Why is the agent the extension of personality of the principal?
The purpose of agency is to extend the personality of the principal
because a person is naturally limited which means he cannot be in
several places at the same time.
Burden is on the person who seeks to make an agent liable to
show that the losses and damage caused were by fault or
negligence: Mere allegation or substantiation is not enpugh to
render or held the agent personally liable.
Under Article 1884 of the New 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 nonperformance. In essence once the agent accepts the principal's
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 New 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 of what
has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law."
Likewise, Article 1356 of the New Civil Code provides that "Contracts
shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present."
Finally, Article 1308 provides that the "contract must bind both
contracting parties; its validity or compliance cannot be left to the will
of one of them."
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Despite the obligatory nature of every contract of agency, Article 1884
emphasizes that when an agent refuses to comply with his obligations,
the remedy of the principal is to sue him for damages, since an action
for specific performance is not available for personal obligations to do.
The liability of an agent for damages when he fails to carry out his
obligations is consistent with the terms of Article 1170 which provides
that "Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages." The same principle is
expressed in Article 1909 of the Law on Agency, which provides that
"The agent is responsible not only for fraud, but also for negligence,
which shall be adjudged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation."
Although a contract of agency is terminated ipso jure upon the death
of the principal, nonetheless, Article 1884 of the New Civil Code
expressly provides that the agent must finish the business already
begun upon death of principal should delay entail any danger. In other
words, the obligatory force of the duty of the agent to act with diligence
exceeds the formal termination of the agency relationship, which
automatically comes about by the death of the principal. The provision
emphasizes the characteristic of agency as a preparatory contract:
that it is constituted not for its own sake, by primarily to be the basis
by which the agent may enter into juridical acts on behalf of the
principal with respect to third parties.
Consequently, even when the agency relation is terminated upon the
death of the principal, the commenced but unfinished contracts and
transactions then pending must be fulfilled by the agent on behalf of
the decedent, when continuation of representation is necessary.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
1. General Obligation of an Agent
In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business. (1719)
Article 1884. The agent is bound by his acceptance to carry
out the agency, and is liable for the damages which, through
his non-performance, the principal may suffer.
“in accordance with the instructions of the principal” – DUTY OF
OBEDIENCE
He must also finish the business already begun on the death of
the principal, should delay entail any danger. (1718)
“shall do all that a good father of a family would do so as required by
the nature of the business” – DUTY OF DILIGENCE
Provided under 1881 “scope of authority”
2. Obligation of an Agent Who Declines Agency
Article 1885. In case a person declines an agency, he is bound
to observe the diligence of a good father of a family in the
custody and preservation of the goods forwarded to him by the
owner until the latter should appoint an agent or take charge of
the goods. (n) VS
Article 1929. The agent, even if he should withdraw from the
agency for a valid reason, must continue to act until the
principal has had reasonable opportunity to take the necessary
steps to meet the situation. (1737a)
3. General Rule on Agent’s Power and Authority
Article 1881. The agent must act within the scope of his
authority. He may do such acts as may be conducive to the
accomplishment of the purpose of the agency. (1714a)
Article 1882. The limits of the agent's authority shall not be
considered exceeded should it have been performed in a
manner more advantageous to the principal than that specified
by him. (1715)
Article 1887. In the execution of the agency, the agent shall
act in accordance with the instructions of the principal.
Article 1888. An agent shall not carry out an agency if its
execution would manifestly result in loss or damage to the
principal. (n)
Article 1889. The agent shall be liable for damages if, there
being a conflict between his interests and those of the principal,
he should prefer his own. (n)
Article 1899. If a duly authorized agent acts in accordance with
the orders of the principal, the latter cannot set up the ignorance
of the agent as to circumstances whereof he himself was, or
ought to have been, aware. (n)
4. Responsibility for Fraud or Negligence
Article 1909: Liability of agent for fraud and negligence
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.
In the fulfillment of his obligation, the agent is responsible to the
principal not only for fraud committed by him but also, for negligence.
5. Duty of Loyalty
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1889: Conflict of interest; The agent shall be liable for
damages if, there being a conflict between his interests and those of
the principal, he should prefer his own.
A claw-back is a situation in which an employer or benefactor
reclaims money that has already been given out, sometimes with a
penalty.
Claw-back is a contractual provision that requires an employee to
return money already paid by an employer, sometimes with a penalty.
Claw-backs act as insurance policies in the event of fraud or
misconduct, a drop in company profits, or for poor employee
performance.
Note: 1899 does not declare the contract or transaction VOID, but
merely makes him liable for the damages suffered by the principal due
to conflict of interests.
Corpo.Law – bound to disgorge to the corporation all the profits and
earnings he obtained from his breach of duty, even when he used all
his money for the contract or transaction.
Article 1883. If an agent acts in his own name, the principal has no
right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person
with whom he has contracted, as if the transaction were his own,
except when the contract involves things belonging to the principal.
The provisions of this article shall be understood to be without
prejudice to the actions between the principal and agent. (1717)
Note: If the matters entered into by the agent in his own name
pertain to the business of the principal, agent is in breach of his
fiduciary duty of loyalty – by having preferred his own interest
to that of the principal.
a. Measure of damages – duty of loyalty: breach
1891 – Duty to render an account of his transactions he may
have received by virtue of their agency; Principal has the right
to demand to turn-over to him whatever contract, property, or
business has been acquired due to breach of duty of loyalty.
Note:
In jurisprudence, a guilty agent is made to forfeit the commission that
is due to him, as penalty for his violation – criminal law: Agent who
refuses or fails to return to the principal the funds or property received
may be held liable for estafa.
b. Agent contracts on his own name: matter falls within the
scope of agency.
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
1896 – If the agent had used the funds belonging to the principal
belonging to the principal, he owes interest on the sum he has applied
to his own use from the day on which he did so, and for those he still
owes after the the extinguishment of the agency.
-
c. Rules on conflict of interest
- Article 1491. The following persons cannot acquire by purchase, even
at a public or judicial auction, either in person or through the mediation of
another:
(2) Agents, the property whose administration or sale may have been
intrusted to them, unless the consent of the principal has been given;
Article 1492. The prohibitions in the two preceding articles are applicable
to sales in legal redemption, compromises and renunciations. (n)
Agent is prohibited from buying property entrusted to him for
administration or management without the consent of the principal.
Even if he is authorized to sell it and sell it to himself – sale is VOID
-
Article 1890. If the agent has been empowered to borrow money, he
may himself be the lender at the current rate of interest. If he has been
authorized to lend money at interest, he cannot borrow it without the
consent of the principal. (n)
a. Empowered to borrow money, he may be the lender at
current interest
b. If empowered to LEND money, he cannot borrow without
the consent of the Principal
Effect:
He would not be just liable for the current interest that the
principal would have earned but also damages for he may have
suffered.
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Obligation to render account and turnover what is
received by virtue of Agency: 1981
WAIVER of duty to account is VOID: in the case of
Domingo v Domingo: 1891 (2) to stress the higest loyalty
that is required of an agent since AGENCY involves
FIDUCIARY RELATIONSHIP founded by Trust and
Confidence.
6. Obligation on Funds
Article 1886: Obligation to advance necessary funds
Should there be a stipulation that the agent shall advance the
necessary funds, he shall be bound to do so except when the principal
is insolvent.
Rationale:
There is nothing in the law, that gives an obligation to the agent
to advance his own funds in behalf of the principal. One of the distinct
characteristic of agency is that the agent does not personally become
liable for contracts and transactions that he is executing on behalf of
his principal.
Liability of Agent for Interest:
1896
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
7. Consideration of Fiduciary Duties of Agent as to 3rd Parties
1900-1901-1902-1911
Article 1900. So far as third persons are concerned, an act is deemed
to have been performed within the scope of the agent's authority, if
such act is within the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his authority according
to an understanding between the principal and the agent. (n)
Article 1901. A third person cannot set up the fact that the agent has
exceeded his powers, if the principal has ratified, or has signified his
willingness to ratify the agent's acts. (n)
Article 1902. A third person with whom the agent wishes to contract
on behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret
orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instructions shown
them. (n)
Article 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers
8. When Third Party Liable to the Agent Himself
-
-
Agent contracts in his own name, on a matter that it within the
scope of the agency (Article 1883)
Where the agent possesses a beneficial Interest in the subject
matter of agency, such as a factor selling under a del credere
commission
Where a 3rd Party commits tort against the agent
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Kinds of agency as to extent of powers conferred
2. Without authority (1898)
An agency may be couched in:
1. General terms – It is one which is created in general terms
and is deemed to comprise only acts of administration (NCC,
Art. 1877).
2. Specific terms – It is necessary to perform any act of strict
ownership or stict dominion (as to atty nick’s video)
Instances when the act of an agent is binding to the principal
1. When the agent acts as such without expressly binding
himself or does not exceed the limits of his authority (NCC,
Art. 1897). Liability is merely joint not solidary
2. If principal ratifies the act of the agent which exceeded his
authority (NCC, Art. 1898).
3. Circumstances where the principal himself was, or ought to
have been aware (NCC, Art. 1899).
4. If such act is within the terms of the power of attorney, as
written (NCC, Arts. 1900&1902).
5. Principal has ratified, or has signified his willingness to ratify
the agent’s act (NCC, Art 1901).
Effects of the acts of an agent
Rule as to when the principal is not bound by the act of the
agent
1. GR: When the act is without or beyond the scope of his authority
in the principal’s name. Principal is not bound.
XPNs:
a.
b.
c.
d.
e.
Where the acts of the principal have contributed to deceive a
3rd person in good faith.
Where the limitation upon the power created by the principal
could not have been known by the 3rd person.
Where the principal has placed in the hands of the agent
instruments signed by him in blank.
Where the principal has ratified the acts of the agent
(1898/1910)
3rd parties relied upon the terms of the SPA as written, even
if the agent exceeded the limits of his authority.
GR: When the act is within the scope of the agent’s authority but in
his own name.
1. With authority
a) In principal’s name – Valid
b) In his own name – Not binding on the principal; agent and
stranger are the only parties, except regarding things
belonging to the principal or when the principal ratifies the
contract or derives benefit there from.
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1. In principal’s name – Unenforceable but may be ratified, in
which case, may be validated retroactively from the beginning.
2. In his own name – Valid on the agent, but not on the principal.
XPN: When the transaction involves things belonging to the principal
(NCC, Art. 1883). GOLD STAR MINING v LIM-JIMENA
NOTE: The limits of the agent’s authority shall not be considered
exceeded should it have been performed in a manner more
advantageous to the principal than that specified by him.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1868 of the Civil Code states that by the contract of
agency, a person (agent) binds himself to render some service
or to do something in representation or on behalf of another
(principal), with the consent or authority of the latter.
7. To be responsible for the goods received by him, to sell on credit
only with the consent of the principal and to collect with due diligence
the credits of the principal [Articles 1903-1908, Civil Code]; and
8. To answer for his fraud or negligence. [Article 1909, Civil Code]
Consequently, the agent must act and is bound according to the
instructions of the principal. If there are goods involved, the principal
remains the owner of the goods and retains the right to control the
handling or disposition thereof.
What then are the obligations of the agent? Under the Civil Code, the
principal obligations of an agent are:
General Rule:
A power of attorney is valid although no notary public intervened in
its execution. (Barretto v. Tuason, G.R. Nos. L-‐ 36811, 36827,
36840, 36872, Mar. 31, 1934) (De Leon, p. 443, 2005 ed)
Exception:
1. To carry out the agency in accordance with its terms [Article 1884,
Civil Code];
2. To answer for the damages which through his non-performance
the principal may suffer [Article 1884, Civil Code];
3. To act in accordance with the instructions of the principal [Article
1887, Civil Code];
4. Not to carry out the agency if its execution would manifestly result
in loss or damage to the principal [Article 1888, Civil Code];
5. To answer for damages should he prefer, in case of conflict, his
own interests to those of the principal [Article 1889, Civil Code];
6. To render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the agency [,
Civil Code];
When SPA is executed in a foreign country, it must be certified and
authenticated according to the Rules of Court, particularly Sec. 25,
Rule 132.
Note: When the special power of attorney is executed and
acknowledged before a notary public or other competent official in a
foreign country, it cannot be admitted in evidence unless it is certified
as such in accordance with the foregoing provision of the rules by a
secretary of embassy or legation, consul general, consul, vice consul,
or consular agent or by any officer in the foreign service of the
Philippines stationed in the foreign country in which the record is kept
of said public document and authenticated by the seal of his office.
(Medina v. Natividad, G.R. No. 177505, Nov. 27, 2008) The failure to
have the special power of attorney (executed in a foreign country)
authenticated is not merely a technicality – it is a question of
jurisdiction. Jurisdiction over the person of the real party-in-interest
was never acquired by the courts. (Ibid.)
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
When is a special power necessary?
What are the limitations to a special power of attorney?
1. to Create or convey real rights over immovable property;
1. A special power to sell excludes the power to mortgage
2. Convey or Acquire immovable
3. to Loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
2. A special power to mortgage does not include the power to sell
(Art. 1879, NCC)
3. A special power to compromise does not authorize submission to
arbitration (Art. 1880, NCC)
4. to Lease any real property to another person for more than one
When is the principal not bound by the act of the agent?
year;
5. to Make such Payments as are not usually considered as acts of
administration;
1. General Rule: When the act is without or beyond the
scope of his authority in the principal’s name.
6. to Obligate principal as guarantor or surety
Exceptions: a. Where the acts of the principal have contributed to
deceive a 3rd person in good faith b. Where the limitation upon
7. to bind the principal to render some Service without compensation;
8. to bind the principal in a contract of Partnership;
9. to Ratify obligations contracted before the agency
10. to Accept or repudiate an Inheritance
the power created by the principal could not have been known by
the 3rd person c. Where the principal has placed in the hands of
the agent instruments signed by him in blank d. Where the
principal has ratified the acts of the agent
11. Effect Novation
2. When the act is within the scope of the agent’s authority but in his
own name, except when the transaction involves things belonging to
12. to make Gifts, except customary ones for charity or those made to
the principal.
employees in the business managed by the agent
13. Compromise, Arbitration and Confession of Judgment
14. Any other act of strict dominion
Note: The limits of the agent’s authority shall not be considered
exceeded should it have been performed in a manner more
advantageous to the principal than that specified by him.
15. Waive an obligation gratuitously
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
OBLIGATIONS OF THE AGENT
NOTE: Every stipulation exempting the agent from the obligation to
render an account shall be void
The obligations, in general, of agent to principal should be done in
good faith, and impressed with loyalty to his trust, obedience to
principal’s instructions, and exercise of reasonable care.
Specific obligations of an agent to the principal
1. Carry out the agency (NCC, Art. 1884);
2. Answer for damages which through his non- performance the
principal may suffer (Ibid.);
3. Finish the business already begun on the death of the
principal (Ibid.);
4. Observe the diligence of a good father of a family in the
custody and preservation of the goods forwarded to him by
the owner in case he declines an agency, until an agent is
appointed (NCC, Art. 1885);
NOTE: The owner shall as soon as practicable either appoint an
agent or take charge of the goods (NCC, Art. 1885).
5. Advance the necessary funds should there be a stipulation to
do so except when the principal is insolvent (NCC, Art. 1886);
6. Act in accordance with the instructions of the principal (NCC,
Art. 1887);
7. Not to carry out the agency if its execution would manifestly
result in loss or damage to the principal (NCC, Art. 1888);
8. Answer for damages if there being a conflict between his
interests and those of the principal, he should prefer his own
(NCC, Art. 1889);
9. Not to loan to himself if he has been authorized to lend money
at interest (NCC, Art. 1890);
10. 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
(NCC, Art. 1891);
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11. Distinguish goods by countermarks and designate the
merchandise respectively belonging to each principal, in the
case of a commission agent who handles goods of the same
kind and mark, which belong to different owners (NCC, Art.
1904);
12. Be responsible in certain cases for the acts of the substitute
appointed by him (NCC, Art. 1892); (1999 BAR)
13. Pay interest on funds he has applied to his own use (NCC, Art.
1896);
14. Inform the principal, where an authorized sale of credit has been
made, of such sale (NCC, Art. 1906);
15. Bear the risk of collection and pay the principal the proceeds of
the sale on the same terms agreed upon with the purchaser,
should he receive also on sale, a guarantee commission (NCC,
Art. 1907);
16. Indemnify the principal for damages for his failure to collect the
credits of his principal at the time that they become due (NCC,
Art. 1908);
17. Be responsible for fraud or negligence (NCC, Art. 1909; De
Leon, 2014).
NOTE: The court shall judge with more or less rigor, the fault or
negligence of the agent, according to whether the agency was or
was not for compensation.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Instructions
Private directions which the principal may give the agent in regard to
the manner of performing his duties as such agent but of which a
third party is ignorant. They are said to be secret if the principal
intended them not to be made known to such party (De Leon, 2010).
Obligation of a person who declines an agency
A person who declines an agency is till bound to observe the
diligence of a good father of the family in the custody and
preservation of goods forwarded to him by the owner. This is based
on equity. (De Leon, 2010).
Authority v. Principal’s instructions
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Breach of loyalty of the agent
In case of breach of loyalty, the agent is NOT entitled to commission
The forfeiture of the commission will take place regardless of
whether the principal suffers any injury by reason of such breach of
loyalty. It does not even matter if the agency is for a gratuitous one,
or that the principal obtained better results, or that usage and
customs allow a receipt of such a bonus.
NOTE: An agent has an absolute duty to make a full disclosure or
accounting to his principal of all transactions and material facts that
may have some relevance with the agency (Domingo v. Domingo,
G.R. No. L-30573, October 29, 1971).
When the obligation to account not applicable
1. If the agent acted only as a middleman with the task of merely
bringing together the vendor and vendees.
2. If the agent informed the principal of the gift/bonus/profit he
received from the purchaser and his principal did not object
thereto.
3. Where a right of lien exists in favor of the agent (De Leon,
2014).
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Rights of Agents
A person acting as an agent cannot escape criminal liability by
virtue of the contract of agency
Instances when the agent may retain in pledge the object of the
agency (Legal Pledge)
1. If principal fails to reimburse the agent the necessary sums,
including interest, which the latter advanced for the execution of the
agency (NCC, Art. 1912).
2. If principal fails to indemnify the agent for all damages which the
execution of the agency may have caused the latter, without fault or
negligence on his part (NCC, Art. 1913).
Rule where two persons deal separately with the agent and the
principal
If the two contracts are incompatible with each other, the one of prior
date shall be preferred. This is subject however to the rule on double
sale under Art. 1544 of the NCC.
NOTE: Rules of preference in double sale:
The law on agency has no application in criminal cases. When a
person participates in the commission of a crime, he cannot escape
punishment on the ground that he simply acted as an agent of
another party (Ong v. CA, G.R. No. 119858, April 29, 2003).
An agent cannot maintain an action against persons with whom
they contracted on behalf of his principal.
Agents are not a party with respect to that contract between his
principal and third persons. As agents, they only render some
service or do something in representation or on behalf of their
principals. The rendering of such service did not make them parties
to the contracts of sale executed in behalf of the latter.
The fact that an agent who makes a contract for his principal will gain
or suffer loss by the performance or non-performance of the contract
by the principal or by the other party thereto does not entitle him to
maintain an action on his own behalf against the other party for its
breach.
1. Personal property – possessor in good faith
2. Real property
a. Registrant in good faith
b. Possessor in good faith
c. Person with the oldest title in good faith (NCC, Art. 1544).
If agent acted in good faith, the principal shall be liable for damages
to the third person whose contract must be rejected. If agent is in
bad faith, he alone shall be liable (NCC, Art. 1917).
An agent entitled to receive a commission from his principal upon the
performance of a contract which he has made on his principal's
account does not, from this fact alone, have any claim against the
other party for breach of the contract, either in an action on the
contract or otherwise.
An agent who is not a promisee cannot maintain an action at law
against a purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase price before
payment to the principal (Uy v. CA, G.R. No. 120465, September 9,
1999).
Summary of Rules: Acts of an Agent
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Within the scope of the written power of attorney but
agent has actually exceeded his authority according to
an understanding between him and the principal
In behalf of the principal, within the scope of authority
Contract is unenforceable as against the principal but binds the
agent to the third person.
1. Insofar as 3rd persons are concerned (not required to
inquire further than the terms of the written power), agent
acted within scope of his authority;
2. Principal is estopped.
Binding on the principal when:
1. Ratified or
2. The principal allowed the agent to act as though he had
full powers.
Motive is immaterial; as long as within the scope of authority,
valid.
Within the scope of authority but in the agent’s name
1. Not binding on the principal;
2. Principal has no cause of action against the 3rd parties
and vice versa
When the transaction involves things belonging to the
principal, his remedy is to sue the agent for damages
because of failure to comply with the agency.
With improper motives
With misrepresentations by the agent
1. Authorized – principal still liable
2. Beyond the scope of the agent’s authority
GR: Principal not liable
XPN: Principal takes advantage of a contract or receives
benefits made under false representation of his agent.
Mismanagement of the business by the agent
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Case: Gold Star mining v Lim-Jimena, held the exception as
provided in Article 1883
1. Principal still responsible for the acts contracted by the
agent with respect to 3rd persons;
2. Principal, however, may seek recourse from the agent.
Tort committed by the agent
Principal civilly liable so long as the tort is committed by the
agent while performing his duties in furtherance of the
principal’s business.
Agent in good faith but prejudices 3rd parties
Principal is liable for damages.
Exception: When the property involved in the contract belongs
to the principal
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Scope of the agent’s authority as to third persons
Doctrine of Apparent Authority
It includes not only the actual authorization conferred upon the agent
by his principal but also that which is apparent or impliedly delegated
to him (De Leon, 2010).
The principal is liable only as to third persons who have been led
reasonably to believe by the conduct of the principal that such actual
authority exists, although none has been given (De Leon, 2014).
Q: When is a third person required to inquire into the authority of the
agent?
Agency by Estoppel
A:
1. Where authority is not in writing– Every person dealing with an
assumed agent must discover upon his peril, if he would hold the
principal liable, not only the fact of the agency but the nature and
extent of the authority of the agent.
2. Where authority is in writing – 3rd person is not required to inquire
further than the terms of the written power of attorney.
NOTE: A third person with whom the agent wishes to contract
on behalf of the principal may require the presentation of the
power of attorney or the instructions as regards the agency
(NCC, Art. 1902).
Q: When may the actual or apparent authority of the agent bind the
principal?
A: The principal is bound by the acts of the agent on his behalf,
whether or not the third person dealing with the agent believes that
the agent has actual authority, so long as the agent has actual
authority, express or implied.
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It is when one leads another to believe that a certain person is his
agent, when as a matter of fact such is not true, and the latter acts
on such misrepresentation, the former cannot disclaim liability, for he
has created an agency by estoppel
BASIS
Apparent Authority
That which is though
As to the
not actually granted,
knowledge of the the principal
principal of the
knowingly permits the
authority of the
agent to exercise or
agent
holds him out as
possessing.
Authority by Estoppel
Arises when 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 agent’s
conduct.
Founded in conscious Founded on the principal’s
As to the
permission of acts
negligence failing properly
establishment of
beyond the powers
to supervise the affairs of
the authority
granted.
the agent.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Rules regarding estoppel in agency
1.
Estoppel of agent –One professing to act as agent for another
may be estopped to deny his agency both as against his asserted
principal and the third persons interested in the transaction in
which he engaged.
2.
Estoppel of principal
a. As to agent – One who knows that another is acting as his
agent and fails to repudiate his acts, or accepts the benefits, will
be estopped to deny the agency as against the other.
b. As to sub-agent – To estop the principal from denying his
liability to a third person, he must have known or be charged with
knowledge of the fact of the transaction and the terms of the
agreement between the agent and sub- agent.
c. As to third persons – One who knows that another is acting as
his agent or permitted another to appear as his agent, to the
injury of third persons who have dealt with the apparent agent as
such in good faith and in the exercise of reasonable prudence, is
estopped to deny the agency.
3.
Estoppel of third persons – A third person, having dealt with one
as agent may be estopped to deny the agency as against the
principal, agent, or third persons in interest.
4.
Estoppel of the government – The government is not estopped
by the mistake or error on the part of its agents.
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Q: In an expropriation case between RP and several property
owners in Mandaluyong for construction of the EDSA-Shaw
Boulevard Overpass Project, decision was rendered against
the RP. The RP through the OSG received the decision on
October 7, 2002 but it was only October 20, 2003 that RP filed
a petition for certiorari. It resorted to an independent civil
action because it failed to file within the 15-day reglementary
period. Is the Republic bound and put in estoppel by the gross
negligence/mistake of its agent/former counsel?
A: While the Republic or the government is usually not estopped by
the mistake or error on the part of its officials or agents, the Republic
cannot now take refuge in the rule as it does not afford a blanket or
absolute immunity. Our Solicitor-General may not be excused from
its shortcomings by invoking the doctrine as if it were some magic
incantations that could benignly, if arbitrarily, condone and erase its
errors.
The rule on non-estoppel of the government is not designed to
perpetrate an injustice. In general, the rules on appeal are created
and enforced to ensure the orderly administration of justice. The
judicial machinery would run aground if late petitions, like the present
one, are allowed on the flimsy excuse that the attending lawyer was
grossly lacking in vigilance (Leca Realty Corp. v. Republic, G.R. Nos.
155605 & 160179, September 27, 2006).
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Implied agency v. Agency by estoppel
Commission agent
He is one engaged in the purchase and sale of personal property for
a principal, which, for this purpose, has to be placed in his
possession and at his disposal.
Broker
He is a middleman or intermediary who in behalf of others and for a
commission or fee negotiates contracts/transactions relating to real
or personal property.
NOTE: Distinguished from an agent: An agent is authorized to enter
into judicial acts in behalf of the principal but a true broker is merely
an intermediary between the parties and he has no power to enter
into a contract in behalf of any of the parties (Pacific Commercial Co.
v. Yatco, 68 Phil. 398, 1939).
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Rules
Guarantee commission (2004 BAR)
1. Efficient and procuring cause – a principle in the law on agency
whereby the broker, to be entitled to compensation, must be the
efficient agent or procuring cause of the sale;
It is the fee which is given in return for the risk that the agent has to
bear in the collection of credits.
2. Ready-willing-and-able Rule – a principle which states that for a
broker to be entitled to commission, he must provide a person who is
ready, willing and able both to accept and live up to the terms offered
by his principal (Albano, 2013).
3. Procuring Cause - Procuring cause is meant to be the proximate
cause. The term procuring cause, in describing a broker’s activity,
refers to a cause originating a series of events which, without break in
their continuity, result in accomplishment of prime objective of the
employment of the broker producing a purchaser ready, willing and
able to buy real estate on the owners terms. A broker will be regarded
as the procuring cause of a sale, so as to be entitled to commission, if
his efforts are the foundation on which the negotiations resulting in a
sale are begun. The broker must be the efficient agent or the procuring
cause of 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 broker (Medrano, et. al. v. CA, et.
al., G.R. No. 150678, February 18, 2005).
The purpose of the guarantee commission is to compensate the
agent for the risks he will have to bear in the collection of the credit
due the principal (De, Leon, 2014).
Del credere agent
He is the agent who guarantees payment of the customer’s account
in consideration of the commission (De Leon, 2014).
A del credere agent may sue in his name for the purchase price in
the event of non-performance by the buyer (De Leon, 2014).
Factorage
It is the compensation of a factor or commission agent.
Ordinary commission
It is the compensation for the sale of goods which are placed in the
agent’s possession or at his disposal.
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
AGENCY COUCHED IN GENERAL TERMS
It is one which is created in general terms and is deemed to
comprise only acts of administration (NCC, Art. 1877).
Acts of administration
Refers to those acts which do not imply the authority to alienate for
the exercise of which an express power is necessary (De Leon,
2014).
NOTE: Payment is an act of administration when it is made in the
ordinary course of management (Art. 1878; De Leon, 2014).
The making of customary gifts for charity, or those made to
employees in the business managed by the agent are considered
acts of administration (NCC, Art. 1878; De Leon, 2014).
Q: P granted to A a special power to mortgage the former’s real
estate. By virtue of said power, A secured a loan from C secured by
a mortgage on said real estate. Is P personally liable for said loan?
A: NO. A special power to mortgage property is limited to such
authority to mortgage and does not bind the grantor personally to
other obligations contracted by the grantee in the absence of any
ratification or other similar act that would estop the grantor from
questioning or disowning such other obligations contracted by the
grantee.
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
AGENCY REQUIRING SPECIAL POWER OF ATTORNEY
Special power of attorney (SPA)
It is an instrument in writing by which one person, as principal,
appoints another as his agent and confers upon him the authority to
perform certain specified acts or kinds of acts on behalf of the
principal with a primary purpose to evidence agent’s authority to third
parties with whom the agent deals (De Leon, 2014).
Intervention of a notary public in the validity of an SPA
GR: A power of attorney is valid although no notary public intervened
in its execution (Barretto v. Tuason, G.R. Nos. L- 36811, 36827,
36840, 36872, March 31, 1934).
XPN: When SPA is executed in a foreign country, it must be certified
and authenticated (Sec. 24, Rule 132, Rules of Court).
5. To make such payments as are not usually considered as
acts of administration;
6. To obligate principal as guarantor or surety;
7. To bind the principal to render some service without
compensation;
8. To bind the principal in a contract of partnership;
9. To ratify obligations contracted before the agency;
10. To accept or repudiate an inheritance;
11. To effect novation which put an end to obligations already in
existence at the time the agency was constituted;
12. To make gifts, except customary ones for charity or those
made to employees in the business managed by the agent;
13. To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
14. Any other act of strict dominion; and
15. To waive an obligation gratuitously (NCC, Art. 1878).
NOTE: The failure to have the special power of attorney (executed in
a foreign country) authenticated is not merely a technicality – it is a
question of jurisdiction. Jurisdiction over the person of the real partyin-interest was never acquired by the courts (Ibid.).
A special power of attorney is required (1992, 2004 BAR)
1. To create or convey real rights over immovable property;
2. To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for
a valuable consideration;
3. To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are
under administration;
4. To lease any real property to another person for more than
one year;
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Limitations to a special power of attorney
1. A special power to sell excludes the power to mortgage (NCC,
Art. 1879);
2. A special power to mortgage does not include the power to
sell (Ibid); and
3. A special power to compromise does not authorize
submission to arbitration (NCC, Art. 1880).
NOTE: The scope of the agent’s authority is what appears in the
written terms of the power of attorney. While third persons are bound
to inquire into the extent or scope of the agent’s authority, they are
not required to go beyond the terms of the written power of attorney.
Third persons cannot be adversely affected by an understanding
between the principal and his agent as to the limit of the latter’s
authority. In the same way, third persons need not concern
themselves with instruction given by the principal to his agent outside
of the written power of attorney (Siredy Enterprises, Inc. v. CA, G.R.
No. 129039, September 27, 2002).
Q: X was the owner of an unregistered parcel of land in Cabanatuan
City. As she was abroad, she advised her sister Y via overseas call
to sell the land and sign a contract of sale on her behalf. Y thus sold
the land to B1 on March 31, 2001 and executed a deed of absolute
sale on behalf of X. B1 fully paid the purchase price. B2, unaware of
the sale of the land to B1, signified to Y his interest to buy it but
asked Y for her authority from X. Without informing X that she had
sold the land to B1, Y sought X for a written authority to sell. X emailed Y an authority to sell the land. Y thereafter sold the land on
May 1, 2001 to B2 on monthly installment basis for two years, the
first installment to be paid at the end of May 2001. Who between B1
and B2 has a better right over the land? Explain. (2010 BAR)
latter shall be in writing; otherwise, the sale shall be void (NCC, Art.
1874). The property was sold by Y to B1 without any written authority
from the owner X. Hence, the sale to B1 was void.
AGENCY BY OPERATION OF LAW
Instances where an agency is created by operation of law
When the agent withdraws from the agency for a valid reason, he
must continue to act until the principal has had a reasonable
opportunity to take the necessary steps like the appointment of a
new agent to remedy the situation caused by the withdrawal (NCC,
Art. 1929); and
In case a person declines an agency, he is bound to observe the
diligence of good father of the family in the custody and preservation
of the goods forwarded to him by the owner until the latter should
appoint an agent (NCC, Art. 1885).
NOTE: 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 (De Leon, 2010).
A: B-2 has a better title. This is not a case of double sale since the
first sale was void. The law provides that when a sale of a piece of
land or any interest therein is through an agent, the authority of the
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
OBLIGATIONS OF THE AGENT
Specific obligations of agent to principal:
1. To carry out the agency in accordance with its terms, and in
good faith;
2. To answer for the damages which through his non-performance
the principal may suffer;
3. To finish the business already begun on the death of the
principal, should delay entail any danger;
4. To observe the diligence of a good father of a family in the
custody and preservation of the goods forwarded to him by the
owner in case he declines an agency, until an agent is
appointed;
5. To advance the necessary funds should there be a stipulation
to that effect;
6. To act in accordance with the instructions of the principal;
7. Not to carry out the agency if its execution would manifestly
result in loss or damage to the principal;
8. To answer for damages should he prefer in case of conflict, his
own interests to those of the principal;
9. Not to loan to himself without the consent of the principal when
he has been authorized to lend at interest;
10. To render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the
agency;
11. To distinguish goods by countermarks and designate the
merchandise respectively belonging to each principal, in the
case of a commission agent who handles goods of the same
kind and mark, which belong to different owners;
12. To be responsible in certain cases for the acts of the substitute
appointed by him;
13. To pay interest on funds he has applied to his own;
14. To inform the principal, where an authorized sale of credit has
been made, of such sale;
Llewelyn Angelo Aca
15. To bear the risk of collection, should he receive also on a sale,
a guarantee commission;
16. To indemnify the principal for damages for his failure to collect
the credits of his principal at the time that they become due;
17. To answer for his fraud or negligence.
Article 1884: General obligations of an agent to principal
The agent is bound by his acceptance to carry out the agency and is
liable for the damages which, through his non- performance, the
principal may suffer.
He must also finish the business already begun on the death of the
principal, should delay entail any danger.
A person is free to refuse to be agent but once he accepts, he is bound
to carry it out in accordance with its terms in good faith and following
the instructions, if any, of the principal. An agent who does not carry
out the agency is liable for damages. Upon the other hand, if he fulfils
his duty, he is not personally liable unless he so binds himself.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Cases:
Duty of the owner:
 BA Finance Corporation v. CA, GR 82040, August 27, 1991
1. Appointing an agent; or,
B.A. Finance Corporation was deemed subrogated to the rights and
obligations of Supercars, Inc. when the latter assigned the promissory
note, together with the chattel mortgage constituted on the motor
vehicle in question, in favor of the former. Consequently, B.A. Finance
Corporation is bound by the terms and conditions of the chattel
mortgage executed between the Cuadys and Supercars, Inc.
2. Taking charge of the goods.
Under the deed of chattel mortgage, B.A. Finance Corporation was
constituted attorney-in-fact with full power and authority to file, followup, prosecute, compromise or settle insurance claims; to sign, execute
and deliver the corresponding papers, receipts and documents to the
Insurance Company as may be necessary to prove the claim, and to
collect from the latter the proceeds of insurance to the extent of its
interests, in the event that the mortgaged car suffers any loss or
damage (Rollo, p. 89). In granting B.A. Finance Corporation the
aforementioned powers and prerogatives, the Cuady spouses created
in the former’s favor an agency. Under Article 1884 of the Civil Code
of the Philippines, B.A. Finance Corporation is bound by its
acceptance to carry out the agency, and is liable for damages which,
through its non-performance, the Cuadys, the principal in the case at
bar, may suffer.
Article 1885: Obligation of a person who declines an agency
In case a person declines an agency, he is bound to observe the
diligence of a good father of a family in the custody and preservation
of the goods forwarded to him by the owner until the latter should
appoint an agent. The owner shall as soon as practicable either
appoint an agent or take charge of the goods.
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Article 1886: Obligation to advance necessary funds
Should there be a stipulation that the agent shall advance the
necessary funds, he shall be bound to do so except when the principal
is insolvent.
As a rule, the principal must advance to the agent, should the latter so
request, the sums necessary for the execution of the agency. The
contract of agency, however, may stipulate that the agent shall
advance the necessary funds. In such case, the agent is bound to
furnish such funds except when the principal is insolvent.
Article 1887: Agent to act according to instructions
In the execution of the agency, the agent shall act in accordance with
the instructions of the principal.
In default thereof, he shall do all that a good father of a family would
do, as required by the nature of the business.
What are instructions? There are private directions which the
principal may give the agent in regard to the manner of performing
his duties as such agent, but of which a third party is ignorant.
If the agent exceeds, violates or fails to act upon such instructions, he
will be liable to the principal for any loss or damage resulting
therefrom. This is so as the fundamental duty of the agent is to obey
all the reasonable and lawful instructions given to him by his principal.
Conversely, the agent may disobey the principal’s instruction where it
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
calls for the performance of illegal acts, or where he is privileged to do
so to protect his security interest in the subject matter of the agency.
It is the duty of the principal, if he desires an authority executed in a
particular manner to make his terms so clear and unambiguous that
they cannot reasonably be misconstrued. If he does this, it is the
agent’s duty to the principal to execute the authority strictly and
faithfully; and third persons who know of the limitations, or who from
the circumstances of the case ought to have known of them can claim
no rights against the principal based upon their violation.
If, on the other hand, the authority is couched in such uncertain terms
as to be reasonably susceptible of two different meanings, and the
agent in good faith and without negligence adopts one of them, the
principal cannot be heard to assert, either as against the agent or
against third persons who have, in like good faith and without
negligence, relied upon the same construction, with the other
interpretation. If in such a case, the agent exercises his best judgment
and an honest discretion, he fulfils his duty, and though a loss ensues,
it cannot be cast upon the agent (Paras, citing Mechem).
The underlying basis of the rule prohibiting an agent from engaging in
self-dealing is to shut the door against temptation on his part and to
ensure that he places the rights and welfare of his principal above his
own in performing his agency.
When there is a conflict between the agent’s own interests and those
of the principal, the agent has the duty to prefer the principal’s interest
over his own. However, where the agent’s interests are superior, such
as where he has a security interest in goods of the principal in his
possession, he may protect this interest even if in so doing, he
disobeys the principal’s orders or injures his interest.
Article 1890: Obligations in relation to borrowing of money; loan
If the agent has been empowered to borrow money, he may himself
be the lender at the current rate of interest. If he has been authorized
to lend money at interest, he cannot borrow it without the consent of
the principal.
The agent cannot, without a special power of attorney, loan or borrow
money.
Article 1888: When agent shall not carry out agency
An agent shall not carry out an agency if its execution would manifestly
result in loss or damage to the principal.
The duty of the agent is to render service for the benefit of the principal
and not to act to his detriment. Hence, if justified or proven, this
provision can be used as a defense for non- performance under Article
1884.
Article 1889: Conflict of interest; liability of agent
1. If he has been expressly empowered to borrow money, he may
himself be the lender at the current rate of interest for there is
no danger of the principal suffering any damage since the
current rate of interest would have to be paid in any case if the
loan were obtained from a third person;
2. If the agent has been authorized to lend money at interest, he
cannot be the borrower without the consent of the principal
because the agent may prove to be a bad debtor. There is here
a possible conflict of interest; hence, it may be prejudicial to the
principal.
The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1891: Obligations to render account
3. The principal, or his legal representative, has the right to pass upon
the correctness of the accounting;
Every agent is bound to render an ac- count of his transactions and to
deliver to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an
account shall be void.
The article does not apply to case of solutio indebiti for in such cases,
recovery can be had by the payor against the agent himself.
Therefore, the agent meantime can keep what had been given to him
by error.
If the agent fails to deliver and instead converts or appropriates for his
own use the money or property belonging to the principal, the agent is
liable for estafa.
They duty embodied in this Article will not apply if the agent or broker
acted only as a middleman with the task of merely bringing together
the vendor and the vendee, who themselves thereafter negotiate on
the terms and conditions of the transaction.
4. Corollary to his right to demand an accounting, a principal has the
right to make a reasonable inspection of the book of account and
memoranda, including the original entries;
5. An agent, as a consequence of his duty to account, cannot dispute
his principal’s title to the property in his possession.
Article 1892: Appointment of sub-agent; sub-agent defined
The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the
substitute:
1.
2.
When he was not given the power to appoint one;
When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent
or insolvent.
All acts of the substitute appointed against the prohibition of the
principal shall be void. (NOT VOID, UNENFORCEABLE)
Doctrines on the duty to account:
1. Whoever administers another’s affairs must render an account
because of the representative relation and because of the fiduciary
position;
What is a sub-agent? A sub-agent is a person to whom the agent
delegates as his agent, the performance of an act for the principal
which the agent has been empowered to perform through his
representative.
2. If an agent refuses to account when it is his duty to do so, the
principal may at once terminate the agency and sue for the balance
due. If the principal dies, the agency is extinguished but the duty to
account subsists, and can be demanded by the principal’s heirs or
legal representatives;
Unless prohibited by the principal, the agent may appoint a subagent
or substitute. While ordinarily the selection of an agent is determined
largely by the trust and confidence that the principal has in the agent,
the principal need not fear prejudice as he has a right of action not
only against the agent but also against the substitute.
Effects of substitution:
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
1. When the substitute is appointed by the agent against the
express prohibition of the principal, the agent exceeds the limits
of his authority. The law says that all acts of the substitute
in such a case shall be void.
2. If in the contract of agency, the agent is given the power to
appoint a substitute, the substitution has the effect of releasing
the agent from his responsibility unless the person appointed is
notoriously incompetent or insolvent. But if the substitute is
the person designated by the principal, the consequence
is the absolute exemption of the agent.
3. If the agent appoints a substitute when he was not given the
power to appoint one, the law recognizes the validity of the
substitution if the same is beneficial to the principal because
the agency has thus been executed in fulfillment of its
object. If the substitution has occasioned damage to the
principal, the agent shall be primarily responsible for the acts of
the substitute as if he himself executed them. But the principal
has also a right of action against the substitute.
Where, as in the present case, the agents to whom personal property
was entrusted for sale, conclusively proves the inability to return the
same is solely due to malfeasance of a subagent to whom the first
agent had actually entrusted the property in good faith, and for the
same purpose for which it was received; there being no prohibition to
do so and the chattel being delivered to the subagent before the owner
demands its return or before such return becomes due, we hold that
the first agent cannot be held guilty of estafa by either
misappropriation or conversion. The abuse of confidence that is
characteristic of this offense is missing under the circumstances.
Note: It is not actually void – it is unenforceable – can be ratified
 Escueta v. Lim,
Notwithstanding the above, however, petitioner is not entirely free
from any liability towards Quilatan. The rule is that an accused
acquitted of estafa may nevertheless be held civilly liable where the
facts established by the evidence so warrant. Then too, an agent who
is not prohibited from appointing a sub- agent but does so
without express authority is responsible for the acts of the subagent. Considering that the civil action for the recovery of civil liability
arising from the offense is deemed instituted with the criminal action,
petitioner is liable to pay complainant Quilatan the value of the unpaid
pieces of jewelry. Incurred liability or damages to the principal – in
effect, the agent is primarily liable to the principal.
Applying the above-quoted provision to the special power of attorney
executed by Ignacio Rubio in favor of his daughter Patricia Llamas, it
is clear that she is not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties, Patricia merely
acted within the limits of the authority given by her father, but she will
have to be responsible for the acts of the sub-agent, among which is
precisely the sale of the subject properties in favor of respondent.
Labrador admitted that she received the jewelry from petitioner and
sold the same to a third person. She further acknowledged that she
owed petitioner P441,035.00, thereby negating any criminal intent on
the part of petitioner. There is no showing that petitioner derived
personal benefit from or conspired with Labrador to deprive Quilatan
of the jewelry or its value. Consequently, there is no estafa within
contemplation of the law.
Even assuming that Virginia Lim has no authority to sell the subject
properties, the contract she executed in favor of respondent is not
void, but simply unenforceable.
 Serona v. CA, GR 130423, November 18, 2002
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Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1893: Remedy of principal against the sub- agent
In the cases mentioned in Nos. 1 and 2 of the preceding article, the
principal may furthermore bring an action against the substitute with
respect to the obligations which the latter has contracted under the
substitution.
Under the premises given in the Article, the principal can sue both the
agent and the substitute. This is one exception to the principle of privity
of contracts.
1. For the fulfillment of the agency; and,
2. For the fault or negligence of his fellow agents provided the
latter acted within the scope of their authority.
Article 1896: Liability of agent for interest
The agent owes interest on the sums he has applied to his own use
from the day on which he did so, and on those which he still owes after
the extinguishment of the agency.
Exception:
Article 1894: Responsibility of two or more agents
The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been
expressly stipulated.
Article 1895: Solidarity of responsibility of two or more agents
The only time that an agent may be legally compelled to advance his
own fund is if at the time of the creation of the Contract of Agency,
they expressly agreed to such obligation.
BUT – if afterwards, he decided to refuse to advance his own funds
the agent may do so, only if the principal is INSOLVENT (1919)
If solidarity has been agreed upon, each of the agents is responsible
for the non- fulfillment of the agency, and for the fault or negligence of
his fellow agents, except in the latter case when the fellow agents
acted beyond the scope of their authority.
The article contemplates 2 distinct cases:
The liability referred in the two articles is the liability of the agents
towards the principal, and not that towards third parties.
2. Another refers to sums that remains which the agent still owes to
the principal after the expiration of the agency.
Distinction:
This article is without prejudice to a criminal action that may be brought
because of conversion.
Article 1894 - Liability is joint.
Article 1895 - Liability is solidary due to an express stipulation.
If solidarity has been agreed upon, each of the agents becomes
solidarily liable:
Llewelyn Angelo Aca
1. One refers to sums belonging to the principal which the agent
applied to his own use from the time he used them;
Is it always necessary that a demand for payment be made by the
principal in order that delay on the part of the agent shall exist?
No. It is clear that if, by provision of law, the agent is bound to deliver
to the principal whatever he may have received by virtue of the
agency, demand is no longer necessary. (Article 1891)
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1897: Duties and liabilities of agent to third persons
The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the
limits of his authority without giving such party sufficient notice of his
powers.
The rule is that the principal is responsible for the acts of the agent
done within the scope of his authority and should bear any damage
caused to third persons. The agent acquires no rights whatsoever, nor
does he incur any liabilities arising from the contract entered into by
him on behalf of his principal.
An agent who acts as such within the scope of his authority represents
the principal so that his contract is really the principal’s. Hence, the
agent is not personally liable to the party with whom he contracts
unless he expressly binds himself or he exceeds the limits of his
authority without giving such party sufficient notice of his powers.
Moreover, action must be brought against the principal; otherwise,
there is no cause of action.
If the agent pays, even if he expressly binds himself to the transaction,
to the benefit of the principal, the principal’s obligation to pay is still not
relieved.
1. Where the agent contracts in his own name for an undisclosed
principal, in which case, the agent may sue the third party to
enforce the contract;
2. Where the agent possesses a beneficial interest in the subject
matter of the agency. A factor selling under a del credere
commission would illustrate such an agent, as would also an
auctioneer by virtue of his lien;
3. Where the agent pays money of his principal to a third person
by mistake or under a contract which proves subsequently to
be illegal, the agent being ignorant with respect to its illegal
nature; and,
4. Where the third party commits a tort against the agent.
Cases:
 Eurotech Industrial Technologies, Inc. v. Cuizon, GR 167552,
April 23, 2007
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. We
hold that respondent Edwin does not fall within any of the exceptions
contained in this provision.
A third party’s liability on agent’s contracts is to the principal, not
to the agent, because such contracts are not his own but his
principal’s. There are few instances in which a third party
subjects himself to liability at the hands of an agent:
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
 Soriamont Steamship Agencies, Inc. v. Sprint Transport
Services, Inc., GR 174610, July 14, 2009
Alternatively, if PTS is found to be its agent, Soriamont argues that
PTS is liable for the loss of the subject equipment, since PTS acted
beyond its authority as agent. Soriamont cites Article 1897 of the Civil
Code, which provides:
“Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient
notice of his powers.”
The burden falls upon Soriamont to prove its affirmative allegation that
PTS acted in any manner in excess of its authority as agent, thus,
resulting in the loss of the subject equipment. To recall, the subject
equipment was withdrawn and used by PTS with the authority of
Soriamont. And for PTS to be personally liable, as agent, it is vital that
Soriamont be able to prove that PTS damaged or lost the said
equipment because it acted contrary to or in excess of the authority
granted to it by Soriamont. As the Court of Appeals and the RTC
found, however, Soriamont did not adduce any evidence at all to prove
said allegation. Given the lack of evidence that PTS was in any way
responsible for the loss of the subject equipment, then, it cannot be
held liable to Sprint, or even to Soriamont as its agent. In the absence
of evidence showing that PTS acted contrary to or in excess of the
authority granted to it by its principal, Soriamont, this Court cannot
merely presume PTS liable to Soriamont as its agent. The only thing
proven was that Soriamont, through PTS, withdrew the two chassis
units from Sprint, and that these have never been returned to Sprint.
If the agent contracts in the name of the principal, exceeding the scope
of his authority, and the principal does not ratify the contract, it shall
be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principal’s ratification.
This article refers only to the liability of the agent towards the third
person. It is clear that under the premises given, the principal is not at
all bound, except of course if there is subsequent ratification by him.
Consequences shall flow in situations where agent has acted
without or in excess of his authority:
a. Contract is void, as to the principal – if there are third
persons whom the agent contracted was aware of the
limits of the powers granted by the principal;
b. Agent is liable personally to 3rd party, if he undertook to
secure the principal’s ratification
c. If the agent did not undertake to secure the principal’s
ratification, agent does not become liable on the
contract since 3rd party has no one to blame but
himself.
Article 1898: Effects of acts of agent without authority to third persons
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Since the 1986 contracts marked a sharp departure from past IVO
transactions, Safic should have obtained from Monteverde the prior
authorization of the IVO Board. Safic cannot rely on the doctrine of
implied agency because before the controversial 1986 contracts, IVO
did not enter into identical contracts with Safic. The basis for agency
is representation and a person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. In
the case of Bacaltos Coal Mines v. Court of Appeals, we elucidated
the rule on dealing with an agent thus:
approval. He also did not submit the contracts to the Board after their
consummation so there was, in fact, no occasion at all for ratification.
The contracts were not reported in IVOs export sales book and turnout book. Neither were they reflected in other books and records of
the corporation. It must be pointed out that the Board of Directors, not
Monteverde, exercises corporate power. Clearly, Monteverdes
speculative contracts with Safic never bound IVO and Safic cannot
therefore enforce those contracts against IVO.
“Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make
such inquiry, he is chargeable with knowledge of the agent’s authority,
and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the
nature and extent of the authority, and in case either is controverted,
the burden of proof is upon them to establish it.”
The most prudent thing petitioner should have done was to ascertain
the extent of the authority of Dominador Monteverde. Being remiss in
this regard, petitioner cannot seek relief on the basis of a supposed
agency.
Under Article 1898 of the 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. It also bears emphasizing that when
the third person knows that the agent was acting beyond his power or
authority, the principal cannot be held liable for the acts of the agent.
If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless
the latter undertook to secure the principals ratification.
There was no such ratification in this case. When Monteverde entered
into the speculative contracts with Safic, he did not secure the Boards
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
 Cervantes v. CA, GR 125138, March 2, 1999
From the aforestated facts, it can be gleaned that the petitioner was
fully aware that there was a need to send a letter to the legal counsel
of PAL for the extension of the period of validity of his ticket.
Since the PAL agents are not privy to the said Agreement and
petitioner knew that a written request to the legal counsel of PAL was
necessary, he cannot use what the PAL agents did to his advantage.
The said agents, according to the Court of Appeals, acted without
authority when they confirmed the flights of the petitioner.
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 (herein petitioner) knows that the agent was acting beyond his
power or authority, the principal cannot be held liable for the acts of
the agent. If the said third person is aware of such limits of authority,
he is to blame, and is not entitled to recover damages from the agent,
unless the latter undertook to secure the principals ratification.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of the
agent’s powers. There is no showing that Dans knew of the limitation
on DBP’s authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the
authority conferred by the principal on the agent and he (third person)
has been deceived by the non-disclosure thereof by the agent, then
the latter is liable for damages to him (V Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing
Sentencia [Cuba] of September 25, 1907). 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 (Francisco, V., Agency 307 [1952], citing Hall
v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the
limits of the agency carries with it the implication that a deception was
perpetrated on the unsuspecting client, the provisions of Articles 19,
20 and 21 of the Civil Code of the Philippines come into play.
Article 1899: Effects of ignorance of agent
 DBP v. CA, GR 109937, March 21, 1994
Under Article 1897 of the Civil Code of the Philippines, "the agent who
acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the
while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it
accepted Dan’s application for MRI by collecting the insurance
premium, and deducting its agent’s commission and service fee.
Llewelyn Angelo Aca
If a duly authorized agent acts in accordance with the orders of the
principal, the latter cannot set up the ignorance of the agent as to
circumstances whereof he himself was, or ought to have been, aware.
If the principal appoints an agent who is ignorant, the fault is his alone
and he must suffer the consequences of his acts.
Notice that under this Article, it is not enough for the agent to act within
the scope of his authority. It is also imperative for such agent to have
complied with the orders and instructions of the principal.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1900: Scope of agent’s authority to third persons
So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent’s authority, if such act is within
the terms of the power of attorney, as written, even if the agent has in
fact exceeded the limits of his authority according to an understanding
between the principal and the agent.
The scope of the agent’s authority includes not only the actual
authorization conferred upon the agent by his principal, but also that
which has apparently or impliedly been delegated to him.
Where the authority is not in writing, every person dealing with an
assumed agent is under obligation, if he would hold the principal liable,
to make an inquiry not only as to existence of the agency, but also as
to the nature and extent of authority of the agent.
If the authority of the agent is in writing, such person is not required to
inquire further than the terms of the written power of attorney. As far
as he is concerned, an act of the agent within the terms of
the power of attorney as written is within the scope of the agent’s
authority although the agent has in fact exceeded the limits of his
actual authority according to the secret understanding between him
and the principal.
Methods of broadening and restricting agent’s authority:
1. By implication. This means that the agent’s authority extends
not only to the express requests, but also to those acts and
transactions incidental thereto.
2. By usage and custom.
3. By necessity.
4. By the doctrines of apparent authority, of liability by estoppel,
and of ratification 5. By the rule of ejusdem generis
Llewelyn Angelo Aca
The scope of the agent’s authority is what appears in the written terms
of the power of attorney. While third persons are bound to inquire into
the extent or scope of the agent’s authority, are they required to go
beyond the terms of the written power of attorney? No. Third persons
cannot be adversely affected by an understanding between the
principal and his agent as to the limits of the latter’s authority. In the
same way, third persons need not concern themselves with
instructions given by the principal to his agent outside of the written
power of attorney.
The motive of the agent in entering into a contract with a third person
is immaterial, except where the third person knew that the agent was
acting for his private benefit or where the owner is seeking recovery
of personal property of which he has been unlawfully deprived.
 Eugenio v. CA, GR 103737, December 15, 1994
The next inquiry then would be as to what exactly is the nature of the
TPRs insofar as they are used in the day-to-day business transactions
of the company. These trade provisional receipts are bound and given
in booklets to the company sales representatives, under proper
acknowledgment by them and with a record of distribution thereof.
After every transaction, when a collection is made the customer is
given by the sales representative a copy of the trade provisional
receipt, that is the triplicate copy or customer’s copy, properly filled up
to reflect the completed transaction. All unused TPRs, as well as the
collections made, are turned over by the sales representative to the
appropriate company officer.
According to respondent court, "the questioned TPR’s are merely
‘provisional’ and were, as printed at the bottom of said receipts, as to
be officially confirmed by plaintiff within fifteen (15) days by delivering
the original copy thereof stamped paid and signed by its cashier to the
customer.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Defendants-appellants (herein petitioners) failed to present the
original copies of the TPRs in question, showing that they were never
confirmed by the plaintiff, nor did they demand from plaintiff the
confirmed original copies thereof."
We do not agree with the strained implication intended to be adverse
to petitioners. The TPRs presented in evidence by petitioners are
disputably presumed in evidence as evidentiary of payments made on
account of petitioners. There are presumptions juris tantum in law that
private transactions have been fair and regular and that the ordinary
course of business has been followed. The role of presumptions in the
law on evidence is to relieve the party enjoying the same of evidential
burden to prove the proposition that he contends for, and to shift the
burden of evidence to the adverse party. Private respondent having
failed to rebut the aforestated presumptions in favor of valid payment
by petitioners, these would necessarily continue to stand in favor in
this case.
Besides, even assuming arguendo that herein private respondent’s
cashier never received the amounts reflected in the TPRs, still private
respondent failed to prove that Estrada, who is its duly authorized
agent with respect to petitioners, did not receive those amounts from
the latter. As correctly explained by petitioners, "in so far as the private
respondent’s customers are concerned, for as long as they pay their
obligations to the sales representative of the private respondent using
the latter’s official receipt, said payment extinguishes their
obligations." Otherwise, it would unreasonably cast the burden of
supervision over its employees from respondent corporation to its
customers.
The substantive law is that payment shall be made to the person in
whose favor the obligation has been constituted, or his successor-ininterest or any person authorized to receive it. As far as third persons
are concerned, an act is deemed to have been performed within the
scope of the agent’s authority, if such is within the terms of the power
Llewelyn Angelo Aca
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 his agent. In fact, Atty. Rosario, private respondent’s own witness,
admitted that "it is the responsibility of the collector to turn over the
collection."
 Toyota Shaw, Inc. v. CA, L-116650, May 23, 1995
Moreover, Exhibit "A" shows the absence of a meeting of minds
between Toyota and Sosa. For one thing, Sosa did not even sign it.
For another, Sosa was well aware from its title, written in bold letters,
viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF
TOYOTA SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and
that the latter did not misrepresent that he had the authority to sell any
Toyota vehicle. He knew that Bernardo was only a sales
representative of Toyota and hence a mere agent of the latter. It was
incumbent upon Sosa to act with ordinary prudence and reasonable
diligence to know the extent of Bernardo's authority as an agent in
respect of contracts to sell Toyota's vehicles. A person dealing with an
agent is put upon inquiry and must discover upon his peril the authority
of the agent.
 Litonjua v. Eternit Corporation, GR 144805, June 8, 2006
It bears stressing that in 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.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
The petitioners cannot feign ignorance of any regular and valid
authority of respondent EC empowering Adams, Glanville, or Delsaux
to offer the properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not authorized,
under any circumstances, blindly to trust the agents; statements as to
the extent of his powers; such person must not act negligently but
must use reasonable diligence and prudence to ascertain whether the
agent acts within the scope of his authority.
The settled rule is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is
upon to prove it.
 Country Bankers Insurance Corporation v. Keppel Cebu
Shipyard, GR 166044, June 18, 2012
Our law mandates an agent to act within the scope of his authority.
The scope of an agent’s authority is what appears in the written terms
of the power of attorney granted upon him. Under Article 1878 (11) of
the Civil Code, a special power of attorney is necessary to obligate the
principal as a guarantor or surety.
In the case at bar, CBIC could be held liable even if Quinain exceeded
the scope of his authority only if Quinain’s act of issuing Surety Bond
No. G (16) 29419 is deemed to have been performed within the written
terms of the power he was granted.
 Esguerra v. CA, GR 119310, February 3, 1997
On a compromise agreement being a source of agent’s authority
The Civil Code provides that a contract is unenforceable when it is
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. And that 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. After a thorough review of the
case at bench, the Court finds the sale of Esguerra Building II by
VECCI to private respondent Sureste Properties, Inc. valid. The sale
was expressly and clearly authorized under the judicially-approved
compromise agreement freely consented to and voluntarily signed by
petitioner Julieta Esguerra. Thus, petitioner’s contention that the sale
is unenforceable as to her share for being unauthorized is plainly
incongruous with the express authority granted by the compromise
agreement to VECCI, which specified no condition that the latter shall
first consult with the former prior to selling any of the properties listed
there.
As far as private respondent Sureste Properties, Inc. is concerned, the
sale to it by VECCI was completely valid and legal because it was
executed in accordance with the compromise agreement, authorized
not only by the parties thereto, who became co-principals in a contract
of agency created thereby, but by the approving court as well.
Consequently, the sale to Sureste Properties, Inc. of Esguerra
Building II cannot in any manner or guise be deemed unenforceable,
as contended by petitioner.
However, contrary to what the RTC held, the special power of attorney
accorded to Quinain clearly states the limits of his authority and
particularly provides that in case of surety bonds, it can only be issued
in favor of the DPWH, the NAPOCOR, and other government
agencies; furthermore, the amount of the surety bond is limited to P
500,000.00.
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1901: Ratification by principal; effect on third persons
A third person cannot set up the fact that the agent has exceeded his
powers, if the principal has ratified, or has signified his willingness to
ratify the agent’s acts.
Article 1902: Proof of authority or instruction required by third person
A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the
instructions as regards the agency.
Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney or
instructions shown them.
Article 1903: Factor or commission agent
The commission agent shall be responsible for the goods received by
him in the terms and conditions and as described in the consignment,
unless upon receiving them he should make a written statement of the
damage and deterioration suffered by the same.
A factor or commission agent is one whose business is to receive and
sell goods for a commission and who is entrusted by the principal with
the possession of goods to be sold.
Ordinary agent
Commission agent
Does not need to have possession of Must have in possession the
the goods of his principal
goods of his principal
Commission agent
One engaged in the purchase and
sale for a principal of personal
property, which for this purpose,
has to be placed in his possession
and at his disposal. He has a
relation not only with his principal,
and the buyers or sellers, but also
with the property which constitutes
the object of the transaction.
Broker
He maintains no relation with the
thing which he purchases or sells.
He is supposed to be merely a gobetween, an intermediary between
the seller and the buyer. As such,
he does not have either the
custody or the possession of the
thing that he disposes of. His only
function is to bring the parties to
the transaction.
This article gives a presumption to the effect that the damage to the
merchandise were suffered while in the possession and custody of the
agent. Hence, to avoid liability, the commission agent should make a
written statement of the damage or deterioration if the goods received
by him do not agree with the description in the consignment.
Article 1904: Obligation of a commission agent as to goods of the
same mark or kind
The commission agent who handles goods of the same kind and mark,
which belong to different owners, shall distinguish them by
countermarks, and designate the merchandise respectively belonging
to each principal.
Article 1905: Authority of commission agent to sell on credit; effect
Distinctions:
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
The commission agent cannot, without the express or implied consent
of the principal, sell on credit. Should he do so, the principal may
demand from him payment in cash, but the commission agent shall be
entitled to any interest or benefit, which may result from such sale.
A commission agent can sell on credit only with the express or implied
consent of the principal. Hence, an agent who sells the goods on credit
without the consent of the principal is liable for the price of the goods.
However, the agent shall get the extra benefits derived from selling
goods on credit.
 Green Valley Poultry & Allied Products, Inc. v. IAC, L-49395,
December 26, 1984
Whether viewed as an agency to sell or as a contract of sale, the
liability of Green Valley is indubitable. Adopting Green Valley’s theory
that the contract is an agency to sell, it is liable because it sold on
credit without authority from its principal, contrary to Article 1905 of the
Civil Code.
Article 1906: Obligation of commission agent to sell on credit
The commission agent is not allowed to escape the effects of this
article by proving that the profits would have been less had the sale
been made on a cash basis. This defense on the part of the agent is
not tenable because if this were to be allowed, the way will be open
for delay, fraud, and bad faith.
Should the commission agent, with authority of the principal, sell on
credit, he shall so inform the principal, with a statement of the names
of the buyers. Should he fail to do so, the sale shall be deemed to
have been made for cash insofar as the principal is concerned.
Two choices are given to the principal if such sale was made,
absent any authority:
Under this article, an authorized sale on credit shall be deemed to
have been on a cash basis insofar as the principal is concerned, upon
failure of the agent to inform the principal of such sale on credit with a
statement of the names of the buyers.
1. He may require payment in cash, in which case, any interest or
benefit from the sale shall belong to the agent since the
principal cannot be allowed to enrich himself at the agent’s
expense; or,
2. He may ratify the sale on credit in which case it will have all the
risks and advantages to him.
This article only talks of the relations between the commission agent
and the principal; third parties should not be prejudiced.
Cases:
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Article 1907: Guarantee commission; definition; purpose; del credere
commission
Should the commission agent receive on a sale, in addition to the
ordinary commission, another called a guarantee commission, he
shall bear the risk of collection and shall pay the principal the proceeds
of the sale on the same terms agreed upon with the purchaser.
What is a guarantee commission? Also called a del credere
commission, it is one where, in consideration of an increased
commission, the factor or commission agent guarantees to the
principal the payment of the debts arising through his agency. An
agent who guarantees payment of the customer’s account in
consideration of the higher commission is called a del credere agent.
An agent with a del credere commission is liable to the principal if the
buyer fails to pay or is incapable of paying. But he is not primarily the
debtor. On the contrary, the principal may sue the buyer in his own
name notwithstanding the del credere commission, so that the latter
amounts to no more than a guaranty.
Liability of a del credere agent is a contingent pecuniary liability in the
event the buyer fails to pay or is incapable of paying.
Article 1908: Obligation of commission agent to collect credit
The 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 exercised due diligence for that
purpose.
A commission agent who has made an authorized sale on credit must
collect the credits due the principal at the time they become due and
demandable.
If a commission agent without a guarantee commission should prove
he exercised due diligence in the collection of the credit, and the credit
is not collected because of the fault of the third party, the agent is freed
from responsibility. In such an eventuality, the debtor can be directly
proceeded against by the principal. The principal need not fear in this
case that the debtor can put defenses which the debtor could have set
up against the agent.
Article 1909: Liability of agent is guilty of fraud and negligence
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.
Does this article include both cash and credit sales?
In the fulfillment of his obligation, the agent is responsible to the
principal not only for fraud committed by him but also, for negligence.
Yes, since the law makes no distinction. Moreover, there are cash
sales which may give a short term or period (Paras).
If the agent receives a guarantee commission, he cannot put up the
defense that the debtor-third person possesses property. This is
precisely the risk the commission agent assumed.
Llewelyn Angelo Aca
1. For fraud, he is always liable.
2. For negligence, liability is affected by whether the agency is
gratuitous or not.
Mismanagement of the enterprise by a principal, through his agent,
does not relieve him from his responsibilities he had contracted with
third persons.
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 
Remedy of the principal: Sue the agent for the damages he suffered.
entering into the contract with stipulations contrary to its principal’s
instructions.
Cases:
 NAPOCOR v. National Merchandising Corporation, L-33819 & L33897, October 23, 1982
An agent who exceeds the limits of his authority is personally liable
Under Article 1897 of the Civil Code, the agent who exceeds the limits
of his authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party.
In the present case, Namerco, the agent of a New York-based
principal, entered into a contract of sale with the NAPOCOR without
disclosing to NAPOCOR the limits of its powers and, contrary to its
principal’s prior cable instructions that the sale should be subject to
availability of a steamer, it agreed that non-availability of a steamer
was not a justification for non-payment of the liquidated damages.
Namerco, therefore, is liable for damages.
 Lopez v. Alvendia, L-20697, December 24, 1964
The principal is responsible for the acts of the agent, done within the
scope of his authority, and should bear the damages caused to third
parties.
WHEN AN AGENT ACTING WITHIN THE SCOPE OF HIS
AUTHORITY, ACTS WITH FRAUD OR NEGLIGENCE – IT
AFFECTS TWO LEGAL RELATIONSHIPS:
1. Relationship between the principal and the agent
2. As to 3rd persons, when they have entered into a contract with
the agent in the name of the principal.
Note: Agent’s acts produces two sets of liabilities for him;
The rule that every person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent would only
apply in cases where the principal is sought to be held liable on the
contract entered into by the agent. The said rule is not applicable in
the instant case since it is the agent, not the principal, that is sought
to be held liable on the contract of sale which was expressly
repudiated by the principal because the agent took chances, it
exceeded its authority and, in effect, it acted in its own name.
On the liability of an agent
Defendant’s contention that Namerco’s liability should be based on
tort or quasi-delict as held in some American cases is not well-taken.
As correctly argued by the NAPOCOR, it would be unjust and
inequitable for Namerco to escape liability of the contract after it had
deceived the NAPOCOR by not disclosing the limits of its powers and
Llewelyn Angelo Aca
Agency – Chapter 3 (Power & Authority, Duties & Obligations, Rights of the Agent) Supremo 