Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
OBLIGATIONS OF THE PRINCIPAL
ART. 1910. The principal must comply
with all the obligations which the agent
may have contracted within the scope
of his authority.
As for any obligation wherein the agent
has exceeded his power, the principal is
not bound except when he ratifies it
expressly or tacitly.
In general:
●
●
●
Responsibility of the principal is
primarily
based upon the
contract and the validity of the
contract between them.
Deal fairly and in good faith just
like the agent.
Comply with the terms of their
employment contract. Should he
refuse to perform it should be
justified .
1. Comply with all the obligations
with Thea agent may have
contracted within the scope of
his authority
2. To advance to the agent, should
the latter so request, the sums
necessary for the execution of
the agency
3. To reimburse the agent for all
advances
made
by
him,
provided the agent is free from
fault
4. To indemnify the agent for all the
damages which the execution of
the agency may have caused
the latter without fault or
negligence on his part
5. To
pay
the
agent
the
compensation agreed upon, or if
no compensation was specified,
the reasonable value of the
agent’s services.
LIABILITY OF PRINCIPAL TO THIRD
PERSONS
General Rule:
SPECIFIC OBLIGATIONS OF THE
PRINCIPAL
Normal Practice:
Principal complies with the contract
specifying the obligations and duties of
the principal.
Principal is liable to third persons for all
acts committed by the agent and the
principal should bear damage caused to
third persons. Principal becomes liable
when he ratifies an authorized act of his
agent.
Reason:
In the absence of stipulations, : the law
impose certain obligations;
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
Act of an agent is the act of principal.
Thus, where the agent acts within the
scope of the authority which the
principal
holds
himself
out
as
possessing, or knowingly permits him to
assume, the principal is made
responsible.
Notice to the agent is notice to the
principal hence the third party is not
liable for damages for failure of the
agent to give notice to his principal.
Estoppel to deny.
Liability of the third persib to the
principal arises in 3 situations:
Principal is bound by the act of the
principal for placing the agent in a
position that persons of ordinary
prudence would believe that the agent
possessed if certain authority and that
3rd person can rely on the assumption.
Example:
A bank is liable to innocent third
persons where representation is made
in the course of its normal business by
an agent even though such agent
abused his authority.
LIABILITY OF PRINCIPAL TO THIRD
PERSONS
Third parties may not set-off or allege
any defense against the agent, in action
by principal to enforce the contract
other than one which arises out of the
particular contract upon which the
action is brought.
TORTS
(a) Where the third person damages or
injures property or interest of the
principal in the possession of the agent;
(b) Where the third person colludes with
the agent to injure or defraud the
principal; and
(c) Where the third person induces the
agent to violate his contract with the
principal to betray the trust reposed
upon him by the principal.
PROPERTY RECEIVED
Although the agent does not have legal
title to the property entrusted, in some
special cases he can effect a transfer
thereof valid as against the principal.
If there is no apparent authority or a
law, the principal may recover property
from the agent’s transferee.
LIABILITY OF PRINCIPAL FOR
MISMANAGEMENT OF BUSINESS
BY HIS AGENT
RULE:
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
Mismanagement of the business of a
party by his agents does not relieve
said party from the responsibility that he
had contracted to third persons.
Example:
The agent defrauded the principal in not
turning over the proceeds of the
transactions to the latter, it cannot
exonerate him from liability to the third
person who relied on his agent’s
authority
REPRESENTATION ESSENCE OF
AGENCY
Agent acts in a representative
capacity.
It is not enough, however, that the agent
should act within the scope of his
authority under Article 1910. (par. 1.)
The agent must also act in a
representative capacity (Art. 1868.), in
the principal’s name; otherwise, the
principal assumes no liability.
Agent acts within limits of his
authority.
Agent who exceeds his authority is not
deemed a representative of the
principal.
Hence, the principal is not bound unless
he ratifies the act expressly or impliedly.
Without such ratification, the agent is
the one personally liable.
RATIFICATION BY THE PRINCIPAL
Ratification
The adoption or affirmation by a person
of a prior act which did not bind him, but
which was done or professed to be
done on his account thus giving effect
to the acts as if originally authorized.
It may be implied from the principal’s
conduct, e.g., acceptance of benefits by
the principal under a contract entered in
his name.
Act of ratification purely voluntary.
Principal has an option to ratify or not,
and that he has this advantage over the
other party because he may hold the
other party whether the other party
wishes or not but the other party cannot
hold him if he is not willing to be held.
The failure or refusal of the principal to
ratify the unauthorized acts of his agent
makes the latter personally in damages
to the third party.
Conditions for ratification.
(1) The principal must have the capacity
and power to ratify;
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HS Notes
Agency, Partnership and Trusts-Week 5
(2) He must have had knowledge or had
reason to know of material or essential
facts about the transaction;
(3) He must ratify the acts in its entirety;
(4) The act must be capable of
ratification; and
(5) The act must be done in behalf of
the principal.
occurred, so altered that he is no longer
capable of doing the original act.
Forms of ratification.
Knowledge by ratifier of material
facts essential.
Express Ratification- The principal
simply informs the agent, the third party,
or someone else of his intention to
honor
the
agent’s
unauthorized
dealings.
Implied Ratification- Communicated
his intent to ratify by words or conduct
that had amounted to ratification or
even by silence or inaction where under
the circumstances a reasonable person
would have expressed objections to
what the agent’s had done.
Persons entitled to ratify.
Ratifier has the power or authority to do,
on his account, the original act which is
sought to be ratified.
A principal is incapable of ratifying an
act if his own position has, in the
interval between the time the agent
performed the act and the time when
the ratification is supposed to have
The principal will not be permitted to
ratify after the third party has already
indicated a desire to with- draw from the
transaction. Obviously, there can be no
ratification of an illegal transaction.
Meaning of material facts.
Those which reasonably ought to be
known by the principal, having in mind
the factors of time, place, and
circumstance, and especially the
situation of the parties.
Full and complete knowledge.
In order to bind a principal by
ratification, he must have been in
possession of all the facts and must
have acted in the light of such facts
Actual Knowledge
General rule requires actual knowledge
on the part of the principal, as a
condition to the imposition upon him of
the
obligation
of
his
agent’s
unauthorized acts.
Burden to show such knowledge.
Whoever, therefore, seeks to rely on a
ratification is bound to show that it was
made under such circumstances as in
law to be binding on the principal,
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
especially to see that all material facts
were made known to him.
The principal must have either actual
knowledge of material facts or sufficient
knowledge or notice of other facts so
that it would have been easy to find out
the material facts.
Ratification must be entire.
The act must be ratified in its entirety or
not at all. A person cannot ratify that
portion
which
is
beneficial
or
advantageous to him and repudiate that
portion which is burdensome or
disadvantageous.
Acts that may be ratified.
Valid/void acts. — Usually, those acts
that may be authorized (i.e., they are
valid) may be ratified. Acts which are
absolutely void cannot be authorized
nor ratified.
Voidable acts. — Acts which are
merely voidable may be ratified.5 The
reason is that a voidable act is not
inoperative but imperfectly inoperative.
Ratification, indeed, is a method by
which a voidable act may be ratified.
Unrevoked acts.
Principal must ratify his agent’s
unauthorized contract before it is
revoked by the other contracting party.7
In other words, the third party’s contract
with the unauthorized agent may be
said to constitute an offer to the
principal which can be revoked by the
offeror before acceptance by the
offeree.
Criminal acts.
The general rule is subject to
qualification in one important particular.
A person who expressly or impliedly
represents that his forged signature is
genuine, would be estopped from
denying its genuineness against one
who has changed his position from the
worse.
Tortious acts.
In agency to commit a tort would
generally be inoperative and, therefore,
the ratification without more of a tort is
inconceivable, and is, in fact, a rare
phenomenon.
Acts must be done in behalf of
principal.
A
principal
cannot
ratify
the
unauthorized act of another person
unless that person purported to act as
agent for, and in the name of, the principal, and not in his own behalf.
Effects of ratification by principal.
With respect to agent.
Ratification relieves the agent from
liability to the third party to the
unauthorized transaction, and to his
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
principal for acting without authority and
he may recover compensation due for
performing the act which has been
ratified.
With respect to principal himself.
The principal who ratifies thereby
assumes
responsibility
for
the
unauthorized act, as fully as if the agent
had acted under original authority but
he is not liable for acts outside the
authority approved by his ratification.
Thus, ratification does not render the
principal
liable
for
fraudulent
misrepresentations made by the agent
without his knowledge.
With respect to third persons.
Where a third person is liable to a
principal under an unauthorized act of
his agent, the third person may not be
relieved of his liability on the theory that
the principal ratified the agent’s acts
merely because the principal made an
unsuccessful effort to collect from the
agent.
Retroactive effect of ratification.
Generally: Ratification has a retroactive
effect. It is equivalent to initial approval
or prior authority.
Exceptions:
1. Rights of third parties.
Where retroactive application
would defeat rights of third
parties which have accrued
between the time of the making
of the unauthorized contract and
the time of ratification.
2. Intervening act or omission
otherwise rightful.
Where it will render wrongful an
otherwise
rightful
act
or
omission which has taken place
between the making of the
unauthorized contract and the
time of its ratification.
3. Circumvention of legal rule or
provision.
Where it would be to allow the
circumvention of a rule of law
formulated in the interest of
public policy.
4. Withdrawal by third party from
contract.
If the third party has withdrawn
from the contract (supra.), the
act or transaction is no longer
capable of ratification.
AGENCY BY ESTOPPEL
ART. 1911. Even when the agent has
exceeded his authority, the principal is
solidarily liable with the agent if the
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HS Notes
Agency, Partnership and Trusts-Week 5
former allowed the latter to act as
though he had full powers. (n)
Agency by estoppel
Through estoppel:
a. An admission or representation
b. Is rendered conclusive upon the
person making it; and
c. Cannot be denied or disproved
as against the person relying
thereon.
Meaning of estoppel.
Estoppel is a bar which precludes a
person from denying or asserting
anything contrary to that which has
been established as the truth by his
own deed or representation either
express or implied.
Ratification
distinguished.
Ratification
Rests
intention
and
estoppel
Estoppel
on Rests
prejudice
on
Retroacts as if Affects
only
originally
relevant parts of
authorized
the transaction.
Substance
is Substance is the
confirmation
of principal’s
unauthorized
inducement
for
acts after it has third party to act
been done.
to his prejudice.
When principal solidarily liable with
the agent.
The third person with whom the agent
dealt may sue either the agent or the
principal alone, or both. The agent
should be exempt from liability if he
acted in good faith.
APPARENT
AUTHORITY
DISTINGUISHED
FROM
AUTHORITY BY ESTOPPEL
Apparent
authority
Authority
Estoppel
by
It is though not
actually granted,
the
principal
knowingly
permits the agent
to exercise or
holds him out as
possessing.
The principal, by
his
culpable
negligence,
permits his agent
to
exercise
powers
not
granted to him,
even though the
principal
may
have no notice or
knowledge of the
conduct of the
agent.
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
It is not founded
in negligence of
the principal but
in the conscious
permission
of
acts beyond the
powers granted,
It has its basis in
the negligence of
the principal in
failing properly to
supervise
the
affairs of the
agent, allowing
him to exercise
powers
not
granted to him,
and so justifies
others
in
believing
he
possesses
the
requisite
authority.
IMPLIED AGENCY DISTINGUISHED
FROM AGENCY BY ESTOPPEL
Implied Agency
Agency
Estoppel
by
There
is
an
actual agency
The authority of
the agent is not
real
but only
apparent.
Thus,
the
Principal alone is
liable.
If estoppel is
caused by the
principal- he is
liable to any third
person
who
relied on the
misrepresentatio
n.
If estoppel is
caused by the
agent- then only
the
agent
is
liable.
OBLIGATION TO ADVANCE FUNDS
ART. 1912. The principal must advance
to the agent, should the latter so
request, the sums necessary for the
execution of the agency.
Should the agent have advanced them,
the principal must reimburse him
therefor, even if the business or
undertaking
was
not successful,
provided the agent is free from all fault.
The reimbursement shall include
interest on the sums advanced, from
the day on which the advance was
made. (1728)
RULE:
In the absence of stipulation that the
agent shall advance the necessary
funds (Art. 1886.), the principal must
advance to the agent upon his request
the sums necessary for the execution of
the agency.
If the principal fails to comply with his
obligations, the agent will not be liable
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
for the damage which, through his nonperformance, the principal may suffer.
principal to incur such expenditure but
also as a promise to repay it.
2.
OBLIGATION
TO
REIMBURSE
AGENT FOR FUNDS ADVANCED
BY LATTER
●
●
In case the agent advanced the
sums
necessary
for
the
execution
of
the
agency,
whether on his own initiative or
by virtue of stipulation, the said
advances must be reimbursed
by the principal with interest
from the day the advance was
made.
Demand is not necessary in
order that delay on the part of
the principal shall exist.
NB:
1. Obligation founded on implied
promise to repay.
Generally, one is employed or directed
by another to do an act in his behalf, not
manifestly wrong, the law implies a
promise by the principal to reimburse
the agent for expenditures incurred as a
proximate consequence of the good
faith execution of the agency, which
includes interest thereon.
Reason: Based on principle that a
request to undertake an agency, the
implied request on the part of the
Obligation not affected even
if undertaking not successful.
Obligation to reimburse the agent
cannot be defeated by the fact that “the
business or undertaking was not
successful” provided the agent is free
from all fault.
Reason: The reason for this rule is that
the agent simply obligates himself to
represent the principal and not that all
the business entrusted to him shall be
successful.
OBLIGATION
AGENT
TO
INDEMNIFY
ART. 1913. The principal must also
indemnify the agent for all the damages
which the execution of the agency may
have caused the latter, without fault or
negligence on his part. (1729)
Based on equity
Logical corollary to the rule which
makes the agent liable to the principal
for damages or losses which the latter
may suffer because of his nonperformance.
Where damages caused
execution of agency.
by
the
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HS Notes
Agency, Partnership and Trusts-Week 5
The agent should not be required to
suffer loss from the doing of an act
apparently lawful in itself, and which he
has undertaken to do by the direction
and for the benefit and advantage of his
principal.
●
●
Where damages caused by wrongful
acts of third persons.
Liability of the principal for damages is
limited only to that which the execution
of the agency has caused the agent.
Where agent acted upon his own
account
Similarly, there is no obligation to
indemnify where no agency relation
exists, as where it appears that the
supposed agent acted upon its own
account and not as an agent, in the
legal sense.
RIGHT OF AGENT TO RETAIN
OBJECT OF AGENCY IN PLEDGE
ART. 1914. The agent may retain in
pledge the things which are the object
of the agency until the principal effects
the reimbursement and pays the
indemnity set forth in the two preceding
articles. (1730)
If the principal fails to reimburse
or indemnify the agent as
required in Articles 1912 and
1913, the agent has the right to
retain in pledge the things which
are the object of the agency.
Agent is not entitled to the
excess in case the things are
sold to satisfy his claim and the
proceeds thereof are more than
the amount due.
Nature of agent’s right of lien.
Right limited to subject matter of
agency.
The lien of the agent is specific or
particular in character, and not a
general lien
Right requires possession by agent
of subject matter.
Agent in order to have a lien, must have
some possession, custody, control, or
disposing power in and over the subject
matter in which the lien is claimed.
Right generally only in favor of
agent.
In the absence of a ratification of a
sub-agent’s acts by the principal, the
right of lien exists only in favor of the
agent
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
WHEN PRINCIPALS SOLIDARILY
LIABLE TO AGENCY
ART. 1915. If two or more persons have
appointed an agent for a common
transaction or undertaking, they shall be
solidarily liable to the agent for all the
conse- quences of the agency. (1731)
Nature of liability of two or more
principals to their agents.
“Joint principals” relates to a group with
substantially identical interests, and
contemplates the appointment of an
agent or agents empowered to bind the
members of the group jointly (solidarily).
Each principal may be sued by the
agent for the entire amount due and not
just for his proportionate share.
Generally, all of the joint principals
must unite in the appointment of an
agent.
An example of an exception to the rule
is partnership though it is usually cited
as an example of joint (solidary)
principalship.
Requisites for solidary liability.
There are three requisites for the
application of the above article:
(1) There are two or more principals;
(2) The principals have all concurred in
the appointment of the same agent; and
(3) The agent is appointed for a
common transaction or un- dertaking.
RULE WHERE TWO PERSONS
CONTRACT SEPARATELY WITH
AGENT AND PRINCIPAL
ART. 1916. When two persons contract
with regard to the same thing, one of
them with the agent and the other with
the principal, and the two contracts are
in- compatible with each other, that of
prior date shall be preferred, without
prejudice to the provisions of article
1544. (n)
Rule:
If the two contracts are incompatible
with each other, the one of prior date
shall be preferred.
LIABILITY TO THIRD PERSON OF
AGENT OR PRINCIPAL WHO
CONTRACTS SEPARATELY
ART. 1917. In the case referred to in the
preceding article, if the agent has acted
in good faith, the principal shall be liable
in damages to the third person whose
contract must be rejected. If the agent
acted in bad faith, he alone shall be
responsible.
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
Rule: Liability to third person of agent
or principal who contracts separately
Depends on whether the agent acted in
bad faith or not. If the agent acted in
good faith and within the scope of his
authority, the principal incurs liability.
If the agent acted in bad faith, he alone
shall be responsible to such third
person.
WHEN PRINCIPAL
FOR EXPENSES
MODES OF EXTINGUISHMENT OF
AGENCY
NOT LIABLE
ART. 1918. The principal is not liable for
the expenses incurred by the agent in
the following cases:
(1) If the agent acted in contravention of
the principal’s instructions, unless the
latter should wish to avail himself of the
benefits derived from the contract;
(2) When the expenses were due to the
fault of the agent;
(3) When the agent incurred them with
knowledge that an unfavorable result
would ensue, if the principal was not
aware thereof;
(4) When it was stipulated that the
expenses would be borne by the agent,
or that the latter would be allowed only
a certain sum.
Reason:
No.1 - To punish the agent for the
exception, the acceptance of benefits is
implied ratification.
No.2 - It is self-evident.
No.3 - The agent is guilty of bad faith
and lack of diligence.
No.4 - An express stipulation which is
not contrary to LAMOGPOPP is binding
between parties.
Modes of Extinguishing Agency (Art.
1919)
1. By Agreement:
a. By the accomplishment
of the object or purpose
of the agency (Art. 1919,
Par. 5)
b. By the expiration of the
period for which the
agency was constituted
(Arrt. 1919, Par. 6)
2. By the subsequent acts of the
party which may either
a. By the act of both parties
or by mutual consent
b. By the unilateral act of
one
of
them
((
Revocation (Art 1919,
Par. 1) and Withdrawal of
the Agent (Art. 1919,
Par. 2) )
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HS Notes
Agency, Partnership and Trusts-Week 5
3. By operation of law
NB: List is not exclusive. Agency may
also be extinguished by:
1. Modes of extinguishment of
obligations in general
2. War
3. Legal impossibility
4. Termination of agent’s authority
5. Occurance of a specified event
CONTINUANCE AND CAPACITY OF
PRINCIPAL AND AGENT
When once shown to have existed, an
agency relation will be presumed to
have continued, in the absence of
anything to show its termination; and
the burden of proving a revocation or
other termination of an agency is on the
party asserting itAgency requires the
presence, capacity, and solvency of
both
the
principal
and
agent.
Consequently,
the
death,
civil
interdiction, insanity, or insolvency1
of either party terminates the agen- cy
(see Arts. 39, 1327.) and this is true
notwithstanding that the agency period
has not yet expired.
Death - Whether the death of one of
two or more principals or of one of two
or more agents terminates the agency
depends upon the intention of the
parties. Generally, the death of one of
several principals does not revoke the
agent’s authority nor does the death of
one of several agents put an end to the
agency of all, whether the responsibility
of the several principals or agents is
joint or solidary. (see Arts. 1844-1895,
1915.) The intention of the parties
controls
except
as
otherwise
provided by law.
Civil interdiction - deprives
the
offender during the period of his
sentence of the right to manage his
property and dispose of such property
by any act or any conveyance inter
vivos. (Art. 34, Revised Penal Code.)
A person under civil interdiction
cannot validly give consent. (Art.
1327.)
Act of insolvency a. Insolvency of the Principal the principal loses control of the
subject matter of the agency
b. Insolvency of the Agent - the
authority of the agent to act for
his principal generally ceases by
operation of law upon an
adjudication of the principal’s
insolvency. The insolvency of
the agent will also ordinarily
put an end to the agency, at
least if it is in any way
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
connected with the agent’s
business which has caused his
failure.
death of principal and the third
person contracted with the
agent in good faith
NB: But the insolvency of the
agent will not destroy any right
he may have under a power
coupled with interest.
Power to foreclose survives death of
mortgagor
DEATH OF THE PRINCIPAL OR
AGENT
GR: By reason of the very nature of the
relationship between the principal and
agent, agency is extinguished ipso
jure upon the death of either
principal or agent.
No need for power of attorney Although a revocation of a power of
attorney to be effective must be
communicated by the parties concerned
(see Arts. 1921 and 1922.), yet a
revocation by operation of law, such as
by death of the principal is, as a rule,
instantaneously effective inasmuch as
“by legal fiction the agent’s exercise of
authority is regarded as an execution of
the principal’s continuing will.”
XPNs:
1. The agency is coupled with
interest (Art. 1930)
2. That the act of the agent was
executed w/o knowledge of
1. Under Art. 3135 - The power of
sale in a deed of mortgage is not
revoked by the death of the
principal (mortgagor) as it 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 latter’s own
protection. It is an ancillary
stipulation supported by the
same cause or consideration
for the mortgage and forms an
essential and inseparable part
of that bilateral agreement.
That power survives the death
of the mortgagor.
2. Section 7, Rule 36 - grants to
a mortgagee three remedies that
can be alternatively pursued in
case the mortgagor dies
a. Waive the mortgage and
claim the entire debt
from the estate of the
mortgagor
as
an
ordinary claim
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
b. Foreclose the mortgage
judicially
and
prove
deficiency as an ordinary
claim
c. To rely on the mortgage
exclusively , foreclosing
the same at any time
before it is barred by
prescription
DISSOLUTION
OF
CORPORATION
FIRM
OR
GR: Dissolution of a firm or corporation
which entrusted (as principal) or
accepted (as agent) the agency,
extinguishes its juridical existence as far
as the right to go on doing ordinary
business is concerned
XPN: When the purpose is for winding
up its affairs (It is equivalent to its
death, being sometimes likened to the
death of a natural person). After winding
up, the existence of the firm or
corporation is terminated for all
purposes.
ACCOMPLISHMENT
OR PURPOSE
OF OBJECT
1. Termination of agency ipso
facto - At least as between the
parties, principal and agent, the
fulfillment of the purpose for
which the agency is created ipso
facto terminates the agency,
even though expressed to be
irrevocable.
2. Continued
existence
of
authority illogical - When the
object or purpose of the agency
is accomplished and nothing
else remains to be done, there
would be no sense in continuing
the relationship beyond that
point. It is illogical to assume the
continued existence of authority
to do something which can no
longer be done.
EXPIRATION OF TERM
1. When the term is specified
2. When the term is not specified
- at the end of a reasonable
period of time (Either party can
terminate the relationship at will
by giving notice to each other)
3. When the period is implied implied from the terms of the
agreement, the purpose of the
agency, and the circumstances
of the parties.
Examples:
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
a. An agreement that the
agency shall continue for
one year may be implied
from a provision for
payment of a salary in
quarterly
annual
installments
b. Where the principal
agrees to furnish the
agent
as
many
machines as he may be
able to sell prior to a
certain
date,
an
agreement
that
the
agency is to continue
until that date is implied
c. Where an agent has
expended a substantial
sum of money or has
substantially
rearranged
his
business preparatory
to engaging upon the
terms of an agreement
for the benefit of the
principal, he ought to
have a reasonable time
and
notice
of
the
cancellation
of
the
contract in order that he
might have a reasonable
opportunity to put his
house in order.
d. Where an agent was
employed to sell the
principal’s car and after
more than one (1) year
the agent has not sold
the car and there has
been
no
communication
between them, it is safe
to assume that the
agency has terminated;
e. Where the agent was
appointed to manage
the business affairs
while the principal is
abroad,
the
agency
automatically terminates
when the principal return.
LOSS OR DESTRUCTION
SUBJECT MATTER
OF
GR: Loss or destruction of the subject
matter
of
the
agency
terminates/termination if the principal’s
interest terminates the agent’s authority
XPN:
1. When it is possible to substitute
other material for that which was
destroyed
w/o
substantial
detriment to either party or if the
destroyed subject matter was
not in fact essential to the
contract
2. Partial loss or destruction - while
the agency may be ended
insofar
as
the
destroyed
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
property is concerned, it may
continue as to other property not
affected
Liability of the principal - The
termination of the agency does not
necessarily free the principal from
liability. If the principal, for example,
sells personal property in reference to
the sale of which he has appointed an
agent, the agency is, of course,
terminated, but the principal is liable in
damages for his wrongful terminating
act. On the other hand, should the
subject matter be destroyed without the
fault of the principal, no liability is
assumed by him.
However, if a third party has given
money or a thing of value for the subject
matter, he may sue the principal to
recover the same.
1. When a bilateral
contract
depends on it
2. When the agency is the means
of fulfilling an obligation already
contracted
3. When a partner is appointed
manager of a partnership in the
contract of partnership and his
removal from the partnership is
unjustifiable
Reason for the rule:
1. Authority of the agent emanates
from the principal
2. Loss of confidence
3. The
principal-agent
is
consensual in nature
LIABILITY OF PRINCIPAL
DAMAGE
CAUSED
REVOCATION
FOR
BY
Principal is liable when the termination
of agency is unlawful.
REVOCATION
PRINCIPAL
OF
AGENCY
BY
Art. 1920 - The principal may revoke
the agency at will, and compel the
agent
to
return
the
document
evidencing the agency. Such revocation
may be express or implied
GR: Principal may revoke any time
XPN:
1. When the agency is for a fixed
period - Liable before the
expiration of the period fixed
(XPN: When the principal has
the absolute right to terminate
the agency; XPN to the XPN:
When the termination was to
evade payment of agent’s
commission)
2. When there is no fixed period principal
may
terminate,
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
provided that it is done in good
faith
1. Express
2. Implied
Examples:
a. When the principal appoints a
new agent for the same bus. Or
transaction
b. When the principal directly
manages the business entrusted
to the agent
c. When the principal grants a SPA
after granting a general power
d. When the agent;s authority is
revoked impliedly in the same
manner as the appointment of
an agent
OF
AGENCY
essence of
relationship
the
is
Form of revocation:
1. Express
2. Implied
Example:
KINDS OF REVOCATION
REVOCATION
AGENT
Reason - the
principal-agent
consensual
BY
Agency has the power to revoke the
agency at will, subject to contractual
obligations owing to the principal
a. When
an
agent
abandons the object of
his agency and acts for
himself in committing
fraud
b. When an agent institutes
action
against
his
principal for recovery of
the balance in his favor
resulting
from
the
liquidation
of
the
accounts between them
arising from the agency
EFFECT OF REVOCATION IN
RELATION TO THIRD PERSONS
ART. 1921. If the agency has been
entrusted for the purpose of contracting
with specified persons, its revocation
shall not prejudice the latter if they were
not given notice thereof.
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
without prejudice to the provisions of
the two preceding articles.
ART. 1922. If the agent had general
powers, revocation of the agency does
not prejudice third persons who acted in
good faith and without knowledge of the
revocation. Notice of the revocation in a
newspaper of general circulation is a
sufficient warning to third persons.
Agent authorized with specific
persons - If the agency is created for
the purpose of contracting with specific
persons, its revocation will not prejudice
such third persons until notice thereof is
given them. (Art. 1921.)
Agent authorized to contract with
public in general - In case the agent
has general powers (as when the agent
has been appointed to manage a
business), innocent third persons
dealing with the agent will not be
prejudiced by the revocation before they
had knowledge thereof.
REVOCATION BY APPOINTMENT
OF NEW AGENT
ART. 1923. The appointment of a new
agent for the same business or
transaction revokes the previous
agency from the day on which notice
thereof was given to the former agent,
Implied revocation of previous
agency - There is implied revocation of
the previous agency when the principal
appoints a new agent for the same
business or transaction provided there
is incompatibility. But the revocation
does not become effective as between
the principal and the agent until it is in
some way communicated to the latter.
Again, the rights of third persons who
acted in good faith and without
knowledge of the revocation will not be
prejudiced thereby. (Arts. 1921, 1922.)
Substitution of counsel of record No substitution of counsel of record is
allowed unless the following essential
requisites of a valid substitution of
counsel concur:
a. There must be a written
request for the substitution
b. It must be filed with the
consent of the client
c. It must be with the written
consent of the client
d. If the consent of the attorney to
be
substituted
cannot be
noticed, there must be proof of
notice that the motion for
substitution was served on him
in the manner prescribed by teh
ROC.
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
REVOCATION
BY
DIRECT
MANAGEMENT OF BUSINESS BY
PRINCIPAL HIMSELF
ART. 1924. The agency is revoked if the
principal directly manages the business
entrusted to the agent, dealing directly
with third persons.
transaction or undertaking makes them
solidarily liable to the agent for all the
consequences of the agency any one
of the principals is granted under this
article the right to revoke the power of
attorney without the consent of the
others. In a solidary obligation, the
act of one is the act of all.
PARTIAL
REVOCATION
GENERAL POWER
OF
Implied Revocation
1. If the desire of the principal is for
him and the agent to work
together - no revocation
2. If made to avoid payment of
commission
revocation
deemed to be on bad faith and
principal is liable to pay what the
agent is due to him
REVOCATION BY ONE OF TWO OR
MORE PRINCIPALS
ART. 1926. A general power of attorney
is revoked by a special one granted to
another agent, as regards the special
matter involved in the latter.
The general power is impliedly revoked
as to matters covered by the special
power. A special power naturally
prevails over a general power.
It is indispensable that notice of the
revocation be communicated in some
way to the agent.
ART. 1925. When two or more
principals have granted a power of
attorney for a common transaction, any
one of them may revoke the same
without the consent of the others.
As the appointment of an agent by two
or more principals for a common
AGENCY COUPLED
INTEREST
WITH
AN
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
ART. 1927. An agency cannot be
revoked if a bilateral contract depends
upon it, or if it is the means of fulfilling
an obligation already contracted, or if a
partner is appointed manager of a
partnership
in
the
contract
of
partnership and his removal from the
management is unjustifiable.
GR: Principal may revoke an agency at
will (because the essence of an agency
is the agent’s duty of obedience to the
principal)
XPN - Agency coupled with an
interest:
1. When the agency is created not
only for the interest of the
principal but also for the interest
of third persons
2. When the agency is created for
the mutual interest of both the
principal and the agent
Terminology not controlling - Even
though an agency or power is made in
terms irrevocable, that fact will not
prevent its revocation by the principal
where the agency or power is not, in
fact, coupled with an interest.
Revocability of agency coupled with
an interest -
1. When there is no just cause - A
contract not to revoke an agency
only abridges the right of the
principal to revoke, and not his
power to revoke. (see Art.
1920.)
2. When there is just cause - A
power of attorney can be made
irrevocable by contract only in
the sense that the principal may
not recall it at his pleasure; but
coupled with interest or not, the
authority certainly can be
revoked for a just cause, such
as when the agent betrays the
interest of the principal.
RIGHT OF AGENT TO WITHDRAW
ART. 1928. The agent may withdraw
from the agency by giving due notice to
the principal. If the latter should suffer
any damage by reason of the withdrawal, the agent must indemnify him
therefor, unless the agent should base
his withdrawal upon the impossibil- ity
of continuing the performance of the
agency with- out grave detriment to
himself.
Without just cause - The law imposes
upon the agent the duty to give due
notice to the principal and if the
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
withdrawal is without just cause, to
indemnify the principal should the latter
suffer damage by reason of such
withdrawal. The reason for the
indemnity imposed by law is that the
agent fails in his obligation and as such,
he answers for losses and damages
occasioned by the non-fulfillment.
With just cause - if the agent
withdraws from the agency for a valid
reason (Art. 1929.) as when the
withdrawal
is
based
on
the
impossibility of continuing with the
agency without grave detriment to
himself (Art. 1928.), or is due to a
fortuitous event (Art. 1174.), the agent
cannot be held liable. While the agent is
forbidden to prefer his interests to those
of the principal (Art. 1889.), he is not
required to sacrifice his own interests
just to serve the principal.
OBLIGATION
OF
AGENT
TO
CONTINUE
TO
ACT
AFTER
WITHDRAWAL
ART. 1929. The agent, even if he
should withdraw from the agency for a
valid reason, must continue to act until
the principal has had reasonable
opportunity to take the necessary steps
to meet the situation.
The law reconciles the interests of the
agent with those of the principal, and if
it permits the withdrawal of the agent, it
is on the condition that no damage
results to the principal, and if the agent
desires to be relieved of the obligation
of making reparation when he
withdraws for a just cause, he must
continue to act so that no injury may be
caused to the principal.
WHEN DEATH OF PRINCIPAL
DOES NOT TERMINATE AGENCY
ART. 1930. The agency shall remain in
full force and effect even after the death
of the principal, if it has been
constituted in the common interest of
the latter and of the agent, or in the
interest of a third person who has
accepted the stipulation in his favor.
GR: Death terminates agency
XPN:
1. If the agency has been
constituted in the common
interest of the principal and the
agent
2. If it has been constituted in the
interest of a 3rd person whom
has accepted the stipulation in
his favor.
Rosendo U Castillo Jr. College of Law
HS Notes
Agency, Partnership and Trusts-Week 5
Continuation by agent’s heirs of
agency
ART. 1931. 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 with him in good faith.
GR: Death terminates agency
XPN:
1. When the agent is required to
“finish the business already
begun on the death of the
principal should delay entail any
danger”
DUTY OF AGENT’S HEIRS
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.
Rule: Agent’s heirs must notify death of
the agent to the principal (but the heirs
of the principal are not duty bound to
notify the agent of the principal’s death)
GR: Death terminates agency
XPN: Authority may be passed on to
agent’s heirs when:
1. The heirs’ duty to continue the
agency after agent’s death from
agency by operation of law
2. Where the agency is coupled
with an interest