Agency (Arts.

1868 – 1932)
Agency
 is a contract whereby a person (agent) binds himself to render some service or to do something
in representation or on behalf of another (principal), with the consent or authority of the latter.
(Art. 1868)
Elements of Agency
The essence of agency is representation.
1. The parties' consent, express or implied, to establish the relationship;
2. The object, which is the execution of a juridical act in relation to a third person;
3. The representation, by which the one who acts as an agent does so, not for oneself, but as a
representative;
4. The limitation that the agent acts within the scope of his or her authority.
Characteristics of Contract of Agency"
1. Principal-It can stand by itself.
2. Preparatory - It is a means by which other contracts may be entered into.
3. Bilateral - The parties are bound reciprocally to each other.
4. Onerous - It is presumed to be for a compensation, unless there is proof to the contrary. (Art.
1875)
5. Consensual - It is perfected by mere consent.
6. Nominate - It has a name given to it by law. (Art. 1868)
7. Commutative - The parties give and receive almost equivalent values; hence, there is real
fulfillment.
Nature, Basis, and Purpose of Agency
1. Agency is a contract;
2. Agency is also a representative relation;
 The acts of the agent on behalf of the principal within the scope of his authority produce the
same effect as if they were personally done by the principal.
 The relation of an agent to his principal is fiduciary in character since it is based on trust and
confidence.
3. The purpose of agency is to extend the personality of the principal through the acts of the agent

Parties in an Agency
Principal
 The person represented by the agent and from whom the latter derives his authority; he is the
party primarily and originally concerned in the contract of agency.
Agent
 He who acts for and represents the principal and from whom he derives his authority.
Capacity of Parties
1. Principal
 A principal must be capacitated or have the legal capacity to enter into contract in his own right.
2. Agent
General Rule: Anyone can be an agent. His capacity is usually immaterial. It is the capacity of the principal
that is controlling since the contract is really entered into by the principal. In the case of the agent, since he
assumes no personal liability, he does not have to possess full capacity to act for himself insofar as third
persons are concerned.
Exception: However, some mental capacity is necessary as an agent, and, therefore, persons who are
absolutely incapacitated, such as insane persons, cannot be agents as they are completely incapable of
understanding the task to be performed. Principals should appoint agents who are able to make sound
decisions in carrying out the agency
Theory of Imputed Knowledge
 The knowledge of the agent is imputed to the principal even though the agent never
communicated such knowledge to the principal (Art. 1821). Thus, it is only logical that the agent
 is required to notify the principal of all matters that came to his attention that are material to the
subject matter of the agency.
Exceptions to the Rule:
1. Where the agent's interests are adverse to those of the principal;
2. Where the agent's duty is not to disclose the information, as where he is informed by way of
confidential information; and
3. Where the person claiming the benefit of the rule colludes with the agent to defraud the principal

Agency Vs. Similar Contracts or Relations

How Agency Relationship is Created

A. By Appointment
 This is usually made by giving a person a power of attorney (Art. 1871)
B. By Ratification
 An agency by ratification is created when a person adopts or confirms an act performed by
another in his behalf without prior authority (Art. 1869)
C. By Estoppel
The following must be established:
i. The principal manifested representation of the agent's authority or knowingly allowed the agent
to assume such authority:
ii. The third person, in good faith, relied upon such representation; and
iii. Relying upon such representation, such third person has changed his position to his detriment.
D. By necessity
 An agency by necessity arises when an emergency makes it necessary for one to act for another
without receiving any authority, from the latter.

Powers Of an Agent
A. To bind principal (Arts. 1897-1902)
Requisites in order to bind principal by agent's acts:
 1. Agent must act within the scope of his authority (Art. 1881); and
2. Agent must act in the name of the principal.
Effect of Acting Beyond Scope of Authority
General Rule: Principal is not bound. A contract entered into by an agent who has acted beyond his powers
is unenforceable, unless it is ratified by the principal (Art. 1317 and 1403[1]).
Exceptions: Principal is liable in the following situations even if the agent acted beyond the scope of his
authority
1. When the principal ratifies the agent's act, either expressly or impliedly (Art. 1910).
2. Principal is solidarity liable if he allowed the agent to act as though the latter had full powers
(Art. 1911).
3. If the limitations to the agent's authority is known only between the agent and principal and not
to third persons (Art. 1900).
4. Where the principal placed in the hands of the agent instruments signed by him in blank.
B. Exception (Art. 1883)
Effect of agent acting in his own name:
1. Principal has no right of action against the third person with whom the agent has contracted (Art.
1883).
2. Third person has no right of action against the principal.
3. Agent is the one directly bound in favor of contracted as if the transaction were his own, except
when the contract involves things belonging to the principal (Art. 1883[2]).
Acts, which may be delegated to an agent (subject matter of agency).
General Rule: What he may do in person, he may do through another (Qui facit per alium facit per se).
Exceptions:
1. Peculiarly personal acts; and
2. Illegal acts
Delegation of Authority (Sub-Agent):
1. When permissible
 Agent may appoint a substitute if the principal has not prohibited him from doing so (Art. 1892).
2. Effect as between principal and third person
 If substitution is not prohibited: The acts of the substitute will produce the same effect between
the principal and third persons as if they were those of the agent himself.
 If substitution is prohibited: All acts of the substitute appointed against the prohibition of the
principal shall be void (Art. 1892, last par.).
3. Effects as between principal and agent
i. If agent is not empowered to appoint a substitute but not prohibited: Agent shall be responsible for the
acts of the substitute (Art. 1892[1]).
ii. If agent is empowered:
 But principal did not designate a particular person: Agent is responsible for the acts of the
substitute if the substitute was notoriously incompetent or insolvent (Art. 1892).
 But principal designated a particular person: Substitution is the act of the principal himself rather
than of the agent. Consequently, the agent is totally and absolutely exempt from responsibility
for the acts of the sub-agent.
iii. If agent is prohibited from appointing substitute: The agent acts beyond the scope of his authority and
shall be held liable for whatever damage that may result.
4. Effect as between principal and substitute
 Both substitute and agent are directly and personally liable to the principal for the acts of
substitute if-
 Agent appoints a substitute although not empowered to do so; or even if empowered, agent
selects a substitute who is notoriously incompetent or insolvent (Art. 1893).

Kinds Of Agency
A. According to form
Express Vs. Implied Agency
EXPRESS - One where the agent has been actually authorized by the principal, either orally or in writing.
1. Oral Agreement
 An oral agency is valid unless the law requires a specific form. (Art. 1869)
2. Written Agreement
a. Those that require a specific power of attorney, such as those enumerated under Art. 1878. The
act performed is not enforced against the principal, if the power of attorney is not special.
b. When the sale of a piece of land or an interest therein (such as easement and usufruct) is made
through an agent, the authority of the agent must be in writing otherwise the sale is void. (Art.
1874)
Implied Agency
One, which is implied from:
1. Acts of the principal.
2. Silence of the principal.
3. Lack of action of principal.
4. Failure of the principal to repudiate the agency knowing that another person is acting in his
behalf without authority (Art. 1869)
B. According to Extent
1. General Agency - One that comprises all the business of the principal
2. Special Agency - One that comprises one or more specific transaction
C. According to Authority Conferred
1. Agency couched in general terms (General Power of Attorney) - This comprises only acts of
administration. This is true even if the principal should state:
a. the agency should authorize a general and unlimited management. (Art. 1877) 4
2. Agency couched in specific terms - A special power of attorney is required for the performance of the
specific acts
Agency By Estoppel
 There is agency by estoppel where a person, by words or conduct, represents or permits it to be
represented that another person is his agent. In such a case, he is stopped to deny the agency as
against third persons who have dealt, on the faith of such representation, with the person so held
out as agent, even if no agency existed in fact.
Elements:
1. Representation by the principal:
2. Reliance upon such representation by a third person, and
3. Change of position by such third person in reliance upon such representation.

Agency Couched in General Terms

Not affected by other statements of principal
 If the mandate conferred by the principal is couched in general terms, the fact that the principal
made the following statements will not extend the authority beyond the performance of mere acts
of administration: (1) He withholds no power, (2) the agent may execute such acts as he may
consider appropriate; (3) That the mandate authorizes a general and unlimited management (Art.
1877.
Agency By Operation of Law
 The heirs' duty to continue the agency after the death of the agent arises from what may be
termed as an agency by operation of law or a presumed or tacit agency. Of course, the heirs can
continue the agency only temporarily for, as we have seen, the essence of the contract is personal
confidence. The principal has a right to an agent of his choice. There is nothing to suggest that he
would or should expect the authority to pass to the agent's heirs or personal representatives.

Obligations Of Agent to Principal

a. If Agency was declined - In case a person declines an agency:
 Such person is bound to observe the diligence of a good father of a family in the custody and
preservation of the goods forwarded to him by the owner until the latter should appoint an agent
or take charge of the goods (Art. 1885)
 The owner, as soon as practicable, must either appoint an agent or take charge of the goods (Art.
1885).
b. If Agency Was Accepted
1. Obligation to Carry Out Agency
 What constitutes "carrying out" - It means to perform whatever acts may be necessary to
bring the business to conclusion.
2. Obligation to Answer for Damages
 Liability for damages in case of non-performance - Agent is liable for damages which,
through his non-performance, the principal may suffer (Art. 1884[1]). But if, after non-
performance, the principal confers a second mandate for the same purpose, this will bar on
action for damages as it constitutes a tacit assent to the conduct of the agent under the first
agency.
3. Obligation to Finish the Business Upon the Death of The Principal.
 Effect of principal's death - Death of the principal extinguishes the agency (Art. 1919[3]).
However, the agent is obligated to finish the business already begun on the death of the
principal, should delay entail any danger (Art. 1884[2]).
4. Obligation to Observe Diligence
 Diligence required isonus pater familias
 The agent is responsible not only for fraud, but also for negligence (Art. 1909).
 The negligence of the agent shall be judged with more or less rigor by the courts, according to
whether the agency was or was not for a compensation (Art. 1909).
5. Obligation to Advance Necessary Funds
General Rule: Agent is not bound to advance the necessary funds to carry out the agency
Exception: Unless there is stipulation to that effect.
Exception to the exception: Even if there is a stipulation that agent should advance the necessary funds, he
is not obliged to do so if the principal is insolvent (Art. 1886, NCC).
6. Obligation to Obey Principal's Instructions
 Rule: In the execution of the agency, the agent shall act in accordance with the instructions of
the principal (Art. 1887, NCC). In default of instructions: Agent shall do all that a good father of
a family would do, as required by the nature of the business (Art. 1887, NCC).
7. Not to Carry Out the Agency If Its Execution Would Manifestly Result in Loss or Damage to The
Principal.
 Cases when agent is not bound to carry out the agency - If its execution would manifestly
result in loss or damage to the principal (Art. 1888, NCC).
8. Obligation Not to Prefer His Own Interest to Those of Principal
 In General: An agent is a fiduciary with respect to the matters within the scope of his agency.
 Conflict of interest: If, there is a conflict between his interests and those of the principal, he
should prefer his own; he shall be liable for damages (Art. 1889).
 If authorized to borrow money: If the agent has been empowered to borrow money, he may
himself be the lender at the current rate of interest (Art. 1890).
 If authorized to lend money: If he has been authorized to lend money at interest, he cannot
borrow it without the consent of the principal (Art. 1890).
o Prohibition against buying property of principal: An agent cannot, without his
principal's consent purchase, whether directly or indirectly, and even at public or
judicial sale, property, which he is authorized to sell or administer (Art. 1491, NCC)
9. Obligation Not to Loan to Himself.
Obligation to pay interest
 a. On sums he has applied to his own use from the day on which he did so; and
b. On those, which he still, owes after the extinguishment of the agency (Art. 1896).
10. Obligation to to render accounts.
In General: Every agent is bound:
1. To render an account of his transactions; and
2. To deliver to the principal whatever he may have received by virtue of the agency, even though
it may not be owing to the principal (Art. 1891).

Duty of Commission Agent (Factor):

Definition: One engaged in the purchase and sale for a principal of personal property, which for this
purpose, has to:
Care and custody of goods:
 The commission agent shall be responsible for the goods received by him in the terms and
conditions and as described in the consignment, unless upon receiving them he should make a
written statement of the damage and deterioration suffered by the same (Art. 1903).
o If the commission agent handles goods of the same kind and mark belonging to
different owners, he has the obligation to distinguish them by countermarks, and to
designate the merchandise respectively belonging to each principal (Art. 1904).
Care of cash: He is not the insurer of the safety of the money. But he must observe diligence of a good
father of a family.

As to authority to sell on credit:

Duty not to sell on credit: A commission agent cannot, without the express or implied consent of the
principal, sell on credit (Art. 1905).
Effect of sale on credit:
 If not authorized: The principal may demand from him payment in cash, but the commission
agent shall be entitled to any interest or benefit, which may result from such sale (Art. 1905).
 If authorized: Should the commission agent, with authority of the principal, sell on credit, he
shall so inform the principal, with a statement of the names of the buyers. Should he fail to do
so, the sale shall be deemed to have been made for cash insofar as the principal is concerned
(Art. 1906).
Obligation To Collect Credits:
1. Effect of failure to collect credits when due and demandable:
a. Commission agent becomes liable to principal for damages.
b. Unless: he proves that he exercises due diligence for that purpose (Art. 1908).
2. Del Credre Agent A commission agent who receives on sale a guaranty commission, in addition to the
ordinary commission. The guaranty commission is given in return for the risk of collecting the credit.
Effects:
a. He guarantees the risk of collection and he shall pay the principal the proceeds of the sale on the
same terms agreed upon with the purchaser, if the latter is not able to pay (Art. 1907).
b. Either the principal or the del credere agent may sue the purchaser and the suit of one will bar
the subsequent suit of the other.
"Doctrine of Procuring Cause"
 If the agent is the procuring cause of the sale that the measures employed by him and the efforts
he exerted resulted in the sale - he is entitled to the payment of the commission.
 In case of two or more Agents (Joint Agents): The responsibility of two or more agents, even
though they have been appointed simultaneously is merely joint and not solidary, unless
solidarity has been expressly stipulated (Art. 1894).

Irrevocable Agency
The agency is not revocable at will if -
1. If a bilateral contract depends upon it.
 2. If the agency is a means of fulfilling an obligation already contracted
3. If a partner is appointed manager of partnership in the contract of partnership and his removal
from the management is unjustifiable (Art. 1927, NCC).
Rights And Obligations of Principal
1. Obligation to comply with all the obligations which the agent may have contracted within the
scope of the latter's authority.
2. Obligation to advance funds
 Rule: Principal is obliged to advance funds necessary for the execution of the agency upon the
request of the agent (Art. 1912, NCC).
 When agent is obliged to advance funds: if there is a stipulation to that effect. But
notwithstanding such stipulation, he cannot be obliged to do so if the principal is Insolvent (Art.
1886, NCC).
Right Of Agent Who Made Such Advances:
1. He is entitled to be reimbursed, even if the business or undertaking was not successful, provided
the agent was free from all fault (Art. 1912[2], NCC).
2. Such reimbursement shall include interest on the sums advanced, from the day on which the
advance was made (Art. 1912[3] NCC).
3. Obligation to Indemnify Agent for Damages
Requisites:
1. Agent suffers damage as a result of the execution of agency.
2. The agent is free from fault or negligence (Art. 1913, NCC).
Agent's Lien: Agent may retain in pledge the things which are the object of the agency until the principal
effects the reimbursement and pays: The advances made by the agent; and the damages suffered by the
agent in executing the agency (Art. 1914, NCC). The enforcement of the lien is the same as that required in
foreclosing a pledge.
If there be several principals (joint principals): If there be several principals who have appointed the
agent for a common transaction or undertaking, they shall be solidarity liable to the agent for all the
consequences of the agency (Art. 1915, NCC).
4. Obligation to Pay Compensation
 General Rule: Agency is presumed to be for compensation (Art. 1875, NCC). Exception:
Unless there is proof to the contrary (Art. 1875, NCC).
Rights And Liabilities Between Principal and Third Person
1. Obligation to Pay Compensation
 General Rule: Agency is presumed to be for compensation (Art. 1875, NCC). Exception: Unless
there is proof to the contrary (Art. 1875, NCC).
2. Obligation to Advance Funds
 Rule: Principal is obliged to advance funds necessary for the execution of the agency upon the
request of the agent (Art. 1912, NCC).
 When agent is obliged to advance funds: If there is a stipulation to that effect. But
notwithstanding such stipulation, he cannot be obliged to do so if the principal is insolvent (Art.
1886, NCC).
Right of agent who made such advances:
1. He is entitled to be reimbursed, even if the business or undertaking was not successful, provided
the agent was free from all fault (Art. 1912[2], NCC).
2. Such reimbursement shall include interest on the sums advanced, from the day on which the
advance was made (Art. 1912[3] NCC).
For contracts contracted by agent as such (in behalf of principal) and contract is within scope of agent's
authority:
1. Principal is bound. He must comply with the obligations which the agent may have contracted
(Art. 1910, NCC),
2. Agent is not personally liable to third person with whom he contracts, unless he expressly binds
himself (Art. 1897, NCC).
 3. The cause of action of third person is against the principal, unless the agent expressly binds
himself.
When agent deemed to have acted within scope of his authority as to third persons:
1. If Authority Is in Writing
a. Act is deemed to have been performed within the scope of the agent's authority if the same is
within the terms of the power of attorney as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and the agent (Art.
1900, NCC).
b. Private or secret orders and instructions of the principal do not prejudice third persons who have
relied upon the written power of attorney or instructions shown them (Art. 1902, NCC).
c. For this purpose, 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 (Art. 1902).
2. If Authority Is Not in Writing
 rule is that every person dealing with an assumed agent is put upon inquiry and must discover
upon his peril, if he would hold the principal liable, not only upon the fact of the agency but the
nature and extent of the authority of the agent.
3. and CONTRACT IS BEYOND THE SCOPE OF AGENT'S AUTHORITY:
a. Principal is not bound except when he ratifies it expressly or tacitly (Art. 1910[2], NCC). The
contract is unenforceable (Art. 1317 and 1403[1], NCC).
b. Exceptions: Principal is bound notwithstanding the fact that agent exceeded his authority-
o If the limits of the agent's authority are known only to the principal and agent and the
party with whom the agent contacted is not aware of the limits of the powers granted
by the principal (Art. 1898 and 1900, NCC).
o If the principal allowed the agent to act as though the latter had full powers, in which
case, principal is solidarity liable with the agent (Art. 1911, NCC).
Agent is personally liable to the person he contracted with if-
1) He exceeds his authority, without giving such party sufficient notice of his powers (Art. 1897,
NCC).
2) He exceeds his authority and he undertook to secure the principal's ratification (Art. 1898, NCC).
Double Sale by Principal and Agent
 Situation: Two persons contract with regard to the same thing, one of them with the agent and
the other with the principal, and the two contracts are incompatible with each other.
 Whose contract is preferred: That of prior date shall be preferred, without prejudice to the
provisions of Article 1544 on double sale (Art. 1916, NCC).
Who is liable to the person whose contract is rejected:
1. if the principal has agent acted in good faith, the principal is liable. The agent is not liable
2. If the agent has acted in bad faith, only the agent is liable for damages. The principal is not liable
(Art. 1917, NCC).
When is Principal Liable for Delict/Quasi-delict Committed by Agent:
1. Person sought to be held must stand in relation of principal to the one committing the act; and
2. Act of the agent must have been done within the scope of his authority.
Modes Of Extinguishment
Agency may be terminated:
 By agreement
 By the subsequent acts of the parties, either
a. B the act of both parties or by mutual consent; or
b. By the unilateral act of one of them
 By operation of law
Revocation Of Agency by Principal
 Revocable at will: The principal may revoke the agency at will, and compel the agent to return
the document evidencing the agency (Art. 1920, NCC). When two or more principals have
 granted a power of attorney for a common transaction, any one of them may revoke the same
without the consent of the others (Art. 1925, NCC).
 Manner of revocation: Either express or implied (Art. 1920, NCC). There is implied revocation
in the following-
1. When a new agent is appointed for the same business or transaction (Art. 1923,
NCC).
2. When the principal directly manages the business entrusted to the agent, dealing
directly with third persons (Art. 1924, NCC).
3. When a special power of attorney is granted to another, it revokes the general power
of attorney as regards the special matter involved in the general power (Art. 1926,
NCC).
Necessity and sufficiency of notice of revocation: Between principal and third person-If agent had
general powers:
 Notice of revocation in a newspaper of general circulation is a sufficient warning to third persons
(Art. 1922, NCC).
 Without such notice, revocation does not prejudice third persons who acted in good faith and
without knowledge of the revocation (Art. 1922, NCC).
If Agency is for contracting with specified persons: The specified persons who acted in good faith and
without knowledge of the revocation (Art. 1922, NCC).
Between principal and agent - Agent must be notified.
Withdrawal by Agent
Manner: By giving due notice to the principal (Art. 1928, NCC).
Liabilities Of Agent Incident to Withdrawal:
 If the principal suffers damage by reason of withdrawal, agent is liable for damages unless he
based his withdrawal upon the impossibility of continuing the performance of the agency
without grave detriment to himself (Art. 1928, NCC).
 If the withdrawal is for valid reason, agent must continue to act until principal has had
reasonable opportunity to take necessary steps to meet the situation (Art. 1929, NCC).
Death of Principal
General Rule: Death of principal results in the extinguishment of agency (Art. 1919[3], NCC).
Exceptions:
1. Its agency has been constituted in the common interest of both principal and agent.
2. If agency has been constituted in the interest of a third person who has accepted the stipulation in
his favor (Art. 1930, NCC).
Obligation of agent upon extinguishment of agency by reason of death of principal: He must finish the
business already begun on the death of the principal, should delay entail any danger (Art. 1884[2], NCC).
Acts done by agent prior to notice of death of principal or of any other cause which extinguished
agency: Considered valid and fully effective with respect to third persons who may have contracted with the
agent in good faith (Art. 1931, NCC).