AGENCY

NATURE, FORM, AND KINDS OF AGENCY

Article 1868 of the Civil Code

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.
Concept of Agency
Article 1868 defines the contract of agency. The definition, which is very broad
enough to include all situations in which one person is employed to render service
for another, excludes, however, from its concept the relationship of employer and
employee (Art.* 1700.), of master and servant (Art. 1680.), and of employer and
independent contractor. (Art. 1713.)
Comparison and Examples:
Contract/Relationship Example: In the context that “A” wants to
construct a building.
Independent Contractor A hires B to construct the building with the materials
and labor to be furnished by B. B is an independent
contractor.
Employee-Employer A hires B to construct the building with the materials
and labor to be provided by A. A likewise supervises
and directs the construction of the building. B is an
employee of A.
Agent A hires B to supervise the construction and B shall act
on behalf of A in all matters connected with the
construction of the building. B is an agent.

Agency is a fiduciary relationship (meaning, it is based on mutual trust and

confidence), which implies a power in an agent to contract with a third person on
behalf of a principal. It is this power to effect the principal’s contractual relations with
third persons that differentiates the agent from the employee, the servant, and the
independent contractor.
Characteristics of an Agency (PPBUNC)
1. Principal
 Because it can stand alone; it does not need another contract to be
valid.

2. Preparatory
 Because it is entered not as a means to an end, but in order to create
another transaction or contract.

3. Bilateral or Unilateral
 Agency can either be unilateral or bilateral depending on whether the
agency is gratuitous or onerous.
 If the agency is onerous, meaning that the agent shall receive a
compensation for the services rendered, then the agency is bilateral.
 However, if the agency is gratuitous, meaning that the agent will not
be receiving any compensation, then the agency is unilateral. The
reason is that there is no obligation on the part of the principal to
compensate the agent for the services the agent had performed.

4. Nominate
 Because it has its own name under the Code (Agency).

5. Consensual
 Because it is perfected by mere consent; it is based on the agreements
of the parties.

Nature of Agency: Contract and Representative Relations

Agency is both a contract and a representative relations.
Contract
Since agency, as defined under the Code, is a contract, there must be a meeting of
the minds or consent of the principal and agent. There is meeting of the minds when
(1) the principal intends that the agent shall act form him, and (2) the agent intends
to accept the authority and act on it. Without these manifestation of intend, generally,
there is no agency.
Exception to the general rule that if there is no contract, there is no agency is that
when the agency is created by operation of law, e.g., LGUs and municipal
corporations act as agents of the State.
Contract of agency, unlike any other contract, does not require cause or
consideration in order to have a valid one. Remember that agency can either be
onerous or gratuitous. If it is gratuitous, then the principal is not obligated to
compensate the services rendered by the agent.
Thus, without contract or consideration, there can be agency or agency powers.
Representative Relations
Agency is a representative relations because by legal fiction, the agent becomes
the principal. However, this could only be effected with the consent or authority of the
principal, which cannot, in any way, be compelled by court or by law.

Basis of Agency: Representation

The basis of agency is representation. As the definition under the Code provides:
By the contract of agency, 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.
In fact, agency is a personal contract of representation because it is fiduciary in
nature, meaning it is based on mutual trust and confidence. Thus, agency is
revocable.
Through representation, the principal can perform acts simultaneously, which is not
physically possible without agency. The acts of the agent, by legal fiction, become he
acts of the principal, provided that the agent acted within the scope of authority.

Some Doctrines on Representation:

1. He who acts through another acts himself.
2. He who does a thing by an agent is considered as doing it himself.
3. There is a meeting of the offer and acceptance from the time the acceptance
by a third person is communicated to the agent.
4. Where the agent purchased a property in bad faith, who is acting within the
authority, the principal is also deemed to be a purchaser in bad faith.
5. Notice to the agent is, to all legal intents and purposes, is notice to the
principal.

Purpose of Agency: Extension of Principal’s Personality and Usefulness in

Business Transactions
The purpose of agency are as follows:
1. Principal’s personality is extended through the facility of an agent to render
some service or to do something. It enables the principal, who has physical
limitations, to legally extend his personality by permitting him to be
constructively present in many different places and perform diverse juridical
acts.
Note: It is not necessary that the principal personally encounter the third
person with whom the agent interacts.
 2. Agency is very useful in business transactions considering the complexity
of managing a business.
Essential Elements of Agency (not part of the syllabus)
1. Consent
 In most cases, no formalities are required for the creation of agency.
Parties may express their consent either expressly or impliedly:
express consent may be made through a contract, be orally or in
writing. Implied consent may be inferred by conduct of the parties or
through ratification by an incapacitated principal after it acquires
capacity.
2. Object
 The execution of juridical acts in relation to third person.
3. The agent must act as a representative, and not for himself (representation).
4. The agent must act within the scope of authority.
5. Principal and agent must be competent to act as agents.
Note: Unlike any other contracts, agency does not require cause or
consideration.

Capacity of Parties: (1) Principal must be capacitated; (2) Agent’s capacity is

immaterial
Parties to a Contract of Agency:
1. Principal
2. Agent
Who can be a Principal?
 Only those who are capacitated can be a principal. The justification is
simple: A person who cannot legally enter into contracts directly should not
be permitted to do it indirectly through another.
 Principals may either be a natural person or an artificial one, e.g.,
corporations and partnerships can be a principal. However, entities that has
no legal existence cannot become a principal.
Who can be an Agent?
 Generally, anyone can be an agent. His capacity is usually immaterial. It
is the capacity of the principal that is controlling because the contract is
actually entered into by the principal. The agent, acting within the scope of
authority, actually assumes no personal liability.
 The agent derives his authority from the principal, and a contract made by the
agent is legally viewed as a contract of the principal. Thus, even one under
legal disability (e.g., minor), whose contracts, therefore, are not binding upon
him, may nevertheless act as an agent and bind his principal. An exception to
the rule that the agent even with legal disability may act as an agent and bind
 his principal, is when the agent is absolutely incapacitated, such as when the
agent is insane.
 Agents may either be a natural person or an artificial one, e.g., corporations
and partnerships can be an agent.
Status of Contracts: Say, the agent entered into a contract of sale with a
capacitated seller.
Situation Status of Contract of Agency
Valid
P-C, A-C
P-C, A-I Voidable, because in agency,
both the principal and agent
must be capacitated. If anyone
is incapacitated, the contract is
voidable.
P-I, A-C Voidable, because in agency,
both the principal and agent
must be capacitated. If anyone
is incapacitated, the contract is
voidable.
P-I, A-I Voidable, because in agency,
both the principal and agent
must be capacitated. If both of
them are incapacitated, the
contract is void.
Status of Contract of Sale
Valid
Valid, because the agent, even if
incapacitated, is only acting on
behalf of the principal; thus, it is
the capacity of the principal that
is material.
Voidable, because the agent,
even if capacitated, is only acting
on behalf of the principal; thus, it
is the capacity of the principal
that is material.
However, the acts of the agent
on behalf of an incapacitated
principal may be ratified after the
principal acquires capacity.
Liability of agent when the
principal is incapacitated:
1. Agent is not liable if the
agent is in good faith,
meaning that the agent
has no knowledge of the
principal’s incapacity
2. Agent is liable if the agent
is in bad faith, or that the
agent has knowledge of
the principal’s incapacity,
yet he still entered into a
contract on behalf of the
incapacitated principal.
Voidable, because the principal
(as the buyer) is incapacitated
while the seller is capacitated.
The status would be different if
the seller is likewise
incapacitated. In such case, the
contract of sale is void.
Acts that may not be delegated (not in the syllabus)
The general rule is that what a man may do in a person, he may do thru another.
Exceptions to the general rule are the following acts that cannot be delegated
through an agent:
1. Personal Acts. The following personal acts are required by law or public
policy to be performed personally by a person, and not through an agent:
a. Right to vote during election;
b. Making of a will;
c. Statements under oath;
d. Attendance of a BOD or BOT during board meetings; and
e. Agent delegating a task to a sub-agent
2. Criminal Acts
3. Acts not allowed by law such as the following:
a. Aliens buying private land thru an agent;
b. Persons, whose position or relations with another, are prohibited from
acquiring the latter’s properties.

Acceptance

Article 1869 of the Civil Code

Acceptance by the Principal. 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. (1710a)

Article 1870 of the Civil Code

Acceptance by the Agent. 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 circumstances.

Acceptance by the Principal Acceptance by the Agent

Express: Express:
Oral Oral
In writing In writing
 Ratification
Implied: Implied:
Action Action
Silence/Inaction Silence/Inaction
Failure to repudiate
Article 1870 of the Civil Code
Acceptance between Persons Present. 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 objection

Article 1870 of the Civil Code

Acceptance between Persons Absent.

Kinds of Agency
As to Manner of Creation
1. Express
 Agency where the agent has been expressly authorized by the
principal to act on his behalf:
a. Oral
b. In writing
c. Ratification1

2. Implied
 Agency where the agent has NOT been expressly authorized by the
principal to act on his behalf, but is still an actual agency as much as
an express agency:
a. acts of the principal
b. silence or lack of action of the principal
c. failure to repudiate the agency despite knowledge that another
person is acting on his behalf
d. acts of the agent carry out the agency
e. silence or inaction of the agent
f. Ratification
As to its Character
1
The principal cannot deny the existence of the agency after third parties, relying on his conduct, have had
dealings with the supposed agent. This method of agency is known as agency by estoppel or implication.
 1. Gratuitous
 One where the agent receives no compensation.

2. Onerous/Compensated
 One where the agent receives compensation.
As to the Extent of Business Covered
1. General
 One which covers all the business of the principal.

2. Special
 One which covers one or more specific transactions.
As to the Authority Conferred to the Agent:
1. Couched in General Terms
 One created in general terms and is deemed to comprise only acts of
administration.

2. Couched in Specific Terms

 One authorizing only specific acts
As to its Nature and Effects
1. Ostensible or Representative
 One where the agent acts in the name and representation of the
principal.

2. Simple or Commission
 One where the agent acts on his own name, but for the account of the
principal.

Forms of Agency
Generally, there is no specific form or formal requirement in appointing an agent.
The agent’s authority may be oral or in writing. If in writing, it may be in a private
instrument or reduced to a public one. But there is an instance when the law requires
a certain form in which the authority of the agent must be reduced, and that is the
sale of a piece of land through an agent pursuant to Article 1874 of the Civil Code.

Appointment of an Agent (not in the syllabus)

In appointing an agent, it is NOT necessary that the agent is directly appointed by
the principal. Appointment may be made through another. An example is when an
agent was appointed by a director of a corporation, in which case, the person
appointed is the agent of the corporation, and not of the director.

Presumption of Agency (not in the syllabus)

Generally, agency is not presumed. The relation of the agent and principal must
exist as fact, and the burden of proof rests upon the person alleging the existence of
an agency. Exceptions to that, meaning there is a presumption of the existence of an
agency, are as follows:
1. By operation of law
2. To prevent unjust enrichment