Partnership, Agency, and Trust

Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

Chapter 1 1) Nature – Contract

a) Manifestation of consent - principal must intend that the agent shall act for
NATURE, FORM, AND KINDS OF AGENCY him, agent must intend to accept
b) Agent, by legal fiction, becomes principal – the agent becomes the principal
ART. 1868 authorized to perform all acts which the latter would have him do.
Concept of agency c) Presence/absence of contract or consideration - the relationship may be
one person is employed to render service for another, excludes, however, from its created by:
concept the relationship of employer and employee, of master and servant, and of i) operation of law
employer and independent contractor. ii) person who acts for another as principal may do so gratuitously
Agency is a fiduciary relationship 2) Basis - representative relation.
a) Personal contract of representation – generally revocable.
Governing law b) Acts of agents, by legal fiction, acts of principal – acts of the agent produce
Present: New Civil Code the same legal and binding effect as the acts of principal.
Before: Civil Code and Code of Commerce
3) Purpose - extend the personality of the principal through the facility of the agent.
Term used in other senses
a) place at which the business is transacted Parties to the contract
b) instrumentality by which a thing is done 1) Principal
c) exclusive right of a person to sell a product of another in a specific territory 2) Agents
Characteristics of a contract of agency Essential elements of agency
a) Consensual 1) Consent
b) Principal 2) Object
c) Nominate 3) Agent acts as a representative
d) Unilateral 4) Agent acts within the scope of his authority
e) Bilateral
f) Preparatory Note: Parties must be competent to act as principal and agent.
Nature, basis, and purpose of agency Relationship of third party with principal and agent
broadest meaning: contract and a representative relation 1. Third party’s liability on such contract is to the principal not the agent.
Enforceable to the principal not the agent.

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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

2. Where an agency exists, the relationship of the third party with whom the e) Agent cannot delegate to sub-agent the performance of acts which he has been
agent has contracted, to the principal, is the same as that in a contract in which appointed to perform in person.
there is no agent. 2) Criminal Acts or acts not allowed by law

Capacity of Parties Determination of existence of agency

1) Principal - Must be capacitated; or have the legal capacity to enter into contract in Most circumstances: No formality is required.
his own right.
a) May be a: The question of whether an agency has been created is ordinarily a question which may
i) Natural person be established in the same way as any other fact, either by direct or circumstantial
ii) Juridical Person evidence. The question is ultimately one of intention.
b) Enemy alien may not appoint an agent to act in the belligerent territory with 1) Designation of parties
which his nation is at war. 2) Fact of existence
c) Capacity to act by an agent depends in general on the capacity of the principal 3) Presumption of existence
to do the act himself if he were present. 4) Intention to create relationship
5) As between the principal and a third person
2) Agent
a) anyone can be an agent Nature of relation between principal and agent
b) Capacity: 1) Relations fiduciary in character
i) Usually immaterial 2) Agent estopped from asserting interest adverse to his principal
c) Assumes no personal liability 3) Agent must not act as an adverse part
d) Does not possess full capacity to act for himself insofar as third persons are 4) Agent must not act for an adverse party
concerned 5) Agent must not use or disclose secret information
e) Derives his authority from the principal
Knowledge of agent imputed to principal
Acts that may be/not be delegated to agents. 1) Agents’ duty of notification
General Rule: What a man may do in person, he may do thru another 2) Relationship of attorney and client
What cannot be delegated: 3) Knowledge of the principal
1) Personal Acts
a) Right to vote; Exception to the rule
b) Making of a will; 1) agent’s interests are adverse to those of the principal
c) Statements required under oath; 2) agent’s duty is not to disclose the information
d) Member of the board of directors or trustees’ right to attend board meetings 3) person claiming the benefit of the rule colludes with the agent to defraud the
principal
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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

Agent subject to principal control Agency distinguished from lease

1) Subject matter of agency – agent agrees to act under the control or direction
of another (principal). Agent is subject to his principal’s control with respect Agency Lease
to the matters relevant to the agency relationship Basis is representation Lease of service: Basis is employment
2) Act of agent - The extent of the principal’s control over the agent’s acts Agent exercises discretionary powers lessor (like a servant) ordinarily performs
varies both with the type of the agency relationship and the facts of the only ministerial functions
particular case. But the general rule is that the principal may direct the acts three persons are involved (principal, only two persons are involved (lessor and
of his agent even though the principal has promised not to do so. agent, third person) lessee)
Relates to commercial or business Relates to matters of mere manual or
Agency distinguished from loan transactions mechanical execution

Agency Loan Agency distinguished from partnership

Financing of operations to be carried on One borrows money to conduct a A contract of partnership is a contract of agency, and it differs from a pure agency in
by another for the mutual advantage of business and the lender has no interest that while an agent acts only for his principal, a partner acts not only for his co-partners
both without any obligation of such or concern in the manner of its conduct. and the partnership but also as principal of himself.
other
to return the money advanced The agency which results from the relation of partnership is of a peculiar kind, sui
An agent may be given funds by the a borrower is given money for purposes generis, and must be distinguished sharply from the ordinary concept of agency in two
principal to advance the latter’s business of his own and he must generally return important respects:
it whether or not his own business is 1) Control by the principal - An essential characteristic of the agency relationship, i.e.,
successful control by the principal, which is not applicable to the partnership concept.
2) Liability of the agent - A partner acting as agent for the partnership binds not only
checks are deposited with a collecting creditor and debtor relationship is
the firm members but himself as well, while the ordinary agent assumes no personal
bank. bank is to collect from the created between the depositor and the
liability where he acts within the scope of his authority.
drawees of the checks the corresponding bank
3) Sharing of profits - If, when earned, the profits belong to all the parties as common
proceeds
proprietors in agreed proportions, the relation is one of partnership, but if the
When one deposits money with a bank with instructions to apply it in satisfaction alleged owner or partner takes his agreed share of profits, not as owner but as an
of the debt of a third person, the conventional “debtor and creditor relationship” agreed measure of compensation for his services or the like, the relation is one of
between the bank and the depositor is created, coupled with an “agency” on the agency.
part of the bank to pay the debt, which is revocable at the will of the depositor

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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

Agency distinguished from negotiorum gestio agent as to third parties, where, for example, he is vested with ostensible authority to
In both agency and negotiorum gestio there is representation. sell or to make binding contracts with respect to the subject matter of the bailment.

Agency Negotiorum Gestio Agency distinguished from guardianship

Representation is expressly conferred. Representation is without the authority Agency Guardianship
and knowledge of the owner of the agent derives his authority from his he acts for and on behalf of his ward,
business. principal. does not derive his authority so to act
Agents acts according to the express will The gestor acts according to the from the ward.
of the principal. presumed will of the owner of the relation of principal and agent is founded Relation of guardian and ward may be
business. upon consent of the parties thereto. created irrespective of the consent or
Contract Quasi-contract capacity of the ward.
Agents are subject to the control of their guardians are not subject to the direction
Agency distinguished from brokerage
principals. of their wards.
A broker is one who is engaged for others on a commission a negotiator between other
parties, never acting in his own name but in the name of those who employed him. A legal guardian is substituted by law. an agent is the appointee of the principal
Brokerage refers to the trade or occupation of the broker. and his power may at any time be
abrogated or modified by the principal.
Agency distinguished from sale An agent represents one who has A guardian represents one who has no
Agency to sell Sale capacity to contract for himself where he such capacity.
the agent receives the goods as the goods the buyer receives the goods as owner. present.
of the principal.
the agent delivers the proceeds of the sale the buyer pays the price Agency distinguished from trust
the agent can return the object in case he The buyer, as general rule, cannot return
is unable to sell the same to a third the object sold. Agency Trust
person. The agent represents and acts for his Title and control of the property under
the agent, in dealing with the thing the buyer can deal with the thing as he principal. the trust instrument passes to the trustee
received, is bound to act according to the pleases, being the owner. who acts in his own name.
instructions of his principal. May in general be revoked at any time. May ordinarily be terminated only by the
fulfillment of its purpose.
Agency distinguished from bailment
The bailee is possessed of no power to bind the bailor in personal liability and he owes
neither loyalty nor obedience to the bailor. A bailee, however, may be constituted an

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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

ART. 1869 Presumption of agency

Kinds of agency General rule: agency is not presumed.
1) Manner of creation Exception: presumption of agency may arise:
a) Express 1) Operation of law
b) Implied 2) To prevent unjust enrichment
2) Character
a) Gratuitous Authority of attorney to appear on behalf of his client
b) Compensated or onerous 1) Authority in an action presumed - An attorney is presumed to be properly
3) Extent of business covered authorized to represent any cause in which he appears
a) General 2) Scope of authority - An act performed by counsel within the scope of a ‘general or
b) Special implied authority’ is regarded as an act of the client.
4) Authority conferred a) Where reckless or gross negligence of counsel deprives the client of due process
a) Couched in general terms of law
b) Couched in specific terms b) When its application will result in outright deprivation of the client’s liberty or
5) Nature and effects property; or
a) Ostensible or representative c) Where the interests of justice so require.
b) Simple or commission 3) Authority outside court - measured by the same test as that which is applied to an
ordinary agent.
Form of agency
General rule: No formal requirements. ART. 1870
Authority Form of acceptance by agent
1) May be: Acceptance may be:
a) Written 1) Express
b) Oral a) Written
2) May be in: b) Oral
a) Public writings 2) Implied
b) Private writings a) Acts
Exception: when the law requires a specific form. b) Silence or inaction

ART. 1871
Acceptance between persons present
The agency is impliedly accepted if the agent receives a power of attorney from the
principal himself personally without any objection, both being present.
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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

ART. 1874
Between 2 persons who are present - acceptance is deemed implied when the agent Sale of land through an agent
receives a power of attorney from the principal himself personally without objection. General rule: Agent’s authority may be oral or written

A power of attorney is an instrument in writing by which one person, as principal, Exception: the sale of a piece of land or any interest thereon through an agent is void
appoints another as his agent and confers upon him the authority to perform certain unless the authority to sell is in writing
specified acts or kinds of acts on behalf of the principal.
ART. 1875
ART. 1872 Agency is presumed to be for a compensation, unless there is proof to the contrary.
Between persons who are absent Liability of principal to pay compensation
• Acceptance not deemed implied from the silence of the agent. Amount
Compliance by agent with his obligations
ART. 1873 Procuring cause of the transaction
Communication of existence of agency Evasion of commission in bad faith
1) special information Compensation contingent on profits
2) public advertisement Reduction by principal of overprice
Manner of revocation of agency Commission payable by owner of property sold
The power of attorney must be revoked in the same manner in which it was given. Grant of compensation on equitable ground
Right of agent’s companion to compensation
Estoppel to deny agency Termination of agency contract
1) Estoppel of agent Validity of exclusive sales agency agreement
2) Estoppel of principal Sale through another agent
a) As to agent - one who knows that another is acting as his agent and fails to
repudiate his acts or accepts the benefits of them. General Rule: Double agency is not allowed. Such agency is disapproved by law for
b) As to sub-agent – principal must have known or be charged with knowledge of being against public policy and sound morality.
the fact of the transaction and the terms of the agreement between the agent and
sub-agent. Exception: Where the agent acted with full knowledge and free consent of the
c) As to third persons - one who knows that another is acting as his agent or principals.
permitted another to appear as his agent, to the injury of third persons who have In case the agent assumes a double agency:
dealt with the apparent agent as such in good faith and in the exercise of 1) If with knowledge of both principals – recovery can be had from both.
reasonable prudence. 2) If without knowledge of both – agent can recover from neither.
3) Estoppel of third persons
4) Estoppel of the government
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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

3) If with knowledge of only one – as to the principal who knew of that fact and as to Extent toBy an act within the scope of his Cannot in a manner beyond or
the agent, they are in pari delicto and the courts shall leave them as they were, the which agent authority although it may be outside the specific acts w/c he is
contract between them being void as against public policy and good morals. may bind contrary to his special authorized to perform.
principal instructions.
ART. 1876 Termination Apparent authority does not Termination effective as to third
Classes and kinds of agents of authority terminate by mere revocation of party unless agency was for
1) Universal agent - one employed to do all acts that the principal may personally do, authority without notice to third purpose of contracting w/ that
and which he can lawfully delegate to another the power of doing. parties. third party.
2) General agent - one employed to transact all the business of his principal, or all Construction Merely advisory. Strictly construed. Limits the
business of a particular kind or in a particular place, or in other words, to do all acts, of authority of agent.
connected with a particular trade, business, or employment. instructions
3) Special or particular agent - one authorized to act in one or more specific of principal
transactions, or to do one or more specific acts, or to act upon a particular occasion.
ART. 1877
Special types of agent An agency couched in general terms may be a general agency or a special agency. It
a) Attorney at law includes only acts of administration and an express power is necessary to perform any
b) Auctioneer act of strict ownership.
c) Broker
d) Factor Meaning of acts of administration
e) Cashier in bank Those which do not imply the authority to alienate for the exercise of which an express
f) Attorney-in-fact power is necessary.
a) To sue for collection of debts;
Attorney-in-fact b) To employ workers or servants and employees needed for the conduct of
One who is given authority by his principal to do a particular act not of a legal character. business;
General Agent Special Agent c) To engage counsel to preserve the ownership and possession of the principal’s
Scope All acts connected w/ the Only one or more specific acts in property;
business in which he is engaged. pursuance of particular d) To lease real property to another person for 1 year or less, provided the lease is
instructions or w/ restrictions not registered;
necessarily implied from the act e) To make customary gifts for charity or to employees in the business managed
to be done. by the agent
Nature of Series a transactions involving a Single transaction or a series of f) To borrow money if it be urgent and indispensable for the preservation of the
service continuity of service. transactions not involving things under administration.
authorized continuity of service.
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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

Construction of contracts of agency To obligate principal as guarantor or surety.

a) Interpreted in accordance with the language used by the parties. By the contract of guaranty, the guarantor binds himself to fulfill the obligation of the
b) The real intention of the parties is primarily to be determined from the language principal debtor in case the latter should fail to do so. If the person binds himself
used and gathered from the whole instrument. solidarily, he is a surety and the contract is called a suretyship.
c) In case of doubt, resort must be had to the situation, surroundings, and relations
of the parties. Any person having the free disposal of his property may accept or repudiate an
d) The intention of the parties must be sustained rather than be defeated. inheritance.
e) The acts of the parties in carrying out the contract will be presumed to have
been done in good faith and in conformity with and not contrary to the intent of ART. 1879
the contract. Scope of authority to sell/mortgage
The power to:
ART. 1878 a) Find a purchaser or to sell directly;
When special powers are necessary b) Deliver the property;
a) Acts of strict dominion c) Make the usual representation and warranty;
b) Construction of powers of attorney d) Execute the necessary transfer documents;
c) Nature, not form of authorization e) Fix the terms of the sale unless there be set conditions stipulated by the principal;
f) Sell only for cash;
Payment - the delivery of money or the performance in any other manner of an g) Receive the price unless he was authorized only to solicit orders.
obligation. It is an act of ownership because it involves the conveyance of ownership
of money or property. Not included:
a) Sell;
Novation - the extinction of an obligation through the creation of a new one which b) Execute a second mortgage;
substitutes it by changing the object or principal conditions thereof, substituting a c) Mortgage for the agent’s personal be.
debtor, or subrogating another in the right of the creditor.
ART. 1880
Gift or donation - an act of liberality whereby a person disposes gratuitously of a thing A special power to compromise does not authorize submission to arbitration
or right in favor of another who accepts it. An agent without special power from the An agent is not authorized to submit to arbitration because while the principal may
principal cannot make gifts. have confidence in the agent’s judgment, the arbitrator designated may not possess the
trust of the principal.
To loan or borrow money
The borrower “is bound to pay to the creditor an equal amount of the same kind and ART. 1881-1882
quality.” Authority - the power of the agent to affect the legal relations of the principal by acts
done in accordance with the principal’s manifestation of consent to him
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Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)
Kinds of authority
a) Actual - when it is actually granted, and it may be express or implied. It results
from what the principal indicates to the agent.
b) Express – when directly conferred by words.
c) Implied - when it is incidental to the transaction or reasonably necessary to
accomplish the purpose of the agency, and therefore, the principal is deemed to
have actually intended the agent to possess.
d) Apparent or ostensible - when it is conferred by words, conduct or even by the
silence of the principal which causes a third person reasonably to believe that
a particular person, who may or may not be the principal’s agent, has actual
authority to act for the principal. Ostensible authority is another name for
authority by estoppel.
e) General - when it refers to all the business of the principal.
f) Special - when it is limited only to one or more specific transactions.
g) By necessity or by operation of law - when it is demanded by virtue of the
existence of an emergency; it terminates when the emergency has passed.
When principal bound by act of agent
Requisites:
a) The agent must act within the scope of his authority
b) The agent must act in behalf of the principal
Authority possessed by the agent:
• So long as the agent has actual authority the principal is bound by the acts of
the agent on his behalf.
• Doctrine of apparent authority (estoppel) - The principal is liable only as to third
persons who have been led reasonably to believe by the conduct of the principal
that such actual authority exists, although none has been given.
Authority ratified by another principal
On occasion, a person, who is in fact not an agent, may make a contract on behalf of
another, or he is an agent but he has exceeded his powers.
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When a person not bound by the act of another
a) The latter acts without or beyond the scope of his authority in the former’s
name; and
b) The latter acts within the scope of his authority but in his own name, except
when the transaction involves things belonging to the principal.
Note: One who acts in his own behalf without authority from another, binds himself
alone.
Where acts in excess of authority more advantageous to principal.
The agent is not deemed to have exceeded the limits of his authority should he perform
the agency in a manner more advantageous to the principal than that indicated by him.
Liability of principal/agent for acts of agent beyond his authority or power
Principal
General Rule: the principal is not bound by the acts of an agent beyond his
limited powers.
Exceptions:
a) Where his (principal’s) acts have contributed to deceive a third person
in good faith;
b) Where the limitations upon the power created by him could not have
been known by the third person;
c) Where the principal has placed in the hands of the agent instruments
signed by him in blank;
d) Where the principal has ratified the acts of the agent.
Agent
Agent is personally liable either to the principal or to the third party.
a) If the principal is liable to the third party on the ground of apparent authority,
the agent’s liability is to the principal.
b) If the principal is not liable to the third person because the facts are such no
apparent authority is present, then the agent’s liability is to the third party.
San Beda College - Alabang
Partnership, Agency, and Trust
Nature, Form, and Kinds of Agency (ART. 1868 to 1883)

c) If the agent personally assumes responsibility for the particular transaction,

if the principal defaults he, in effect, also becomes obligated as a co-
principal.

Who to sue?
Action must be brought by and against principal.

ART. 1883
Kinds of principals
1) Disclosed principal
2) Partially disclosed principal
3) Undisclosed principal

Agency with undisclosed principal

1) General Rule: where the agent being authorized to act on behalf of the principal,
acts instead in his own name. In such case, the general rule is that the agent is the
one directly liable to the person with whom he had contracted as if the transaction
were his own.
2) Exception: When the contract involves things belonging to the principal. The
contract is considered as entered into between the principal and the third person.
a) Rationale: protection of third persons against possible collusion between the
agent and the principal.
3) Remedy of the principal - The purchaser takes title to the merchandise and the
principal cannot maintain an action against him for the recovery of the merchandise
or for damages, but can only proceed against the agent.
4) Remedy of third persons - third person has a right of action not only against the
principal but also against the agent, when the rights and obligations which are the
subject-matter of the litigation cannot be legally and juridically determined without
hearing both of them.

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