Www Compilation for Finals

1 a n g e l ‘ s n o t e s B U S I N E S S O R G A N I Z A T I O N I

Where We’re We – for finals

August 20, 2011 --- PLEASE REFER TO GRACE EMBAY’S WWW Q; what is a limited partner? A: Article 1843 A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. Q: is it also consensual? A: it is a formal contract. First the partners should sign and swear to a certificate which is then filed to the SEC Q: so how do we classify now a limited partnership? A: partnership which is a FORMAL CONTRACT. Q: because of this requirement, what are the rights of a limited partner? A: lesser than that of a general partner. He does not participate in the management of the partnership. However, his liability in the limited partnership only extends to his partnership contribution. He may participate in the winding up and dissolution. Q: why would limited partnership be necessary? A: 1. To secure capital from others for one’s business and still retain control 2. to share in profits of a business without risk of personal liability 3. associate as partners with those having business skill -- Business reason and purpose of statue authorizing limited partnership August 31, 2011 Q: how do you distinguish liabilities in so far as obligations are concerned? A: GP- extends to his personal assets; LP- extends only to his capital contribution For General Partners: If liability arise from… 1. CONTRACTS –joint or subsidiary 2. QUASI DELICT OR TORT OR DELICT – solidary Q: differentiate pro-rata and joint? A: pro rata depends on the amount of their contribution; if joint, it is equally divided among the partners Pro rata refers to the amount; joint refers to the nature or relationship among parties when we talk about solidary/joint liability, it refers to how the parties will apportion their liabilities. Q: nature among limited partners? A: LIMITED PARTNERS HAVE NOTHING TO DO WITH THE LIABILITIES OR OBLIGATIONS. IT’S THE OBLIGATION OF THE PARTNERSHIP, THEY ARE MERELY CONTRIBUTORS. THE ONLY OBLIGAITON IS TO DELIVER THE PROMISED CONTRIBTUTION. IF WHAT IS CONTRIBUTED IS NOT ENOUGH, THEN WE HAVE NOTHING TO DO. WHETHER OR NOT THE CONTRIBUTION, TOGETHER WITH OTHER CONTRIBUTIONS IS NOT SUFFICIENT, THERE IS NOTHING TO DO. YOU DO NOT TALK ABOUT JOINT OR SOLIDARY WHEN WE TALK OF LIMITED PARTNERS. ONLY THE GP WILL ARGUE WHETHER THEIR LIABILITY IS JOINT OR SOLIDARY. ---- NOTHING TO DO! Q: so where did we stop? A: creditor vs. limited partner Creditor does not assume a risk because even if the business has profits or not, he will still be paid. But a limited partner assumes a risk but that risk is only limited to his contribution Q: we say that one can be both general and limited partner, how? A; should be stated in the articles. His name should appear twice in the enumeration of the contributions.

Q: why should I want to be both? A: A person wants to be a GP and LP at the same time because you want to spread the risk of the losses (as regard the G-L) Because in losses --- you are liable in proportion to your contribution --- THUS, in order to spread the risk, you make your contribution uniform with the rest of the General Partners and the excess, you can treat or apply it as your contribution as a limited partner. You don’t want to take the risk of paying more than the other Gen. Partners but you enjoy the possibility of enjoying more profits if there are profits. Q: instances when a limited partner is liable as a general partner A: 1. when the partnership term has already expired and you failed to amend the certificate and file 2. the limited partner engage in the management 3. When the name of the limited partner is included in the partnership name 4. Limited partner renders service since his contribution should only be money or property 5. You did not comply with the formalities of the contract 6. If you were stated to be a general partner when in fact you are a limited partner (to third persons only) Q: if X (LP) engages in recruitment, he makes publication about vacancies, certain positions in given company. So everytime there is a vacancy, it is referred to him to recruit, select and recommend to fill up vacancies. What is the liability? A: he is still a limited partner because the final selection is still in the hands of the management. It is merely giving an option to the management itself. Q: but is hiring not an act of the management? So that in addition to that since he passed the bar, partner X was also retained as counsel in the partnership with authority to conduct administrative investigation and fire employees. (hire and fire) A: he is now a GP. He looks if standards are continually complied with thus his right to fire employees afterwards. In the first illustration, his function is purely recommendatory. Select and recruits and recommends. No authority to hire and engage or accept an employee. It is still retained by the company management. But later he was given an additional task to terminate or dismiss employees. In this scenario, it is now complete. In this case, he is actively engaged or involved in the management. --- power to hire and at the same time dismiss an employee Q: so the moment a limited partner performs acts of management, he becomes a general partner. Earlier we said that partners can enjoy certain powers and have authority to bind partnership, and among others, what can a GP exercise? A: acts of administration Q: in a limited partnership, up to what extent can limited partners engage into? A: they cannot do acts of administration or dominion. --- limited to what is specified in the certificate. They also have the power or their consent is necessary so that general partners may perform acts of dominion In a general partnership, so long as a GP unanimously agree, then that is the decision binding in the partnership even for acts of dominion. But once limited partners are present, you can no longer do this, you need the consent of all the limited partners as well. --- they have the right to oppose the decision of GP --- this is how we distinguish LP to a mere investor. Distinction between mere Investor and an LP: A LP is on a higher level. Plain investor has nothing to do with business. He only has a general prerogative to go to agencies of government when he notices irregularities in carrying on of the business… but the mere investor cannot appear in the office of the partnership and oppose the decision of the partners. On the other hand, the limited partner has such power. The law



gives him certain degree of participation in carrying out of the business and administration of the properties of the partnership Q: rights of the LP? A: Article 1851

A limited partner shall have the same rights as a general partner to:

(1) Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them; (2) Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable; and (3) Have dissolution and winding up by decree of court. A limited partner shall have the right to receive a share of the

profits or other compensation by way of income, and to the return of his contribution as provided in Articles 1856 and 1857. Further they also have the right to question acts of dominion performed by GP (his consent is needed in this case) In other words, unlike in GP can by themselves unanimously agree to perform acts of dominion. This time there are limited partners. These acts of dominion cannot be carried out without their consent. Q: what are example of acts of dominion wherein the consent of a limited partner is required? A:

(1) Do any act in contravention of the certificate;

- in violation of the agreement of the partners as

contained in the certificate

(2) Do any act which would make it impossible to carry on the

ordinary business of the partnership;

(3) Confess a judgment against the partnership;

(4) Possess partnership property, or assign their rights in specific

partnership property, for other than a partnership purpose;

- (2) to (4) are acts prejudicial to the interests of the

limited partners

(5) Admit a person as a general partner;

(6) Admit a person as a limited partner, unless the right so to do

is given in the certificate;

- based on the highly fiduciary nature of the

partnership relation

(7) Continue the business with partnership property on the

death, retirement, insanity, civil interdiction or insolvency of a

general partner, unless the right so to do is given in the

certificate.

- events mentioned results in the dissolution of the

partnership Note: If the General Partner in a limited partnership decides to pursue partnership business despite the death, retirement, insanity, civil interdiction or insolvency of a General Partner, the consent of ALL partners is required. --- Why? Because necessarily, in this case, the partnership is already dissolved. So to continue the partnership, all the consent of all partners is necessary. Consent is needed because some of the limited partners might not agree. Because they no longer want to continue --- they want the return of their contribution and profits. it may also be that the GP who died is the only one they trust. There could have been a distribution of contribution and profits if the General Partners chose NOT to continue. This is a fair authority to be given.

Q: there is an instance when a person who thought that he was dealing with a limited partnership but this is false because his name is not placed in the certificate to be a limited partner. Thus there is a possibility that he may be interpreted as a mere investor or other people may treat him as a silent partner or general partner. What should be done and what instances should such happen? A:

Without prejudice to the provisions of Article 1848, a person who

has contributed to the capital of a business conducted by a person or

partnership erroneously believing that he has become a limited partner in a

limited partnership, is not, by reason of his exercise of the rights of a limited

partner, a general partner with the person or in the partnership carrying on

the business, or bound by the obligations of such person or partnership,

provided that on ascertaining the mistake he promptly renounces his

interest in the profits of the business, or other compensation by way of

income.

- This article grants exemption from liability in favor of one who has

contributed to the capital of a business conducted by a person or

partnership erroneously believing that he has become a limited

partner in a limited partnership, or in a general partnership

thinking that it is a limited partnership.

Conditions for Exemption from Liability as a General Partner

a. On ascertaining the mistake, he promptly RENOUNCES his interest

in the profits of the business or other compensation by way of

income

b. His surname does not appear in the partnership name

c. He does not participate in the management of the business

- Renouncement should take place before the partnership has

become liable to third persons

PURPOSE OF THIS ARTICLE IS TO PROTECT THIS PARTICULAR INVESTOR

Note: where no partnership creditors are prejudiced, it would seem that

renunciation of his interest is not necessary

- 2 views as regards the obligation to pay back profits and

compensation already received:

o Refers only to profits or compensation NOY YET PAID

OVER for a person can hardly be said to have an

interest in profits or compensation he has already

received (the law uses the word “renounce” and not

“return”)

o The most that the statute could have intended was to

put partnership creditors in the position they would

occupied had there been no limited partner at the time

the obligation was contracted (opposite view)

Remember that receipts of profit share are prima facie presumption that you

are a partner. As a General Rule then, you are a GP.

Q: what does he do to protect his interest? A: he must renounce his interest If his name appears in the firm name, he promptly requires the amendment to remove his name, and he should not take part of the management Q: return or not return? A: (sir’s answer:) I am entitled to receive my share during the time I have assumed the risk. At that point where there is a risk, everything I enjoyed, I am entitled to it. Because in the same sense that I may have also suffered loss which is the risk assumed during that time.



September 7, 2011 Q: A Limited partner, in the real sense of the word is other than being a partner, more of a what? A: more of an investor/contributor Q: as a matter of fact the law refers to him as a mere contributor So that when you invest, it’s a win or lose. But when you are a partner, you also assume a risk. But being a limited partner you can calculate your risk, in what sense? A: you specify in the certificate the specific risk or their rights over the other limited partners rights Among limited partners, generally they are on equal footing. How do we introduce the advantage? A: it should be specified in the certificate In other words there could be various types of limited partners. In what way do they differ? A: ex. with regards to the preference of payment of the profits, payment of the contribution, and other rights as well as liabilities. Q: what are the preferential rights referred to? A: profits, compensation by way of income and return of contribution Ex. Limited partner A is preferred as to profits (profits + 2%). Thus they are investors but not real partners because such term refers to general partners. And they have their own rights and privileges. Q: on the other hand we have a partner, investor, aside from them, who else is interested with the partnership? A: An associate --- he is only interested as to the profits and interest of the partner whom he is associated with Q: how did he become such? A: from an arrangement with a general partner Q: other than an associate? A: third party creditors are likewise interested. Q: how can one become a third party creditor? A: lending money, transacts a business (providing materials and supplies to the partnership) --- more normally a lender (banks) Normally, we go to someone is familiar with the partnership who happens also to be the limited partner. The limited partner may also be the lender. Q: Being a lender, would you be happy to lend as a limited partner?

A: Yes, because now you have two personalities. One, a limited partner

where you are entitled to profits, compensation by way of income, or return

of contribution. Second, you are entitled to the amount you lent plus

interest.

You become a limited partner who is at the same time a lender. As a lender,

win or lose you are entitled to payment. But as a limited partner, with

regards to losing, your contribution is gone.

Q: what are the disadvantages of being a limited partner and a lender at the

same time?

A: Handicap of the limited partner: When you are a limited partner who is at

the same time a lender you cannot hold as collateral partnership property.

This is very risky because it could happen that the lender will not be paid if

there is no collateral. This is intended to protect non-partner creditors.

Further, you don’t have preference of credit. Third party creditors are always

preferred before you.

LP PROHIBITED FROM:

(1) Receive or hold as collateral security and partnership property, or (2) Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.

The contract of loan is the principal contract, while collateral is an accessory

contract

Q: Differentiate between the types of accessory contracts (review credit

transaction): mortgage (real and chattel), pledge, guaranty, surety

Q: why do you think such LP-Lender is prohibited from having a collateral or

preference in credit?

A: this is because he already has an advantage over third party creditors. He

has access to partnership books or records; he would know whether or not

business is doing well and where these assets are so you need not be given

any security for the amount you lent the partnership.(unlike third party

creditors who do not have access to these records) Secondly, even if you are

allowed to hold collateral, the law prefers third party creditors.

Q: When we are about to dissolve the partnership, how do we distribute the

assets? (art. 1863)

A:

(1) Those to creditors, in the order of priority as provided by law, except

those to limited partners on account of their contributions, and to general

partners;

(2) Those to limited partners in respect to their share of the profits and

other compensation by way of income on their contributions;

(3) Those to limited partners in respect to the capital of their contributions;

(4) Those to general partners other than for capital and profits;

(5) Those to general partners in respect to profits;

(6) Those to general partners in respect to capital.

If after paying third party creditors there is nothing left the partnership is still

liable to the limited partners for the amount they lent to the partnership as

creditors and NOT for their contributions. They can go after the general

partners who are liable up to the extent of their personal properties for the

debt.

Q: If nothing is left, can the limited partners demand the return of the investment? A: no more. Because they took the risk. So in general, can I demand for the return of my contribution? A: yes. Provided that the assets of the partnership are enough to cover for the liabilities. Further that there is consent of all the members, and an amendment to the certificate is made… If in the certificate, I am a limited partner only for two year. After two years? A: you can now demand the return of your contribution And if there are profits, he could as for the return of the contribution. Q: however, what are the conditions before I demand the return?



A:

A limited partner shall not receive from a general partner or out

of partnership property any part of his contributions until:

(1) All liabilities of the partnership, except liabilities to general

partners and to limited partners on account of their

contributions, have been paid or there remains property of the

partnership sufficient to pay them;

(2) The consent of all members is had, unless the return of the

contribution may be rightfully demanded under the provisions of

the second paragraph; and

(3) The certificate is cancelled or so amended as to set forth the

withdrawal or reduction.

Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution:

(1) On the dissolution of a partnership; or

(2) When the date specified in the certificate for its return has

arrived, or

(3) After he has six months' notice in writing to all other

members, if no time is specified in the certificate, either for the

return of the contribution or for the dissolution of the

partnership. Q: if what he contributed before is a parcel of land which at that time was worth 2m. of course he could be entitled to the return of the profits. and together with his profits he could only get 3m (return of contribution plus profits) --- but the value now of the property is worth 10m. so if you were a limited partner, will you get the 3m or demand the return of the land? A: General rule you can only ask for the cash unless the contrary is written in the certificate and or consented by all.

In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, HAS ONLY THE RIGHT TO DEMAND AND RECEIVE CASH in return for his contribution.

BASIS: 1844---(f) the amount of cash and description of and the agreed value of the other property contributed by each limited partner The logic for such general rule, is that when there is appraisal, then there is transfer of ownership (implied sale) to the partnership. And that property is now owned by the partnership and the limited partner cannot insist that such property be returned to him. He who becomes the owner suffers the loss or enjoys the improvement. Q: substituted limited partner?

A: A substituted limited partner is a person admitted to all the rights of a

limited partner who has died or has assigned his interest in a partnership.

Q: how does this person come about?

A; An assignee shall have the right to become a substituted limited partner

if all the members consent thereto or if the assignor, being thereunto

empowered by the certificate, gives the assignee that right.

An assignee becomes a substituted limited partner when the certificate is

appropriately amended in accordance with Article 1865.

We do not need a death of a limited partner to have a substituted limited

partner.

Q: how many ways can we have a substituted limited partner?

A: two ways:

a. assignment of interest by the limited partner

b. death of a limited partner

first the limited partner can assign, the moment he assigns there is an

assignee. An assignee becomes a substituted limited partner when o All the members must consent to the assignee

becoming a substituted limited partner or the limited partner, being empowered by the certificate, must give the assignee the right to become a limited partner

o The certificate must be amended in accordance with article 1865

o The certificate as amended must be registered in the Securities and Exchange Commission

ASSINGMENT OF INTEREST BY THE LIMITED PARTNER IS FURTHER

SUBDIVIDED INTO TWO AS REGARDS THE PROCESS ON HOW THEY BECOME

SUBSTITUTED LIMITED PARTNERS:

1. When it empowered in the certificate that he can make an assignee as a

substituted limited partner --- no need for consent of other partners

2. the assignment to constitute a substituted limited partner is consented to

by all the members

Q: what about death?

A: because the death of the limited partner does not result to the

dissolution, the executor or administrator of the deceased limited partner

becomes a limited partner

Article 1861

On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner.

The estate of a deceased limited partner shall be liable for all his liabilities

as a limited partner.

--- an executor settles the assets of the deceased (his power is obtained from

a will)--- designated by the deceased in a will to settle his estate

---administrator --- is designated by the court or appointed by the court

Q; distinguish contributor, assignee and contributor?

Assignee just receives the profits or interest of the partner or contribution of

the partner. He has no rights to look into the accounts of the partnership

affairs

Sub. Limited partner – he obtains all the rights of the limited partner

Contributor - he is the limited partner. He assumes the risk

Q: not contributor nalang, associate nalang

A: no right at all in the partnership because he only associates himself to the

partner and not to the partnerhsip.

Q: in all these changes, what should be done?

A: there should be an amendment to the certificate (the certificate should be

correspondingly amended)

Article 1864

The certificate shall be cancelled when the partnership is

dissolved or all limited partners cease to be such.

A certificate shall be amended when:

(1) There is a change in the name of the partnership or in the

amount or character of the contribution of any limited partner;

(2) A person is substituted as a limited partner;



(3) An additional limited partner is admitted;

(4) A person is admitted as a general partner;

(5) A general partner retires, dies, becomes insolvent or insane,

or is sentenced to civil interdiction and the business is continued

under Article 1860;

(6) There is a change in the character of the business of the

partnership;

(7) There is a false or erroneous statement in the certificate;

(8) There is a change in the time as stated in the certificate for

the dissolution of the partnership or for the return of a

contribution;

(9) A time is fixed for the dissolution of the partnership, or the

return of a contribution, no time having been specified in the

certificate, or

(10) The members desire to make a change in any other

statement in the certificate in order that it shall accurately

represent the agreement among them.

Q: earlier we said that the extent of the liability of a limited partner is only to his contribution. It cannot go beyond that contribution (not to his personal assets). At the time of the admission of the A SUBSTITUTED limited partner, what is he liable for?

A: The substituted limited partner has all the rights and powers, and is

subject to all the restrictions and liabilities of his assignor, except those

liabilities of which he was ignorant at the time he became a limited partner

and which could not be ascertained from the certificate. REVIEWED EXTENT OF LIABILITY OF NEWLY ADMITTED GENERAL PARTNER Q: HOW ABOUT THE ASSINGOR?

A: The substitution of the assignee as a limited partner does not release the

assignor from liability to the partnership under Articles 1847 and 1848.

- Liability of a substituted partner: all the liabilities of the substituted assignor EXCEPT only those of which he was IGNORANT at the time he became a limited partner and which COULD NOT BE ASCERTAINED from the certificate

- Liability of the assignor: he is not released from liability to person who suffered damage by reliance on a false statement in the certificate and to creditors who extended credit or whose claims arose before the substitution

Q: what are the liabilities of a LP? A: Article 1858

A limited partner is liable to the partnership: (1) For the difference between his contribution as actually made and that stated in the certificate as having been made; and (2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.

Q: WE LEARN that the interest of the general partners can be charged? A: his personal creditors can go after his interest Q: and that interest may be redeemed? A: by partnership property or property of general partners Q: lets now bring the same problem to limited partnership? A: you cannot redeem using the property of the limited partnership. You can only redeem using personal properties of the general partners Q: why?

A: because the limited partner might not want to continue the partnership already-- -because the partnership has nothing to do with the personal liabilities of the limited partner. Whether that interest is attached or not, the partnership is not interested, because the properties of the limited partner cannot be liable for partnership debts. NEXT MEETING 1868- 1876 September 10, 2011

AGENCY

Q: do you think a security guard is an agent? A: If we base solely in the definition, then he can be considered as an agent. However what the law intends is someone who performs in behalf of another a juridical act. Q: what is a juridical act? A: act which has a legal effect on the civil rights and on the properties of the principal Q: what is an agency? A: it is a contract by which a person binds himself to render service or do something in representation or in behalf of another. It is this power to effect the principal’s contractual relations with third persons. Q: what is wrong with the definition? A: the definition is too broad. The definition encompasses every act in which one represents another. Q: how then will you correctly define agency? A: an agency is a contract by which… or in behalf of another resulting to a legal effect on the civil and property rights of the latter. Q: what then did the law missed? A: it missed the exclusive acts that agents can do in a contract of agency (those resulting to a legal effect …). It also did not define the fiduciary relationship of the agent and the principal. This also involves a third party, the party whom the agent deals with. (Sir): so that here we have to come out with a definition which should address those two concerns, namely:

1. the effect of the performance of the act by the rendition of service by the agent to the principal (rel .with principal).

2. And the effect of these acts and services to third persons to whom the agent is dealing.

We now know that this definition is not as accurate as how the law wanted it to be. sir: we are therefore expecting that the act to be performed is not just a ministerial act of the agent, because if it is only ministerial, then there is no need of the agency. What it requires therefore is the performance of a juridical act which involves establishment of rights between parties. Agency however, because of its generic definition and inability to specify what it really wants to establish, may come in conflict with other contracts. Of course, clearly, agency is a contract. AGENCY vs. GUARDIAN

- The guardian represents another person, the guardian acts in behalf of another person

Q: so is a guardian an agent, why not? A: A – derives authority from the principal G – derives authority form the law



A – represents a principal who has the capacity to enter into a contract G – principal has no capacity to enter into a contract A – gives the acts; control is given by him G – no control from the guardian --- involve same act but differ on the source of the authority. In guardianship, the source is the law or courts and not from the ward. Q: why not from the principal? A: because precisely the ward cannot act on his own. He is incapable of acting on his own. Due to minority, sanity or some other disqualifications to enter into civil relationship or exercise civil rights Q: However, in agency, the source is derived from the principal himself. Not because the principal is incapable of entering in a contract but because? A: because the principal wants to extend the power. September 14, 2011 Q: why then would a principal have an agent? A: maybe because he is another place. Physically incapable of doing it himself that is why he appoints an agent to do things for him Q: when a person therefore is incapable of doing it himself, ex. ward incapable thus the law appoints a guardian, on the other hand when a person appoints a minor to be his agent, what could be the effect? A: It is binding. Because the requirement of being capacitated refers to that of the principal. In this case, the minor signed the contract not in his own behalf but in behalf of the principal. In effect, the contract entered into was between the owner and the buyer, both of whom are capacitated to enter into a contract Q: what if the principal did not accept the money and the principal wants to cancel the sale because of the minority of the agent, is this permissible? A: Minority is a personal defense thus the principal is already estopped. It is not important whether the agent has the capacity to perform, what is important is that he represented a principal is capacitated to contract. Q: this time it is the minor who authorized the person who has was of age to act in his behalf? A: then the contract of agency is void. This is because in this case, there was no consent from the principal. ONLY THE CAPACITY OF THE PRINCIPAL IS IMPOROTANT IN DETERMINIGN THE EFFECTIVITY OF THE AGENCY. Q: so if the principal is a minor? A: the agency is void therefore any act performed by the agent is not binding on the principal. So that if a five year old boy asks you to sell the laptop of his father, can the father recover the laptop? A: yes. Q: but if it is the father who asked you to sell it? A: it is valid. Q: so how is agency formed? A: it can be expressly or impliedly constituted Q: expressly? A: by expressly stating in oral or in writing that a person is appointed as an agent Q: impliedly? A: a. if there is silence or

b. lack of action. c. Failing to repudiate the agency, knowing that another person is acting on his behalf without authority Agency follows the rule that silence means yes. Q: expressed? A: by oral or in writing It is generally consensual. Q: what are the exceptions? A: when the law provides that such should be written Example art. 1874 --- when a sale of a peice of land Q: When a contract (ordinary contract) is entered into, who is supposed to be bound? A: generally, it is only the principal. In contracts, you bind only those who are party of the contracts --- principle of privity of contracts Q: so agency therefore, does it follow this principle? Strictly, who has privy of the contract? Who is fully aware of the terms and conditions of the contract? so that who signs the contract, who negotiates, who knows what the contract is all about? A: it is the agent who signs the contract and negotiated the contract. --- he is the one strictly privy to the contract. For all we know the principal is just sleeping with someone else. That is why we said that the contract of agency seems to be violaitve of the principle of privity of contract. Because here we binds someone (the principal) who did not even negotiate or sign the contract. We therefore say that the contract of Agency is the exception of the principle of privity of contracts. OTHER CONTRACT principle: LIBERALITY --- the two parties can stipulate conditions not contrary to law, customs, public policy, morals Q: as to whether or not compensation is due? A: it may either be gratuitous or onerous. But the presumption is that it is for a compensation. Q: unless of course? A: party agrees that there is no compensation Q: therefore if a person is authorized to sell your properties. And when it was sold you ask him to eat out. But he asked for his commission. What if you did not agree with it, what happens? A: he can ask for his commission because the presumption is that it is onerous. Compensation is presumed. Q: however, although compensation is presumed, can agency be presumed? A: no Q: but what about implied agency? A: there can be an implied agency but it cannot be presumed. You should point out the specific facts that constitute a contract of agency. In an implied agency, there is an intention to constitute one as the agent of another. If there is no such intention, then we cannot presume of such. There are no circumstances that you can explain to prove such presumption --- that is not allowed. But to prove intention, you can provide for circumstances.



Q: therefore, because we cannot presume agency, how do we establish? A: article 1871 and article 1872 If both parties are present (1871). If both parties are absent (1872) --- in this case there is an exception to the exception Q: so that, constituting someone to be an agent may be implied, it does not mean we already have an agent, or do we already have an agent? A: not yet. There should be an acceptance. Just because you sent a power of attorney, it does not automatically mean that an agency is created. The point is appointing an agency does not immediately establish an agency. Q: rather as a contract? A: it needs the consent of both Q: therefore? A: there should be acceptance Q: in accepting the agency, how is this done? A: it may other be expressed and implied Q: explain? Article 1870, 1871, 1872 A: express—orally or in writing Implied – from his silence or in action (implied from his acts which carry out the agency) Q: how does an attorney-in-fact come about? A: by receiving a power of attorney from a principal authorizing a person to perform certain acts not of legal character Usually when you are outside of the country and you have a parcel of land to sell here. You execute an SPA in the consul. You send it then to your attorney in fact and the latter will do anything that is specified there Q: problem is if the SPA authorize you to sell a parcel of land at such price and for such consideration that you may feel advantageous to your principal. And for that you sign the deed of sale. After signing the deed of sale, the daughter came home to sell the same land, only to learn that you already sold it under the SPA to sell. Do you think your SPA to sell is enough? A: not enough. Because the authority to sell does not include the act of entering into a contract of sale. Q: so that if the daughter came home with an SPA which gives her authority to enter into a contract of sale and to sell such. Can the daughter have your SPA cancelled? A: yes. because your authority was to sell but not to constitute a deed of sale Q: in other words, what we are trying to say is that? A: if you are authorize to sell a parcel of land, it does not automatically allow you to execute a contract of sale. Q: It may also involve other things. If you were authorize in the SPA to borrow money from the bank, and after getting the money and you bought a car for your principal out of that money, what happens to that car? A: you are not authorized to buy a car. You went beyond the scope of your authority. It excludes the authority to buy. There should be a separate authority to spend If you are given authority, your authority must be specified. There is a contract of agency which is couched on specific terms – providing for the acts you can do Q: what do you mean powers couched in general terms?

A: it only includes acts of administration. Even if the contract states that you have unlimited authority, it only pertains to acts of administration If specific terms, you need an SPA, which was specifically enumerated by law Q: when an authority is given to us, authority to sell. We said that authority to sell does not include authority to execute contract of deed of sale. Authority to borrow does not include authority to spend. So that if we want to execute acts of ownership, what is the common denominator of all these? A: the agent cannot perform acts of strict dominion over properties of the principal. All in all, the power of the agent must be strictly interpreted --- limited in scope. Q: on the other hand, going back to the illustration where we said that authority to borrow does not include authority to spend. But later he learned that the principal is in the emergency room and that he is required to make deposit of 50K A: there is an exception in the law. The agent may spend for the preservation of the things which are under administration (7 – art. 1878) So that if expense is necessary or for emergency, that is allowed. Q: so here again, when a property is to be sold? A: it needs to be in writing. Q: there was an authority thru SpA for marve to sell my parcel of land located at colon street for 50M and sing the deed of sale. (you were authorize to sign the deed of sale). Instead of selling, somebody approached you saying that I heard that you have been authorized to sell.. He offered that principal may mortgage the land to him. A: GR; a Special power to sell does not include the power to mortgage. However exception is article 1882 --- more advantageous to the principal Q: so is the mortgage really advantageous to the principal? A: although in its face it is advantageous, in the long run, it is not advantageous at all. if you cant pay you lose the property because it may be foreclosed. Q: so that we said that you must exercise the power strictly in accordance in with what is provided. Q: differentiate power from authority? A: Authority refers to the source or cause, while Power is the effect. Thus, an agent granted authority by the principal has thereby the “power to act for him”, which is taken to mean “ an ability on the part of the agent to produce a change in a given legal relation , by doing and not doing a given act. The difference is the manner by which the power is given to another. Q: if you were authorized to borrow, do you think you can also exercise the power to mortgage. If we presume that both exist? What is the danger? A: The danger is that he might mortgage a property which value is more than the debt. He might pick up any property, offer something the values more, offer something that the principal does not want to transmit Q: is there any danger if you were authorize to mortgage but not to borrow. Is there any danger if you were authorized to borrow? A: if I have the power to mortgage, it does not mean you have the power to borrow. There is a danger because the principal might have appointed another to borrow and for you to mortgage only. Further the principal will have a hard time to monitor if the money is already remitted. The agent may borrow more than what he is authorized. Q: going to the extent of powers given, if the authority is couched in general terms?



A: it means that you can only perform acts of administration. Agent cant perform acts of strict dominion Q: so that if I told you that you can manage and look after all my properties in the Philippines, to take care of them and to enter transaction to maintain or preserve them? A: even if you speak of absolute powers, that absolute powers will never include the power to dispose or sell or convey. Q: in short, if we have to give somebody a power to dispose, what is needed? A: you need to have an SPA. You have to place the specific act to sell and sign. Without that specific authority, you don’t have power to exercise acts of dominion. Q: so here an SPA would be needed if the act will already include acts of ownership. There are other acts that needs SPA? A: sale of real property To enter compromise, arbitration Q: what is the difference between compromise and arbitration? A: compromise – result is agreed by the parties Arbitration – result will be given by the arbitrator Q: so that if the authority given is to compromise, does it include arbitration? A: one does not include the other. Page 416. Art. 1880 The parties might not agree on who the arbitrator is. Because the decision of the arbitrator will bind he parties, the arbitrator will be the one to judge the matters. The mind of the arbitrator is different from the mind of the agent himself. While principal has full confidence on the mind of the agent, he might not have full confidence on the mind of the arbitrator. Q: you were authorized to look after the caraboa of your neighbor with full and absolute authority to bring the carabao to the field and to whip the carabao only 5 times a day. Authority was to look after the carabao. One day the carabao refused to move and fortunately a vet passed by. The vet said that the carabo is sick. Give him medicine for his illness. And so you went to the botika. When the carabor recovered, you demanded for the payment of the 5 thousand that you spent? A: Generally you have no authority. But granting the circumstance, such act was necessary in order to preserve the things which are under administration, then you can demand Q: but owner says that expensive kayo ang medicine. You should have just used natural medicine. The only medicine required was to boil the guava leaves and let the carabao drink it. You don’t have authority to spend 5 thousand. What happens? A: in this case, the act of the agency is still advantageous for the principal thus he can still demand Not only is the agent allowed to strictly perform the acts allowed by him. He may also exercise powers management and preservation powers You can perform powers which are expressed and also those incidental to your expressed power. Q: is there are other powers you can perform even if they not expressly given? A: actual power or express powers Implied powers – incidental to the expressed General powers – refers to all the business of the principal Special powers – when it is limited only to one or more specific transactions By necessity or operation of law – when it is demanded by necessity or by virtue of the existence of an emergency Q: powers that are necessary? What are examples? A actual (express), implied (incidental), general, special, necessity or emergency

General rule: strictly in accordance by the powers expressly provided Exceptions: incidental, necessary or emergency powers If the act of the agent does not fall with any of those stated above? A: GR – the authority of the agent is only dependent to the authority given by the principal In cases that the agent goes beyond the authority, we have to qualify. If the effect would benefit the principal or his business, then such acts can bind the principal But if such action is detrimental or is of no connection with the Ps business then it cannot bind the principal Q: if the act exceeds the power conferred? A: GR – it no longer binds the principal If he exceeds and the excess does not fall under the exception, the action no longer binds the principal Q: even if it does not fall under those exception? Other instance where the principal will be bound even if excessive and does not fall under the exceptions stated above? A: when there is ratification of the acts of the agent. When he voluntary admits liability for the acts performed by the agent List: 1. if the act is advantageous 2. if the principal ratifies 3. if principal is stopped from denying lack of authority 4. principal signed blank authority 5. involves property of principal 6. if due to principal’s act, third person are deceived in good faith 7. if there were limitations imposed and the limitations were not known to third persons 8. if it will eventually involve a huge loss on the part of the principal. CONTINUE ON THE NEXT CHAPTER September 17, 2011

Q: so that basically, how should the authority be interpreted? A: strictly construed against the agent. Strictly interpreted Q: so much so, how did we demonstrate that? A: authority to sell does not carry with it authority to sign contract of sale. Authority to borrow money does not carry with it authority to spend or to mortgage. Authority to mortgage does not carry with authority to borrow Whenever there is doubt on the power, the decision should be interpreted against the agent. Meaning that the agent has no authority. First example --- authority is limited into looking for buyers but no authority to convey. However we said that this rule is not absolute because it may take some exceptions:

1. If the agent spent the money and the expense is necessary for preservation of the thing or for emergency

2. If such act is beneficial or advantageous to the principal , even if he acted in excess of his authority

3. When the principal signed a blank authority or document, then it is as if he binds himself for whatever act the agent will do

4. If the principal ratifies the act of the agent, which exceeded his authority

Q: we have the GR and the EXC, there can be instances that principal remains bound by the act of the agent even if it seems that the agent does not have the authority. If you were authorized to accept the payment of the principal and when you accepted payment the payor demanded from you a receipt?



You argue that you were only authorized to receive payment but not to issue a receipt. What do you think? A: The act of an agent in giving out a receipt is incidental to the power to receive payment Q: otherwise, if he does not issue a receipt? A: then do not pay. Because the payor is not stupid enough to pay without an acknowledgment receipt. No receipt- no payment. Q: so that powers are either be: A: expressed, implied, general, special, those which are of necessity, or apparent or ostensible Q: what are apparent powers? A: you are a general agent but there were specific instructions. So that third party believing that the agent has authority, then the agent will bind the principal even if it exceeded the powers granted by the principal Q: If the principal has authorized the agent to buy a car for himself with the proper description and the agent received the money from the principal but did not use the money in paying the car, what do you think can the principal do? A: an obligation of the agent is to carry out the agency in accordance with the specific instruction. Due to violation, the principal can hold the agent liable --- recover money. Q: on the other hand, if after receiving the money from principal, agent went to the owner of the car. The owner allowed the agent to get the car and pay kuno tomorrow without knowing that the agent was already given the payment. Owner then went to principal and asked for payment. (everything is with the agent. Principal and owner are now quarrelling) how do you resolve? A: the agent is liable as well as the principal. The agent exceeded the scope of his authority but the principal remains liable because of the apparent authority. Authority to buy a car does not require an SPA. Only in the conveyance of real property of the principal Q: if you were the owner what will you do? A: believing that the agent has authority and having justifiably relied, the principal is bound by the act of the agent. --- sue the principal Q: what do you think is the principal’s defense? A: it can interpose the defense Sir: so in this case, the case will just be dismissed. What else can you do? A: sue both of them – interpleader – argue who among them is liable. (alternative defendants) Sir: so the thing is, if the principal was disclosed, then you can sue both principal and agent OBLIGATIONS OF THE AGENT (LOOK AT PAGE 451 OF BOOK) To be an agent therefore is not a simple task. It establishes a fiduciary relationship between the principal and the agent. As a matter of fact, even if the authority given is not clear enough or you are no longer obligated, how does the law imposed the measure of his responsibility? A: if nothing is stipulated, he should carry it out with the diligence of good father of family Q: what is the difference between authority and instructions? A: look at book page 455 Q: so that if i authorize you to execute a deed of sale now for a parcel of land in moalboal, and i told you that the buyer is there at 6am. I instruct you to take the first available means of transportation to get there. You heard a

horse (the first available means of transportation), you arrived 1 pm. The seller was no longer there? A: you followed the instruction but you were not able to carry out the authority. Q: can the principal ask for damages from agent? A: answer this for next meeting… CONTINUE WITH THE REST OF CHAPTER 2 September 21, 2011 ---- PLEASE REFER TO GRACE EMBAY’S WWW September 28, 2011 Q: why the difference in the rules if the agent were authorized to buy, can he sell his own property? A: he is authorized to sell if the principal consents. But generally no because there is conflict of interest Q: the conflict being? A: if he would sell, his is interested to have the highest price (as owner). But the buyer on the other hand, his interest is to buy at the lowest cost. Q: if you were authorized to lend, can you borrow? Is there conflict of interest? A: GR, you cannot borrow because you might be a bad borrower. There is conflict of interest such that the lender’s interest is to collect the debt when it is due and demandable. The borrower on the other hand may avoid payment, delay payment. For a lender he would want to lend his money with a higher interest. On the other hand, the borrower would like to borrow money from someone who will demand for a low interest. For the security of the debt, if you are a lender, you make sure that the debt will be secured by a collateral, however borrower’s interest do not include such rather they would try to avoid it. The lender would also want to recover the money earlier, on the other hand, the debtor would want to have a longer time to pay such debt. (but this one can be addressed in the stipulation) The debtor-agent may fraudulently tell the principal that someone borrowed but did not pay. MOST IMPORTANT ANSWER AS REGARDS CONFLICT OF INTEREST: THE AGENT COULD MAKE SEVERAL ACTS TO COVER UP ANY FAULT ON HIS PART OR ANY FRAUDULENT ACTS IN HIS PART. Ex, he is required to give a list, he could give a list without including his name. principal may require to have a list of the balance but agent doesn’t include his debt. --- in this case, the agent may cover up his faults.. he can always hide the information. Because he holds the authority to inform the principal from time to time Q: if he is authorized to borrow, can he lend? A: yes, but with the consent of the principal. And that the interest rate should be the current or legal rate of interest. Q: but as lender, what is your objective? A: you have the objective to increase the return of the money that you lent. To earn profit from lending – highest interest Lender – highest interest Seller – highest price Borrower – lowest interest Q: but how come if you lend, it is allowed?



A: because in the law on obligations and contracts, the interest should not be usurious or unconscionable --- thus there must be a legal interest (12% per annum) Although his objective is to earn highest rate of interest, the law sets a limitation on the highest rate of interest which can be imposed – the conflict is mitigated by the regulatory laws. However, in sale, the principal who may have authorized the agent to buy cannot sell his property because in selling, the sky is the limit. There is no law which tells you to sell your property only in a certain amount. Q: Except what law? A: “LAW OF SUPPLY AND DEMAND” – if there are a lot of options, then you have a lot to choose from… Q: so that here is an agent whom you have authorized to buy property somewhere in colon. And you bought two, one owned by A the other owned by B. You bought the property owned by A in behalf of your principal and you also bought the property of B for yourself. Later on, after the principal acquired A’s property, the principal wanted to expand, only to discover that it is now owned by the agent. What do you think, is the principal entitled for the price equal to that paid by the agent to A or should he comply with the double the price? Can the principal not say that you should sell it to me at the same price you bought it? A: (NOTE: ANSWER OF CLASSMATE) the principal may demand that he should buy the property at the same price. This is because, the agent must disclose and deliver to the principal every advantage that the agent owns due to the agency.Without the agency, the agent could not have acquired the property if it was not for the agency. And since it is the duty of the agent to disclose everything to the principal, then the principal could buy the property in the same price as that of the agent’s. Q: if the principal earlier instructed him to buy 2k sq m. 1 thou was owned by B and the other by A. and he was only able to finalized for the principal the lot owned by A. and the other half he was able to finalized it on its own. Are you in good faith? A: no more, I have the intention to take advantage.. (SIR’S ANSWER FOR THE QUESTION ABOVE)Absent that intention, Sc decides that there is no obligation to require the agent to sell it for a lower price --- the agency does not extend that far. It does not extend to the situation that you lose the opportunity when you have religiously complied with the authority. Q: but if in acquiring the parcel of land, later on, it was discovered that the agent received a bonus commission from the owner, what do you think? A: agent should disclose such and to deliver such money to the principal because the agent earned it in relation to the agency The principal may ask agent to pay him what was given to the agent. Q: on the other hand, if you do not deliver the commission to the principal, what can be done? A: you are liable for damages only because what happened was breach of loyalty only and not misappropriation. This is only a civil obligation and not a criminal liability because it is just the commission which you did not deliver. Such money is yours naman, thus we cannot say that it is misappropriation. Q: after the sale you successfully acquired the property in favor of the principal. This time your new principal was the seller. And I was supposed to be given 10% commission. How much should you give to the principal? A: you should give the entire amount to the principal. After delivering the entire amount, that’s when you can ask for your share The obligation of the agent is to deliver all that he has received for the principal. Although he is entitled to 10%, deliver first everything to the principal.

Q: otherwise? A: he will be liable for estafa. Because this time he used the money which is not his property or which he doesn’t own for his own benefit. The 10M belongs to the principal. Q: moral lesson? A: you should define the agency relationship. That it is automatic that you get your commission. Put it in writing. Q: what is a substituted agent? A: 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 Q: what is required to be able to appoint a subagent? A: you should be given the authority to appoint one and that there is no prohibition to do so Q: otherwise? A: he cannot bind the principal. Sub-agent’s acts cannot bind the principal Q: unless? A: the principal is not liable for the act of the subagent unless he ratifies such. Q: under what circumstances may the agent becomes liable for the acts of the subagent? A: if the agent is not given the power to appoint a substitute yet he appoints If the agent is given such power, but the subagent is not named and you appoint someone who is notoriously incompetent or insolvent (When you are prohibited to appoint such agent) Q: when is an agent liable on his own? When agent becomes liable for his own act? A: 1. When he acts beyond his authority 2. When he contracts in his own name without disclosing his principal 3. When he acts for an incapacitated principal 4. When he acts for someone with no authority or no principal at all 5. When an agent prevents the principal from performing his part Q: when is an agent liable for the acts of a subagent? A: if the agent is not given the power to appoint a substitute yet he appoints If the agent is given such power, but the subagent is not named and you appoint someone who is notireoisly incompetien t or insolvent When you are prohibited to appoint such agent Q: so that we said, the agent to be able to bind the principal, he must act strictly within the authority, so that if he exceeds the authority? A: generally, it will not bind the principal Q: here the agent is authorized to sell the property of the principal for any price which is fair and advantageous to the principal. Delima bougth it for 150K. however, the principal likewise verbally instructed, not lower than 200k? did you comply with the authority? A: yes. But not with instructions. Q: Delima discovered and told the principal that the instruction was not lower than 200k. I bought only for 150, I cannot in conscience sleep because I paid the lower price, please pay the 150 back and il return the property? can delima ask for the return? A: cannot because the sale is binding. Instructions are only between the principal and agent. In this case she changed her mind after the perfection of the contract of sale. It is only the agent who will be liable for the deifference. Q: the principal cold still demand it from the agent? A: yes



the instruction is for the benefit of the principal and not for the third party. Only the principal can choose to cancel if the third party knew before hand about the instruction before perfecting the sale. Q: lets now say that the principal is now the one who wants to take back the property and return lang? A: principal cannot recover because 3

rd party is not bound to the instruction.

It is private between agent and principal. The third party cannot repudiate once there has been ratification or he is willing to ratify Q: you said you have need for the money and you change your mind, you are willing to return the property. You have found a good reason, you discovered that the sale is done beyond the instruction of the principal, can you recover? A: no. there is nothing much you can do. Q: this time, you did not only discover that the agent violated the instruction. You even discovered further that the agent violated his authority, no authority to sign the deed of sale. So you called up the principal. , this time can you recover? A: you can recover the payment if the principal did not ratify. Failure to follow the authority is unenforceable to the principal thus it is subject to ratification 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. The act of the principal by receiving the money is already a ratification. The ratification retroacts to the time that the contract was entered into. Meaning, from the very start, the agent has already authority, the defect is already cured. Q: but here is the buyer already questioning, when should ratification take place? A: it should take place before repudiation. So long as the principal has full knowledge that the agent exceeded the authority but still he accepted the amount that is already ratification. Any defect that has occurred at the time of the transaction is already considered cured. Q: that was payment made in cash. However, if payment was made in check, issued at 5pm Friday afternoon. Buyer called up Saturday? A: if principal has signified his willingness to ratify the agent’s act it is enough to constitute ratification. Q: Aside from depositing? Ratification does not take place only once it is deposited, it can also take place by the mere fact of accepting the check and signifying his willingness to ratify the agent’s act. Ex. He performs acts, called you up and thank you for the check. Because if he did not intend to ratify then you can repudiate. Q: what are the rules that we learn? A: General Rule 1. if agent has exceed his authority, he is personally liable, and that the principal is not liable 2. principal is liable if he ratifies the acts of the agent (accepting money, or performing any act showing his willingness to ratify) Q: in that case, when it was the owner the principal who called de lima and told delima that he will return money and you should return the property. But third party says no, and says he will ratify the sale? A: the third party cannot ratify the sale because the right of ratification is only possessed by the principal. Because there is no relation between the

agent and third person. Rather, it is the principal who is contracting with the agent. Q: why only the principal has the right? A:what is exceeded is the act made in behalf of the principal. It is through the agents act in behalf of the principal wherein the principal Is bound. IT IS THE PRINICPAL WHO SUFFERED THE DAMAGE THUS HE IS THE ONE WHO IS GIVEN THE PRIVILEGE TO RATIFY THE ACT Q: commission agent? A: he is one engaged in the purchase and sale of the principal’s personal property, which for this purpose, such property has to be placed in his possession at his disposal Q: I am the owner of the warehouse, there are a lot of farmers who come to me and authorize me to sell the rice. So everytime they come, I sign and say here you have 10 tons of rice, etc. for each farmer. What is your obligation? A: he should distinguish the products by making countermarks on everything that he received. He should not only give the list of what he received but placing the marks. You should take care again of the goods of the principal. I should not commingle the goods. Unless? It is of the same kind and quality and that the principal consents thereto YCONG LAST ORALS in ratification it is necessary; 1. principal fave full knowledge of the material facts 2. principal has capacity to ratify 3. he ratified it voluntarily 4. the transaction is capable of being ratified 5. the agent performed the act in the name of the principal 6. it is ratified before the third party repudiates the act 7. repudiates it in its entirety 8. in the same manner of the authority October 5, 2011 Q: a commission agent assumes possession, so does he acts for himself or the principal? A: he may act in his own name or in the name of the principal Q: what is guaranty commission agent? A: guaranty commission agent, for an additional commission, ensures the payment from the third party which the principal is entitled to. He undertakes to collect in behalf of the principal, and if he cannot collect, he is liable to pay for such. Q: what was the General Rule? A: the agent who acts within the said authority is not liable for anything when he acted accordingly. Sir: The agent does not guaranty success. His only undertaking is to perform the task in the best of his ability. Whether he succeeds or not, whatever happens to the transaction, he is not liable. Q: but we said there could be instances where the agent is obliged to advance expenses to the principal? A: yes. In furtherance of the purpose of the agency and if it is stipulated then he should advance Q: what then is the obligation of the principal? A: he is to reimburse the agent for all the expenses because it was incurred to pursue the authority given. Q: so that in our example, when he engaged in the services of the helicopter?



A: he could not ask for reimbursement because the means that he adopted was unreasonable. The right of reimbursement is not absolute Q: what are the instances when he cannot ask for a refund? A: art. 1918 1. if he violates the instruction; acts in contravention to the instruction 2. when the expenses were incurred due to agent’s fault 3. where the agent incurred them with knowledge of an unfavorable result 4.When it was stipulated that expenses are to be borne by the agent or that he is only entitled to a certain amount Q: if in pursuing the task, the potential buyer was an Iranian who was looking for a place to rent because he wanted to put up a karaoke business. And you offered your principal’s place which was located in busay. To convince Iranian, you made advance expenses to consummate the deal. You spent 100,000 for the evening. And now you wanted for a reimbursement, you think you can be entitled to that? A: it depends. If the transaction concerns a very big amount and you can thereafter obtain a large profit, ex. multimillion-deal then it may be reimbursed Q: but the Iranian found another location and the principal knew about it? A: you are still entitled to reimbursement because you are not an insurer of the success of the transaction. For as long as you acted within the authority and with reasonable acts, then you are still entitled to such. Success is not an obstacle to recover for advances if the advances are reasonable. But if it is totally excessive then this may not be so. Q: let’s move back to substituted agent? A: is a person employed or appointed by an agent as his agent, to assist him in the performance of an act for the principal which the agent has been empowered to perform Q: how is a substituted agent appointed? A: when there is power granted to appoint such or when there is no prohibition to appoint Q: if the sub agent is appointed the agent having no authority from the principal, can the principal intervene the contract of the agent and the subagent? A: yes he may intervene. The scenario of subagent is exception to the rule of the privity of contracts (1893) Q: we said earlier that even if the agent exceeded the authority, the principal can still be liable? in what instances A: by necessity Implication By doctrine: estoppels, ratification, apparent authority Ejusdem generis By custom Q: in other words, while we said that the agent in order to bind the principal must carry out his authority strictly, yet in the subsequent provision, the law has become more tolerant. But if expanded, we do not mean that the agent can do anything. The expanded authority is therefore limited. We have a list, again what are the ways to broaden or the authority given to the agent? A: by necessity Implication By doctrine: estoppels, ratification, apparent authority Ejusdem generis By usage or custom Q: what could these doctrines be?

A: estoppel Ratification Apparent authority Q: so when we say estoppel, what do you mean? A: it is a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or representation either express or implied Q: so that if you were issued a check worth 150K and instead of 150K you endorsed it to someone and you added another 1 before 150. Do you think you can compel the drawee to honor that? is the principal in estoppel if he placed a big space between the numbers. A: (my own answer if the principal place a big space between the numbers): it falls under estoppel. The culpable negligence of the principal to place a space in the numbers so as to permit the agent to exercise power not granted to him constitutes estoppels --- wa koy sure ani (buot-buot ra) Q: modify the facts to show apparent authority? A: if agent is given a blank check but he was instructed to withdraw only 150K. There is apparent authority to withdraw any amount by giving the blank check. Q: how about ratification? A: if he receives the amount withdrawn to be 1.150M Q: how about estoppel? A: when the bank calls the principal and tells him that the someone is withdrawing this certain amount and the principal says it’s the right amount. The principal can no longer deny such representation Q: earlier we said that here the commission agent may be authorized to sell the goods of several principal. As a warehouse operator you are authorized to sell because you have contact with the buyers from the city. So if you have some 15 farmers bringing their products to your warehouse, what should you do? A: you have to duty to record everything that is delivered to you, place countermarks on the products GR: to put countermarks or segregate the goods given to him. You are not suppose to commingle the goods. Because normally there are also several types of rice. But to place marks if you have several principal is difficult. Thus you need to ask for the consent of the farmers who have the same goods. So long as there is consent and the goods are of the same kind and quality, you may commingle. Q; so how do they divide? A: they are entitled in proportion to what they have delivered. Q: if you authorize someone to sell the goods, should they sell it on credit? A: GR; if no stipulation – you sell it in cash Exc: if you have authority to sell in credit Q: in which case? A: you have to give the principal a list of the names of the debtors because otherwise you will be liable as if you sold it in cash. Q: guaranteed commission is different. How different? A: guaranty commission agent ensures the payment of the third person of the amount the principal is entitled to. Q: which will you choose? A: Guarantee commission because you are entitled to a higher commission. You just need to ensure that the third party is capable of paying. Factoring – when you sell your receivables.



Q: we are discussing the general rule that the act of the agent is the act of the principal. However we said? A: the agent may exceed the authority and such will be binding if you ratify So long as these acts are not covered by the exceptions: A: 1. When he act in his own name 2. act beyond authority 3. agent prohibits principal to perform his part of the obligation 4. agent acts for an incapacitated principal 5. agent acts for someone without authority or who does not exists Q: but on the other hand, the principal can remain liable if? A: by implication By necessity By custom By doctrine Ejusdem generis FLOW OF DISCUSSION; Gr; ACT OF AGENT IS ACT OF PRINCIPAL AGENT MUST ACT WITHIN THE SCOPE OF HIS ATURHOTIY – PRINCIPAL IS BOUND THEN WE TOOK UP THE EXCEPTION – PRINICPAL IS NOT BOUND Q: Distinguish ratification and estoppels? A:

RATIIFICATION ESTOPPEL

Rests on intention, express or implied, regardless of prejudice to another; the party is bound because he intended to be

Rests on prejudice rather than intention; the party is bound notwithstanding the absence of such intention because the other party will be prejudiced and defrauded by his conduct, unless the law treats him as legally bound

Retroactive and makes the agent’s unauthorized act good from the beginning; affects the entire transaction and from the beginning

Affects only the relevant parts of the transaction and from that time only when estoppels may be said to be spelled out

The substance of ratification is confirmation of the unauthorized act or contract after it has been done or made

The substance of estoppels is the principal’s inducement to another to act to his prejudice

When would ratification occur? A: in our example, ratification was done by accepting the money Q: after the agent delivers to you the 1.150M, can you tell the agent that you will just receive the 150K and that he should return again the 1M to the bank? A: NO. Ratification must be for the entirety of the act. You cannot come out with a selective or qualified ratification. For how could you cure the defect with a qualified ratification. Q: another instance where there could be conflict --- here comes the agent who really wants to close the deal. And he visited the potential buyer almost everyday, so that on his last visit, he saw the buyer and the buyer’s wife. The wife was lying in bed wrapped in a blanket, very high fever. He wanted to please the husband so that the husband will buy. He got some guava leaves and boiled it but the guava leaves had worms. The wife drank and then later on died. Is the principal liable? A: the principal is not liable. For the principal to be liable for tortious acts, you should comply with the motivation-deviation test. Although the agent, in doing such act, was motivated to close the deal for the benefit of the principal, the manner which the agent helped deviated from the performance of a conduct of normal human behavior. Q: is the exemption of liability for tortious act by the principal an absolute rule?

A: no. Q: so how do we know if he is liable? A: apply the motivation-deviation test. You should act in a way that you are driven to create a benefit for your principal. Done it with the desire to carry out the authority. And the act is not a substantial deviation from the act of the authority given. Q: you were able to sell a property and now you are supposed to render an accounting, what should you do with the proceeds? A: you deliver everything to the principal. You do not withhold your commission. The law allows you to pledge, when? A: you can hold principal’s property before the principal reimburse and indemnifies you. (for the advancements and for indemnification) Q: why is it that you cannot hold right away the commission you are entitled to, however, you are allowed by law to withhold principal’s property if the latter has not yet reimbursed or indemnified you? A: The difference is that, in the first situation, the principal does not owe the agent anything. However, in the second situation, the principal owes the agent the reimbursement and indemnification. Further, the commission is just a fruit of the transaction, you did not shell out

anything from your own pocket. However, in pledge, you have spent out of

your personal funds thus the law protects you more. In commission, until you

gave the proceeds you have not yet fulfilled the obligation. You fulfill only

when you endorse the proceeds, otherwise you will be liable for estafa.

But without any reason to withhold the thing without making any

advancement, then there is still estafa.

Legal pledge, because it is created by operation of law. Normally, it should be

a contract entered into by both parties.

Q: there were three brothers who were given three apartment units, one for

each brother. And since all of the three were residing abroad, none of the

three were interested to occupy any of the units. And so the three of them

authorized you to sell the three units. So that since you were only able to sell

one which belongs to A, B and C later own refused to give you your

commission. What is the nature of their liability?

A: solidary liability is not present in this case. Although the general rule is

that when there are two or more principal who appoints a single agent, their

liability is solidary. However such rule is qualified by the requirement that the

transaction must be common to all of them. A transaction or undertaking is

common to all principals if it is one as to which their interests are in accord

and in harmony. In this case, since they own the properties separately, then

the sale of one which pertains to a specific owner is not a common

transaction, thus only A will be liable to pay the agent the commission.

Q: so what are the requirements for solidarity to arise?

A:

1. that there are two or more principal

2. that all the principal concurs in appointing one agent

3. that The agent is appointed for a common transaction or undertaking

Q: if the land is owned by the principal and sold by him on October 1, at the

same time same property is sold by the agent on October 1. What will

happen?

A: there is double sale.

Q; how do you determine who is entitled?



A: First reconcile (they might have sold different portions of the land)

If they sold the same portions or the entire land, look into the earlier date of

transaction. But because in this case the transaction occurred on the same

date, you have to look into the nature of the property. Since this is an

immovable property, you check who registered first, then who is the first

possessor in good faith, and lastly who holds the earliest title.

If movable property, first possessor in good faith is the rule.

Q: but what happened is that agent A is given the special power to sell by the

principal. Then subsequently, principal also gives another agent, agent B, a

general property. Which buyer should be preferred, the one who bought

from A or the one who bought from B?

A: the one who bought from A. the sale of property is an act of strict

dominion which requires a special power of attorney for the transaction to

be valid. Thus the buyer of A is given favor.

Next meeting: MODES OF EXTINGUISHING AGENCY.

October 8, 2011 Q: what are the modes of extinguishing obligation? A: Payment Loss Remission Merger Compensation Novation Q: in agency, how is agency extinguished? A: Expiration of the term Death, civil interdiction, insolvency, insanity Withdrawal of the agent Accomplishment of the task Revocation by the principal – either expressly (in writing) or impliedly Dissolution of the partnership Q: when is revocation done? How done? A: GR you can revoke at any time Express --- you tell the agent orally or in writing that you revoke Impliedly? A: when a new agent is appointed which is inconsistent with the current appointment Principal directly manages Special power of attorney states so Civil interdiction --- person is deprived of his rights to manage or administer his own properties Q: how about death? A: death of either the principal or the agent. However, if agent does not know of the death of the principal and a third person transacts with the agent, such is binding. Q: if the agent dies? A: the agency is extinguished however the heirs of the agent shall inform the principal. Q: what if heirs do not inform principal? Why do you have to inform?

A: there might be transactions which are pending or accounting which may be pending. Further is that the principal may owe the agent reimbursement or some indemnity. There might be commissions which the agent is entitled to already, or advances. Q: so that the appointment of a new agent, what is the effect? A: article 1923 --- it is an implied revocation of the previous agency from the day on which notice thereof was given to the former agent. Unless such is for a different transaction. Q: can the principal appoint many agents? A: yes. Unless if such appointment is stipulated to be exclusive. What is affected is the right to revoke but not his power to revoke. In this case, the appointment of the new agent is unenforceable Q: however, if there was a period specified for the previous agency? A: the arrival of the expiration period shall extinguish the agency Q: if you borrow something from the lender, and the lender will ask you to execute a mortgage, in a mortgage document, it is a usual stipulation to authorize your creditor (mortgagee) to sell in case of default and apply the proceeds to your obligation. So here, the debtor-mortgagor died before he could pay, so the creditor-mortgagee because the obligation became overdue, in accordance with the authority to sell, sold the property. So the children of the mortgagor said that you can no longer sell because the death of their father extinguished the authority to sell A: the mortgage in this case survives the death. The creditor mortgagee has three options

a. Waive the mortgage and pursue the debt b. Choose judicial foreclosure c. Extrajudictal foreclosure (waive any deficiency)

Q: so that in exercising my right in the mortgage, can i still go on with the agency? A: yes, because it is an agency coupled with interest (article 1927) Q: what does this mean? A: there was mutual interest between the debtor or creditor. Such that the death of either party shall not extinguish the obligation. It is essential that the interest of the agent shall be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation thereof Sir: in other words, that agency could not have been executed if there was no existing obligation in the first place. Even if the debtor-mortgagor-principal dies, the agency does not die because this is an agency coupled with interest. --- interest of the agent Q: is this not the same with stipulation por atrui? A: no because this is a stipulation for a third party. However in agency coupled with interest, this is in favor of the agent

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