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Agency Notes

Agency Notes

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Published by Melanie Mejia
Agency Notes
Agency Notes

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PARTNERSHIP, AGENCY AND TRUST

M. Mejia

Page | 1

AGENCY


I. CONCEPT OF AGENCY

A. PURPOSE AND DEFINITION
1. GENERAL PRINCIPLES
 Art 1317 NCC: No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him
o Effect: Contracts entered into on behalf of another person without the
latter’s consent or authority = UNENFORCEABLE under Art 1403(1) NCC
 DOCTRINE OF REPRESENTATION IN AGENCY: The acts of the agent on behalf of the
principal within the scope of authority given him have the same legal effects and
consequences as though the principal himself had been the one so acting

2. PURPOSE: To extend the personality of the principal through the facility of the agent
(only effected with the consent of the principal) Eurotech v. Cuison

3. DEFINITION: In a contract of agency, a person (agent or mandatario) binds himself to
render some service or to do something in representation or on behalf of another
(principal or mandante), with the consent or authority of the latter (Art 1868 NCC)
 Fiduciary relationship; implies power in an agent to contract with a third person on
behalf of a principal
 Does not include: employer-employee relationship, master and servant, employer
and independent contractor (Art 1713 NCC)
 Relates to commercial or business transactions

4. GOVERNING LAW – governed by Art 1868-1932 NCC

5. LEGAL RELATIONSHIP
 Spouses Mamaril v. Boy Scout of the Philippines: There must be a principal-agent
relationship to make the former liable for the latter’s complained act.
 Rallos v. Felix Go Chan: 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

6. CONTRACT – A contract is a meeting of the minds between two parties whereby one
binds himself, with respect to the other, to give something or to render some service
(Art 1305)

ELEMENTS OF CONTRACT (Art 1318)
a. Consent – meeting of the minds of the parties (express or implied)

b. Object – subject matter; the execution of a juridical act in relation to third parties

c. Cause – essential and impelling reason why a party assumes an obligation; may be
onerous or gratuitous (not included in Rallos enumeration)
o Art 1875: Agency is presumed to be for compensation (onerous) unless
there is proof to the contrary
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o It is the party who avers the agency was gratuitous who has the burden of
proving such arrangement
o In the realm of commercial contracts, customary rule or practice imputes
that parties enter into commercial transactions for profit or remuneration. It
is presumed such is the case in agency

7. CHARACTERISTICS OF AGENCY
a. CONSENSUAL – based on the agreement of the parties (principal and agent) which
is perfected by consent
o Art 1869 NCC: Agency may be express or implied from the act of the
principal, his silence or lack of action, or failure to repudiate the agency
o Agency may be oral unless it requires a specific form
o Art 1870: Acceptance of the agent may be express or implied from his acts
to carry out the agency or from his silence or inaction according to the
circumstances

b. PRINCIPAL – it can stand by itself without need of another contract

c. NOMINATE – it has its own name
o Doles v. Angeles: If an act done by one person in behalf of another is in its
essential nature one of agency notwithstanding what s/he is called—it will
be an agency whether the parties understood the exact nature of the
relation or not
o Manila Memorial Park Cemetery v. Linsangan: whatever the parties name
the contractual relationship, when it has the essential elements of a
contract of agency, then it would be governed by the Law on Agency

d. UNILATERAL if it is gratuitous because it creates an obligation for only one of the
parties (agent); BILATERAL if it is for compensation because it gives rise to reciprocal
rights and obligations
o General Rule: Agency is onerous, where the agent expects compensation
for his services in the form of commissions
o Art 1875 NCC: An agency may be gratuitous but the one who alleges it was
gratuitous has the burden to prove it

e. PREPARATORY AND PROGRESSIVE – it is entered into as a means to an end, i.e. the
creation of other transactions or contracts
o An agency contact is merely a tool or medium resorted to achieve a
greater objective of being able to enter into juridical relations on behalf of
the principal

f. PERSONAL, REPRESENTATIVE AND DERIVATIVE – In Rallos, the personal, derivative
and representative nature of agency springs from the basic fact that the authority
of the agent to act emanates from the from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of authority
o Victorias Milling Inc v. CA: The strongest feature of a contract of agency is
control—that the agent is under the control and instruction of the principal

PRINCIPLES FOLLOWING FROM THE AGENCY CHARACTERISTICS OF PERSONAL,
REPRESENTATIVE AND DERIVATIVE
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(a) The contract entered into with third persons pertains to the principal and not
to the agent; the agent is a stranger to such contract, although he was the
one who personally entered into it in representative capacity
 The liabilities incurred shall pertain to the principal and not the agent
 The agent has neither rights or obligations from the resulting contract
 The agent has no legal standing to sue upon said contract
 Eurotech v Cuison: The agent who acts as such is not personally
liable to the party with whom he contract, unless he expressly binds
himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers
 Caram v. Laureta: When an agent purchases the property in bad
faith, the principal is deemed to be a purchaser in bad faith

(b) Generally, all acts that the principal can do in person, he may do through an
agent, except those which under public policy are strictly personal to the
person of the principal

(c) PNB v. Ritratto Groups Inc: A suit against the an agent in his personal capacity
cannot, without compelling reasons, be considered a suit against the
principal

(d) Air France v. CA: Notice to the agent should always be construed as notice
binding on the principal, even when in fact the principal never became
aware thereof

(e) DOCTRINE OF IMPUTED KNOWLEDGE: Knowledge of the agent is equivalent to
knowledge of the principal

EXCEPTIONS:
 Agent’s interests are adverse to those of the principal
 Agent’s duty is not to disclose the information, as where is informed
by way of confidential information; and
 The person claiming the benefit of the rule colludes with the agent
to defraud the principal

g. FIDUCIARY AND REVOCABLE – In Severino v. Severino, the relations of an agent ot
his principal are fiduciary in character because they are based on trust and
confidence, which must from the essential nature of agency that makes the agent
the representative of the principal
o Republic v. Evangelista: Generally, the agency may be revoked by the
principal at will since it is a personal contract of representation based on
trust and confidence
(a) 1435 NCC: Regarding property forming subject matter of the agency,
the agent is estopped from asserting or acquiring title adverse to that
of the principal
(b) Thomas v. Pineda: In a conflict of interest situation, the agent cannot
choose a course that favors himself to the detriment of the principal,
he must choose to the best advantage of the principal
(c) Art 1491(2) NCC: The agent cannot purchase for himself the property
of the principal which has been given to her management for sale or
disposition
UNLESS:
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 There is an express consent on the part of the principal or
 If the agent purchases the property after the agency is terminated

8. NATURE AND BASIS OF AGENCY
a. NATURE – Agency is a contract; as such the meeting of minds of the parties is
essential
o Manifestation of consent: The principal must intend that the agent shall act
on his behalf
o Agent, by legal fiction, becomes principal: The agent becomes the
principal authorized to perform all acts that the principal would have him
do
o Presence/absence of contract or consideration: Agency is usually
contractual but the relationship may also be created by operation of law
(e.g. agency by estoppel) or a person who acts for another as principal
may act gratuitously
b. BASIS – Agency is a representative relation (Art 1868 NCC)
o Personal contract of representation: representation is the basis of agency;
since the representation is based on trust and confidence, agency is
generally revocable (Art 1920, 1927 NCC)

9. PARTIES TO THE CONTRACT
a. PRINCIPAL – one whom the agent represents and from whom he derives his
authority
b. AGENT – one who acts for and represents another

B. AGENCY DISTINGUISHED FROM OTHER CONTRACTS
1. Agency as distinguished from Loan – where the relation between the parties is one of
lender and borrower, or principal and agent depends on their intention
o Where the money advanced is expressly regarded as money lent, no agency
results
2. Agency as distinguished from Lease Service (Management Agreement) – In agency,
the basis is representation while in lease of service, it is employment
o In agency, the agent exercises discretionary powers, while in lease of service,
the lessor (servant) ordinarily performs only ministerial functions
3. Agency as distinguished from Independent Contract – In agency, the agent is subject
to the control and direction of the principal with respect to the matters entrusted to
him. In a contract for a piece of work, the independent contractor, without being
subject to the control of the employer except only as to the result of the work, en
agency, the agent is subject to the control and direction of the principal with respect
to the matters entrusted to him. In a contract for a piece of work, the independent
contractor, without being subject to the control of the employer except only as to the
result of the work, exercises his employment independently
4. Agency as distinguished from Employment contract – The purpose of an employer-
employee relationship s to render service for the direct benefit of the employer or his
business. There is no element of representation in a contract of employment

C. ELEMENTS OF AGENCY
1. Consent – express or implied of the parties to establish the agency
 There must be a showing that the principal intended for the agent to act on his
behalf; on the part of the agent, it must be shown that the agent accepted the
agency and act on it
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 Dizon v. CA: Just because several persons are co-owners of the same property
does not make them agents to one another
 Victorias Milling Inc v. CA; Tuazon v. Heirs of Ramos: On the part of the principal,
there must be an actual intention to appoint or an intention naturally inferable from
his words or actions; and on the part of the agent, there must be an intention to
accept the appointment and act on it, in the absence of either, there is no agency

 EXCEPTION TO THE RULE: Agency by Estoppel
o Litonjua v. Eternit Corp: The principal manifested a representation of the
agent’s authority or knowingly allowed the agent to assume such authority
o The third person, in good faith, relied upon such representation
o Relying upon such representation, such third person has changed his
position to his detriment

CAPACITY OF THE PARTIES
o GENERAL RULE: The principal , whether natural or juridical person, must have
the capacity to contract
o If principal has no legal capacity to contract and his agents contract with
another = contract with third party is voidable
o If principal has legal capacity but agent has no legal capacity = agency is
voidable but contract with third party is valid
o Art 1919(3) NCC: If during the term of the agency, the principal or agent is
placed under civil interdiction, or becomes insane or insolvent, agency is
ipso jure extinguished
o The loss of legal capacity of the agent extinguishes the agency

2. Object – the execution of a juridical act in relation to third persons
 Obligation created by the agency is essentially an unilateral personal obligation ―to
do‖

3. Representation – The agent acts as representative and not for himself

4. Authority – The agent acts within the scope of his authority

NOTE: Representation and authority emphasize relationship of agency

ACTS THAT MAY BE/NOT BE DELEGATED TO AGENTS
a. Personal acts – if the personal performance is required by law or public policy or
the agreement of the parties, the performance of an act by an agent does not
amount to performance of the act by the principal
b. Criminal acts or acts not allowed by law – An attempt to delegate to another
authority to do an act, which if done by the principal would be illegal, is void

D. EFFECT OF AGENCY: INTEGTRATION AND EXTENSION
1. Authority to Act – Art 1881 NCC: The agent must act within the scope of his authority.
He may do such acts as may be conducive to the accomplishment of the purpose of
the agency
 Pacific Rehouse v. EIB Securities: The right to sell or dispose of the properties of
petitioners by EIB is unequivocally confined to the payment of obligations and
liabilities of petitioners to EIB and none other. Thus, when EIB sold the DMIC shares to
buy back the KPP shares, it paid the proceeds to the vendees of said shares, the
act of which is clearly an obligation to a third party and hence, beyond the scope
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M. Mejia

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of its authority as agent. Such an act is surely illegal and does not bind petitioners
as principals of EIB.

KINDS OF AUTHORITY
a. Actual -- when it is actually granted and it may be express or implied
b. Express – when it is actually conferred by words (Art 1869 NCC)
c. Implied – when it is incidental to the transaction or reasonably necessary to
accomplish the purpose of the agency (Art 1881 NCC)
d. Apparent or ostensible – by silence of the principal
e. General – When it refers to all the business of the principal (Art 1876)
f. Specific – When it is limited only to one or more specific transactions
g. Authority by necessity or by operation of law – When it is demanded by virtue of the
existence of an emergency; it terminates when the agency has passed (Art 1881-
1882 NCC)

WHEN PRINCIPAL BOUND BY ACT OF AGENT
a. Requisites
(1) The agent must act within the scope of his authority
(2) The agent must act in behalf of the principal

b. Authority possessed by agent – The principal is bound by either actual or apparent
authority of agent
(1) As long as the agent has authority, the principal is bound by the acts of the
agent on his behalf, whether or not the third party dealing with the agent
believes the agent has actual authority
(2) Under the DOCTRINE OF APPARENT AUTHORITY (ESTOPPEL), the principal is liable
to third persons who have been led to believe by the conduct of the principal
that such actual authority exists although none was given

2. Agent not real party-in-interest – The agent has neither rights nor liabilities as against the
third party. Thus, he cannot sue or be sued based on the contract.
 Angeles v. PNR: Where agency exists, the third party’s liability on a contract is to the
principal and not to the agent and the relationship of the third party to the
principal is the same as that in a contract in which there is no agent. Normally, the
agent has neither rights nor liabilities as against the third party. Thus, he cannot sue
or be sued based on the contract.

3. Notice to agent is notice to the principal – Under the DOCTRINE OF IMPUTED
KNOWLEDGE, the notice to agent is notice to the principal and not the other way
around.
 Sunace Intl Management Services Inc v. NLRC: The knowledge of the principal
cannot be imputed to his agent.

EXCEPTIONS:
a. Where the agent’s interests are adverse to those of the principal
b. Where the agent’s duty is not to disclose information as where he is informed by
way of confidential information
c. Where the person claiming the benefit of the rule colludes with the agent to
defraud the principal

PARTNERSHIP, AGENCY AND TRUST
M. Mejia

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4. Bad faith of the agent is bad faith of the principal – Applying the principle of agency, if
the agent acts in bad faith, the principal should also be deemed to have acted in bad
faith.
 Caram v. Laureta: There is no doubt then that Irespe and Aportadera, acting as
agents of Caram, purchased the property of Mata in bad faith. Applying the
principle of agency, Caram as principal, should also be deemed to have acted in
bad faith.

5. Extinguished by death – An act done by the agent after the death of the principal is
valid and effective only under two conditions:
a. That the agent acted without knowledge of the principal’s death; and
b. The third person who contracted with the agent himself acted in good faith

 Rallos v. Felix Go Chan: On the basis of the established knowledge of Rallos
concerning the death of his principal, Art 1931 is not applicable. The law expressly
requires lack of knowledge on the part of the agent of the death of the principal; it
is not enough that the third person acted in good faith.
 The Civil Code does not impose a duty on the heirs to notify the agent of the death
of the principal. What it provides in Art 1931 is that if the agent dies, his heirs must
notify the principal thereof. As such, the lack of notice of the death of the principal
on the TCT is not fatal to the cause of the estate of the principal.
 Art 1930 NCC – another exception to the extinguishment of agency by death of
principal


E. NATURE OF AGENCY: GENERAL AND SPECIAL

1. Distinguishing General Agency and Agency Couched in General Terms

a. As to scope: General Agency – In a general agency, the general agent is
employed to transact all the business of the principal, or to do all acts connected
with a particular trade, business, or employment

b. As to authority: Agency Couched in General Terms – It includes only acts of
administration and an express power is necessary to perform any other act strict
ownership even if the principal (1) withholds no power; (2) that the agent may
execute such acts as he may consider appropriate, or (3) the principal authorizes a
general or unlimited management

2. Distinguishing Special Agency and Agency Couched in Specific Terms

a. As to scope: Special Agency – In special agency, the agent is authorized to act in
one or more specific transactions, or to do one or more specific acts, or to act
upon a particular occasion

b. As to authority: Special Power of Attorney – An agent has special power of attorney
only when the act or contact enumerated under Art 1878 NCC has been literally
been ―named‖ in the grant of commission by the principal, i.e. the term of the
power must literally be or expressed for the commission to constitute a special
power of attorney

(a) Transactions covered (Art 1878)
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(1) To make such payments as are not usually considered as acts of
administration

(2) To effect novation which put an end to the obligations already in
existence at the time the agency was constituted

(3) To compromise, to submit questions to arbitration, to renounce the right to
appeal from a judgment, to waive objections to venue of an action or to
abandon a prescription already acquired

(4) To waive any obligation gratuitously

(5) To enter into contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration

(6) To make gifts, except customary ones for charity or those made to
employees in the business managed by the agent

(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration

(8) To lease any real property to another person for more than one year

(9) To bind the principal to render some service without compensation

(10) To bind the principal in a contract of partnership

(11) To obligate the principal as a guarantor or surety

(12) To create or convey real rights over immovable property

(13) To accept or repudiate an inheritance

(14) To ratify or recognize obligations contracted before the agency

(15) Any other act of strict dominion

o Veloso v. CA: While it is true that it was denominated as a general power of
attorney, a perusal thereof revealed that it stated an authority to sell. Thus,
there was no need to execute a separate SPA since the GPA had expressly
authorized the agent the power to sell the subject property

(a) Effect of Absence of specific authorization
 Cosmic Lumber v. CA: Art 1874 NCC provides that when the sale of a
piece of land or any interest thereon is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void. A
Special Power of Attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration. The express mandate
required by law to enable an appointee of an agency (couched) in
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general terms to sell must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the act mentioned. For
the principal to confer the right upon the agent to sell real property, a
power of attorney must so express the powers of the agent in clear
and unmistakable language
 Mercado v. Allied Banking Corp: Where powers and duties are
specified and defined in an instrument, all such powers and duties are
limited and are confined to those which are specified and defined,
and all other powers and duties are excluded.

(b) Effect of Specific authorization
 Veloso v. CA: A Special Power of Attorney can be included in the GPA
when it is specified therein the act or transaction for which the special
power is required.
 Bravo-Guerero v. Bravo: The requirement of SPA in Art 1878 refers to
the nature of the authorization, not to its form. Even if a document is
titled GPA, the requirement of SPA is met if there is a clear mandate
from the principal specifically authorizing the performance of the act

3. Clarifying the Terms
 Siasat v. IAC: A general agent is one authorized to do all acts pertaining to a
business of a certain kind or at a particular place, or all acts pertaining to a
business of a particular class or series. He has usually authority either expressly
conferred in general terms or in effect made general by the usages, customs or
nature of the business which he is authorized to transact. A special agent is one
authorized to do some particular act or upon some particular occasion. He acts
usually in accordance with specific instructions or under limitations necessarily
implied form the nature of the act to be done.

II. ESTABLISHING AGENCY

A. ORAL OR WRITTEN
1. Oral – Art 1869 NCC emphasizes the consensual nature of agency as agency may be
express or implied; or may be oral unless the law requires a specific form ]
 Air France v. CA: The circumstances that Air France personnel at the ticket counter
in the airport allowed the Ganas to leave is not tantamount to an implied
ratification of travel agent Ella’s irregular actuations. It should be recalled that the
Ganas left Manila the date before the expiration of their tickets and that ―other
arrangements‖ were to be made with respect to the remaining segments. Besides,
the validating stickers that Ella affixed on his own merely reflect the status of
reservations on the specified flight and could not legally serve to extend the validity
of a ticket or revive an expired one.

2. Written
 Art 1874 NCC requires that when a sale of a real property or any interest therein is
through an agent, it shall be made in writing otherwise the sale is void

a. Application
o Oesmer v. Paraiso Development Corp: The signature of the petitioners on
the Contract to Sell did not confer authority on Ernesto as agent authorized
to sell their respective shares. Art 1874 requires that a written authority
before an agent can sell an immovable
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M. Mejia

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b. Effect
o AF Realty v. Dieselman: 1874 NCC provides: When a sale of piece of land or
any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. Being a void contract, it is not
susceptible of ratification by clear mandate of Art 1409 NCC.

c. Form in case of Corporations
o AF Realty v. Dieselman: Sec 23 Corp Code expressly provides that the
corporate powers of all corporations shall be exercised by the Board of
Directors. Thus, contracts or acts of a corporation must be made either by
the Board of Directors of by a corporate agent duly authorized by the
Board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the performance
of authorized duties of such director, are held not binding on the
corporation.

B. EXPRESS/IMPLIED AGENCY AND AGENCY BY ESTOPPEL
1. Express Agency – An express agency is one where the agent has been actually
authorized by the principal either: (1) orally; or (2) in writing (Art 1869 NCC)

2. Implied Agency – The creation of implied agency is implied
a. As to the appointment of an agent by the principal
(a) From his acts
(b) From his silence or lack or action; or
(c) From his failure to repudiate the agency knowing that another person is
acting on his behalf without authority (Art 1869 NCC)

 Uniland Resources v. DBP: Neither can petitioner argue that an implied agency
existed. In the course of its dealings with DBP, it was always made clear to
petitioner that only accredited brokers may look for buyers on behalf of DBP. This
is not a situation wherein a third party was prejudiced by the refusal of DBP to
recognize petitioner as its broker. Art 1869 therefore, is not applicable in this case

b. As to the acceptance of agency by the agent
(a) From his acts which carry out the agency
(b) From his silence or inaction according to the circumstances (i.e., presence or
absence of the parties) Art 1870, 1871, 1872 NCC

3. Agency by Estoppel – Through estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon (Art 1431 NCC)

RATIFICATION ESTOPPEL
Rests on intention Rests on prejudice
Retroacts as if originally authorized Affects only relevant parts of the
transaction
Substance is confirmation of unauthorized
acts after it has been done
Substance is the principal’s inducement
for third party to act to his prejudice

REQUIREMENTS
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a. The principal manifested a representation of the agent’s authority or knowingly
allowed the agent to assume such authority
b. The third person, in good faith, relied upon such authority
c. Relying upon such representation, such third person has changed his position to
his detriment
 An agency by estoppel, which is similar to the doctrine of apparent authority,
requires proof of reliance upon the representations, and that, in turn, needs proof
that the representations predated the action taken in reliance
4. Distinguishing Implied Agency and Agency by Estoppel
IMPLIED AGENCY AGENCY BY ESTOPPEL
Principal is liable Person who is in bad faith is liable

 One who clothes another with apparent authority as his agent, and holds him out
to the public as such, cannot be permitted to deny the authority of such person
to act as his agent, to the prejudice of innocent third parties dealing with such
person in good faith.
 NOTE: Art 1911 NCC: Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers." In this case, there is a duly formed agency and
estoppel only applies to the excess of authority. This is an application of the
doctrine of apparent authority
 Woodchild Holdings Inc v. Roxas: It bears stressing that apparent authority is
based on estoppel and can arise from two instances: (1) the principal may
knowingly permit the agent to so hold himself out as having such authority, and in
this way, the principal becomes estopped to claim the agent does not have such
authority; or (2) the principal may so clothe the agent with the indicia or authority
as to lead a reasonably prudent person to believe that he actually has such
authority. There can be no apparent authority of an agent without acts or
conduct on the part of the principal and such acts or conduct of the principal
must have been known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as claimant and such must
have produced a change of position to its detriment.
 Professional Services v. Agana: Under the doctrine of apparent authority, the
question in every case is whether the principal has, by his voluntary act, placed
the agent in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in presuming
that such agent has authority to perform the particular act in question.
 In agency by estoppel, there is no agency. The alleged agent seemed to have
apparent or ostensible authority, but not real authority to represent another.

III. THE AGENT
IV. THE PRINCIPAL
V. THE THIRD PARTY DEALING WITH THE AGENT

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