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C. Agency

1. CONCEPT

By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. (Article 1868, Civil Code)

a. Elements of agency

Out of the above given principles, sprung the creation an acceptance of the relationship of agency whereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. (International Exchange Bank Now Union Bank of the Philippines v. Sps. Briones, supra.)

The essential elements of agency are:

1) there is consent, express or implied, of the parties to establish the relationship;

2) the object is the execution of a juridical act in relation to a third person;

3) the agent acts as a representative and not for himself; and

4) the agent acts within the scope of his authority. (Ibid.)

b. Constitution: express or implied

Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. (Article 1869, Ibid.)

1) Oral or in a specific form (e.g. in writing)

Agency may be oral, unless the law requires a specific form. (Paragraph 2, Article 1869, Ibid.)

a) Sale of a piece of land – in writing

When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. (Article 1874, Ibid.)

2) By special information or public advertisement

If a person specially informs another or states by public advertisement that he has given a power of attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who received the special information, and in the latter case with regard to any person. (Article 1873, Ibid.)

The power shall continue to be in full force until the notice is rescinded in the same manner in which it was given. (Paragraph 2, Article 1873, Ibid.)

c. Acceptance: express or implied

Acceptance by the agent may also be express, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances. (Article 1870, Ibid.)

1) Between persons who are present

Between persons who are present, the acceptance of the agency may also be implied if the principal delivers his power of attorney to the agent and the latter receives it without any objection. (Article 1871, Ibid.)


2) Between persons who are absent

Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the agent, except:

1) When the principal transmits his power of attorney to the agent, who receives it without any objection;

2) When the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram. (Article 1872, Ibid.)

c. Presumed for compensation

Agency is presumed to be for a compensation, unless there is proof to the contrary. (Article 1875, Ibid.)

d. General Power of Attorney (GPA) v. Special Power of Attorney (SPA)

An agency is either general or special. (Article 1876, Ibid.)

General power of attorney – comprises all the business of the principal. (Paragraph 2, Article 1876, Ibid.)

Special power of attorney – comprises one or more specific transactions. (Ibid.)

1) Couched in general terms: acts of administration

An agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and unlimited management. (Article 1877, Ibid.)

2) When SPA is required

Special powers of attorney are necessary in the following cases:

1) To make such payments as are not usually considered as acts of administration;

2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;

3) 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;

4) To waive any obligation gratuitously;

5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;

7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

8) To lease any real property to another person for more than one year;

9) To bind the principal to render some service without compensation;

10) To bind the principal in a contract of partnership;

11) To obligate the principal as a guarantor or surety;

12) To create or convey real rights over immovable property;

13) To accept or repudiate an inheritance;

14) To ratify or recognize obligations contracted before the agency;

15) Any other act of strict dominion. (Article 1878, Ibid.)

a) Special power to sell excludes power to mortgage

b) Special power to mortgage does not include power to sell

A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell. (Article 1879, Ibid.)

c) Special power to compromise does not authorize submission to arbitration

A special power to compromise does not authorize submission to arbitration. (Article 1880, Ibid.)

e. Act within scope of his authority

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. (Article 1881, Ibid.)

a) Performed in a manner more advantageous to the principal

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. (Article 1882, Ibid.)

e. If agent acts in his own name

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. (Article 1883, Ibid.)

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. (Paragraph 2, Article 1883, Ibid.)

The provisions of this article shall be understood to be without prejudice to the actions between the principal and agent. (Paragraph 3, Article 1883, Ibid.)

2. OBLIGATIONS OF THE AGENT

a. To carry out the agency

The agent is bound by his acceptance to carry out the agency. (Article 1884, Ibid.)

A principal and an agent enjoy a fiduciary relationship marked with trust and confidence, therefore, the agent has the duty to act in good faith to advance the interests of its principal. (International Exchange Bank Now Union Bank of the Philippines v. Sps. Briones, supra.)

b. To be liable for damages

1) For non-performance

The agent is bound by his acceptance to be liable for the damages which, through his non-performance, the principal may suffer. (Article 1884, Ibid.)

Upon accepting an agency, the agent becomes bound to carry out the agency and shall be held liable for the damages, which the principal may incur due to the agent’s non-performance. (International Exchange Bank Now Union Bank of the Philippines v. Sps. Briones, G.R. No. 205657, 29 March 2017)

2) For preferring on own 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. (Article 1889, Ibid.)

3) For withdrawing from the agency

The agent may withdraw from the agency by giving due notice to the principal. If the principal should suffer any damage by reason of the withdrawal, the agent must indemnify the principal therefor, unless the agent should base his withdrawal upon the impossibility of continuing the performance of the agency without grave detriment to himself. (Article 1928, Ibid.)

4) Liability of co-agents not solidary, unless expressly stipulated

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 1894, Ibid.)

If solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment of agency, and for the fault or negligence of his fellows agents, except in the latter case when the fellow agents acted beyond the scope of their authority. (Article 1895, Ibid.)

c. To finish business already begund on death of principal

He must also finish the business already begun on the death of the principal, should delay entail any danger. (Paragraph 2, Article 1884, Ibid.)

d. To observe the diligence of a good father of a family

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. (Article 1885, Ibid.)

e. To advance necessary funds – if stipulated

GENERAL RULE:Should there be a stipulation that the agent shall advance the necessary funds, he shall be bound to do so. (Article 1886, Ibid.)

EXCEPTION: … except when the principal is insolvent. (Article 1886, Ibid.)

f. To act inaccordance with instructions of the principal

In the execution of the agency, the agent shall act in accordance with the instructions of the principal. (Article 1887, Ibid.)

In default thereof, he shall do all that a good father of a family would do, as required by the nature of the business. (Paragraph 2, Article 1887, Ibid.)

g. To not carry out an agency if it would manifestly result in loss or damage to the principal

An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal. (Article 1888, Ibid.)

h. To lend money at interest – w/ principal’s consent

If the agent has been authorized to lend money at interest, he cannot borrow it without the consent of the principal. (Article 1890, Ibid.)

1) Agent may lend to principal at current rate of interest

If the agent has been empowered to borrow money, he may himself be the lender at the current rate of interest. (Article 1890, Ibid.)

i. To render an account of transactions

Every agent is bound to render an account of his transactions. (Article 1891, Ibid.)

Every stipulation exempting the agent from the obligation to render an account shall be void. (Paragraph 2, Article 1891, Ibid.)

j. To deliver to principal whatever may have been received

Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal. (Article 1891, Ibid.)

k. To be responsible for acts of substitute

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) When he was not given the power to appoint one;

2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent.

1) Acts os substitute appointed against prohibition, void

All acts of the substitute appointed against the prohibition of the principal shall be void. (Article 1892, Ibid.)

2) Action against substitute by principal

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. (Article 1893, Ibid.)

l. To be liable for interest on sums applied for own use

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. (Article 1896, Ibid.)

m. To be liable to third persons – if expressly bound himself or acts in ultra vires

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. (Article 1897, Ibid.)

1) Void if third party was aware of limits of agent’s powers

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. (Article 1898, Ibid.)

n. To comply with presentation of power of attorney

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 1902, Ibid.)

o. To be responsible for fraud or 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. (Article 1909, Ibid.)

Specific provisions applicable to commission agents

p. To be responsible for consigned goods

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. (Article 1903, Ibid.)

q. To use countermarks and designate merchandise of different principals

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 1904, Ibid.)

r. To avoid selling on credit – without express/implied consent of principal

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. (Article 1905, Ibid.)

1) Consequences if no consent is obtainted

a) Prinicpal may demand payment in cash

b) Agent entitled to any interest or benefit

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. (Article 1905, Ibid.)

2) Inform principal with a statement of buyers

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. (Article 1906, Ibid.)

s. To bear risk of collection for sale on guarantee 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. (Article 1907, Ibid.)

t. To be liable for damages for not collecting credits which are due and demandable

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. (Article 1908, Ibid.)

u. To continue with agency despite withdrawal until principal has reasonable opportunity to take necessary steps

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. (Article 1929, Ibid.)

3. OBLIGATIONS OF THE PRINCIPAL

a. To comply with all obligations which agent contracted within scope of authority

The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. (Article 1910, Ibid.)

If a duly authorized agent acts in accordance with the orders of the principal, the prinicpal cannot set up the ignorance of the agent as to circumstances whereof the principal himself was, or ought to have been, aware. (Article 1899, Ibid.)

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. (Article 1900, Ibid.)

1) Ratification by principal

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 1901, Ibid.)

2) If agent was in ultra vires

GENERAL RULE:As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. (Paragraph 2, Article 1910, Ibid.)

EXCEPTIONS:

1) When the principal ratifies it expressly or tacitly. (Paragraph 2, Article 1910, Ibid.)

2) Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the principal allowed the agent to act as though he had full powers. (Article 1911, Ibid.)

b. To advance sums necessary for execution of agency

The principal must advance to the agent, should the latter so request, the sums necessary for the execution of the agency. (Article 1912, Ibid.)

1) If agent made the advance

Should the agent have advanced them, the principal must reimburse him therefor, even if the business or undertaking was not successful, provided the agent is free from all fault. (Paragraph 2, Article 1912, Ibid.)

The reimbursement shall include interest on the sums advanced, from the day on which the advance was made. (Paragraph 3, Article 1912, Ibid.)

c. To indemnify/reimburse the agent for all damages

The principal must also indemnify the agent for all the damages which the execution of the agency may have caused the latter, without fault or negligence on his part. (Article 1913, Ibid.)

1) Agent allowed to retain in pledge things which are object of the agency

The agent may retain in pledge the things which are the object of the agency until the principal effects the reimbursement and pays the indemnity set forth in the two preceding articles. (Article 1914, Ibid.)

2) When principal is not liable for expenses incurred by the agent

The principal is not liable for the expenses incurred by the agent in the following cases:

1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the benefits derived from the contract;

2) When the expenses were due to the fault of the agent;

3) When the agent incurred them with knowledge that an unfavorable result would ensue, if the principal was not aware thereof;

4) When it was stipulated that the expenses would be borne by the agent, or that the latter would be allowed only a certain sum. (Article 1918, Ibid.)

d. To be solidarily liable with co-principals

If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. (Article 1915, Ibid.)

e. To be liable to innocent third-party in case of double transaction

When two persons contract with regard to the same thing, one of them with the agent and the other with the principal, and the two contracts are incompatible with each other, that of prior date shall be preferred, without prejudice to the provisions of Article 1544. (Article 1916, Ibid.)

In the case referred to in the preceding article, if the agent has acted in good faith, the principal shall be liable in damages to the third person whose contract must be rejected. If the agent acted in bad faith, he alone shall be responsible. (Article 1917, Ibid.)

4. MODES OF EXTINGUISHMENT OF AGENCY

Agency is extinguished:

1) By its revocation;

2) By the withdrawal of the agent;

3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;

4) By the dissolution of the firm or corporation which entrusted or accepted the agency;

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

6) By the expiration of the period for which the agency was constituted. (Article 1919, Ibid.)

a. Revocation

Revocation as a form of extinguishing an agency under Article 1924 of the Civil Code only applies in cases of incompatibility, such as when the principal disregards or bypasses the agent in order to deal with a third person in a way that excludes the agent. (International Exchange Bank Now Union Bank of the Philippines v. Sps. Briones, supra.)

1) At will

The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied. (Article 1920, Ibid.)

2) When notice is required for specific persons

If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. (Article 1921, Ibid.)

3) Agent with general powers

If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons. (Article 1922, Ibid.)

4) Appointment of new agent for same business or transaction

The appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice thereof was given to the former agent, without prejudice to the provisions of the two preceding articles. (Article 1923, Ibid.)

5) Direct management by principal

The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. (Article 1924, Ibid.)

6) Co-principal may revoke power of attorney for a common transaction

When two or more principals have granted a power of attorney for a common transaction, any one of them may revoke the same without the consent of the others. (Article 1925, Ibid.)

7) Special power of attorney granted to another revokes previous general power of attorney – in relation to special matter involved

A general power of attorney is revoked by a special one granted to another agent, as regards the special matter involved in the latter. (Article 1926, Ibid.)

8) No revocation for agency coupled with interest

An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. (Article 1927, Ibid.)

A bilateral contract that depends upon the agency is considered an agency coupled with an interest, making it an exception to the general rule of revocability at will. (International Exchange Bank Now Union Bank of the Philippines v. Sps. Briones, supra.)

When an agency is established for both the principal and the agent, an agency coupled with an interest is created and the principal cannot revoke the agency at will. (Ibid.)

International Exchange Bank (Now Union Bank of the Philippines) v. Sps. Briones (2017)

Under the promissory note with chattel mortgage, Spouses Briones appointed [petitioner] iBank as their attorney-in-fact, authorizing it to file a claim with the insurance company if the mortgaged vehicle was lost or damaged. [The bank] was also authorized to collect the insurance proceeds as the beneficiary of the insurance policy.

x  x x

Petitioner asserts that the Spouses Briones effectively revoked the agency granted under the promissory note when they filed a claim with the insurance company.

x  x x

In the case at bar, the mortgaged vehicle was carnapped on November 5, 2003 and the Spouses Briones immediately informed [the bank] about the loss. The Spouses Briones continued paying the monthly installment for the next three (3) months following the vehicle’s loss to show their good faith.

However, on March 26, 2004, [the bank] demanded full payment from Spouses Briones for the lost vehicle. The Spouses Briones were thus constrained to file a claim for loss with the insurance company on April 30, 2004, precisely because [the bank] failed to do so despite being their agent and being authorized to file a claim under the insurance policy. Not surprisingly, the insurance company declined the claim for belated filing.

The Spouses Briones’ claim for loss cannot be seen as an implied revocation of the agency or their way of excluding [the bank]. They did not disregard or bypass petitioner when they made an insurance claim; rather, they had no choice but to personally do it because of their agent’s negligence. This is not the implied termination or revocation of an agency provided for under Article 1924 of the Civil Code.

While a contract of agency is generally revocable at will as it is primarily based on trust and confidence, Article 1927 of the Civil Code provides the instances when an agency becomes irrevocable: … “Article 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable.”

In the promissory note with chattel mortgage, the Spouses Briones authorized [the bank] to claim, collect, and apply the insurance proceeds towards the full satisfaction of their loan if the mortgaged vehicle were lost or damaged. Clearly, a bilateral contract existed between the parties, making the agency irrevocable. [The bank] was also aware of the bilateral contract; thus, it included the designation of an irrevocable agency in the promissory note with chattel mortgage that it prepared for the Spouses Briones to sign. /end

b. Death

1) When agency continues despite death of principal

The agency shall remain in full force and effect even after the death of the principal, if

it has been constituted:

1) in the common interest of the latter and of the agent, or

2) in the interest of a third person who has accepted the stipulation in his favor. (Article 1930, Ibid.)

2) Effect on third persons in good faith

Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith. (Article 1931, Ibid.)

3) Responsibility of heirs of agent who dies

If the agent dies, his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. (Article 1932, Ibid.)

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