Short answer. It depends on what the other party knew. Where the third party was aware of the limits on the agent's powers and the principal does not ratify, the Civil Code makes the contract void. Where he had no such knowledge, the principal can still find himself bound.
What the law says
it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal
Civil Code, Article 1898 — Unauthorized Act Not Ratified. Read the full provision →
What the law says
Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers.
Civil Code, Article 1911 — Principal Solidarily Liable for Apparent Authority. Read the full provision →
The rule turns on the third party's knowledge
Article 1898 addresses an agent who contracts in the principal's name while exceeding the scope of his authority. If the principal does not ratify, the article says it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. Read that condition closely, because everything hangs on it. Nullity is the consequence for a third party who knew, or was in a position to know, that the agent was going beyond his mandate. It is not a general escape route for a principal whose agent overreached in a dealing with someone who had no idea.
Ratification closes the gap
The article's whole operation is conditioned on the principal not ratifying. A principal who learns what his agent did and adopts it — expressly, or by accepting the benefits and behaving as though the deal were his own — puts the contract beyond argument. This cuts both ways in practice. A principal who wants to disown an unauthorised deal has to say so promptly and stop taking anything under it, because conduct that looks like acceptance is the most common way a repudiation is lost.
The agent is not off the hook either
Article 1898 adds that the agent is liable if he undertook to secure the principal's ratification. That is the article's answer to the obvious unfairness of a void contract: the party left holding nothing may look to the agent who promised to obtain approval and failed. Separately, the Code makes a principal solidarily liable with the agent where he allowed the agent to appear fully empowered — even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Appearances the principal created are his responsibility.
What decides these disputes in practice
Almost always, the documents. What did the written authority actually say, was it shown to the other side, and did anything the principal did or tolerated suggest wider powers than the paper granted? Keep the authority itself, the correspondence in which it was presented, and any earlier transactions in which the agent was allowed to act. If you are the third party, ask for the written authority before signing and keep a copy — it is the cheapest protection available. If you are the principal, define the limits in writing and communicate any change to everyone the agent deals with.
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 →
Related provisions
- Civil Code, Article 1898 — Unauthorized Act Not Ratified
- Civil Code, Article 1911 — Principal Solidarily Liable for Apparent Authority