You are on page 1of 17



Chapter 1
Nature, Form and Kinds of Agency

By the contract of agency, 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.

 The definition of Agency in this provision is very broad, hence, defective.

 What the agent really does for the principal is a Juridical Act and not merely a material
one. The agent may exercise discretionary powers.


 It is a contract—express or implied, upon a consideration or gratuitous undertaking, by
which one of the parties confides to the other the management of some business to be
transacted in his name or on his account, and by which that other assumes to do the
business and renders an account of it.
 A relationship which results from the manifestation of consent by one person to another
that the other shall act on his behalf and subject to his control, and consented by the
other so to act.
 An act which one person gives to another the power to do something for the principal
and in his name.


 It enables man 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.

GR: What a man may do in person, he may do thru another.

XPN: Acts that are strictly personal under the law (eg. Making of a Will)

 Principal  Onerous (generally)
 Nominate  A representative relation (generally)
 Bilateral  Not inherent/permanent
 Preparatory  A fiduciary relation based on trust and
 Commutative confidence
1. Principal (mandans, mandante)- he whom the agent represents and from whom the
agent derives authority; the one primarily concerned in the contract.
2. Agent (mandatarius, mandatario)- he who acts or stands for another; usually given full
or partial discretion but sometimes acts under a specific command; sometimes an agent
may have his own agent referred as sub-agent.


 Capacity to give consent; if any special capacity is needed, it is the principal who must
possess it and not the agent—the latter merely acts on the former’s behalf.
 May be a natural or juridical person
 An emancipated minor can be a principal
 A married woman can be a principal


 He must be able to bind himself but only insofar as his obligations to his principal are
 Insofar as third persons are concerned, it is enough that his principal be the one
capacitated because generally, an agent assumes no personal liability.

 A husband, as administrator of conjugal partnership is in that sense an agent who can bind
the conjugal property subject to legal restriction imposed by the law. Hence, should the
husband cause the conveyance of a conjugal real property without the needed consent of
the wife is VOIDABLE. The wife is given ten years within which to bring an action for
annulment. Ratification may of course, be made by the wife.
 The distinction between a commercial agency or commission and a civil agency has been
abolished. The Civil Code repealed the Code of Commerce provisions thereon. Hence,
whether the agency be for a civil or commercial purpose, it is now called civil agency
governed by the Civil Code.



An agent acts not for himself A partner acts for himself, for A borrower is given money
but for his principal. He may his firm and for his partners. for purposes of his own
be given funds by his which he must generally
principal to advance the return.
latter’s business.

1) Agent represents a capacitated person. 1) A guardian represents an incapacitated
2) Appointed by the principal and can be 2) Appointed by the court and stands in loco
removed by the latter. parentis.
3) Agent is subject to the directions of the 3) Guardian is not subject to the directions
principal. of the ward. He must only act for the
benefit of the latter.
4) Agent can make the principal personally 4) Guardian has no power to impose
liable. personal liability on the ward.


1) Agent is appointed by the principal. 1) Judicial administrator is appointed by the
2) Represents the principal. 2) Represents the court, the heir and
creditors of the estate
3) Generally, an agent does not file a bond. 3) Judicial administrator files a bond.
4) Agent is controlled by the principal thru 4) A judicial administrator’s acts are subject
their agreement. to specific orders of the court.


1) Agent is controlled by the principal. 1) Lease is not controlled by the lessor.
2) Agency may involve things other than 2) Lease of property obviously involves
property. property only.
3) Agent can bind the principal. 3) Lessee cannot bind the lessor.


1) Agent represents the principal 1) Worker or lessor of service does not
represent his employer.
2) Relationship can be terminated at will of 2) Generally, can only be terminated at will
either the principal or agent. of both parties.
3) Agent exercises discretionary powers. 3) Employee has ministerial functions.
4) Usually involves three persons: Principal, 4) Usually involves only two persons.
Agent and a Stranger.

NOTE: It must be understood that an agent may incidentally render

acts of service, while a lessor of services or employee may
incidentally make contracts.


1) Agent acts under the control of the 1) Independent contractor is authorized to
principal. do the work according to his own
method; control of the other party is
only insofar as the result of the work is
2) Agent of the agent may be controlled by 2) Employees of the contractor are not the
the principal. employees of the employer of the
3) Agent can bind the principal. 3) Ordinarily, the independent contractor
cannot bind the employer by tort.
4) Negligence of the agent is imputable to 4) Negligence of the independent
the principal. contractor is generally not imputable to
his employer.


1) A contract caused by a meeting of the 1) There is only a quasi contract, there
minds, expressly or impliedly. having been no meeting of the minds.
Representation was not agreed upon.
Once there is an agreement or
ratification, there arises an express
2) Agent is controlled by the principal. 2) The officious manager who must act
with due diligence, follows his judgment
and the presumed will of the owner.
3) The legal relation is created by the 3) The legal relation is created by the law,
parties. occasioned by the acts of the manager.

1) Agent usually holds no title at all. 1) Trustee may hold legal title to the
2) Usually, agent acts in the name of the 2) The trustee may act in his own name.
3) Usually, agent may be terminated or 3) The trust is usually ended by the
revoked at any time. accomplishment of the purposes for
which it was formed.
4) Agency may not be connected at all with 4) Trust involves control over property.
5) Agent has authority to make contracts 5) Trustee does not necessarily or even
which will be binding on his principal. possess such authority to bind the
trustor or the cestui que trust.
6) Agency is really a contractual relation. 6) A trust may be the result of the contract
or not; it may be created also by law.
1) Ownership of the goods is not 1) Ownership is transferred to the buyer
transferred to the agent. (after delivery).
2) Agent delivers the purchase price. 2) Buyer pays the price.

NOTE: If there is an agreement to return all unsold goods with no

obligation to pay for them, this is not a sale, but an agency to sell
or a contract of consignment.


1) The agent acquires ownership in behalf 1) The buyer acquires ownership for
of the principal. himself.
2) The agent must account for all benefits 2) The buyer who obtains a discount does
or discounts received from the seller. not have to reveal such fact to its own
3) The agent delivers the price. 3) The buyer pays the price.

1) Receives a commission upon the 1) Earns his pay merely by bringing the
successful conclusion of a sale. buyer and the seller together even if no
sale is eventually made.
2) One who is engaged, for others, on a
commission, negotiating contracts
relative to property with custody of
which he has no concern; negotiator
between other parties who never acts in
his own name but in the name of those
who employed him.

Agency may be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his
behalf without authority.

Agency may be oral, unless the law requires a specific form.

 According to Manner of Constitution
a) Express
b) Implied
– It could be implied from the:
 Acts of the principal;
 Principal’s silence;
 Principal’s lack of action;
 Principal’s failure to repudiate the agency.
 Art. 1871
– In these cases of implied agency, the principal knows that another person
is acting on his behalf without authority.

 According to Form
a) Oral
– such form is generally sufficient;
b) Written
– e.g. the law requires that when a sale of a piece of land or any interest
therein through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void. (Art. 1874)

Acceptance by the agent may also be express, or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances.

Between persons who are present, the acceptance of the agency may also be implied if the
principal delivers his power of attorney to the agent and the latter receives it without any

 Here the persons are “present”, either physically or conversing with each other through
mobile phone.

Between persons who are absent, the acceptance of the agency cannot be implied from the
silence of the agent except:
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 engaged as an agent, and he did not reply to
the letter or telegram.
 In Art. 1872 (1), just because the offeree did not reply does not mean that the agency has
been accepted. A good instance would be when the offeree writes a letter acknowledging
the receipt of the offer with no objection to the agency.
 Another instance of implied acceptance could be when the silent offeree begins to act
under the authority conferred upon him.

If a person specifically 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.


1) Special Information
2) Public Advertisement

– 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, and in the honest belief that he is what he appears to be.


1) If caused by the alleged agent, such 1) Agent is a true agent with rights and
agent is not a true agent, hence, he has duties of an agent.
no right as such.
2) If caused by the alleged principal, he is 2) Principal is always liable.
liable but only if the third person acted
on the misrepresentation.
3) If caused by the alleged agent, he is the 3) The agent is never personally liable.
only one liable and never the alleged

When a sale of a 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.

 Refers to the sale of a “piece of land” or “any interest therein”—such as usufruct,

easement, etc.
 The sale shall be void in case of non-compliance with this provision. Thus, the contract
cannot be ratified.

Agency is presumed to be for a compensation, unless there is proof to the contrary.

 In the absence of stipulation, the agent is entitled to compensation only after he has
completely or substantially completed his obligation as agent.
 Compensation may be contingent or dependent upon the realization of profit for the
principal. In case there is a stipulation to this effect.

– one who in behalf of others, and for a commission or fee, negotiates contracts relative
to property, the custody of which he has no concern
– he is strictly a middleman and for some purposes the agent of both parties
– one whose occupation is to bring parties together to bargain or to bargain for them in
matters of trade, commerce, or navigation;
– an agent but generally distinguishable from an agent because of the fact that his
authority is of special and limited character in most respects
– as to physical activities, he is an independent contractor

 If the broker does not succeed in bringing the mind of the purchaser and the vendor to
an agreement with reference to the terms of the sale, he is not entitled to a
 He is not entitled to a commission even if the sale can later on be effected between the
buyer and seller but through a different broker. The first broker can be called
unsuccessful even if it was he who first interested the purchaser in the sale, negotiated
with him, and even indirectly influenced him to come to terms if the fact remains that
he did not succeed in bringing about the sale.
 Even if there is no subsequent broker who intervened, still, if authority of the first
broker had already been withdrawn prior to the sale, such broker is not entitled to any
 He is not entitled to recover his expenses during the negotiations for the sale, such
having been incurred at his own risk, and in consideration of the commission agreed
 There are instances wherein the principal cannot revoke the authority given to a broker,
as when the negotiations through the broker’s efforts have reached such stage that it
would be unfair to deny the commission earned. The principal acts in bad faith if
revocation of authority is made only to evade the payment of the commission.
 A broker is entitled to a commission on a sale effected by the owner to the person
produced by the broker after the breaking of the original negotiations, if the breaking up
was a mere machination, and the sale was in fact brought about by what the broker had
 If the person introduced by the broker is not able, ready, and willing to buy on the terms
prescribed by the owner, the broker is not entitled to compensation on a sale
subsequently made on those terms by the principal to the same person through another

An agency is either general or special.

The former comprises all the business of the principal and the latter, one or more specific

 Distinguished based on the extent of the business covered.

 The more the special the power is, the more specific it is.

– it comprises all the business of the principal

– it comprises one or more specific transactions

An agency couched in general terms comprises only acts of administration, even if the
principal should state that he withholds no power or that the agent may execute such acts as
he may consider appropriate, or even though the agency should authorize a general and
unlimited management.

 An agency—whether general or special, may be classified according to the power or

authority conferred. Hence an agency may be:
 Couched in general terms
– comprises only acts of administration, even if the management be
apparently unlimited, and even if the principal states that he withholds
no power from the agent.
 Couched in specific terms
– through a special power of attorney; what is important is the nature of
the juridical act.

 A power given to an agent to sell ALL of the properties of the principal is a special power of
attorney, not an agency couched in general terms.


 To sue for collection of debts;
 To employ workers or servants and employees needed for the conduct of a
 To engage counsel to preserve the ownership and possession of the principal’s
 To lease real property to another for one year or less, provided that the same is not
 To make customary gifts for charity or to employees in the business managed by
the agent;
 To borrow money if it be urgent and indispensable for the preservation of the
things under administration.

GR: In order to sell, an agent must have a special power of attorney.

XPN: The act of selling itself is part of the administration, as in case of the sale of goods in a
retail store.

Special power of attorney are necessary in the following cases:

1) To make such payments as are not usually considered as acts of administration;

2) To effect novations which put to an end to obligations already existing 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 the venue of an action or to abandon a
prescription already acquired;
4) To waive any obligation gratuitously;
5) To enter into any 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 in a contract of partnership;
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.


– refers to a clear mandate—express or implied, specifically authorizing the performance
of the act;
– must therefore be distinguished from an agency couched in general terms;
– a general power of attorney may however, include a special power if such special power
is mentioned or referred to in the general power, e.g.: “I authorize you to sell ALL my
properties”—this does not need a special power to sell for each property involved, since
such special power has already been given.

 In general, the execution of a power of attorney does not need the intervention of any
notary public.
 The acts referred in this provision require SPA. These acts can be reduced to three, namely:
a) Acts of Strict Dominion or Ownership;
b) Gratuitous Contracts;
c) Contracts where personal trust or confidence is of the essence of the agreement.
 Aside from proving the existence of a SPA, it is also necessary for evidence to be presented
regarding the nature and extent of the alleged powers and authority granted to the agent.
 SPA is required because the acts enumerated are not mere acts of administration

ART. 1878 (1)

 “To make such payments as are not usually considered as acts of administration”
 If the payment is usually considered an act of administration, no SPA is needed.
 Note however, that some acts of administration carry with them the exercise of acts
of dominion.
ART. 1878 (2)
 “To effect novations which put to an end to obligations already existing in existence at
the time the agency was constituted”
 Here, the obligations must already be existing at the time of the constitution of the
ART. 1878 (3)
 “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”
 There are five different powers mentioned in here. A right regarding one is not
enough to grant the others.
ART. 1878 (4)
 “To waive any obligation gratuitously”
 Similar to remission or donation
ART. 1878 (5)
 “To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration”
 This refers only to immovable
 An example would be to buy or to sell land.
 When an agent’s power to purchase is general and unrestricted, he has implied
authority to do whatever is usual and necessary in the exercise of such power;
 When the agency is special, or is restricted to purchases upon certain terms and
conditions, the agent has no authority to purchase upon different terms and
conditions from those authorized or to modify or rescind a contract of purchase
made by the principal.
ART. 1878 (6)
 “To make gifts, except customary ones for charity or those made to employees in the
business managed by the agent”
 The making of customary gifts is considered here as an act of administration only.
ART. 1878 (7)
 “To loan or borrow money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration”
 The exception here refers to the latter act—to borrow, not to loan.
 A SPA may be executed in favor of an agent authorizing him to borrow money and
use of subject lot as security. (Naawan Community Rural Bank, Inc. v. CA)
ART. 1878 (8)
 “To lease any real property to another person for more than one year”
 If the lease of real property is for one year or less, the act merely an act of
ART. 1878 (9)
 “To bind the principal to render some service without compensation”
 The reason why SPA is needed is because the contract is gratuitous.
ART. 1878 (10)
 “To bind the principal in a contract of partnership”
 The reason why SPA is needed is because the principal has to personally have trust
and confidence in the proposed partners.
ART. 1878 (11)
 “To obligate the principal in a contract of partnership”
 The power to execute a contract of so exceptional a nature as a contract of
suretyship or guaranty cannot be inferred from the general words contained in a
power of attorney. (Director of Public Works v. Sing Juco, et al.)
ART. 1878 (12)
 “To create or convey real rights over immovable property”
 Examples include: to mortgage, to create an easement

A special power to sell excludes the power to mortgage, and a special power to mortgage
does not include the power to sell.


 Power to find purchaser or to sell directly;
 Power to deliver the property;
 Power to make the usual representation and warranty;
 Power to execute the necessary transfer documents—e.g. the execution of the
contract of sale itself;
 Power to fix the terms of the sale—the place, time, mode of delivery, the price,
mode of payment, unless there be set conditions stipulated by the principal.
 Power to sell only for cash—in the absence of special authority, the authority to sell
does not give agent the authority to sell on credit. Otherwise, the principal may
demand from him payment in cash (or ratify the same);
 Power to receive the price, unless he was authorized only to solicit orders;


 To barter or to exchange;
 To mortgage or to pledge.


 To sell;
 To execute a second mortgage;
 To mortgage for the agent’s personal benefit or for the benefit of any third person
unless contrary has been clearly indicated;

 The power to foreclose is not an ordinary agency that contemplates exclusively the
representation of the principal by the agent but is primarily an authority conferred upon the
mortgagee bank for the latter’s own protection. The right of a mortgagee to extrajudicially
foreclose the mortgage after the death of the mortgagor, acting through his attorney-in-
fact, did not depend on the authorization in the deed of mortgage executed by the latter.
The right existed independently of said stipulation and is clearly recognized in Sec.7, Rule 86
of the Rules of Court. (Bicol Savings and Loan Association v. CA)

A special power to compromise does not authorize submission to arbitration.


 An agent authorized to compromise can do anything which the principal himself can do
to effect a settlement unless there is a contrary legal provision, as in this article.
 A special power to submit to arbitration does not authorize the power to compromise.

 A principal may authorize his agent to compromise because of absolute confidence in
the latter’s judgment and discretion to protect the former’s rights and obtain from him
the best bargain in the transaction.
 If the transaction would be left in the hands of an arbitrator, said arbitrator may not
enjoy the trust of the principal. A fundamental principle of agency shall have been
violated—that an agent must possess the trust and confidence of the principal.
 The arbitral award binds the principal, provided that the agent acted within the scope of
his authority.
 If the principal had specifically designated who the arbitrators should be, the agent has
no authority to submit the question to other arbitrators.
 However, when no designation had been made by the principal and on the contrary the
agent was authorized to submit the controversy to anyone, it was held that the agent
could agree to an arrangement for the appointment of additional arbitrators; moreover,
it would be permissible for the agent to agree that an award could be validly made by
less than the full member of the arbitrators selected. (Security Livestock Ins. Association
v. Brigg)

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.


1. Agent must act within the scope of his authority
2. Agent must act in behalf of his principal

 An agent may act under the two conditions giver, or under only one of them, or neither. In
which case, four instances may arise:
a) The agent acts with authority and in behalf of the principal
b) The agent acts with authority but in behalf of himself (not the principal)
c) The agent acts without authority but in behalf of a “principal”
d) The “agent” acts without authority and in his own behalf (not the principal)

 In letters (c) and (d), “agent” and “principal” are not really such.



principal is bound; agent is UNENFORCEABLE but may be
not personally liable unless ratified, in which case it may
he personally bound himself. be validated from the very
beginning. (Art. 1407)
EXAMPLE: P authorized A to
sell his car. A sold it in P’s EXAMPLE: Without P’s
name. authority, A sold P’s car to a
buyer in P’s behalf. Insofar as
P is concerned, the
transaction is unauthorized,
thus, unenforceable unless P
ratifies the same. Without
ratification, the buyer can
have a claim only against the
alleged agent A. But if P
ratifies, it is not P who will
have to deal with the buyer.
AGENT’S BEHALF Art. 1883 applies. Generally, VALID whether or not the
NOT BINDING ON THE subject matter belongs to the
PRINCIPAL; agent and principal, provided that at
stranger are the only parties the time the delivery is to be
except regarding things made, the agent can transfer
belonging to the principal. legally the ownership of the
thing. Otherwise, he will be
EXAMPLE: In the same held liable for such breach of
scenario, A sold the car in his warranty against eviction.
own name without disclosing Art. 1883 does not apply.
who the principal was. (Nat. Bank v. Agudelo)
Ordinarily, A can only have
recourse against the buyer, EXAMPLE: A, without P’s
vice versa, applying Art. authority and representing
1883. But since the car himself to be the owner of
belonged to P, P can have P’s car, sold it to a buyer. The
recourse against the buyer sale is valid provided that at
and vice versa. But this is the time of the delivery, A
without prejudice to the can transfer legally the
actions between P and A. ownership of the car.
Otherwise, there is breach of
warranty against eviction. In
this case only A is liable to an
innocent purchaser. Art.
1883 does not apply because
the said provision
presupposes authority.

– the right of the agent to effect the legal relations of his principal by the performance
effectuated in accordance with the principal’s manifestation of consent.

a) Express- authority is clearly defined;
b) Implied- includes necessary acts to accomplish the purpose the purpose; example, if an
agent is authorized to collect a debt, he usually is also impliedly authorized to employ an
attorney as counsel, and to bring suit for the enforcement of the payment;
c) General- agent’s discretion is complete;
d) Special- particular instructions are given;
e) Apparent- the agent or a third person was led by the principal’s conducts or words to
believe that the agent was really authorized, when in fact he was not. As if there really
was authority.

 If an agent is authorized to conduct a business involving the acceptance of checks or notes,

there is naturally an implied authority to accept and indorse such commercial paper as will
come to the agent in the course of the business.


 Strictly speaking, an agency can never be created by necessity.
 What is meant by the phrase is that by virtue of the existence of an emergency, the
authority of an agent is correspondingly enlarged in order to cope with the exigencies or
the necessities of the moment.


1. Real existence of an emergency;
2. Inability of the agent to communicate with the principal;
3. Exercise of the additional authority for the principal’s own protection;
4. Adoption of fairly reasonable means, premises duly considered;
5. Ceasing of the authority the moment the emergency no longer demands the same.

 Authority may be considered the cause, it emanates from a principal and is given to the
agent who thus becomes empowered.
 Power is the effect, which may be expressed, implied or incidental.


1. Principal affects only third persons 1. Concern only the principal and the
because if the act is done outside the agent.
scope of the agent’s authority, the
principal is not bound.
2. Third persons must therefore verify or 2. Third persons do not have to investigate
investigate the authority. or verify the instructions.

Note: If a persons makes an inquiry, he is

chargeable with knowledge of the agent’s
authority, and his ignorance of the authority
will not be any excute.
The limits of the agent’s authority shall not be considered exceeded should it have been
performed in a manner more advantageous to the principal than that specified by him.

 This is justified because of the greater benefit that would accrue to the principal.
 “Advantageous”, however does not only refer to a financial gain, which may be offset by a
moral or ethical loss.

Example: If the agent was asked to sell on the installment plan an object for P100,000.00 but he
is able to get P100,000.00 cash for the object, he is deemed not to have exceeded his authority.

 An agent should not sell things received by him from his principal at a price less than that
fixed by the latter. But there is no prohibition against his selling the goods at a better price,
if said price can be obtained. The conditions of the sale, however, must remain unaltered.
 Authorization to sell for cash does not carry with it authorization to sell on credit, even if by
such device a higher price can be obtained.

If an agent acts in his own name, the principal has no right of action against the persons 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, except when the contract involves things
belonging to the principal.

The provisions of this article shall be understood to be without prejudice to the actions
between the principal and agent.


 Agent was authorized but instead of acting in behalf of the principal, he acts in his own

 Art. 1883 does not apply if the agent was unauthorized or he acts in excess of his authority.