Agency

Agency – a contract whereby a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent and authority of the latter. (Art. 1868)

Importance of Agency
Agency enables a person to increase the range of his individual and corporate activity by
enabling him to be constructively present in many places and to carry on diverse activities at the
same time. (See Mechem, Outlines of Agency, p. 5)

By the contract of agency, the activity of man which is limited by his physiological conditions, is
extended and amplified by permitting him to realize at the same time diverse judicial acts, which
would be impossible without his juridical institution, (11 Manresa 434-435)

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 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 whom the agent represents and from whom he derives authority; he is
the one primarily and originally concerned in the contract of agency. (2 C.J. 412)

Capacity to be a principal
Agency being a contract, any person with legal capacity may appoint an agent for any
legal purpose whatsoever. (2 Am. Jur. 19)

2. Agent – he who acts for and represents the principal and from whom he derives his authority.

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.

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 himself 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 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 the trust and confidence.
(See Palma vs. Cristobal, 440 O.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
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
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.” A 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
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 as those
enumerated under Article 1878.
The act performed is not enforceable against the principal if the
power of attorney is special.
b. When the sale of a piece of land 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)

Examples:
1. P learned 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.
2. P gave a general power of attorney to A to manage P’s business. Later, A informed P
that he (A) could no longer continue with his work as agent on account of ill health
and that he had given a general power of attorney to B to manage the business. A
also told P that P could give B a new power of attorney or appoint a new agent.
However, P did not give B another power of attorney or appoint a new manager.
Instead, P allowed B to discharge the functions of a manager for over a year. An
implied agency is deemed created by the failure f P to repudiate the agency
knowing that another person was acting in his behalf without any authority.

2. According to extent
a. General agency – when it comprises all the business of the principal. (Art. 1876)
b. Special agency – when it comprises one or more specific transactions. (Art. 1876)

3. According to authority conferred

a. Agency couched general terms (general power of attorney) – this comprises only acts of
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

This refers to the written authorization to an agent to perform specified acts in
behalf of his principal, which acts, when performed, shall have a binding effect on the
 principal. (2 Am. Jur. 30) 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 a 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.