PART II  Agency is governed by the

Civil Code. (Arts. 1868-1932).

TITLE X

AGENCY (Arts. 1868-1932) CHARACTERISTICS OF A

CONTRACT OF AGENCY

The contract of agency is:

Chapter 1. NATURE, FORM, AND
KINDS OF AGENCY (1)Consensual: it is based on
the agreement of the parties
which is perfected by mere
Article. 1868. By the contract of consent;
agency a person binds himself to (2)Principal: it can stand by
render some service or to do itself without need of another
something in representation or on contract;
behalf of another, with the consent (3)Nominate: it has its own
or authority of the latter. name;
(4)Unilateral: if it is gratuitous
Notes: because it creates obligations
for only one of the parties,
i.e. the agent; or Bilateral, if
 The concept of agency
it is for compensation
excludes the relationship of
because it gives rise to
employer and employee (Art.
reciprocal rights and
1700), of master and servant
obligations; and
(Art. 1680), and of employer
(5)Preparatory: it is entered
and independent contractor
into as a means to an end,
(Art. 1713).
i.e., the creation of other
transactions or contracts.
 Agency is a fiduciary
relationship which implies a
power in an agent to contract Nature, basis, and purpose of
with a third person on behalf agency.
of a principal.
(1)Nature: it is necessary that
 Agency, properly speaking, the minds of the parties
relates to commercial or should meet in making it.
business transactions.
Agency relationship may also (a) Manifestation of consent. –
arise in non-business Intention of the principal
situations, as for example, a that the agent shall act for
person returns an article to a him and of the agent that
lender for a borrower-friend. he shall act for the
principal is necessary. It is
 manifested either in words were personally done by the
or conduct between them. principal. The distinguishing
features of agency are its
(b)Agent, by legal fiction, representative character and
becomes principal. – The its derivative authority.
agent, by legal fiction,
becomes the principal - He who acts through
authorized to perform all another acts himself” or
acts which the latter “He who does a thing by
would have him do. Such an agent is considered as
a relationship can only be doing it himself.”
effected with the consent - Thus, where an agent
or authority of the purchased property in bad
principal which cannot in faith, the principal should
any way be compelled by also be deemed a
law or by any court. purchaser in bad faith.

(c) Presence or absence of

contract of consideration. (3) Purpose: to extend the
– The relationship may be personality of the principal through
created by operation of the facility of the agent; to render
law (e.g. agency by some service to do or something.
estoppel), or a person who
acts for another as
principal may do so
gratuitously. PARTIES TO THE CONTRACT

The two parties to the contract are

(2)Basis. – Agency is also a the:
representative relation.
(1) Principal. — one whom the
agent represents and from whom
(a) Personal contract of he derives his authority; he is the
representation. – person represented. Agency
Representation constitutes imports the contemporaneous
existence of a principal, and there
the basis of agency. It is
is no agency unless one is acting
generally revocable. for and in behalf of another; and
(b) Acts of agents, by legal f
(2) Agent. — one who acts for and
ction, acts of principal. — The
represents another; he is the
acts of the agent on behalf of
person acting in a representative
the principal within the scope
capacity. The agent has derivative
of his authority (Art. 1881.)
authority in carrying out the
produce the same legal and
principal’s business. He may
binding effects as if they
employ his own agent in which
case he becomes a principal with behalf, sue on a contract made for
respect to the latter. his principal, as an assignee of
such contract.
Essential Elements of agency

They are as follows: Capacity of the parties

(1) There is consent, express or (1)Principal: A principal must be

implied, of the parties to establish capacitated or have the legal
the relationship; capacity to enter into
(2) The object is the execution of a contract in his own right.
juridical act in relation to third
persons;  It is a general rule that an
3) The agent acts as a agent who assumes to
representative and not for himself; contract in the name of a
and principal without
(4) The agent acts within the scope contractual capacity
of his authority. renders himself liable to
third persons.
 The acts of an agent done
Relationship of third party with for an incompetent
principal and agent principal may be ratified
by the latter after he
(1) Since an agent’s contract is not acquires capacity.
his own but his principal’s, a third  The agent is not liable
party’s liability on such contract is
where he was ignorant of
to the principal and not to the
the principal’s incapacity.
agent, and liability to such third
party is enforceable against the
principal, not the agent.
(2)Agent. – Generally, anyone
can be an agent. His capacity
(2) Where an agency exists, the
is usually immaterial. Since
relationship of the third party with
he assumes no personal
whom the agent has contracted, to
liability, he does not have to
the principal, is the same as that in
possess full capacity to act
a contract in which there is no
for himself insofar as third
agent.
persons are concerned.
G.R: Normally, the agent has
 Some mental capacity
neither rights nor liabilities as
against the third party. He cannot is necessary as an
sue or be sued on the contract. agent, and therefore,
persons who are
Exception: Where an agent is absolutely
constituted as an assignee. In such incapacitated, such as
a case, the agent may, in his own insane persons, cannot
 be agents as they are fiduciary in character since
completely incapable of they are based on trust and
understanding the task confidence (Severino vs.
to be performed. Severino, 44 Phil. 343
[1923].), on a degree which
varies considerably from
Acts that may be/not be situation to situation.
delegated to agents
(2)Agent estopped from
asserting interest adverse to
Some acts cannot be done through his principal. — It is an
an agent. elementary and very old rule
that in regard to property
(1)Personal acts. — If personal forming the subject matter of
performance is required by the agency, the agent is
law or public policy or the estopped from asserting or
agreement of the parties, the acquiring a title adverse to
doing of the act by a person that of the principal. His
on behalf of another does not position is analogous to that
constitute performance by of a trustee and he cannot,
the latter. (e.g. the right to consistently with the
vote; the making of a will; principles of good faith, be
statements required to be allowed to create in himself
made under oath; right to an interest in opposition to
attend the board meetings by that of his principal or cestui
a member of the board of que trust.
directors or trustees of a
corporation; and those acts (3) Agent must not act as an
which an agent cannot adverse party. — In matters
delegate to a sub-agent touching the agency, agents
which he has been appointed cannot act so as to bind their
to perform in person.) principals, where they have an
adverse interest in themselves.
(2)Criminal acts or acts not
allowed by law. – There can (4) Agent must not act for an
be no agency in the adverse party. — An agent
perpetration of a crime or an cannot serve two masters,
unlawful act. unless both consent, or unless
he is a mere middleman or
intermediary (e.g., real estate
Nature of relations between broker) with no independent
principal and agent initiative.

(1)Relations fduciary in (5)Agent must not use or

character. — The relations of disclose secret information.
an agent to his principal are — Requirements of good faith
 and loyalty demand of the Exceptions:
agent the duty not to use or
divulge confidential (1)Where the agent’s interests
information obtained in the are adverse to those of the
course of his agency for his principal;
own benefit t to the (2)Where the agent’s duty is not
principal’s injury and to disclose the information as
expense. where he is informed by way
of confidential information;
(6) Agent must give notice of and
material facts. — Principles of (3)Where the person claiming
good faith and loyalty to the the benefit of the rule
principal’s interests also require colludes with the agent to
that an agent make known to defraud the principal.
his principal every and all
material facts, of which the
agent has cognizance, which AGENCY V. LOAN
concern the transaction and
subject matter of the agency. On  The relation between
failure to do so, the agent may the parties is one of
be held liable for damages for lender and borrower or
any loss suffered or injury principal and agent
incurred as a result of such depends on the terms
breach. of the contract
between them and
their intention.
Knowledge of agent imputed to
principal  One who borrows
money to conduct a
G.R: Knowledge of agent is imputed business in which the
to the principal lender has no interest
or concern in the
(1)Agents’ duty of notification manner of its conduct
is not an agent of the
(2)Relationship of attorney and lender, but the
client financing of operations
to be carried on by
(3)Knowledge of the principal. – another for the mutual
The theory of imputed advantage of both,
knowledge ascribes the without any obligation
knowledge of the agent to of such other to return
the principal, not the other the money advanced,
way around. The knowledge makes such other an
of the principal cannot be agent rather than a
imputed to his agent. borrower.
 An agent may be given is revocable at the will
funds by the principal of the depositor.
to advance the latter’s
business, while a
borrower is given
money for purposes of AGENCY V. LEASE SERVICE
his own and he must
generally return it (1) In agency, the basis is
whether or not his own representation, while in lease of
business is successful. service (see Art. 1689.), it is
employment;
 Where checks are
deposited with a (2) In agency, the agent exercises
collecting bank, the discretionary powers, while in lease
nature of the of service, the lessor (like a
relationship created at servant) ordinarily performs only
that stage is one of ministerial functions (see Nielson &
agency, that is, the Co., Inc. vs. Lepanto
bank is to collect from Consolidated Mining Co., 26 SCRA
the drawees of the 540 [1968].);
checks the
corresponding (3) In agency, three persons are
proceeds. After the involved: the principal, the agent,
checks are collected and the third person with whom the
and converted into agent has contracted, while in
cash, the creditor and lease of service, only two persons
debtor relationship is are involved: the lessor (master or
created between the employer) and the lessee (servant
depositor and the bank. or employee); and

 Where one deposits (4)Agency relates to commercial

money with a bank or business transactions,
with instructions to while lease of service (like in
apply it in satisfaction the case of master and
of the debt of a third servant) relates more to
person, the matters of mere manual or
conventional debtor mechanical execution, in
and creditor which the servant acts under
relationship between the direction and control of
the bank and the the master.
depositor is created,
coupled with an agency
on the part of the bank AGENCY V. INDEPENDENT
to pay the debt, which CONTRACT
 (1)In agency, the agent is but if the alleged owner or
subject to the control and partner takes his agreed
direction of the principal share of profits, not as owner
whom he represents with but as an agreed measure of
respect to the matters compensation for his services
entrusted to him. In a or the like, the relation is one
contract for a piece of work, of agency.
the independent contractor,
without being subject to the
control of the employer AGENCY V. NEGOTIORUM
except only as to the result of GESTIO
the work, exercises his
employment independently, (1)In both agency and
and not in representation of negotiorum gestio or the
the employer. management of the business
or affairs of an absentee,
there is representation.
AGENCY V. PARTNERSHIP
(2)The distinction lies in the fact
(1)An essential characteristic of that in agency, the
the agency relationship, i.e., representation is expressly
control by the principal, conferred, while in
which is not applicable to the negotiorum gestio, it is not
partnership concept. In only without the authority of
partnership, a partner’s the owner of the business but
power to bind his co-partner is without his knowledge.
is not subject to the co-
partner’s right to control, (3)While the agent acts
unless there is an agreement according to the express will
to that effect. of the principal, the gestor
acts according to the
(2)A partner acting as agent for presumed will of the owner
the partnership binds not by exercising all the diligence
only the firm members but of a good father of a family.
himself as well, while the
ordinary agent assumes no (4)Agency is a contract, while
personal liability where he negotiorum gestio is a quasi-
acts within the scope of his contract.
authority.

(3)As to the sharing of profits, if, AGENCY V. BROKERAGE

when earned, the profits
belong to all the parties as Brokerage: refers to the trade or
common proprietors in occupation of the broker.
agreed proportions, the
relation is one of partnership,
(1)A commission agent (see Art. entitled to receive payment
1903.) is one engaged in the for the goods delivered,
purchase or sale for another unless specifically
of personal property which authorized.
for this purpose, is placed in
his possession and at his
disposal. He maintains a AGENCY V. SALE
relation not only with his
principal and the purchaser (1)In an agency to sell, the
or vendor, but also with the agent receives the goods as
property which is the subject the goods of the principal,
matter of the transaction. On while in sale, the buyer
the other hand, a broker has receives the goods as owner;
no relation with the thing he
buys or sells. He is merely an (2)In an agency to sell, the
intermediary or negotiator agent delivers the proceeds
between the purchaser and of the sale, while in a sale,
the vendor relative to the the buyer pays the price;
property with the custody or
possession of which he has (3)In an agency to sell, the
no concern. His only office is agent, in dealing with the
to bring together the parties thing received, is bound to
to the transaction never act according to the
acting in his own name but in instructions of his principal,
the name of those who while in a sale, the buyer can
employed him. deal with the thing as he
pleases, being the owner.
(2)An agent receives a
commission upon the  The elementary notion of
successful conclusion of a sale is the transfer of title to
transaction such as sale. On a thing from one to another,
the other hand, a broker while the essence of agency
earns his pay merely by involves the idea of an
bringing the buyer and the appointment of one to act for
seller together, even if no another.
sale is eventually made.  Agency is a relationship
which often results in a sale,
(3)Agent is a broader term than but the sale is a subsequent
broker, for, while brokers are step in the transaction.
agents, their powers are
limited, and when they have
no charge or control of the AGENCY V. BAILMENT
property, but act only as go-
betweens in executing a sale, (1)The bailee is possessed of no
they cannot be said to be power to bind the bailor in
agents in the larger sense personal liability and he owes
 neither loyalty nor obedience (5) While an agent represents one
to the bailor. who has capacity to contract for
himself where he present, a
(2)A bailee, however, may be guardian represents one who has
constituted an agent as to no such capacity.
third parties, where, for
example, he is vested with
ostensible authority to sell or
to make binding contracts AGENCY V. TRUST
with respect to the subject
matter of the bailment. (1)In trust, the title and control
of the property under the
trust instrument passes to
the trustee who acts in his
AGENCY V. GUARDIANSHIP own name, while the agent
represents and acts for his
The distinctions are: principal;

(1) While the agent derives his (2)While a trust may ordinarily
authority from his principal, the be terminated only by the
guardian, although he acts for and fulfillment of its purpose, an
on behalf of his ward, does not agency may in general be
derive his authority so to act from revoked at any time;
the ward (2 C.J.S.
1027.); (3)Agency is formed with the
thought of constant
(2) The relation of principal and supervision and control by
agent is founded upon consent of principal, whereas a trust is
the parties thereto, while that of based on the idea of
guardian and ward may be created discretion in the trustee and
irrespective of the consent or guidance by the settler or
capacity of the ward; cestui only to a limited extent
and when expressly provided
(3) Agents are subject to the for;
control of their principals, while
guardians are not subject to the Notes:
direction of their wards;
 While trust is not an agency,
(4) A legal guardian is substituted it is possible for a trustee to
by law, while ordinarily an agent is be an agent also where
the appointee of the principal and extensive direction and
his power may at any time be control are kept over the
abrogated or modified by the trustee. (First Wisconsin Trust
principal (see 3 Am. Co. v. Wisconsin Dept. of
Jur. 2d 421.); and Taxation)
  Incidentally, a director of a
corporation acts in a Agency may be oral, unless the law
“fiduciary capacity” but the requires a specific form.
relationship is not of trust but
agency.
KINDS OF AGENCY

AGENCY V. JUDICIAL
ADMINISTRATION Agency may be classified as
follows:
(1)A judicial administrator is
appointed by the court. He is (1) As to manner of its creation:
not only the representative of
the said court, but also of the (a) express. — one where the agent
heirs and creditors of the has been actually authorized by
estate. In agency, such is not the principal, either orally or in
the case; writing (Art.1869.); or

(2)A judicial administrator, (b) implied. — one which is implied

before entering into his from the acts of the principal, from
duties, is required to file a his silence or lack of action, or his
bond. This is not true in case failure to repudiate the agency
of agency; knowing that another person is
acting on his behalf without
(3)The protection which the law authority (Ibid.), or from the acts of
gives the principal, in limiting the agent which carry out the
the powers and rights of an agency, or from his silence or
agent, stems from the fact inaction according to the
that control by the principal circumstances. (Art. 1870.)
can only be through
agreements; whereas, the An implied agency is an actual
acts of a judicial agency as much as an express
administrator are subject to agency. The enumeration of cases
specific provisions of law and of implied agency in Articles 1869
orders of the appointing and 1870 is not exclusive.
court.

(2) As to its character:

Art. 1869. Agency may be (a) gratuitous. — one where the

express, or implied from the acts of agent receives no compensation
the principal, from his silence or for his services (Art. 1875.); or
lack of action, or his failure to
repudiate the agency, knowing that (b) compensated or onerous. —
another person is acting on his one where the agent receives
behalf without authority. compensation for his services.
 when the law requires a
(3) As to extent of business specific form for the agency
covered: is Article 1874.

(a) general. — one which comprises Art. 1874. When a sale of a

all the business of the principal piece of land or any interest
(Art. 1876.); or therein is through an agent,
the authority of the latter
(b) special. — one which comprises shall be in writing; otherwise,
one or more specific transactions. the sale shall be void.

(4) As to authority conferred:

(2)Agency may even be implied
(a) couched in general terms. — from words and conduct of
one which is created in general the parties and the
terms and is deemed to comprise circumstances of the
only acts of administration (Art. particular case. But agency
1877.); or cannot be inferred from mere
relationship or family ties.
(b) couched in specifc terms. —
one authorizing only the
performance of a specific act or
acts. (see Art. 1878.) Notes:

(5) As to its nature and effects:  It is not essential that an

agent should be appointed
(a) ostensible or representative. — directly by the principal, but
one where the agent acts in the the appointment may be
name and representation of the made through another, as by
principal (Art. 1868.); or referring an applicant to
another and representing
(b) simple or commission. — one that he has authority to act,
where the agent acts in his own or the relation may arise out
name but for the account of the of an agreement to employ
principal. the agent of another, such
person then becoming the
agent of the first party.
FORM OF AGENCY
 An agent appointed by the
(1)In general, there are no directors of a corporation to
formal requirements act for the corporation is an
governing the appointment agent of the corporation and
of an agent. The agent’s not of the directors.
authority may be oral or
written. It may be in public or
private writing. An instance PRESUMPTION OF AGENCY
 personally without any
General Rule: Agency is not objection, both being
presumed. The relation between present.
principal and agent must exist as a  The presumption of
fact. acceptance may be rebutted
by contrary proof.
It is a rule that whatever
statements or communications
made by the parties (supposed POWER OF ATTORNEY
principal and agent) between
them, if anything thereto appears  It is an instrument in writing
contrary to their intention, the by which one person, as
latter will always prevail. principal, appoints another as
his agent and confers upon
Exceptions: A presumption of him the authority to perform
agency may arise, however, in certain specified acts or kinds
those few cases where an agency of acts on behalf of the
may arise by operation of law or to principal. The written
prevent unjust enrichment. authorization itself is the
power of attorney, and this is
clearly indicated by the fact
Art. 1870. Acceptance by the that it has also been called a
agent may also be express, or “letter of attorney.”
implied from his acts which carry  Its primary purpose is not to
out the agency, or from his silence define the authority of the
or inaction according to the agent as between himself
circumstances. and his principal but to
evidence the authority of the
Art. 1871. Between persons who agent to third parties within
are present, the acceptance of the whom the agent deals; and
agency may also be implied if the the person holding a power
principal delivers his power of of attorney is shown and
attorney to the agent and the latter designated as an “attorney-
receives it without any objection. in-fact”, thus distinguishing
such person from an
 As regards implied attorney-at-law.
acceptance by the agent, the  A power of attorney must be
law distinguishes between strictly construed and strictly
cases (1) where persons are pursued. Under this rule, the
present (Art. 1871) and (2) instrument will be held to
where persons are absent grant only those powers
(Art. 1872). which are specified and
 The agency is impliedly defined, and the agent may
accepted if the agent neither go beyond nor
receives a power of attorney
from the principal himself
 deviate from the power of are repugnant clauses in a
attorney. power of attorney, they
 Power of attorneys are should be reconciled, if
ordinarily subjected to a possible, so as to give effect
strict construction as to to the instrument in keeping
preclude all authority not with its general intent or
expressly given, or predominant purpose.
necessarily to be inferred
(Cummins v. Beaumont).
 A special power of attorney Art. 1872. Between persons who
executed in a foreign country are absent, the acceptance of the
is generally not admissible in agency cannot be implied from the
evidence as a public silence of the agent, except:
document in our courts.
(Teotoco v. Metropolitan Bank (1)When the principal transmits
and Trust Co.). his power of attorney to the
 The rule however is not agent, who receives it
absolute and should not be without any objection;
applied to the extent of (2) When the principal entrusts
destroying the very purpose to him by letter or telegram a
of the power. If the language power of attorney with
will permit, a construction respect to the business in
should be adopted which will which he is habitually
carry out, instead of defeat, engaged as an agent, and he
the purpose of the did not reply to the letter or
appointment. Even if there telegram.