LAW ON AGENCY

Agency
A contract whereby a person binds himself to render some service or to do something in
representation or in behalf of another, with the consent and authority of the latter. (Art.
1868)
Characteristics of a contract of agency
1.Principal– does not need another contract for its existence
2.Preparatory—it is entered into by the parties in preparation for another contract
3.Consensual– is perfected by mere consent
4.Onerous– it it is bilateral, it is burdensome for both parties. However, if the contract is
unilateral, then it is gratuitous
5.Nominate—it has its own name
6.Bilateral—creates obligation for the agent to render service and the principal to
compensate him. If there is no compensation, then it is unilateral.
7.Commutative– both parties are obligated to each other except in unilateral contract of
agency
Who is an AGENT?
An agent is a person who binds himself to render some service or to do
something in representation or on behalf of another, with the consent or
authority of the later.

WHAT ARE THE ACTS WHICH MAY BE DELEGATED TO AN AGENT

General Rule: Any ACT
EXCEPTIONS:
1. Acts not allowed by law
2. Personal acts
ELEMENTS OF A CONTRACT OF AGENCY
1. Consent, express or implied, of the parties to establish the relationship
2. The object is the execution of a juridical act in relation to a third person
3. The agent acts as a representative and not for himself , and
4. The agent acts within the scope of his/her authority.

PARTIES TO THE CONTRACT OF AGENCY

1. PRINCIPAL (MANDANTE)
One whom the agent represents and from whom he derives authority.
2. AGENT (MANDATARIO)
One who acts for and represents the principal.
PURPOSE OF AGENCY
To extend the personality of the principal through the facility of the agent. It
enables the activity of man which is naturally limited in its exercise by the
impositions of his physiological conditions to be legally extended by permitting
him to be constructively present in many different places and to perform
diverse juridical acts and carry on many different activities.

BASIS OF AGENCY
In a contract of agency, a person, the agent, binds himself to represent another,
the principal, with the latter’s consent or authority. Thus, agency is based on
representation, where the agent acts for and in behalf of the principal on
matters within the scope of the authority conferred upon him.
INTENT
(1) On the part of the principal, there must be an actual intention to appoint
or an intention naturally inferable from his words or actions; and
(2) On the part of the agent, there must be an intention to accept the
appointment and act on it

General rule: In the absence of such intent, there is no agency.

Exceptions: SPECIAL KINDS OF AGENCY
(3) Agency by estoppel;
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 in good faith, and in honest belief that he is what he appears to be.
(2) Agency by operation of law
It exists in the following cases:
(1) Every partner is an agent of the partnership for the purpose of its
business (Art. 1818)
(2)When the principal’s actions would reasonably lead a third person to
conclude that an agency exists, an agency by estoppel is created by operation
of law.
(3) In case of certain necessity or emergency, an agency by necessity may
arise.
KINDS OF ACCEPTANCE
1. EXPRESS– the agent has accepted the agency orally or in writing
2. IMPLIED– may be implied from:
a. Acts of the agent which carry out the agency;
b. Agent’s silence; or
c. Agent’s lack of inaction
KINDS OF AGENCY
AS TO MANNER OF CREATION
1. Express– the agent has been authorized by the principal orally or in writing
2. Implied
As to the principal, the appointment of an agent may be implied:
(1) From his acts;
(2) From his silence or inaction;
(3) From his failure to repudiate the agency, knowing that another person
is acting on his behalf without authority.
AS TO CAUSE OR CONSIDERATION:
1. Gratuitous
2. Compensated or onerous
Note: Agency is presumed to be for a compensation, unless there is proof to
the contrary (Art. 1875)

AS TO THE EXTENT OF BUSINESS COVERED:

1. Universal agency comprises ALL ACTS which the principal can lawfully
delegate an agent;
2. General agency comprises ALL THE BUSINESS of the principal.
3. Special agency comprises ONE OR MORE SPECIFIC TRANSACTIONS (Art.
1876)
AS TO AUTHORITY CONFERRED
COUCHED IN GENERAL TERMS
An agency couched in general terms is one created in general terms and is
deemed to comprise only acts of administration, even if:
1. The principal should state that he withholds no power;
2. He should state that the agent may execute such acts he may consider
appropriate; or
3. Even though the agency should authorize a general and unlimited
management (Art. 1877)
COUCHED IN SPECIFIC TERMS
An agency couched in specific term authorizes the performance of specific acts.
Certain acts, however, require special powers of attorney.
A Special Power of Attorney (SPA) is an instrument in writing by which one person,
as principal, appoints another as his agent and confers upon him the authority to
perform certain specified acts or kinds of acts on behalf of the principal.
The following acts of strict dominion require special powers of attorney:
1. To make such payments as are not usually considered as acts of administration;
2. To effect novations which put an end to obligations already 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 judgement, 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 valuable consideration;
6. To make gifts, excepts 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 as a guarantor or surety;
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
TYPES OF AGENTS
1. UNIVERSAL AGENTS are authorized to do all acts for his principal which
can lawfully be delegated to an agent
2. GENERAL AGENTS are authorized to do all acts pertaining to a business of
a certain kind or at a particular class or series; An agent who is
empowered to transact all the business of his principal of a particular kind
or in a particular place
3. SPECIAL AGENTS are authorized to do some particular act or to act upon
some particular occasion
SPECIAL TYPES OF AGENTS
1. ATTORNEY-AT-LAW is one whose business is to represent clients in legal
proceedings
2. AUCTIONEER is one whose business is to sell property for others to the
highest bidder at a public sale
3. BROKER is one whose business is to act as intermediary between two
other parties such as insurance broker and real estate broker
4. FACTOR or COMMISSION MERCHANT is one whose business is to receive
and sell goods for a commission, being entrusted with the possession of
goods involved in the transaction.
5. ATTORNEY-IN-FACT is one who is given authority by his principal to do a
particular act not of a legal character. An agent having a Special Power of
Attorney
SCOPE OF AUTHORITY OF AGENT
General rule: The scope of authority of the agent is what appears in the terms
of the power of attorney.

Exceptions: An agent is considered acting within the scope of his authority

when:
1. He performs acts which are conducive to the accomplishment of the
purpose of the agency. Art. 1818)
2. He performed the agency in a manner more advantageous to the principal
than that specified by said principal
3. The principal ratifies the act, expressly or tacitly.
POWER TO BIND THE PRINCIPAL
REQUISITES:
1. The agent must act WITHIN the scope of his authority, and
2. The agent must act in behalf of the principal.

Even when the agent acts IN HIS OWN NAME, the principal is still bound in the
following instances:
1. When the contract involves things belonging to the principal (Art. 1883)
2. When the principal ratifies the contract, expressly or tacitly.
EFFECTS OF THE ACTS OF AN AGENT
When the agent acts:
1. With authority of the principal
a. If done in the NAME OF THE PRINCIPAL, the principal is bound to comply
with the obligations contracted (Art. 1910) and the agent is not personally
liable to the party with whom he contracted (Art. 1897)
b. If done in the NAME OF THE AGENT, the agent is directly bound in favor
of the person with whom he has contracted, except when the contract
involves things belonging to the principal.
2. Without authority or beyond the authority granted by the principal
a. if done in the NAME OF THE PRINCIPAL, it is UNENFORCEABLE. against
him, unless he ratifies it expressly or tacitly.
b. If done in the NAME OF THE AGENT, he is PERSONALLY LIABLE
OBLIGATIONS OF AGENT
1. Good faith and loyalty to his trust (fiduciary in nature, thus imposes
obligation of faithful service)– it includes exercise of reasonable care
2. Obligation to carry out agency
General rule: The agent is:
a. bound by his acceptance to carry out the agency
b. Liable for damages, which the principal may suffer, in case of non
-performance
c. Bound to finish the business already begun on the death of the principal
should delay entail danger
Exception: An agent shall not carry out an agency if its execution would
manifestly result in loss or damage to the principal (Art. 1888)
OBLIGATIONS OF AGENT
3. Obligation to advance necessary funds
General rule: The agent is not bound to advance the necessary funds. The
principal is obliged to advance to the agent, should the latter so request, the
sums necessary for the exercise of the agency.
Exception: He shall be bound to do so should there be a stipulation to that
effect, subject to the obligation of the principal to reimburse the agent.
Exception to the Exception: He is not bound to do so, even when there is a
stipulation, when the principal is insolvent. (Art. 1886)
OBLIGATIONS OF AGENT
4. Obligation to act in accordance with instructions
In the exercise of the agency:
a. The agent shall act in accordance with the instructions of the principal; or
b. In default thereof, he shall do all that a good father of a family would do,
as required by the nature of the business (Art . 1887)
5. Obligation to prefer interest of principal
General rule: The agent shall be liable for damages if, there being a conflict
between his interest and those of the principal, he should prefer his own. (Art.
1889)
Exception: The agent is not liable for giving preference to his own when:
1. The principal waives the benefit of this rule, with full knowledge of facts;or
2. When the interest of the agent is superior
OBLIGATIONS OF AGENT
6. Obligation for things received
Every agent is bound to:
1. Render an account of his transactions; and
2. Deliver to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal.
Note: Every stipulation exempting the agent to render an account shall be
void( Art. 1891)
OBLIGATIONS OF AGENT
7. The agent is responsible for the acts of the substitute:
a. when he was not given the power to appoint one;
b. When He was given such power, but:
b.1. Without designating the person; and
b.2. The person appointed was notoriously incompetent or insolvent.
Note: The agent may appoint a substitute if the principal has not prohibited him
from doing so.
OBLIGATIONS OF AGENT TO THIRD PERSONS
LIABILITY OF AGENT FOR OBLIGATIONS CONTRACTED
General rule: The agent who acts as such is not personally liable to the party
with whom he contracts. The principal is responsible for such acts done within
the scope of the authority granted to the agents, and should bear any damage
caused to third persons (Art. 1910)

Exceptions: He is personally liable when:

a. He acts in his own name (Art. 1883)
b. He expressly binds himself; or
c. He exceeds the limits of his authority without giving such party sufficient
notice of his powers (Art. 1897)
OBLIGATION OF THE PRINCIPAL
1. Obligation to comply with contracts
General rule: The principal must comply with all the obligations which the
agents may have contracted within the scope of his authority (Art. 1910, par.

Exceptions: The principal is:

a. Bound by the obligation entered into by the agent in excess of his power,
when he ratifies it expressly or tacitly (Art. 1910, par. 2)
b. Solidarily liable with the agent if the principal allowed the agent to act as
though he had full powers (Art. 1911)
LIABILITY OF PRINCIPAL FOR EXPENSES AND DAMAGES
NECESSARY FUNDS
1. The principal must advance to the agent, should the latter so request, the
sums necessary for the execution of the agency
2. In case the agent already advanced them, the principal must reimburse him
therefor;
a. Even if the business or undertaking was not successful;
b. Provided that the agent is free from all fault (Art. 1912)
MODES OF EXTINGUISHMENT OF AGENCY
1. By its revocation
2. By the withdrawal of the agent
3. By the death, civil interdiction, insanity or insolvency of the principal or of
the agent
4. By the dissolution of the firm or corporation which entrusted or accepted
the agency
5. By the accomplishment of the object or purpose of the agency;
6. By the expiration of the period for which the agency was constituted (Art.
1919)