Modified Syllabus-based Notes & Reviewer

(A P T)

A. LAW ON AGENCY

I. Introductory Concept of Agency

1. Definition:
a) Under Art. 1868, NCC - By 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.
b) Other Definitions:
- A contract either express or implied upon a consideration, or a 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 the other assumes to do the business and renders an
account of it.
- It is the 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.
- It is an act which one person gives to another the power to do something for the principal and in
his name.
2. Elements: (CORS)
a) Consent (express or implied) of the parties to establish the relationship;
b) The Object is the execution of a juridical act in relation to third persons;
c) The agent acts as a Representative and not for himself; and
d) The agent acts within the Scope of his authority.
3. Parties to a contract of agency:
a) Principal – One whom the agent represents and from whom he derives authority; he is the one
primarily concerned in the contract.
b) Agent – One who acts, stands, or represents another (the principal) in a transaction or business.
Usually, he is given full or partial discretion, but sometimes he acts under a specific command.
Note: From the time the agent acts or transacts the business for which he has been employed in
representation of another, a third party is added to the agency relationship – the party with whom the
business is transacted.
4. Acts that may be/may not be delegated to agents:
General Rule: What a man may do in person, he may do through another.
EXCEPT:
a) Personal acts – personal performance is required by law or public policy or agreement of the
parties, the doing of the act by a person on behalf of another does not constitute performance of
the latter. (i.e. right to vote, making a will, making under oath statements, attending board
meetings of corporations, and agent to sub-agents performance of personal acts).
b) Criminal or illegal acts – an attempt to delegate to another authority to do an act which if done
by a principal is illegal is void.
5. What are acts of administration?
- Those acts made by an agent which are expressly authorized by the principal or those being done in
the ordinary course of management in a business managed by the former.

6. Knowledge of agent imputed to principal –

(General Rule: Knowledge of agent is knowledge of principal)
a) Agent’s duty of notification – agent is required to notify the principal of all matters that come to his
attention that are material to the subject matter of the agency.

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 b) Relationship of attorney and client – being a relationship of confidence, there is ever-present need
for the latter being adequately and fully informed of the mode and manner in which his interests are
defended. He is entitled to full disclosure of why certain steps are taken and why certain matters are
either included or excluded.
c) Knowledge of the principal – the knowledge of the principal is not imputed to agent.
Exceptions to the Rule:
a) When agent’s interests are adverse to those of the principal;
b) Where agent’s duty is not to disclose the information (confidential information); or
c) Where the person claiming the benefit of the rule colludes with the agent to defraud the principal.
7. When is the act of an agent binding to the principal?
a) When the agent acts as such without expressly binding himself or does not exceed the limits of his
authority. (Art. 1897)
b) If principal ratifies the act of the agent which exceeded his authority. (Art. 1898)
c) Circumstances where the principal himself was, or ought to have been aware. (Art. 1899)
d) If such act is within the terms of the power of attorney, as written. (Art.1900 & 1902)
e) Principal has ratified, or has signified his willingness to ratify the agent’s act. (Art. 1901)
8. When is the principal not bound by the act of the agent?
a) General Rule: When the act is without or beyond the scope of his authority in the principal’s name.
Exceptions:
1) Where the acts of the principal have contributed to deceive a 3rd person in good faith
2) Where the limitation upon the power created by the principal could not have been known by the
3rd person
3) Where the principal has placed in the hands of the agent instruments signed by him in blank
4) Where the principal has ratified the acts of the agent
b) When the act is within the scope of the agent’s authority but in his own name, except when the
transaction involves things belonging to the principal.
Note: 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.

II. Form of a Contract of Agency

1. Kinds of agency according to form
a) Oral – (Generally, this is sufficient)
b) Written
Note: An example of an instance when the law requires a specific form for the agency is in Art. 1874
which states that “when a sale 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.
2. Is the third person required to inquire into the authority of the agent?
a) Where authority is not in writing – Every person dealing with an assumed agent must discover upon
his peril, if he would hold the principal liable, not only the fact of the agency but the nature and
extent of the authority of the agent.
b) Where authority is in writing – 3rd person is not required to inquire further than the terms of the
written power of attorney.
Note: A third person with whom the agent wishes to contract on behalf of the principal may require the
presentation of the power of attorney or the instructions as regards the agency.

III. Agency by Estoppel

1. When is there an agency by estoppel?

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 - When one leads another to believe that a certain person is his agent, when as a matter of fact such is
not true, and the latter acts on such misrepresentation, the former cannot disclaim liability, for he has
created an agency by estoppel.
2. What are the rules regarding estoppel in agency?
a) Estoppel of agent – One professing to act as agent for another may be estopped to deny his agency
both as against his asserted principal and the third persons interested in the transaction in which he
engaged.
b) Estoppel of principal
1) As to agent – One who knows that another is acting as his agent and fails to repudiate his acts,
or accepts the benefits, will be estopped to deny the agency as against the other.
2) As to sub‐agent – To estop the principal from denying his liability to a third person, he must
have known or be charged with knowledge of the fact of the transaction and the terms of the
agreement between the agent and sub‐agent.
3) As to third persons – One who knows that another is acting as his agent or permitted another to
appear as his agent, to the injury of third persons who have dealt with the apparent agent as
such in good faith and in the exercise of reasonable prudence, is estopped to deny the agency.
c) Estoppel of third persons – A third person, having dealt with one as agent may be estopped to deny
the agency as against the principal, agent, or third persons in interest.
d) Estoppel of the government – The government is neither estopped by the mistake or error on the part
of its agents.
3. Distinguish implied agency from agency by estoppel.
IMPLIED AGENCY AGENCY BY ESTOPPEL
As to liability between principal and agent
Agent is a true agent, with rights and If caused by the “agent”, he is not considered a true agent,
duties of an agent hence, he has no rights as such
As to liability to third persons
a) The principal is always a) If caused by the principal, he is liable, but only if the 3rd
liable person acted on the misrepresentation;
b) The agent is never b) If caused by the agent alone, only the agent is liable.
personally liable

IV. General and Special Power

1. Article 1876. An agency is either general or special. The former comprises all the business of the
principal. The latter, one or more specific transactions.
2. General and Special Agencies
a) The distinction here depends on the EXTENT of the business covered.
b) In a sense, the more special the power is, the more specific it is.
3. Article 1877. 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.
4. Agency couched in General terms and in Special Terms
According to the POWER or AUTHORITY conferred, the agency may be:
a) couched in general terms (Article 1877);
b) or couched in specific terms (special power of attorney, as provided under Article 1878). (Pls.
note that what is important here is the nature of the juridical act.)
A general agency may be:
a) couched in general terms;
b) or couched in specific terms.
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 A special agency may be:
a) couched in general terms;
b) or couched in specific terms.
NOTE: An agency couched in general terms comprises only ACTS OF ADMINISTRATION (even if the
management is apparently unlimited, and even if the principal states that he withholds no power from the
agent).
Examples of Acts of Mere Administration:
a) To sue for the collection of debts.
b) To employ workers or servants and employees needed for the conduct of a business.
c) To engage counsel to preserve the ownership and possession of the principal’s property.
d) To lease real property to another person for one year or less, provided the lease is not registered (See
Art. 1878, No. 8 by implication).
e) To make customary gifts for charity or to employees in the business managed by the agent (See Art.
1878, No. 6).
f) To borrow money if it be urgent and indispensable for the preservation of the things under
administration (See Art. 1878, No. 7).
NOTE: In order to SELL, an agent must have a special power of attorney, unless the act of selling itself
is part of ADMINISTRATION, as in the case of the sale of goods in the retail store.
5. When Special Powers of Attorney are needed
According to J.B.L. Reyes, the acts referred to in Article 1878 can be reduced to three:
a) acts of strict dominion or ownership (as distinguished from acts of mere administration)
b) gratuitous contract
c) contracts where personal trust or confidence is of the essence of the agreement
6. Reason for the Rule – The cases enumerated in the aforesaid Article, are in general acts of strict
ownership or dominion, and not mere acts of administration, hence the necessity of special powers of
attorney except in the cases expressly so mentioned.
7. Meaning of Special Power of Attorney – this refers to a clear mandate (express or implied) specifically
authorizing the performance of the act, and 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).
NOTE: In general, the execution of a power of attorney does not need the intervention of any notary
public.
8. Article 1878. Special power of attorney are necessary for the following cases:
1) To make such payments as are not usually considered as acts of administration;
(Note that if the payment is usually considered an act of administration, no special power of
attorney is needed. It should be noted, however, that acts of administration carry with them the
exercise of acts of dominion, e.g., the sale by an administrator of fertile land or the products of
the land.)
2) To effect novations which put an end to obligations already in existence at the time the agency was
constituted;
(Note here that the obligations must already be in existence at the time of the constitution of the
agency.)
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;

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 (Note that there are five (5) different powers mentioned here. A right given regarding one is not
enough to grant the others.)
4) To waive any obligation gratuitously;