XI. AGENCY Flashcards
XI. AGENCY
A. Nature, Form, and Kinds (Civil Code, arts. 1868-1883)
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Agency : Its nature, form, and different types.
1) Nature of Agency (Art. 1868):**
* A legal agreement where one person (principal) AUTHORIZES ANOTHEr (agent) to ACT on their behalf in specific dealings.
* The agent performs a service or completes a task for the principal with their consent.
2) Form of Agency (Art. 1869, 1871-1874):**
* Agency can be express (clearly communicated) or implied (inferred from actions).
* It can be oral (verbal) in most cases, but written documentation is required for:
* Selling land or any interest in it (Art. 1874).
* Specific situations requiring a special power of attorney (Art. 1878).
* Silence of the principal might imply acceptance of the agency in certain circumstances (Art. 1871-1872).
* Public announcements can establish an agent’s authority (Art. 1873).
3) Kinds of Agency (Art. 1876-1879):**
A) General Agency (Art. 1876):** Covers all the principal’s business dealings.
* Example: A company appoints a manager to oversee all daily operations.
B) Special Agency (Art. 1876):** Limited to specific transactions or tasks.
* Example: A property owner appoints an agent to sell a particular house.
4) Further details on Special Powers of Attorney (Art. 1878):**
This article outlines specific situations where a written special power of attorney is mandatory. These situations often involve significant financial or legal matters, such as:
* Making large payments beyond regular administration.
* Releasing the principal from existing obligations (novation).
* Entering contracts involving land ownership (buying, selling, donating).
* Taking on debt or lending money (except emergencies).
* Representing the principal in legal matters (inheritance, lawsuits).
5) Agent’s Authority and Limitations (Art. 1881-1882):**
* The agent must ACT WITHIN the boundaries of the Authority Granted by the principal (Art. 1881).
* Exceeding the authority can make the agreement invalid.
* However, if the agent’s actions benefit the principal more than what was originally instructed, it might still be considered valid (Art. 1882).
6) Agent Acting in Their Own Name (Art. 1883):**
* If the agent acts in their OWN Name WITHOUT Disclosing they are representing someone, the principal generally has no legal claim against the third party (the person they contracted with).
* In such cases, the agent Becomes PERSONALLY Liable for the contract.
* This doesn’t apply if the transaction involves the principal’s property.
XI. AGENCY
B. Obligations of Agent and Principal (Civil Code, arts. 1884-1918)
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Obligations of the AGENT (Articles 1884-1909)
A) Key Obligations:**
* Performance and Completion: The agent is bound to perform the tasks agreed upon and complete any business already begun, even upon the principal’s death, if delaying could cause harm (Art. 1884).
* Care and Custody of Goods: If an agent declines a role but receives goods from the principal, they must act responsibly by safeguarding them until a new agent is appointed (Art. 1885).
* Following Instructions and Due Diligence: The agent must follow the principal’s instructions. In their absence, they should act with the prudence of a responsible person in similar situations (Art. 1887).
* Avoiding Conflicts of Interest: The agent cannot take actions that could cause loss or damage to the principal, and they must avoid situations where their own interests conflict with the principal’s (Art. 1888 & Art. 1889).
* Financial Matters: If authorized to advance funds, the agent is generally obligated to do so (unless the principal is insolvent) (Art. 1886). They cannot borrow money on behalf of the principal without permission, but they can lend their own money at the current rate if authorized (Art. 1890).
* Record Keeping and Accountability: The agent is required to keep records of transactions, deliver anything received on the principal’s behalf, and provide a final account of their actions (Art. 1891).
* Appointing Substitutes: The agent can appoint a substitute only if allowed by the principal. They are liable for the substitute’s actions if they didn’t have the authority to appoint one or appointed someone unfit (Art. 1892 & Art. 1893).
- Additional Points:**
- Multiple agents might be involved, and their responsibility is not automatically joint and several (liable for the whole amount) unless explicitly stated (Art. 1894).
- The agent is responsible for interest on misused funds and owes the principal any remaining money after the agency ends (Art. 1896).
Examples:
* A real estate agent (agent) is obligated to follow their client’s (principal’s) instructions when selling a property. They cannot prioritize selling the property quickly at a lower price if the client wants the highest possible price. (Art. 1887)
* A travel agent (agent) cannot book a luxurious vacation for themselves using funds intended for a client’s trip (Art. 1889).
* If a property manager (agent) is authorized to collect rent, they must keep proper records of payments and deliver the collected rent to the owner (principal) (Art. 1891).
B) Obligations of the PRINCIPAL (Articles 1910-1918)
Key Obligations:
* Respecting Agent’s Actions: The principal must honor agreements made by the agent within their authorized scope (Art. 1910). They can be liable for exceeding authorized actions if they ratify them (Art. 1910).
* Potential Liability for Exceeding Authority: In some cases, the principal might be held liable even if the agent exceeded their authority, if they allowed the agent to act as if they had full power (Art. 1911).
* Financial Responsibilities: The principal must reimburse the agent for reasonable advances made during the agency and compensate them for damages incurred without fault (Art. 1912 & Art. 1913). The agent might even be able to hold onto the principal’s property as security until they are reimbursed (Art. 1914).
* Shared Liability: If multiple people appoint an agent for a joint undertaking, they are all liable for the consequences of the agency (Art. 1915).
* Reimbursing Reasonable Expenses: The principal is generally responsible for the agent’s legitimate expenses incurred while carrying out the agency (Art. 1918).
Examples:
* If a company director (agent), without proper authorization, signs a contract for a large office space, the company (principal) might still be liable for the contract if they ratify the decision (Art. 1910).
* A homeowner (principal) must reimburse their realtor (agent) for travel expenses incurred while showing the house to potential buyers (Art. 1912).
* Two business partners (principals) who appoint a manager (agent) to oversee their new restaurant are both liable for the agent’s decisions within the scope of their authority (Art. 1915).
XI. AGENCY
C. Extinguishment (Civil Code, arts. 1919-1932)
Key Points on Extinguishment of Agency (Art. 1919-1932)
An agency relationship can end for various reasons, as outlined in these articles. Here’s a breakdown of the main points:
1) Ways an Agency Ends:**
A) By Wilful Action:**
* Principal’s REVOCATION (Art. 1920): The principal can terminate the agency at any time (expressly or by implication) and demand any documents related to the agency.
* Agent’s WITHDRAWAL (Art. 1928): The agent can give reasonable notice to the principal to withdraw from the agency. They might be liable for damages if the withdrawal harms the principal, unless it’s due to an unavoidable situation.
B) Due to Circumstances:**
* Death, Incapacity, or Insolvency (Art. 1919(3)): The death, legal incapacity (interdiction), mental illness (insanity), or bankruptcy of either the principal or the agent can extinguish the agency.
* Business Dissolution (Art. 1919(4)): If the company or organization that created the agency dissolves, the agency ends.
* Completed Task or Time Limit (Art. 1919(5) & (6)): The agency terminates once the specific task is accomplished or if a predetermined time limit expires.
C) Other Considerations:**
* Notice of Revocation (Art. 1921-1923): Third parties who were not informed about a revocation might still be able to act on the agency if they dealt in good faith.
* New Appointments (Art. 1923): A principal appointing a new agent for the same task revokes the previous agency.
* Principal Taking Over (Art. 1924): If the principal starts handling the business directly, it can revoke the agency.
* Exceptions to Revocation (Art. 1927): An agency cannot be revoked in certain situations, such as when a contract depends on it or if it fulfills a pre-existing obligation.
2) Protections During and After Termination:**
* Agent’s Duties After Withdrawal (Art. 1929): Even with a valid reason for withdrawing, the agent must take temporary actions until the principal can find a replacement.
* Continuing Effects After Principal’s Death (Art. 1930-1931): In specific situations, an agency can remain in effect even after the principal’s death, such as if it benefits both parties or a third person involved.
* Agent’s Actions in Ignorance (Art. 1931): Acts done by the agent unaware of the principal’s death (or other termination reasons) are still valid for third parties who acted in good faith.
* Agent’s Heirs’ Duty (Art. 1932): If the agent dies, their heirs must notify the principal and take necessary steps to protect the principal’s interests.
- Examples:**
- A company terminates its contract with a marketing agency (revocation by principal - Art. 1920).
- A real estate agent decides to retire and gives their client (principal) notice to withdraw from selling their house (agent withdrawal - Art. 1928).
- A lawyer representing a client in a lawsuit dies (agent’s death - Art. 1919(3)). The agency ends, but depending on the situation, the court might appoint another lawyer to continue the case (possible exception - Art. 1927).
Challenging Multiple Choice Questions on Philippine Agency (Art. 1868-1883)
Question 1:
Mark appoints Sarah to sell his antique car. Sarah finds a buyer willing to pay the asking price, but the buyer wants the car delivered to another city. Mark never instructed Sarah about deliveries. Under the Philippine Civil Code, can Sarah enter into a contract with the buyer that includes delivery of the car?
a) Yes, delivering the car is a minor detail and Sarah can act in Mark’s best interest.
b) Yes, as long as the buyer pays the asking price, Sarah’s actions are within her authority.
c) No, Sarah exceeding her authority by agreeing to delivery without Mark’s consent.
d) No, any sale of an immovable property (like a car) requires a written power of atty
Answer: (c)
Explanation:
This scenario highlights the concept of exceeding an agent’s authority (Art. 1881). While Sarah has the authority to sell the car (special agency - Art. 1876), delivering it to another city is beyond the scope of her instructions from Mark. This could be seen as a significant change to the original agreement
Question 2:
Lia runs a bakery and often hires teenagers to help out during peak hours. One Saturday, a large order comes in, and Lia is overwhelmed. She tells 17-year-old Miguel to handle the transaction with the customer, including collecting payment. Miguel finalizes the sale and pockets the cash. Later, Lia discovers the money is missing. Can Lia hold Miguel liable for the missing money?
a) No, Miguel is a minor and cannot be held responsible for such actions.
b) No, Lia should have known better than to entrust a teenager with handling money.
c) Yes, Miguel acted as Lia’s agent and is liable for the money he collected on her behalf.
d) Yes, but only if Lia can prove Miguel intended to steal the money.
Answer: (c)
Explanation:
This question tests the concept of implied agency (Art. 1869). Lia’s actions of asking Miguel to handle the transaction, including collecting payment, imply she is authorizing him to act as her agent in that specific situation. Miguel, by accepting the task, becomes liable for fulfilling it, which includes delivering the collected money to Lia.
Question 3:
Daniel needs to sell his beachfront property quickly. He gives his real estate agent, Bea, a written power of attorney but instructs her not to sell below a specific minimum price. Bea finds a buyer willing to pay slightly less than the minimum, but it’s a good offer considering the urgency. Can Bea enter into a contract with the buyer despite disobeying Daniel’s instruction?
a) Yes, Bea can act in Daniel’s best interest even if it means disobeying his instructions.
b) Yes, as long as the sale is documented with a written power of attorney, Bea has the freedom to negotiate the price.
c) No, Bea must strictly follow Daniel’s instructions and reject any offer below the minimum price.
d) No, selling land requires a special power of attorney specifying the minimum price, which Bea violated.
Answer: (c)
Explanation:
This scenario deals with the agent’s obligation to follow the principal’s instructions (Art. 1887). While Bea has a written power of attorney (Art. 1874), Daniel’s specific instruction regarding the minimum price creates a limitation on her authority. Bea exceeding this limit by accepting a lower offer could be considered a breach of her duty as an agent.
Question 4:
Carla owns a clothing boutique. She appoints her friend, Isabel, to manage the store in her absence. During a sale, Isabel offers a discount on a particular brand of clothing that Carla always sells at full price. A customer enters the store and, upon seeing the discount sign for that brand, purchases several items. Later, Carla is unhappy with the discounted sale and blames Isabel for exceeding her authority. Who is liable for honoring the discount given to the customer?
a) Carla, as the store owner is ultimately responsible for any discounts offered.
b) Isabel, as she exceeded her authority by offering a discount without Carla’s knowledge.
c) The customer, as they should have confirmed the discount with Carla before purchasing.
d) Neither Carla nor Isabel, as the discount sign was misleading and unintentional.
Answer: (a)
Explanation:
This question explores the concept of apparent authority (not explicitly covered in these articles but inferred). Even though Isabel might not have had explicit permission to offer discounts, her position as store manager might create an impression for customers that she has the authority to do so (apparent authority). Since Carla appointed Isabel as the manager
Challenging Multiple Choice Questions on Obligations of Agent and Principal (Art. 1884-1918)
Question 1:
Maria hires Daniel to manage her rental properties. Daniel negligently allows a leaky faucet to continue dripping for months, causing water damage to the property. Who is liable for the repair costs of the water damage?
a) Maria, as the property owner is ultimately responsible for its maintenance.
b) Daniel, as his negligence in managing the property caused the damage.
c) Both Maria and Daniel are jointly liable for the repair costs.
d) No one, as wear and tear is expected in any rental property.
Answer: (b)
Legal Reasoning:
This scenario highlights the agent’s obligation to act with due diligence (Art. 1889). Daniel, as Maria’s agent managing the property, has a duty to care for it and address any maintenance issues promptly. His negligence in letting the leaky faucet persist caused the water damage. (Art. 1809 also emphasizes an agent’s liability for fault or negligence).
Question 2:
Carlos appoints Regina to sell his antique furniture collection. Regina finds a buyer willing to pay a fair price, but the buyer wants to pay in installments over several months. Carlos never mentioned installment plans when authorizing Regina to sell. Can Regina enter into such a contract with the buyer?
a) Yes, Regina can offer flexible payment options to attract buyers, as long as the total price is fair.
b) Yes, selling furniture doesn’t require specific payment terms, so Regina has the leeway to negotiate.
c) No, Regina exceeding her authority by agreeing to installments without Carlos’s consent.
d) No, any sale exceeding a certain amount requires written approval from the principal.
Answer: (c)
Legal Reasoning:
This question focuses on the limitations of an agent’s authority (Art. 1881). While Regina has the authority to sell the furniture (special agency), agreeing to an installment plan alters the terms of the sale beyond a simple exchange for cash. This could be seen as exceeding her authority without Carlos’s consent.
Question 3:
Mark appoints Sarah, a lawyer, to handle the legal aspects of selling his business. Sarah successfully negotiates the sale and recovers a higher price than Mark initially expected. However, Sarah keeps no records of the expenses she incurred during the negotiation process. Can Sarah still demand reimbursement from Mark for these expenses?
a) No, Sarah’s failure to keep proper records automatically disqualifies her from reimbursement.
b) No, legal fees are typically separate from negotiation expenses, and Sarah should have clarified this upfront.
c) Yes, Sarah can request reimbursement as long as the expenses were reasonable for such a transaction.
d) Yes, but only if she can prove the exact amount spent on each expense.
Answer: (c)
Legal Reasoning:
This scenario explores the agent’s obligation to keep proper records (Art. 1891). While keeping detailed records is ideal, the focus here is whether the expenses themselves were reasonable. Sarah can still request reimbursement for legitimate negotiation expenses incurred while acting as Mark’s agent, even if detailed records are unavailable. She might need to provide a general explanation of the costs.
Question 4:
Luisa hires Miguel, a contractor, to renovate her kitchen. Miguel completes the renovation according to the agreed-upon design but goes over budget due to unforeseen circumstances. Luisa refuses to pay the additional amount, claiming the contract specified a fixed price. Miguel argues he acted in good faith and shouldn’t be liable for the extra costs. Who is liable for the additional renovation costs?
a) Luisa, as she is ultimately responsible for any unexpected costs during the renovation.
b) Miguel, as he should have informed Luisa about the additional costs before proceeding.
c) They are jointly liable for the additional costs and can negotiate a split payment.
d) Neither Luisa nor Miguel, as unforeseen circumstances are outside the scope of the contract.
Answer: (b)
Legal Reasoning:
This scenario highlights the agent’s obligation to keep the principal informed (Art. 1891). While unforeseen circumstances can arise, Miguel has a duty to communicate any significant cost increases to Luisa before continuing the work. By not informing her, he might be liable for absorbing some or all of the additional expense.
Challenging Multiple Choice Questions on Extinguishment of Agency (Art. 1919-1932)
Question 1:
Beatrice appoints Michael to handle the investment of her stock portfolio. Unfortunately, Michael becomes mentally ill (insane) and is no longer capable of managing finances. In this scenario, how does Michael’s mental illness affect the agency relationship?
a) The agency remains in effect; Beatrice must wait for Michael to recover before appointing someone new.
b) The agency continues as long as Michael acted in good faith before his illness.
c) Beatrice can revoke the agency due to Michael’s illness, but she is still liable for any investments Michael made already.
d) The agency automatically extinguishes upon Michael’s illness, and Beatrice can appoint a new agent.
Answer: (d)
Legal Reasoning:
This scenario applies Article 1919(3). An agency extinguishes upon the insanity (or interdiction) of either the principal (Beatrice) or the agent (Michael). In this case, Michael’s mental illness renders him incapable of fulfilling his duties, so the agency automatically ends. Beatrice can now appoint a new agent to manage her investments.
drawal, the agent must take temporary actions until a replacement is found to avoid causing harm to the principal (Maria’s property being left unattended). By leaving without proper notice or handover, Ricardo could be liable for any problems that arise due to his absence.
Question 2:
Daniel hires a construction company (agent) to renovate his kitchen. The renovation contract specifies a fixed price and a deadline for completion. Halfway through the project, Daniel decides he wants to cancel the agency and manage the rest of the renovation himself. Is Daniel legally obligated to pay the construction company for the work done so far?
a) No, Daniel can revoke the agency at any time and is not liable for any payments.
b) No, since Daniel is taking over the project himself, the construction company is no longer needed.
c) Yes, Daniel must pay for the work completed according to the contract, even though he revoked the agency.
d) Yes, Daniel must pay for everything, including the remaining work not completed by the construction company.
Answer: (c)
Legal Reasoning:
While Article 1920 allows the principal (Daniel) to revoke the agency at will, other articles introduce limitations. Article 1927 establishes an exception where an agency cannot be revoked if a bilateral contract (the renovation contract) depends on it. Daniel revoking the agency midway disrupts the agreed-upon completion of the project. Therefore, he is likely obligated to pay for the work already done as per the contract.
Question 3:
Maria appoints Ricardo to manage her beachfront property. Ricardo unexpectedly needs to relocate to another country for a new job opportunity. He finds a property management company willing to take over Maria’s property but doesn’t inform Maria before leaving. Is Ricardo liable for any problems that might arise due to his absence and lack of communication?
a) No, Ricardo had a valid reason to relocate and cannot be held liable for any consequences.
b) No, as long as the property management company is qualified, Ricardo is not responsible for their actions.
c) Yes, Ricardo should have informed Maria and ensured a smooth handover to a new agent before leaving.
d) Yes, Ricardo remains liable for managing the property until Maria appoints a new agent, regardless of his location.
Answer: (c)
Legal Reasoning:
This scenario involves a combination of Articles 1928 and 1929. Article 1928 allows an agent (Ricardo) to withdraw from the agency with reasonable notice to the principal (Maria). Ricardo has a valid reason (new job) but failing to inform Maria breaches his duty to act in her best interests. Article 1929 emphasizes that even with a valid reason for with
