AGENCY

1868 TO 1932
A. NATURE, PURPOSE AND PARTIES TO
AGENCY
1. Agency is a fiduciary relationship created by contract, whether express
or implied agreement or by law, whereby one party is authorized to act
on behalf of and bind another to transactions with a third party.
2. The purpose is the execution of a juridical act or acts in relation to third
parties.
3. The party who is authorized is called the agent, while the party who
authorized or on whose behalf the agent acts is called the principal. The
party who transacts with the principal, through the agent, is called a third
party.
 B. MANNER BY WHICH AGENCY MAY BE
CREATED
1. CONTRACT – a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or
authority of the latter [1868 and 1491(2)]
(a) Express appointment and acceptance
(b) Implied from the acts of principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another is acting on his
behalf without authority.
2. LAW – An agency relationship may arise by operation of law
(a) Certain organizations are conferred by law with juridical personality, but
being artificial persons they can only act through natural persons.
(b) Authorities have recognized that estoppel, ratification and necessity,
under certain circumstances to proximate or parallel the relationship of agency
C. CLASSIFICATIONS OF AGENCIES AND
DISTINCTIONS

1. As to scope the agent’s authority

(a)General
(b)Special
2. As to their duration
1. Agency at will [see 1919 (1) and 1920]
2. Agency for a specific object or purpose [see 1919(5)]
3. Agency with a period or term [see 1919(6)]
4. Agency coupled with an interest [see 1927, 1930]
 D. CHARACTERISTICS OF CONTRACT OF
AGENCY

• A contract of agency is consensual, as it is perfected by mere consent. [1868]

• It is unilateral if it is gratuitous; but is bilateral if there is to be a compensation.
• It is principal because it can b itself without the need to another contract.
• It is nominate because it has its own name. [1307]
• Agency may be oral, unless the law requires a specific form. [1869, par. 2]
• Like a partnership contract, it is a “relation” contract (as distinguished from a
“transaction” contract, such as a contract of sale). It exacts a fiduciary standard in
the relations between the parties.
E. REQUISITES OF CONTRACT OF AGENCY

1. Consent
a. Capacity of the principal
• Any natural person, who is capacitated to act for himself, can act through an agent
• A natural person’s lack of capacity cannot be modified or corrected by his appointment of an
agent.
• Artificial persons, which are vested, by law with juridical personality can only act through
agents.
b. Capacity of the agent

2. The object of contract agency

3. Consideration
 F. AUTHORITY

1. The authority of the agent may be general, or special.

2. The agent’s authority may be express, or implied by habit, custom or acquiescence.
3. Insofar as third persons are concerned, the authority may be actual or apparent.
4. If a person specially informs another or states by public advertisement that he has given a
power of attorney to a third person, the latter thereby becomes a duly authorized agent, in
the former case with respect to the person who received the special information, and in
the latter case with regard to any person. The power shall continue to be in full force until
the notice is rescinded in the same manner in which it was given. [1873]
5. Power of Attorney
(a) A Power of Attorney must be in writing and signed by the principal
(b) The purpose is giving a power of attorney is to substitute the mind and hand of the agent
for the mind and hand of the principal.

6. Special Power of attorney are necessary in the following cases:

(a) to make such payments as are not usually considered as acts of administration.
(b) to effect novations which put an end to obligations already in existence at the time the
agency was constituted.
(c) to compromise, to submit questions to arbitration, to renounce the right to appeal from a
judgment to waive objections to the venue of an action or to 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 bind the principal in a contract of partnership
(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
(o) Any other act of strict dominion. [1878]
G. IMPLIED OBLIGATIONS OF AN AGENT TO HIS
PRINCIPAL
1. To render the service or to perform the acts in representation or on behalf of the
principal. [1868; relate to 1491(2)]
2. To act within the scope of his authority, and in the execution of the agency act in
accordance with the principal’s instructions. [1881, first sentence, par. 1]
3. To prefer the interest of his principal over his own interest. [see 1889]
4. To not borrow, without the consent of his principal, money which he has been
authorized to led at interest. [see 1890]
5. To pay interest on the sums he has applied to his own use from the day on which he
did so, and on those which he still owes after the extinguishment of the agency
6. To render an account of his transactions. [see 1891]
7. To deliver to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal. [see 1891]
8. To be responsible for the acts of the substitute he appoints
H. IMPLIED OBLIGATIONS OF A PRINCIPAL TO
HIS AGENT
1. To pay the agent his compensation, unless it is a gratuitous agency. [see 1875 and
1903]
2. To advance to agent, upon agent’s request, the sums necessary for the execution of the
agency. [see 1912 par. 1]
3. To reimburse the agent for sums advanced plus interest , even if the business or
undertaking was not successful, provided the agent is free from all fault. [see 1912,
pars. 2 and 3]
4. To indemnify agent for all damages which the execution of the agency may have
caused the agent, without agent’s fault or negligence. [1913]
I. STIPULATIONS OF PRINCIPAL AND AGENT

1. They may stipulate that agent shall advance necessary funds. [see 1886]
2. The principal may prohibit the agent to appoint a substitute
3. A stipulation which exempts the agent from the obligation to render an
account of his transactions is void.
J. IMPLIED OBLIGATIONS OF THE PRINCIPAL TO
A THIRD PARTY

1. To comply with all obligations which the agent contracts within

scope of his authority. [1910, par. 1]
a) The agent is not personally liable to the third party with whom he contracts, unless
i. He expressly binds himself, or
ii. He exceeds the limits of his authority without giving such party sufficient notice
of his powers. [1897]
b) Principal is not bound to comply with any obligation wherein agent has exceeded his
power, except when principal ratifies it expressly or tacitly. [1910, par. 2]
2. To be solidarily liable with the principal, if principal allows him to act
as though he had full powers, when he in fact has exceeded his
authority. [see 1911]
3. To be liable in damages to the third person whose contract must be
rejected, where two persons contract with regard to the same thing, one
of them with the agent and the other with the principal and the two
contracts being incompatible with each other, the one of the prior date
to be preferred and the later one rejected. [1916 and 1917]
K. IMPLIED OBLIGATIONS OF AN AGENT TO A
THIRD PARTY
1. To be personally liable to third party with whom he contracts if
a) He expressly binds himself, or
b) He exceeds the limits of his authority without giving such party sufficient notice of his
powers. [1897]

2. To be solely liable in damages to the third person whose contract must be rejected,
where two persons contract with regard to the same thing, one of them with the agent,
who had acted in bad faith, and the other with the principal and the two contracts being
incompatible with each other, the one of the prior dated
L. EXTINGUISHMENT OF CONTRACT OF
AGENCY
1. An agency may be terminated either: (a) by the acts of the parties themselves, or (b) by
operation of law.
2. Acts of the parties.
a. Both parties consent to terminate the agency.
b. By unilateral of the agency by the principal
a. Revocation of the agency by the principal [1919 (1)]
b. Withdrawal of the agent [1919 (2) and 1928]
c. If it is an agency at will, either party may terminate it at any time
d. The party who terminates the agency, before the specific object or purpose is achieved or before its period
or term has ended, is liable for breach of contract if termination is before specified period of time, unless
the termination is for a valid cause.
3. Termination by operation of law
(a) Death, civil interdiction, insanity, insolvency of either the principal or the agent. [1919(4)]
(b) Dissolution of the firm or corporation which entrusted or accepted agency. [1919(4)]
(c) Accomplishment of objective or purpose of the agency. [1919(5)]
(d) Expiration of period for which agency was constituted.

4. Third parties who have dealt with agent or have known of agency must be given notice if
agency terminated by acts of the parties. [see 1921 and 1922]