Agency Trust Partnership - 2

REAL FAMILY NOTES AGENCY, TRUST & PARTNERSHIP (FINALS) ATTY.
AMAGO
independent contractor unless their contracts provide
AGENCY 1 for certain agency.
I. NATURE, FORM & KINDS OF AGENCY 1
II. OBLIGATIONS OF THE AGENT 13 As a rule, the arrangement is a separate form of
III. OBLIGATIONS OF THE PRINCIPAL 25 contractual relationship than what is contemplated in an
IV. EXTINGUISHMENT OF AGENCY 30 agency.
TRUST 39
I. GENERAL PROVISIONS 39 QUESTION In the first place, an employee, can he
II. EXPRESS TRUST 40 represent an employer in relation to a particular
III. IMPLIED TRUST 41 contract?
As a rule, NO. He is supposed to render service to the
SAMPLE BAR Q&A, ETC. 45
employer but NOT on behalf of the employer. He is not
supposed to undertake certain contractual obligations
AGENCY
other than what is contained in his employment contract.
I. NATURE, FORM & KINDS OF AGENCY
It is just that it is sometimes confusing because the book
The law on agency is governed by the Civil Code of the
used the word “employment” especially when referring to
Philippines.
a broker but that is actually loosely used as a term,
meaning, when you engage a broker.
There used to be a differentiation of certain cases of
agencies, some in the Code of Commerce and others in
NOTE Agency does not cover the employee-employer
the old Civil Code but that has already been changed by
relationship.
the New Civil Code. Now, agencies are already governed
by Civil Code of the Philippines.
CHARACTERISTICS OF A CONTRACT OF AGENCY
1. Consensual
QUESTION How do you define agency?
2. Principal
3. Nominate
Article 1868. By the contract of agency, a person binds
4. Unilateral or Bilateral
himself to render some service or to do something in
5. Preparatory
representation or on behalf of another, with the
consent or authority of the latter.
1. Consensual
There is no particular form under which an agency can be
That definition is very vague that it can cover any rendition
created. It can really be created by mere meeting of the
of service made by one on behalf of another. In the
minds.
definition, you may have these certain elements that can
guide you in remembering what an agency is.
2. Principal
It does not require a precursor or any contractual
Atty’s Slide: Definition
relationship before you can enter into a contract of
1. Render some service or to do something.
agency. By itself, it can stand on its own.
2. In representation or on behalf of another
3. With consent or authority of the latter
3. Nominate
There is a name provided by law for it i.e. agency.
1. There has to be a rendition of some service or to do
something. There has to be a juridical act that has to be
4. Unilateral or Bilateral
done by a person for there to be agency.
If gratuitios, it creates obligations for only one of the
parties, i.e. agent.
2. Doing that act is not made by the person who wants
the act done but by another. You will engage another
If onerous or for compensation, it gives rise to reciprocal
person to do it on your behalf or in representation of you.
rights and obligations.
3. It requires consent and authority on your part although
NOTE The general rule is that it is bilateral. Agency is
we will understand in the succeeding provisions that this
presumed to be for compensation.
consent or authority may be done by estoppel.
5. Preparatory
AGENCY v. EMPLOYMENT
There could be other contracts that may be entered into
On that definition, it seems that even doing service for
after you have entered into a contract of agency.
and in behalf of your employer can be considered as
agency.
EXAMPLE You entered into a contract of agency
It has to be clarified that this does not govern the constituting the agent as your representative in executing
relationship of an employer and employee, a master a deed of sale. Obviously, the contract of agency was
and a servant, as well as an employer and that of an preparatory to entering a contract of sale. That's why you
can also say that it is preparatory.
(EH 406, 2020-2021) ACHAY – ALGARME – BELARMA – CRISTORIA – DALUSUNG – DAWSON – DIAZ – EBAL – ENRIQUEZ – GERZON – IBONES – JABINES
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LABASTIDA – LABUNOG – LAO – LOQUES - LUMBRE – MOJICA – NAPATOTAN – OBALLO – PATALINGHUG – RODELAS – RONGCALES – SAW – VILLANUEVA
REAL FAMILY NOTES AGENCY, TRUST & PARTNERSHIP (FINALS) ATTY. AMAGO
NOTE The book gives a distinction between agencies and EXAMPLE There was a supposed package that was sent
some of the other contracts. You can read them on your to your house because you ordered from Shopee. You
own. asked your friend who was living with you to get it on your
behalf because you were somewhere else during the time
KINDS OF AGENCY that it was supposed to be delivered. That could be
1. Express v. Implied considered as express because obviously, you said that
2. Gratuitous v. For Compensation (or Onerous) your friend can get the package.
3. General v. Special
4. Agency couched in general terms v. Agency But, if you did not give any specific instruction and your
couched in special terms friend, nonetheless, accepted the package without you
5. Ostensible agency knowing about it and it was really given by the delivery
person then, that is considered an implied agency if you
Article 1869. Agency may be express, or implied from did not return the package.
the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing If you return the package, you are saying that you are not
that another person is acting on his behalf without accepting it because it was accepted by someone else or
authority. maybe that you called the shipping company and told
them that you don’t want someone else to accept your
Agency may be oral, unless the law requires a specific package for you. So, you are not consenting to any agency
form. that may have been impliedly created.
Article 1870. Acceptance by the agent may also be
express, or implied from his acts which carry out the 3. GRATUITOUS AGENCY
agency, or from his silence or inaction according to the One where the agent receives no compensation
circumstances.
4. AGENCY FOR COMPENSATION
1. EXPRESS AGENCY Article 1875. Agency is presumed to be for a
one where the agent has been actually authorized by the compensation, unless there is proof to the contrary.
principal, either orally or in writing.
There is a presumption provided by law that an agency is
EXAMPLE: for compensation, but this is just a rebuttable
Oral - A said that B is his agent. presumption. You can always interpose certain pieces of
Written - You make a contract of agency. evidence or you can question that it is not really for
compensation.
2. IMPLIED AGENCY
Agency formed because of: Negotiorum gestio – when a person tries to save your
• the acts of the principal (Art. 1869) property because you happen not to be there.
• from his silence or lack of action, or his failure to
repudiate the agency, knowing that another Article. 2144. Whoever voluntarily takes charge of the
person is acting on his behalf without authority. agency or management of the business or property of
the act of the person (Art. 1869) or another, without any power from the latter, is obliged
• from the acts of the agent which carry out the to continue the same until the termination of the affair
agency (Art. 1870) or and its incidents, or to require the person concerned to
• from his silence or inaction according to the substitute him, if the owner is in a position to do so. xxx
circumstances. (Art. 1870) xxx xxx
It can be clearer in the sense that a 3rd party was able to EXAMPLE When you are in vacation and your house was
comply with its obligation to you through the person you all of a sudden about to be razed by fire. Your neighbor
did not actually and fully authorized. Without you decided to extend assistance by calling the fire station and
stopping the act that is done by the 3rd person in your tried to save it by pouring water into your house.
favor, even if it’s done through another person there is
said to be an implied agency in that sense. In this case, the acts done by your neighbor can be
considered as an agency. Under the principle of
NOTE When you did not expressly state any consent for negotiorum gestio, you are required to give compensation
agency then, what you have is an implied agency. more so if it can be established that there really was
agency.
It is also specifically provided in the law that agency can
really be just oral and there need not be any written NOTE Even if you did not mention that there was
document unless the law specifically requires it. There is a supposed to be payment of the act of the agent, as a rule,
very long list. 15 of them. The 15th is even a catchall you’re supposed to make payment. You should be careful
provision. when you agree to a certain representation.
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EXAMPLE A very common example is the Shopee or But it can be a general agency in the sense that there is
Lazada experience you may have. Your friend or whoever no limitation given when it comes to however you may be
is in your house can actually require compensation represented, in whatever activity you may be represented.
whenever you ask them to receive something (a delivery) So for example, it’s not limited to your business as a
on your behalf. Because as a rule, agency is supposed to lawyer. It can be personal, it can be official, then that is
be for compensation. It’s just that we’re so fond of just still considered a general agency.
allowing our friends or family members to do that. But
when it comes to a third person (or stranger) with whom EXAMPLE But when I limit it to a specific transaction/s,
you may not have a familial relationship, you should be for example “you can do any and all act in relation to my
careful because they can demand compensation from contract of sale involving the parcel of land described as
you, and they have a legal basis for that which is Article follows…” In that case, you can only represent me then in
1875. this particular transaction, which is the sale of this
particular land.
But there’s really no prohibition if you do it gratuitously.
If you are an agent, and you just want to help another When it only relates to the sale of lot 1, then that is
person, there’s no prohibition to do it for free. Because considered as a special agency because it’s limited to that
Art. 1875 provides “unless there is proof to the contrary”, particular transaction. But if you notice, I did not specify
hence there can still be an agency without compensation what you can do then in relation to my sale. That is special
(gratuitous). agency couched in general terms. Because yes, it’s limited
to that transaction, but I did not limit you as to what you
5. GENERAL AGENCY can do on my behalf in relation to this particular
Article 1876. An agency is either general or special. transaction.
The former comprises all the business of the principal. But of course if it’s a special agency, you normally provide
The latter, one or more specific transactions. for certain authority because for all you know, they may
decide to sell it to themselves without consideration or
A General agency is when it is not limited. It can relate to they can put a very minimal consideration. That’s why if
your personal activities. It can relate to your business it’s a special agency, normally, there are special terms
activities. indicated; you specify.
6. SPECIAL AGENCY The common SPA that you see does not specify specific
Special agency only limits your particular representation acts. There’s no specification as to what can be done.
to a certain set of business or activities. That’s an example of a special agency couched in general
terms. But when you start specifying the forms of agency
7. AGENCY COUCHED IN GENERAL TERMS or the things that can be done by an agent, that is
Article 1877. An agency couched in general terms considered as a special agency couched in special terms.
comprises only acts of administration, even if the
principal should state that he withholds no power or EXAMPLE I will show you an SPA that we’ve done on
that the agent may execute such acts as he may behalf of a client in relation to a special agency.
consider appropriate, or even though the agency
should authorize a general and unlimited management.
NOTE General agency is different from an agency

couched in general terms although, commonly, a general
agency is couched in general terms. It can be a general
agency, and yet there is a special term provided for it.
8. AGENCY COUCHED IN SPECIAL TERMS

It authorizes only the performance of a specific act or acts.
EXAMPLE “You can represent me in all my undertakings,

and then I included “specifically in relation to the following
activities: (1) accepting/receiving packages in my house, (2)
paying electricity, water, and other utility bills charged to
my person” and so on.
This is an SPA that we prepared in relation to a sale

When you specify the activities allowed, it is no longer
transaction. If you notice, it authorizes the purchase of a
couched in general terms. It is already couched in special
parcel of land and then the transfer of the title as a
terms.
consequence of the parcel of land. But here, there is an
appointment of a supposed agent.
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and they are allowed to practice their profession in that
Now, it says there that it constitutes the person as an particular hospital. If they have done certain mistakes in
attorney-in-fact to process to documentary requirements relation to the medical procedure that they do, can you
at the pertinent government agencies, including but not sue the hospital aside from suing the doctor?
limited to BIR, local treasurer’s office, register of deeds, in Yes, because the hospital gives them an apparent
order to facilitate and effect the transfer of the title of the authority to represent the hospital when they do the
aforementioned property for and in behalf of the medical procedure. That could be considered as implied
corporation. authority rather than an ostensible authority.
This is a special agency couched in special terms because EXAMPLE If you want to sell your motor vehicle and you
it specifies what has to be done. It is only the processing did not authorize anyone then your friend learned about
of documentary requirements that can be done by this your intention to sell. If he offered your motor vehicle to
person. It did not say that you can pay all the taxes, a third person and then they were able to do certain
supposedly. It is just for purposes of processing transaction and you’ve seen them talking about your
documentary requirements. motor vehicle and you did not bother to correct the third
person who was engaged by your friend, then there can
If this was strictly followed by the gov’t agency and there be an ostensible agency created in that sense when you
is a requirement for payment of taxes, then they would failed to object to the representation made, even if there
not allow the person to do the payment himself because really was no representation.
it did not say they can make the payment of taxes. It
simply says submission of documentary requirements. So NOTE There is a thin line separating apparent authority
only the documents then can be submitted. from an ostensible agency. But what is clear about there
is that there can be a liability to a third person by the
ATTY But there can also be an agency couched in general principal if ever there is this type of agency. An agency is
terms. Personally, I haven’t drafted a general power of created that’s why it can give rise to liabilities on the part
attorney and I have not drafted a special power of of the principal.
attorney couched in general terms. The reason is you want
to protect your client and if you want to protect your Whether it is through apparent authority or ostensible
client, you require it to limit first the acts that can be done agency, the principal may be held liable to a third
by the agent. Otherwise, that agent can do something that person.
can be disadvantageous to your client.
NOTE There is no prejudice on the right of the principal
9. OSTENSIBLE AGENCY to go after the agent who made the representation when
When the agency is created by estoppel, as when the there really is none.
person wasn’t really authorized, but then you make it
appear that there is authority, then what you have is an Ostensible agency is what you have when there is no
ostensible agency. authority, but by your omission or by your silence, the
transaction was made to effect through a representation
QUESTION How is that different from an implied made by another.
agency?
implied agency ostensible agency COMMENT In a way, partnership by estoppel can be
there really was an no authority given considered an ostensible agency because the person
authority given represents himself as a partner of the partners who did
not actually give their consent. However, there is a specific
In ostensible agency, it’s just that it is continued because provision that relates to it in the Civil Code – but they have
the person failed to give an authorization. the same effect with ostensible agency.
ATTY The book sometimes is confusing because when it QUESTION Is there an importance to distinguish an
made a discussion on Article 1869, it seems to include in ostensible agency with an implied agency?
the implied agency the instances when there is no It seems that there is because of the extent of the liability
objection on the part of the principal but in a way, that and the defenses that the principal may have in relation
may be more of an ostensible agency rather than an to the complaint.
implied agency. You just have to look at the situation on
whether there was an actual authority that is given or at If the principal says that there really was no authority
least the agency is authorized or not. If the agency wasn’t given, then he will have to defend it that what was created
really authorized, then what can be there is just an was an ostensible agency and not an implied agency.
ostensible agency.
It is easier to protect yourself if it’s just an ostensible
EXAMPLE A situation involving a doctor in a hospital. The agency than an implied agency. Thus, there is a need to
doctor and the hospital may not really be employees of make a distinction.
the hospital. These doctors are accredited by the hospital
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QUESTION For an act of another which is ratified by PRESENT
the supposed principal, is that an example of an 1. Principal delivers personally and
ostensible agency? 2. Without objection of agent
It depends on the circumstance. It can be an implied or ABSENT
an ostensible agency. • Acknowledges without objection or
• If related to the business in which the agent is
EXAMPLE You are an employee of a company and you habitually engaged, and he did not reply
started selling the furniture of the office. Your boss knows
about it but did not stop you from doing so. When the QUESTION Is there an automatic agency just because
transaction happened, and there was already payment the principal said, “this is my agent”?
made by the buyer of the furniture and the boss starts to Under the law, acceptance of an agency can either be
collect from you the amount that was generated from the express or implied. In the same way, through a person’s
sale, then that can be considered as an implied agency acts, inaction, or silence, there is said to be acceptance
in the sense that you are an employee of the company. already of the agency. Hence, an agency can arise when
There seems to be an apparent agency in that sense the principal represents one as his agent, and the agent
because you are obviously connected with the boss that does not even bother to correct the representation made
you are working for. by the principal. In that sense, you can already be
considered an agent and agency is already created
But if it is not the case as where the one selling the through that manner of acceptance.
furniture is not an employee of the company and then the
sale happened, and the boss decided to still get the NOTE Agency is a contract, therefore there has to be
proceeds of the sale. In that sense it can just be meeting of the minds for there to be an agency. If there is
considered as ostensible agency rather than an implied no acceptance of the obligation on the part of the agent,
agency because, obviously, the person is not connected then there cannot be an agency.
with the boss and it’s not common for that person to be
representing the boss in that sense. The law has made a distinction when the principal and
agent are facing/before each other or when they are
NOTE It has to be viewed on a case to case basis. It’s not not.
automatic that just because there was a ratification its
automatic ostensible agency, it can also be an apparent 1. BOTH ARE PRESENT (PERSONAL DELIVERY OF POA)
authority or just an implied agency. 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
SIMPLE AGENCY and the latter receives it without any objection.
Now, the simple agency is the most common one. When
there is a clear authority given that you are really If the principal is able to deliver the power of attorney (or
authorized, then that could be considered as a simple agency contract) directly to the agent, and then the agent
agency. receives it without objection, then there is said to be
acceptance in that case, more so if he expressly accepts it
As discussed in De Leon, “One where the agent acts in his or when he signs on the contract.
own name but for the account of the principal”.
QUESTION Is this an ostensible agency?
EXAMPLE: One of the common examples is a NO. This is an example of an implied agency because the
consignment form of arrangement. principal gave authority to the agent himself, and the
agent does not object.
You bake certain pastries and then you send it through
consignment to certain coffee shops. But then when the 2. WHEN BOTH ARE NOT PRESENT
coffee shops sell it, they sell it through their name and not
the name of the one baking it. That may be considered Article 1872. Between persons who are absent, the
as a simple agency, most especially if there really was no acceptance of the agency cannot be implied from the
agreement that the goods will be bought by the coffee silence of the agent, except:
shop when it is delivered to the store. Here, there is said 1. When the principal transmits his power of
to be a simple agency or an agency through commission. attorney to the agent, who receives it without
You are just getting a portion of the sale, but you are any objection;
selling it under your name and not under the name of the 2. When the principal entrusts to him by letter or
principal. telegram a power of attorney with respect to
the business in which he is habitually engaged
ACCEPTANCE BY THE AGENT OF AGENCY as an agent, and he did not reply to the letter
ACCEPTANCE or telegram.”
• Express
• Implied
• Silence/Inaction
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QUESTION How about when they are not before each be questioned. For the benefit of the buyer, if you are the
other and the principal simply transmits the contract lawyer for the buyer, you better require that it be
of agency to the agent, how do we know when the notarized so that there is no need for you to establish then
agency is created? the due execution and authenticity of that document.
If the agent acknowledges receipt of the contract without
specifying whether he accepts it or not, then there is said QUESTION This normally affects a real estate broker. If
to be implied acceptance, and the agency is created in you have a broker for the sale of your real property, when
that sense. are you supposed to compensate the real estate
broker?
This requires an acknowledgment of receipt because of As a rule, there is a presumption that agency has to be for
the term used by the law in Art. 1872. The law uses the compensation. If there is no agreement as to
word “receives”. If you are not facing each other, there has compensation, then you go back to the general rule that
to be an acknowledgment of receipt, and if you did not there really is a need for compensation.
make any objection, there is already an implied
acceptance. That’s why in contracts involving real estate brokers, they
normally provide already what their compensation is, and
NOTE If you did not reply at all, and the agency relates to it ranges from 3-5%, as of this time. It can go lower,
an activity you do not normally do, something that is not depending on the agreement with the principal.
your business, then there is no agency in that case.
QUESTION When is the broker entitled to that 3% or
Art. 1872 (2) contemplates of a situation where the 5% commission?
authority granted relates to the business of the person, There is this term a principle in agency known as,
and he did not make any reply. Meaning, he did not PROCURING CAUSE.
acknowledge receipt of the contract.
PROCURING CAUSE
EXAMPLE You are a real estate broker. It refers to the cause originating from a series of events
which, without break in their continuity, result in the
Art. 1872 (1) accomplishment of the prime objective of the
You received the authority to sell from the person through employment of the broker, producing a purchaser ready,
mail. It says that you will become the agent of the person willing and able to buy on the owner’s term.
in relation to the sale of his motor vehicle. Your business
is selling real estate. If you did not reply to the receipt of In other words, the broker must be instrumental in the
the agency, even if you did not object, the fact that you consummation of the sale to be entitled to the
did not reply, it will not create an agency in that case. commission. He must be the reason why the sale was
consummated.
There will only be agency if you acknowledge receipt
without objection. It falls under no.1. It is not enough that he brings the buyer to the property.
It has to be that the buyer ended up buying the property
Art. 1872 (2) itself, executing the contract.
But had the authority to sell relates to a sale of real estate,
where your business is a broker of real estate, then even NOTE Brokers have to establish that they are the
if you did not reply that will already constitute as an procuring cause, procure meaning “to buy”.
acceptance on your part of the agency. If you don’t want
to represent the principal, you better reply and give your The principal is sometimes very scheming that they leave
objection. Otherwise, it will already be considered as the broker without compensation. They wait for the
acceptance if you did not reply because it relates to your authority to sell to lapse before they enter into a contract
usual business. with the buyer that was actually introduced by the broker.
In that case, you can still consider the buyer the procuring
AGENCY TO SELL A PIECE OF LAND cause. The only reason why the sale was not
Article 1874. When a sale of a piece of land or any consummated was the principal wanted to wait so that he
interest therein is through an agent, the authority of the does not have to give a commission to the broker.
latter shall be in writing; otherwise, the sale shall be
void. The only requirement by law for a principal to stop the
agency involving the broker is to do it in good faith.
NOTE It is not just the representation to make the sale.
This contemplates a situation where the agent really signs If it is tainted with bad faith, then it is still possible for the
the deed of absolute sale, for and in behalf of the broker to go after the principal for his compensation if the
principal. broker is able to establish that he/she was the procuring
cause of the sale.
QUESTION Does the POA have to be notarized?
No. The law only requires that it has to be in writing. But NOTE Again, it is not enough that you are able to present
the problem if you don’t notarize it is that it may later on the buyer. It must be that you led the buyer into buying
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the property – consummate the sale itself, for you to be SPECIAL POWER OF ATTORNEY
entitled to a commission.
There are certain instances where the broker is able to

have an exclusive contract for the sale of property.
Meaning, you will have the exclusive listing of this
particular property. If through his acts, there really was no
sale that happened, but during the period of his agency,
the principal was able to find a buyer for himself.
Article 1878. Special powers of attorney are
QUESTION It is an exclusive sale, you are supposed to do necessary in the following cases:
the sale and no one else BUT the principal was able to find (1) To make such payments as are not usually
one himself, should that broker be entitled to considered as acts of administration;
compensation? (2) To effect novations which put an end to
It depends if the period of the agency is still effective at obligations already in existence at the time
the time the sale was made by the principal. the agency was constituted;
(3) To compromise, to submit questions to
It may not be a compensation for the sale itself because arbitration, to renounce the right to appeal
you are not the procuring cause, but it is compensation from judgment, to waive objections to the
for breach of contract. venue of an action or to abandon a
prescription already acquired;
Because if you give an exclusive authority on the part of (4) To waive any obligation gratuitously;
your broker to do the sale, then you must wait for that (5) To enter into any contract by which the
period to elapse before you engage a buyer or before you ownership of an immovable is transmitted or
enter into a sale. This is also the difficulty when you have acquired either gratuitously or for a valuable
a broker in relation to sale of your property because your consideration;
acts may already be limited, and you may have to (6) To make gifts, except customary ones for
compensate already the broker even if he did not cause charity or those made to employees in the
the sale of the property itself. business managed by the agent;
(7) To loan or borrow money, unless the latter
ATTY If you will be the lawyer for the principal, you have act be urgent and indispensable for the
to be mindful of the terms of the agency that you give to preservation of the things which are under
the broker. There are really instances where brokers are administration;
entitled to commission and sometimes, they are not (8) To lease any real property to another person
entitled but because of the contract of agency, the for more than one year;
principal may have no choice but to give the (9) To bind the principal to render some service
compensation. without compensation;
(10) To bind the principal in a contract of
Now, there is this practice where the broker partnership;
represents both the seller and the buyer. That is also (11) To obligate the principal as a guarantor or
very common. surety;
(12) To create or convey real rights over
QUESTION Is it prohibited? immovable property;
NO. But for you to be entitled to a commission, you need (13) To accept or repudiate an inheritance;
to disclose to both the buyer and the seller that you are (14) To ratify or recognize obligations
representing them together. contracted before the agency;
(15) Any other act of strict dominion.
If you don’t, then there is a reason for you to lose your
compensation both from the seller and the buyer. Some Article 1878 enumerates the types of activities that has to
brokers may think that they can get away with it, but be contained in a special power of attorney.
should it be known that you represent both interests, you
may be subject to a legal action. This means that it has to be in writing, and it has to be
specified. Otherwise, there can be no act that the agent
If ever you represent both interests, the rule is that or at can do for or on behalf of the principal and the principal
least, the prudent act to do, is to inform both the buyer may not be bound by the acts of the agent. Whatever
and seller. It is really possible that you know both the contract the agent may enter into in relation to these
seller and buyer at the same time. If you also want to particular activities without SPA may be deemed
protect your interest as a broker, you should disclose. unenforceable and not void unless it falls under the sale
Otherwise, you end up without having any commission. of real property or any interest therein.
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1. PAYMENT can do that, imagine if it is allowed, the principal will be
If you wish to be represented or if you wish to represent paying double the interest when it should have been 6%
another in paying something, you better ask for a Special and he did not specifically authorize such particular
Power of Attorney if it is not considered as an act of novation.
administration.
Hence, there is a need for special power of attorney when
EXAMPLE Personal assistant of a wealthy person it comes to novation because there is a risk that the
Even if there is no specific authority granted to you to pay principal may end up being at a disadvantage out of the
for all his residential costs (payment of utilities in his novation.
house, rent), you may pay. Supposedly, because it talks
about payment, there has to be a Special Power of 3. COMPROMISE etc.
Attorney but because it relates to your being personal Same reason with novation. If you make consensual
assistant then in a way you may be have the authority to concession to avoid litigation or to put an end to one that
make payment because it can be considered as acts of has already commenced, you can look at it from the
administration. viewpoint of the accused/complainant.
NOTE You have to weigh in if the payment is to be made On the part of the complainant, if you want to make a
pursuant to the usual management of a certain business compromise and you want to do it with a lawyer, you
or usual business of a personal aspect of the principal then better specify to your lawyer what you really want as a
it can be considered as acts of administration then compromise and it has to be specified the extent of that
payment can be done by you. authority. Otherwise, the lawyer may end up
compromising the case and you may not want it at the
EXAMPLE Payment of a loan end.
You are authorized to manage the building of a certain
corporation. You are granted such authority to do the From the viewpoint of the accused, you may also do it
management of the building. You are supposed to make through a lawyer. And you better specify to the lawyer
collection of the rent. Now you saw that there is a pending what you can compromise.
foreclosure of the building because of the lapse in the
payment of the loan with the bank for which the building ATTY This part of agency is relevant to your practice. In
was used as a collateral. Will you be allowed to make fact, the court will always inquire that you will be able to
payment of that loan out of the proceeds of the rent present an authorization that you are allowed to
that you collected? compromise.
It is no longer your part of your authority to make QUESTION When you are allowed to compromise,
payment in that case because you are supposed to only does it mean that you are allowed also to bring the
make the collection for the rent. Even if you do the case to arbitration?
management but there is a possibility that the court may NO, because there is a specific provision under the law
see it as advantageous to the principal. that relates to arbitration.
BUT if you look at it as it is, the payment requires a Special Article 1880. A special power to compromise does not
Power of Attorney because it goes beyond the acts of authorize submission to arbitration.
administration already because it involves an obligation If there is a possibility that the case will also be subject to
separate from the authority that was granted to you so in arbitration, aside from giving you the authority to
that instance, it can longer be considered as acts of compromise, you also should be given a specific authority
administration. You go back to the rule that it requires to submit the case to arbitration. If it is not stated, your
Special Power of Attorney. authority to compromise does not include the authority
to subject the case to arbitration.
2. NOVATION
Novation also requires a special power of attorney. 4. GRATUITOUS WAIVER
You waive an obligation gratuitously which is actually
Reason: There may be instances where your principal is similar to condonation or remission. You need a special
obligated to pay more out of the novation. To ensure that power of attorney to do that because there is a possibility
the principal is always protected, then it has to be that the principal may be prejudiced out of that waiver
specified that the agent is allowed to novate. that you’ve done.
5. CONTRACT INVOLVING IMMOVABLE

EXAMPLE The contract says that you’re supposed to pay
If there is a sale of real property, it has to be in writing,
the interest of 6% but because of the novation it turns out
more so that there is this specific provision stating that
to be 12% now.
there has to be a special power of attorney when it comes
to sale of an immovable, or transfer of title or conveyance
If the agent is not authorized to do that and there is no
of an immovable.
special power of attorney that was shown that the agent
8
QUESTION What if you are the one purchasing and If the service is for compensation, the power may be
you are represented by an agent, does it have to be in implied.
writing?
Since the provision provides that it is for the sale or 10. BIND THE PRINCIPAL IN A CONTRACT OF
conveyance of title, without specifying whether it is for the PARTNERSHIP
sale or for the purchase, then you also need a special It needs a SPA because a contract of partnership requires
power of attorney when you are representing a person for contribution. If you are the agent and you enter in a
purposes of buying. The requirement is both for the contract of partnership, you may constitute a liability for
seller and the buyer. the principal.
6. DONATION OF PROPERTY 11. OBLIGATE PRINCIPAL AS GUARANTOR OR SURETY

If you also represent a person in donating property, If there is a guaranty and you are the agent of the
whether it is real or personal, it also requires an SPA. This guarantor, your guarantor would have to wait first for the
is only true if you are the one representing the person who person principally liable to comply with the obligation to
is making the donation. It’s not the donation itself that exhaust his assets.
requires an SPA.
NOTE There is a remedy of exhaustion in a contract of
If you want to donate and you want the donation to be guaranty. Such remedy does not exist in a contract of
executed by another person, then get an SPA for that suretyship.
person because it still falls under “conveyance of
property”.
12. CREATE OR CONVEY REAL RIGHTS OVER
7. LOAN OR BORROW MONEY IMMOVABLE PROPERTY
When you are the one lending the money, it requires an This talks of encumbrances of a real property such as
SPA. When you are the one borrowing, it also requires an engaging in a mortgage, usufruct, etc. This is different
SPA. from Art. 1878(5) which talks about acquisition of real
property.
There may be no need for an SPA if the purpose of the
borrowing is for preserving the things under your NOTE Anything that relates to a real property always
administration. require a SPA because it is a contentious matter. There
could be legal issues that you may encounter when it
EXAMPLE You are managing a building and it is about to comes to real property.
be foreclosed. Then, you borrow money just so you can
pay the outstanding loan to avoid foreclosure. There is no 13. ACCEPT OR REPUDIATE AN INHERITANCE
need for an SPA in this case if you can establish that it is It may be perhaps that one of the heirs would like to
urgent and indispensable to preserve the property that represent the other heirs in an extra-judicial settlement of
you are managing. estate. In such case, a SPA is necessary.
Make a distinction. Payment is not exempted from the 14. RATIFY OR RECOGNIZE OBLIGATIONS
SPA requirement. Here, you borrowed to preserve the CONTRACTED BEFORE THE AGENCY
property because it is about to be foreclosed. Although This refers to ratification of pre-existing debts or any other
you may say that the payment was an act of obligation because it is already present prior to you
administration, you have to prove it in court. Side with becoming an agent.
caution nalang, payment requires an SPA. Or you could
borrow the money first then make the payment rather 15. ANY OTHER ACT OF STRICT DOMINION
than making use of the amount that you collected for the This means more than the ordinary acts that can be done
payment of the loan. by an agent. This is a catch-all provision.
8. LEASE OF REAL PROPERTY FOR MORE THAN 1 YEAR EXAMPLE Sale or purchase of personal property is an act
• Lease of real property of strict dominion. Thus, an agent appointed to manage a
• the period has to be more than 1 year. printing establishment of his principal cannot sell a
printing machine in said establishment.
If it’s a lease of personal property for 1 year, then it does
not require SPA. NOTE But a sale or purchase made in the ordinary course
of management is merely an act of administration and,
9. BIND PRINCIPAL TO RENDER SERVICE WITHOUT therefore, included in an agency couched in general
COMPENSATION terms.
The agent may, by contract, bind himself to render service
without compensation. However, to bind the principal to EXAMPLE Sale of motor vehicle
that effect, a special power is necessary. Even if the law doesn't specifically require for a special
power of attorney, but if the amount is substantial, it may
9
fall under the last item of other acts of strict dominion. But scope of your authority. In that case, you will not bind the
it has to be proven that it is more than an act of principal.
administration. But if it involves a sale (transfer of title), it
is considered an act of strict dominion. IOW, sale of For you to bind your principal even though you have
personal property may still require a special power of exceeded your authority, it has to comply with these
attorney. three requirements:
1. Within the scope of authority
CONSTRUCTION OF THE CONTRACT OF AGENCY 2. More advantageous to principal
3. Purpose of agency
Article 1879. A special power to sell excludes the
power to mortgage; and a special power to mortgage KINDS OF PRINCIPAL
does not include the power to sell.
Article 1883. If an agent acts in his own name, the
If you authorize a person to sell your property, he has no principal has no right of action against the persons with
authority to mortgage the property. His authority is whom the agent has contracted; neither have such
limited to selling it. persons against the principal.
QUESTION Is it possible that a person who has the In such case the agent is the one directly bound in favor
power to sell also has the power to mortgage? of the person with whom he has contracted, as if the
YES, but it has to be specified in the contract of agency. transaction were his own, except when the contract
involves things belonging to the principal.
EXAMPLES
"that I authorize my agent to mortgage" The provisions of this article shall be understood to be
"that I authorize my agent to sell" without prejudice to the actions between the principal
"that I authorize my agent to encumber in any way" and agent.
"that I authorize my agent to transfer and convey"
DISCLOSED PRINCIPAL
It has to be specifically stated that you have the power to • Liable to third parties
sell/the power to mortgage for you to be able to do those • Liable to agent
acts. But if it is just the power to sell, it does not include UNDISCLOSED PRINCIPAL
the power to mortgage and vice versa. • Agent is liable to third parties
• Exception: property of principal
AUTHORITY OF THE AGENT
1. DISCLOSED PRINCIPAL
Article 1881. The agent must act within the scope of If there is a disclosed principal because obviously, the
his authority. He may do such acts as may be conducive principal will be the one liable to the third party. That’s
to the accomplishment of the purpose of the agency. because you are merely an agent. You are supposed to be
Article 1882. The limits of the agent's authority shall acting for and on behalf of the principal. The principal is
not be considered exceeded should it have been really the one contracting with third parties although you
performed in a manner more advantageous to the may be the one signing it. That’s why there are certain
principal than that specified by him. words you have to indicate to say that you are merely
signing for and on behalf of the principal.
QUESTION When will the agent then be able to bind
the principal? When the third party feels prejudiced and wants to sue
An agent will be able to bind the principal if he is granted based on the contract you may have entered into, they do
the authority. He must act within the scope of such not sue you, as agent, they sue the principal himself,
authority or it relates to the purpose of the agency for because the principal is the one principally liable to the
which he was authorized. Also, he may still be able to bind third parties.
your principal even if he exceeded your authority if it gives
the principal more benefits in the end. At the same time, the disclosed principal is also liable to
the agent for whatever compensation he may have
promised.
EXAMPLE You authorize your agent to sell the property
for the amount of P1M and he is able to sell it for P5M.
2. UNDISCLOSED PRINCIPAL
QUESTION What if you did not disclose the principal?
Obviously, you exceeded your authority but because it
(In other words, the agent dealt with the third party using
gives more benefit to the principal, you’re considered not
his own name even if there was supposed to be an
to have exceeded your authority even if you actually did.
authority.)
It’s specifically provided in the law as well.
If you sold it for less than the amount of P1M it is clear
In that case, the agent will be the one liable to the third
that you did not follow your authority. You may not have
parties because he is using his own name after all. The
exceeded your authority but you are not acting within the
principal is also not disclosed. There’s no way for the third
10
party to know that this person is acting as an agent. The Yes. That’s correct. It refers to the nature of authorization
agent will be deemed as the principal in that case. that you have to specify that that is the authority he
grants.
GR: If an agent acts in his own name, the principal has
no right of action against the persons with whom the EXAMPLES
agent has contracted; neither have such persons • PAYMENT - you have to say that you have the
against the principal. The agent is the one directly authority to pay.
bound in favor of the person with whom he has • MORTGAGE – You have the authority to
contracted, as if the transaction were his own mortgage.
XPN: When the contract involves things belonging to YES it need not be in writing. But the problem is how
the principal, the principal has a right of action against will you be able to specify? How will you be able to
the persons with whom the agent has contracted. prove that you have that authority?
So in a way, this will still lead you to have it in writing. No
EXAMPLE There is this very interesting example in your form in the sense that it need not be notarized but the
book, involving the sale of a property by the agent using exception to that is really to the immovable property
his own name, but the agent is selling the property of the because again sale of real property and any interest
principal. therein requires to be in writing.
This contemplates of a personal property because if it’s I agree with De Leon that it relates to authorization more
real property that seems to be impossible. Let’s say the than the form, but to be practical, it has to be in writing
property that was sold were consigned to the agent. There for you to know that it is specifically provided as an
was consignment. He was authorized to sell. Sacks of rice authority.
were placed in the warehouse of the agent. The agent was
supposed to sell it for and on behalf of the principal. QUESTION In Art. 1872, what is the presumption if the
facts do not disclose whether the transaction of the
If the agent sold it in his own name, not disclosing the proposed agency is part of the agent’s usual business?
principal, and this third party is not able to pay later on, The presumption is that it’s not part of the agent’s
the principal can sue the third party even if supposedly, business then.
he was an undisclosed principal and the contract was
made by the agent and the third party. The reason is
because it involves a property of the principal. There is NOTE If you express the agency, specifically to the person,
still a relationship that can be created between the then the only way that you can terminate it is also by
principal and the third party, because it involves property specifically informing that person that you’re terminating
of the principal after all. the agency.
Article 1873. If a person specially informs another or
What the agent may have dealt with involves a property states by public advertisement that he has given a
he doesn’t own, it is just equitable that the principal will power of attorney to a third person, the latter thereby
have interest over such a contract. becomes a duly authorized agent, in the former case
with respect to the person who received the special
QUESTIONS, CLARIFICATIONS information, and in the latter case with regard to any
person.
QUESTION A broker earns his pay even when no sale was
made so long as he was able to bring the buyer and seller The power shall continue to be in full force until the
together. When is this applicable? notice is rescinded in the same manner in which it was
given.
Go back to the requirement that the agent has to be the
procuring cause. Only then will he be entitled to the If you specify the agency thru publication, then you can
compensation. also terminate it by publication. But if there’s 3rd person
that is affected, it can also be terminated by specifying it
De Leon further discussed that there is the requirement to the 3rd person that the agent may have dealt with.
for procuring cause. It’s not enough that he just brought
the principal and the buyer together, it has to lead to the This is why we can still see certain publications of persons
consummation of the sale of the property for him to be who are no longer connected with a particular company.
entitled to the commission. There are those advertisements in the newspaper saying
that this person is no longer connected with this particular
QUESTION: The book mentions in 1878 refers to the company, together with his picture.
nature of the authorization, not its form. (Di daw
kailangan… he stopped reading the student’s question) You may say that it is a violation of the data privacy act,
but an exception to the data privacy act is when it is in
compliance with the law. When you need to provide for
11
the protection of your clients and customers, then there
may be a need to specify that in a publication saying that
this person is no longer affiliated with the company. That’s
one reason for the provision of the law. That if you needed
to terminate the agency, then that can also be done
through publication.
Maybe you will say, “but I haven’t heard of a publication

in a newspaper saying that this person an agent.” Most
likely, what you see is that “he is not an agent”. That is just
for purposes of being cautious. That you need to inform a
wider range of individuals that there is no agency,
because there might be a lot of people who knows about
it.
But honestly class, if there is still apparent authority, then

you can still make use of the apparent authority for
purposes of going after the company in case you entered
into a contract with this person who is advertised as no
longer connected with the company. If you needed to
protect the interest of your client, then you can always
establish that there was apparent authority, because you
were not specifically informed about it.
QUESTION What if the transaction is, for example, “to

do such acts, including but not limited to, processing
of documents”, is it still considered couched in general
terms?
Yes, because of the term “including but not limited to”. It
will be considered as couched in general terms.
12
(14) To inform the principal, where an authorized sale
II. OBLIGATIONS OF THE AGENT of credit has been made, of such sale (Art. 1906);
There are only two parties to an Agency:
1. Principal (15) To bear the risk of collection, should he receive
2. Agent also on a sale, a guarantee commission (Art. 1907);
SPECIFIC OBLIGATIONS OF AGENT TO PRINCIPAL (16) To indemnify the principal for damages for his
The book of De Leon gave a good summary to this, refer failure to collect the credits of his principal at the
to pages 466-467. There are 17 of them. time that they become due (Art. 1908); and
(17) To be responsible for fraud or negligence. (Art.

(1) To carry out the agency which he has accepted 1909)
(Art. 1884);
AGENT’S LIABILITY FOR DAMAGES
(2) To answer for damages which through his Article 1888. An agent shall not carry out an agency if
performance the principal may suffer (Art. 1884); its execution would manifestly result in loss or damage
to the principal.
(3) To finish the business already begun on the death
of the principal should delay entail any danger This alone would tell us that while there is an obligation
(Art. 1884); to always advance the interest of the principal (i.e., you’re
supposed to comply with the instructions, you’re
(4) To observe the diligence of a good father of a supposed to comply with what is stated in the contract),
family in the custody and preservation of the you also have to be mindful of what is its effect to the
goods forwarded to him by the owner in case he principal. If it will cause damage, you may be held liable
declines an agency, until an agent is appointed for it.
(Art. 1885);
Of course, you will only comply with things which are
(5) To advance the necessary funds should there be a legal. But sometimes, you have to be mindful also that not
stipulation to do so (Art. 1886); all instructions, even if they may be legal, could best serve
the interests of the principal.
(6) To act in accordance with the instructions of the
principal, and in default thereof, to do all that a EXAMPLE You are required to purchase a property for
good father of a family would do (Art. 1887); and on behalf of your principal. In the course of your
dealing and negotiation with the owner of the property
(7) Not to carry out the agency if its execution would that you were required to purchase by the principal, you
manifestly result in loss or damage to the principal found out that there is an adverse claim which was not
(Art. 1888); recorded in the title of the property. The principal did not
know about it. You were just able to find out when you
(8) To answer for damages if there being a conflict were talking to the supposed owners.
between his interests and those of the principal, he
should prefer his own (Art. 1889); If the principal would still insist that you buy it, before you
do so, you should advise the principal of what you’ve
(9) Not to loan to himself if he has been authorized to known. Otherwise, it may cause damage to the principal.
lend money at interest (Art. 1890); In that case, you may be held liable if you failed to inform
him or her of the encumbrance that you came to know
(10) To render an account of his transactions and to while you were still negotiating. In that instance, it may be
deliver to the principal whatever he may have a cause of action for damages by the principal.
received by virtue of the agency (Art. 1891);
Article 1884. The agent is bound by his acceptance to
(11) To distinguish goods by countermarks and
carry out the agency, and is liable for the damages
designate the merchandise respectively belonging
which, through his non-performance, the principal may
to each principal, in the case of a commission
suffer.
agent who handles goods of the same kind and
mark, which belong to different owners (Art. 1904);
He must also finish the business already begun on the
death of the principal, should delay entail any danger.
(12) To be responsible in certain cases for the acts of
the substitute appointed by him (Art. 1892);
Article 1884 likewise provides that the agent who has
accepted to carry out the agency will also be liable for
(13) To pay interest on funds he has applied to his own
damages if it does not perform the obligation stated in
use (Art. 1896);
the contract.
13
That’s consistent actually with the performance of an Even if you do not become an agent, while you are in
obligation under a contract. If you do not comply with the possession of properties belonging to the principal, you
contract, then there could be an action against you for could still be required to exercise due diligence. You
specific performance and in addition to that, you will also cannot just leave things unattended when you do not
be liable for damages. agree with the agency. You are still required to keep it.
This is actually still consistent with the provision of the QUESTION Until when are you supposed to keep it?
Civil Code relating to breach of contract. If you fail to No hard and fast rule. Reasonable time would be the basis
comply, then you can be held liable for damages. which is a case to case matter. If you think that it has taken
so long for the principal to retrieve the things, you can
Article 1889. The agent shall be liable for damages if, start charging certain fees.
there being a conflict between his interests and those
of the principal, he should prefer his own. It depends on a case to case basis. Atty. thinks 1 week
should be enough period for the principal to retain things
GR: Article 1889 that he has given to you. Although there is no really
specific period provided under the law when it comes to
XPN: Instances where the interest of the agent may be this.
superior than that of the principal:
• Agent has security interest in the goods of the Another instance where ordinary diligence is required
principal – He may protect his interest even if is when the contract is silent. If there is no specific
in so doing he disobeys the principal’s orders diligence in the exercise of your obligation as an agent,
or injures his interest (De Leon, p. 479). exercise ordinary diligence. That is provided under Article
• Retaining lien of a lawyer v. his client. 1887,
EXAMPLE If for example, you receive certain properties Article 1887. In the execution of the agency, the agent
during the course of your agency, as an agent. Then you shall act in accordance with the instructions of the
were told by the principal to sell the property that you principal.
received and you still have certain claims from the
principal because you’re not yet paid your compensation, In default, thereof, he shall do all that a good father of
you’re not yet paid for advances that you have made for a family would do, as required by the nature of the
and on behalf of the principal. business.
Now you have the option actually not to sell the property This is premised on the first sentence which says that in
if you think that you will not be able to sell enough to the execution of the agency, the agent should act in
cover your dues from the principal. You can keep the accordance with the instructions of the principal. If the
property for yourself, or you can sell it, but you need not instructions of the principal require you to exercise extra-
turn over the money just yet. ordinary diligence, then that’s what you agreed upon. But
in the absence of any stipulation, you are supposed to
Just like how it when a lawyer represents a client and there exercise only ordinary diligence.
are certain documents that are left with the lawyer. There
is this so-called retaining lien that allows you to keep QUESTION Atty would the agent recover any expenses
documents or anything in writing that is for the client in taking care of the goods delivered to him?
supposedly. You need not turn over it until you get paid That’s on a case to case basis but he will see also that any
for your compensation. advance for and in behalf of the principal, if that is agreed
upon and well in the absence of the stipulation,
The lawyer is actually justified to keep the documents supposedly it is the principal who should pay for all
even if supposedly it is a requirement to favor always the necessary expenses. Only if the expenses are necessary.
interest of the principal. This one you should establish also to the principal. After
all, you will be required to account also for whatever
expenses you may incur. But actually, you can ask for
DILIGENCE REQUIRED OF AN AGENT
advances for expenses. You can ask for reimbursement for
QUESTION What is the diligence required of an agent?
actual expenses incurred for as long as they are necessary
Ordinary diligence – this is the due diligence of a good
to the agency.
father of a family
COMMENT As a rule, the one who should pay the

Article 1885. In case a person declines an agency, he
expenses is the principal. But you could always agree
is bound to observe the diligence of a good father of a
otherwise. Better if you ask for an advance for the
family in the custody and preservation of the goods
expenses from the principal. That is a practice that I’ve
forwarded to him by the owner until the latter should
been able to observe from law firms and they engage a
appoint an agent or take charge of the goods.
client and they ask for an Out of Pocket (OPE) expenses,
so whatever expenses they may incur for purposes of
mailing, for purposes of calling people in relation to the
14
engagement to the client, they can charge it to that in collecting the amounts of the loan, the agent was held
amount. In the succeeding provisions, relating to the liable for it as well. After all, it was a violation of the bank
obligations of the principal, it is also stated that the policy. Second, it was also a violation of the interest of
principal will have to advance expenses necessary to the your principal, it that case it was the bank.
agency.
While it may be true that an employer-employee
But you can, as an agent, make the advances to yourself. relationship is not covered by the rules on agency. When
It has to be stated though in your agreement; otherwise, the employee is contracting for and on behalf of the
you will have a hard time getting the amount for the employer, an agency relationship is actually created.
reimbursement.
Normally, an employee cannot bind the employer - that’s
QUESTION How about in the instance in Art. 1885 not the task of an employee. But when the responsibilities
where a person refuses to be an agent and the goods of the employees include instances wherein it gets to bind
are already forwarded to them. the employer, in that particular instance, there is a
If in the course of your exercise of due diligence, you principal-agent relationship created. When the bank
incurred expenses, you can charge it to him. That’s part of manager extends the loan who signs for and on behalf of
the negotiorum gestio wherein you are going to manage the bank of certain loan documents, he (bank manager) is
the properties of those who are absent or you can always actually considered an agent of the bank.
consider that under unjust enrichment which is also
another quasi contract. So, you can ask for reimbursement Employer-employee relationship is not part of the agency
of expenses if ever. Those are advances for necessary relationship, that’s true as a general rule. But if the
funds. employee is made to represent an employer in certain
contractual obligations, then the employer is considered
LIABILITY OF AN AGENT FOR FRAUD & NEGLIGENCE the principal and the employee an agent in that particular
Article 1909. The agent is responsible not only for instance.
fraud, but also for negligence, which shall be judged
with more or less rigor by the courts, according to It is the circumstance where the employee is actually
whether the agency was or was not for a compensation. representing the employer in certain contractual
obligations. In that case, the bank manager was
Obviously, it cannot be said that the agent can be liable considered negligent and was held liable for damages
for whatever illegal activity he may do which can affect the against the principal. It’s just that in the case, the question
principal, so that’s a non-issue. In fact, even if it is not said was whether the principal ratified the act of the agent
in the law, you can understand why it is so. when they sued not only the employee (bank manager)
but also the third person who contracted the loan and did
QUESTION But how about negligence? Could it be a not pay for it.
source of obligation on the part of the agent?
Yes. The negligence mentioned in the law is not even The Supreme Court said that although this is not
required to be gross. That means that even simple considered a ratification, this is an exception because the
negligence or simple carelessness, the agent can be held reason why you have to include the third person in the
liable for it. suit is in order to lessen the obligation of the agent. When
that is the intention, it is not considered a ratification
QUESTION What could be an example of negligence
for which the agent can be liable to the principal? GR: If you sue a third person, then you may be
Failure to inform the principal of material information or considered to have ratified the obligation because you
that information which could have a bearing to the are trying to get the benefits out of the acts of the
decision of the principal could be considered as agent.
negligence
XPN: The reason why you have to include the third
You never intended to conceal that to your principal person in the suit is in order to lessen the obligation of
because you just did not think that it is necessary but it the agent.
turned out that it would be necessary that it been known
to the principal. That can be a cause of action by the QUESTION You knew that the person who signed the
principal against the agent out of negligence. document is actually abroad and then the contract that
was presented to you bears the signature of the person
EXAMPLE There’s a case involving a bank manager who who is abroad at the time the instrument was supposedly
extended credit to non-qualified individuals. Perhaps he signed. Are you supposed to accept that?
never really considered to get pass through the No. You are supposed to inform your principal on how
requirement on confirming whether the clients are you are supposed to move forward because if ever the
qualified or not. But in the course of the review of the person is in abroad and the document requires to be
management of the bank, they were able to discover that notarized, it has to be authenticated in the Philippine
this manager extended loans to persons who may not Consulate Office in that country. Although the current
have a good credit standing. Since there was a difficulty practice now is the so-called Apostille Convention. You
15
just have to get a stamp. It is no longer the red ribbon money from the principal when he gives the money to
requirement. him? That's why he was asked to borrow money for and
on behalf of the principal because he’s supposed to turn
EXAMPLE You are abroad and there is a contract that you over the money to him.
are supposed to execute, like a special power of attorney
only. The only requirement under the law there is not
specifically consent and authorization, but just that you
If you execute that while you are abroad, you cannot make charge the current interest rate. I said the legal interest
use of the document in the Philippines. Even if you have it because in the absence of stipulation class, the current
notarized here in the Philippines, that is not possible rate is really the legal interest rate. This is not necessarily
because you cannot present yourself before the notary true in all instances because maybe it is very easy for the
republic. It is required for one to go to the office of the agent to confirm with a certain bank what the current loan
notary public and execute a document there. interest rate is. If you ask the loan interest rate, then if it is
higher than the legal interest rate, you can charge that
Second, if you are abroad, the Philippine jurisdiction does loan interest rate. It need not be the legal interest rate
not take cognizance of any document that is executed after all the provisions say current interest rate which is
abroad unless it is authenticated by the Philippine not necessarily equal to the legal interest rate.
government abroad. The only way that it can be
authenticated is you go to the Consulate Office or Only when it's not possible to secure any other interest
Embassy who will do the authentication for and on behalf rate will you refer to the legal interest. now that is if the
of the Philippine government. obligation under the agency is to borrow money, you can
extend the money to the principal. You become the lender
In this transaction, when you know that the person signs of the principal, the creditor.
the instrument is actually abroad, then you better ask the
principal whether he will accept it or he will require that QUESTION But how about if you were asked to lend
there be authentication. money, can you be the borrower?
Yes, but only if you are authorized by the principal.
If I were the agent of the principal, I will really insist that
there better be an authentication of the signature of this The likelihood of you choosing yourself as the borrower
person who is abroad before my client should execute the over a different person is very high and that may not
contract. necessarily be according to the best interest of the
principal. Again, the requirement is that you are supposed
If you fail to inform your client about the legal implications to advance the interest of the principal over your own.
and the client pursued the contract, only to find out later That is the reason why you need authorization when you
on that they may not be able to get benefits out of the become the borrower of the principal because in this
contract because it is subject to a particular case or a legal instance there is actually self-dealing. You are
issue, then you can be held liable by your client for representing the principal and you are also the third
damages. person.
It is not as easy as just representing the client that for as LIABILITY OF AGENT FOR INTEREST
long as you are paid, then that’s okay, that the obligation Article 1896. The agent owes interest on the sums he
ends the moment the contract has been signed. Be has applied to his own use from the day on which he
mindful of the effects of those contracts especially when did so, and on those which he still owes after the
you're asked to review the contracts. extinguishment of the agency.
OBLIGATION TO BORROW & Agent’s Liability for Interest Reckoning Point

NOT TO LOAN TO HIMSELF Sums he has applied to his From the day on
Article 1890. If the agent has been empowered to own use which he did so
borrow money, he may himself be the lender at the Sums which he owes after the From the date the
current rate of interest. If he has been authorized to extinguishment of the agency agency is
lend money at interest, he cannot borrow it without the extinguished
consent of the principal.
In fact, if ever there is money that comes to your
QUESTION: In cases of money deals, what is the possession through the course of your agency, and you
obligation of the agent? make use of that money for your personal purpose, you
If the agent is allowed by the principal to borrow money, will be required to pay the interest the moment you make
then he may be the one who lend the money to the use it. This contemplates when you are not authorized by
principal, he better discloses it to the principal that he is the principal. There is conversion of money to your
the one who is actually lending the money to the principal. personal use.
There is no requirement to get the principal’s consent, but The same is true whenever there is obligation due to the
you really have to disclose. Otherwise, how will he collect principal and it remains outstanding at the time the
16
agency is already completed. It must be an outstanding will receive something out of this transaction, they’re
obligation which does not have a period because if there supposed to disclose it to their employer.
is an agreed period, then follow that agreement.
That’s why if you are part of a company, especially if you
This pertains to instances when there is no specific period are in the legal department or in the human resource
within which to make payment, and your agency has department, you should be mindful of this and this is one
already expired. Then the moment that your agency of the things you should try to examine: the purchasing
expired until you are able to make payment, you are department.
required to pay interest.
What are the actuations of all the suppliers of the
The law is very strict when it comes to the use of the company? Because they may give certain perks just so
money of the principal because of the convenience on the they can be favored. It’s the same way when the
part of the agent to make use of such money when it is in government bids a project. There are a lot of possible
his possession. If ever you misappropriate it, then you will offers for the government official involved. If the official
also be charged interest the moment you did it, on the will take the bait, he will be sued for graft and corruption.
very first day you did it. The same goes for employees or any agent for the matter.
If they receive something from the agency, they are
OBLIGATION TO RENDER ACCOUNT FOR supposed to give it to the principal. If they failed to do
THE MONEY OR PROPERTY IN THE that, then that may be considered as fraud. They can be
POSSESSION OF THE AGENT liable for damages in that case to the principal.
Article 1891. Every agent is bound to render an
account of his transactions and to deliver to the Even those which may not be owing to the principal,
principal whatever he may have received by virtue of you’re supposed to make an accounting. The requirement
the agency, even though it may not be owing to the of not allowing an agent to make an accounting is even
principal. void in that case. Aside from accounting, you also have to
deliver. That goes without saying.
Every stipulation exempting the agent from the
obligation to render an account shall be void. POWER TO APPOINT SUB-AGENT
Article 1892. The agent may appoint a substitute if the
Article 1891 says that there cannot be a stipulation principal has not prohibited him from doing so; but he
exempting the agent from the obligation to render an shall be responsible for the acts of the substitute:
accounting. The agreement of the parties may be silent as (1) When he was not given the power to appoint one;
to what is due to the principal. (2) When he was given such power, but without
designating the person, and the person appointed
EXAMPLE You’re supposed to sell the property of the was notoriously incompetent or insolvent.
principal for P1M, but through your efforts you were able
to sell it for P1.2M. All acts of the substitute appointed against the
prohibition of the principal shall be void.
While the agreement simply says you’re supposed to Article 1893. In the cases mentioned in Nos. 1 and 2
make payment of P1M only, the P200K will still be due to of the preceding article, the principal may furthermore
the principal. The rule is that all the benefits of the agency bring an action against the substitute with respect to
will go to the principal, unless it is otherwise stipulated. the obligations which the latter has contracted under
the substitution.
GR: All benefits of the agency must go to the principal.

QUESTION: Is an agent allowed to also appoint his
XPN: Unless otherwise stated/stipulated. own agent?
Perhaps if you think you cannot do it on your own, then
If you want to be clear how much may be due to you and you can engage the help of a certain assistant.
how much is due the principal, then you better specify it
in your contract. If you failed to do that, all benefits, GR: Agent may appoint a sub-agent when not
whether intentional or unintentional, will go to the prohibited by the principal. The sub-agent in effect
principal. becomes an agent also of the principal. Thus, the agent
Even all the discounts that may be given to you as an is not personally liable.
agent will also be due to the principal.
XPN: Agent is personally liable if:
EXAMPLE This is very common in relation to the 1. Agent is prohibited from appointing a sub-
purchasing department of a company. Because of the agent.
nature of their duty, they are offered by a lot of suppliers 2. Agent appointed is notoriously incompetent or
certain perks and benefits. Now, if the purchasing insolvent.
department, or any purchasing personnel for that matter
17
If it’s not prohibited, then you can appoint a sub-agent two of them. It will have nothing to do with the principal
and the sub-agent will become the agent of the principal because, in that case, the sub-agent is not considered as
so that the principal will be the one liable for the acts of an agent with the principal.
the sub-agent and not the agent itself.
If the acts of the sub agent amounted to damages to the
Illustration in this instance: principal, the principal will sue the agent because he failed
Principal > Agent > Sub-agent to comply with the obligations required of him. But then
it also does not preclude the principal from suing the sub-
Now, there are exceptions to that, and the 2 instances agent for whatever damages if ever he wants to as
provided in Article 1892 are the exceptions. provided in Article 1893. But primarily, the principal
1. If the agent is not authorized –if the agent is should sue the agent because he is the one who has a
prohibited from engaging a sub-agent and yet contract with the principal, not the sub-agent in those
he engages the sub-agent, then he will be the one instances under the exception.
personally liable to the sub-agent. The sub-agent
will not become an agent of the principal. Substitute agent is the same with sub-agent.
In other words, to the principal, whatever the sub- Question: Will it matter if the prohibition was a mere
agent does is void. The acts of the sub-agent in instruction?
that case is void on the part of the principal. It will not for as long as there is an express or implied
prohibition, you really cannot bind the principal in that
2. The sub-agent that was engaged by the agent case.
is notoriously incompetent or insolvent – this
connotes that if the agent is not prohibited from QUESTION Is it wrong to say co-agents?
engaging or appointing a sub-agent, then he Not really, if the agent is actually authorized by the
better make sure that the sub-agent that he principal to appoint the sub-agent. But if you look at it in
appoints will be competent and can do the same general where it is not specified whether or not the agent
obligations that was required of him. Otherwise, can appoint a sub-agent, the proper term is a sub-
he will become liable for the acts of the sub-agent agent. You can only call him a sub-agent if the principal
and not the principal. does not prohibit the agency.
Here, the sub-agent is not an agent of the So that it will not be confusing when there are multiple
principal. The acts of the sub-agent in relation to agents, as when there is a sub-agent, you better stick to
the principal is considered void. using the term sub-agent.
But it doesn’t mean that the principal will not be able to A co-agent may be more appropriate for a multiple-agent
sue the sub-agent. If the principal will actually suffer any scenario.
damage or injury out of the acts of the sub-agent, the
principal can still sue the sub-agent not on the fact that MULTIPLE AGENTS
there is an agency relation between them but because the 1. JOINT OBLIGATION
sub-agent involved the name of the principal in his
contract. It will be akin to an instance where the agent acts Article 1894. The responsibility of two or more agents,
in excess of his authority. The principal can have a cause even though they have been appointed simultaneously,
of action against an agent in that case, such as damage as is not solidary, if solidarity has not been expressly
a matter of recourse under Article 19 of the Civil Code. stipulated.
QUESTION If the appointment of the sub-agent is GR: The responsibility of two or more agents, even
without authority from the principal, does he remain though they have been appointed simultaneously, is
to be a sub-agent and does not become an agent to not solidary.
the principal?
It is wrong to say that he remains a sub-agent. He will be XPN: Solidarity has been expressed.
considered as an agent of the agent. So, the principal has
nothing to do with him when he is appointed without the QUESTION What if there are two or more agents who
authority of the principal. were appointed to do the same task involving the
same subject matter – what is the presumption?
If the appointment of the sub-agent is not prohibited at There is no presumption of joint agency. That is not the
all or does not fall under the exception provided in 1892, term used by the law. Joint agents are used in American
the sub-agent will be treated as an agent of the principal. jurisdiction, but not in the PH. We may have a similar
So, the way the agent is terminated by the principal, that’s arrangement as that of several agents, but we do not have
the same grounds/basis for when the agency of the sub- these so-called joint agents. Nonetheless, it may the same
agent will be terminated by the principal. But if it falls effect because they both have joint obligations in the
under the exception under 1892, the agency of the sub- absence of stipulation.
agent and the agent will be terminated, just between the
18
There is a presumption though of joint obligation. NOTE The agent who exceeded his authority will be solely
liable. He cannot secure reimbursement from the other
These two or more agents will be liable to the extent of agents.
their share in the obligation. That means if the third party
compels payment from an agent, he can only compel the NOTE After all, that is only true if there is a stipulation on
agent to pay to the extent of his share. solidary obligations. If there is none, each of them will be
liable to the extent of their share obligation or sharing
EXAMPLE If there are 3 of them and supposing they are agreement as may be provided.
equal, then only 1/3 may be demanded from one agent.
PERSONAL LIABILITY OF AGENTS
NOTE Don’t refer to it as joint agents. Just refer to it as
agents with joint obligations. Article 1897. The agent who acts as such is not
personally liable to the party with whom he contracts,
2. SOLIDARY OBLIGATION WHEN STIPULATED unless he expressly binds himself or exceeds the limits
Article 1895. If solidarity has been agreed upon, each of his authority without giving such party sufficient
of the agents is responsible for the non-fulfillment of notice of his powers.
agency, and for the fault
or negligence of his fellow agents, except in the latter GR: The agent who acts as such is not personally liable
case when the fellow agents acted beyond the scope of to the party with whom he contracts.
their authority.
XPN:
GR: If solidarity has been agreed upon, each of the • he expressly binds himself or
agents is responsible for: • exceeds the limits of his authority without
• for the non-fulfillment of the agency even giving such party sufficient notice of his
though the fellow agents acted beyond the powers.
scope of their authority
• and for the fault or negligence of his fellow Instances when an agent may have personal liability:
agents provided the latter acted within the
scope of their authority 1. They expressly bind themselves and not the
principal
XPN: An agent is solely liable for his fault or negligence Instead of entering a contract under the name of the
beyond the scope of their authority. principal, he used his own name.
The good thing among multiple agents is that you need COMMENT That is why in your negotiable instruments
not go to all of them. You can just sue one of them, and law, when an agent signs for and on behalf of the
then he will be compelled to make payment, but of course principal, you have to disclose the name of the principal
subject to reimbursement of other agents. and your capacity for signing. Otherwise, you are signing
for and on behalf of yourself. Therefore, you become
2. SOLE LIABILITY OF AGENT WHEN AUTHORITY IS personally liable in that instance then.
EXCEEDED
An exception to solidary liability (when provided) is when 2. When the agent exceeds his authority.
an agent will be solely liable for the obligation. That is Thus, the agent becomes personally liable for the contract
when such agent does the act in excess of the authority that he has entered in to. Meaning, the third person may
that is granted to him. go after him (agent), him being considered as the
principal and not his actual principal.
Agent-Principal relation
The effect when the agent acted in excess of his authority, QUESTION What is the status of the contract in
in relation to the principal – the agent’s acts may be relation to the principal if the third person would like
considered void. to seek the enforcement of the contract to the
principal? What could be the defense of the principal?
The principal may not take countenance what the agent The contract is unenforceable.
has done but there may be instances where it can bind the
principal and the third person. It is up to the principal whether he will or he will not ratify
the contract.
However, there’s always a right to go after the agent in
that instance, in which case, if there are multiple agents But then if you will get confused on how it is stated in
involved, the only agent that may be pursued by the Article 1898 where it says “It shall be void if the party
principal will be the agent who exceeded his authority. with whom the agent contracted is aware” that only
presuppose the obligation of the agent to the third
person. The contract will have to be VOID because both
of them are in pari delicto.
19
So, with regard to the principal there is no question that COMMENT Even if the law states “or”, it should be “and”.
the contract is UNENFORCEABLE when the agent Aside from getting the instructions, which may not be
exceeded his authority. stated in the contract, you better ask for the power of
attorney. What’s written in the power of attorney will be
QUESTION If the third person has no knowledge about deemed the scope of the authority of the agent.
the excess of authority, to whom then will he go after?
He cannot go after the principal. The principal can invoke SCOPE OF AGENT’S AUTHORITY
that the contract is unenforceable. So, the remedy is to go AS TO THIRD PERSONS
to the agent. Article 1900. So far as third persons are concerned, an
act is deemed to have been performed within the scope
QUESTION What will be the defense available to the of the agent's authority, if such act is within the terms
agent? of the power of attorney, as written, even if the agent
If there is no knowledge on the part of the third person, has in fact exceeded the limits of his authority
he will become personally liable on the contract as if he according to an understanding between the principal
signed it not for and on behalf of the principal but for and the agent.
himself. But this is only true when the third person doesn’t
know about it because if the third person knows about it Any act that may be done by the agent and it falls within
then the contract will be void, in the sense that the third the power of attorney, even if it is in excess of the
person also cannot proceed against the agent. instruction that was given by the principal to the agent
and the same is not disclosed to the third person, it will
SITUATION EFFECT still bind the principal. It will fall under the Doctrine of
When agent exceeds his Unenforceable as to the Apparent Authority. (Because it is actually written in the
authority principal document)
Principal may ratify the Anything incidental to what is written in the power of
act. attorney may fall in the scope of the authority given. That
When agent exceeds his Void is why the third person should better ask for the power of
authority AND attorney. Although such is not really required under the
The third person is Agent and third person law, it is ideal. Whatever act, as long as it is written in the
aware thereof are in pari delicto document, will be deemed under the scope of the
authority given.
THINGS THAT THE THIRD PERSON
1. Require the Power of Attorney or Instructions What happens is, if the scope of the authority based on
2. If written, deemed to be within scope of authority the written document holds true to the act of the agent,
3. If acts are ratified, excess of authority is not a the third person can enforce it against the principal. It
defense. cannot be considered unenforceable, which is the general
rule when the agent exceeds his authority.
REQUIRE THE POWER OF ATTORNEY OR
DISCLOSURE OF THE INSTRUCTIONS If there is a violation of the instruction given by the
Article 1902. A third person with whom the agent principal, which is not written in the document, the third
wishes to contract on behalf of the principal may person is not bound by such instruction, and can enforce
require the presentation of the power of attorney, or the contract on the principal. Again, the rule is that when
the instructions as regards the agency. Private or secret it is written, it is deemed to be within the scope of the
orders and instructions of the principal do not authority, regardless if the instruction of the principal may
prejudice third persons who have relied upon the have been exceeded.
power of attorney or instructions shown them.
The remedy of the principal when the agent did not follow
If he wants to make sure that he can enforce the contract his instruction is to ask damages from the agent, not the
against the principal. Although instructions that may not third person.
have been disclosed to the third person will not bind him,
it would still go into your good faith to inquire. If ever the authority is really exceeded, since the contract
there now is unenforceable, the option is granted to the
The risk in dealing with an agent is borne by the third principal to ratify the contract. If the principal ratifies the
person. That is why the law requires him to really act with contract, the excess of authority may not be a defense that
much caution by requiring the presentation of the power can be used by the third person.
of attorney.
RATIFICATION BY THE PRINCIPAL
You just cannot take the word of the agent at face value, Article 1901. A third person cannot set up the fact that
if you do, you will run the risk that this person may not the agent has exceeded his powers, if the principal has
really be authorized. ratified, or has signified his willingness to ratify the
agent's acts.
20
NOTE Be mindful of the timeline. It can either be:
• the principal has ratified LIABILITY OF A COMMISSION AGENT
• the principal has signified his willingness to ratify AS TO GOODS RECEIVED
the agent's acts. Article 1903. The commission agent shall be
responsible for the goods received by him in the terms
Either way the excess of authority can’t be used as a and conditions and as described in the consignment,
defense by the third person to get out of the contract. unless upon receiving them he should make a written
statement of the damage and deterioration suffered by
Supposedly it’s unenforceable. But if its ratified by the the same.
principal, the unenforceability is cured. The contract is
now considered valid for all intents and purposes. If there is a commission agent, he will be liable for the
goods as they are described. So, if he has questions, if
There are two instances: there are issues or defects of certain goods, deficiencies
1) When the act is ratified or the principal has signified there, he better write it in protest. He should write what
his willingness to ratify the agent's acts, the third are considered deficiencies, “all the goods are in order
person cannot anymore raise the defense that the except the following.” If he fails to do that he will be
agent has exceeded his powers to avoid the contract bound by how it is described by the consignor.
that such was made in excess of the authority given to
the agent. OBLIGATION OF A COMMISSION AGENT
HANDLING GOODS OF SAME KIND AND MARK
COMMENT Sometimes, if you are the third person, you Article 1904. The commission agent who handles
don’t want the hassle of it all, you may want to get out the goods of the same kind and mark, which belong to
contract. There are certain clients that do not want the different owners, shall distinguish them by
inconvenience. So, sometimes they will just instruct you countermarks, and designate the merchandise
and say, “Let’s just get away from this contract, and get respectively belonging to each principal.
out of it”.
If ever he has a lot of consignors, he will be required to
2) You can only avoid the contract when the contract countermark it, in other words he cannot commingle the
has not been ratified by the principal or when the goods of different principals in the same way that he
principal has not expressed his intention to ratify the cannot commingle his funds from that of his principal.
contract.
It can happen that the contract has not yet been ratified Although the funds of the principal may all together be in
but the principal has already expressed his intention to one fund, his own funds, the funds of the agent cannot be
ratify. If he did that, then the third person cannot say that commingled with that of the principals. But the goods
the contract doesn’t bind us because the agent acted in itself, the one that you’re supposed to dispose of, as a
excess of his authority. commission agent, you cannot join them together if they
are of different principals or they belong to different
COMMISSION AGENT principals. Hence, the requirement on countermarks. That
is for the purpose of avoiding any confusion, dispute on
QUESTION What if there is a commission agent? which property or goods where actually sold.
Another word for commission agent is a factor. It’s
actually a consignment arrangement, where there are EXAMPLE: Imagine if you’re selling eggs, there are 15
certain goods that belongs to the principal which he consignors of trays of eggs. As to which tray if egg is
delivers to the agent so that the agent will sell it for and actually sold if you join them together you wouldn’t know.
on his behalf. There is an option on the part of the Some of them may have a better quality. It will cause
commission agent to sell it using the name of the principal confusion so better to separate them. It is a matter of
or using his own name. It doesn’t matter, it would still fall good governance and good practice.
under this arrangement. The usual is that the commission
agent will sell it using his own name.
RIGHT OF PRINCIPAL WHERE SALE ON CREDIT
WAS MADE WITHOUT AUTHORITY
EXAMPLE This is really common amongst coffee shops, Article 1905. The commission agent cannot, without
with regard to their pastries. They do not actually bake the express or implied consent of the principal, sell on
those pastries; they just get some inventories from certain credit. Should he do so, the principal may demand from
bakers. It’s on a best effort basis, if they will be able to him payment in cash, but the commission agent shall
sell it or not. If they’re not able to sell it until their shelf be entitled to any interest or benefit, which
life, then it would not be considered sold. may result from such sale.
In Tax 2, there is this transaction deemed sale, one of

GR: You can only sell them in cash and not on credit.
which is consignment. If its already in excess of 60 days, it
would already be deemed sold. Prior to the 60 days, it is
XPN: Unless otherwise specified.
the arrangement that will actually govern the parties. It’s
the commission or factoring.
21
QUESTION What happens if sold on credit without will be consistent on the terms of the purchase. So, if it is
being authorized by the principal? a sale on credit, and the supposed term is 30 days, then
The principal has the option to either require the payment the principal cannot require the payment in cash until the
in cash or to ratify it. 30th day.
If he will require the payment in cash, he will also forfeit It is supposed to be consistent based on the terms of
all benefits. The agent will enjoy all the interests and other purchase. Whatever credit term is given, it is the credit
benefits if he chooses to require the payment in cash. term that should bind the principal.
Conversely, if he chose to ratify it, he will enjoy all the NOTE If the commission agent will not collect, he can be
interests and other benefits since the principal will also liable for damages. But this will not apply whenever there
have to bear the risks. It would be unfair on the part of the is a guarantee commission.
agent if he will be required to pay in cash and then he will
also get the interest in case he will be paid. In that case, If there is a guarantee commission, the del credere agent
the principal did not bear the risk so he should also not will really be required to pay in cash regardless of whether
get the benefit out of the sale on credit. or not there was collection. The del credere agent will be
considered as a guarantor in this case. But take it
QUESTION What is the risk if it is not paid in cash? differently from the arrangement in guaranty that there is
It may not be collected. Sometimes in order to mitigate that remedy of excussion before you can go after the
that risk, you just pay your agent the guarantee guarantor, this does not apply in this case. What applies
commission because in case there is a sale on credit and are these provisions that with the payment of the
there is payment of guarantee commission the del credere guarantee commission, the del credere agent bears the
agent will bear the risk of collection. risk of collection and if it is not collected, then you will
have to pay. If the third-party doesn’t pay, then the del
That means that in no way that you will not be paid the credere agent will have to pay the principal. That is the
proceeds of the goods because the guarantee entire point of paying a guarantee commission to your
commission is supposed to cover the risk of collection. agent.
OBLIGATION OF COMMISSION AGENT WHERE SALE If you fail to make a collection, then you will be liable for
ON CREDIT IS AUTHORIZED BY THE PRINCIPAL damages. But this is only true if you fail, and how would
Article 1906. Should the commission agent, with you know that you failed? If you do not exercise the due
authority of the principal, sell on credit, he shall so diligence of a good father of the family, ordinary diligence
inform the principal, with a statement of the names of only. Once it is established, that there is already exercise
the buyers. Should he fail to do so, the sale shall be of due diligence and yet connection cannot be done, then
deemed to have been made for cash insofar as the the principal would have to sue then the third person. The
principal is concerned. commission agent has nothing to do with it because he
already exercised due diligence.
The law requires that you have to disclose the name of the
buyer if you happen to be the agent. QUESTIONS AND CLARIFICATIONS
QUESTION What happens if the agent just writes the
QUESTION: What happens then if you will not disclose name of the principal but does not state that he is
the name of your buyer? signing for the principal?
The principal will treat it as a sale in cash and so, require This is NOT a negotiable instrument. This is in other
the payment in cash based on the time that you provided. instruments. If that happens, that he merely states the
If the principal will treat it as a sale on cash, he cannot name of his principal. How does that work? Like he signs it
enjoy the interest and the other benefits. above the principal? He would still be considered an agent
in that case unless you can consider it as forgery, that
But if it is ratified, even if there is no disclosure of the someone is making use of his signature as if it is the
name of the buyer and the principal still considers it as a signature of his principal. The requirement of having to
sale on credit, then he will also get all the interest and disclose your capacity for signing is only a requirement for
benefits. purposes of negotiable instrument law. Under the Civil
Code provision, it did NOT require a particular form. It will
GUARANTEE COMMISSION be treated as if you are really an agent either under the
Article 1907. Should the commission agent receive on doctrine of apparent authority or under the doctrine of
a sale, in addition to the ordinary commission, another estoppel.
called a guarantee commission, he shall bear the risk of
collection and shall pay the principal the proceeds of QUESTION If it is the sub-agent who signs, is it enough
the sale on the same terms agreed upon that he discloses the principal and not the agent?
with the purchaser. YES. That’s consistent with the principle that the sub-
agent will also be the agent of the principal. But if he really
If there is a sale on credit and you gave a guarantee is prohibited to do that, then he may not be able to bind
commission, the requirement on the part of the payment the principal at all. It may be questioned by the principal
22
as well. The problem is that he will become personally QUESTION May the liability of the del credere agent
liable because he did not disclose the name of his agent be limited, like to the extent of the commission to be
and he is not authorized by the principal. receieved?
There is no prohibition because there is freedom to
QUESTION Does the sub-agent have to indicate the contract. The guarantee commission that you give is only
principal and the agent? to the extent of that amount then so be it. There is really
You don’t have to indicate the name of the agent if you no requirement that it has to be for the full amount.
are really authorized, that you have to know for a fact
because you deal with the agent. You have to ask the If I am the principal, there is no point of me paying you a
agent if he is authorized to appoint a sub-agent. guarantee commission if your obligation is only to the
extent of your guarantee commission. If that’s the case,
If they connived and the agent is not authorized to then I might as well not give you a guarantee commission
appoint a sub-agent then he can also indicate the name because I’m paying twice, I did not seem to enjoy any
of the agent so that the agent could be pursued. But in advantage at all since I still end up giving you the amount
that case, because they are in pari delicto, the sub-agent that I’ll be able to collect or only the amount that I paid
could still be required to make payment for the you is the amount that I’ll be able to collect so might as
instrument. well just bear the entire risk that it will not be collected. In
that arrangement, it’s just like a del credere agent
QUESTION Regarding Article 1885, if it’s based on returning back the amount of the guarantee commission.
equity, how will it be equitable if the person already
declined the agency, but still he has the obligation to QUESTION The agent acted in excess of authority but the
preserve the goods in his custody? sale is made in a merchant’s store, or in fairs, or markets.
That is because of the moral obligation of a person, that The buyer knows that the person he is dealing with is
if you are given a certain property, and it is placed in your merely acting as an agent. (1) Is there an obligation for
possession, meanwhile, you are supposed to take care of a buyer to inquire into the agent’s authority? (2) If the
it as if it is your own. That is why all that is required of you buyer is a purchaser in good faith and for value, what
is ordinary diligence, you just have to take care of it as if is the effect of the sale?
it is your own property, that is all that is required. There is a special provision under the Civil Code in relation
to the Law on Sales.
EXAMPLE If it’s a plant, you better water it. If you say that Article 1505. Subject to the provision of this title,
it is a hassle for you, then you can ask for compensation where goods are sold by a person who is not the owner
for the trouble. thereof, and who does not sell them under authority or
with the consent of the owner, the buyer acquires no
It’s either you wait until another agent is appointed or better title to the goods than the seller had, unless the
until it is secured back by the principal. If after reasonable owner of the goods is by his conduct precluded from
time, the principal failed to retrieve the property then you denying the seller’s authority to sell.
better charge all the expenses, compensation or whatever
trouble it may have cost you. You cannot just throw an Nothing in this title, however, shall affect:
abandonment property. If you do that, you better give xxx
notice to the principal. That is your remedy. (3) purchases made in a merchant’s store or in fairs, or
markets, in accordance with the Code of Commerce
QUESTION In practice, is there any other way? and special laws.
You better deliver the goods back to the principal so that
you don’t have to exercise due diligence. In your question, if there is an excess in authority in a
merchant’s store, or in fairs, or markets, it binds the third
QUESTION Does 1885 presuppose a prior transaction persons. Thus, the principal will be bound by the sale of
or the person is known as an agent? whoever is in that merchant store or in fairs.
The person is really not known as an agent. This really
presuppose a prior transaction. Meaning, there was a In this case, there is no obligation for a buyer to inquire
delivery of the goods prior to the confirmation that he will into the agent’s authority in the first place it is a
be an agent of the principal and he refused to become an market/fair. It is common for the person to just sell for as
agent. In that case, he should still exercise due diligence. long as they are in possession of the goods.
Because it can also happen that the goods when it was
delivered to the agent, he agreed initially to become an Whether or not the buyer is a purchaser in good faith and
agent and after a certain period he said that he doesn’t for value, he will still be able to bind the principal because
want anymore to become an agent of the principal but this is an exception to the general rule. It will fall under
the properties are still in his possession, then he still has the doctrine of apparent authority. This is to give
to exercise diligence of a good father of a family in convenience to the people going to fairs, mga tiangge ni
relation to the properties that belong to the principal. ang ilang gi contemplate dira. You go back to the old
times when persons go to murag tabo. They are not really
fixed in terms of their location where they sell their
products. You may not have the opportunity to go after
23
them because they might have transferred then. It will be
inconvenient on the part of third person who will be
buying from them. Thus, the law deemed it that the
general rule shouldn’t apply. You just have to take it that
these persons have the apparent authority in relation to
the sale of the goods that they are buying.
On the part of the actual owners of the goods sold by a

person in a fair or merchant store, he must go after the
one actually selling the goods and not go after the third
person who bought the goods because this is an
exception to the rule.
QUESTION What if the authority given to the principal

is really to destroy the property of the principal,
should it be followed?
If that’s the intention, then follow the principal. Anyway
the principal will not have any cause of action against the
agent as that was what he intended.
On your part, always be on the side of caution and inquire

with the principal if that was really his intention or if he is
aware of the effects thereof. Better yet, do not proceed at
all and justify by saying it will cause damage to the
principal. 1889 will prevail.
24
III. OBLIGATIONS OF THE PRINCIPAL
IN GENERAL NECESSARY COSTS
Article 1910. The principal must comply with all the Article 1912. The principal must advance to the agent,
obligations which the agent may have contracted should the latter so request, the sums necessary for the
within the scope of his authority. execution of the agency.
As for any obligation wherein the agent has exceeded Should the agent have advanced them, the principal
his power, the principal is not bound except when he must reimburse him therefor, even if the business or
ratifies it expressly or tacitly. undertaking was not successful, provided the agent is
free from all fault.
On the general obligations in 1910, we have to make a
distinction between the acts of the agent whether it is The reimbursement shall include interest on the sums
within the scope of the authority or in excess of the advanced, from the day on which the advance was
authority of the agent. made.
If the contract is entered into by the agent within the

scope of its authority, the obligation of the principal is to Reimburse Indemnify
Advance
comply with the contract. It has to be established that
there is representation of the principal made by the agent. •Upon agent's •If advanced •Damages not
request by the agent due to fault or
If the contract is entered into by the agent himself, then •Includes negligence of
the obligation relates to the agent himself and not to the interest agent
principal.
If the agent is acting within the scope of the agency, he is GR: The principal is required to shoulder the costs
acting like the principal. Whatever is contained in that necessary for the execution of the agency.
contract is binding against the principal and he must
comply with what is provided therefor. XPN: There is an agreement that should advance them.
QUESTION What happens if the agent exceeded his

authority? After all, the reason why the agency exists is because of
The principal is not obliged to comply with the the principal.
obligations. The contract is unenforceable. The principal
has the option to ratify the act. If he has not ratified the If the agent requests that there be amounts advanced to
contract, he is not obligated to comply. If he did ratify, him for purposes of pursuing the agency, the principal is
then it is treated as if it was done within the scope of the required to do that.
authority and he must then comply with all the
obligations.
EXAMPLE In a lawyer-client relationship, the principal
should require a deposit from the client you are engaged
ESTOPPEL AND SOLIDARY LIABILITY
with to cover out-of-pocket expenses such as filing fees,
Article 1911. Even when the agent has exceeded his
telecommunication and mailing costs, overtime premium
authority, the principal is solidarily liable with the agent
for non-legal staff, etc.
if the former allowed the latter to act as though he had
full powers.
The practice in the US is that they set up a trust fund for
their client where they may draw certain amounts for
As provided in Art. 1911, if the principal is estopped from purposes of pursuing legal services.
claiming the excess of authority of the agent, he is
solidarily liable with the agent in the sense that he will
If agreed upon, with the agent, the agent can advance
have to comply with obligations entered into by the agent
that. But if it was not agreed upon, and then the agent has
as far as third persons are concerned.
to make an advance, for incurrence of necessary cost, the
agent may seek for reimbursement and the principal is
This could also be true in terms of ostensible agency.
obligated to reimburse and it must include the interest
When you make a person believe he has authority, that
from the moment it was advanced by the agent.
may be treated as estoppel. But when the agent really has
authority but this authority weren’t exactly specified as to
COMMENT In legal practice, you cannot charge interest
what extent it may be, as far as the third person is
to your client. Yes, you may do that, after all it is
concerned, it can be perceive that it is incidental to the
demandable as a matter of law specifically Art. 1912 but it
authority given, then the doctrine of apparent authority
is a big turn off for your client. If you think you must
may apply, and the principal may still be required to
advance money for a client, just determine the
comply with the obligations. It would fall under Art. 1910
professional fees that you will charge to them.
within the scope of the authority where you have to
comply with the obligations entered into by the agent.
25
Article 1913. The principal must also indemnify the COMMENT There are some, when they know it will be
agent for all the damages which the execution of the charged to the client, they will bring dates, they bring
agency may have caused the latter, without fault or friends, have a feast and then charge it to the client. After
negligence on his part. all, they can just ask for an official receipt saying the full
name of the client and not specifying what are actually
When there will be damages that you suffer in the course ordered. You don’t do that. That’s a bad practice. You may
of your agency, then you may ask for indemnification from seek reimbursement, but you may not have a repeat client
your principal. Provided that: after that.
1. You are not at fault;
2. You are not negligent. RIGHT OF AGENT TO RETAIN
IN PLEDGE THE OBJECT OF AGENCY
EXAMPLE You are engaged by a client to enforce a
demolition order issued by the court. You have no choice QUESTION What happens if the client does not
but to accompany the sheriff. While you are approaching reimburse you or does not pay the indemnification
the location, you already saw that the people (informal that is due to you?
settlers) have already barricaded the area and bringing You can then enforce a retaining lien.
with them deadly weapons and even prepared stones
ready to be throw at you if you get near. Article 1914. The agent may retain in pledge the things
which are the object of the agency until the principal
Now, if you think you are Superman and still approached effects the reimbursement and pays the indemnity set
so you got hit. Can you seek indemnification from your forth in the two preceding articles.
client?
Things which come to the possession of the agent in the
In that case, that may be an actual damage but you are at course of the agency may be subject of a legal pledge if
fault or negligent in not protecting yourself. When you it will fall under:
already know that that is a possibility. You should not test • Reimbursables
what could happen. Otherwise, you may not be able to • Indemnification
seek indemnification. But of course, if you will get hurt in as provided under Art 1912 and 1913.
protecting your client, some clients would be generous
enough, to pay for your hospital bills and medicines. The QUESTION How about compensation? Can it fall under
best is to practice caution. 1914 for which you can retain things of the principal?
YES. That will fall under indemnification. That could still
NOTE Only those costs which are necessary, for the be considered as actual damage – not being able to
agency. Because there may be certain expenses that you receive your compensation for the agency. It establishes a
are entitled to but if they are not reasonable under the legal pledge, then.
circumstances, then the principal may also question.
That’s why in our Code of Professional Responsibility,
there is this concept of retaining lien, where documents
EXAMPLE You have agreed with your principal that you
that are in your possession and supposedly belong to the
can charge the cost of your lunch to him or her. It does
client, you can retain until you are paid your lawyer’s fee.
not mean that you will choose the most expensive
restaurant in town because you are not the one paying for
COMMENT I am trying to be cautious in using the term
it. Because they know that they are not the one paying for
attorney’s fees because that may not be due to the client.
it, they’ll go to the restaurant that they will never be able
People just think that it is, and even lawyers think that they
to frequent if they’re the one paying for it or somewhere
are entitled to it. In Legal Ethics, attorney’s fees as a matter
they would like to try.
of damages, is not due to the lawyer. It is actually due to
the client. That’s why it is part of the damages he can
If you do that and you charge it to your client, your client
claim, but sometimes you can agree with your client that
may start to question: “What is this person doing? Can he
the attorney’s fees will go to you but you have to explain
not afford?” It cheapens your reputation to the client. Part
it well to your client. It is not automatic that that attorney’s
of your branding is to make it appear that you can afford
fees are attributed to you just because it is called
and that is why you charge your client higher than the
attorney’s fees. Precisely why it is demandable by the
usual.
client is because it is due to the client. It is supposed to
pay for the cost of having to engage a lawyer aside from
You may not be able to do that anymore or at least the
the litigation costs.
client will not go back and have another engagement with
you because you cannot justify the expenses that you
charge.
NOTE It has to be necessary and at the same time it

has to be reasonable.
26
MULTIPLE PRINCIPALS INCOMPABITLE CONTRACTS
Last time, we discussed about having more than 1 agent Article 1916. When two persons contract with regard
or pertaining to 1 principal. The rule is that they are not to the same thing, one of them with the agent and the
considered joint. They may be considered separate. It other with the principal, and the two contracts are
involves a common transaction. They must be engaged incompatible with each other, that of prior date shall be
for the same purpose. preferred, without prejudice to the provisions of Article
1544.
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.
GR: The responsibility of two or more agents, even

though they have been appointed simultaneously, is
not solidary.
XPN: Solidarity has been expressed We are familiar with this because of Art.1544 of NCC.
In law on sales, the effects if there are double sale is also
Now, in case of multiple principals, it’s not automatic what is being contemplated here.
that there is joint obligation or that there is solidary
obligation. Because you may have multiple principal in Article 1544. If the same thing should have been sold
relation to 1 agent, these principals may have separate to different vendees, the ownership shall be transferred
undertakings required from the agent. to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Article 1915. If two or more persons have appointed
an agent for a common transaction or undertaking, Should it be immovable property, the ownership shall
they shall be solidarily liable to the agent for all the belong to the person acquiring it who in good faith first
consequences of the agency. recorded it in the Registry of Property.
Should there be no inscription, the ownership shall

pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good
faith.
Agency was entered into 2 contracts involving the same

thing, one is entered into by the principal, the other by
the agent. If that happens, what is the rule?
• More than 1 Principal in relation to 1 agent.
EXAMPLE A personal property (motor vehicle) is owned
You have to comply with the elements first before that by the principal and then he places the possession of the
can happen. motor vehicle to the agent so that the agent can sell it.
1. There are 2 or more principals. The engagement happened yesterday.
2. The principals have all concurred in the
appointment of the same agent. Today, the principal chanced upon an acquaintance who
3. The agent is appointed for a common transaction is interested on motor vehicle and then sold it to him. The
or undertaking. following day, the agent was able to sell it to his friend
Here, the principals’ obligation is solidary whether and then transferred the possession.
expressed or not.
QUESTION Who will be prioritized: the friend of the
So there has to be commonality of transaction or principal or the friend of the agent?
undertaking before the solidary obligation to apply. If you just refer Art. 1916, you may probably conclude that
it’s the friend of the principal, it being of prior date. But
In the absence of such, the obligation may just be take note that Art. 1916 also mentions that it shall be
considered separate and not even joint. Because for all without prejudice to what is provided in Art. 1544.
you know, there may be different undertakings required.
QUESTION What did Art. 1544 say regarding personal
property being sold or personal properties transferred
under incompatible contracts? Who should be
prioritized?
It is the person who took first possession of the property.
27
While the date may be earlier to that of the principal’s In fact, the seller likewise, has to be in good faith also. The
friend, because the agent’s friend was able to take parties involved must be in good faith, because if one of
possession ahead of the principal’s friend, then the them is not in good faith, then there is always a remedy
agent’s friend will be prioritized. on the part of the person who may have been defrauded.
But granting that both of them is in good faith. That is QUESTION When does the prior date mentioned in
always the requirement. There are incompatible contracts 1916 actually apply?
but the parties involved are in good faith. It only applies if the other prioritized parties are not
available. So, 1916 seems to be the last case or the last
In this case then, the one prioritized will be the agent’s option in relation to the sale of a movable and/or
friend. immovable. That’s why it has to refer to Article 1544 for
that purpose.
QUESTION What’s the effect on the principal’s friend?
Can he seek damages? In both cases, if for as long as the agent is in good faith,
YES. He can seek damages because the agent there is in damages can be charged by the party who was not
good faith – supposing there is absence of any other chosen or who was rejected. Otherwise, if the agent is in
information. He may seek damages under Art. 1917. The bad faith, then the agent becomes personally liable to his
3rd party may hold the principal liable for the damages in buyer or to whoever he transfers the property to.
that case.
EXPENSES NOT SUBJECT TO REIMBURSEMENT
Article 1917. In the case referred to in the preceding
article, if the agent has acted in good faith, the principal Now as we said, there may be certain expenses where you
shall be liable in damages to the third person whose can seek reimbursements for, but there are those which
contract must be rejected. If the agent acted in bad are expressly provided in the law which cannot be
faith, he alone shall be responsible. reimbursed.
QUESTION Now, what happens if it’s a real property Article 1918. The principal is not liable for the
then? Who should be prioritized? expenses incurred by the agent in the following cases:
We go back to 1544 Rules: (1) If the agent acted in contravention of the
Movable principal's instructions, unless the latter should
1. first possessor in good faith wish to avail himself of the benefits derived from
2. then you go to the one with the prior or earlier the contract;
date (2) When the expenses were due to the fault of the
agent;
Immovable (3) When the agent incurred them with knowledge
1. first registrant in good faith that an unfavorable result would ensue, if the
2. If none has registered it yet, then the first principal was not aware thereof;
possessor in good faith will follow. (4) When it was stipulated that the expenses would
3. Then finally, one with the oldest title. be borne by the agent, or that the latter would be
allowed only a certain sum.
EXAMPLE There was a real property transferred by the
agent today. He was authorized to do such transfer, but EXAMPLE OF NO.1 You were told not to make any
then on the same day, the principal also sold it to improvements on the property before you sell it. You are
someone else. to leave it as it is, yet you did the renovation. You cannot
charge the renovation cost to your client. Obviously, that
In this case, it will be difficult to determine who has the is in contravention of the principal’s instruction.
oldest title, but supposing it both occurred on the same
day, it will become a race then, as to whoever will register EXAMPLE OF NO.2 You were told to secure an insurance
it in good faith. for the property, and you failed to do it. Then, the property
was razed by fire, so there has to be renovation before
It has to be in good faith, so nobody knows that it was you can sell it. The renovation cost that is incurred by the
sold to them separately. Now, whoever gets to register the agency, as you wanted to sell the property, can be
title will be prioritized. Otherwise, the one who took charged to the agent and not to the principal. You cannot
possession will be prioritized. This is the order of priority seek reimbursement then because it was your fault for
and it cannot be interchanged. failing to get the insurance.
You are left then with no remedy but to prove the good EXAMPLE OF NO.3 The property is supposedly covered
faith of your client should you be engaged to handle a by an encumbrance. This was known to the agent, but the
case involving incompatible contracts. If there is no good agent never informed the principal. In fact, what the agent
faith on the part of the buyer of the property, then they did was prod the principal to continue buying the
may not be able to invoke the provision in art. 1544. property. While in the course of transferring the title to
the principal, since there is an encumbrance, and the bank
28
will not accept that property which was intended to be account of the agent. That can be subject of an
used as a collateral; the bank will never agree if there is an agreement.
encumbrance existing on the property. The agent now will
have to find means to remove those encumbrances. Let’s
just take for example, there is an adverse claim that is
annotated on the title. The cost of having to remove that
adverse claim (because of the representation that it is a
clean title) will have to be charged to the agent personally
and not to the principal.
Supposedly, had he not prodded the client to buy the

property, there would not have been incurrence of that
expense. He knew for a fact that that particular expense
will have to be incurred if the transaction was pursued.
The one that can clearly say that incurring it would still
lead unfavorable result to the client is when they insist on
suing even though there really is no cause of action.
Refrain from doing this because the client can actually

refuse and can make use of this provision for purposes of
getting away with the obligation to reimburse you for the
filing fees.
Sometimes there is also the risk of giving advice to client

where you end up having to bear the cost of the
engagement.
COMMENT That is why I actually salute the courage of

young lawyers who do private practice who are willing to
take the risks of being held liable for the mistakes that
they might incur. When you are a neophyte, there is a
bigger chance to commit a mistake. There are things that
you may miss out and those things may be material for
purposes of protecting the interest of the client like the
matter of paying taxes in reviewing a contract.
Your learnings on taxes will actually still have use in your

practice even if you don’t actually practice tax law. Usually
contracts involve considerations, and considerations may
have certain tax effects. If you don’t know the tax effects
on certain transactions, how can you properly advise your
clients on whether to proceed or not? As a lawyer,
continually improve and update yourself.
EXAMPLE OF NO.4 There are those expenses which are

agreed not to be shouldered by the client. What normally
happens is they put a cap on expenses, because if they
don’t then, there may be instances where the agent may
abuse.
They can probably say that: “all expenses, they can charge
to us but only up to the amount of P100,000. Anything in
excess, you will have to shoulder it.”
You have to be frugal then in terms of spending.

Otherwise, you might end up personally paying for the
expenses of the client.
You can actually agree that only up to this particular

amount can be shouldered by the principal, thereafter it
will be shouldered, or anything in excess will be on the
29
IV. EXTINGUISHMENT OF AGENCY You have to remember that the reason why there is an
agency is because the principal wants to be acted upon or
MODES OF EXTINGUISHMENT OF AGENCY wants to act upon through another. He (principal) wants
Article 1919 enumerates the possible grounds for the someone to do it for him. In that case then, if the principal
extinguishment of an agency. does not anymore want to be represented by another
Article 1919. Agency is extinguished: person in terms of doing his own acts or in managing his
(1) By its revocation; own affairs, then he (principal) should be allowed to
(2) By the withdrawal of the agent; terminate the agency and he can do that through
(3) By the death, civil interdiction, insanity or revocation.
insolvency of the principal or of the agent;
(4) By the dissolution of the firm or corporation The general rule is that, the principal can revoke an agency
which entrusted or accepted the agency; at any point in time but there may be exceptions to that.
(5) By the accomplishment of the object or purpose
of the agency; If ever the principal decides to revoke the agency, he may
(6) By the expiration of the period for which the demand the return the evidence of agency.
agency was constituted.
QUESTION What do you think is the reason for that?
QUESTION Is this an exclusive list? It’s because the agent may make use of the same evidence
NO. It is not exclusive considering that there are different to show to third parties that there remains an agency
modes of extinguishing an obligation and an agency when in fact there is already none. This usually pertains to
being a source of an obligation so whatever may be the agency in writing and there is that executed document like
cause of extinguishing an obligation can also extinguish a special power of attorney. The principal may actually
an agency. demand the return of the SPA to him should he decide to
terminate the agency so that no third party can be
Now, the grounds for extinguishing an agency can affected by the use of such document when the agency
be grouped into three: no longer exists.
1. Those which pertains to the acts of the
parties COMMENT A calling card can be considered an evidence
a. Revocation at will by Principal of agency specifically if you’re not hired by the person as
b. Withdrawal or renunciation by Agent an employee but just an independent contractor. But even
2. Those which pertains to the agreement of if you are an employee and you enter into a contract
the parties representing your employer, the calling card may be
a. Accomplishment of the object or considered not necessarily the evidence of agency but can
purpose of the agency; be gleaned as having a contractual relationship with the
b. expiration of the period for which the employer. If you resign from employment or if you
agency was constituted severed employment from a company, then it is also
3. Those by operation of law prudent to return the calling cards.
a. death, civil interdiction, insanity or
insolvency of the principal or of the The revocation may be express or implied.
agent • Express – there really is no doubt that there is
b. dissolution of the firm or corporation revocation.
which entrusted or accepted the • Implied – There may be instances that the
agency principal does an act and it may be considered as
a revocation just like when the principal does the
BY ACTS OF PARTIES dealing himself. In which case, the principal may
be deemed to have revoked the agency.
2. WITHDRAWAL OR RENUNCIATION BY THE AGENT

Article 1928. The agent may withdraw from the agency
by giving due notice to the principal. If the latter should
suffer any damage by reason of the withdrawal, the
agent must indemnify him therefor, unless the agent
should base his withdrawal upon the impossibility of
continuing the performance of the agency without
grave detriment to himself.
1. REVOCATION AT WILL BY PRINCIPAL
Article 1920. The principal may revoke the agency at On the part of the agent, he can also terminate the agency
will, and compel the agent to return the document through a withdrawal or renunciation. These are just
evidencing the agency. Such revocation may be express technical terms, but they mean one and the same thing.
or implied. The agent could always revoke if he wants to. It is just that
the term used by the law is “withdrawal” or “renunciation”
30
whenever it is the agent who wants to extinguish the
agency. QUESTION: How does the principal revoke the
agency?
The requirement is that the agent who withdraws from the • Specific – personal notice
agency must give due notice to the principal. • Public – notice; publication in newspaper is
Reason: There may be certain documents that belongs to sufficient
the principal and is still in possession of the agent or the He can revoke it expressly or impliedly. But actually class
affairs itself of the principal is being managed by that if you go back to our discussion on 1873 of the Civil Code.
agent and the principal may not know what the current
status is of a particular business or affairs. That is why it is Article 1873. If a person specially informs another or
imperative that the agent informs the principal whenever states by public advertisement that he has given a
it withdraws from the agency. power of attorney to a third person, the latter thereby
becomes a duly authorized agent, in the former case
Even the law went on to say that should the principal with respect to the person who received the special
suffer by reason of the withdrawal of the agent, the agent information, and in the latter case with regard to any
will be required to indemnify the principal. It is not person.
necessarily a disparity in terms of obligation, but it’s just
that there is more for the principal to lose whenever the The power shall continue to be in full force until the
agent withdraws from the agency because the principal is notice is rescinded in the same manner in which it was
now left with nothing and there is reliance placed on the given.
agent to do the acts which the principal could do himself
but opted not to. You see, if the agency is created through specific
information to the person involve, then it can only be
With the withdrawal of agent, the principal seems to be revoked thru specific information as well.
left with no choice but to do it himself when supposedly,
he does not want to do it himself. In that case, there really This one, it contemplates of a situation where the agent
is more for the principal to lose and so, the law protects was authorized by the principal to deal with a person
him more in that sense. If there is damage caused on the specifically provided in the authority. In that case, it
principal by the withdrawal of the agent, then the agent presupposes that the third person was already informed
may actually be compelled to indemnify the principal. that the principal will be acted through an agent.
Of course, it is a case to case basis; there is even an EXAMPLE Let’s say Mr. P engaged the services of Mr. A to
express exception provided under the law that if the sell parcel of land to Mr. X. Now, if Mr. P wants to revoke
withdrawal of the agent is because of the impossibility of the agency of Mr. A there is a need to inform Mr. X by Mr.
continuing the performance of the agency without grave P. The principal has to inform then the third person that
detriment to himself. was specified to be the contracting party of the former’s
agent.
EXAMPLE It is already illegal to do the act mandated by
the principal. The principal has a lot of gecko collection QUESTION What happened if you fail to do that?
and then he engaged an agent to sell it on his behalf. If you fail to do that, the third party who was not informed
There is already a supposed circular by the DENR the way he ought to be informed can actually compel you
disallowing the sale of gecko. If it is no longer legal for the to respect and comply with the obligation contracted by
agent to do that, the agent can actually make the the agent entered in to in your behalf. It as if the agency
withdrawal. There shouldn’t be any damage on the part of is not revoked.
the principal to that effect because even if the principal
will do it himself, he would still not be allowed to do so. QUESTION Then you might want to argue, would it not
be considered as in excess of authority?
In that sense the agent is justified not to continue with the Take note that under the provisions we have discussed
agency. before even if the act of the agent is in excess of the
authority granted by the principal, it cannot prejudice a
HOW REVOCATION IS MADE third party who is in good faith, especially if there is in this
Article 1921. If the agency has been entrusted for the case an apparent authority granted to the agent. The third
purpose of contracting with specified persons, its person was made to believe that the agent can act in
revocation shall not prejudice the latter if they were not behalf of the principal considering he was informed by the
given notice thereof. latter that this is his agent.
Article 1922. If the agent had general powers,
revocation of the agency does not prejudice third Hence, the requirement that you need to give personal
persons who acted in good faith and without notice if you want to revoke the agency that way.
knowledge of the revocation. Notice of the revocation
in a newspaper of general circulation is a sufficient Now, if there is no specified person to whom the agent
warning to third persons. may deal with, the law allows that the revocation be done
31
through publication in a newspaper of general circulation.
This will suffice as notice to any third party who will deal There is an implied revocation whenever there is an agent
with the agent. appointed by the principal for and in the same business
which is rendered incompatible with the agency that has
COMMENT This is the reason class, if you look at the been previously created.
newspaper there are a lot of companies who advertised a
particular employee who is no longer connected with the EXAMPLE Principal granted Mr. A the exclusive right to
company, especially if there is a contract that could sell his lot 1. The following day, the principal also
possibly be entered into by this particular employee authorized Mr. B to exclusively sell his lot 1 to a third
whose employment has already been severed. That is person.
actually in compliance with this particular law.
In that case, the exclusivity of that agency to sell lot 1 is
It’s just that, now, employers sometimes use it to discredit rendered incompatible when you compare the 2 agencies
and embarrass the employee. Sometimes, it could also be granted. The effect is that there is an implied revocation
a ground for judicial action by the employee - violation of on the first agency that was granted.
Data Privacy Act, possible violation of Anti-cybercrime
Law. But there is no prohibition. As what we’ve already
discussed, there could be more than one agent in relation
You should also be cautious on how you phrase the notice to a particular undertaking, and if it’s silent you just
to the public. Otherwise, it might be considered only for assume that they have joint obligation. But they have to
embarrassing or to castigate the employee who may have compatible.
acted in good faith. Be mindful also in advising your
clients on how to make this type of advertisement. That is If one is granted an exclusive right, then there cannot be
okay if it is intended to protect the public, but if there any other person. Otherwise, it’s no longer exclusive. So,
really is no reason for you to advertise that, there is no you can have as many agents as you want in relation to
need. the sale of your property. Just don’t make it exclusive for
one. Otherwise, all the other agents may not have the
EXAMPLE: A janitor whose employment was severed. power because the exclusive right has been given to
There is no need to advise the public that he has severed someone else. It will be rendered incompatible with the
his employment from you. What does a janitor have to do other agency, only then can it be considered as impliedly
with the business of the employer? For sure, a janitor is not revoked.
an agent of the employer hence, not expected to make
any contract for and on behalf of the company. NOTE Hence the requirement that there has to be
incompatibility of the similar business.
NOTE This is only allowed if there is an agency created by
the employment of a particular person OR it may be an 2. WHEN PRINCIPAL DIRECTLY DEALS WITH THIRD
independent contractorship agreement and there is a PERSONS
need to inform the public of the contractual relationship. Article 1924. The agency is revoked if the principal
Otherwise, don’t do that since it may be a ground for directly manages the business entrusted to the agent,
violation of Data Privacy Act and violation of Anti- dealing directly with third persons.
cybercrime Law.
Now, as to when the principal directly acts by dealing with
NOTE If the agency is created through special notice, you third persons, you to look at this on a case to case basis.
also have to revoke it through special notice under Art. It’s not automatic that just because the principal does it
1873. It may not fall under these articles (1921 and 1922). himself, there is already revocation of the agency.
But if there is a specific information granted to another
person, then if you revoke it, you also need to give special NOTE This presupposes that the principal really intended
information to third persons. Otherwise, you are deemed not anymore to engage the services of the agent because
to have entered into a contract with that third person with he can do it himself. You have to look at the circumstances
your supposed agent despite the revocation you have before it can be considered as impliedly revoked.
done.
However, it has to be established that there is good faith
IMPLIED REVOCATION on the part of the principal (for it to be considered as
implied revocation). Because a probable reason why the
1. APPOINTMENT OF A NEW AGENT FOR THE SAME principal may have decided to act on his own in dealing
BUSINESS RESULTING IN ITS INCOMPATIBILITY WITH with third persons is because he/she doesn’t want to give
THE PREVIOUS AGENCY commission to the agent, and it can also be gleaned from
Article 1923. The appointment of a new agent for the the facts of the case.
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.
32
EXAMPLE When the agent already introduced a potential EXAMPLE There’s this very interesting case in the book of
buyer of the property to the principal. The agent has De Leon involving a son who was originally granted the
already exerted effort for the third person to really buy the general power and then he was later on granted a special
property and show the property to the potential buyer, power. But the special power did not include the
explained to him the terms of the contract of sale should disposition of the properties involved. Now, this same
it be entered into. But all of a sudden, the principal property is the subject matter of attachment and
decided not to continue with the agency. Thereafter, the execution. There is now the issue of whether the principal
principal sold the same property to the same third person is bound by the disposition made by his son considering
who the agent introduced. that, originally, he was granted general power and later
on special powers no longer including the disposition of
In this case, it can be gleaned that the reason of the the property. And what did the Supreme Court say?
principal for revoking/terminating the agency is that YES. He can no longer have that power. From the general
he/she does not want to pay the agent his/her power, it can be restricted. Considering that there is a
commission. For as long as it can be established by the special power that was granted to him and it did not
agent that he is the procuring cause for the transaction, anymore contemplate of the disposition, the disposition
then he can demand for the compensation/commission cannot bind then the principal. So, that property can still
due him. be subject of execution and attachment.
In the above example, the principal then cannot hide QUESTION Does this contemplate only of real
behind Article 1924 in arguing that the agency is deemed properties?
revoked. Though strictly speaking it can be revoked, but it NO. It actually contemplates of any property. Remember
has to be established first that the principal was in good there are those lists of particular undertakings which
faith. require special power of attorney? So, it contemplates of
all of those transactions.
There may be instances that the principal merely wanted
to assist the agent. In this case, I suppose the case that you mean is the one I
just mentioned, so it involves a real property then, but this
EXAMPLE A third party was granted the authority to provision is not limited to real properties for as long as it
manage the business of the principal. Then, the principal can be covered by SPAs.
was just on the area and so he checked the business, and
he saw that the business was so busy as there were many But there is really no prohibition. If you want your
people/customers at the establishment that social properties to be covered by a special power, there is no
distancing may not be enforced. And so, in order to assist, prohibition for you to do that. Even the execution of an
the principal started dealing with the potential customers. affidavit of loss could be provided for under a special
Can that be considered as the principal having power of attorney even though it’s not specifically
revoked the agency of the person managing the provided for under the law that it has to be through a
business? special power. Because actually, all that we know now are
NO. Here, the intention really is just to assist the agent special powers of attorney. Have you heard of a document
considering the volume of customers. As I said, it has to that is required to be drafted by a lawyer asking for a
be looked at on a case-to-case basis. But it has to be general power of attorney? What is normally drafted is a
established that the principal is in good faith before there special power if attorney. The general power is normally
can be implied revocation. incorporated in a contract.
3. SPECIAL POWER v. GENERAL POWER EXAMPLE In a lease contract, you can have the lessor
Article 1926. A general power of attorney is revoked constituted as an attorney-in-fact in relation to the sale of
by a special one granted to another agent, as regards any property or any things that may be found inside the
the special matter involved in the latter. leased premises in case the lessee is not able to make
payment. That would be an example of a general power –
EXAMPLE Here is a very rich principal who owns 10 one is constituted as an attorney-in-fact.
parcels of land. He gave the power to the agent to sell all
his 10 parcels of land. Now, this rich principal decided to QUESTION What would happen if you grant a general
give to Mr. X a special power to sell one lot, let’s just say and special power on the same person?
Lot A. The special power on the same person will sort of restrict
the power that was granted in the general power. That’s
Lot A then is supposedly taken from the authority of the precisely what happened to the case that I’ve just
agent who was granted all the powers to sell the 10 mentioned. It was originally a general power and then it
parcels of land because the special power granted to Mr. was converted into a special power. In relation to that
X was specifically intended for that particular lot alone. So, subject matter there, it will restrict now the act of the
the agent cannot say then that he can sell Lot A. person who was later on granted the special power.
33
QUESTION What if the other way around like SPA first In that case, Mr. Y cannot just revoke the agency granted
and then general power? to Mr. X.
The SPA will stand because the general power cannot
revoke the SPA unless it is expressly provided. The reason why it is deemed irrevocable in that sense is
because the agent already has an interest over the agency.
The special power will remain as it is. You’re just specified It is intended for the purpose of collecting or complying
to have that particular power. They are not actually with the obligation of the principal to the agent relating
incompatible so it can subsist whether there’s a general to a separate contract. That bilateral contract now is
power later on given. In fact, that expands your power dependent on the agency because the bilateral contract
now other than your special power. (the deed of absolute sale) can only be complied by the
principal if the agency subsists.
NOTE To be clear about it – both can subsist. There’s just
specification on what you can do, now that you’re granted This presuppose that the principal is acting in bad faith,
the general power – there will be more for you to do then, wanting to circumvent the agreement under the bilateral
more rights to represent if that’s the case. contract by revoking the agency when supposedly that
agency can comply with the bilateral contract or is used
That’s why the law only contemplates of a situation where in complying the bilateral contract.
there was initially a general power given and then another
special power is granted to the same person or to another 2. MEANS OF FULFILLING OBLIGATIONS ALREADY
person – it doesn’t really matter – for as long as there was CONTRACTED
a subsequent special power that was granted because it
sort of restricts and then it is rendered incompatible with EXAMPLE There is a contract entered into by Mr. X and
the general power. Mr. Y. Mr. X contracted Mr. Y to build a billboard on the
facade on his mall. He knows that Mr. Y can provide the
IRREVOCABLE AGENCY tarpaulin but cannot construct the billboard. So, in the
Article 1927. An agency cannot be revoked if a contract they provided for a clause that Mr. Y will be
bilateral contract depends upon it, or if it is the means represented by Mr. Z in the construction of the billboard
of fulfilling an obligation already contracted, or if a itself, but the billboard will have to be provided by Mr. Y
partner is appointed manager of a partnership in the still.
contract of partnership and his removal from the
management is unjustifiable. The agency that is created between Mr. Y and Mr. Z
cannot be revoked by Mr. Y. If he will do that, then it will
1. Dependent bilateral contract violate the obligation or in fact, the agency is necessary in
2. Means of fulfilling obligations already order to fulfill the obligation of the principal to another
contracted person.
3. Managing Partner in Articles of Partnership
QUESTION Is it not the same with what you have given
There is this irrevocable agency – sort of irrevocable – as an example under the first one?
although there really is no such thing as irrevocable. It can NO. This time, the agent is a third-party, not a party to the
really be revoked, it’s just that you will be subject to supposed bilateral contract.
damages in case you make the revocation. It can be a
ground for damages. In the 1st example, the principal is also the debtor. In the
contract of sale, he was the buyer and was obligated to
This one, even if you intentionally revoke it at will, it will make payment and, at the same time, he is the principal.
still subsist up to a particular extent.
Here, it is different. Mr. Y is indebted to Mr. X in relation
1. DEPENDENT BILATERAL CONTRACT their own contract. But in order to comply that, there is a
third-party that is engaged as an agent. It is not Mr. X that
EXAMPLE There is a sale of a parcel of land between X is the agent of Mr. Y in this case; it’s Mr. Z. When the
and Y. X is the one selling the property to Y. agency with Mr. Y and Mr. X will be used in order to
comply with the obligation of the principal for and on
Now, the property is supposedly worth P1M, but their behalf of a third party, then it will fall under the 2nd
contract says that the payment terms: 50% down example. This is just to make a distinction between the 1st
payment, and the remaining 50% will be payable by and 2nd examples.
installment.
What you just have to understand is that there is now an
Since it’s difficult to cause the transfer of money because interest that is vested. It could be the interest of the agent
of the distance between the parties, X was constituted as itself or that of a third-party. When there is this interested
an agent of Y in relation to the collection of his receivable that is affected, it just cannot be revoked by the principal
from the government and it will be applied as payment at will. That is what the law is trying to establish that if
for the remaining 50% of the parcel of land.
34
there are other parties who may be affected now by the EXAMPLE When the principal borrowed money from an
agency, you cannot just revoke it at will. agent P1M. Then, the principal delivered to the agent a
diamond ring as a security for the debt. It is supposedly
Of course, there is no prohibition for the principal to foreclosed in case the obligation remains outstanding.
revoke. But just be ready to make payment for the
damages. QUESTION If the principal will die, will the agency
subsist?
3. MANAGING PARTNER IN ARTICLES OF YES. It will, for as long as the obligation is not yet paid.
PARTNERSHIP The agent there can still considered as the agent of the
Article 1800. The partner who has been appointed principal in terms of selling that particular diamond ring
manager in the articles of partnership may execute all for purposes of paying the obligation that was supposedly
acts of administration despite the opposition of his due to the agent. That is an example of an agency
partners, unless he should act in bad faith; and his constituted for the common interest of the principal and
power is irrevocable without just or lawful cause. The the agent.
vote of the partners representing the controlling
interest shall be necessary for such revocation of
power. 2. STIPULATION POUR AUTRUI OR
WHEN THE AGENCY HAS BEEN CONSTITUTED FOR
A power granted after the partnership has been THE INTEREST OF A THIRD PERSON WHO HAS
constituted may be revoked at any time. ACCEPTED THE STIPULATION IN HIS FAVOR
Now, if there is supposedly an agency created for the
If the partner is designated as a managing partner in the benefit of a third party then more reason for it to be
Articles of Partnership, he just cannot be terminated as subsisting.
the managing partner without reasonable ground. When
you do that, you can be liable to the managing partner. EXAMPLE: There is a parcel of land sold by the principal
to the agent for the amount of P1M and the payment is
NOTE It is intended to be irrevocable. But when it is by installment. The principal then decided to engage the
revoked, it can be a cause for damages. The third person agent as his agent by making the payment, instead to him,
whose interest may be affected can have an actionable to another person, Mr. X. So, instead of the agent making
cause against the principal who revoked the agency. payments to the principal, Mr. A (agent) now has to make
payment to Mr. X because that was the agency created by
BY OPERATION OF LAW the principal to Mr. A.
DEATH OF THE PRINCIPAL
GR: The principal’s death will cause the extinguishment QUESTION If the principal will die, does that mean
of the agency because there is no one then to be that Mr. A will stop the payment to Mr. X?
represented by the agent. NO. The law says that, that is an example of a stipulation
pour autrui. Granting that Mr. X also accepted the
XPN: The agency shall remain in full force and effect supposed benefits created by such agency, then even the
even after the death of the principal: death of the principal cannot extinguish the agency. It will
1. When the agency has been constituted for the continue until the full amount is paid then.
common interest of the principal and the
agent. 3. AGENT WITHOUT KNOWLEDGE OF THE DEATH OF
2. When the agency has been constituted for the THE PRINCIPAL WHO CONTRACTED WITH THIRD
interest of a third person who has accepted the PERSONS WHO ACTED IN GOOD FAITH.
stipulation in his favor (also known as
Article 1931. Anything done by the agent, without
stipulation pour autrui)
knowledge of the death of the principal or of any other
3. Agent without knowledge of the death of the
cause which extinguishes the agency, is valid and shall
principal who contracted with third persons
be fully effective with respect to third persons who may
who acted in good faith.
have contracted with him in good faith.
EXCEPTIONS
Requisites:
Article 1930. The agency shall remain in full force and
1. The agent has no knowledge of the
effect even after the death of the principal, if it has been
extinguishment of the agency.
constituted in the common interest of the latter and of
2. The third party who contracted with the agent is
the agent, or in the interest of a third person who has
in good faith.
accepted the stipulation in his favor.
When these two elements are attendant, then the agency
1. WHEN THE AGENCY IS CONSTITUTED FOR THE will remain to exist despite the death or the
COMMON INTEREST OF THE PRINCIPAL AND THE extinguishment of the agency.
AGENT.
35
EXAMPLE Mr. Agent was engaged by Mr. Principal to sell just had to bring the contract to the buyer and get his
a parcel of land for the amount of P1,000,000. Now, Mr. signature.
Principal died on the same day that they entered the
agency. On the following day, Mr. Agent sold the parcel In this case, if that is the only thing left to be done just so
of land. Mr. X who also doesn’t know about the death of the agent can be entitled to his compensation, the heirs
Mr. Principal. of the agent can actually do what was left to be done.
QUESTION Will the contract of sale between the agent This example, however, has to be viewed in a case-to-case
and Mr. X (third person) be recognized as valid? basis. In this exception, you can establish tacit agency.
YES. It would fall under Article 1931 of the New Civil Code. This has to be taken with a grain of salt because it’s just
unlikely that an agent could still be represented by a
COMMENT But class, in actual practice this is very difficult person whom the principal doesn’t constitute as his agent.
to prove. Kung adto pana sa BIR, nya the principal died the But in that case, it is understandable considering that the
day before, di jud na ma prove. Supposedly, there is a act to be done by the representative by the agent, is
ground to push for its validity, but it’s just so inconvenient. simply in pursuant to the instruction of the agent who just
The parties don’t want to deal with such a transaction. But died.
again, supposedly, under Art. 1931, for as long as these
two elements are present (lack of knowledge of the agent; There is this contention made by de Leon that if there is
good faith of the third person), it is a valid contract. also interest on the part of the agent then the heirs of the
agent can continue to deem the agency as effective. There
QUESTION The issue, just like in the Rallos case, is is really sense in this case in the same way that the death
what if the agent knew about the death of the of the principal cannot cause an extinguishment of the
principal, but the third person does not know about agency when it is coupled with an interest.
it?
The contract will not be binding on the principal anymore. EXAMPLE The one I gave a while ago pertaining to the
The heirs would then have interest in the parcel of land, agent having the right to foreclose on the diamond ring.
and the supposed agent would have no right to sell it. So, Supposedly, there was a contract of loan between the
the third party cannot demand. The reason is because Art. principal and the agent. The principal, in exchange for the
1931 will not apply. money he got from the agent decided to pledge a
diamond ring. Our first example was the principal died.
In the Rallos case, there was this contention that there
was no provision in the law which says that the contract is QUESTION What if it’s the other way around, what if
void in that case. Always, the third person is protected if it is the agent who died? What happens to that
he is innocent. The problem is, there is Art. 1931, which diamond ring, can it still be foreclosed by the heirs of
sets the requirement in case a situation like that occurs. If the agent in case the principal does not pay?
the two elements are not present, then it will not be YES. That is an example that despite the death of the
recognized as a valid contract. The death of the principal agent, the agency is still considered effective but only up
in this case, may cause extinguishment of the agency, and to the extent of the right granted to the agent in relation
there being no agency, the agent cannot sell the property. to their contract of loan with pledge if the diamond ring
can be sold by the heirs and then apply the proceeds as
QUESTION What happens to the third party? payment by the principal to the agent.
Their remedy is to go after the agent. The third party
would not be left without a remedy. BY OPERATION OF LAW ASIDE FROM DEATH
1. CIVIL INTERDICTION OF THE PRINCIPAL OR THE
DEATH OF THE AGENT AGENT
QUESTION Does this extinguish the agency? REASON: Their acts are now already limited. If there is civil
YES. If there is no agent, then there will be none left to interdiction, the principal cannot engage in any contract.
represent the principal. Thus, the death of the agent The agent cannot represent him.
should be a ground for extinguishment of the agency. In
this case, personal service is now impossible. If the agent itself is the one civilly interdicted, even if he is
representing the principal, whatever agency he may do
GR: Death of the agent extinguishes the agency. will also not be deemed effective. Hence, civil interdiction
of either the principal or the agent, can be a ground for
XPN: The agent left instructions that can be pursued by extinguishment of the agency.
his representatives to continue the agency.
2. INSOLVENCY OF THE PRINCIPAL OR AGENT
The exception to the rule is a stretch of the law because The subject matter of the agency may no longer be within
there really is no agent anymore. the control of the principal. He may not have the interest
anymore on the supposed undertaking because he is
EXAMPLE Just before the death of the agent, the contract insolvent. If it is the agent that is insolvent, there is a very
is supposed to be signed already. When he died, all that big risk that he may prejudice the interest of the principal.
was left to do was the signing of the contract, so the agent That’s why the law deemed if there is insolvency for either
36
of the parties it might just as well be a ground for OTHER GROUNDS FOR
extinguishment of the agency EXTINGUISHMENT OF AGENCY
1. general grounds of extinguishment of obligations
3. INSANITY 2. war
How can the agent protect the interest of the principal if he 3. legal impossibility
is insane? But what if the principal is the one that is insane? 4. termination of agent’s authority
Will the agency be continued? NO. He cannot himself 5. occurrence of a specified event
protect his own interest. It requires the consent of the
guardian for that particular person to be represented in 1. GENERAL GROUNDS OF EXTINGUISHMENT OF
an agency. It will have be a ground for extinguishment. OBLIGATIONS
DISSOLUTION OF THE FIRM OR CORPORATION EXAMPLE The agency involves the sale of a motor vehicle
WHICH ENTRUSTED OR ACCEPTED THE AGENCY and then the motor vehicle was flattened. There is a loss
The dissolution of this agent firm or agent corporation is of the subject matter of the agency.
just akin to death of the agent. Since we know that death
of the agent is a ground for extinguishment of agency, QUESTION Can the agency still continue?
then dissolution of the agent firm should be a ground for NO. It is deemed extinguished because there is no object
extinguishment. now of the agency, nothing to be sold anymore.
QUESTION Is it possible for the firm to be considered 2. WAR

as an agent of a third person? War can be a ground for extinguishment when the other
YES. party is the enemy of the State of another.
EXAMPLE You just have to look at the law firms. But if all EXAMPLE You engage as an agent, a Chinese man and
of a sudden, ACCRA Law is dissolved, then all the clients then there is a declared war between Philippines and
of ACCRA Law cannot anymore be represented by the China. Then, the agency is deemed terminated.
lawyers of ACCRA because it is akin to the agent being
dead. You may want to argue, sir the lawyers are still there. 3. LEGAL IMPOSSIBILITY
EXAMPLE Go back to what we have discussed a while ago
NOTE Corporations have juridical personalities separate about selling the VECO. When that is the subject matter
and distinct from the persons composing them. It will of the agency and you can no longer comply with it, since
have to be deemed dissolved and if the client would want, it is legally impossible, then the agency will be deemed
then they engage the services of the remaining lawyers terminated. Even if the agent does not withdraw, still it is
who may have to represent themselves personally or deemed terminated.
some other firms.
4. TERMINATION OF AGENT’S AUTHORITY
BY AGREEMENT This presupposes a situation where there is a specific task
1. Accomplishment of the object or purpose of the that the agent is supposed to do but a third person has
agency; done it and may have accomplished the purpose of the
2. expiration of the period for which the agency was agency. The continuance of the agency is no longer
constituted necessary
The agency could also be terminated by agreement EXAMPLE The agent was tasked by the principal to take
because the purpose is already accomplished. Even if you care of the property because it will be used by the son.
put a date there as to when the agency shall be Then, after several months, the son decided to sell the
terminated, 10 years from now for the purpose of selling property. Can the agent still continue with the agency?
this one parcel of land. If the parcel of land is already sold,
you cannot expect that it will continue up to 10 years NO. He cannot because the property is no longer owned
because the entire purpose for that agency is just to sell by the principal. It was already transferred and ceded to
that land. If it is already accomplished, the agency is someone else.
likewise extinguished.
5. OCCURRENCE OF A SPECIFIED EVENT
If it is the other way around, if supposedly the purpose is It is when there is a resolutory condition placed on the
for the selling of land, the agency is up to 1 year, and 1 agency.
year has already elapsed, then the agency is also
terminated based on the agreement of the parties, you EXAMPLE The agency is for this particular person to be
cannot anymore continue more than 1 year because that my agent until he passes the bar exam. If you pass the bar
is the term granted to it. exam, then agency will be extinguished.
37
QUESTIONS AND CLARIFICATIONS
QUESTION Regarding the withdrawal of an agent in

article 1928. It says that the agent may withdraw for a just
cause if he is to suffer grave detriment if he does the act.
If the agent will only suffer minor detriment and not
grave, will it still extinguish the agency?
Look at it in a case to case basis. It has to be grave as it is
precisely mentioned in the law but as to what is grave is a
question of fact so it is a case to case basis. Of course, you
cannot test what is grave. It depends on the situation.
QUESTION General power to sell all properties of P

including furniture. One year after, there is a special power
to sell the real property. The agent then sells the furniture
after the SPA was given. Would this bind the principal?
If the intention of the General Power to sell was all

properties both real property and personal property, the
special power granted to the sale of real property should
only extinguish the portion pertaining to the sale of real
property. The sale of furniture would still subsist then so
the agent can still sell the furniture and it will bind the
principal in that case. That is actually based on the Rallos
case.
38
TRUST
I. GENERAL PROVISIONS Express trust refers to one that is intentionally created by
PARTIES IN A TRUST the parties, with agreement, clear in terms of intention.
Article 1440. A person who establishes a trust is called There is no doubt that the intention is to create trust.
the trustor; one in whom confidence is reposed as There is no need to mention the word “trust” for as long
regards property for the benefit of another person is as there is intention. It is clearly based on the actuations
known as the trustee; and the person for whose benefit of the parties, the terms of the agreements, regardless of
the trust has been created is referred to as the how it may be nominated.
beneficiary.
In implied trust, although at times there may be an
The way trust is defined appears that it does not take into intention to enter into a trust, it is just that the intention
consideration much the role of a trustor. It gives emphasis is not so clear so the law deems it as a trust either because
instead on the relationship between the trustee and the it is equitable or to give remedy to a potentially offended
beneficiary. But it doesn’t mean that the trust party, if not due protection is granted to such party.
arrangement doesn’t have a trustor. It needs to have a
trustor, it is just that this trustor can act either as a trustee AS TO EFFECTIVITY
and can even act as a beneficiary, 1. testamentary
2. inter vivos
In the definition, it mentions of a fiduciary relationship,
but that fiduciary relationship is actually between the A trust is testamentary if found in a will and is supposed
trustee and beneficiary. It does not mention that it has to to take effect after the death of the testator.
create a fiduciary relationship between the trustor and
trustee or trustor and beneficiary. Although, there is really Inter vivos trust is deemed effective while the trustor, or
an obligation on the part of the trustee to comply with the the one who gave the property to the trustee for purpose
obligation set forth by the trustor. In that respect, there is of management, is still living and it is during his lifetime
a legal arrangement and so there is a contractual that the trust will take effect.
relationship created but the trust there pertains to the
relationship of the trustee and beneficiary. AS TO REVOCABILITY
1. revocable
Under Article 144, it gave a distinction among the three 2. irrevocable
parties to this type of arrangement:
1. Trustor – the one who establishes the trust. This depends on the agreement of the parties. The usual
2. Trustee –the one in whom confidence is reposed arrangement is that it is the trustor who gets a say in the
as regards the property for the benefit of another revocability because the property is owned by the trustor
person. prior to it being transferred to the trustee. One usual
3. Beneficiary - the person for whose benefit the condition set by the trustor is that he can revoke it should
trust has been created; also known as cestui que the beneficiary be deemed unworthy.
trust.
It is irrevocable when there is a specified term for a
The subject matter of the trust is called a trust property, contract. There cannot be a termination of such a trust
otherwise known as trust res, sometimes also called the during that specified period in time.
corpus or the principal depending on the type of trust
created. GOVERNING LAWS
QUESTION What law primarily governs the law on
Normally, you call it corpus or principal when the trust is trust?
in the form a fund or in the form of money. Usually, you The Civil Code of the Philippines. There may be other laws
make use of trust property or trust res when the trust that could be effective. The conflict can be resolved by
involves a personal property, a tangible one other than referring to the Code of Commerce, Rules of Court and
cash or a real property. But they refer to one and the same special laws.
thing—the subject matter of the trust, one that needs to
be managed and administered by the trustee for the Article 1442. The principles of the general law of trusts,
benefit of the beneficiary. insofar as they are not in conflict with this Code, the
Code of Commerce, the Rules of Court and special laws
TYPES OF TRUST are hereby adopted.
AS TO CREATION
1. express
2. implied
Article 1441. Trusts are either express or implied.

Express trusts are created by the intention of the trustor
or of the parties. Implied trusts come into being by
operation of law.
39
involves the transfer of legal ownership or title of a
II. EXPRESS TRUST property and a separate beneficial ownership is likewise
An express trust is one intended to be entered into by the transferred. Hence, parol evidence may not be allowed.
parties involved. Normally, it is the trustor who is very
clear in his intention to enter into a trust with someone CLEAR INTENTION
who may be engaged in the business of providing a trust. Article 1444. No particular words are required for the
creation of an express trust, it being sufficient that a
A bank can provide this certain service. But there is no trust is clearly intended.
requirement that it has to be with the bank. It can even be An express trust can be created by any particular form. No
an ordinary person. specified form is provided by the law. Clear intention
would be sufficient for it to be considered as an express
EXAMPLE Normal trust arrangements are those created trust.
by the parents in favor of their children. They place the
trust with an entity in favor of their children. This is called EXAMPLE A trust is hereby created in favor of Walter
a trust fund. This is a good tax planning tool. A trust can (beneficiary). The properties are to be managed and
be considered as a separate taxpayer, it supposedly administered by Rani (trustee).
should enjoy the same exemptions and deductions
granted to an individual taxpayer. It can also record for its Since trust is a contract, it is better that you do it in a
own a particular expense. Distribution thereof may be contract form. There is no hard or fast rule as to its form,
considered as a deduction as well. but it is necessary to follow certain formalities. If a trust is
created, especially if the one involved is a professional,
ELEMENTS OF EXPRESS TRUST they would ask that there would be a contract and such
1. COMPETENT TRUSTOR AND TRUSTEE contract be notarized.
Trustee should be able to take possession of and at least
acquire legal title to the property. TRUSTEE’S DECLINATION
QUESTION Is the trustee allowed to decline a trust?
If is a real property involved, then a foreign individual may YES. Take note that this is an express intention of the
not qualify as a trustee as he cannot own land in the parties of a contract. So, there has to be consent on the
Philippines, thus he cannot own legal title to the property. part of the parties. If the trustee wants to decline of the
It will violate the Anti-Dummy Law and it’s responsibility of being a trustee, that may be okay but that
unconstitutional as well. In short, both the trustor and the alone should not cause a creation of a trust. Another
trustee must be competent and must have capacity. trustee may be substituted. What really matters is for
these properties to be on the hands of another person for
2. THERE HAS TO BE AN ASCERTAINABLE TRUST RES. management for the benefit of the beneficiary.
The coverage of the trust and what property is being
transferred to the trustee for purposes of management Article 1445. No trust shall fail because the trustee
and administration must be clear. appointed declines the designation, unless the contrary
should appear in the instrument constituting the trust.
3. THERE MUST BE A SUFFICIENTLY CERTAIN
BENEFICIARY OR BENEFICIARIES. If a person does not want to become a trustee, nothing
It is not necessary that the beneficiary be named at the prevents the trustor to become a trustee himself.
time that the trust is created, as long as there are certain
parameters by which it can be ascertained, or you can If their agreement says that the trustee cannot decline,
simply say that as may be instructed by the trustor after a then it would simply mean that he will be liable for
certain period of time. damages. If you will be compelled to be a trustee, then it
would amount to involuntary servitude.
If it is express, it is either written or done orally. The term
and intention can be inferred from the action of the BENEFICIARY’s ACCEPTANCE
individual parties or the operative acts of these parties. Article 1446. Acceptance by the beneficiary is
necessary. Nevertheless, if the trust imposes no
PRINCIPLES IN EXPRESS TRUSTS onerous condition upon the beneficiary, his acceptance
PAROL EVIDENCE shall be presumed, if there is no proof to the contrary.
Article 1443. No express trusts concerning an
immovable or any interest therein may be proved by GR: Beneficiary’s acceptance is required.
parol evidence XPN: If there is no onerous obligation placed upon the
beneficiary then it is deemed that he has accepted.
GR: Express trusts may be proved by parol evidence
XPN: Art. 1443 NOTE This is just a rebuttable presumption. If there is
proof that the beneficiary declined, then it is not effective.
This is because a real property normally requires a public
document for an agreement to be binding, especially if it
40
III. IMPLIED TRUSTS EXAMPLE There is a property that your friend wanted to
A resulting trust is really one which is considered as the buy but he finds that he has too many assets already. He
implied trust in full sense, where there is no specific wants, in the meantime, for the property to be placed
intention to enter into a trust, but the law creates a trust under your name, and you agreed. But all the money
nonetheless. needed to pay for that particular property is actually paid
by your friend.
In constructive trust, the emphasis is more for the
protection of an innocent party. It is an equitable remedy If that happens that there is this parcel of land and the
rather than really a trust in the sense of how a trust is one named therein is you but you never really gave any
supposed to be: for the benefit of a beneficiary, one money for it as you never really intended to purchase it,
managing the affairs. your name was just used for purposes of registering the
title of the property, there is said to be a trust created
This one is just in order for the trustee not to defraud, not between the two of you. Where you, the one named as
to offend and not to cause injury on the part of the person the owner of the property, will hold that particular
protected by the law. It is more of a remedy really when property in trust for the person who actually paid the
we talk about constructive trust. consideration. You will be compelled to take care of the
property and possibly convey it later on, when such
So for lack of better protection, the only way the law beneficiary will then ask that it be conveyed to him.
deemed it necessary to protect is by creating a trust for
that particular situation. EXAMPLE There is that situation, especially for those
living abroad, where they send money here in the
RESULTING TRUST CONSTRUCTIVE TRUST Philippines and for that money to be used to purchase a
1448 - sale to a party but 1450 - property property but because they cannot sign on the supposed
price is paid by another purchased with borrowed deed, they will just make use of someone, their friend,
funds and conveyance is their family members, as the supposed owner of the
made to the lender property without necessarily thinking that there may be
1449 - donation to a 1454 - absolute friction caused on it, there is a tax implication when you
person but beneficial conveyance to a person transfer it later on.
interest is vested in to secure the
another performance of grantor’s But if it can be established that there is a trust supposedly,
obligation then that transfer is deemed not taxable because there
1451 - legal title to land 1455 - purchase of really is no actual transfer of benefits, but that is only true
inherited by heir placed property with the use of for estate. As far as the income tax is concerned, that
in the name of another trust funds transfer of ownership may really be subject to income tax.
1452 - legal title to 1456 - acquisition of There is a friction caused even if a resulting trust is created
property purchased taken property through mistake in that situation.
in one co-owner or fraud
1453 - conveyance under There is a friction caused even if a resulting trust is created
a promise to hold for or under that situation. It’s just that in that case, by it having
transfer to another a resulting trust, the beneficiary can demand the trustee
convey the property back to him or her. After all he paid
SALE TO A PARTY BUT PRICE IS PAID BY ANOTHER for the full amount of the consideration of the property.
Resulting Trust
XPN: If the person to whom the title is conveyed is a child,
Article 1448. There is an implied trust when property
legitimate or illegitimate, of the one paying the price of
is sold, and the legal estate is granted to one party but
the sale, no trust is implied by law, it being disputably
the price is paid by another for the purpose of having
presumed that there is a gift in favor of the child.
the beneficial interest of the property. The former is the
trustee, while the latter is the beneficiary. However, if
It is instead be considered as a donation - donation made
the person to whom the title is conveyed is a child,
by the parent in favor of the child.
legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child. EXAMPLE A property is named under you by your
parents. It will be viewed by the law as a donation made
Trustee – grantee of legal estate by your parents in your favor.
Beneficiary – actual payor of consideration
Obviously, the trustee is the one who was granted the

legal estate, i.e., the title of the property is transferred to
this particular person, but the beneficiary is the one who
actually paid for the consideration.
41
DONATION TO A PERSON BUT liability of the beneficiary. The law deemed that then as
BENEFICIAL INTEREST IS VESTED IN ANOTHER constituting a constructive trust.
Resulting Trust
Article 1449. There is also an implied trust when a Art. 1454 is more or less the same with 1450, with very
donation is made to a person but it appears that slim difference.
although the legal estate is transmitted to the donee,
he nevertheless is either to have no beneficial interest ABSOLUTE CONVEYANCE TO A PERSON TO SECURE
or only a part thereof THE PERFORMANCE OF GRANTOR’S OBLIGATION
Constructive Trust
Trustee: Donee of legal estate Article 1454. If an absolute conveyance of property is
Beneficiary: Holder of beneficial interest made in order to secure the performance of an
obligation of the grantor toward the grantee, a trust by
This contemplates of a situation where one become just a virtue of law is established. If the fulfillment of the
“pass-through” donee, where all that you are holding is obligation is offered by the grantor when it becomes
legal title to the property, all the benefits will still go to due, he may demand the reconveyance of the property
another person to him.
EXAMPLE A donated a property to B. The intention is for

B to merely hold the property, or the title thereof but the Art. 1450 Art. 1454
possession, usufruct or fruits generated will go to C. Constructive Trust Constructive Trust
Art. 1450 did not mention It is very clear in 1454 that
Here, B is merely holding the property for the benefit of that there was supposedly there has to be a loan that
the one who holds the beneficial interest of the property. an agreement between preceded the transfer of
the grantor and the the property.
PROPERTY PURCHASED WITH BORROWED FUNDS grantee for the extension
AND CONVEYANCE IS MADE TO THE LENDER of a loan.
Constructive Trust It contemplates that the The intention of the
Article 1450. If the price of a sale of property is loaned lender purchases the supposed beneficiary here
or paid by one person for the benefit of another and property from a third why there is a conveyance
the conveyance is made to the lender or payor to person because it is a of property is to secure an
secure the payment of the debt, a trust arises by different seller who sold obligation.
operation of law in favor of the person to whom the the property to the
money is loaned or for whom it is paid. The latter may beneficiary or the The one who transferred
redeem the property and compel a conveyance thereof borrower of the money, it the property is still the
to him. is a third person. The debtor. The debtor is the
lender paid for it and the one who owned the
Trustee: Lender- Transferee lender said to secure your property and then to
Beneficiary: Borrower obligation to me, I will just secure the obligation of
be named as the the debtor from the
This contemplates of a situation where the property is supposed owner of this creditor, the creditor
purchased using the money that was borrowed by the property, so they bought required that the property
beneficiary from the trustee. The trustee was named as it from a third person. be transferred to his name
the owner of the property. Clearly, the intention is for the perhaps.
beneficiary to become the owner. But, in order to protect
the amount that was loaned by the borrower, the lender Regardless actually if it falls under Article 1454 or Article
would prefer that property be first named under his name. 1450, the same legal implication will result because
Hence, a constructive trust is created. they’re both constructive trusts, the intention is just to
protect the debtor there. What they wanted to prevent
The difference here is that the money that was paid is there is the act of pactum commissorium, where
actually owned by the lender. Supposedly, for all intents automatically, this could be a way to circumvent that
and purposes, he would have been able to purchase the particular prohibition in mortgages and in pledges that
property. He provided the money, he was likewise named there should be no pactum commissorium.
as the owner of the property. So supposedly, he is the
owner of the property – an indivisible and absolute owner. Here, since there is already actual transfer of the property,
they may say that there is no pactum commissorium
But here, take note, that it must be preceded by a anymore because the secured creditor or the lender
particular agreement between the lender and the already became the owner as provided in the agreement.
borrower. That it was the borrower who actually intended There is already a transfer, the title already says that. In
to purchase the property and not the lender, and the order to protect the beneficiary, the debtor in that case, a
purpose thereof is for purposes only of securing the constructive trust is instead created so as not to
circumvent the pactum commissorium prohibition.
42
LEGAL TITLE TO LAND INHEIRTED BY HEIR property”. If he is able to prove that, then a resulting trust
PLACED IN THE NAME OF ANOTHER may not be created because it is otherwise then.
Resulting Trust
Article 1451. When land passes by succession to any CONVEYANCE UNDER A PROMISE
person and he causes the legal title to be put in the TO HOLD FOR OR TRANSFER TO ANOTHER
name of another, a trust is established by implication of Resulting Trust
law for the benefit of the true owner. Article 1453. When property is conveyed to a person
in reliance upon his declared intention to hold it for, or
Trustee: Named legal owner transfer it to another or the grantor, there is an implied
Beneficiary: Actual heir trust in favor of the person whose benefit is
contemplated.
This one may be difficult to be executed in the Philippines.
If there is succession, it will suppose to automatically go Trustee: Declarant of intent to transfer
to the legal heirs. But this may pertain to a free portion Beneficiary: Contemplated beneficial owner
which the supposed decedent did not specify to whom it
will go. Since the actual heir does not want to have that This is the last resulting trust, where there is a declarant,
property named after him, he opted to name it to one who declared that he will transfer the property to the
somebody else. If he did that and this is through supposed grantee or if it is the grantee who is the grantor,
succession that in a sense it appears that it is another that is also allowed. And such property is transferred to
person who was named as the legal owner of the property such declarant on the trust based on what he said that he
although the transfer is supposed to be by succession and will actually cause the transfer.
to should go to the actual heir, a resulting trust is then
created. Here, the declarant obviously allowed himself to be the
pass-through owner of the property. The property is
The one who is named as legal heir of the land will hold supposed to go to whoever is the contemplated beneficial
that land for the benefit of the actual heir. There must be owner, who can be the grantor himself or a third party.
no consideration why the trustee became the owner of The one who caused the transfer of the property to the
the property. It is just through the consent of the actual trustee is the grantor. There must have been no
heir that the property is transferred to the name of the consideration in the transfer of the property from the
legal owner. grantor to the trustee because he simply made a
declaration and this was relied upon by the grantor that
LEGAL TITLE TO PROPERTY PURCHASED the trustee will really transfer the property to his
TAKEN IN ONE CO-OWNER contemplated beneficiary.
Resulting Trust
Article 1452. If two or more persons agree to purchase NOTE The operative term is the reliance based on the
property and by common consent the legal title is declaration made by the person who is constituted as
taken in the name of one of them for the benefit of all, the trustee.
a trust is created by force of law in favor of the others
in proportion to the interest of each. PURCHASE OF PROPERTY WITH
THE USE OF TRUST FUNDS
Trustee: Named Purchaser Constructive Trust
Beneficiary: Other actual purchasers Article 1455. When any trustee, guardian or other
person holding a fiduciary relationship uses trust funds
This is just actually similar to 1448, it is just that there are for the purchase of property and causes the
a lot of purchasers involved, and then one of the persons conveyance to be made to him or to a third person, a
is named, one person who also actually contributed to the trust is established by operation of law in favor of the
purchase of the property was named as the supposed person to whom the funds belong.
owner.
Trustee: User of trust fund for his own benefit
Now if that happens, the one purchaser who represented Beneficiary: Owner of trust fund
the other purchasers, and who was named as the
supposed owner, is holding the property for the benefit If there is a trust fund placed in the hands of the trustee
of all the other actual purchasers. That means then that and the trustee made use of the trust fund for the purpose
this purchaser cannot attribute the property all for of buying a property for himself, meaning he (trustee)
himself. He has co-owners. That’s why a trust is created in benefitted himself, the property that he purchased using
that sense. the trust fund will be considered held in trust for the
benefit of the owner of the trust fund. The owner of the
All of this, of course, is subject to arguments by the party trust fund here is the one named as the beneficiary of the
who will allege that no resulting trust is created. They can trust fund.
always say that: “Actually, it was just borrowed, they may
have made contribution but I just borrowed money from If you are the child in whose favor the trust fund was
them. I really am the one who will have to purchase the created and your trustee started using the fund for
43
purposes of purchasing property for himself, all the the contract or the deed of sale. Your action would have
property that he purchased, you have a claim, you can to be reconveyance if there is already a title created on
claim it as your own. After all, the fund that was used for the part of the purchaser. It is only true for as long as there
purchasing that property was your trust fund. is new title that has been transferred but once the title has
been released a different action will be instituted. You
ACQUISITION OF PROPERTY learned that in your Land Titles.
THROUGH MISTAKE OR FRAUD
PAROL EVIDENCE
Constructive Trust
Article 1456. If property is acquired through mistake Article 1457. An implied trust may be proved by oral
or fraud, the person obtaining it is, by force of law, evidence.
considered a trustee of an implied trust for the benefit
of the person from whom the property comes. All implied trust can be proven by parol evidence whether
it is movable or immovable.
Trustee: Buyer by mistake or fraud
Beneficiary: True owner of property QUESTIONS & CLARIFICATIONS
CLARIFICATION Atty., there is a confusing discussion
Here, someone bought a property by mistake or because in De Leon's book where he considered Art. 1455 as a
of fraud on his person but that property actually has a resulting trust in general, but a constructive trust
separate owner. If you purchased it by mistake or by fraud, when there is fraud.
then you have to hold that property for the benefit of the This one contemplates of a situation where the use of the
true owner of the property. Of course, this will not fund by the trustee, guardian or other person holding a
anymore affect a third party purchaser in good faith. fiduciary relationship is not consented by the beneficiary.
Perhaps De Leon wanted to make a distinction that it’s
EXAMPLE There is this person representing himself as the possible that these persons with fiduciary relationship
owner of the parcel of land. You thought that he really was made an agreement that it’s okay for him to purchase that
the owner as the name he used was the one that was property and such property, since he made use of the
registered on the title of the property. You purchased it trust fund, it is supposedly 1448 that should apply and not
and it turned out that person merely impersonated the 1455.
real owner, then you have no choice but to transfer the
property back to the supposed real owner. ATTY But for me, this 1455, if you understand it for what
it means, this only contemplates of a situation where there
QUESTION What is your remedy? really is no consent on the part of the one with the
You go after whoever is that impersonator because a trust fiduciary trust and his intention is to benefit himself, not
is supposedly created between you (the one who the beneficiary. In that sense, I will hold it as a constructive
purchased the property through fraud) and the true trust rather than a resulting trust because if there really
owner of the property. was no fraud in this case and the intention is not to
protect himself, then what will apply is 1448 not 1455.
It would be inequitable if the true owner of the property
is divested of his ownership rights over such property QUESTION (The question was about Art. 1450. There
simply because someone impersonated him or through was a technical problem, so it was not clear.) Your
someone’s machination resulted in the sale of such concern is that this is a resulting trust and not a
property. The law protects the true owner of the property. constructive trust?
As I said, this should be viewed as a constructive trust for
the reason that the intention here is to protect the debtor
COMMENT This may really be true if someone in the
that pactum commissorium may be circumvented. Take
family is really manipulative, very scheming in terms of
note that when the property is offered supposedly to the
how much he can own the property. He started
buyer. It was really the buyer who wanted to buy. But since
transferring the property from the parents at the expense
he doesn’t have any money, he approached a lender. And
of his siblings. He is able to do that perhaps because he
that lender, he wanted to protect his interest, he
has possession of all the title and the parents trusted him.
transferred the property to his name instead of to the
The intention was probably for him to divide the property
name of the debtor.
among his siblings. What he did was he may have forged
the signature of his siblings so that the property will be
But then the debtor will continue to pay him the amount
transferred to him or to whoever he wanted. It could be
of the loan. Here is a lender continuing to make payment
to his husband, a third person and then only him
on the amount of the loan and he is left without a
benefited from it. In that case, the true owners of the
property. That particular situation is really the one
property can go over whoever purchase the property.
prevented so that the borrower will always have a reason
to go after, to have equitable rights to pursue the lender
But this one though contemplates of a situation when
with regard to the property. A constructive trust has to be
there is no title that has been transferred yet to the buyer.
created. This one should be a constructive trust more than
Once the title has been transferred to the buyer, it may
a resulting trust.
have a different implication. You may not be able to go
after the supposed owner now by simply trying to annul
44
Year - Topic Question Answer
1997 - On 01 January 1980, Redentor and Remedies entered SUGGESTED ANSWER:

Express Trust; into an agreement by virtue of which the former was to The matter should be decided in favor of Remigio
Prescription register a parcel of land in the name of Remedies under (trustee) 1. Juana has the right of action to recover (a)
the explicit covenant to reconvey the land to Remigio, her one-half because the action has not prescribed.
son of Redentor, upon the son's graduation from The case at bar involves an express trust which does
college. not prescribe as long as they have not been
repudiated by the trustee (Diaz vs. Gorricho. 103 Phil,
In 1981, the land was registered in the name of 261).
Remedies. Redentor died a year later or in 1982. In
March 1983, Remigio graduated from college. In
February 1992, Remigio accidentally found a copy of the
document so constituting Remedies as the trustee of the
land. In May 1994, Remigio filed a case against Remedies
for the reconveyance of the land to him. Remedies, in
her answer, averred that the action already prescribed.
How should the matter be decided?
2015; Agency A lawyer was given an authority by means of a Special No, the agency in the case presented is one which is
coupled with Power of Attorney by his client to sell a parcel of land for coupled with an interest. As a rule, agency is
interest the amount of P3 Million. Since the client owed the revocable at will except if it was established for the
lawyer Pl Million in attorney's fees in a prior case he common benefit of the agent and the principal. In
handled, the client agreed that if the property is sold, the this case, the interest of the lawyer is not merely
lawyer was entitled to get 5% agent's fee plus Pl Million limited to his commission for the sale of the property
as payment for his unpaid attorney's fees. The client, but extends to his right to collect his unpaid
however, subsequently found a buyer of his own who professional fees. Hence, it is not revocable at will.
was willing to buy the property for a higher amount. Can (Article 1927)
the client unilaterally the rescind authority he gave
in favor of his lawyer? Why or why not? (4%)
Situational Under a management contract, N agreed to explore, No.

example from develop, and operate the mining claims of L and to It appears from the above contract that the principal
the book of render for L other services specified in the contract. N undertaking of N was the operation and
De Leon; was to take complete charge, subject at all times to the development of the mind and operation of the mill.
Agency general control of the Board of Directors of L, of the All the other undertakings mentioned in the contract
exploration and development of the mining claims, are necessary or incidental to this principal
hiring of staff and laborers, operation of the mill and undertaking. In the performance of this principal
marketing of minerals. undertaking, N was not in any way executing juridical
acts for L, destined to create, modify or extinguish
N was also to act as purchasing agent of supplies but no business relations between L and third persons.
purchase shall be made without the prior approval of L
and no commission shall be claimed by N on such In other words, in performing its principal
purchase. N was also authorized to make contracts undertaking, N was not acting as an agent of L, in the
subject to prior approval of L for the sale and marketing sense that the term “agent” is interpreted under the
of mineral mined. law of agency but as one who was performing
material acts for an employer for a
Under the management contract, is N an agent of L? compensation.(Nielson % Co., Inc. vs Lepanto
Consolidated Mining Company, 26 SCRA 540 [1968].)
Situational A number of Chinese merchants raised a fund by No. The evidence clearly discloses not only that the
example from voluntary subscription with which they purchased a funds with which the property in question was
the book of valuable tract of land and erected a large building to be purchased were furnished by the members of the
De Leon; used as a sort of club house for the mutual benefit of association but that A, in whose name it was
Implied the subscribers to the fund. The subscribers organized registered, received, and holds the property as the
Trusts themselves into an irregular association, which had no agent and trustee of the association. In this case, the
regular articles of association and was not registered in legal title of A is not questioned and the other
any commercial registry or elsewhere. members of the association do not seek such
cancellation but they maintain that A holds it under
The association not having any existence as a legal an obligation, both express and implied, to deal with
entity, it was agreed to have the title to the property it exclusively for the benefit of the members of the
placed in the name of A, one of the members of the association and subject to their will. (Uy Aloc vs. Cho
association. Jan Ling, 19 Phil. 202 [1911]; see Comapnia General
de Tabacos vs Topino, 54 Phil. 33 [1929]; Martinez vs
45
Does A have the right to set up title in himself to the Martinez, 1 Phil. 647 [1902].)
club property as well as to the rents accruing
therefrom?
Distinctions P drew up a document addressed to A that said: “This is Yes. “One does not have to undertake a close scrutiny
between a to formalize our agreement for you to represent United of the document embodying the agreement between
general Flag Industry to deal with any entity or organization, P and A to deduce that the latter was instituted as a
agent and a private or government, in connection with the marketing general agent.” Indeed, it can easily be seen that no
special of our products — flags and all its accessories. For your restrictions were intended as to the manner the
agent. service, you will be entitled to a commission of 30%.” agency was to be carried out or in the place where it
was to be executed. The power granted to A is so
Illustrative A sold 15,666 Philippine flags to the Department of broad that it practically covers the negotiations
Case from De Education and Culture. P refused to pay A commission. leading to, and the execution of, a contract of sale of
Leon. P’s merchandise with any entity or organization. As
Could A represent P in the transaction in the absence general agent, A had authority to do all acts
of a specific authorization for the sale? pertaining to the business of P.
A general agent usually has authority either expressly

conferred in general terms or in effect made general
by the usages, customs or nature of the business
which he is authorized to transact x x x.” (Siasat vs.
Intermediate Appellate Court, 139 SCRA 238 [1985].)
Implied trust; A and his brother B bought each a lot. After paying the The trust created is an implied trust. It is apparent
Sale to a first two installments corresponding to his lot, B sold his that A who furnished the consideration intended to
party but interest therein to A who then reimbursed him the obtain a beneficial interest in the property in
price paid by amount he had already paid, and thereafter continued question. Having supplied the purchase money, it
another. payment of the remaining installments until the whole may naturally be presumed that he intended the
purchase price had been fully satisfied. purchase for his own benefit. The property was
Illustrative acquired by B under circumstances which show that
Case from De Although B had no more interest over the lot, the it was conveyed to him on the faith of his intention
Leon. subsequent payments made by A until fully paid were to hold it for, or convey it to, the grantor A. (Heirs of
made in the name of B with the understanding that the Candelaria vs. Romero, 109 Phil. 500 [1960].)
necessary documents of transfer will be made later, “the
transaction being from brother to brother.” A transfer
certificate of title was issued to B.
The heirs of A brought action against the heirs of B for
the reconveyance of the property.
Was there an express trust or an implied trust?
2000 - A foreign manufacturer of computers and a The contract is one of agency, not sale. The notion of
Agency vs. Philippine distributor entered into a contract whereby sale is negated by the following indicia: (1) the price
Sale the distributor agreed to order 1,000 units of the is fixed by the manufacturer with the 10% mark-up
manufacturer’s computers every month and to resell constituting the commission; (2) the manufacturer
them in the Philippines at the manufacturer’s suggested reacquires the unsold units at exactly the same
prices plus 10%. All unsold units at the end of the year price; and (3) warranty for the units was borne by
shall be bought back by the manufacturer at the same the manufacturer. The foregoing indicia negate
price they were ordered. The manufacturer shall hold the sale because they indicate that ownership over the
distributor free and harmless from any claim for defects units was never intended to transfer to the
in the units. Is the agreement one for sale or agency? distributor.
1999 - X appoints Y as his agent to sell his products in Cebu Yes, the agent may appoint a substitute or sub-agent
Appointment City. Can Y appoint a sub-agent and if he does, what if the principal has not prohibited him from doing so,
of Sub-agent are the effects of such appointment? 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.
46
2003 - Jo-Ann asked her close friend, Aissa, to buy some Yes, there was a nominate contract. On the
Definition of groceries for her in the supermarket. Was there a assumption that Aissa accepted the request of her
Agency nominate contract entered into between Jo-Ann and close friend Jo-Ann to buy some groceries for her in
Aissa? In. the affirmative, what was it? Explain. the supermarket, what they entered into was the
nominate contract of Agency. Article 1868 of the
New Civil code provides that 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.
2018 - Shasha purchased an airline ticket from Sea Airlines (a) Should either, or both, SAL and SMA be held
Agent’s (SAL) covering Manila-Bangkok- Hanoi-Manila. The liable for damages that Shasha suffered?
Liability (Bar) ticket was exclusively endorsable to Siam Airlines (SMA). SAL should be held liable for damages suffered by
The contract of air transportation was between Shasha Shasha Sea Airlines( SaL) as the ticket-issuing airline
and SAL, with the latter endorsing to SMA the Hanoi- is the principal in contract of carriage, while Siam
Manila segment of the journey. All her flights were Airlines (SMA) as an endorsee-airline, is the agent.
confirmed by SAL before she left Manila. Shasha took Under Article 1910 of the Civil Code, the principal
the flight from Manila to Bangkok on board SAL using must comply with the obligations with all the agent
the ticket. When she arrived in Bangkok, she went to the may have contracted within the scope of its authority
SAL ticket counter and confirmed her return trip from
Hanoi to Manila on board SMA Flight No. SA 888. On The contract of air transportation was between
the date of her return trip, she checked in for SMA Flight Shasha and SAL with the latter endorsing to SMA the
No. SA 888, boarded the plane, and before she could Hanoi-Manila segment of the journey. Such contract
even settle in on her assigned seat, she was off-loaded of carriage has always been treated in our jurisdiction
and treated rudely by the crew. She lost her luggage and as a single operation.
missed an important business meeting. She thereafter
filed a complaint solely against SAL and argued that it As the principal in the contract of carriage, SAL
was solidarily liable with SMA for the damages she should be held liable, even when the breach of
suffered since the latter was only an agent of the former. contract had occurred, not on its own flight, but on
that of SMA. The bligation of the ticket-issuing airline
remained and did not cease, regardless of the fact
that another airline had undertaken to carry the
passengers to one of their destination (China Airlines
V, Chiok).
(b) Assuming that one is an agent of the other, is

the agency coupled with interest?
Yes. Where agency is for the mutual benefit of the
principal and of the agent. The agency is deemed
coupled with an interest. The agent’s interest must be
in the subject matter of the power conferred and not
merely an interest in the exercise of power because it
is entitled to compensation.
In the case at bar, SMA as the agent of SAL and as an

endorsee-airlines has a personal interest in the
business.It has assumed a personal obligation for the
operation of the airline by undertaking to transport
passengers from Hanoi to Manila. Its interests
extends to the very subject matter of transportation
of passengers as an airline company for it undertakes
to transport passengers from one destination to
another (Sevilla V. CA).
2014 - Joe Miguel, a well-known treasure hunter in Mindanao, No, the revocation was not proper. As a rule, a
Agency executed a Special Power of Attorney (SPA) appointing contract of agency may be revoked by the principal
(Revocation) his nephew, John Paul, as his attorney-infact. John Paul at will. However, an agency ceases to be revocable at
was given the power to deal with treasure-hunting will if it is coupled with an interest or if it is a means
activities on Joe Miguel’s land and to file charges against of fulfilling an obligation already contracted. (Article
those who may enter it without the latter’s authority. Joe 1922). In the case at bar, the agency may be deemed
Miguel agreed to give John Paul forty percent (40%) of an agency coupled with an interest not only because
the treasure that may be found on the land. Thereafter, of the fact that John Paul expects to receive 40% of
John Paul filed a case for damages and injunction whatever treasure may be found but also because he
47
against Lilo for illegally entering Joe Miguel’s land. also contracted the services of a lawyer pursuant to
Subsequently, he hired the legal services of Atty. Audrey his mandate under the contract of agency and he
agreeing to give the latter thirty percent (30%) of Joe therefore stands to be liable to the lawyer whose
Miguel’s share in whatever treasure that may be found services he has contracted. (Sevilla v. Tourist World
in the land. Dissatified however with the strategies Service, G.R. No. L41182-3 April 16, 1988)
implemented by John Paul, Joe Miguel unilaterally
revoked the SPA granted to John Paul. Is the revocation
proper? (4%)
1992 - A as principal appointed B as his agent granting him The agency couched in general terms comprised only
General general and unlimited management over A's properties, acts of administration (Art. 1877, Civil Code). The
Agency v. stating that A withholds no power from B and that the lease contract on the Manila parcel is not valid, not
Special agent may execute such acts as he may consider enforceable and not binding upon A. For B to lease
Agency appropriate. Accordingly, B leased A's parcel of land in the property to C, for more than one (1) year, A must
Manila to C for four (4) years at P60,000.00 per year, provide B with a special power of attorney (Art. 1878.
payable annually in advance. B leased another parcel of Civil Code). The lease of the Caloocan City property
land of A in Caloocan City to D without a fixed term at to D is valid and binding upon A. Since the lease is
P3,000.00 per month payable monthly. B sold to E a third without a fixed term, it is understood to be from
parcel of land belonging to A located in Quezon City for month to month, since the rental is payable monthly
three (3) times the price that was listed in the inventory (Art. 1687, Civil Code). The sale of the Quezon City
by A to B. All those contracts were executed by B while parcel to E is not valid and not binding upon A. B
A was confined due to illness in the Makati Medical needed a special power of attorney to validly sell the
Center. Rule on the validity and binding effect of land (Arts. 1877 and 1878, Civil Code). The sale of the
each of the above contracts upon A the principal. land at a very good price does not cure the defect of
Explain your answers. the contract arising from lack of authority.
2004 - Rights CX executed a special power of attorney authorizing DY SUGGESTED ANSWER:

and to secure a loan from any bank and to mortgage his CX is liable for the bank loan, because he authorized
Obligations property covered by the owner’s certificate of title. In the mortgage on his property to secure the loan
of Principal securing a loan from Mbank, DY did not specify that he contracted by DY. If DY later defaults and fails to pay
was acting for CX in the transaction with said bank. the loan, CX is liable to pay. However, his liability is
Is CX liable for the bank loan? Why or why not? limited to the extent of the value of the said property.
Justify your answer.
ALTERNATIVE ANSWER:
CX is not personally liable to the bank loan because
it was contracted by DY in his personal capacity. Only
the property of CX is liable. Hence, while CX has
authorized the mortgage on his property to secure
the loan of DY, the bank cannot sue CX to collect the
loan in case DY defaults thereon. The bank can only
foreclose the property of CX. And if the proceeds of
the foreclosure are not sufficient to pay the loan in
full, the bank cannot run after CX for the deficiency.
ALTERNATIVE ANSWER:
While as a general rule the principal is not liable for
the contract entered into by his agent in case the
agent acted in his own name without disclosing his
principal, such rule does not apply if the contract
involves a thing belonging to the principal. In such
case, the principal is liable under Article 1SS3 of the
Civil Code. The contract is deemed made on his
behalf (Syjuco v. Syjuco 40 Phil. 634 [1920]).
ALTERNATIVE ANSWER:
CX would not be liable for the bank loan. CX’s property
would also not be liable on the mortgage. Since DY did
not specify that he was acting for CX in the transaction
with the bank, DY in effect acted in his own name. In
the case of Rural Bank of Bombon v. CA, 212 SCRA,
(1992), the Supreme Court, under the same facts, ruled
that “in order to bind the principal by a mortgage on
real property executed by an agent, it must upon its
48
face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent
only. It is not enough merely that the agent was in
fact authorized to make the mortgage, if he has not
acted in the name of the principal. Neither is it
ordinarily sufficient that in the mortgage the agent
describes himself as acting by virtue of a power of
attorney, if in fact the agent has acted in his own
name and has set his own hand and seal to the
mortgage. There is no principle of law by which a
person can become liable on a real estate mortgage
which she never executed in person or by attorney in
fact".
2004 - Rights As an agent, AL was given a guarantee commission, in No, AL’s objection is not valid and DRBI can collect
and addition to his regular commission, after he sold 20 units from AL. Since AL accepted a guarantee commission,
Obligations of refrigerators to a customer, HT Hotel. The customer, in addition to his regular commission, he agreed to
of Principal however, failed to pay for the units sold. AL’s principal, bear the risk of collection and to pay the principal the
DRB1, demanded from AL payment for the customer’s proceeds of the sale on the same terms agreed upon
accountability. AL objected, on the ground that his job with the purchaser (Article 1907, Civil Code)
was only to sell and not to collect payment for units
bought by the customer.
Is AL’s objection valid? Can DRBI collect from him or
not? Reason.
2000 - A foreign manufacturer of computers and a The contract is one of agency, not sale. The notion of
Agency vs. Philippine distributor entered into a contract whereby sale is negated by the following indicia: (1) the price
Sale the distributor agreed to order 1,000 units of the is fixed by the manufacturer with the 10% mark-up
manufacturer’s computers every month and to resell constituting the commission; (2) the manufacturer
them in the Philippines at the manufacturer’s suggested reacquires the unsold units at exactly the same
prices plus 10%. All unsold units at the end of the year price; and (3) warranty for the units was borne by
shall be bought back by the manufacturer at the same the manufacturer. The foregoing indicia negate
price they were ordered. The manufacturer shall hold the sale because they indicate that ownership over the
distributor free and harmless from any claim for defects units was never intended to transfer to the
in the units. Is the agreement one for sale or agency? distributor.
Book of De Vendee a retro, though the title to the property was still Yes. The acts if B should be construed as a
Leon - in his name, recognized the right to repurchase of vendor recognition of the fact that the property, though still
Express a retro by allowing the latter to exercise acts of ownership in his name, is to be held in trust for S, to be
Trusts over the property. reconveyed to the latter upon the payment of the
repurchase price. Such trust is an express one, not
The trial court declared in a decision that S had the right subject to prescription. (Geronimo and Isidro vs.
to redeem the property and ordered B to make the Nava and Aquino, 105 Phil. 145 [1959])
resale of the property in favor of Seller. After the
decision had become final and executory, B suggested
that the tenants of the property pay rentals to S instead
of to him. Not only this but when the tenants left the
property, S took possession of, and exercised acts of,
ownership over the house and B all along showed
conformity thereto.
Upon the facts, is there an express trust?
Book of De Document imposes upon a person the duty to turn over Yes. The document itself imposes a duty upon B to
Leon - the possession of property to another. turn over both the fruits and the possession of the
Express trusts property to A. An express trust is thereby created,
A private document labelled “Statement” recites that the imposed upon B by his predecessor and no evidence
riceland owned by the deceased mother of A was posted aliunde is necessary for its recognition, considering
as security for an obligation assumed by the deceased that no particular words are required for the creation
father of B, but was foreclosed due to the failure of B’s of an express trust under Article 1444. (Julio vs.
father to fulfill his obligation. Dalandan)
In said document, it was agreed between B’s father and

A that the former held himself liable to A’s mother for
such foreclosure and “promised” that he would replace
49
such riceland with another of his own.
A brought action because of B’s refusal to deliver the

“promised” land.
Did the document create an express trust?
2016 - Dr. Jack, a surgeon, holds clinic at the St. Vincent's Yes, St. Vincent's Hospital is liable. In the case of
Agency Hospital and pays rent to the hospital. The fees of Dr. Professional Services v. Agana (513 SCRA 478 [2007J),
Jack are paid directly to him by the patient or through the Supreme Court held that the hospital is liable to
the cashier of the hospital. The hospital publicly displays the Aganas, not under the principle of respondeat
in the lobby the names and specializations of the superior for lack of evidence of an employer-
doctors associated or accredited by it, including that of employee relationship with Dr. Ampil but under the
Dr. Jack. Marta engaged the services of Dr. Jack because principle of ostensible agency for the negligence of
of recurring stomach pain. It was diagnosed that she is Dr. Ampil and, pro hac vice, under the principle of
suffering from cancer and had to be operated on. corporate negligence for its failure to perform its
duties as a hospital.
Before the operation, she was asked to sign a "consent
for hospital care," which reads: While it is true that there was insufficient evidence
that St. Vincent's Hospital exercised the power of
"Permission is hereby given to the medical, nursing and control or wielded such power over the means and
laboratory staff of the St. Vincent's Hospital to perform the details of the specific process by which Dr. Jack
such procedures and to administer such medications applied his skills in Marta's treatment, there is ample
and treatments as may be deemed necessary or evidence that St. Vincent's Hospital held out to the
advisable by the physicians of this hospital for and patient, Marta, that Dr. Jack was its agent (principle
during the confinement." of ostensible agency). The two factors that determine
apparent authority are present: (1) the hospital's
After the surgery, the attending nurses reported that two implied manifestation to the patient which led the
(2) sponges were missing. Later, Marta died due to latter to conclude that the doctor was the hospital's
complications brought about by the sponges that were agent; and (2) the patient's reliance upon the conduct
left in her stomach. The husband of Marta sued the of the hospital and the doctor, consistent with
hospital and Dr. Jack for damages arising from ordinary care and prudence.
negligence in the medical procedure. The hospital raised
the defense that Dr. Jack is not its employee as it did not The corporate negligence ascribed to St. Vincent's
hire Dr. Jack nor pay him any salary or compensation. It Hospital is different form the medical negligence
has absolutely no control over the medical services and attributed to Dr. Jack. The duties of the hospital are
treatment being provided by Dr. Jack. Dr. Jack even distinct from those of the doctor-consultant
signed an agreement that he holds the hospital free and practicing within its premises in relation to the
harmless from any liability arising from his medical patient; hence, the failure of St. Vincent's Hospital to
practice in the hospital. fulfill its duties as a hospital corporation gave rise to
a direct liability to Marta distinct from that of Dr. Jack.
Is St. Vincent's Hospital liable for the negligence of
Dr. Jack? Explain your answer.
2018- Shasha purchased an airline ticket from Sea Airlines Yes.Where an agency is for the mutual benefit of the
Agency (SAL) covering Manila-Bangkok- Hanoi-Manila. The principal and of the agent, the agency is deemed
ticket was exclusively endorsable to Siam Airlines (SMA). coupled with an interest. The agent’s interest must be
The contract of air transportation was between Shasha in the subject matter of the power conferred and not
and SAL, with the latter endorsing to SMA the Hanoi- merely an interest in the exercise of the power
Manila segment of the journey. All her flights were because it entitles him to compensation.
confirmed by SAL before she left Manila. Shasha took
the flight from Manila to Bangkok on board SAL using SMA, as the agent of SAL and as an endorsee-airline,
the ticket. When she arrived in Bangkok, she went to the has a personalinterest in the business. It had
SAL ticket counter and confirmed her return trip from assumed a personal obligation for the operation of
Hanoi to Manila on board SMA Flight No. SA 888. On the airline by undertaking to transport passengers
the date of her return trip, she checked in for SMA Flight from Hanoi to Manila. Its interest extends to the very
No. SA 888, boarded the plane, and before she could subject matter of the transportation of passengers as
even settle in on her assigned seat, she was off-loaded an airline company for it undertakes to transport
and treated rudely by the crew. She lost her luggage and passengers from one destination to another(Sevilla v.
missed an important business meeting. She thereafter Court of Appeals; G.R. No. 139540. June 29, 2005)
filed a complaint solely against SAL and argued that it (Lim vs. Saban; G.R. No. 163720, December 16, 2004).
was solidarily liable with SMA for the damages she
suffered since the latter was only an agent of the former.
50
b) Assuming that one is an agent of the other, is the
agency coupled with interest?
2010 - X was the owner of an unregistered parcel of land in SUGGESTED ANSWER:

Agency; Sale Cabanatuan City. As she was abroad, she advised her B-2 has a better title. This is not a case of double sale.
of a Real sister Y via overseas call to sell the land and sign a Since the first sale was void. The law provides that
Property contract of sale on her behalf. when a sale of a piece of land or any interest therein
through an is through an agent, the authority of the latter shall
Agent Y thus sold the land to B1 on March 31, 2001 and be in writing; otherwise, the sale shall be void (Art
executed a deed of absolute sale on behalf of X. B1 fully 1874, NCC). The
paid the purchase price. property was sold by Y to B1 without any written
authority from the owner X. Hence, the sale to B1 was
B2, unaware of the sale of the land to B1, signified to Y void.
his interest to buy it but asked Y for her authority from
X. Without informing X that she had sold the land to B1, ALTERNATIVE ANSWER:
Y sought X for a written authority to sell. Under the facts, B-1 has a better right to the land.
Given the fact that the Deed of Sale in favor of B-1
X e-mailed Y an authority to sell the land. Y thereafter and B-2 are not inscribed in the Registry of Deeds,
sold the land on May 1, 2001 to B2 on monthly the case is governed by Art 1544 of the New Civil
installment basis for two years, the first installment to be Code which provides that in case of double sales of
paid at the end of May 2001. an immovable property, the ownership shall pertain
to the person who is in good faith was first in
Who between B1 and B2 has a better right over the possession and in the absence thereof to the person
land? Explain. (5%) who presents the oldest title, provide there is good
faith.
In a case, the Supreme Court has held that in a sale

of real estate the execution of a notarial document of
sale is tantamount to delivery of the possession of
the property sold. The ownership of the land
therefore pertains to the first buyer. It may also be
mentioned that under Art 3344 no instruments or
deed establishing, transmitting, acknowledging,
modifying, or extinguishing right to real property not
registered under Act 496 shall be valid except as
between the parties. Thus, the Deed of Sale of B-2
has no binding effect on B-1.
2011 - An action for reconveyance of a registered piece of land When the plaintiff is in possession of the property.
Constructive may be brought against the owner appearing on the title
Trust based on a claim that the latter merely holds such title
in trust for the plaintiff. The action prescribes, however,
within 10 years from the registration of the deed or the
date of the issuance of the certificate of title of the
property as long as the trust had not been repudiated.
What is the exception to this 10-year prescriptive
period?
De Leon W entered into a trust agreement with H bank, as Yes. H was guilty of self-dealing in violation of its
Book - Trust trustee, to enable him to purchase and work a farm. duty of loyalty.
Later, as part of the financial arrangement, N (mutual life
insurance company) executed a $70,000 first mortgage H had three options: to apply all the funds to the first
on the farm, with H as the second mortgage. After W mortgage; to pay the regular payments on the first
died, H took $8,000 from the trust account and paid mortgage, and pay the rest to itself; or to pay the
itself part of its own second mortgage. Consequently, entire amount to W. Instead, it applied the funds for
the trust was unable to make payment to N, and N its own personal gain. This was a classic case of self-
foreclosed on the first mortgage. H drafted the trust dealing and breach of trust. It was also a violation of
document and was trustee under it. The document the trust document. W was entitled to damages.
stated that the first mortgage should be paid first. It (Northwestern Mutual Life Insurance Company vs.
knew payment to N would be due soon. Did H breach Wiemer)
its duties as trustee?
De Leon- P executed in favor of A a power of attorney authorizing No. The death of the principal puts an end to the
Modes of him, among other things, to collect and receive moneys agency, and, therefore, is an instantaneous and
extinguishme becoming due from any person to P and to execute unqualified revocation of the authority of the agent.
51
nt of agency discharged therefor. Subsequently, P died. A received There can be no agent where there is no principal.
payment from T, a mortgagor, and although A knew at There are, no doubt, exceptions to this rule, as where
the time of the death of P, he did not disclose the fact the agency is coupled with the interest; or where the
to T. A never accounted to X, administratrix of P, who principal is a firm and only one of its members died.
brought action against T to foreclose the mortgage. Those who deal with an agent are held to assume the
risk that his authority may be terminated by the
Is the payment made by T to A after the death of P death of the principal without notice to them.
binding upon the estate of P?
1992 - A as principal appointed B is his agent granting him The agency couched in general terms comprised only
Agency; general and unlimited management over A's properties, acts of administration (Art. 1877, Civil Code). The
general v. stating that A withholds no power from B and that the lease contract on the Manila parcel is not valid, not
special agent may execute such acts as he may consider enforceable and not binding upon A. For B to lease
agency appropriate. the property to C, for more than one (1) year, A must
provide B with a special power of attorney (Art. 1878.
Accordingly, B leased A's parcel of land in Manila to C Civil Code).
for four (4) years at P60,000.00 per year, payable
annually in advance. The lease of the Caloocan City property to D is valid
and binding upon A. Since the lease is without a fixed
B leased another parcel of land of A in Caloocan City to term, it is understood to be from month to month,
D without a fixed term at P3,000.00 per month payable since the rental is payable monthly (Art. 1687, Civil
monthly. Code).
B sold to E a third parcel of land belonging to A located The sale of the Quezon City parcel to E is not valid
in Quezon City for three (3) times the price that was and not binding upon A. B needed a special power of
listed in the inventory by A to B. attorney to validly sell the land (Arts. 1877 and 1878,
Civil Code). The sale of the land at a very good price
All those contracts were executed by B while A was does not cure the defect of the contract arising from
confined due to illness in the Makati Medical Center. lack of authority.
Rule on the validity and binding effect of each of the

above contracts upon A the principal. Explain your
answers.
1999 - A granted B the exclusive right to sell his brand of The contract between A and B is a sale not an agency
Contract of Maongpants in Isabela, the price for his merchandise to sell because the price is payable by B upon 60 days
sale vs payable within60 days from delivery, and promising B a from delivery even if B is unable to resell it. If B were
Agency to commission of 20% on all sales. After the delivery of the an agent, he is not bound to pay the price if he is
sell merchandise to B but before he could sell any of them, unable to resell it.
B’s store in Isabela was completely burned without his
fault, together with all of A's pants. Must B pay A for As a buyer, ownership passed to B upon delivery and,
his lost pants? Why? under Art. 1504 of the Civil Code, the thing perishes
for the owner.Hence, B must still pay the price.
2001 - Richard sold a large parcel of land in Cebu to Leo for The revocation is not valid. The power of attorney
Agency P100 million payable in annual installments over a given to the buyer is irrevocable because it is coupled
coupled with period of ten years, but title will remain with Richard with an interest: the agency is the means of fulfilling
an interest until the purchase price is fully paid. To enable Leo to the obligation of the buyer to pay the price of the
pay the price, Richard gave him a power-of-attorney land (Article 1927, CC). In other words, a bilateral
authorizing him to subdivide the land, sell the individual contract (contract to buy and sell the land) is
lots, and deliver the proceeds to Richard, to be applied dependent on the agency.
to the purchase price. Five years later, Richard revoked
the power of attorney and took over the sale of the
subdivision lots himself. Is the revocation valid or not?
Why?
1995 - In 1960, Maureen purchased two lots in a plush This is a case of an implied resulting trust. If Walter
Implied subdivision registering Lot 1 in her name and Lot 2 in claims to have acquired ownership of the land by
Resulting the name of her brother Walter with the latter's consent. prescription or if he anchors his defense on extinctive
Trust The idea was to circumvent a subdivision policy against prescription, the ten year period must be reckoned
the acquisition of more than one lot by one buyer. from 1987 when he demanded that Maureen remove
Maureen constructed a house on Lot 1 with an extension the extension house on Lot No. 2 because such
on Lot 2 to serve as a guest house. demand amounts to an express repudiation of the
trust and it was made known to Maureen.
In 1987, Walter who had suffered serious business losses
52
demanded that Maureen remove the extension house The action for reconveyance filed in 1992 is not yet
since the lot on which the extension was built was his barred by prescription.(Spouses Huang v. Court of
property. In 1992, Maureen sued for the reconveyance Appeals, Sept. 13, 1994).
to her of Lot 2 asserting that a resulting trust was created
when she had the lot registered in Walter's name even if
she paid the purchase price. Walter opposed the suit
arguing that assuming the existence of a resulting trust
the action of Maureen has already prescribed since ten
years have already elapsed from the registration of the
title in his name. Decide. Discuss fully.
2015 - A lawyer was given authority by means of a Special NO, the agency in the case presented is one which is
Irrevocable Power of Attorney by his client to sell a parcel of land for coupled with an interest. As a rule, agency is
Agency the amount of P3 Million. Since the client owed the revocable at will except if it was established for the
lawyer Pl Million in attorney's fees in a prior case he common benefit of the agent and the principal. In
handled, the client agreed that if the property is sold, the this case, the interest of the lawyer is not merely
lawyer was entitled to get 5% agent's fee plus Pl Million limited to his commission for the sale of the property
as payment for his unpaid attorney's fees. The client, but extends to his right to collect his unpaid
however, subsequently found a buyer of his own who professional fees. Hence, it is not revocable at will
was willing to buy the property for a higher amount.
Can the client unilaterally rescind the authority he

gave in favor of his lawyer? Why or why not?
2014 - Fe, Esperanza, and Caridad inherited from their parents I will dismiss the case for annulment of the sale and
Agency a 500 sq. m. lot which they leased to Maria for three (3) specific performance filed by Maria with respect to
Requiring years. One year after, Fe, claiming to have the authority the shares pertaining to Esperanza and Caridad.
Special to represent her siblings Esperanza and Caridad, offered Since the object of the sale is a co-owned property,
Power of to sell the leased property to Maria which the latter a co-owner may sell his undivided share or interest in
Attorney accepted. The sale was not reduced into writing, but the property owned in common but the sale will be
Maria started to make partial payments to Fe, which the subject to the result of the partition among the co-
latter received and acknowledged. After giving the full owners. In a co-ownership there is no mutual agency
payment, Maria demanded for the execution of a deed except as provided under Art. 487. Thus, Fe cannot
of absolute sale which Esperanza and Caridad refused to sell the shares of Esperanza and Caridad without a
do. Worst, Maria learned that the siblings sold the same special power of attorney from them and the sale
property to Manuel. This compelled Maria to file a with respect to the shares of the latter without their
complaint for the annulment of the sale with specific written authority is void under Art.1874.
performance and damages. Hence, the sale of the property to Manuel is not valid
with respect to the shares of Esperanza and Caridad.
If you are the judge, how will you decide the case? Maria can only assail the portion pertaining to Fe as
the same has been validly sold to her by Fe.
1994 - Prime Realty Corporation appointed Nestor the a) The general rule is that a person dealing with an
Powers of exclusive agent in the sale of lots of its newly developed agent must inquire into the authority of that agent.
the Agent subdivision. Prime Realty told Nestor that he could not In the present case, if Jesus did not inquire into that
collect or receive payments from the buyers. Nestor was authority, he is liable for the loss due to Nestor’s
able to sell ten lots to Jesus and to collect the down defalcation unless Article 1900, Civil Code governs, in
payments for said lots. He did not turn over the which case the developer corporation bears the loss.
collections to Prime Realty. Who shall bear the loss for
Nestor’s defalcation, Prime Realty or Jesus? Art. 1900 Civil Code provides: “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.
However, if Jesus made due inquiry and he was

not informed by the principal Prime Realty of the
limits of Nestor’s authority. Prime Realty shall bear
the loss.
b) Considering that Prime Realty Corporation only

“told” Nestor that he could not receive or collect
payments, it appears that the limitation does not
53
appear in his written authority or power of attorney.
In this case, insofar as Jesus, who is a third person
is concerned, Nestor’s acts of collecting payments
is deemed to have been performed within the scope
of his authority {Article 1900. Civil Code). Hence, the
principal is liable.
However, if Jesus was aware of the limitation of

Nestor’s power as an agent, and Prime Realty
Corporation does not ratify the sale contract, then
Jesus shall be liable (Article 1898. Civil Code).
2007 - Trust Explain the following concepts and doctrines and give A constructive trust is a trust NOT created by any
De Son Tort an example of each: word or phrase, either expressly or impliedly,
evincing a direct intention to create a trust, but is one
(A). concept of trust de son tort (constructive trust) (5%) that arises in order to satisfy the demands of justice.
It does not come about by agreement or intention
but mainly operation of law and construed as a trust
against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to
property which he ought not, in equity and good
conscience, to hold (Heirs of Lorenzo Yap v. CA, 371
Phil 523, 1991). The following are examples of
constructive trust: 1. Art. 1456 NCC which provides:
"If property is acquired through mistake or fraud, the
person obtaining it is, by force of law considered a
trustee of an implied trust for the benefit of the
person for whom the property comes." 2. Art 1451
NCC which provides: "When land passes by
succession through any person and he causes the
legal title to be put in the name of another, a trust is
established by implication of law for the benefit of
the true owner." 3. Art 1454 NCC which provides: "If
an absolute conveyance of property is made in order
to secure the performance of an obligation of the
grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is
offered by the grantor when it becomes due, he may
demand the reconveyance of the property to him." 4.
Art 1455 NCC which provides: "When any trustee,
guardian or any person holding a fiduciary
relationship uses trust funds for the purchase of
property and causes conveyance to be made to him
or to third person, a trust is established by operation
of law in favor of the person to whom the funds
belong."
2015 - Trust Mr. A, a businessman, put several real estate properties No, I do not agree with X. this is clear case of an
under the name of his eldest son X because at that time, implied trust provided in Art 1453 of the Civil Code
X was the only one of legal age among his four children. which states that “when property is conveyed to a
He told his son he was to hold those assets for his person in reliance upon his declared intention to hold
siblings until they become adults themselves. X then got it for, or transfer it to another or the grantor, there is
married. After 5 years, Mr. A asked X to transfer the titles an implied trust in favor of the person whose benefit
over three properties to his three siblings, leaving two is contemplated.” In this case, A is the trustor, X is the
properties for himself. To A's surprise, X said that he can trustee, and the three other children of A are the
no longer be made to transfer the properties to his beneficiaries. A and/or his three children may file an
siblings because more than 5 years have passed since action to compel X to transfer title in favour of his
the titles were registered in his name. Do you agree? three siblings within ten (10) years from the time the
Explain. cause of action accrues upon an obligation created
by law - when the children attain the age of majority
(Art. 1144, Civil Code).
1998 - Juan and his sister Juana inherited from their mother two 1. When, for convenience, the Torrens title to the two
Implied Trust parcels of farmland with exactly the same areas. For parcels of land were placed in Joan's name alone,
convenience, the Torrens certificates of title covering there was created an implied trust (a resulting trust)
54
both lots were placed in Juan's name alone. In 1996, Juan for the benefit of Juana with Juan as trustee of one-
sold to an innocent purchaser one parcel in its entirety half undivided or ideal portion of each of the two lots.
without the knowledge and consent of Juana, and Therefore, Juana can file an action for damages
wrongfully kept for himself the entire price paid. against Joan for having fraudulently sold one of the
two parcels which he partly held in trust for Juana's
1. What rights of action, if any, does Juana have benefit. Juana may claim actual or compensatory
against and/or the buyer? damage for the loss of her share in the land; moral
damages for the mental anguish, anxiety, moral
2. Since the two lots have the same area, suppose Juana shock and wounded feelings she had suffered;
flies a complaint to have herself declared sole owner of exemplary damage by way of example for the
the entire remaining second lot, contending that her common good, and attorney's fees.
brother had forfeited his share thereof by wrongfully
disposing of her undivided share in the first lot. Will the Juana has no cause of action against the buyer who
suit prosper? acquired the land for value and in good faith, relying
on the transfer certificate of title showing that Juan is
the registered owner of the land.
2. Juana's suit to have herself declared as sole owner

of the entire remaining area will not prosper because
while Juan's act in selling the other lot was wrongful,
it did not have the legal effect of forfeiting his share
in the remaining lot. However, Juana can file an
action against Juan for partition or termination of the
co-ownership with a prayer that the lot sold be
adjudicated to Juan, and the remaining lot be
adjudicated and reconveyed to her.
Real Family Notes

ACHAY, EMILY GRACE
ALGARME, MA. ISABELA
BELARMA, NIŇO LOUIS
CRISTORIA, ADRIAN DAINTLY
DALUSUNG, ABIGAIL
DAWSON, MORGAN KENT
DIAZ, TRIXIA LOU
EBAL, QUEENNIE JOY
ENRIQUEZ, KIRK YNGWIE
GERZON, CHRISTINE PIA
IBONES, WILSON LANCE
JABINES, MARILOU
LABUNOG, THEA MITCHELE
LAO, AMIESTEVEN CLARKE
LOQUES, KEENA ROSE
LUMBRE, WALTER SHANE
MOJICA, MURIEL ALLYSON
NAPATOTAN, ZENNIE
OBALLO, JUSTINE YNNES
PATALINGHUG, ANNE FRANCES
RODELAS, RENEE DOMINIQUE
RONGCALES, NATALIO JR.
SAW, VERIŇA
VILLANUEVA, RANI
Compiled and edited by:

LABASTIDA, SEAN CLARK LUINOR A.
2020-2021
Rely at your own risk.

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Agency Trust Partnership - 2

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REAL FAMILY NOTES AGENCY, TRUST & PARTNERSHIP (FINALS) ATTY.

NOTE General agency is different from an agency

8. AGENCY COUCHED IN SPECIAL TERMS

EXAMPLE “You can represent me in all my undertakings,

This is an SPA that we prepared in relation to a sale

There are certain instances where the broker is able to

5. CONTRACT INVOLVING IMMOVABLE

6. DONATION OF PROPERTY 11. OBLIGATE PRINCIPAL AS GUARANTOR OR SURETY

Maybe you will say, “but I haven’t heard of a publication

But honestly class, if there is still apparent authority, then

QUESTION What if the transaction is, for example, “to

(17) To be responsible for fraud or negligence. (Art.

COMMENT As a rule, the one who should pay the

OBLIGATION TO BORROW & Agent’s Liability for Interest Reckoning Point

GR: All benefits of the agency must go to the principal.

In Tax 2, there is this transaction deemed sale, one of

On the part of the actual owners of the goods sold by a

QUESTION What if the authority given to the principal

On your part, always be on the side of caution and inquire

If the contract is entered into by the agent within the

QUESTION What happens if the agent exceeded his

NOTE It has to be necessary and at the same time it

GR: The responsibility of two or more agents, even

Should there be no inscription, the ownership shall

Agency was entered into 2 contracts involving the same

Supposedly, had he not prodded the client to buy the

Refrain from doing this because the client can actually

Sometimes there is also the risk of giving advice to client

COMMENT That is why I actually salute the courage of

Your learnings on taxes will actually still have use in your

EXAMPLE OF NO.4 There are those expenses which are

You have to be frugal then in terms of spending.

You can actually agree that only up to this particular

2. WITHDRAWAL OR RENUNCIATION BY THE AGENT

QUESTION Is it possible for the firm to be considered 2. WAR

QUESTION Regarding the withdrawal of an agent in

QUESTION General power to sell all properties of P

If the intention of the General Power to sell was all

Article 1441. Trusts are either express or implied.

Obviously, the trustee is the one who was granted the

EXAMPLE A donated a property to B. The intention is for

Year - Topic Question Answer

1997 - On 01 January 1980, Redentor and Remedies entered SUGGESTED ANSWER:

Situational Under a management contract, N agreed to explore, No.

A general agent usually has authority either expressly

Was there an express trust or an implied trust?

(b) Assuming that one is an agent of the other, is

In the case at bar, SMA as the agent of SAL and as an

2004 - Rights CX executed a special power of attorney authorizing DY SUGGESTED ANSWER:

Upon the facts, is there an express trust?

In said document, it was agreed between B’s father and

A brought action because of B’s refusal to deliver the

Did the document create an express trust?

2010 - X was the owner of an unregistered parcel of land in SUGGESTED ANSWER:

In a case, the Supreme Court has held that in a sale

Rule on the validity and binding effect of each of the

Can the client unilaterally rescind the authority he

However, if Jesus made due inquiry and he was

b) Considering that Prime Realty Corporation only

However, if Jesus was aware of the limitation of

2. Juana's suit to have herself declared as sole owner

Real Family Notes