Short answer. Yes. Under Article 1898 of the Civil Code, if the agent exceeded his authority and you do not ratify, the contract is void — but only if the party with whom the agent contracted was aware of the limits of the powers you granted. Their knowledge is the deciding factor.
What the law says
If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal's ratification.
Civil Code, Article 1898 — Unauthorized Act Not Ratified. Read the full provision →
The two conditions for voidness
Article 1898 imposes two conditions before an unauthorized contract becomes void: first, you must withhold ratification; second, the counterparty must have known the limits of your agent's authority at the time of contracting. Both conditions must be met. If the counterparty was unaware of those limits — for example, if the authority document was vague, or if your agent misrepresented his power — different rules apply and the contract may remain binding on you under principles protecting third parties who dealt in good faith. Awareness of the agent's limited authority is what removes any protection the counterparty might otherwise claim.
Why awareness by the counterparty matters
The law protects innocent third parties who deal with an agent in good faith, believing the agent had sufficient authority. When the third party knew the agent was acting beyond his power, that protection disappears. The third party took a calculated risk by entering a contract with someone whose limits were known to him. Having done so, he cannot hold the principal to a contract the principal never authorized. The awareness element means that a third party cannot close his eyes to a principal's restrictions and then demand enforcement.
The agent's personal liability when he promised ratification
Article 1898 adds a significant qualification: even when the contract is void, the agent is personally liable if he undertook to secure your ratification. If the agent told the counterparty something like "don't worry, the principal will approve this," and you then refuse, the agent cannot hide behind the voidness of the contract. His promise to obtain ratification is a separate undertaking, and he must answer for the loss his unfulfilled promise caused. This is a direct personal liability of the agent, not a liability that flows through you.
Practical steps for the principal
If you are the principal in this situation, your refusal to ratify should be communicated clearly and promptly. Ambiguous conduct — continuing to deal with the counterparty, accepting partial performance, or staying silent for a long period — can be read as implied ratification, which would bind you to the very contract you are trying to avoid. Once ratification occurs, whether expressly or by implication, it is generally irrevocable. If you intend to refuse, say so in writing and early.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Sps. Delfin O. Tumibay and Aurora T. Tumibay-deceased; Grace Julie Ann Tumibay Manuel, Legal representative vs. Sps. Melvin A. Lopez and Rowena Gay T. Visitacion, G.R. No. 171692, June 3, 2013 — read the decision on LawPhil →
- Marcos V. Prieto vs. Court of Appeals, et al, G.R. No. 158597, June 18, 2012 — read the decision on LawPhil →