MODULE 2

AGENCY

TOPIC 3: OBLIGATIONS OF THE PRINCIPAL

(ENGAGE)

If you are a principal, what could be your obligations towards your agent?

(EXPLORE AND EXPLAIN)

Specific obligations of principal to agent.

(1) To comply with all the obligations which the agent may have contracted within
the scope of his authority and in the name of the principal;
The primary obligation of the principal to the agent is simply that of
complying with the terms of their employment contract, if one exists. The principal may
be justified in refusing to perform his part of the contract when the agent has already
breached the contract.

(2) To advance to the agent, should the latter so request, the sums necessary for the
execution of the agency (Art. 1912.);
The agent is bound by his acceptance to carry out the agency. On the other hand,
the principal is under obligation to provide the means with which to execute the agency.
In the absence of stipulation that the agent shall advance the necessary funds the
principal must advance to the agent upon his request the sums necessary for the
execution of the agency.
If the principal fails to comply with his obligations, the agent will not be liable for
the damage which, through his nonperformance, the principal may suffer.

(3) To reimburse the agent for all advances made by him, provided the agent is free
from fault (Ibid.);
An agency is for the principal’s benefit. In case the agent advanced the sums
necessary for the execution of the agency, whether on his own initiative or by virtue
of stipulation, the said advances must be reimbursed by the principal with interest from
the day the advance was made.

(4) To indemnify the agent for all the damages which the execution of the agency may
have caused the latter without fault or negligence on his part (Art. 1913.); and
The rule in the above article is based on equity. Since the principal receives
the benefits of the agency and has a right to demand damages from the agent should the
latter not perform the agency, he should answer for the damages resulting from the
execution thereof without fault or negligence on the part of the agent.

(5) To pay the agent the compensation agreed upon, or if no compensation was
specified, the reasonable value of the agent’s services. (Arts. 1875, 1306.)

Page 1 of 4
 Agency is presumed to be for a compensation, unless there is proof to the contrary.

(ELABORATE AND EVALUATE)

Activity 2

Explain at least 3 obligations of a principal to his agent.

Assessment:

What is the presumption on the compensation of an agent?

Page 2 of 4
TOPIC 4: MODES OF EXTINGUISHMENT OF AGENCY

(ENGAGE)
How do you think a contract of agency is ended?

(EXPLORE AND EXPLAIN)

Agency is extinguished:
(1) By its revocation;
The principal may revoke the agency at will, and compel the agent to return
the document evidencing the agency. Such revocation may be express or implied.
An agency may be terminated by the subsequent acts of the parties. When done by
the principal, it is called “revocation” and when done by the agent, it is usually spoken of
as “withdrawal” or “renunciation.”

(2) By the withdrawal of the agent;

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.
Just as the principal may revoke generally the agency at will (Art. 1920.), the agent
may likewise renounce or withdraw from the agency at any time, without the consent of
the principal, even in violation of the latter’s contractual rights; subject to liability for
breach of contract or for tort. This rule which applies whether the agency is gratuitous or
for compensation is based on the constitutional prohibition against involuntary
servitude.

(3) By the death, civil interdiction, insanity or insolvency of the principal or of the
agent;
Agency requires the presence, capacity, and solvency of both the principal and
agent. Consequently, the death, civil interdiction, insanity, or insolvency of either party
terminates the agency and this is true notwithstanding that the agency period has not yet
expired.

(4) By the dissolution of the firm or corporation which entrusted or accepted the
agency;
Dissolution of a firm or corporation which entrusted (as principal) or accepted (as
agent) the agency, extinguishes its juridical existence as far as the right to go on
doing ordinary business is concerned, except for the purpose of winding up its
affairs. It is equivalent to its death, being sometimes likened to the death of a natural
person.
After winding up, the existence of the firm or corporation is terminated for all
purposes.

(5) By the accomplishment of the object or purpose of the agency;

At least as between the parties, principal and agent, the fulfillment of the purpose for
Page 3 of 4
which the agency is created ipso facto terminates the agency, even though expressed to be
irrevocable.

Page 4 of 4
 (6) By the expiration of the period for which the agency was constituted.
Where an agency, by the terms of the original agreement, is created for a fixed
period or is to end at a certain time, the expiration of such period or the arrival of
that time, obviously results in the termination of the relationship, even though the
purpose for which the agency was created has not been accomplished.

Other modes of extinguishment of agency.

Article 1919 gives only those causes of extinction which are peculiar to agency. The list is
not exclusive. Thus:

(1) Generally. — An agency may also be extinguished by the modes of

extinguishment of obligations in general when applicable, like loss of the thing and novation. It
is a basic rule of contract law that the parties can rescind or cancel their contract by mutual
agreement. It makes no difference that the principal and agent originally agreed that the agency
was irrevocable.

(2) War. — During the existence of a state of war, a contract of agency is inoperative if
the agent or the principal is an enemy alien. Since it is generally conceded that war suspends all
commercial intercourse between the residents of two belligerent states, the general rule is that
agency is terminated, as a matter of law, upon outbreak of war.

(3) Legal impossibility. — Implied in every contract is the understanding that it shall
be capable of being carried out legally at the time called for by the contract. Thus, a lawyer
who agreed to appear as counsel is released from his obligation if he is subsequently
appointed a regional trial judge for under the law, judges are prohibited from engaging in the
practice of law. An agency terminates if a change in the law makes the purpose of the agency
unlawful.

(4) Termination of agent’s authority. — A position which flows from a trust

relationship, whether directly or indirectly, terminates as a matter of law with the destruction or
loss of the trust. A sub-agent’s authority terminates with the termination of the agent’s
authority.
(5) Occurrence of a specified event. — If the principal and agent have originally agreed
that the agency, or some particular aspect of it, will continue until a specified event occurs (e.g.,
authority of agent to continue until the principal returns from abroad), the happening of the
event obviously terminates the agency. The event is in the nature of a resolutory condition.

(ELABORATE AND EVALUATE)

Activity 2

Explain how the withdrawal of an agent terminates the contract of agency.

Assessment:

Page 5 of 4
What is the presumption on the compensation of an agent?

Page 6 of 4