Agency (Part 1)

COVERAGE OF DISCUSSION:
• CONCEPT
• IMPORTANCE OF AGENCY
• ELEMENTS OF A CONTRACT OF AGENCY
• CHARACTERISTICS OF AGENCY
• PARTIES TO A CONTRACT OF AGENCY, CAPACITY OF THE PARTIES
• ACTS THAT MAY BE DELEGATED
• RELATIONSHIP BETWEEN PRINCIPAL AND AGENT
Agency, concept

 Agency is a contract whereby a person binds himself to render some service or to do

something in representation or in behalf of another, with the consent and authority of the
letter. (Art. 1868).
Importance of agency

 Agency enables a person to perform diverse juridical acts at the same time by enabling him to be
constructively present in many places, which would not be possible for him to do physically.
 The underlying principle of the contract of agency is to accomplish results by using the services of others
- to do a great variety of things like selling, buying, manufacturing, and transporting Its purpose is to
extend the personality of the principal or the party for whom another acts and from whom he derives his
authority. The basis of agency is representation, i.e., the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal effects as if they were
personally executed by the principal. By this legal fiction, the actual or real absence of the principal is
converted into his legal or juridical presence –qui facit per alium facit per se.
 Agency is basically personal, representative, and derivative in nature The authority of the agent to act
emanates from the powers granted to him by his principal: his act is the act of the principal if done within
the scope of the authority. (Sps. Viloria vs. Continental Airlines, Inc., G.R. No. 188288, January 16, 2012)
Elements of a contract of agency

1. Consent, express or implied, of the parties to establish the relationship

2. The object is the execution of a juridical act in relation to a third person
3. The agent acts as representative and not for himself
4. The agent acts within the scope of his authority. (Eurotech Industrial Technologies, Inc.
vs. Cuizon, supra)
Characteristics of agency

1. Principal - It can stand by itself.

2. Preparatory - It is a means by which other contracts may be entered into.
3. Consensual - It is perfected by mere consent.
4. Onerous - It is presumed to be for a compensation, unless there is proof to the contrary.
(Art 1875)
5. Nominate - It has a name given to it by law. (Art. 1868)
6. Bilateral The parties are bound reciprocally to each other.
7. Commutative - The parties give and receive almost equivalent values; hence, there is real
fulfillment.
Parties to a contract of agency, capacity of the
parties

1. Principal - The person represented by the agent and from whom the latter derives his
authority; he is the party primarily and originally concerned in the contract of agency.
A. Capacity to be a principal
 Agency being a contract, any person with legal capacity may appoint an agent for any legal purpose
whatsoever.

B. Effect if principal is incapacitated

 If the principal is incapacitated but the agent is capacitated, the contract of agency is voidable at the
instance of the principal Should the agent enter into a contract in behalf of his contract is likewise
voidable principal, such because the real party to such contract is the principal the agent being merely
an extension of the personality of the principal.
2. Agent - He who acts for and represents the principal and from whom he derives his authority.
A. Capacity to be an agent
 A person capable of acting for himself can be an agent of another. Legal capacity is not required for the validity of the
agent's acts which are considered those of the principal since the agent is merely an extension of the personality of the
principal The agent, however, needs to possess some mental capacity.

B. Effect if agent is incapacitated

 The contract of agency is voidable if the agent is incapable of giving consent. While the contract entered into by the agent
in behalf of the principal is really that of the principal and which will be valid as long as the principal is not incapacitated,
the contract of agency itself is voidable because one of the parties is incapable of giving consent. In case of dispute
between the principal and the agent who is incapable, the latter may avail himself of his incapacity as a defense or as a
ground to set aside the contract of agency.
Acts that may be delegated

 Any act which one may lawfully do personally may be delegated. However, the following acts may not be delegated:
1. Acts which are personal in nature.
2. Acts that are prohibited by law to be delegated.
 Examples:
1. The right of a stockholder to vote during stockholders’ meetings may be delegated since this is something that one
can lawfully do. (Sec. 58, Corp Code) However, a director cannot be represented by proxy during board meetings
because this is prohibited by law. (See Sec. 25. Corp. Code)
2. The right to vote and to run for public office cannot be delegated since delegation thereof is prohibited by law.
3. The right to be represented in a marriage ceremony where the principal is a party to the marriage cannot be
delegated, this act being purely personal.
4. An alien cannot purchase land in the Philippines because this is prohibited by the Constitution. Accordingly, he
cannot delegate such act to a Filipino. What an alien cannot lawfully do, he may not lawfully do it through another.
Relationship between principal and agent

 The relation of an agent to his principal is fiduciary since it is based on trust and
confidence. (See Palma vs. Cristobal, 440 0.G. 67; Severino vs. Severino, 44 Phil 343.)
How agency relationship is created

1. By appointment – This is usually made by giving a person a power of attorney

2. By ratification – An agency by ratification is created when a person adopts or confirms an
act performed by another in his behalf without prior authority.
 Example: A sells the car of P to B without P’s authority. The sale is in the name of P. The sale
cannot be enforced by B against P. If P ratifies the sale, then he will be bound by it. An agency is
deemed created between P and B by reason of P's ratification of the sale.
3. By estoppel – For an agency by estoppel to exist, the following must be established: (a) The principal manifest
representation of the agent's authority or knowing allowed the agent to assume such authority: fb The third person in
good faith, relied upon such representation; (c) Relying upon such representation, such third person has changed his
position to his detriment. (County Bankers Insurance Corp. vs. Keppel Cebu Shipyard, G. No. 166044, June 18, 2012)
 Example: s, a salesman, has been persistently offering goods to P, a store owner. P, however, does not want to buy goods from S. In
order to avoid S. P tells s "You better to talk to A. He is there. He is my agent. is not really P's agent but his employee. S, believing
that A is P's agent, transacts with A who buys goods from S in P's behalf. P will be bound by the act of A since he has led S to
believe that A is his agent.
4. By necessity – An agency by necessity arises when an emergency makes it necessary for one to act for another without
receiving any authority from the latter.
 Example: W, a wife and mother of a minor child, buys necessaries in the name of H, her husband who has not been giving them
support. An agency by necessity is created between W as agent, and H as principal. H is bound by the purchase made by W.
Kinds of agency

1.  According to form
A. Express
1. Oral agreement - An oral agency is valid unless the law requires a specific form. (Art. 1869)
2. Written agreement
A. Those that require a special power of attorney, such those enumerated under Article 1878. The act performed is not enforceable against the
principal if the power of attorney is not special

B. When the sale of a piece of land or an interest therein (such easement and usufruct) is made through an agent, the authority of the agent must be
in writing, otherwise the sale is void. (Art 1874)

B. Implied An agency may be implied from the following:

1. Acts of the principal.
2. Silence of the principal.
3. Lack of action of the principal.
4. Failure of the principal to repudiate the agency knowing that another person is acting in his behalf without authority. (Art. 1869)
Illustration:

 P learns that A is selling his car in his (P’s) name without any authority. P does not do
anything to stop A. Later, A brings the buyer to P who voluntarily accepts the payment
and delivers the car to B. An agency is implied from the acts of P.
 P noticed that the financial reports on his business were being signed by B and not A
whom he had appointed as his agent to manage the business He learned on inquiry with
the relatives of A that the latter was seriously ill and that he had turned over the
management of the business to B before he became sick. P continued to receive without
any protest or question the reports coming from B and did not designate a new agent or
give B a power of attorney. Instead, P allowed B to discharge the functions of a manager
for over a year. Here, an implied agency is deemed created by the failure of P to repudiate
the agency knowing that another person was acting in his behalf without any authority.
2. According to extent
A. General agency - One that comprises all the business of the principal. (Art. 1876)
B. Special agency - One that comprises one or more specific transactions. (Art 1876)
3. According to authority conferred
A. Agency couched in general terms (general power of attorney). This comprises only acts administration. This is true even if
the principal should state:
1. That he withholds no power; or
2. That the agent may execute acts as he may consider appropriate; or
3. Even though the agency should authorize a general and unlimited management. (Art. 1877)
 Power of attorney, concept
 Is a written instrument given by a principal to his agent authorizing the latter to perform specified acts in behalf of the former, which
acts, when performed, shall have a binding effect on the principal. This may be a general power of attorney or a special power of
attorney.
 B. Agency couched in specific terms - A special power of attorney is required for the performance of the following specific acts (Art. 1878):
1. To make such payments as are not usually considered acts of administration.
2. To effect novations which put an end to obligations already in existence at the time the agency was constituted.
3. To compromise – In a compromise, the parties make reciprocal concessions to avoid or put an end to litigation. A special power to compromise does not authorize submission to
arbitration. (Art. 1880)
4. To submit questions to arbitration
 Arbitration is an extra-ordinary method of settlement by referring a dispute to a third person known as arbitrator whose judgment will substitute that of the agent representing his party principal.
Thus, a special power of attorney is required

5. To renounce the right to appeal from a judgment.

6. To waive objections to the venue of an action.
7. To abandon prescription already acquired.
8. To waive obligations gratuitously.
9. To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration.
10. To make gifts, except the following where a general power of attorney is sufficient:
A. Customary ones for charity.
B. Those made to employees in the business managed by the agent.
11. To loan or borrow money, except that no special power of attorney is required if the borrowing of money is urgent and
indispensable for the preservation of the things which are under administration.
12. To lease any real property to another person for more than a year.
13. To bind the principal to render some service without any compensation.
14. To bind the principal in a contract of partnership
15. To obligate the principal as a guarantor or surety
16. To create or convey real rights over immovable property.
 A special power to sell excludes the power to mortgage; a special power to mortgage does not include the power to sell (Art. 1879)
17. To accept or repudiate an inheritance.
18. To ratify or recognize obligations contracted before the agency.
19. Any other act of strict dominion.
Kinds of Acceptance of agency by the agent

1. Express – this may be made orally or in writing.

2. Implied – acceptance by the agent may be implied from:
A. His acts which carry out the agency.
B. His silence or inaction according to the circumstances.
Cases when there is implied acceptance
C. Between two persons who are present, i.e., they are face to face
D. Between two persons who are absent
 Acceptance by the agent can be implied from the silence of the agent in the following cases:
1. When the principal transmits his power of attorney to the agent, and the latter.
1. When the principal transmits his power of attorney to the agent, and the latter receives it
without any objection.
 This will require the agent to at least acknowledge receipt of the power of attorney to distinguish
it from the second situation where the authority pertains to the business in which the agent is
habitually engaged.
2. When the principal entrusts to him by letter or telegram a power of attorney with respect
to the business in which he is habitually engaged as an agent, and he did not reply to the
letter or telegram.
Announcement of appointment of an agent

1. By special information – this is usually made through a letter addressed to a specified

person or persons.
 The person appointed will be considered a duly authorized agent with respect to the person who
received the special information.
2. By public advertisement – this may be made by publication in the newspaper, signs,
leaflets, posters, or billboards.
 The person appointed will be considered as agent with regard to any person.
Announcement of the revocation of
appointment of an agent

1. If the announcement of the appointment is by special information, the announcement of

the revocation of the appointment shall also be made by special information.
2. If the announcement of the appointment is by public advertisement, the announcement of
the revocation of the appointment shall also be by public advertisement.
 Announcement of the appointment was by special information or by public advertisement.
Basic principles of agency

1. The agent must act within the scope of his authority.

 The agent may do such acts as may be conducive to the accomplishment of the purpose of the
agency. The limit of the agent’s authority shall not be considered exceeded should it have been
performed in a manner more advantageous to the principal than that specified by him.
2. The agent must act in behalf of his principal.
Effects if an agent acts within the scope of his authority
and in behalf of the principal (disclosed principal)

1. The act is valid.

2. The principal alone is liable unless the agent expressly bound himself.
Effect if one or both Principles are absent

1. Agents acts within the scope of his authority but in his (agent’s) own behalf (undisclosed
principal)
A. The principal has no right of action against the person with whom the agent has contracted.
B. The person with whom the agent has contracted has no right of action against the principal.
C. The agent is the one directly bound in favor of the one with whom he has contracted as if the
transaction were his own except when the contract involves things belonging to the principal, in
which case, the principal shall have a right of action against the third person, and the third
person against the principal.
Note: This is without prejudice to the actions between the principal and the agent.
Examples:

 P authorizes A to borrow money from a bank, A, however, borrows money in his own
name and not that of P. the loan is a contract between A and the bank. P and the bank shall
have no right of action against each other.
 P authorizes A to sell P’s computer. A sells the computer in hi (A’s) name and delivers it to
B. P shall have a right of action against B since the contract involves a thing belonging to
him (P). In case B has paid the price but has not yet received the computer, he shall have a
course of action against P for the delivery of the computer.
2. Agents acts in excess of the authority of his principal and in the principal’s behalf or a person acts without
the authority of another but in the latter’s behalf.
 Example: A was authorized by P to sell P’s car for at least 10,000 cash. A, however, A sold the car in the name of P to
B for the same price but on credit. B cannot enforce the sale against P unless P ratifies the contract. A alone will be
liable to B.
3. Agents acts in excess of the authority of his principal and his own (agent’s) behalf or a person acts without
the authority of another but in his (the former’s) own behalf.
 Example: P is the owner of a house and lot. A, with the intention of buying the house and lot in his (A’s) name to B
without any authority from P. The sale is a binding contract between A and B. If A cannot transfer the ownership of
the house and lot at the time of delivery, then A can be held liable for breach of warranty against eviction.