900,San Marcelino Street,Ermita,Manila City 1000,Metro Manila

COLLEGE OF BUSINESS ADMINISTRATION

SALES, AGENCY & CREDIT TRANSACTION

ATTY. ROLANDO B. PAGTOLON-AN, REB, REA

AGENCY

What is a Contract of Agency?

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 some the consent or authority of the latter (Art. 1868)

May an agent appoint a sub-agent or substitute?

Unless prohibited by the principal, the agent may appoint a sub-
agent or substitute.

Contract of Agency Partnership

An agent acts not for himself, but A partner acts for himself for his firm,
for a principal and for his partners

Contract of Agency Contract of Lease of Services

The basis of contract in the
contract of agency is
representation
The contract of agency may be
extinguished at will by the principal
The agent exercises discretionary
powers in order to attain the end
for which he was appointed
In a contract of lease of services,
the basis is employment
Concurrence of both parties is
necessary for extinguishment
The employee exercises ministerial
functions only

What are the requisites in order that the principal may be bound by the act
of the agent?
1) The agent must act within the scope of his authority; and
2) The agent must act in behalf of the principal.

When the agent exceeds his authority, may the principal still be bound?
Yes. The agent is not deemed to have exceeded the limits of his
authority should he perform the agency in a manner more
advantageous to the principal than that indicated by him (Art. 1882)

When may an agent be held personally liable?

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

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 limits of his authority without giving such party sufficient notice of his
powers (Art. 1897)

May an agent be held principally liable?

Yes. If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has contarcted.

Exception:
1) When the contract involves things belonging to the principal (Art.
1883)

Example:
A principal told his agent to sell his car for him. The agent sold it to a
third party. The agent acted in his own name. Can the third party sue
the principal in case the car has hidden defects?

Yes. Although the agent acted in his own name, still the sale involved
a car belonging to the principal.

Note:
An agent who takes a secret profit, in the nature of a bonus, gratuity or
personal benefit from the vendee, without revealing the same to his
principal, the vendor is guilty of a breach of his loyalty to the principal, and
forfeits his right to collect the commission even if the principal does not
suffer any injury. As if no agency had existed. The fact that the principal
may have been benefited does bot exculpate the agent.

FORMS OF AGENCY
Is there a form for agency?
None. The usual method by which an agency is created is by
contract which may be oral, written or implied.

What is the form required when the sale through an agent involves a piece
of land or any interest therein?
The authority of the agent shall be in writing; otherwise, the sale shall
be void (Art. 1874)

What are the kinds of agency?

1) As to manner of creation:
a) Express; or
b) Implied
2) As to its character:
a) Gratuitous; or
b) Onerous
3) As to extent of business covered:
a) It may be general; or
b) Specific
4) As to authority conferred:

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 a) It may be couched in general; or
b) Specific terms
5) As to its nature and effects:
a) Ostensible; or
b) Simple

May an agency be implied?

Yes. An indicated in Art. 1869, the principal must know “that another
person is acting on his behalf without authority” for an agency to be
implied.

Enumerate the different kinds of implied agency

1) From acts of principal;
2) From his silence;
3) Lack of action; or
4) His failure to repudiate the agency knowing that another person
is acting on his behalf without authority (Art. 1869).

DOCTRINE OF AGENCY BY NECESSITY/ AGENCY BY OPERATION OF LAW

Strictly speaking, an agency can never be created by necessity.
What is meant by the phrase “agency by necessity” is that by virtue
of the existence of an emergency, the authority of an agent is
correspondingly enlarged in order to cope with the exigencies or the
necessities of the moment.

The five conditions laid down for authority of agency by necessity

are:
1. The real existence of emergency;
2. Inability of the agent to communicate with the principal;
3. Exercise of the additional authority for the principal’s own
protection;
4. The adoption of fairly reasonable means, premises duly
considered; and
5. The ceasing of the authority the moment the emergency no longer
demands the same.

AGENCY BY ESTOPPEL
One who clothes another with apparent authority as his agent, and
holds him out to the public as such, cannot be permitted to deny the
authority of such person in good faith and in the honest belief that
he is what he appears to be (Cuison vs. CA)

Agency by Estoppel Implied Agency

The agent is not a true agent, hence The agent is a true agent with the
he has no rights as such rights abd duties of an agent
If the estoppel is caused by the The principal is always liable
principal, he is liable but only if the

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 third person acted on the
misrepresentation
If the estoppel is caused by the The agent is never personally liable
agent, it is only the agent who is
liable, never the alleged principal

Question:
Jose appoints Augusto, a minor, his agent to sell his car. Augusto sells
the car to Maria. May Jose avoid the contract entered into by
Augusto in favor of Maria on the ground of his agent’s incapacity?

Answer:
Jose cannot avoid the contract entered into by Augusto in favor of
Maria on the ground of his agent’s incapacity. In a contract of
agency, as far as third persons are concerned, what is important and
material is the legal capacity of the principal to enter into a contract.
The capacity of the agent is of no moment. The agent’s personality
is merely an extension of the principal’s. If the principal has the
necessary capacity, that is enough.

GENERAL VS. SPECIAL AGENCY

GENERAL AGENT
Usually authorized to do all acts
connected with the business in
which he is engaged
Conducts a series of transactions
involving a continuing of service
Binds his principal by an act within
the scope of his authority although
it may be contrary to his special
instructions
Apparent authority does not
terminate by mere revocation of
authority without notice to 3rd
parties
-through publication
SPECIAL AGENT
Authorized to do only one or more
specific acts in pursuance of
particular instructions
Usually involves a single-transaction
or a series of transactions not
involving continuity of service
Cannot bind his principal in a
manner beyond or outside the
specific acts which he is authorized
to perform
Termination effective as to 3rd party
unless agency was for purpose of
contracting with that 3rd party

AGENCY COUCHED IN GENERAL TERMS

A general agency must not be confused with one couched in
general terms which is a special agency when it involves only one or
more specific transactions.

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 (Art. 1877).

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
AGENCY REQUIRING SPECIAL POWER OF ATTORNEY

A special power of attorney is necessary in cases of acts of strict dominion

or ownership as distinguished from acts of administration.

Art. 1878. 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.

Is the intervention of a notary public necessary for the validity of a special power
of attorney?

No. A special power of attorney is valid although no notary public

intervened in its execution (Barretto vs. Tuason)

Question: Suppose that an agent holds a special power to sell a certain property,
is he also empowered by implications to mortgage said property?

Answer: No. Art. 1879 of the Civil Code declares that a special power to sell
excludes the power to mortgage, and a special power to mortgage does not
include the power to sell.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
AGENCY BY OPERATION OF LAW/ AGENCY BY NECESSITY

An agency from necessity is created, or the ordinary powers of an agent

may be enlarged, when an emergency occurs and an employee or an
agent is unable to get in touch with his employer.

Question: What is the rule when both the principal and agent contract with
respect to the same thing?

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

What are the obligations of the principal?

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

2. To advance, should the agent so request, sums necessary for the

exectuion of the agency (Art. 1912).

3. To reimburse the agent for all advances made him, provided the agent
is free from fault (Art. 1912).

4. To indemnify the agent for all the damages which the execution of the
agency may have caused the latter without fault or negligence on his part
(Art. 1913).

5. To pay the agent the compensation agreed upon or the reasonable

value of the latter’s services.

When is the principal not liable for expenses incurred by the agent?

Art. 1918. The principal is not liable for the expenses incurred by the agent
in the following cases:

(1) If the agent acted in contravention of the principal's instructions, unless

the latter should wish to avail himself of the benefits derived from the
contract;

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

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

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 (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.

IRREVOCABLE AGENCY

May the principal revoke the agent at will?

Yes. The principal may revoke the agency at will, with or without reason
since an agency relationship is voluntary, except as provide in Art. 1927.

When is an agency irrevocable?

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

Note: The agency cannot be revoked at principal’s will when it is “coupled with
an interest.

An agency coupled with an interest refers to an agency wherein the agent

has acquired some interest of his own in the execution of the authority
granted to him, in addition to his mere interest in the contract of
employment with the resulting gains.

May an agent withdraw from the agency?

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

MODES OF EXTINGUISHMENT

Art. 1919. 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.

General Rule: Agency is extinguished by the death of the principal

Exceptions:
1) Agency is coupled with an interest; and
2) The agent , unaware of the death of the principal, enters into a contarct
in behalf of his principal with a 3rd person who is also unaware of the death
of the principal.
xxx Nothing follows xxx

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA