CONTRACT OF AGENCY

 By the contract of agency, a person (called the agent) binds himself to render some service or
to do something in representation or on behalf of another (called the principal), with the
consent or authority of the latter.

 NATURE OF AGENCY
 The essence of agency is representation.
 “What a man may do in person, he may do through another.”
 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.
 Ǫui facit per alium facit se.
 “He who acts through another acts himself.”

 CHARACTERISTICS OF AGENCY
 Preparatory Contract – It is a contract entered not for its own end but to be able to
enter into other contracts.
 Consensual – perfected by mere consent.
 Nominate – it has its own name.
 Principal – does not depend on another contract for its existence and validity.
 Unilateral – if contract is gratuitous, if creates obligations for only one of the parties.
 Bilateral – if for compensation, it gives rise to reciprocal rights and obligations.

 AGENCY
 In agency, the agent acts not on his own behalf but on behalf of his principal.
 ASSIGNMENT
 In assignment, there is total transfer or relinquishment of right by the assignor to the
assignee. The assignee takes the place of the assignor and is no longer bound to the
latter.

 ELEMENTS OF AGENCY
1. There is consent, express or implied, of the parties to establish the relationship;
2. Object is the execution of a juridical act in relation to a third person;
3. Agent acts as representative and not for himself; and
4. Agents acts within the scope of his authority.
 EXCEPTION
A. Peculiarly personal acts may not be delegated; and
B. Illegal or unlawful acts may not be validly delegated.
 NOTE:
 Agency is not always contractual. Sometimes, even if some of the
elements are missing, agency may still be created by operation of
law.
 PRESUMPTION OF AGENCY
 GR:
 Agency is never presumed, neither is created by the mere use of the
word in a trade or business name.
 He who alleges that it exists has the burden of proof.
 ETR:
a) Agency by operation of law
b) Agency is presumed to prevent unjust enrichment.
1. The agent must finish the business already begun on the death of the
principal, should delay entail any danger;
2. The agent, even if he should withdraw from the agency for a valid
reason, must continue to act until the principal has had reasonable
opportunity to take the necessary steps to meet the situation.
3. The agency shall remain in full force and effect even after the death
of the principal, if it has been constituted in the common interest of
the latter and of the agent, or in the interest of a third person who
has accepted the stipulation in his favor.
4. Anything done by the agent, without the knowledge of the principal
or any other cause which extinguishes the agency, is valid and
shall be
fully effective with respect to third persons who may have
contracted him in good faith.

 PARTIES TO A CONTRACT OF AGENCY

 Principal – The principal may be a natural or juridical person. He must be capacitated.
The rule is if a person is capacitated to act for himself or in his own right, he can act
through an agent.
 Agent – Insofar as third persons are concerned, it is enough that the principal is
capacitated. But insofar as his obligations to his principal are concerned, the agent
must be able to bind himself.

 CLASSIFICATIONS OF AGENCY
 As to manner of creation:
a) Actual agency (Express) – an agent-principal relationship actually
exists, and consent was given.
b) Ostensible Agency (Agency by Estoppel or Implied) – where the
agency is not the result of consent but by the actions of a principal or
an employer in somehow misleading the public into believing that the
relationship or the authority exists.
 As to quantity of transaction or extent of business covered:
a) General agency – it comprises of all the business of the principal.
b) Special agency – it comprises of one or more specific transactions.

 CLASSIFICATIONS OF AGENCY
 As to nature of acts authorized:
a) Agency couched in general terms – it comprises only of acts of
administration, even if the principal should state that he withholds no power
or that the agent may
 execute such acts as he ay considers appropriate or even though the agency
should authorize a general and unlimited management.
b) Agency couched in specific or explicit terms – it indicates the particular
function/s which the agent is authorized to exercise, whether the same be acts of
administration or acts of dominion.
 As to character:
a) Gratuitous – agent receives no compensation for his services.
b) Onerous – agent receives compensation for his services.

 ACTUAL AGENCY
 Express
 GR: No form is required. It may be oral or written.
 ETR:
1. When the agency relates to a sale of piece of land or any interest
therein, the authority of the agent must be in writing.
2. A corporation may act only through its board of directors or, when
authorized either by its bylaws or its board resolution, through its
officers' agents in the normal course of business.
 Implied
 From:
a) The acts of the principal,
b) His silence or lack of action, or
c) His failure to repudiate the agency knowing that another person is
acting on his behalf without authority.

 ACCEPTANCE BY THE AGENTS

 EXPRESS
 Oral or written
 IMPLIED
 Silence or inaction according to circumstances.
 ABSENT
 GR: Agency cannot be implied from the silence of the agent.
 ETR:
1. When the principal transmits his power of attorney to the agent,
who receives it without any objection.
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 engage
as an agent, and he did not reply to the letter or telegram.
 PRESENT
 Between persons who are present, acceptance of agency is implied if the principal delivers
his power of attorney to the agent and the latter receives it without any objection.
 It is an instrument in writing by which a person, as principal, appoints another
as his agent and confers upon him the authority to perform certain specified acts
on behalf of the principal.
  Note: It must be strictly construed and pursued. The instrument will be
held to grant only the powers which are specified therein, and the agent
may neither go beyond or deviate from the power of attorney.

 AGENCY BY ESTOPPEL
 Requisites:
1. The principal manifested a representation of the agent’s authority or
knowingly allowed the agent to assume such authority;
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his position to
his detriment.
o “In an agency by estoppel, there is no agency at all, but the one assuming to act as agent
has apparent authority, to represent another, although not real.”

 BY SPECIAL INFORMATION
 If a person specially informs another that he has given a power of attorney to a
third person, the latter thereby becomes a duly authorized agent with respect to
the person who received the special information.
 BY PUBLIC ADVERTISEMENT
 If a person states by public advertisement that he has given a power of
attorney to a third person, the latter thereby becomes a duly authorized agent
with regard to any person.
 NOTE: Such power shall continue to be in full force until the notice is rescinded in the
same manner in which it was given.

 Implied Agency
 Actual agency.
 A third party’s reliance in the representation is not necessary since there is
an actual agency.

 Agency by Estoppel
 No actual agency. Only the presence of an apparent authority.
 A third party’s reliance in the representation is necessary to invoke agency
by estoppel.

 GENERAL AGENCY vis-à-vis SPECIAL AGENCY

 When the agency comprises all the business of the principal.
 When the agency comprises one or more specific transactions.

 AGECNY COUCHED IN GENERAL TERM vis-à-vis AGENCY COUCHED IN SPECIFIC TERM

 Acts of Administration (no authority to alienate)
 Even if:
a) The principal should state that hi withholds no power or that the agent may
execute such acts as he may consider appropriate; or
b) Or even though the agency should authorize a general and unlimited management.
  Acts of Strict Dominion (ownership)
a) To make such payments as are not usually considered as acts of administration;
b) To effect novation which put an end to obligations already in existence at the
time the agency was constituted;
c) To compromise, to submit questions to arbitrations, to renounce the right to
appeal from a judgment, to waive objections to the venue of an action or
abandon a prescription already acquired;
d) To waive any obligation gratuitously;
e) To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;
f) To make gifts, except customary ones for charity or those made to
employees in the business managed by the agent;
g) To loan or borrow money, unless the latter act be urgent and indispensable for
the preservation of the things which are under administration;
h) To lease any real property to another person for more than one year;
i) To bind the principal to render some service without compensation;
j) To bind the principal in a contract of partnership;
k) To obligate the principal as a guarantor or surety;
l) To create or convey real rights over immovable property;
m) To accept or repudiate an inheritance;
n) To ratify or recognize obligations contracted before the agency; and
o) Any other act of strict dominion.
 Note:
1) special power to sell excludes the power to mortgage; and a special power
to mortgage does not include the power to sell; and
2) the power to compromise does not authorize submission to arbitration.
 Every grant of power implies and carries with it, as an incident, authority to do acts, or use
whatever means are reasonably necessary and proper to the accomplishment of the purpose
for which the agency was created, unless the inference of such power is expressly excluded
by the instrument creating the agency or by the circumstances of the business to which the
agency relates.

 OBLIGATIONS OF THE AGENT

1) To act within the scope of authority.
 It means acting according to the instructions of the principal and performance of
his obligation with the diligence of a good father of the family.
 The following acts performed by the agent shall be deemed within the scope of his
authority:
a) Acts that may be conducive to the accomplishment of the purpose of the agency
b) Acts performed in a manner more advantageous to the principal than that
specified by him:
c) So far as third person are concerned, acts within the terms of the written power
of attorney, even if the agent has in fact exceeded the limits of his authority
according to the understanding between the principal and the agent.
2) To carry out the agency.
 This obligation entails the following:
a) Be liable for the damages caused to the principal through his non-performance;
b) Finish the business already begun on the death of the principal, should delay
entail danger.
 c) Even if the agent withdraws, continue to act as agent until the principal has
had reasonable opportunity to take the necessary steps to meet the
situation.
3) To prefer the interest of the principal over his own.
 Manifested in two ways:
a) An agent shall be liable for damages if, there being conflict between his
interests and those of the principal, he should prefer his own.
b) An agent, who has been authorized to lend money, may not borrow it without
the consent of the principal.
o Authorized to borrow money, agent can be the lender at the current rate of interest.
4) To render account and to deliver.
a) Agent must render an account of his transactions and deliver to the principal
whatever he may have received by virtue of the agency, even though it may not be
owing to the principal.
 NOTE: A stipulation exempting the agent form the obligation to render an account
shall be void.
5) To pay interest.
 The agent owns interest on:
A. The sums he has applied to his own use from the day on which he did so; and
B. Those which he still owes after the extinguishment of the agency.
6) To be liable for fraud and negligence.
A. The agent is also liable for fraud and negligence. In this case, negligence shall
be judged with more or less rigor by the courts, according to whether the agency
was or was not for compensation.

 OTHER OBLIGATIONS OF THE AGENT

o Duty to advance necessary funds
 Only if stipulated. However, even if there is such stipulation, the agent cannot
be compelled to advance the necessary funds if the principal is insolvent.
o Rules on sale by commission agent
 GR: liable for damages for failure to collect. ETR: if he can prove that he exercised
due diligence for such purpose.
 Duties on care of goods:
1. Agent shall be responsible for the goods received by him in the terms and
conditions and as described in the consignment, unless upon receiving them
he should make a written statement of the damage and deterioration suffered
by the same.
2. A commission agent who handles goods of the same kind and mark, which
belongs to different owners, shall distinguish them by countermarks, and
designate the merchandise respectively belonging to each principal.
o Rules on sale on credit
 With authority from the principal:
 the agent shall inform the principal, with a statement of the names of buyers. If
he fails to do so, the sale shall be deemed to have been made for cash insofar
as the principal is concerned.
 Without consent of the principal:
 the principal may demand from the agent payment in cash, but the
commission agent shall be entitled to any interest or benefit, which may result
from the sale.
o Del Credere Agent
 A commission agent who receives a guaranty commission.
 A del credere agent bears the risk of collection and he shall pay the principal the
proceeds of the sale on the same terms agreed upon with the purchaser.
 Nevertheless, the liability of the del credere agent does not preclude the principal
from resorting to the purchaser to obtain payment, at any time before the debt is
paid.
 SUBSTITUTE
 APPOINTMENT OF SUBSTITUTE:
 GR: An agent may appoint a substitute.
 ETR: Principal prohibits the agent from doing so. In this case, all substitute’s acts
shall be void.
 ALLOWED
 GR: Acts of the substitute binds the principal and the agent is not liable to the
acts of the substitute whether the latter is chosen by the agent or the
principal.
 ETR: the substitute appointed by the agent is notoriously incompetent or insolvent.
 NOT ALLOWED BUT PROHIBITED
 The acts of the substitute will bind the principal but the agent is liable for the
acts of the substitute. The principal may further bring an action against the
substitute with respect to the obligations which the latter has contracted under
the substitution.
 PROHIBITED
 The acts of the substitute shall not be enforceable against the principal unless
the same are ratified by the latter.

 LIABILITY OF TWO OR MORE AGENTS

 GR: The liability of two or more agent is merely joint.
 ETR: If solidarity is stipulated.
 Effect of solidarity:
 Each of the agent is responsible for the non-fulfillment of the agency, and for
the fault or negligence of his fellow agents, except in the latter case when the
fellow agents acted beyond the scope of their authority.

 OBLIGATIONS OF THE PRINCIPAL

 To pay compensation.
 Agency is presumed to be for compensation, unless there is proof to contrary.
 Doctrine of Procuring Cause – In order for an agent to be entitled to be entitled
to a commission, he must be the procuring cause of the sale, which simply
means that the measures employed by him and the efforts he exerted must
result in a sale.
 To advance necessary funds
 In the absence of stipulation that the agent shall advance the funds necessary
to carry out the agency, the same must be advanced by the principal, should the
agent so request.
 Instances where principal not liable for expenses incurred by agent:
A. If the agent acted in contravention of the principal’s instructions, unless the
latter should wish to avail himself of the benefits derived from the contract;
B. When the expenses were due to the fault of the agent;
C. When the agent incurred them with the knowledge that an
unfavourable result would ensue, if the principal was not aware thereof;
or
D. When it was stipulated that the expenses would be borne by the agent or
that the latter would be allowed only a certain sum.
 To indemnify agent for damages
 GR: Principal must indemnify the agent for all the damages which the execution
of the agency may have caused the latter.
 ETR: Principal is not liable if the damages were occasioned by the fault
or negligence on the part of the agent.
 Agent’s Lien
 The agent may retain in pledge the things which are the object of the
agency until the principal effect the reimbursement and pays the
indemnity, which the he may have incurred.
  The lien may be enforced in the same way as a pledge, that is, by having
the property sold at public auction, in the manner prescribed by law.

 LIABILITY OF TWO OR MORE PRINCIPALS

 If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be jointly and severally liable to the agent for all the
consequences of the agency.

 LIABILITIES OF PARTIES IN RELATION TO THIRD PERSONS

 Liability for contracts entered by Agent: Agent acted within the scope of his authority.
 GR: it is the principal who is liable to the third person while the agent is
completely absolved of any liability.
 ETR: Agent becomes liable to third person even if he acted within the scope of
his authority when:
i. He expressly binds himself; or
ii. He is guilty of fraud or negligence.
 Liability of Third Person
o The liability of the third person is to the principal and not to the agent. The agent has
neither rights nor liabilities as against the third party.

 Liability for contracts entered by Agent: Agent acted beyond the scope of his authority.
 GR: The contract is unenforceable if not ratified by the principal, thus it is
not binding to the latter.
 ETR: Principal becomes liable even if the agent has exceeded his powers in
the following instances:
a. When the principal ratifies the contract either expressly or
impliedly, in which case, only the principal becomes liable to the
third person;
b. when the principal allowed the agent to act as though he had full
powers, the principal becomes solidarilyliable with the agent.
 NOTE: In case of sale of parcel of land, the sale is void.

 GR: The agent is liable to the third party within whom he contracted with
if he acted beyond the scope of his authority.
 ETR: If he notified the third person of the limits of his authority, he is not
liable to such third person
 ETE: If he undertook to secure the principal’s ratification.

 Liability for contracts entered by Agent: Agent contracted in his name

 GR: If an agent acts in his own name, the principal has no right of action
against the third person with whom the agent has contracted; neither have
such persons against the principal.
 In such case, the agent is the one directly bound in favor of the person with
whom he has contracted, as if the transaction were his own.
 ETR: When the contract involves things belonging to the principal, hence,
the contract must be considered as entered into between the principal and
the third person. This does not apply where the agent has exceeded his
authority.

 Liability for Delict or Quasi-delict committed by the agent

 So long as the agent acts within the scope of his authority, the principal is liable
for the delict or quasi-delict of his agent.

 Liability in Agency by Estoppel

o It is the principal who is liable.
 MODES OF EXTINGUISHMENT
 Revocation
 GR: The agency may be revoked by the principal at will and compel the
agent to return the document evidencing the agency.
 ETR: When the agency is coupled with interest, as in the following cases:
i. A bilateral contract depends upon it;
ii. If it is the means of fulfilling an obligation already contracted; or
iii. If a partner is appointed manager of partnership and his removal from
the management is unjustifiable.
 When agency is deemed revoked:
a. When a new agent is appointed for the same business or transaction, the
previous agency is revoked from the day on which notice thereof was given to
the former agent;
b. When the principal directly manages the business entrusted to the agent,
dealing directly with third persons; or
c. A general power of attorney is revoked b a special matter involved in the latter.
 Necessity of Notice
 Between principal and agent: for revocation to be effective, the agent must be
duly notified.
 Between principal and third person: Whether specific or general power is given
to the agent, third persons will not be bound by the revocation if they were not
notified of the same.
 NOTE: Notice of revocation in a newspaper of general circulation is a
sufficient warning to third persons.

 Withdrawal by the Agent

o Agent may withdraw from the agency by giving due notice to the principal.
 Liability for Damages:
o If the principal should suffer any damage by reason of the withdrawal by the
agent, the latter must indemnify the principal therefor, unless the agent
should base his withdrawal upon the impossibility of continuing the
performance of the agency without grave detriment to himself.
 Duty of Agent Upon Withdrawal
o The agent must continue to act until the principal has had reasonable
opportunity to take the necessary steps to meet the situation, even if he should
withdraw from the agency.
 Death, Civil Interdiction, Insanity, or Insolvency of the Principal or of the agent.
o Effect of Death
 GR: Agency is extinguished by the death of the principal or the agent.
 ETR:
a. Agency shall remain in full force and effect even after the
death of the principal, it is having been constituted in the
common interest of the latter and of the agent, or in the
interest of a third person who has accepted the stipulation in
his favor; and
b. Anything done by the agent, without knowledge of the death of
the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith.
 Dissolution of the firm or corporation which entrusted or accepted the agency
 Accomplishment of the object or purpose of the agency
 Expiration of the period for which the agency was constituted.
 Any other modes provided by general law for the extinction of obligations, so
far as applicable.