. v. CA, G.R No. 117356, June 19,2000.
than any other, has caused the courts to put contracts

between principal and agent in a separate category.5
Perhaps in support of this view, the Court could have

cited Article 1887 of the Civil Code which provides:
ARTICLE 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. (1719)
Thus, the principal can exercise a great degree of control

on the manner by which the agent performs his acts.
The importance of control is also underscored by

American Jurisprudence,6 which states that a prime element
of an agency relationship is the existence of some degree
of control by the principal over the conduct and activities
7
of the agent.
However, while control may be an important element or

indicator of an agency relationship, it may not be accurate
to say that control is the main distinguishing factor. For
instance, in the case of Sevilla v. CA, 8 the Court found that
there was no control exercised over Sevilla but still found
her to be an agent.
5 Id. citing RoscoE T. ST=EN, AGENCY - PARTNEWH IN A NurIsHaL (1977)

30-31, and 33.
6 3 AM. JuR. 2d Agency § 2 (2011).
7 Id.
8 G.R. Nos. L-41182-3, April 15,1988.
Distinguishing Agency From Other Contracts I 317
Perhaps it would be more accurate to say that

representation is the distinguishing factor. In fact the
Court in Victorias Milling did reiterate that "[i]t is clear
from Article 1868 that the basis of agency is
representation."
For instance, if A controls B in the performance of his

work, there may be an agency relationship or there may
be an employment contract or both. The existence of
control of A over B by itself cannot determine if there is
an agency relationship. But if B has the authority to enter
into contracts that bind A, then B is definitely an agent of
A.9
In the Victorias Milling case, the Court also said that "[t]he
question of whether a contract is one of ...agency
depends on the intention of the parties as gathered from
the whole scope and effect of the language employed'qO
Thus, this rule requiring the consideration of the intent of

the parties should temper the earlier quoted statement in
the same case, that control is the distinguishing factor in a
contract of agency.
9 This does not necessarily mean the B is not an employee (not unless
"employee" is deemed synonymous to "lessor of services"). If certain
employees have the power of representation then they are also agents. The
concept of employee and agent is not necessarily exclusive. In the case of
Sevilla v. CA, G.R. Nos. L-41182-3, April 15, 1988, the person in question
was deemed to be an agent and not an employee. But she was not an
employee not because she was an agent, but because the nature of her
relationship with the enterprise she was working for was not consistent
with the concept of an employer-employee relationship.
10 Victorias Milling Co. v. CA, G.R. No. 117356, June 19, 2000, citing Bessing v.
Prince, 52 Cal. App. 190, 198 P. 422; Greenlease Lied Motors v. Sadler, 216
Iowa 302,249 N.W. 383; Salisbury v. Brooks, 81 W. Va. 233, 94 S.E. 117.
B. Distinguished from Partnership
Article 1767 of the Civil Code defines a contract of

partnership. It states:
ARTICLE 1767. By the contract of partnership two or

more persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the

exercise of a profession. (1665a)
By merely comparing this definition with the definition of

a contract of agency," one can easily see that a contract of
agency and a contract of partnership are two very distinct
contracts. But the overlap exists in the nature of the
relationship between the partners and between the
partnership and the partners, which is one of agency. It
can be said that if there is a partnership, there is also an
agency relationship because the latter describes the nature
of the relationship between the partnership and each
partner and among the partners themselves. In a
partnership, there is mutual agency among the partners.
However, there are certain cases where one must
determine whether the relationship between the
enterprise and the individual is one of partnership or
agency.
In Sevilla v. CA,1 2 the Court was asked to declare the true

nature of the relationship between an individual and her
11ARTICLE 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. (1709a)
12 G.R. Nos. L-41182-3, April 15,1988
company. In this case, Lina Sevilla ran the branch of

Tourist World Services, Inc. ("TWSI"). This branch office
was later closed and padlocked. Sevilla sued TWSI. In
adjudicating the claims of the parties, the Court had to
determine the relationship between Sevilla and TWSI.
The Court ruled that Sevilla was not an employee because

she was not subject to the control of her company and was
solidary liable with it in its contract of lease. In addition,
she did not earn a fixed salary but was entitled to
commissions that fluctuated. Thus, the Court ruled that
she was not an employee but that did not mean that she
was a partner in the partnership. 13 The reason was that in
a partnership there is generally a parity of standing
between the partners. She did not enjoy this parity of
standing and the parties did not hold themselves out as
partners.
In this case, the Court considered Sevilla as an agent,

stating:
Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the
concept of commissions. And as we said, Sevilla herself,
based on her letter of November 28, 1961, presumed her
principal's authority as owner of the business under-
taking. We are convinced, considering the circumstances
and from the respondent Court's recital of facts, that the
parties had contemplated a principal-agent relationship,
rather than a joint management or a partnership. 14
13 The term used in the case was joint venture but the Court referred to it as
an equivalent of a partnership.
14 Sevilla v. CA, G.R. Nos. L-41182-3, April 15,1988.
Thus, in Sevilla v. CA, the Court ruled that there was no

partnership because of the absence of "parity of standing"
and the individual was an agent because of the nature of
her duties and the receipt of proceeds in the concept of
commissions.
C. Distinguished from Service Providers
1. Lessor of Services
Article 1644 provides that in a lease of work or service,

one of the parties binds himself to execute a piece of work
or to render to the other some service for a price certain,
but the relation of principal and agent does not exist
between them.
By express provision of law, a lessor of work or services

cannot be an agent. Because the essence of agency is
representation, this implies that a lessor of work or
services cannot perform juridical acts which binds the
principal. This is not to say that the person leasing
another person's services is immune from liability for acts
committed by the latter. If, while performing his services
legal injury is suffered by another, then the lessee may be
held liable. But the lessor cannot transact business or
enter into contracts on behalf of the lessee.
In Nielson & Co. v. Lepanto Consolidated,'5 Lepanto argued

that the management contract in question was one of
agency because:
5 G.R. No. L-21601, December 28,1968.

Distinguishing Agency from Other Contracts I 321
a. Nielson was to manage and operate the mining

properties and mill on behalf, and for the
account, of Lepanto; and
b. Nielson was authorized to represent Lepanto in

entering, on Lepanto's behalf, into contracts for
the hiring of laborers, purchase of supplies, and
the sale and marketing of the ores mined.
All these, Lepanto claimed, show that Nielson was, by the

terms of the contract, destined to execute juridical acts not
on its own behalf but on behalf of Lepanto under the
control of the Board of Directors of Lepanto "at all times".
The Court noted that in both agency 16 and lease of
services, 17 one of the parties binds himself to render some
service to the other party. But it added that:
Agency, however, is distinguished from lease of work or

services in that the basis of agency is representation,
while in the lease of work or services the basis is
employment. The lessor of services does not represent his
employer, while the agent represents his principal.' 8
In addition, the Court said:
There is another obvious distinction between agency and

lease of services. Agency is a preparatory contract, as
agency "does not stop with the agency because the
purpose is to enter into other contracts." The most
characteristic feature of an agency relationship is the
agent's power to bring about business relations between
his principal and third persons. 'The agent is destined to
execute juridical acts (creation, modification or extinction
16 Under Article 1709 of the old Civil Code.

17 Under Article 1544 of the old Civil Code.
I8 Nielson v. Lepanto, G.R. No. L-21601, December 28,1968.
of relations with third parties). Lease of services

contemplate only material (non-juridical) acts." 19
Therefore a contract of agency can be distinguished from

a lease of services by the following:
* The agent represents the principal while the

lessor does not represent the lessee;
* In agency, the purpose is to enter into other

contracts or execute juridical acts while a lease of
services only contemplate non-juridical acts.
Applying the principles to this case, the Court said:

In the light of the interpretations, we have mentioned in
the foregoing paragraphs, let us now determine the
nature of the management contract in question. Under the
contract, Nielson had agreed, for a period of five years,
with the right to renew for a like period, to explore,
develop and operate the mining claims of Lepanto, and to
mine, or mine and mill, such pay ore as may be found
therein and to market the metallic products recovered
therefrom which may prove to be marketable, as well as
to render for Lepanto other services specified in the
contract. We gather from the contract that the work
undertaken by Nielson was to take complete charge,
subject at all times to the general control of the Board of
Directors of Lepanto, of the exploration and development
of the mining claims, of the hiring of a sufficient and
competent staff and of sufficient and capable laborers, of
the prospecting and development of the mine, of the
erection and operation of the mill, and of the beneficiation
and marketing of the minerals found on the mining
properties; and in carrying out said obligation Nielson
should proceed diligently and in accordance with the best
mining practice. In connection with its work Nielson was
19 Id. citing REYEs AND PUNo, AN OuTLINE or PHILIPPINE CIVIL LAW, Vol. V, p.
277.
to submit reports, maps, plans and recommendations

with respect to the operation and development of the
mining properties, make recommendations and plans on
the erection or enlargement of any existing mill, dispatch
mining engineers and technicians to the mining
properties as from time to time may reasonably be
required to -investigate and make recommendations
without cost or expense to Lepanto. Nielson was also to
"act as purchasing agent of supplies, equipment and other
necessary purchases by Lepanto, provided, however, that
no purchase shall be made without the prior approval of
Lepanto; and provided further, that no commission shall
be claimed or retained by Nielson on such purchase"; and
"to submit all requisition for supplies, all contracts and
arrangement with engineers, and staff and all matters
requiring the expenditures of money, present or future,
for prior approval by Lepanto; and also to make contracts
subject to the prior approval of Lepanto for the sale and
marketing of the minerals mined from said properties,
when said products are in a suitable condition for
marketing."
It thus appears that the principal and paramount

undertaking of Nielson under the management contract
was the operation and development of the mine and the
operation of the mill. All the other undertakings
mentioned in the contract are necessary or incidental to
the principal undertaking-these other undertakings
being dependent upon the work on the development of
the mine and the operation of the mill. In the
performance of this principal undertaking, Nielson was
not in any way executing juridical acts for Lepanto,
destined to create, modify or extinguish business relations
between Lepanto and third persons. In other words, in
performing its principal undertaking Nielson was not
acting as an agent of Lepanto, in the sense that the term
agent is interpreted under the law of agency, but as one
who was performing material acts for an employer, for a
compensation. 20(emphasis supplied)
20Id.
Thus, the Court ruled that Nielson was not an agent

because it did not execute juridical acts for Lepanto.
The Court added that although the management contract

provided that Nielson would also act as purchasing agent
of supplies and enter into contracts regarding the sale of
minerals, the contract also provides that Nielson could not
make any purchase, or sell the minerals, without the prior
approval of Lepanto. Thus, even as "purchasing agent"
Nielson could not execute juridical acts which would bind
Lepanto without first securing the approval of Lepanto.
Nielson, then, was to act only as an intermediary, not as
an agent.
2. Independent Contractor
Article 1713 provides that in contract for a piece of work

the contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or
compensation. 21 The contractor may either employ only
his labor or skill, or also furnish the material.
In Fressel v. A4ariano Uy Chaco Sons & Company,22 the latter

entered into a contract with one E. Merritt, whereby
Merritt undertook and agreed to build for Mariano Uy
Chaco Sons & Company ("Uy Chaco") a costly edifice in
the city of Manila at the corner of Calle Rosario and Plaza
de Padre Moraga. In the contract it was agreed between
the parties thereto, that Uy Chaco at any time, upon
n Unlike the case of lease of services, the codal definition of an independent

contractor does not expressly exclude the concept of an agency. It can be
argued that an independent contractor can also be the agent of his
employer.
2 G.R. No. 10918, March 4,1916.
certain contingencies, before the completion of said

edifice could take possession of said edifice in the course
of construction and of all the materials in and about said
premises acquired by Merritt for the construction of said
edifice. William Fressel ("Fressel") delivered to Merritt at
the said edifice in the course of construction certain
materials with the value of P1,381.21, which Merritt
agreed to pay on the 1st day of September, 1914. On
August 14, 1914, Uy Chaco under and by virtue of its
contract with Merritt took possession of the incomplete
edifice in the course of construction together with all the
materials on said premises including the materials
delivered by Fressel. It was argued by Fressel that Merritt
acted as the agent for Uy Chaco in the acquisition of the
materials. Fressel's complaint was dismissed on the
ground that it did not state a cause of action.
The Court found that the allegations in the complaint did

not show that there was a principal-agent relationship.
Instead, the complaint showed that the recipient of the
building materials was an independent contractor who
purchased the materials without the intervention of the
alleged principal. The Court found no agency relationship
in this case because the contractor:
was authorized to do the work according to his

own method and without being subject to the
defendant's control, except as to the result of the
work; and
* could purchase his materials and supplies from

whom he pleased and at such prices as he desired
to pay.
In Shell v. Firemen's Insurance Co.,23 a car owned by

Salvador Sison was brought, to the Shell Gasoline and
Service Station operated by Porfirio de la Fuente, for
washing, greasing and spraying. The car was placed on
the hydraulic lifter under the direction of the personnel of
the station. While greasing, the greaseman released the
valve of the lifter to lower the car but the car fell. The
insurance companies paid for the repair of the car. The
insurance companies and the owner of the car brought an
action against the Shell Company of the Philippines, Ltd.
and Porfirio de la Fuente to recover from them, jointly
and severally, the cost of repairs done on the car. The
trial court dismissed the complaint but the Court of
Appeals reversed.
The Court found the operator of a gas station to be an

agent and not an independent contractor based on the
following facts:
* the operator owed his position to the company

and the latter could remove him or terminate his
services at will;
that the service station belonged to the company

and bore its tradename and the operator sold
only the products of the company;
that the equipment used by the operator

belonged to the company and were just loaned to
the operator and the company took charge of
their repair and maintenance;
23 G.R. No. L-8169, January 29,1957.

that an employee of the company supervised the

operator and conducted periodic inspection of
the company's gasoline and service station; and
that the price of the products sold by the operator

was fixed by the company and not by the
operator.
Thus, Shell Company was found to be liable because:
As the act of the agent or his employees acting within the

scope of his authority is the act of the principal, the breach
of the undertaking by the agent is one for which the
principal is answerable." Moreover, the company under-
took to "answer and see to it that the equipments are in
good running order and usable condition;" and the Court
of Appeals found that the Company's mechanic failed to
make a thorough check up of the hydraulic lifter and the
check up made by its mechanic was "merely routine" by
raising "the lifter once or twice and after observing that
the operation was satisfactory, he (the mechanic) left the
place." The latter was negligent and the company must
answer for the negligent act of its mechanic which was
the cause of the fall of the car from the hydraulic lifter. 24
In Manila Memorial v. Linsangan,25 Manila Memorial Park

Cemetery, Inc. ("MMPCI") alleged that the alleged agent
was an independent contractor. The Court ruled
otherwise because the person was authorized to solicit
and remit to MMCPI offers to purchase interment spaces
belonging to and sold by the latter and that such person
was authorized to solicit orders solely for and in behalf of
MMCPI. Thus, the person was an agent of MMPCI
"having represented the interest of the latter, and having
24 Shell v. Firemen'sInsurance,G.R. No. L-8169, January 29,1957.

2 G.R No. 151319, November 22,2004.
been allowed by MMCPI to represent it in her dealings

with its clients/prospective buyers." 26
Distinguishing between an agent and an independent

contractor is relevant for purposes of determining liability
as demonstrated in Nogales v. Capitol Medical.27 In this
case, the issue was the liability of a hospital for the
negligent act of the doctor. The Court ruled that as a
general rule, a hospital is not liable for the negligence of
an independent contractor-physician. The exception is
when the physician is the ostensible agent of the
hospital. 28
D. Distinguished from Sale
Article 1458 of the Civil Code provides that in a contract

of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in
money or its equivalent. There have been several cases
discussing the distinction between a contract of sale and a
contract of agency.
In Tuazon v. Heirs of Ramos, 29 the Court stated that "[t]he

question of whether a contract is one of sale or of agency
depends on the intention of the parties. ' In this case, the
Court agreed with the lower courts' findings that there
was no agency, but did not specifically discuss the basis
of this finding.
26Id.
2 G.R. No. 142625, December 19,2006.
28
See discussion in Chapter I.
29 G.R. No. 156262, July 14, 2005.
30 Tuazon v. Heirs of Ramos, G.R. No. 156262, July 14, 2005.
In Quiroga v. Parsons Hardware,31 Andres Quiroga and

Parsons Hardware ("Parsons") entered into a contract
whereby the former grants the exclusive right to sell his
beds in the Visayan Islands to the latter under certain
conditions.
The issue in this case was whether the Parsons was an

agent or purchaser of items from Quiroga. The Court
ruled that the contract executed by the parties was a
contract of sale and not of agency because the essential
clauses constituted the elements of a sale. One party was
to deliver the beds while the other was to pay the price.
The Court further stated that:
These features exclude the legal conception of an agency

or order to sell whereby the mandatory or agent received
the thing to sell it, and does not pay its price, but delivers
to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in
selling it, he returns it.32
It seems that based on this case, what differentiates a sale

of items from an agency created for the purpose of selling
the said items is (i) whether the party receiving the item
pays the price and (ii) whether the recipient can return the
items if unsold by him.
In this case, the Court ruled that the contract in question

embodied a sale primarily because the defendant "on
receiving the beds, was necessarily obliged to pay their
price within the term fixed... regardless as to whether he
had or had not sold the beds." 33
31 G.R. No. 11491, August 23,1918.

32Id.
3 Id.
However, in this case it was also found that the alleged

buyer did return beds it could not sell. This seems to
imply an agency relationship and not a sale. On this
point, the Court merely said that this fact shows that
"there was mutual tolerance in the performance of the
contract in disregard of its terms." 34 Needless to say, this
explanation is not a satisfactory answer particularly in
light of other facts implying an intention to create an
agency relationship. First, the corporate officer of the
defendant who drafted the contract testified that the
purpose of the contract with the plaintiff was for the latter
"to be an agent for his beds and to collect a commission
on sales." 5 Second, the terms of the contract support the
conclusion that it was an agency contract:
* Quiroga granted Parsons "an exclusive right to

sell his beds;"
* Parsons was entitled to "a discount of 25 per cent

... as a commission on sales;"
* Parsons bound himself not to sell any other kind

of bed except the bed of Quiroga; and
* Parsons may sell, or establish branches of his

agency for the sale of 'Quiroga' beds in all the
towns of the Archipelago where there are no
exclusive agents.
Thus, in this case there was evidence indicating an

intention to establish an agency relationship as well as
34Id.
35 d.
Distinguishing Agency from Other Contracts 1 331
provisions which point to such a relationship. In this

case, the Court did say that "[iln order to classify a
contract, due regard must be given to its essential
clauses."36
Strangely, the Court disparaged the existence of these

clauses in the contract and ruled that "[njot a single one of
[the] clauses [in the contract] necessarily conveys the idea
of agency" 37 and that none of the clauses are
3
"incompatible with the contract of purchase and sale."'
The Court also said that:

It would be enough to hold, as we do, that the contract
by and between the defendant and the plaintiff is one of
purchase and sale, in order to show that it was not one
made on the basis of a commission on sales, as the
plaintiff claims it was, for these contracts are incompatible
with each other. 39 (emphasis supplied)
By ruling in this manner, the Court is implying that a

hierarchy exists between contracts of sales and agency
such that if the basic elements of a sale are present, it is a
contract of sale even if features of a contract of agency are
present.
In American Rubber v. CIR,40 the American Rubber

Company ("ARCO"), engaged in producing logs and
lumber for sale, acquired logs from its forest concession in
Basilan City, from the UP Land Grant operated by Sta.
Clara Lumber Co. ("SCLCO)", and from the latter's
36G.R No. 11491, August 23,1918.

V7 Quirogav. ParsonsHardware,G.R. No. 11491, August 23,1918.
3 Id.
39Id.
40 G.R. No. L-25965, June 30,1975.
concession also in Basilan. The operation of the aforesaid

areas was embodied in a "Letter Agreement" executed
between ARCO and SCLCO. SCLCO paid for the forest
charges billed by UP and was reimbursed by ARCO.
Lumber pieces of ARCO were sold thru contracts
executed by SCLCO with buyers in Manila. These
contracts indicated that said lumber was "the timber of
American Rubber Company." SCLCO issued in behalf of
ARCO, sales invoices to said buyers. SCLCO took care of
transportation, handling and other expenses thereof from
Basilan to Manila but was later reimbursed by ARCO.
After delivery of the lumber, SCLCO sent to ARCO's
Manila office liquidation statements of said lumber
shipped to Manila which papers consisted of statements
of lumber costs, bank deposit slips, bills of lading and
lumber sales contracts. In making the sales, SCLCO
collected a 5% commission which was deducted from the
gross sales. Likewise it deducted freight, unloading and
trucking charges from the proceeds of sale and the
balance was deposited by SCLCO with ARCO's bank
account -at the National City Bank of New York.
Upon an investigation conducted by the Bureau of

Internal Revenue on ARCO's business, ARCO was
assessed for deficiency sales tax and surcharge of
P66,022.77 for the years 1949 to 1953. The Court of Tax
Appeals modified the amount due to P47,374.38
representing deficiency sales tax and surcharge on its
sales of lumber during the years 1950 to 1953.
The Court reiterated that (i) the essence of a contract

determines what law should apply to the relation
between the parties and not what the parties prefer to call
that relationship and (ii) only the acts of the contracting
parties, subsequent to and in connection with the

execution of the contract, must be considered for the
purpose of interpreting the same. In this case, the Court
primarily relied on the acts of the parties and determined
that there was a contract of agency based on the following
factual considerations:
* after the delivery of the logs of the principal, the

agent undertook the transportation of lumber
and paid the freight charges but which expenses
were reimbursed by principal. The buyers in turn
reimbursed the principal for the transportation,
handling and other expenses;
* The agent after selling the principal's lumber

collected payment of the same and remitted the
proceeds of the sale to the principal by depositing
said proceeds with principal's bank;
In compensation for its services, the agent

charged 5% commission on its sales of principal's
lumber for which it provided itself with the
privilege tax receipt and paid percentage tax as
commercial broker; and
* The agent billed a 5% sales tax as a separate item

in the invoice issued by it to the Manila buyers.
In Ker v. Lingad,41 Ker & Co., Ltd. ("Ker") entered into a

contract with United States Rubber International ("USRI")
where the former was to act as distributor of the latter's
products in Cebu, Bohol, Leyte, Samar, Jolo, Negros
41 G.R. No. L-20871, April 30,1971.

Oriental, and Mindanao except the province of Davao.

Ker as distributor, was precluded from disposing of such
products elsewhere than in the above places unless
written consent would first be obtained from USRI. Ker as
distributor, was required to exert every effort to have the
shipment of the products in the maximum quantity and to
promote in every way the sale thereof. The prices,
discounts, terms of payment, terms of delivery and other
conditions of sale were subject to change in the discretion
of USRI. The contract also stipulated that:
The Company shall from time to time consign to the

Distributor and the Distributor will receive, accept
and/or hold upon consignment the products specified
under the terms of this agreement in such quantities as in
the judgment of the Company may be necessary for the
successful solicitation and maintenance of business in the
territory, and the Distributor agrees that responsibility for
the final sale of all goods delivered shall rest with him.
All goods on consignment shall remain the property of
the Company until sold by the Distributor to the
purchaser or purchasers, but all sales made by the
Distributor shall be in his name, in which case the sale
price of all goods sold less the discount given to the
Distributor by the Company in accordance with the
provision of paragraph 13 of this agreement, whether or
not such sale price shall have been collected by the
Distributor from the purchaser or purchasers, shall
immediately be paid and remitted by the Distributor to
the Company. It is further agreed that this agreement
does not constitute Distributor the agent or legal
representative of the Company for any purpose
whatsoever. Distributor is not granted any right or
authority to assume or to create any obligation or
responsibility, express or implied, in behalf of or in the
name of the Company, or to bind the Company in any
manner or thing whatsoever.
Ker was assessed by the then Commissioner of Internal

Revenue Melecio Domingo the sum of P20,272.33 as the
commercial broker's percentage tax, surcharge, and
compromise penalty for the period from July 1, 1949 to
December 31, 1953. Upon a Petition for Review, the Court
of Tax Appeals held Ker taxable except as to the
compromise penalty of P500.00, the amount due from it
being fixed at P19,772.33.
The Court ruled that there was an agency relationship

because of the following provisions in the contract:
The agent can dispose of the products of the

principal only to certain persons or entities and
within stipulated limits, unless excepted by the
contract or by the principal;
The agent merely receives, accepts and/or holds

upon consignment the products, which remain
properties of the principal;
* Every effort shall be made by the agent to

promote in every way the sale of the products;
* Sales made by the agent are subject to approval

by the principal;
On dates determined by the principal, the agent

shall render a detailed report showing sales
during the month;
* Upon request of the principal at any time, the

agent shall render an inventory of the existing
stock which may be checked by an authorized

representative of the former; and
Upon termination or cancellation of the

Agreement, all goods held on consignment shall
be held by the agent for the account of the
principal until their disposition is provided for by
the latter.
The Court agreed with the Court of Tax Appeals that

"these circumstances ...irreconcilably antagonistic to the
idea of an independent merchant."
The Court also cited Salisbury v. Brooks, 42 which stated:

The difficulty in distinguishing between contracts of sale
and the creation of an agency to sell has led to the
establishment of rules by the application of which this
difficulty may be solved. The decisions say the transfer
of title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the
transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the
agreed price and not merely as an agent who must
account for the proceeds of a resale, the transaction is a
sale; while the essence of an agency to sell is the
delivery to an agent, not as his property, but as the
property of the principal, who remains the owner and
has the right to control sales, fix the price, and terms,
demand and receive the proceeds less the agent's
commission upon sales made.' 43 (emphasis supplied)
The Court also ruled that the mere disclaimer in a contract

that an entity like petitioner is not "the agent or legal
representative ...for any purpose whatsoever" does not
4294 SE 117 (1917).

43 L-25926, February 27,1970; 31 SCRA 779, 785.
suffice to yield the conclusion that it is an independent

merchant if the control over the goods for resale of the
goods consigned is pervasive in character.
In Gonzalo Puyat & Sons v. Arco Amusement Co.,44 Arco

Amusement Company ("Arco") was engaged in the
business of operating cinematographs. C.S. Salmon was
the president, while A.B. Coulette was the business
manager. Gonzalo Puyat & Sons, Inc., ('"GPSI") was
acting as exclusive agent in the Philippines for the Starr
Piano Company of Richmond, Indiana, U.S.A. ("Starr")
which dealt in cinematograph equipment and machinery.
Arco wanted to equip its cinematograph with sound
reproducing devices so it approached GPSI thru its then
president and acting manager, Gil Puyat, and an
employee named Santos. After some negotiations, it was
agreed between the parties, that GPSI would, on behalf of
Arco, order sound reproducing equipment from the Starr
and that Arco would pay GPSI, in addition to the price of
the equipment, a 10% commission, plus all expenses, such
as, freight, insurance, banking charges, cables, etc. At the
expense of Arco, GPSI sent a cable, to the Starr inquiring
about the equipment desired and making the said
company to quote its price of $1,700 f.o.b. factory
Richmond, Indiana. GPSI did not show Arco the cable of
inquiry nor the reply but merely informed Arco of the
price of $1,700. Being agreeable to this price, Arco, by
means of a letter signed by C.S. Salmon formally
authorized the order. The equipment arrived about the
end of the year 1929, and upon delivery of the same to
Arco and the presentation of necessary papers, the price
44 G.R. No. 47538, June 20,1941.

of $1,700, plus the 10% commission agreed upon plus all

the expenses and charges, was duly paid by Arco to GPSI.
The following year, and after some negotiations between
the same parties, another order for sound reproducing
equipment was placed by Arco with GPSI, on the same
terms as the first order. This agreement or order was
confirmed by Arco by its letter stating that Arco would
pay for the equipment the amount of $1,600, which was
supposed to be the price quoted by the Starr Piano
Company, plus 10% commission, and all expenses
incurred. The equipment under the second order arrived
in due time, and GPSI was duly paid the price of $1,600
with its 10% commission, and $160, for all expenses and
charges. This amount of $160 did not represent actual out-
of-pocket expenses paid by GPSI but a mere flat charge
and rough estimate made by GPSI equivalent to 10% of
the price of $1,600 of the equipment. Three years later, in
connection with a civil case in Vigan, filed by Fidel Reyes
against GPSI the officials of the Arco discovered that the
price quoted to them by GPSI with regard to their two
orders was not the net price but rather the list price, and
that GPSI had obtained a discount from the Starr.
Moreover, by reading reviews and literature on prices of
machinery and cinematograph equipment, said officials
of Arco were convinced that the prices charged them by
GPSI were much too high including the charges for out-
of-pocket expenses. For these reasons, they sought to
obtain a reduction from GPSI or rather a reimbursement.
When the parties did not agree, they filed an action in
court. The trial court ruled that the contract was one of
sale but the appellate court ruled that it was a contract of
agency.
The Court found that, the contract entered into by the

parties was one of sale and not of agency based on the
text of the contract. The Court stated that:
The contract is the law between the parties and should
include all the things they are supposed to have been
agreed upon. What does not appear on the face of the
contract should be regarded merely as "dealer's" or
"trader's talk", which can not bind either party. 45
In this case the Court found the contract clear in its terms
and admit of no other interpretation than that the buyer
agreed to purchase from the seller the equipment in
question at the prices indicated which are fixed and
determinate. The Court also pointed out that the fact that
the seller is bound by contract despite unforeseen events
is incompatible with agency because in agency, the agent
is exempted from all liability in the discharge of his
commission provided he acts in accordance with the
instructions received from his principal, and the principal
must indemnify the agent for all damages which the latter
may incur in carrying out the agency without fault or
imprudence on his part.
Furthermore, the Court reasoned that there can be no

agency in this case otherwise the person would be an
agent of both vendor and the purchaser. 46
45
Gonzalo Puyat & Sons v. Arco Amusement Co, citing Nolbrook v. Conner, 56
So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 i., 161; Bank v. Palmer,47
IMI., 92; Hosserv. Copper,8 Allen, 334; Doles v. Merrill,173 Mass., 411.
46 Of course this is not a very strong argument if a broker is considered an
agent
340 I Analysis of Phfi'ppine Agency Law and Jurisprudence
The Court also ruled that, the stipulated commission was

only an additional price which the buyer bound itself to
pay.
In Chua Ngo v. Universal Trading,47 Chua Ngo paid to the

Universal Trading Company, Inc., ("UTCI") the price of
300 boxes of Sunkist oranges from the United States.
UTCI ordered the said boxes from Gabuardi Company of
San Francisco, and in due course, the goods were shipped
from that port to Manila "F. 0. B. San Francisco." One
hundred eighty boxes were lost in transit, and were never
delivered to Chua Ngo. Chua Ngo sued UTCI to recover
the price he paid in advance. UTCI refused to pay arguing
it was merely an agent.
The Court ruled that the contract was one of sale based on
the following reasons:
* No commission was paid;
* The contract states that "if balance is not paid

within 48 hours of notification, merchandise may
be resold and the deposit forfeited." "Resold"
implies that the goods had been sold and
forfeiture of the deposit is incompatible with a
contract of agency;
* Immediately after executing the contract wherein

oranges were quoted at $6.30 per box, the seller
placed an order for purchase of the same with the
supplier at $6 per box. If the seller was an agent
of the buyer, it could not properly do that;
47 G.R. No. L-2870, September 19,1950.

* The seller charged the buyer the sum of P218.87

for 31/2 percent sales tax, thereby implying that
their transaction was a sale; and
* If the purchase of the oranges had been made on

behalf of the buyer, all claims for losses thereof
against the insurance company and against the
shipping company should have been assigned to
the buyer. Instead, the seller has been pressing
such claims for itself.
E. Distinguished from Brokerage
In Reyes v. Rural Bank,48 the Court pointed out that case

law defined a "broker" as:

in the name of those who employed him.... a broker is
matters of trade, commerce or navigation. 49
The Court quoted from Bouvier's Law Dictionary, and

defined "brokerage" as referring to
the trade or occupation of a broker; the commissions paid
to a broker for his services," while "brokers" are "those
who are engaged for others on the negotiation of
contracts relative to property, with the custody of which
they have no concern.50
4 G.R.No. 154499, February 27, 2004.

49 Reyes v. Rural Bank, G.P No. 154499, February 27,2004.
so id.
In Hahn v. CA,51 Alfred Hahn executed in favor of

Bayerische Motoren Werke Aktiengesellschaft ("BMW"), a
"Deed of Assignment with Special Power of Attorney,"
assigning the BMW trademark to the latter. Based on the
agreement, the parties "continue[d] business relations as
has been usual in the past without a formal contract." But
later, in a meeting with a BMW representative and the
president of Columbia Motors Corporation ("CMC"), Jose
Alvarez, Hahn was informed that BMW was arranging to
grant the exclusive dealership of BMW cars and products
to CMC. Hahn protested, claiming that the termination of
his exclusive dealership would be a breach of the Deed of
Assignment. He later filed a complaint for specific
performance and damages against BMW. In its motion to
dismiss, BMW argued that Hahn was not its agent. The
trial court deferred ruling on the motion while the Court
of Appeals ruled on it favorably holding that Hahn was a
broker and not an agent.
The Court differentiated an agent from a broker in the

following manner:
An agent receives a commission upon the successful

conclusion of a sale. On the other hand, a broker earns his
pay merely by bringing the buyer and the seller together,
even if no sale is eventually made.5 2
It found an agency relationship based on the following

factual considerations:
The agent took orders for the vehicles and

transmitted them to the principal;
51
G.R. No. 113074, January 22,1997.
52Id.
Distnguishing Agency from Other Contracts I 343
* Upon receipt of the orders, the principal fixed the

down payment and pricing charges, notified the
agent of the scheduled production month for the
orders, and reconfirmed the orders by signing
and returning to the agent the acceptance sheets;
* The buyer made payment directly to the

principal;
Title to cars purchased passed directly to the

buyer and the agent never paid for the purchase
price of the products;
* The agent was credited with a commission equal

to 14% of the purchase price;
Upon confirmation in writing that the vehicles

had been registered in the Philippines and
serviced by him, the agent received an additional
3% of the full purchase price;
The agent performed after-sale services, inclu-

ding, warranty services for which he received
reimbursement from the principal; and
* All orders were on invoices and forms of the

principal.
In this case, the agent put up service centers and show

rooms at his own expense. But according to the Court,
the fact that the agent invested his own money to put up
these service centers and showrooms does not necessarily
prove that he is not an agent. This was because there
were facts in the record which suggest that the principal
exercised control over the agent's activities as a dealer
and made regular inspections of the agent's premises to

enforce compliance with the principal's standards and
specifications.
In Tan v. GullasA the issue was whether the broker was

entitled to his commission. In this case, Tan et al. were
authorized by the spouses Gullas by virtue of a special
power of attorney ('SPA") to negotiate for the sale of the
land at P550.00 per square meter, at a commission of 3%
of the gross price. The SPA was non-exclusive and
effective for one month from June 29, 1992. Tan et al.
contacted the Sisters of Mary of Banneaux, Inc. ("Sisters of
Mary"), who later agreed to purchase the property at a
lower price. All this transpired during the effectivity of
the SPA. However, the spouses Gullas subsequently
executed another SPA in favor of Eufemia Cafiete, who
executed a deed of sale in favor of the Sisters of Mary for
the price of P20,822,800.00, or at the rate of P200.00 per
square meter. When Tan et al. tried to claim their
commission, the spouses Gullas refused.
The Court cited the case of Schmid and Oberly v. RJL

Martinez Fishing Corporation,54 where it defined a broker
as:
in the name of those who employed him. ... a broker is
matters of trade, commerce or navigation5 5
53G.R. No. 143978, December 3,2002.

54
Cited in the case as 166 SCRA 493 (1988).
55 Schmid and Oberly v. RJL Martinez Fishing Corporation,166 SCRA 493 (1988).
The Court ruled:
Indeed, it is readily apparent that private respondents are

trying to evade payment of the commission which
rightfully belong to petitioners as brokers with respect to
the sale. There was no dispute as to the role that
petitioners played in the transaction. At the very least,
petitioners set the sale in motion. They were not able to
participate in its consummation only because they were
prevented from doing so by the acts of the private
respondents. In the case of Alfred Hahn v. Court of Appeals
and Bayerische Motoren Werke Aktiengesellschaft (BMW) we
ruled that, "An agent receives a commission upon the
successful conclusion of a sale. On the other hand, a
broker earns his pay merely by bringing the buyer and
the seller together, even if no sale is eventually made."
Clearly, therefore, petitioners, as brokers, should be
entitled to the commission whether or not the sale of the
property subject matter of the contract was concluded
through their efforts.56 (citation omitted, emphasis
supplied)
Thus, because Tan et al. were brokers they were entitled

to commission even if the sale was not concluded through
their efforts.
Interestingly, there was no discussion why Tan et al. were

considered brokers and not agents which would have
required them to be the procuring cause of the sale to be
entitled to commission.5 7 It almost seemed as if it was
taken for granted that they were brokers because Tan was
a "licensed real estate broker." Perhaps it would have
been better if the SPA issued in favor of Tan et al. were
56
Tan v. Gullas, G.R. No. 143978, December 3,2002.
57 If they were agents, under the Prats doctrine and the Manotok test, they
could have been entitled to compensation out of considerations of equity.
But this is compensation and not the commission promised to them.
346 Analysis of Philippine Agency Law and Jurisprudence
reproduced in the text of the decision to serve as a guide

to the bench and bar.
1. Can an agency relationship exist even if both parties are not

fully aware of what an agency contract entails? Why?
2. Is control an important element in determining whether an!
agency relationship exists? Is control in an agency
relationship the same as control in an employer-employee!
relationship?
3. Are contracts of agency and contracts of sale always
mutually exclusive? Is it not possible that contracts may,
have features of both? Does one contract necessarily
exclude the other?
4. Is there a hierarchy between sales and agency such that if
the basic elements of a sale are present, it is a sale even if
features of a contract of agency are also present?
:5. Is there a clear distinction between a broker and an aget

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U.P.

LAW CENTENNIAL TEXTBOOK PROJECT

UNIVERSITY OF THE PHILIPPINES

UNVERSITY OF THE PMLHIPINES

ISBN No. 978-971-15-0431-1

No part of this book may be reproduced in any form, or by any

Cover design by Aristotle L. Roxas

Published by U.P. College of Law

Rommel J. Casis received his Master of Laws (LL.M) from

As a law student, he was part of the Order of the Purple

Professor Casis began teaching in the UP College of Law

Prior to joining the full-time faculty, he was engaged in

Professor Casis has taught the course, "Agency and

This volume forms part of the Centennial Textbook

This volume is written in the "treatise" format, which is

This volume is intended primarily as a teaching tool.

At the end of each chapter, some questions for further

This volume includes an Appendix listing some sample

Although the Table of Contents is quite detailed, an Index

This volume would not have been possible without the

I. THE CONCEPT OF AGENCY

A. Purpose and Definition ................................................ 1

b. As to Authority: Special Power

II. ESTABLISHING AGENCY

A. Oral or Written ............................................................. 67

III. THE AGENT

A. The Rights of Agents ..................................................... 126

1. Compensation .......................................................... 126

7. Pay Interest ............................................................... 201

IV. THE PRINCIPAL

A. Obligations of the Principal ........... ...... 219

V. THE THIRD PARTY DEALING

A. Rights of Third Parties .................................................. 254

B. Obligation of Third Parties ........................................... 255

VI. EXTINGUISHING THE AGENCY

A . Revocation ...................................................................... 276

VII. DISTINGUISHING AGENCY FROM

A . In General ....................................................................... 312

Appendix: Sample Multiple Choice Questions ............... 347

God's agent in my life,

without whom none of this would be possible.

Thank you for the inspiration.

A. Purpose and Definition

The purpose of agency is to allow a person to act on

In an agency relationship, the party for whom another

a. Accomplishment of More Tasks

Through agency, the principal can accomplish more tasks

The basic theory of the agency device is to enable a

SHARoLD GILL REusCLN AND WILuAM A. GREGORY, THE LAW OF AGENCY

for himself whatever net benefit resulting from the work

In Eurotech v. Cuison,3 the Court said that "[t]he under-

b. Multiple and Simultaneous Areas of Activity

By employing agents, a principal can be in many places as

Of course, a person can simply hire workers if the only

Hiring agents may also improve the performance of the

There are instances where the principal has the capital to

Employing agents also allows the principal to handle

Although agency can be used even for non-commercial

5 FLOYD R. MECHM, OUTLNS OF To LAW op AGENCY (Fourth Edition) §2

However, except in a few situations ... the operation of

Thus, for all these reasons, the agency relationship

As a result of these benefits, the agency relationship can

Considering its usage in the Civil Code and in

behind handled by the agent as it is used in Article 18708