Professional Documents
Culture Documents
Villanueva (Outline On Partnership Best)
Villanueva (Outline On Partnership Best)
x x x.
The general rule embodied in Article 1317 of the Civil Code of the
Philippines is that No one may contract in the name of another
without being authorized by the latter, or unless he has by law a
right to represent him; and that the consequence of one entering
into a contract in behalf of another person without the latters
3
behalf of the principal within the scope of the authority have the
same legal effects and consequences as though the principal had
been the one so acting in the given situation. This principle is
referred to as the doctrine of representation.
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court
held that It bears stressing that in an agent-principal relationship,
the personality of the principal is extended through the facility of
the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have
him do. Such a relationship can only be effected with the consent of
the principal, which must not, in any way, be compelled by law or
by any court. (at p. 223.)
The other terms used for the position of agent are attorney-in-
fact, proxy, delegate, or representative.
The last two elements included in the Rallos enumeration should not
be understood to be essential elements for the perfection and
validity of the contract of agency, for indeed they are matters that
do not go into perfection, but rather into the performance stage of
the agency relationship. The non-existence of the two purported
essential elements (i.e., that the agent acted for herself and/or the
agent acted beyond the scope of her authority), does not affect the
validity of the existing agency relationship, but rather the
enforceability of the contracts entered into by the agent on behalf of
the principal.
7
Thus, under Article 1883 of the Civil Code, If an agent acts in his
own name, the principal has no right of actions against the person
with whom the agent has contracted; neither have such persons
against the principal. Under Article 1898 of the Civil Code, If the
agent contracts in the name of the principal, exceeding the scope of
his authority, and the principal does not ratify the contract, it shall
be void as to the principal.
In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court held
that just because several persons are constituted as co-owners of
the same property does not make them agents to one another. In
effect, the Court held that a co-owner does not become an agent of
the other co-owners, and that any exercise of an option to buy a
piece of land transacted with one co-owner does not bind the other
co-owners of the land.
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court
held that consent (i.e., the meeting of minds) of both the principal
and the agent is necessary to create an agency: The principal must
intend that the agent shall act for him; the agent must intend to
accept the authority and act on it, and the intention of the parties
must find expression either in words or conduct between them.
There is legal literature that holds that since the agent assumes no
personal liability, the agent does not have to possess full capacity to
act insofar as third persons are concerned. (De Leon and De Leon,
Comment and Cases on Partnership Agency and Trusts, 2005 ed., at
p. 356; hereinafter referred to as De Leons.)
Items (b), (c) and (d) in the enumerated elements of Rallos can
actually be summarized into the object or objective of every
contract of agency to be that of service, i.e., the undertaking
(obligation) of the agent to enter into a juridical act with third
parties on behalf of the principal and within the scope of his
authority.
The value that Article 1875 of the Civil Code brings into the Law on
Agency is that the presumption is that every agency contract
entered into is for valuable considerationthat the agency serves
for the benefit of the principal expecting to be compensated for his
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efforts. It is the party who avers that the agency was gratuitous
that the agent agreed to serve gratuitouslywho has the burden of
proving such arrangement.
The old decision in Aguna v. Larena, 57 Phil 630 (1932), did not
reflect the principle that generally agency is for compensation,
which is now embodied in Article 1875 of the Civil Code.
In Aguna, although the agent had rendered service to the principal
covering collection of rentals from the various tenants of the
principal, and in spite of the agreement that principal would pay for
the agents service, nevertheless, the principal allowed the agent to
occupy one of his parcels of land and to build his house thereon.
The Court held that the service rendered by the agent was deemed
to be gratuitous, apart from the occupation of some of the house of
the deceased by the plaintiff and his family, for if it were true that
the agent and the deceased principal had an understanding to the
effect that the agent was to receive compensation aside from the
use and occupation of the houses of the deceased, it cannot be
explained how the agent could have rendered services as he did for
eight years without receiving and claiming any compensation from
the deceased. (at p. 632.)
If Aguna were decided under the New Civil Code, then under Article
1875, which mandates that every contract of agency is deemed to
be for compensation, the result would have been quite the opposite.
When the rendering of service alone, and not the results, is the
primordial basis for which the compensation is given, then the proof
that services have been rendered should entitle the agent to the
compensation agreed upon.
provided with its own set of rules and legal consequences, that any
other arrangement that essentially falls within its terms shall be
considered as an agency arrangement and shall be governed by the
Law on Agency, notwithstanding any intention of the parties to the
contrary. After all, a contract is what the law says it is, and not
what the parties call it.
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that if an act
done by one person in behalf of another is in its essential nature
one of agency, the former is the agent of the latter notwithstanding
he or she is not so called it will be an agency whether the parties
understood the exact nature of the relation or not.
b. Consensual
Under Article 1870 of the Civil Code, acceptance by the agent may
also be express, or implied from his acts which carry out the
agency, of from his silence or inaction according to the
circumstances.
xxx
Doles v. Angeles, 492 SCRA 607 (2006), held that for an agency to
arise, it is not necessary that the principal personally encounter the
third person with whom the agent interacts precisely, the purpose
of agency is to extend the personality of the principal through the
facility of the agent.
(a) The contract entered into with third persons pertains to the
principal and not to the agent; the agent is a stranger to said
contract, although he physically was the one who entered into it in a
representative capacity;
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The liabilities incurred shall pertain to the principal and not the
agent;
(b) Generally, all acts that the principal can do in person, he may do
through an agent, except those which under public policy are strictly
personal to the person of the principal.
Except Where:
(3) The person claiming the benefit of the rule colludes with the
agent to defraud the principal (De Leon & De Leon, at p.
367, citing Teller, at p. 150.)
Article 1897 reinforces the familiar doctrine that an agent, who acts
as such, is not personally liable to the party with whom he
contracts. The same provision, however, presents two instances
when an agent becomes personally liable to a third person. The first
is when he expressly binds himself to the obligation and the second
is when he exceeds his authority. In the last instance, the agent can
be held liable if he does not give the third party sufficient notice of
his powers. (at p. 593.)
In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court held that
the right of inspection given to a stockholder under the law can be
exercised either by himself or by any proper representative or
attorney in fact, and either with or without the attendance of the
stockholder. This is in conformity with the general rule that what a
man may do in person he may do through another.
(c) The agent cannot purchase for herself the property of the
principal which has been given to her management for sale or
disposition (Art. 1491[2]);
Unless:
(i) There is and express consent on the part of the principal (Cui v.
Cui, 100 Phil. 913 (1957); or
5. Kinds of Agency
On the other hand, Article 1876 of the Civil Code defines a special
agency as one which covers only one or more specific transactions.
The better term for such an agency is particular agency; for
indeed, the term special agency has been used in decisions of the
Supreme Court to refer to one which is addressed to a particular
person or group of persons with whom the agent is to transact.
(Again, the use of the term particular agency is more consistent
with a similar coverage of particular partnership under the Law on
Partnerships.)
We can begin the discussion with the ruling in J-Phil Marine, Inc. v.
NLRC, 561 SCRA 675 (2008), where the Court held that the relation
of attorney and client is in many respects one of agency, and that
the general rules of agency apply to such relation. This is not
necessarily a straight forward proposition, for indeed both a regular
agency-principal and attorney-client relationship are both fiduciary
in character, and yet fiduciary character under the agency-principal
relationship is based on the doctrine of representation for purpose
of entering into juridical acts that bind the principal, while that in an
attorney-client relationship is based on the need to rely upon the
competence and integrity of the lawyer in the disposition of certain
matters relating to law that have a direct effect on the property,
liberty or life of the client.
Thus, under Article 1877 of the Civil Code provides that An agency
couched in general terms comprises only acts of administration,
even if the principal should state that he withholds no power or that
30
Under Article 1713 of the Civil Code, By the contract for a piece of
work the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also furnish
the material. Under a contract-for-a-piece-of-work, the contractor
is not an agent of the principal (i.e., the client), and the contractor
32
Nielson & Co. also held that where the principal and paramount
undertaking of the manager under a Management Contract was
the operation and development of the mine and the operation of the
mill, and all other undertakings mentioned in the contract are
necessary or incidental to the principal undertakingthese other
undertakings being dependent upon the work on the development of
the mine and the operation of the mill. In the performance of this
principal undertaking the manager was not in any way executing
juridical acts for the principal, destined to create, modify or
extinguish business relations between the principal and third
person. In other words, in performing its principal undertaking the
manager was not acting as an agent of the principal, in the sense
that the term agent is interpreted under the law of agency, but as
one who was performing material acts for an employer, for
compensation. Consequently, the management contract not being
an agency cannot be revoked at will and was binding to its full
contracted period.
Gonzalo Puyat also ruled that when under the terms of the
agreement, the purported agent becomes responsible for any
changes in the acquisition cost of the object he has been authorized
to purchase from a supplier in the United States, the underlying
agreement is not an contract of agency to buy, since an agent does
not bear any risk relating to the subject matter or the price. Being
truly a contract of sale, any profits realized by the purported agent
from discounts received from the American supplier, pertain to it
with no obligation to account for it, much less to turn it over, to the
purported principal. Reiterated in Far Eastern Export & Import Co.,
v. Lim Tech Suan, 97 Phil. 171 (1955).
oranges a lower the price agreed upon with the purchaser which it
could not properly do if indeed it were merely acting as an agent;
(d) the local importing company charged the purchaser with a sales
tax, showing that the arrangement was indeed a sale; and (e) when
the losses occurred, the local importing company made claims
against the insurance company in its own name, indicating that he
imported the oranges as his own products, and not merely as agent
of the local purchaser.
In Pearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil. 789
(1957), the Supreme Court was unsure of its footing when it tried to
characterize a contract of sale (Contract of Purchase and Sale)
between the manufacturer of wax and its appointed distributor in
the Visayan area, as still being within a contract of agency in that
while providing for sale of Bee Wax from the plaintiff to Tong and
purchase of the same by Tong from the plaintiff, also designates
Tong as the sole distributor of the article within a certain territory.
(at p. 792) Such reasoning in Pearl Island is not sound, since as
early as in Quiroga v. Parson, the Court had already ruled that
appointing one as agent or distributor, when in fact such
appointee assumes the responsibilities of a buyer of the goods, does
not make the relationship one of agency, but that of sale. Perhaps
the best way to understand the ruling in Pearl Island was that the
suit was not between the buyer and seller, but by the seller against
the surety of the buyer who had secured the shipment of the wax to
the buyer, and the true characterization of the contract between the
buyer and seller was not the essential criteria by which to fix the
liability of the surety, thus
In Lim v. Court of Appeals, 254 SCRA 170 (1996), it was held that
as a general rule, an agency to sell on commission basis does not
belong to any of the contracts covered by Articles 1357 and 1358 of
the Civil Code requiring them to be in a particular form, and not one
enumerated under the Statutes of Frauds in Article 1403. Hence,
39
unlike a sale contract which must comply with the Statute of Frauds
for enforceability, a contract of agency to sell is valid and
enforceable in whatever form it may be entered into.
The old decision in National Rice and Corn Corp. v. Court of Appeals,
91 SCRA 437 (1979), presents an interesting situation where it is
possible for a party to enter into an arrangement, where a portion
thereof is as agent, and the other portion would be as buyer, and
still be able to distinguish and set apart to the two transactions to
determine the rights and liabilities of the parties.
In the early decision in Behn, Meyer and Co., Ltd. v. Nolting and
Garcia, 35 Phil. 274 (1916), the Supreme Court defined broker to
mean as follows
agent of both parties. (19 Cyc., 186; Henderson vs. The State, 50
Ind., 234; Blacks Law Dictionary.) A broker is one whose
occupation it is to bring parties together to bargain, or to bargain
for them, in matters of trade, commerce or navigation. (Mechem on
Agency, sec. 13; Wharton on Agency, sec. 695). Judge Storey, in
his work on Agency, defines a broker as an agent employed to make
bargains and contracts between other persons, in matters of trade,
commerce or navigation, for compensation commonly called
brokerage. (Storey on Agency, sec. 28) (at p. 279-280.)
Behn, Meyer and Co., was a tax case where the Court needed to
define the coverage of the term broker to determine the liability of
a commercial enterprise for taxes and licenses as a broker. The
commercial enterprise itself was engaged in the business . . . of
buying and selling copra, hemp, and other native products of the
Islands, and in such business the aforesaid plaintiff advanced
money for the future delivery of copra and hemp, and took as
security for the future delivery of such copra and hemp so
contracted for a mortgage on the land upon which said copra or
hemp was produced, and charging a discount on the future
deliveries of said copra or hemp, which was in compensation for the
money so advanced. (at p. 277.) Based on the definition of a
broker (quoted above), the Court held that A real-estate broker
negotiates the purchase or sale of real property. He may also
procure loans on mortgaged security, collect rents, and attend to
the letting and leasing of houses and lands. (Bouviers Law
Dictionary.) A broker acts for another. In the present case the
plaintiff was acting for itself. Whatever was done with reference to
the taking of the mortgages in question was done as an incident of
its own business. By the contract of brokerage a person binds
himself to render some service or to do something in bhelaf of or at
the request of another person (Art. 1209, Civil Code.) (at p. 280.)
circumstance that the bill of lading was sent to the plaintiff does not
alter its character of being merely a broker, or constitute possession
by it of the sugar shipped, inasmuch as the same was sent to it for
the sole purpose of turning it over to the purchaser for the collection
of the price. The sugar did not come to its possession in any sense.
(at p. 402.)
In Schmid & Oberly, Inc. it was not critical for the resolution of the
main issue to distinguish between a commission agent or a true
broker, since in either case, the intermediary would not be liable for
the warranties of the principal-seller. Were the distinction between
agent and a broker has been most critical is on the issue of
entitlement to the commission or compensation promised by the
principal.
46
The duty embodied in Article 1891 of the New Civil Code will not
apply if the agent or broker acted only as a middleman with the task
of merely bringing together the vendor and vendee, who themselves
48
But the Court did find that the real estate broker appointed by the
land owner was not merely a broker, but accepted the role of an
agent: Herein defendant-appellee Gregorio Domingo was not
merely a middleman of the petitioner-appellant Vicente Domingo
and the buyer Oscar de Leon. He was the broker and agent of said
petitioner-appellant only. (at p. 141.) Consequently, the Court laid
down the ruling that The duties and liabilities of a broker to his
employer are essentially those which an agent owes to his principal.
Consequently, the decisive legal provisions [on the duty to account
and the obligation arising from fraud and negligence] are found in
Articles 1891 and 1909 of the New Civil Code. (at p. 136.) The
Court held that in such a situation, the decisive legal provisions to
determine whether a broker has violated his duty or obligation are
found in Articles 1891 and 1909 of the New Civil Code, whereby
every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of
the agency, even though it may not be owning to the principal; and
that an agent is responsible not only for fraud, but also for
negligence. When Domingo thus held that
The aforesaid provisions [Articles 1891 and 1909 of the New Civil
Code] demand the utmost good faith, fidelity, honesty, candor and
fairness on the part of the agent, the real estate broker in this
case, to his principal, the vendor. The law imposes upon the agent
the absolute obligation to make a full disclosure or complete
account to his principal of all his transactions and other material
facts relevant to the agency, so much so that the law as amended
does not countenance any stipulation exempting the agent from
such an obligation and considers such an exemption as void. The
duty of an agent is likened to that of a trustee. This is not a
technical or arbitrary rule but a rule founded on the highest and
truest principle of morality as well as of the strictest justice. (at p.
137; emphasis supplied.)
It appears that Marquez acted not only as real estate broker for the
petitioners but also as their agent. As gleaned from the letter of
Marquez to Glanville, on February 26, 1987, he confirmed, for and
in behalf of the petitioners, that the latter had accepted such offer
to sell the land and the improvements thereon. However, we agree
withe the ruling of the appellate court that Marquez had no
authority to bind respondent EC to sell the subject properties. A
real estate broker is one who negotiates the sale of real properties.
His business, generally speaking, is only to find a purchaser who is
willing to buy the land upon terms fixed by the owner. He has no
authority to bind the principal by signing a contract of sale. Indeed,
50
In Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it was held that
the prohibition in Article 1491(2) of the Civil Code which renders an
agent legally incapable of buying the properties of his principal
connotes the idea of trust and confidence; and so where the
relationship does not involve considerations of good faith and
integrity the prohibition should not and does not apply. To come
under the prohibition, the agent must be in a fiduciary relation with
his principal. (at p. 804.)
The Court held that a broker does not come within the meaning of
Article 1491 of the New Civil Code, because he is nothing more
than a go-between or middleman between the defendant and the
purchaser, bringing them together to make the contract
themselves. There is no confidence to be betrayed . . . [since the
broker] was not authorized to make a binding contract for the
[purported principal]. He was not to sell and he did not sell the . . .
property. He was to look for a buyer and the owner herself was to
make, and did make, the sale, He was not to fix the price of the sale
because the price had to be already fixed in his commission, He was
not to make the terms of payment because these, too, would be
clearly specified in his commission. In fine, [the broker] was left no
power or discretion whatsoever, which he could abuse to his
advantage and to the owners prejudice. (at pp. 804-805.)
In quite a number of decisions, the Supreme Court has held that the
determination of whether one is an agent or a broker constitutes
a critical factor of whether he would be entitled to the commission
stipulated in the contract.
In all the cases, under all and varying forms of expression, the
fundamental and correct doctrine is, that the duty assumed by the
broker is to bring the minds of the buyer and seller to an agreement
for a sale, and the price and terms on which it is to be made, and
until that is done his right to commissions does not accrue.
(McGavock vs. Woodlief, 20 How., 221; Barnes vs. Roberts, 5
Bosw., 73; Holly vs. Gosling, 3 E. D. Smith, 262; Jacobs vs. Kolff, 2
Hilt., 133; Kock vs. Emmerling, 22 How., 72; Corning vs. Calvert, 2
Hilt., 56; Trundy vs. N.Y. & Hartf. Steamboat Co., 6 Robt., 312;
Van Lien vs. Burns, 1 Hilt., 134.)
cases are uniform in this respect. (Moses 147; Van Lien vs. Burns, 1
Hilt., 134.) (at pp. 139-141.)
In other words, there is only one form of service for which the
broker is entitled to his agreed compensation (unless otherwise
stipulated of course): that his services procured the buyer and
which eventually resulted into a perfected and consummated
contract of sale; when the services and efforts expended by the
broker were of such sufficient amount that they would have brought
about the sale, but that the principal terminated his services in bad
faith with every intention to proceed with the sale to the person
procured by the broker, then the latter would still be entitled to his
compensation under the principle of efficient or procuring cause.
On the other hand, Danon also discussed the American law principle
that held that every client has the power to terminate the brokerage
relationship, thus:
The Court noted in Reyes that there are times when the owner of a
property for sale may not legally cancel or revoke the authority
given by him to a broker when the negotiations through the brokers
efforts have reached such a stage that it would be unfair to deny
the commission earned, especially when the property owner acts in
bad faith and cancels the authority only to evade the payment of
said commission. (at p. 245.) But it held that the doctrine would
not be applicable in the case because there is nothing to show that
bad faith was involved in the cancellation of the authority of plaintiff
Reyes before the consummation of the sale. (at p. 246.)
In other words, the broker could not even claim with merit
in Reyes that his services were the efficient or procuring
cause that became the basis of the eventual sale between
Mosqueda and her employer Lim. She just took advantage of
Mosqueda who then did not know that she was representing Lim
with whom Mosqueda had previously negotiated the sale of the
land.
Evaluating the proven facts, the Court held: It can thus be readily
inferred thatt he respondents [brokers] were the only ones who
knew about the property for sale and were responsible for leading a
buyer to its consummation. All these circumstances lead us to the
inescapable conclusion that the respondents [brokers] were the
procuring cause of the sale. When there is a close, proximate and
causal connection between the brokers efforts and the principals
sale of his property, the broker is entitled to a commission. (at pp.
91-92; emphasis supplied.)
Going deeper however into the case would reveal that it is within
the coverage of the exception rather than of the general rule, the
exception being that enunciated in the case of Prats vs. Court of
Appeals. In the said case, this Court ruled in favor of claimant-
agent, despite the expiration of his authority, when a sale was
finally consummated.
In its decision in the abovecited case, this Court said, that while it
was respondent courts (referring to the Court of Appeals) factual
findings that petitioner Prats (claimant-agent) was not the efficient
procuring cause in bringing about the sale (prescinding from the
fact of expiration of his exclusive authority), still petitioner was
awarded compensation for his services. (at pp. 230-231.)
Hahn v. Court of Appeals, 266 SCRA 537 (1997), where the issue
was whether a foreign corporation was deemed doing business in
the Philippines through the appointment of a local distributor, and
the resolution thereof dependent on whetther the local distributor
acted merely as agent of the foreign corporation or was selling the
foreign corporations products for its own account and not in the
name of the foreign corporation. Although the Court was able to
conclude that the local distributor was acting as an agent of the
foreign corporation since it was entering into local transactions of
the products under the control of the foreign corporation,
nonetheless, the Court held in addition: Contrary to the appellate
courts conclusion, this arrangement shows an agency. An agent
receives a commission upon the successful conclusion of a sale. On
the other hand, a broker earns his pay merely by bringing the buyer
and the seller together, even if no sale is eventually made. (at p.
549.) The quoted portion of the decision does not cite autority for
such conclusion, and essentially was not consistent with the
established jurisprudence starting with Dannon that unless
otherwise stipulated by the parties, a broker earns his commission
only when through his services there is eventually a contract that is
perfected and consummated.
In Tan v. Gullas, 393 SCRA 334 (2002), where a real estate broker
was granted a special power of attorney to negotiate only the sale
of a parcel of land at certain rate (which meant that there was not
authority to enter into juridical acts in behalf of the owner of the
land), the broker had introduced a interested buyer, but eventually
the owner appointed another person to consummate the sale with
the same buyer. The Court quoted from Schmid & Oberly, Inc. v.
RJL Martinez Fishing Corp., 166 SCRA 493 (1988), it defining
a broker as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which
he has no concern; the negotiator between other parties, never
acting in his own name but in the name of those who employed
him. x x x a broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation. (at p. 339).
Although the Court never used the efficient or procuring cause
doctrine, it went carefully through the evidence to sustain the
64
proposition that the broker had actually earned his right to the
commission. Nonetheless, it quoted from Hanh that
An agent receives a commission upon the succesful conclusion of a
sale. On the other hand, abroker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually
made. (at p. 341). Citing no other authority for such perplexing
doctrine, Tan v. Gullas begazn to perpetuate the myth started
in Hanh that a broker earns his commission merely by bringing the
buyer and the seller together, even if no sale is eventually made.
In Lim v. Saban, 447 SCRA 232 (2004), the Court invoked the
compensation rules covering brokers to be applicable to contracts of
agency, thus:
In Macondray & Co. v. Sellner, [33 Phil. 370 (1916).], the Court
recognized the right of a broker to his commission for finding a
suitable buyer for the sellers property even though the
seller himself consummated the sale with the buyer.The Court held
that it would be in the height of injustice to permit the principal to
terminate the contract of agency to the prejudice of the broker
when he had already reaped the benefits of the brokers efforts.
xxx.
The Court ruled that Tan Eng Hong was not, in winning and
servicing the bid of PHILCUSA, not acting as a commercial broker,
for in effecting the importation of the goods, he was discharging his
own, personal obligation as the winner in the bidding called by
67
Moreover, the Court ruled that Tan Eng Hong had contracted
directly with PHILCUSAs foreign supplier, and that The foreign
supplier and PHILCUSA had no privity of contractual relations
whatsoever to the end that neither of them could have had any
claim against each other for whatever fault or breach Tan Eng Hong
might have committed relevant to the transactions in dispute. It
would indeed be quite difficult to sustain any assertion that Tan Eng
Hong was acting for and in behalf of PHILCUSA or his foreign
supplier or both. (at p. 435.) The Court then reiterated the essence
of the role of a broker, thus:
The broker must be the efficient agent or the procuring cause the
sale. The means employed by him and his efforts must result in the
sale. He must find the purchaser, and the sale must proceed from
his efforts acting as a broker. . . .This conditiion may not be said to
obtain in the case on hand. Tan Eng Hong did not merely bring
PHILCUSA and his foreign supplier to come to an agreement for the
sale of certain commodities. It was he himself who contracted with
his foreign supplier for the purchase of the said goods. If, for one
reason or another PHILCUSA had refused to accept the delivery of
the said goods to it by Tan Eng Hong, the foreign supplier could not
have compelled PHILCUSA otherwise. Similarly, if somehow the
foreign supplier had defaulted in the performance of its obligations
to Tan Eng Hong, PHILCUSA could not have had any action or
remedy againts the said foreign supplier. All these indicate the
distinct and independent personality of Tan Eng Hong as an
importer and not a commercial broker. (at pp. 435-436.)
oOo
68
In Lim v. Court of Appeals, 254 SCRA 170 (1996), the Court noted
that there are some provisions of law which require certain
formalities for particular contracts: the first is when the form is
required for the validity of the contract; the second is when it is
required to make the contract effective as against third parties such
as those mentioned in Article 1357 and 1358 of the Civil Code; and
the third is when the form is required for the purpose of proving the
existence of the contract, such as those provide in the Statute of
Frauds in Article 1403. Lim held that since a contract of agency to
sell pieces of jewelry on commission does not fall into any of the
three categories, it was considered valid and enforceable in
whatever form it may have been entered into. Lim also ruled that
when the agent signs her signature on any face of the receipt
showing that she receives the jewelry for her to sell on commission,
she is bound to the obligations of an agent. The exact position of
the agents signature in the receipt (in this case near the description
of the goods and not on top of her printed name) was immaterial.
with an agent is put upon inquiry and must discover upon his peril
the authority of the agent. (at p. 382.)
On the side of the principal, Article 1869 of the Civil Code provides
that an agency is constituted (i.e., principal has given his consent to
the agency arrangement) from his acts formally adopting it, or from
his silence or inaction, or particularly from his failure to repudiate
the agency knowing someone is acting in his name.
In Conde v. Court of Appeals, 119 SCRA 245 (1982), the Court held
that when the buyers-a-retro failed for several years to clear their
title to the property purchased and allowed the seller-a-retro to
remain in possession in spite of the expiration of the period of
redemption, then the execution of the memorandum of repurchase
by the buyers son-in-law, which stood unrepudiated for many
years, constituted an implied agency under Article 1869 of the Civil
71
On the side of the agent, Article 1870 of the Civil Code provides that
his acceptance of the agency (i.e., agent has given his consent to
the agency arrangement) may be express, or implied from his acts
which carry out the agency, or from his silence or inaction according
to the circumstances.
One will note that Article 1870 of the Civil Code has no counterpart
in the old Civil Code; and based on the points raised below, it may
be considered a surplusage at best, and misleading at worse.
It may in fact be wrong to presume that the agent has accepted the
appointment, and bound himself to fiduciary duties of diligence and
fidelity, when having not accepted it expressly, he pursues the
transaction in his own name and precisely for his own behalf. There
can be no contract of agency unless both the purported principal
and the purported agent give their consent.
But such policy is not well-served under the broad and all-
encompassing provisions of Article 1870, since the better rule would
73
Under Article 1871 of the Civil Code, which describes the most ideal
form evidencing the perfection of the contract of agency, when the
constitution of the agency is made with both principal and agent
being physically present at the time of perfection of the contract of
agency (i.e., Between persons who are present), the acceptance
of the agency may be implied if the principal delivers his power
74
On the other hand, under Article 1872 of the Civil Code, when the
constitution of the agency is made with the would-be principal and
the would-be agent not being physically present in one place (i.e.,
Between persons who are absent), then there can be no implied
acceptance of the agency from the silence or inaction of the agent,
except in two instances:
The general principle laid out under Article 1872 is that, other than
the two situations described therein, there can be no implied
acceptance from the silence or inaction of the purported agent. The
general rule under Article 1872 of no implied acceptance on the part
of the agent, is actually contrary to the implied acceptance rule laid
down in Article 1870 that Acceptance by the agent may also be . . .
implied from . . . his silence or inaction according to the
circumstances. According to Article 1872, under than the two
circumstances laid out therein, courts should not draw any
conclusion of implied acceptance on the part of the purported agent
by his silence or inaction. As we stated earlier, it would be better
that Article 1870 be deleted entirely, as Article 1872 provides for
the better rule.
The language used in Articles 1871 and 1872 indicate that the
power of attorney must constitute a written instrument, because
in both cases the articles refer to situations where the
principal delivers his power of attorney to the agent, and when
the principal transmits his power of attorney to the agent, which
require that it must be in writing, which today would include
75
o
76
Under Article 1873 of the Civil Code, when the principal informs
another person that he has given a power of attorney to a third
person (the agent), the latter thereby becomes a duly authorized
agent with respect to the person who received the special
information. The clear implication of the provisi0n is that even when
in fact there has been no meeting of the minds between the
purported principal and agent (i.e., there is strictly speaking no
contract of agency), there is deemed to have arisen one with
respect to the third party who has been so informed by the principal
in all contracts entered into with the purported agent in the name of
the principal.
In Rallos v. Yangco, 20 Phil 269 (1911), the Court held that a long-
standing client, acting in good faith and without knowledge, having
sent goods to sell on commission to the former agent of the
defendant, could recover from the defendant, when no previous
notice of the termination of agency was given said client. The Court
emphasized that having advertised the fact that Collantes was his
agent and having given special notice to the plaintiff of that fact,
and having given them a special invitation to deal with such agent,
it was the duty of the defendant on the termination of the
relationship of principal and agent to give due and timely notice
thereof to the plaintiffs. Failing to do so, the defendant was
held responsible to them for whatever goods may have been in
good faith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such
relationship.
In Conde v. Court of Appeals, 119 SCRA 245 (1982), the Court held
that when the right of redemption by sellers-a-retro is exercised by
their son-in-law who was given no express authority to do so, and
the buyer-a-retroaccepted the exercise and done nothing for the
next ten years to clear their title of the annotated right of
repurchase on their title, and possession had been given to the
sellers-a-retro during the same period, then an implied agency
must be held to have been created from their silence or lack of
action, or their failure to repudiate the agency.
In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court held
that a co-owner does not become an agent of the other co-owners,
and therefore, any exercise of an option to buy a piece of land
transacted with one co-owner does not bind the other co-owners of
the land. The Court held that the basis for agency is representation
and a person dealing with an agent is put upon inquiry and must
79
discover upon his peril the authority of the agent. Since there was
no showing that the other co-owners consented to the act of one
co-owner nor authorized her to act on their behalf with regard to
her transaction with purported buyer. The most prudent thing the
purported buyer should have done was to ascertain the extent of
the authority said co-owner; being negligent in this regard, the
purported buyer cannot seek relief on the basis of a supposed
agency.
On the other hand, Article 1873 of the Civil Code provides that the
declaration of a person that he has appointed another as his agent
is deemed to have constituted the person alluded to as an agent
(even when the designated person is at that point unaware of his
designation as agent), insofar as the person to whom such
declaration has been made. What is clear therefore is that third
parties must never take the words or representation of the
purported agent at face value; they are mandated to apprise
themselves of the commission and extent of powers of the
purported agent. On the other hand, third parties (to the contract of
agency) can take the word, declaration and representation of the
purported principal with respect to the appointment of, and extent
of powers, of the purported agent. The principle is self-evident from
the nature of agency as a relation of representation that an agent
acts as though he were the principal and therefore if the principal
himself says so, then it is taken at face value as a contractual
commitment.
a. Agency by Estoppel
Under Article 1911 of the Civil Code, even when the agent has
exceeded his authority (i.e., he acts without authority from the
principal), the principal shall be held solidarily liable with the agent
if he allowed the agent to act as though he had full powers.
One who clothes another apparent authority as his agent, and holds
him out to the public as such, can not be permitted to deny the
authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith and in
the following pre-assumptions or deductions, which the law
expressly directs to be made from particular facts, are deemed
conclusive. (at p. 555.)
The hotel owner was deemed bound by the contracts entered into
by said managing agent that were within the scope of authority
81
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), it held that
for an agency by estoppel to exist, the following must be
established:
(b) the third person, in good faith, relied upon such representation;
(c) relying upon such representation, such third person has changed
his position to his detriment.
The rationale for the afore-quoted ruling no longer holds true under
Article 1877 of the Civil Code which provides that An agency
couched in general terms comprises only acts of administration,
even if the principal should state that he withholds no power or that
the agent may execute such acts as he may consider appropriate,
or even though the agency should authorize a general and unlimited
management. Today, the power to sue is considered a power of
strict ownership. In any event, the Germann & Co. decision did
find that the written instrument expressly authorized the agent to
exact the payment of sums of money by legal means, which was
construed to be an express power to sue. (at pp. 65-66.)
there was indeed a contract of agency and the extent of the power
and authority of the agent is on the part of the person who
purports to act for and in behalf of a principal, and even then third
parties are directed to ensure the nature and extent of the agents
power.
And while the same does not state that the special authority be in
writing, the court has every reason to expect that, if not in writing,
the same be duly established by evidence other than the self-
serving assertion of counsel himself that such authority was verbally
given him. . . For authority to compromise cannot lightly be
presumed. And if, with good reason, the judge is not satisfied that
said authority exists, as in this case, dismissal of the suit for non-
appearance of plaintiff in pre-trial is sanctioned by the Rules. (at p.
866.)
In Lian v. Puno, 31 Phil. 259 (1915), the Court laid down the
general rules on construction or interpretation of written contracts
of agency, thus:
In Lian, the Court held that the written power of attorney whereby
the agent was appointed so that he may administer the
interest I possess within this municipality of Tarlac, purchase,
sell, collect and pay, as well as sue and be sued before any
authority, appear before the courts of justice and administrative
officers in any proceedings or business concerning the good
administration and advancement my interest, and may, in
necessary cases, appoint attorneys at law or attorneys in fact to
represent him, (at p. 260; emphasis supplied) was deemed to
have authorized the agent to validly sell a piece of land situated in
the place designated by the principal, holding that
x x x.
It is not the name or title given in the deed issued by the principal
that determines whether the agent can exercise acts of strict
dominion for and in behalf of the principal. An agent has special
power of attorney only when the act or contract enumerated
specifically under Article 1878 has been literally named in the
grant of commission by the principal, i.e., the term of the power
(sell, mortgage, etc.) must literarily be written or expressed for
the commission to constitute a special power of attorney.
All other forms of payment for and in behalf of the principal which
are not within the ordinary course of business, would constitute acts
of strict dominion, which are not deemed within the power of even a
duly appointed agent, unless granted specially or under a special
power of attorney.
To Compromise
To Submit Questions to Arbitration
To Renounce the Right to Appeal from a Judgment
To Waive Objections to the Venue of an Action
To Abandon a Prescription Already Acquired
With such special exclusion rule under Article 1880 as to the powers
to compromise and arbitrate, would that mean all other powers
101
contract for its sale, which sale contract may provide for settlement
of issues by arbitration. Under the present provisions of Article 1878
of the Civil Code, the power to enter into arbitration cannot be
implied anymore, but must clearly be specified. Nonetheless, that
portion of the decision in Robinson Fleming that even when the
power is not specified, the exercise thereof by the agent may be
validated or ratified by the principal on acts that show adoption of
the terms of the contract, thus: We are clearly of the opinion that
the contract in question is valid and binding upon the defendant
[principal], and that authority to make and enter into it for and on
behalf of the defendant [principal], but as a matter of fact the
contract was legally ratified and approved by the subsequent acts
and conducts of the defendant [principal]. (at p. 46).
It does not mean however, that every agent would have the power
to waive the principals obligation for valuable consideration outside
of an express authority to do so; what it means is that when the
power to condone is within the scope of authority of the agent, he
may do so as an implied or incidental power; whereas, the power to
waive an obligation owed to the principal gratuitously can only arise
as an express power, but not implied or incidental power of an
agent. In other words, the equivalent of the term to waive any
obligation onerously, would be equivalent to payment or
performance of the obligation, which by its essence is an act
advantageous to the principal, and when done without express
authority is still within the scope of the agents authority.
103
(b) In all other immovables, other than land or any interest therein,
the fact that the special power of attorney to sell or to purchase is
not in writing, would not render the contract of sale or contract of
purchase (depending on how one looks at it) to be void, but merely
unenforceable.
This was the same conclusion drawn by the Court under the
applicable provision of the old Civil Code in its decision in Rio y
Olabbarrieta v. Yutec, 49 Phil 276 (1926), where it held that an
agreement for the leasing for a longer period than one year, or for
the sale of real property, or of an interest therein, and such
agreement, if made by the agent of the party sought to be charged,
is invalid unless the authority of the agent be in writing and
subscribed by the party sought to be charged. Rio y
Olabbarrietaquoted Section 335 of the Code of Civil Procedure to
read as follows:
* * * * * * * * *
5. An agreement for the leasing for a longer period than one year,
or for the sale of real property, or of an interest therein, and such
agreement, if made by the agent of the party sought to be charged,
106
Under the New Civil Code, when it comes to the sale of immovables
(other than land), the provisions of Article 1878(5) merely provides
that a special power of attorney (i.e., an express power) must cover
the power To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration. While the old Code of Civil Procedure
provision requiring that the authority of the agent to sell
immovables no longer applies, and only the sale of land or interest
therein is required to be in writing under Article 1874 of the Civil
Code, then it may be concluded that the sale of immovables other
than land need only be express, rather than in writing, in order to
be valid.
(i) Does the Grant of the Special Power to Sell Include the
Power to Mortgage, and Vice Versa?
It seems clear therefore that Article 1874 does not cover an agency
to purchase a piece of land or an interest therein; and that if the
special power of the agent who acts for the buyer is not in writing,
the resulting sale would be valid.
108
This was the clear implication from the language of the decision
in Pineda v. Court of Appeals, 376 SCRA 222 (2002), where it ruled
The De Leons have opined that the status of such a sale effected
through an agent whose special power of attorney is not in writing,
is not really void, but merely voidable since the sale can be ratified
by the principal (see Arts. 1901, 1910, par. 2) such as by availing
himself of the benefits derived from the contract. (at p. 416.) I
believe that the more appropriate term would be unenforceable,
since ratification process is also applicable to unenforceable
contracts.
spite of the clear language of Article 1874 since the decision was
rendered under the terms of the old Civil Code, and Article 1874 is
an entirely new provision in the New Civil Code. Likewise, apart
from the deed of sale effected by the agent in Gutierrez Hermanos,
the registered owner subsequently thereto affirmed the sale under
public documentation. The procedure is also possible under Article
1874, which means that if the agent enters into a sale of a piece of
land without written authority, indeed the sale would be void; but
that if the principal subsequently, enters directly again with the
same buyer into a formal deed of sale, then the second transactions
would be valid for it is no longer covered under Article 1874.
The Supreme Courts mood on the matter has changed and current
rule is best expressed in Raet v. Court of Appeals, 295 SCRA 677
(1998), where the Court held that Article 1874 of the Civil Code
requires for the validity of a sale involving land that the agent
should have an authorization in writing; otherwise any sale
concluded on the land is void. This principle has been reiterated
in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Yasuma v.
Heirs of Cecilio S. De Villa, 499 SCRA 466 (2006); and Gozun v.
Mercado511 SCRA 305 (2006).
The Supreme Courts latest word on the matter is found in its recent
decision in Pahud v. Court of Appeals, 597 SCRA 13 (2009), where
the issue was raised squarely of the status of a sale by one co-heir
of the property ownedpro-indiviso where the authority that was
given by the other co-heirs was merely verbal in character. In
direct answer to the issue, and before discussing the jurisprudence
involved, the Court directly held: The focal issue to be resolved in
the status of the sale of the subject property by Eufemia and her
co-heirs to the Pahuds. We find the transaction to be valid and
enforceable. (at p. 21.)
The Court noted that Article 1874 plainly provides that when the
sale of a piece of land or any interest therin is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall
be void. In then referred to the similar provision contained in Article
1878 which provides that a special power of attorney is necessary
for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously
or for a valuable consideration, and held that Such stringent
statutory requirements has been explained in Cosmic Lumber
Corporation v. Court of Appeals: . . . [T]he authority of an agent to
execute a contract [of] sale of real estate must be conferred in
writing and must give him specific authority, . . . A special power
of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal to conver the
right upon an agent to sell real estate, a power of attorney must so
express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language so
used conveys such power, no such contruction shall be given the
docuemnt. (at p. 22) Then it summarized the doctrine then
prevailing:
112
While the sale with respect to the 3/8 portion is void by express
provision of law and not susceptible to ratification, we nevertheless
uphold its validity on the basis of the common law principle of
estoppel. . . [under] Article 1431 of the Civil Code . . . Through
estoppel an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against
the person relying thereon.
True, at the time of sale to the Pahuds, Eufemia was not armed with
the requisite special power of attorney to dispose of the 3/8 portion
of the property. . . . During the pre-trial conference, however, they
admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992. Thus, the previous denial was
superseded, if not accordingly amended, by their subsequent
admission. (at p. 23)
Art. 1901. A third person cannot set pup the fact that the agent has
exceeded his powers, if the principal has ratified, or has signified his
willingness to ratify the agents acts. (n)
In Lian v. Puno, 31 Phil. 259 (1915), the Court held that when the
power of attorney contains the power to sell the interest I possess
within this municipality of Tarlac, the language was deemed
sufficient to construe that a special power of attorney to sell land
within said municipality had been properly conferred on the agent.
In other words, it is the specification of the power to sell that is
necessary, rather than a specification of the particular piece of land
that controls compliance with the requirement of the law.
In Katigbak v. Tai Hing Co., 52 Phil. 622 (1928), it was held that the
authority to sell any kind of realty that might belong to the
principal was held to include also such as the principal might
afterwards have during the time it was in force.
clear power to sell it. The Court ruled that there was no need to
execute a separate and special power of attorney for the agent to
effect the sale of the land in the name of the principal: The special
power of attorney can be included in the general power when it is
specified therein the act or transaction for which the special power
is required. (at p. 600).
In City Lite Realty Inc. v. Court of Appeals, 325 SCRA 385 (2000),
where written letter issued by a landowner read: We will appreciate
Metro Drugs assistance in referring to us buyers for property.
Please proceed to hold preliminary negotiations with interested
buyers and endorse formal offers to us for our final evaluation and
appraisal, the Court held that the language of the letter did not
constitute written authority to sell the land, and the appointed
individual was only designated as a contact person or a broker with
116
The settled rule is that persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to
ascertain not only the facts of agency but also the nature and
extent of authority, and in case either is controverted, the burden of
proof is upon them to prove it. In this case, respondent Fernandez
specifically denied that she was authorized by the respondents-
owners to sell the properties, both n her answer to the complaint
and when she testified. The Letter dated January 16, 1996 relied
upon by the petitioners was signed by respondent Fernandez alone,
without any authority from the respondents-owners. There is no
actuations of respondent Fernandez in connection with her dealings
with the petitioners. As such, said letter is not binding on the
respondents as owners of the subject properties. (at p. 494)
In Philippine National Bank v. Tan Ong Sze, 53 Phil. 451 (1929), the
Court held that a power of attorney, like any other instrument, is to
be construed according to the natural import of its language; and
the authority which the principal has conferred upon his agent is not
to be extended by implication beyond the natural and ordinary
significance of the terms in which that authority has been given;
and that an attorney-in-fact has only such authority as the principal
has chosen to confer upon him, and one dealing with him must
ascertain at his own risk whether his acts will bind the principal.
Thus, in PNB, the Court ruled that a power of attorney which vested
the agent with authority for me and in my name to sign, seal and
execute, and as my act and deed, delivery any lease, any other
deed for conveying any real or personal property or any other
deed for the conveying of any real or personal property does not
carry with it or imply that the agent for and on behalf of his
principal has the power to execute a promissory note or a mortgage
to secure its payment.
In Hodges v. Salas and Salas, 63 Phil 567 (1936), the Court held
that when the power granted to the agent was only to borrow
money and mortgage principals property to secure the loan, it
cannot be interpreted to include the authority to mortgage the
properties to support the agents personal loans and use the
proceeds thereof for his own benefit. The lender who lends money
to the agent knowing that is was for personal purpose and not for
the principals account, is a mortgagee in bad faith and cannot
foreclose on the mortgage thus constituted for the account of the
agent. The Court ruled:
In Gozun v. Mercado, 511 SCRA 305 (2006), the Court held that a
special power of attorney is necessary for an agent to borrow
money, unless it be urgent and indispensable for the preservation of
the things which are under administration; and that such contract
entered into in the name of another person by one who has been
given no authority or legal representation or who has acted beyond
his powers are classified as unauthorized contracts and are
unenforceable, unless they are ratified.
Under Article 1890 of the Civil Code, if the agent has been
empowered to borrow money, then he is not disqualified from being
himself the lender at the current rate of interest. On the other hand,
the article also provides that if the agent has been empowered to
lend money at interest, he cannot borrow it without the consent of
the principal.
deed for the conveying any real or personal property and act and
deed delivery, any lease, release, bargain, sale, assignment,
conveyance or assurance, or any other deed for the conveying any
real or personal property], the Court held that such grant of power
will not be interpreted as giving the attorney-in-fact power to bind
the principal by a contract of independent guaranty or surety
unconnected with the conduct of the mercantile business. General
words contained in such power will not be so interpreted as to
extent the power to the making of a contract of suretyship, but will
be limited, under the well-know rule of construction indicated in the
express ion ejusdem generis, as applying to matters similar to those
particularly mentioned.
Under Article 1044 of the Civil Code, any person having the free
disposal of his property may accept or repudiate an inheritance,
which obviously under paragraph 13 of Article 1878 constitute acts
of strict dominion.
The power does not expressly state that the agent may sell the
boat, but a power so full and complete and authorizing the sale of
real property, must necessarily carry with it the right to sell a half
interest in a small boat. The record further shows the sale was
necessary in order to get money or a credit without which it would
be impossible to continue the business which was being conducted
in the name of Narciso L. Manzano and for his benefit. (at p. 585)
The issues raised under this section are more properly discussed in
detail in Chapter 5 on Extinguishment of Agency.
Pineda held that where the instrument which grants to the agent
the power To follow-up, ask, demand, collect and receipt for my
benefit indemnities or sum due me relative to the sinking of M.V.
NEMOS in the vicinity of El Jadida, Casablanca, Morocco on the
evening of February 17, 1986, which is a special power of attorney
(i.e., particular agency), excluded any intent to grant a general
power of attorney or to constitute a universal agency. Being special
powers of attorney, they must be strictly construed. The instrument
133
oOo
134
Under Article 1884 of the Civil Code, when an agent accepts the
appointment of the principal, a contract of agency arises, and at
that point the agent is legally bound to carry out the terms of the
agency; otherwise, if he fails or refuses to carry on the agency, he
shall be liable for damages suffered by the principal by reason of his
nonfeasance or non-performance. The article emphasizes the
principle that once the agent accepts the principals appointment,
the agent is bound to comply with his duty of diligence or care.
Article 1884 also expresses in the realm of Agency Law the contract
law principles of consensuality, mutuality and obligatory
force expressed in Articles 1159 and 1315 of the Civil Code, which
provide that Obligations arising from contracts have the force of
law between the contracting parties and should be complied with in
good faith, and that Contracts are perfected by mere consent, and
from that moment the parties are bound not only to the fulfillment
135
Art. 1881. The agent must act within the scope of his
authority. He may do such acts as may be conducive to the
accomplishment of the purpose of the agency. (1714a)
Article 1887 of the Civil Code provides succinctly the twin measures
of how an agent should act In the execution of the agency, to be
as follows:
139
The twin duties of the agent in the execution of the agency can be
summarized in the Agency Law doctrine embodied in Article 1881 of
the Civil Code that The agent must act within the scope of his
authority. In Corporate Law parlance, that same concept in covered
by the terms duty of obedience and duty of diligence.
4. Duty of Obedience
On the first level, the duty to act in accordance with the instructions
of the principal lies as the heart of the principal agency relations,
and best encapsulized in the term duty of obedience. Since by
definition under Article 1868 of the Civil Code, the agent assumes
the obligation to represent the principal, then the foremost duty of
every agent so appointed must be to follow the instructions of the
principal. Thus, in Victorias Milling Co. v. Court of Appeals, 333
SCRA 663 (2000), in trying to distill the essence of what
distinguishes a contract of agency from a contract of agency to sell,
the Supreme Court held
One of the clearest example that the agent has given the consent of
the principal to a contract or a transaction, is when he acts in
accordance with the instructions of the principal. There is no doubt
that when an agent complies with the instructions of his principal,
he is acting within the scope of his authority.
5. Duty of Diligence
This is not to say that when the principal has given detailed
instructions to the agent, that the agent is no longer bound to
exercise due diligence, for indeed every agent is a party to a
contract of agency, not a mere robot, who is expected to exercise
prudence in following the instructions of the principal.
This principle is also expressed under Article 1881 of the Civil Code,
which provides that the agent may do such acts as may be
conducive to the accomplishment of the purpose of the agency.
Likewise, Article 1882 provides that The limits of the agents
authority shall not be considered exceed should it have been
performed in a manner more advantageous to the principal than
that specified by him. In other words, an agent not only has
express powers, but also implied powers emanating from the
express powers granted to him; as well as incidental powers
necessary in order to achieve the purpose for which the agency was
constituted.
and is liable for the damages which the principal may suffer by
reason of its negligent act [Art. 1884, Civil Code]. Hence, the Court
of Appeals erred when it opined that BA, being the principal, had no
cause of action against PAL, its agent or sub-contractor. (at p. 463.)
The Court also noted in British Airways, that since the passenger
was seeking damages for breach of contract of carriage, its cause of
action was only against the principal airline (BA), and not PAL since
the latter was not a party to the contract; but that this is not to say
that PAL is relieved from any liability due to any of its negligent
acts. (at p. 464). The Court then affirmed that the procedural
remedy that BA took, that of filing a third-party complaint against
PAL, was correct, for the purpose of ultimately determining who
was primarily at fault as between them.
6. Duty of Loyalty
Article 1891 of the Civil Code provides that the agent is bound to
render an account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency, even
though it may not be owing to the principal. In other words, the
principal has the right to demand that the agent should turn-over to
him whatever contract, property or business has been acquired by
the agent in breach of his duty of loyalty.
Sing Juco and Sing Bengco v. Sunyantong and Llorente, 43 Phil 589
(1922), held that a confidential employee who, knowing that his
principal was negotiating with the owner of some land for the
purchase thereof, surreptitiously succeeds in buying it in the name
of his wife, commits an act of disloyalty and infidelity to his
principal, whereby he becomes liable, among other things, for the
damages caused, which meant to transfer the property back to the
principal under the terms and conditions offered to the original
owner.
Article 1883 of the Civil Code provides that If an agent acts in his
own name, the principal has no right of action against the person
with whom the agent has contracted; neither have such persons
against the principal. In such a case, it is the agent who is the one
directly bound in favor of the person with whom he has contracted,
as if the transaction were his own, except when the contract
involves things belonging to the principal.
If the matters entered into by the agent in his own name are
matters that are within the scope of his authority or those
pertaining to matters that should pertain to the business of the
principal, there would be no doubt that the agent has breached his
fiduciary duty of loyalty, by having preferred his own interests to
that of the principals. Whether the agent has used his own funds or
property, or those of the principals, he would still be in breach of
this fiduciary duty, and under Article 1891 of the Civil Code, he is
bound to render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the agency,
even though it may not be owing to the principal. In either case,
therefore, the principal has the right to demand that the agent
should turn-over to him whatever contract, property or business has
been acquired by the agent in breach of his duty of loyalty.
If the agent had used the funds belonging to the principal, under
Article 1896 of the Civil Code he owes interest on the sums he has
applied to his own use from the day on which he did so, and on
those which he still owes after the extinguishment of the agency.
The provisions of this article presumes that the property or business
acquired by the agent for his own in violation of his fiduciary duty is
one that the principal is not demanding to be delivered to him. This
is clear from Article 1918 of the Civil Code which provides that The
principal is not liable for the expenses incurred by the agent . . . [i]f
the agent acted in contravention of the principals instructions,
unless the latter should wish to avail himself of the benefits derived
from the contract. In other words, if the contract or business
150
xxx
x x x . (1459a)
Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), held that the
prohibition in Article 1491(2) of the Civil Code which renders an
agent legally incapable of buying the properties of his principal
connotes the idea of trust and confidence; and so where the
relationship does not involve considerations of good faith and
integrity the prohibition should not and does not apply. To come
under the prohibition, the agent must be in a fiduciary relation with
his principal. (at p. 804)
In the case where the agent was the lender to the principal and
charged interest higher than the current rate, the difference would
have to be returned to the principal. If the agent borrows for
himself without the principals the money which the principal has
authorized him to lend out, he would not only be liable for the
current interest that the principal would have earned had it been
lent out to a third party, he would also be liable for damages that
the principal may have suffered.
In Hodges v. Salas and Salas, 63 Phil 567 (1936), the Court held
that when the power granted to the agent was only to borrow
money and mortgage principals property to secure the loan, it
cannot be interpreted to include the authority to mortgage the
properties to support the agents personal loans and use the
proceeds thereof for his own benefit. The lender who lends money
to the agent knowing that is was for personal purpose and not for
the principals account, is a mortgagee in bad faith and cannot
foreclose on the mortgage thus constituted for the account of the
agent. In addition, the Court ruled that In cases like the present
one, it should be understood that the agent was obligated to turn
over the money to the principals, or, at least place it at their
disposal. (at p. 578)
Under Article 1891 of the Civil Code, every agent is bound to deliver
to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal, and even
when given to him for his benefit.
been in a particular case, nor that the principal would have been no
better of if the agent had strictly pursued his power, nor that the
principal was not, in fact, injured by the intervention of the agent
for his own profit. The result in both cases is the same; the profits
shall still pertain to the principal.
The Court then went on to cite cases under the old Spanish Civil
Code where a rigorous application of Article 1720 was made:
x x x x x x
valuable services rendered by the agent, but the agent has only
himself to blame for that result.
x x x x x x
The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs. Phipps (1911) 94
NE 260.
However, Domingo also held that the duty embodied in Article 1891
to account will not apply if the agent or broker had informed the
principal of the gift or bonus or profit he received from the
purchaser and his principal did not object thereto. (at p. 140)
Under Article 1914 of the Civil Code, the agent may retain in pledge
the things which are the object of the agency until the principal
effects the reimbursement and pays the indemnity provided in
Articles 1912 and 1913.
Under Article 1886 of the Civil Code, the only time that an agent is
legally bound to advance personal funds in the pursuit of the agency
is when such obligation has been expressly agreed upon in the
creation of the contract of agency. But even in such a case, the
agent may refuse to advance any personal funds when the principal
is insolvent. Indeed, under Article 1919(3) of the Civil Code,
insolvency of the principal extinguishes the agency.
Under Article 1896 of the Civil Code, the agent would owe interest
to the principal on the following items:
(a) On sums the agent applied to his own use from the time he used
them; and
159
In Borja v. De Borja, 58 Phil 811 (1933), the Court ruled that there
is no interest due on sums owed by the agent to the principal which
have not been the result of agents conversion to his own use, such
agent would be liable for interests to run from the date the agency
is extinguished until he pays such sums.
Article 1892 of the Civil Code sets the default rule that the agent
may appoint a substitute if the principal has not prohibited him from
doing so. This has reversed the rule under the old Civil Code that
160
Although the last paragraph of Article 1892 provides that All acts of
the substitute appointed against the prohibition of the principal shall
be void, the contracts are really unenforceable insofar as the
161
Any act done by the agent or the substitute in behalf of the principal
is deemed the act of the principal.
In addition, the agent does not bear personal responsibility for the
fraud or negligence of the sub-agent, for the agent merely acted
within the scope of his authority or in accordance with the
instructions of the principal when he appointed the sub-agent. The
exception to this rule of course is that provided under Article
1892(2), When [the agent] has been given the power, but without
[the principal] designating the person, and the person appointed
was notoriously incompetent or insolvent.
(b) he was given such power without designating the person and
substitute is notoriously incompetent or insolvent.
In either case, under Article 1893 of the Civil Code, the principal
may furthermore bring an action against the substitute with respect
to the obligations which the latter has contracted under the
substitution.
The clear implication under Article 1892, is that when the principal
has prohibited the agent from appointing a substitute, and yet the
agent goes ahead and appoints one, then the agent is personally
liable for the acts of the substitute, as though the contracts of the
substitute were his own. In addition, Article 1892 provides that in
such a case All acts of the substitute appointed against the
prohibition of the principal shall be void.
163
The terms of Article 1887 of the Civil Code which effectively states
that when an agent acts contrary to the instructions of his principal,
he is deemed to have acted without or in excess of authority, is a
rule that governs the relationship of the principal and agent; it is
not a rule that essentially addresses the interests of third parties
164
with whom the agent enters into juridical relations on behalf of the
principal.
Thus, under Article 1911 of the Civil Code, Even when the agent
has exceeded his authority, the principal remains solidarily liable
with the agent if the [principal] allowed the [agent] to act as though
he had full powers.
Under Article 1900 of the Civil Code, insofar as third persons are
concerned, an act is deemed to have been performed within the
scope of the agents 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 agent. In other words, as to third parties acting in
good faith, the written instructions of the principal are the binding
powers of the agent, and cannot be overcome by non-written
instructions of the principal not made known to them.
Thus, under the old Civil Code, where there was no counterpart of
what is now Article 1900, in Bank of P.I. v. De Coster, 47 Phil. 594
(1925), the Court held that the powers and duties of an agent are
confined and limited to those which are specified and defined in his
written power of attorney, which limitation is a notice to, and is
binding upon, the person dealing with such agent.
In Litonjua v. Fernandez, 427 SCRA 478 (2004), the Court held that
a person dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to the
extent of his powers; such person must not act negligently but must
use reasonable diligence and prudence to ascertain whether the
agent acts within the scope of his authority. The settled rule is that,
persons dealing with an assumed agent are bound at their peril, and
if they would hold the principal liable, to ascertain not only the fact
166
of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to prove it.
This was reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204
(2006).
In Yu Eng Cho v. Pan American World Airways, Inc., 328 SCRA 717
(2000), the Court held that the fact that one is dealing with an
agent, whether the agency be general or special, should be a
danger signal. The mere representation or declaration of one that
he is authorized to act on behalf of another cannot of itself serve as
proof of his authority to act as agent or of the extent of his
authority as agent.
Article 1897 of the Civil Code expressly provides that The agent
who acts as such is not personally liable to the party with whom he
contracts, and this is supplemented by Article 1910, which provides
that The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
In Ang v. Fulton Fire Insurance Co., 2 SCRA 945 (1961), the Court
held that when the agent has acted within the scope of his
authority, the action on the contract must be brought against the
principal and not against the agent, since in such an instance the
agent is not a party to the contract sued upon, and the party suing
has no cause of action against the agent.
the Court ruled that the principals could recover their lost
investment from the agent: There is nothing in the record which
would indicate that the defendant failed to exercise reasonable care
and diligence n the performance of his duty as such agent, or that
he undertook to guarantee the vendors title to the land purchased
by direction of the plaintiffs. (at p. 566.)
The basis of the rule set-out in Article 1897 finds its roots in
the principle of relativity in Contract Law which provides that a
contract is binding only as between the parties and their successors-
in interest. Consequently, a person acting as a mere representative
of another acquires no rights whatsoever, nor does he incur any
liabilities arising from the said contract between his principal and
another party. Angeles v. Philippine National Railways (PNR), 500
SCRA 444 (2006). Chua v. Total Office Products and Services
(Topros), Inc., 471 SCRA 500 (2005); Tan v. Engineering
Services, 498 SCRA 93 (2006); Chong v. Court of Appeals, 527
SCRA 144 (2007).
In Bay View Hotel v. Ker & Co., 116 SCRA 327 (1982), where
admissions were made in a case filed by an agent prior to the
amendment of the petition which formally included the principal as a
party to the case, the Court denied the argument that since the
implied admission was made before the amendment of its
complaint, it cannot work to the benefit of the principal, thus
secured by the agent within the scope of the agency ought to favor
the principal. This has to be the rule, for the act or declarations of
an agent of the party within the scope of the agency and during its
existence are considered and treated in turn as declarations, acts
and representations of his principal and may be given in evidence
against such party. (at pp. 332-333)
Caoile v. Court of Appeals, 226 SCRA 658 (1993), held that one who
signs a receipt as a witness with the word agent typed below his
signature, but never received the alleged amount or anything on
account of the subject transaction, is not personally liable.
Early on, Tuason v. Orozco, 5 Phil 596 (1906), has held that when
the agent expressly bind himself, he thereby obligates himself
personally by his own act, but that does not relieve the principal
from his obligation to pay the debt incurred for his benefit.
In Smith Bell v. Court of Appeals, 267 SCRA 530 (1997), the Court
held that the appointment by a foreign insurance company of a local
settling or claim agent, clothed with power to settle all the losses
and claims that may arise under the policies that may be issued by
or in behalf of the foreign company, does not amount to a
contractual acceptance of personal liability on the part of the local
settling or claim agent. An adjustment and settlement agent is no
different from any other agent from the point of view of his
responsibilities, for he also acts in a representative capacity.
[quoted from Salonga v. Warner, Barnes &Co., Ltd., 88 Phil. 125
(1951)]. In the same manner, a resident agent, as a representative
of the foreign insurance company, is tasked only to receive legal
processes on behalf of its principal and not to answer personally for
the any insurance claims.
When an agent, though acting within the scope of his authority, acts
with fraud or negligence, it affects two levels of legal relationships:
(a) that between the principal and the agent; and (b) insofar a third
parties are concerned, when they have entered into a contract with
the agent in the name of the principal. In other words, an agents
fraudulent or negligent acts produces two sets of liabilities for him,
172
Under Article 1909 of the Civil Code provides that The agent is
responsible not only for fraud, but also for negligence, which shall
be judged with more or less rigor by the courts, according to
whether the agency was or was not for a compensation. Article
1909 therefore set forth the general principal in Agency Law that
when an agent, in executing the orders and commissions of his
principal, carries out the instructions he has received from his
principal, and does not appear to have exceeded his authority or to
have acted with negligence, deceit, or fraud, he cannot be held
responsible for the failure of his principal to accomplish the object of
the agency. Gutierrez Hermanos v. Oria Hermanos, 30 Phil. 491
(1915); G. Puyat & Sons, Inc. v. Arco Amusement Company, 72
Phil. 402 (1941).
In National Bank v. Welch, Fairchild & Co., 44 Phil 780 (1923), the
Court held that while it is true that an agent who acts for a revealed
principal in the making of a contract does not become personally
bound to the other party in the sense that an action can ordinarily
be maintained upon such contract directly against the agent, yet
that rule does not control when the agent cannot intercept and
appropriate the thing which the principal is bound to deliver, and
thereby make the performance of the principal impossible. The
agent in any event must be precluded from doing any positive act
that could prevent performance on the part of his principal,
otherwise the agent becomes liable also on the contract.
charterer, its local agent was sought to be the entity made liable for
the damage caused. The Court hel: The difficulty is that [the
principal charterer] has not been impleaded in theses cases and so
is beyond our jurisdiction. The liability imposable upon it cannot be
borne by [local counterpart] which, as a mere agent, is not
answerable for injury caused by its principal. It is a well-settled
principle that the agent shall be liable for the act or omission of the
principal only if the latter is undisclosed. (at p. 354.)
The general rule is set under Article 1317 of the Civil Code that No
one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him. A
contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other party.
The rules under Article 1317 are supported under Article 1403,
which includes among those classified an unenforceable contracts,
(1) Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his power.
(a) The contract entered into in the name of the principal shall be
void as to the principal and the third party, if such third party with
whom the agent contracted was aware of the limits of the powers
granted by the principal;
(b) In such case, the agent would be liable personally to such third
party, if he undertook to secure the principals ratification;
Under Article 1898 of the New Civil Code, the acts of an agent
beyond the scope of his authority do not bind the principal, unless
the latter ratifies the same expressly or impliedly. Furthermore,
when the third person . . . knows that the agent was acting beyond
177
his power or authority, the principal cannot be held liable for the
acts of the agent. If the said third person is aware of the limits of
the authority, he is to blame, and is not entitled to recover damages
from the agent, unless the latter undertook to secure the principals
ratification. (at p. 31.)
In Borja, Sr. v. Sulyap, Inc., 399 SCRA 601 (2003), the Court held
that even when the agent, in this case the attorney-at-law who
represented the client in forging a compromise agreement, has
exceeded his authority in inserting penalty clause, the status of the
said clause is not void but merely voidable,i.e., capable of being
ratified. Indeed, the clients failure to question the inclusion of the
penalty in the judicial compromise despite several opportunities to
do so and with the representation of new counsel, was tantamount
to ratification; hence, the client was stopped from assailing the
validity thereof.
Further, Article 1318 of the Civil Code lists the requisites of a valid
and perfected contract, namely: (1) consent of the contracting
parties; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established. Pineda
was not authorized to enter into a contract to sell the property. As
the consent of the real owner of the property was not obtained, no
contract was perfect. (at p. 229; emphasis supplied.).
It may be true that the resulting sale was void under the terms of
Article 1874 of the Civil Code that declares a sale void the sale of a
piece of land effected through an agent, when the authority of the
agent is not in writing, but it was wrong for the Court to reason out
as afore-quoted, that the sale is void when made in the name of the
real owner whenever the purported agent had in fact no authority,
178
since it is clear under Article 1403 of the Civil Code, that such legal
infirmity does not render the sale void, but merely unenforceable.
In Zayco v. Serra, 49 Phil 985 (1925), it was held that when the
administration enters into a contract that are outside of the scope of
authority, the contract would nevertheless not be an absolute
nullity, but simply voidable at the instance of the parties who had
been improperly represented, and only such parties can assert the
nullity of said contracts as to them.
In DBP v. Court of Appeals, 231 SCRA 370 (1994), the Court held
that the rule that the agent is liable when he acts without authority
is founded upon the supposition that there has been some wrong or
omission on his part either in misrepresenting, or in affirming, or
concealing the authority under which he assumes to act. Inasmuch
as the non-disclosure of the limits of the agency carries with it the
implication that a deception was perpetuated on the unsuspecting
client, the provisions of Articles 19, 20 and 21 of the Civil Code
come into play. In otherwise, the basis of the personal liability on
the part of the agent is tort.
179
(b) As to third parties who relied upon the terms of the power of
attorney as written, even if in fact the agent had exceeded the
limits of his authority according to an understanding between the
principal and the agent (Arts. 1900 and 1903);
Article 1898 of the Civil Code acknowledges that the contract may
be validated if the principal ratifies or acknowledges the contracts
entered into without or in excess of authority of the agent. This
principle is reiterated in the second paragraph of Article 1910 of the
Civil Code, which provides that As for any obligation wherein the
agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.
Under Article 1901, a third person cannot set up the fact that the
agent has exceeded his powers, if the principal has ratified, or has
signified his willingness to ratify the agents act. Thus, in Phil.
Products co. v. PrimateriaPour Le Commerce Exterieur: Primaterial
[Phil.], Inc., 15 SCRA 301 (1965), the Court held that when agent
exceeds his authority, the matter can be raised only by the
principal, and when not so raised, recovery can be made by the
third party only against the principal. Article 1897 does not hold
180
that in case of excess of authority, both the agent and the principal
are liable to the other contracting party.
Under Article 1883 of the Civil Code, if an agent acts in his own
name, the principal has no right of action against the persons with
whom the agent has contracted; and neither have such persons a
right or cause of action against the principal. It a well-established
doctrine in jurisprudence that when an agent, in a matter that
is within the scope of his authority, enters into the covered contract
in his own name, then the contract is binding only against the
agent, and the principal is not bound, nor does he have legal
standing to enforce it; this is because the contract is deemed to
have been entered between the third party and the agent as his
own principal. [Herranz & Garriz v. Ker & Co., 8 Phil. 162
181
action against the persons with whom the agent has contracted;
neither have such persons against the principal. In such case the
agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal. In that case,
since the principals had caused their agent to enter into a charter
party in his own name and without disclosing that he acted for any
principal, then the principals have no standing to sue upon any
issue or cause of action arising from said charter party.
were still for the account or interest of the principal, unlike in the
case at bar where the real estate mortgage was executed to secure
the personal loans of the agent, thus
The above provision of the Civil Code relied upon by the petitioner
Bank, is not applicable to the case at bar. Herein respondent Aquino
acted purportedly as an agent of Gallardo, but actually acted in his
personal capacity. Involved herein are properties titled in the name
of respondent Gallardo against which the Bank proposes to foreclose
the mortgage constituted by an agent (Aquino) acting in his
personal capacity. Under these circumstances, we hold, as we did in
Philippine sugar Estates Development co. vs. Poizat, supra, that
Gallardos property is not liable on the real estate mortgage: (at p.
31.)
Article 1883 of the Civil Code makes it clear that the foregoing rules
are without prejudice to actions between principal and agent.
Aivad v. Filma Mercantile Co., 49 Phil. 816 (1926), held that the
rule in this jurisdiction is that where the merchandise is purchased
from an agent with undisclosed principal and without knowledge on
the part of the purchaser that the vendor is merely an agent, the
purchaser take titles to the merchandise and the principal cannot an
actions against him for the recovery of the merchandise or even for
damages, but can only proceed against the agent.
Under Article 1895, when solidarity has been agreed upon, each of
the agents is responsible for the non-fulfillment of the agency, and
for the fault or negligence of his fellow agents, except in the latter
case when the fellow agents acted beyond the scope of their
authority.
Compare the rule in Article in 1894 with the general rule of solidary
liability under Article 1915: when the agent is serving two or more
principals, the liability of the principals is solidary.
(a) Where the agent contracts in his own name, on a matter that it
within the scope of the agency (Art. 1883);
186
Under Article 1905 of the Civil Code, if the commission agent sells
on credit, the principal may still demand from his payment in cash,
but the agent shall be entitled to any interest or benefit which may
result from such sale.
Under Article 1906, should the agent sell on credit with the
authority of the principal, then the agent shall so inform the
principal with a statement of the names of the buyers. If he fails to
do so, the sale shall be deemed to have been made for cash insofar
as the principal is concerned.
(b) He shall pay the principal the proceeds of sale on same terms
agreed with purchaser
Under Article 1908, a commission agent who does not collect the
credits of his principal at the time when they become due and
demandable shall be liable for damages, unless he proves that he
exercise due diligence for that purpose.
Under Article 1909 of the Civil Code , the agent is responsible to the
principal for the damages suffered for his fraud and his negligence,
which shall be judged with more or less rigor by the courts
according to whether the agency was or was not for a
compensation.
In Tan Tiong Teck v. SEC, 69 Phil. 425 (1940), where the client
order the broker to sell the shares giving a floor or minimum price,
and the broker did sell at the minimum price indicated even though
the prevailing ranging prices were much higher that they, the
broker was liable for the difference suffered by the principal because
the broker failed to exercise the prudence and tact of a good father
of a family which the law required of him.
In Green Valley v. IAC, 133 SCRA 697 (1984), where the purported
agent refused to be held liable for merchandise received from the
principle on the ground that it was a mere agent to sell and the
ultimate buyers of the products should be the one made liable for
the purchase price, (whereas the purported principal insisted that it
was a sale arrangement), the Court ruled that whether the contract
between the parties be one of sale or agency to sell, there is no
doubt that the purported agent would be personally liable for the
price of the merchandise sold. Being a commission agent under its
authority, then pursuant to Article 1905, it should not have sold the
189
oOo
190
The central principle in the Law on Agency is that all contracts and
transactions entered into by the agent on behalf of the principal
within the scope of his authority are binding on the principal as
though he himself had entered into them directly. This tenet,
referred to as the doctrine of representation is repeatedly expressed
in various provisions in the Law on Agency.
Article 1897 of the Civil Code provides that the agent who acts as
such is not personally liable to the party with whom he contracts
when acting within the scope of his authority, unless he expressly
binds himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers. Tuason v. Orozco, 5 Phil
596 (1906), held that even when the agent has expressly bound
himself to the contract entered in the name of the principal, the act
does not relieve the principal from the obligations incurred, thus
Article 1910 of the Civil Code provides that the principal must
comply with all the obligations which the agent may have
contracted within the scope of his authority.
Lim Chai Seng v. Trinidad, 41 Phil 544 (1921), held that since the
general rule is that the principal is bound by the acts of his agent in
the scope of the agency, therefore when the agent had full authority
to make the tax returns and file them, together with the check
payments, with the Collector of Internal Revenue on behalf of the
principal, then the effects of dishonesty of the agent must be borne
by the principal, not by an innocent third party who has dealt with
the dishonest agent in good faith.
Article 1403 of the Civil Code provides the corollary rule that for
any obligation wherein the agent has exceeded his power, or acts
done by the agent outside of the scope of his authority, even when
entered into in the name of the principal, would not bind the
principal, and would thus not be void, but merely unenforceable.
Wise and Co. v. Tanglao, 63 Phil 372 (1936), held that when the
principal has duly empowered his agent to enter into a contract of
mortgage over his property as well as a contract of surety, but the
agent only entered into a contract of mortgage, no inference from
195
In the following acts done by the agent in the name of the principal,
but outside of the scope of his authority, the principal would still be
bound personally, thus:
(b) When the principal has allowed the purported agent to act as
though he had full powers (Art. 1911, Civil Code); and
(c) When the principal has revoked the agency, but the third party
have acted in good faith without notice of such revocation.
Under Article 1911 of the Civil Code, even when the agent has
exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full
powers. This is termed as agency by estoppel. It is also referred
to as the doctrine of apparent authority in Corporate Law.
In Cuison v. Court of Appeals, 227 SCRA 391 (1993), the fact that
the agent defrauded the principal in not turning over the proceeds
of the transactions to the latter cannot in any way relieve or
exonerate such principal from liability to the third persons who
relied on his agents authority. It is an equitable maxim that as
between two innocent parties, the one who made it possible for the
wrong to be done should be the one to bear the resulting loss.
In Bedia v. White, 204 SCRA 273 (1991), the Court held that when
a third party admitted in her written correspondence that he had
contracted with the principal through a duly authorized agent, and
then sues both the principal and the agent on an alleged breach of
that contract, and in fact later on dismisses the suit insofar as the
principal is concerned, there can be no cause of action against the
agent. Since it is the principal who should be answerable for the
obligation arising from the agency, it is obvious that if a third
person waives his claims against the principal, he cannot assert
them against the agent.
198
Manila Remnants also ruled that a principal becomes liability for the
acts and contracts done by its agent outside the scope of its
authority, when it fails to take measures to protect the dealing
public once it learns of the unlawful acts of its agent, including the
need to publish in a newspaper of general circulation the abrogation
of the powers of the agent, and failing to take steps to determine
the tainted transactions of the agent before the termination of
relations, thus: Even assuming that Manila Remnants was as much
a victim as the other innocent buyers, it cannot be gainsaid that it
was precisely its negligence and laxity in the day to day operations
of the real estate business which made it possible for the agent to
deceive unsuspecting vendees. (at p. 630.)
How does Ocfemia ruling jive with the other rulings of the Supreme
Court that hold that even in the case of a corporation, the sale
through its agent of a piece of land requires that the authority of
the corporate officer to sell on behalf of the corporation must be in
199
Respondents based their action before the trial court on the Deed of
Sale, the substance of which was alleged in and a copy thereof was
attached to the Petition for Mandamus. The Deed named Fe S. Tena
as the representative of the bank. Petitioner, however, failed to
specifically deny under oath the allegations in that contract. In fact,
it filed no answer at all, for which reason it was declared in default.
x x x.
In failing to file its answer specifically denying under oath the Deed
of Sale, the bank admitted the due execution of the said contract.
Such admission means that it acknowledged that Tena was
authorized to sign the Deed of Sale on its behalf. [Imperial Textile
Mills, Inc. v. C.A., 183 SCRA 1, March 22, 1990.] Thus, defenses
that are inconsistent with the due execution and the genuineness of
the written instrument are cut off by an admission implied from a
failure to make a verified specific denial.
x x x.
respondents, Marife S. Nino, went to the bank to ask for the board
resolution, she was merely told to bring the receipts. The bank
failed to categorically declare that Tena had no authority.
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that since
the basis of agency is representation, then the question of whether
an agency has been created is ordinarily a question which may be
established in the same way as any other fact, either by direct or
circumstantial evidence. It was held that though that fact or extent
of authority of the agents may not, as a general rules, be
established from the declarations of the agents alone, if one
professes to act as agent for another, she may be estopped to deny
her agency both as against the asserted principal and the third
persons interested in the transaction in which he or he is engaged.
The general rule is that the principal is liable to injured third parties
for the torts committed by the agent at the principals direction or in
the course and within the scope of the agents authority. It goes
without saying, that since the act of negligence was that of the
agent, he also becomes civilly liable to the injured parties, even
when he acts in representation of the principal.
Thus, under Article 1909 of the Civil Code provides that The agent
is responsible not only for fraud, but also for negligence, which shall
be judged with more or less rigor by the courts, according to
whether the agemcy was or was not for a compensation.
(a) The principal shall pay the agents commission only on the legal
basis that the agent has complied with his obligations with the
principal; and
(b) The principal shall be liable to the agent for the reasonable value
of the agents services.
203
Under Article 1912 of the Civil Code, the principal must advance to
the agent, should the latter so request, the sums necessary for the
execution of the agency. Should the agent have advanced them, the
principal must reimburse the agent therefore, even if the business
or undertaking was not successful, provided the agent is free from
fault.
Under Article 1918 of the Civil Code, the principal is not liable for
the expenses incurred by the agent in the following cases:
(b) When the expenses were due to the fault of the agent;
(c) When it was stipulated that the expenses would be borne by the
agent, or that the latter would be allowed only a certain sum.
However, it was ruled also in Dominion Insurance that while the Law
on Agency prohibits the area manager from obtaining
reimbursement, his right to recover may still be justified under the
general law on obligations and contracts, particularly Article 1236 of
206
Under Article 1913 of the Civil Code, the principal must indemnify
the agent for all the damages which the execution of the agency
may have caused the agent, without fault or negligence on agents
part.
In Albaladejo y Cia v. PRC, 45 Phil 556 (1923), the Court ruled that
when the purchase by one company of the copra of another
company is by way of contract of purchase rather than an agency to
purchase, the former is not liable to reimburse the latter for
expenses incurred by the latter in maintaining it purchasing
organization intact over a period during which the actual buying of
copra was suspended. The Court noted that the circumstances that
the buying company encouraged the selling company to keep its
organization intact during such period of suspension and suggested
that when the company resumed buying the selling company would
be compensated for all loss which it had suffered meaning that the
profits then to be made would justify such expenses, did not render
the buying company liable for such losses upon its subsequent
failure to resume the buying of copra: The inducements thus held
207
out to the plaintiff were not intended to lay the basis of any
contractual liability, and the law will not infer the existence of a
contract contrary to the revealed intention of the parties. (at p.
571.)
Under Article 1914 of the Civil Code, the agent is granted the power
to retain in pledge the things which are the object of the agency
until the principal effects the reimbursement and pays the
indemnity covering advances made and damages sustained.
Under Article 1915 of the Civil Code, if two or more persons have
appointed an agent for a common transaction or undertaking, they
shall be solidarily liable to the agent for all the consequences of the
agency.
The rule in this article applies even when the appointments were
made by the principals in separate acts, provided that they are for
the same transaction. The solidarity arises from the common
interest of the principals, and not from the act of constituting the
agency. By virtue of this solidarity, the agent can recover from any
principal the whole compensation and indemnity owing to him by
the others.The parties, however, may, by express agreement,
negate this solidary responsibility. The solidarity does not disappear
by the mere partition effected by the principals after the
accomplishment of the agency.
Under Article 1916 of the Civil Code, when two persons contract
with regard to the same thing, one of them with the agent and the
other with the principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without prejudice
to the provisions of Article 1544 of the Civil Code on the rules on
double sales.
Article 1917 of the Civil Code provides that in such a case, if the
agent had acted in good faith, the principal shall be liable in
damages to the third person whose contract must be rejected. On
the other hand, if the agent acted in bad faith, the agent alone shall
be responsible.
210
oOo
5 EXTINGUISHMENT OF AGENCY
[Updated: 24 August 2010]
V. EXTINGUISHMENT OF AGENCY
1. How and When Agency Extinguished
(6) By the expiration of the period for which the agency was
constituted. (1732a)
(f) By the expiration of the period for which the agency was
constituted.
Under Article 1925 of the Civil Code, when two or more principals
have granted a power of attorney for a common transaction, any
one of them may revoke the same without the consent of the other.
This rule is consistent with the rule under Article 1915 of the Civil
Code that the obligation of two or more principals to a common
agent is solidary, and consequently, the power to revoke the agency
can be made by the will of only one of the principals.
But the near absolute power of the principal to revoke the agency
should not be confused with the thought that there can be no
breach of contract committed by a principal who revokes the agency
which was constituted as irrevocable or for a definite term or
period. In such a case, the agreement as to the term of the agency
would not make the principal lose his power to revoke, and when he
does so revoke, the agency is terminated, but he would be liable to
the agent for the damages caused, including to the compensation
due the agent when the revocation was done in bad faith,i.e., that
the revocation of the agency relationship was done to avoid the
payment of the commission earned by the agent.
Thus, Daon v. Brimo, 42 Phil 133 (1921), held that where no time
for the continuance of the agency is fixed by the terms, the principal
is at liberty to terminate it at will subject only to the requirements
of good faith.
a. Express Revocation
shall not prejudice the latter if they were not given notice
thereof. (1734)
Under Article 1920 of the Civil Code, the principal may revoke the
agency at will, express or implied, and thereby compel the agent to
return the document evidencing the agency. This would ensure that
the document,i.e., written power of attorney, would not fall into the
hands of third parties who then would be acting in good faith in
entering into a contract in the name of the principal, believing there
is still existing agency relation.
The rules are consistent with the one set in Article 1873 of the Civil
Code, which provides that If a person specially informs another or
states by public advertisement that he has given a power of
attorney to a third person, the latter thereby becomes a duly
authorized agent, in the former case with respect to the person who
received the special information, and in the latter case with regard
to any person. In addition, Article 1873 provides that The power
shall continue to be in full force until the notice is rescinded in the
same manner in which it was given.
214
b. Implied Revocation
The critical time when the agency is revoked is from the day on
which notice thereof was given to the former agent. Thus, in Garcia
v. De Manzano, 39 Phil 577 (1919), where the father first gave a
power of attorney over the business to his son, and subsequently to
the mother, the Court held that without evidence showing that the
son was informed of the issuance of the power of attorney to the
mother, the transaction effected by the son pursuant to his power of
attorney, was valid and binding, thus
There is no proof in the record that the first agent, the son, knew of
the power-of-attorney to his mother.
Under Article 1924 of the Civil Code, the agency is revoked when
the principal directly manages the business entrusted to the agent,
dealing directly with third persons. The provision does not state
when the act of revocation takes place, and it can be presumed
therefore that the moment the principal directly manages the
business by dealing directly with third persons, the agency is
revoked. But that would only mean that the revocation of the
agency is only with respect to the third persons with whom the
principal deals directly; as to third parties who have previously
known of the power of attorney of the agent and who have not dealt
with the principal, the agency cannot be considered revoked. It is
also apparent that unless the agent is aware or given notice that the
principal has directly managed the business which is covered by his
power of attorney, then insofar as the agent is concerned there is as
yet no revocation of his powers.
Much later, in Guardez v. NLRC, 191 SCRA 487 (1990), where the
principal had authorized the purported agent to follow up
principals previous offer to sell a firetruck to a company, the Court
held that when the agent dropped out of the scene and it was the
principal that directly negotiated with the company to oversee the
perfection and consummation of the sale, no commission was due to
the agent because such agency would have been deemed revoked
upon the resumption of direct negotiations between the principal
and the company
In that decision, the son executed on behalf of the father, the deed
covering the sale of a rice-mill and camarin, in favor of buyers who
relied upon a 1928 power of attorney attached to the deed, but
which turned out was not a general power of attorney but a limited
one and [did] not give the express power to alienate the properties
in question. (at pp. 697-698) When the creditors of the principal
sought to have the sale declared void, the buyers claimed that the
defect in the sons authority to sell on behalf of the father was cured
by an earlier 1920 general power of attorney given to the same
agent [son] by the father. The Court nonetheless declared the sale
void on the ground that The making and accepting of a new power
of attorney, whether it enlarges or decreases the power of the agent
under a prior power of attorney, must be held to supplant and
revoke the latter when the two are inconsistent. If the new
appointment with limited powers does not revoke the general power
220
But Barretto also held that even though a period is stipulated during
which the agent is to hold his position in the service of the owner or
head of a mercantile establishment, yet the latter may, for any of
the special reason specified in article 300 of the Code of Commerce,
dismiss such agent even before the termination of the period,
including breach of trust on the part of the agent.
In Bacaling v. Muya, 380 SCRA 714 (2002), the Court ruled that
even an agency coupled with interest may indeed be revoked on the
ground of fraud committed by the agent, which is really an act of
rescission, the same must be clearly be proven.
Under Article 1921 of the Civil Code, if the agency has been
entrusted for the purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were not given notice
thereof. It seems clear, when compared with the situation in Article
1873, that notice by public advertisement would not constitute
sufficient notice to bind such specified third parties.
This fact was not known to the plaintiffs; and it is conceded in the
case that no notice of any kind was given by the defendant to the
plaintiffs of the termination of the relations between the defendant
222
and his agent. The defendant refused to pay the said sum upon
demand of the plaintiffs, placing such refusal upon the ground that
at the time the said tobacco was received and sold by Collantes he
was acting personally and not as agent of the defendant. This action
was brought to recover said sum.
As is seen, the only question for our decision is whether or not the
plaintiffs, acting in good faith and without knowledge, having sent
produce to sell on commission to the former agent of the defendant,
can recover of the defendant under the circumstances above set
forth. We are of the opinion that the defendant is liable. Having
advertised the fact that Collantes was his agent and having given
special notice to the plaintiffs of that fact, and having given them a
special invitation to deal with such agent, it was the duty of the
defendant on the termination of the relationship of principal and
agent to give due and timely notice thereof to the plaintiffs. Failing
to do so, he is responsible to them for whatever goods may have
been in good faith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such
relationship. (at pp. 272-273.)
Lustan v. Court of Appeals, 266 SCRA 663 (1997), held that when
the special power of attorney duly authorized the agent to represent
and act on behalf of the principal, the power granted thereto can be
relied upon by third parties for whom specifically the authority was
issued, thus:
act as though he had full powers (Article 1911, Civil Code). The
mortgage directly and immediately subjects the property upon
which it is imposed. The property of third persons which has been
expressly mortgaged to guarantee an obligation to which the said
persons are foreign, is directly and jointly liable for the fulfillment
thereof; it is therefore subject to execution and sale for the purpose
of paying the amount of the debt for which it is liable. However,
petitioner has an unquestionable right to demand proportional
indemnification from Parangan with respect to the sum paid to PNB
from the proceeds of the sale of her property in case the same is
sold to satisfy the unpaid debts. (at p. 676.)
Lustan holds that where the special power of attorney provides that
the same is good not only for the principal loan but also for
subsequent commercial, individual, agricultural loan or credit
accommodation that the attorney-in-fact may obtain and until the
power of attorney is revoked in a public instrument and a copy of
which is furnished to the bank, in the absence of any proof that the
bank had knowledge that the last three loans were without the
express authority of the principal, the bank cannot be prejudice.
Under Article 1922 of the Civil Code, if the agent had general
powers, revocation of the agency does not prejudice third persons
who acted in good faith and without knowledge of the revocation.
Notice of the revocation in a newspaper of general circulation is a
sufficient warning to third persons.
The argument that foreclosure by the Bank under its power of sale
is barred upon death of the debtor, because agency is extinguished
by the death of the principal, under Article 1732 of the Civil Code of
1889 and Article 1919 of the Civil Code of the Philippines, neglects
to take into account that the power to foreclose is not an ordinary
agency that contemplates exclusively the representation of the
principal by the agent but is primarily an authority conferred upon
the mortgagee for the latters own protection. It is, in fact, an
ancillary stipulation supported by the same causa or consideration
for the mortgage and forms an essential and inseparable part of
that bilateral agreement. As can be seen in the preceding quotations
from Pasno vs. Ravina, 54 Phi.. 382, both the majority and the
dissenting opinions conceded that the power to foreclose
extrajudicially survived the death of the mortgagor, even under the
law prior to the Civil Code of the Philippines now in force. (at p.
839.)
. . . In the case at bar, Sevilla solicited airline fares, but she did so
for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself, based on her letter of
November 28, 1961, presumed her principals authority as owner of
the business undertaking. We are convinced, considering the
circumstances and from the respondent Courts recital of facts, that
the parties had contemplated a principal-agent relationship, rather
than a joint management or a partnership.
x x x.
227
In Lim v. Saban, 447 SCRA 232 (2004), reiterated the principle that
just because the terms of the agency agreement grants to the agent
by way of commission, such amount of the purchase price that is
above the indicated price of the principal (over-price), does not
constitute the agency once that is coupled with an interest, thus:
Stated differently, an agency is deemed as one coupled with an
interest where it is established for the mutual benefit of the
principal and of the agent, or for the interest of the principal and of
third persons, and it cannot be revoked by the principal so long as
the interest of the agent or of a third person subsists. In an agency
coupled with an interest, the agents interest must be in the subject
matter of the power conferred and not merely an interst in the
exercise of the power because it entitles him to compensation.
When an agents interest is confined to earning his agreed
compensation, the agency is not one coupled with an interest, since
an agents interest in obtaining his compensation as such agent is
an ordinary incident of the agency relationship. (at p. 240.)
Perhaps the best way to end this section is to discuss the decision
inMendoza v. Paule, 579 SCRA 341 (2009), which applied the
agency coupled with interest provisions of Articel 1927 of the New
Civil Code. In that case, Mendoza and Paule entered into an
informal partnership arrangement to bid for NIA project under the
following terms: PAULEs contribution thereto is his contractors
license and expertise, while MENDOZA would provide and secure the
234
needed funds for labor, materials and services; deal with the
suppliers and sub-c0ntractors; and in general and together with
PAULE, oversee the effective implmentation of the project. For this,
PAULE would receive as shis share three percent (3%) of the proejct
cost while the rest of th eprofits shall go to MENDOZA. (at p. 354.)
However, since only Paule had the accredited business enterprise to
qualify for the bid, no partnership arrangement was drawn-up, and
instead Paule executed a Special Power of Attorney in favor of
Mendoza To represent me (PAULE) in my capacity as General
Manager of the E.M. PAULE CONSTRUCTION AND TRADING, in all
meetings, conferences and transactions exclusively for the
contruction of the projects (at p. 347.) with NIA. When Paule had
received his 3% share in the project costs, and the rest of the
collections from the NIA project all pertained to MENDOZA, Paule
revoked the Special Power of Attorney, depriving Mendoza of the
legal means by which to collect the unpaid billings from NIA. One of
the issues raised is whether Paule could legal revoke the Special
Power of Attorney, and his liability to Mendoza for such revocation.
The Court held in Mendozaheld
Under Article 1928 of the Civil Code, the agent may withdrawal from
the agency by giving due notice to the principal. If the principal
should suffer any damage by reason of the withdrawal, the agent
must indemnify him therefore, unless the agent should base his
withdrawal upon the impossibility of continuing the performance of
the agency without grave detriment to himself.
Under Article 1929 of the Civil Code, even when the agent should
withdraw for a valid reason, must continue to act until the principal
236
In Valera v. Velasco, 51 Phil 695 (1928), it was held that the fact
that an agent instituted an action against his principal for the
recovery of the balance in his favor resulting from the liquidation of
the accounts between them arising from the agency, and rendered a
final account of his operations, was equivalent to an express
renunciation of the agency, and terminated the juridical relation
between them, thus:
. . . for, although the agent has not expressly told his principal that
he renounced the agency, yet neither dignity nor decorum permits
the latter to continue representing a person who has adopted such
an antagonistic attitude towards him. When the agent filed a
complaint against his principal for the recovery of a sum of money
arising from the liquidation of the accounts between them in
connection with the agency, [the principal] could not have
understood otherwise because his act was more expressive that
words and could not have caused any doubt. . . In order to
237
Thus, the Court held that the subsequent purchase by the former
agent of the principals usufructuary rights in a public auction was
valid, since no fiduciary relationship existed between them at that
point.
The same rule prevails at common law the death of the principal
effects instantaneous and absolute revocation of the authority of the
agent unless the power be coupled with an interest. This is the
prevalent rule in American Jurisprudence where it is well-settled
238
In Lavina v. Court of Appeals, 171 SCRA 691 (1988), the Court held
that the death of a client divests his lawyer of authority to represent
him as counsel, since a dead client has no personality and cannot be
represented by an attorney.
Under Article 1930 of the Civil Code, the agency shall remain in full
force and effect even after the death of the principal, if it has been
constituted in the common interest of the latter and of the agent, or
239
Under Article 1931 of the Civil Code, anything done by the agent,
without knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall be fully
effective with respect to third persons who may have contracted
240
with him in good faith. It is obvious, that third parties who deal with
the agent in bad faith (i.e., knowing that the principal is dead)
would not be protected, and the contract would be void, not just
unenforceable, for lack of the essential element of consent.
In Buason v. Panuyas, 105 Phil 795 (1959), the Court applied the
provisions of Article 1931 in upholding the validity of the sale of the
land effected by the agent only after the death of the principal,
when no evidence was adduced to show that at the time of sale
both the agent and the buyers were unaware of the death of the
principal. (Reiterated in Herrera v. Uy Kim Guan, 1 SCRA 406
[1961]).
Article 1931 is the applicable law. Under this provision, an act done
by the agent after the death of his principal is valid and effective
only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal, and (2) that the third
person who contracted with the agent himself acted in good faith.
Good faith here means that the third son was not aware of the
death of the principal at the time he contracted with said agent.
These two requisites must concur: the absence of one will render
the act of the agent invalid unenforceable.
If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if
the agency is general in nature, without reference to particular
person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the
agency publicly known.
The Civil Code does not impose a duty on the heirs to notify the
agent of the death of the principal. What the Code provides in
Article 1932 is that, if the agent dies, his heirs must notify the
principal thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter. Hence, the
fact that no notice of the death of the principal was registered on
the certificate of title of the property in the Office of the Register of
Deeds, is not fatal to the cause of the estate of the principal. (at p.
264.)
Art. 1932. If the agent dies, his heirs must notify the
principal thereof, and in the meantime adopt such measures
as the circumstances may demand in the interest of the
latter. (1739).
relationship between the principal and the agent, such that the
agency is extinguished by the death of the agent, and his rights and
obligations arising from the contract of agency are not transmittable
to his heirs.
However, under Article 1932 of the Civil Code, if the agent dies
during the term of the agency, his heirs must notify the principal
thereof, and in the meantime must adopt such measures as the
circumstances may demand in the interest of the principal. The
provision establishes a rare situation where an obligation is imposed
by law upon persons who are not parties to a contractual
relationship, and that in fact of one that has already been
extinguished by the death of the agent.
6. Dissolution of a Corporation
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