PART II

TITLE X
AGENCY (Arts. 1868-1932)

Chapter 1. NATURE, FORM, AND

KINDS OF AGENCY

Article. 1868. 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.
Notes:

The
concept
of
agency
excludes the relationship of
employer and employee (Art.
1700), of master and servant
(Art. 1680), and of employer
and independent contractor
(Art. 1713).

Agency
is
a
fiduciary
relationship which implies a
power in an agent to contract
with a third person on behalf
of a principal.

Agency, properly speaking,

relates to commercial or
business
transactions.
Agency relationship may also
arise
in
non-business
situations, as for example, a
person returns an article to a
lender for a borrower-friend.

Agency is governed by the

Civil Code. (Arts. 1868-1932).

CHARACTERISTICS
OF
CONTRACT OF AGENCY

The contract of agency is:

(1)Consensual: it is based on
the agreement of the parties
which is perfected by mere
consent;
(2)Principal: it can stand by
itself without need of another
contract;
(3)Nominate: it has its own
name;
(4)Unilateral: if it is gratuitous
because it creates obligations
for only one of the parties,
i.e. the agent; or Bilateral, if
it
is
for
compensation
because it gives rise to
reciprocal
rights
and
obligations; and
(5)Preparatory: it is entered
into as a means to an end,
i.e., the creation of other
transactions or contracts.
Nature, basis, and purpose of
agency.
(1)Nature: it is necessary that
the minds of the parties
should meet in making it.
(a) Manifestation of consent.
Intention of the principal
that the agent shall act for
him and of the agent that
he shall act for the
principal is necessary. It is

manifested either in words

or conduct between them.
(b)Agent, by legal fiction,
becomes principal. The
agent, by legal fiction,
becomes
the
principal
authorized to perform all
acts which the latter
would have him do. Such
a relationship can only be
effected with the consent
or
authority
of
the
principal which cannot in
any way be compelled by
law or by any court.
(c) Presence or absence of
contract of consideration.
The relationship may be
created by operation of
law
(e.g.
agency
by
estoppel), or a person who
acts
for
another
as
principal
may
do
so
gratuitously.
(2)Basis. Agency is also a
representative relation.
(a) Personal
contract
of
representation.

Representation constitutes
the basis of agency. It is
generally revocable.
(b) Acts of agents, by legal f
ction, acts of principal. The
acts of the agent on behalf of
the principal within the scope
of his authority (Art. 1881.)
produce the same legal and
binding effects as if they

were personally done by the

principal. The distinguishing
features of agency are its
representative character and
its derivative authority.
-

He who acts through

another acts himself or
He who does a thing by
an agent is considered as
doing it himself.
Thus, where an agent
purchased property in bad
faith, the principal should
also
be
deemed
a
purchaser in bad faith.

(3) Purpose: to extend the

personality of the principal through
the facility of the agent; to render
some service to do or something.

PARTIES TO THE CONTRACT

The two parties to the contract are
the:
(1) Principal. one whom the
agent represents and from whom
he derives his authority; he is the
person
represented.
Agency
imports
the
contemporaneous
existence of a principal, and there
is no agency unless one is acting
for and in behalf of another; and
(2) Agent. one who acts for and
represents another; he is the
person acting in a representative
capacity. The agent has derivative
authority in carrying out the
principals
business.
He
may
employ his own agent in which

case he becomes a principal with

respect to the latter.

behalf, sue on a contract made for

his principal, as an assignee of
such contract.

Essential Elements of agency

They are as follows:
(1) There is consent, express or
implied, of the parties to establish
the relationship;
(2) The object is the execution of a
juridical act in relation to third
persons;
3)
The
agent
acts
as
a
representative and not for himself;
and
(4) The agent acts within the scope
of his authority.
Relationship of third party with
principal and agent
(1) Since an agents contract is not
his own but his principals, a third
partys liability on such contract is
to the principal and not to the
agent, and liability to such third
party is enforceable against the
principal, not the agent.
(2) Where an agency exists, the
relationship of the third party with
whom the agent has contracted, to
the principal, is the same as that in
a contract in which there is no
agent.
G.R: Normally, the agent has
neither rights nor liabilities as
against the third party. He cannot
sue or be sued on the contract.
Exception: Where an agent is
constituted as an assignee. In such
a case, the agent may, in his own

Capacity of the parties

(1)Principal: A principal must be
capacitated or have the legal
capacity
to
enter
into
contract in his own right.

It is a general rule that an

agent who assumes to
contract in the name of a
principal
without
contractual
capacity
renders himself liable to
third persons.
The acts of an agent done
for
an
incompetent
principal may be ratified
by the latter after he
acquires capacity.
The agent is not liable
where he was ignorant of
the principals incapacity.

(2)Agent. Generally, anyone

can be an agent. His capacity
is usually immaterial. Since
he assumes no personal
liability, he does not have to
possess full capacity to act
for himself insofar as third
persons are concerned.

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.
Acts that may be/not
delegated to agents

be

Some acts cannot be done through

an agent.
(1)Personal acts. If personal
performance is required by
law or public policy or the
agreement of the parties, the
doing of the act by a person
on behalf of another does not
constitute performance by
the latter. (e.g. the right to
vote; the making of a will;
statements required to be
made under oath; right to
attend the board meetings by
a member of the board of
directors or trustees of a
corporation; and those acts
which
an
agent
cannot
delegate to a sub-agent
which he has been appointed
to perform in person.)
(2)Criminal acts or acts not
allowed by law. There can
be
no
agency
in
the
perpetration of a crime or an
unlawful act.
Nature of relations
principal and agent

between

(1)Relations
fduciary
in
character. The relations of
an agent to his principal are

fiduciary in character since

they are based on trust and
confidence
(Severino
vs.
Severino,
44
Phil.
343
[1923].), on a degree which
varies
considerably
from
situation to situation.
(2)Agent
estopped
from
asserting interest adverse to
his principal. It is an
elementary and very old rule
that in regard to property
forming the subject matter of
the agency, the agent is
estopped from asserting or
acquiring a title adverse to
that of the principal. His
position is analogous to that
of a trustee and he cannot,
consistently
with
the
principles of good faith, be
allowed to create in himself
an interest in opposition to
that of his principal or cestui
que trust.
(3) Agent must not act as an
adverse party. In matters
touching the agency, agents
cannot act so as to bind their
principals, where they have an
adverse interest in themselves.
(4) Agent must not act for an
adverse party. An agent
cannot serve two masters,
unless both consent, or unless
he is a mere middleman or
intermediary (e.g., real estate
broker) with no independent
initiative.
(5)Agent must not use or
disclose secret information.
Requirements of good faith

and loyalty demand of the

agent the duty not to use or
divulge
confidential
information obtained in the
course of his agency for his
own
benefit
t
to
the
principals
injury
and
expense.
(6) Agent must give notice of
material facts. Principles of
good faith and loyalty to the
principals interests also require
that an agent make known to
his principal every and all
material facts, of which the
agent has cognizance, which
concern the transaction and
subject matter of the agency. On
failure to do so, the agent may
be held liable for damages for
any loss suffered or injury
incurred as a result of such
breach.
Knowledge of agent imputed to
principal
G.R: Knowledge of agent is imputed
to the principal
(1)Agents duty of notification
(2)Relationship of attorney and
client
(3)Knowledge of the principal.
The
theory
of
imputed
knowledge
ascribes
the
knowledge of the agent to
the principal, not the other
way around. The knowledge
of the principal cannot be
imputed to his agent.

Exceptions:
(1)Where the agents interests
are adverse to those of the
principal;
(2)Where the agents 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 V. LOAN

The relation between

the parties is one of
lender and borrower or
principal and agent
depends on the terms
of
the
contract
between
them
and
their intention.

One
who
borrows
money to conduct a
business in which the
lender has no interest
or concern in the
manner of its conduct
is not an agent of the
lender,
but
the
financing of operations
to be carried on by
another for the mutual
advantage
of
both,
without any obligation
of such other to return
the money advanced,
makes such other an
agent rather than a
borrower.

An agent may be given

funds by the principal
to advance the latters
business,
while
a
borrower
is
given
money for purposes of
his own and he must
generally
return
it
whether or not his own
business is successful.
Where
checks
are
deposited
with
a
collecting bank, the
nature
of
the
relationship created at
that stage is one of
agency, that is, the
bank is to collect from
the drawees of the
checks
the
corresponding
proceeds.
After
the
checks are collected
and
converted
into
cash, the creditor and
debtor relationship is
created between the
depositor and the bank.
Where one deposits
money with a bank
with
instructions
to
apply it in satisfaction
of the debt of a third
person,
the
conventional
debtor
and
creditor
relationship
between
the bank and the
depositor is created,
coupled with an agency
on the part of the bank
to pay the debt, which

is revocable at the will

of the depositor.

AGENCY V. LEASE SERVICE

(1) In agency, the basis is
representation, while in lease of
service
(see Art. 1689.), it is
employment;
(2) In agency, the agent exercises
discretionary powers, while in lease
of service, the lessor (like a
servant) ordinarily performs only
ministerial functions (see Nielson &
Co., Inc. vs. Lepanto
Consolidated Mining Co., 26 SCRA
540 [1968].);
(3) In agency, three persons are
involved: the principal, the agent,
and the third person with whom the
agent has contracted, while in
lease of service, only two persons
are involved: the lessor (master or
employer) and the lessee (servant
or employee); and
(4)Agency relates to commercial
or
business
transactions,
while lease of service (like in
the case of master and
servant) relates more to
matters of mere manual or
mechanical
execution,
in
which the servant acts under
the direction and control of
the master.
AGENCY
CONTRACT

V.

INDEPENDENT

(1)In agency, the agent is

subject to the control and
direction of the principal
whom he represents with
respect
to
the
matters
entrusted to him. In a
contract for a piece of work,
the independent contractor,
without being subject to the
control of the employer
except only as to the result of
the
work,
exercises
his
employment independently,
and not in representation of
the employer.
AGENCY V. PARTNERSHIP
(1)An essential characteristic of
the agency relationship, i.e.,
control by the principal,
which is not applicable to the
partnership
concept.
In
partnership,
a
partners
power to bind his co-partner
is not subject to the copartners right to control,
unless there is an agreement
to that effect.
(2)A partner acting as agent for
the partnership binds not
only the firm members but
himself as well, while the
ordinary agent assumes no
personal liability where he
acts within the scope of his
authority.
(3)As to the sharing of profits, if,
when earned, the profits
belong to all the parties as
common
proprietors
in
agreed
proportions,
the
relation is one of partnership,

but if the alleged owner or

partner takes his agreed
share of profits, not as owner
but as an agreed measure of
compensation for his services
or the like, the relation is one
of agency.
AGENCY
GESTIO

V.

NEGOTIORUM

(1)In
both
agency
and
negotiorum gestio or the
management of the business
or affairs of an absentee,
there is representation.
(2)The distinction lies in the fact
that
in
agency,
the
representation is expressly
conferred,
while
in
negotiorum gestio, it is not
only without the authority of
the owner of the business but
is without his knowledge.
(3)While
the
agent
acts
according to the express will
of the principal, the gestor
acts
according
to
the
presumed will of the owner
by exercising all the diligence
of a good father of a family.
(4)Agency is a contract, while
negotiorum gestio is a quasicontract.
AGENCY V. BROKERAGE
Brokerage: refers to the trade or
occupation of the broker.

(1)A commission agent (see Art.

1903.) is one engaged in the
purchase or sale for another
of personal property which
for this purpose, is placed in
his possession and at his
disposal. He maintains a
relation not only with his
principal and the purchaser
or vendor, but also with the
property which is the subject
matter of the transaction. On
the other hand, a broker has
no relation with the thing he
buys or sells. He is merely an
intermediary or negotiator
between the purchaser and
the vendor relative to the
property with the custody or
possession of which he has
no concern. His only office is
to bring together the parties
to the transaction never
acting in his own name but in
the name of those who
employed him.
(2)An
agent
receives
a
commission
upon
the
successful conclusion of a
transaction such as sale. On
the other hand, a broker
earns his pay merely by
bringing the buyer and the
seller together, even if no
sale is eventually made.
(3)Agent is a broader term than
broker, for, while brokers are
agents, their powers are
limited, and when they have
no charge or control of the
property, but act only as gobetweens in executing a sale,
they cannot be said to be
agents in the larger sense

entitled to receive payment

for the goods delivered,
unless
specifically
authorized.
AGENCY V. SALE
(1)In an agency to sell, the
agent receives the goods as
the goods of the principal,
while in sale, the buyer
receives the goods as owner;
(2)In an agency to sell, the
agent delivers the proceeds
of the sale, while in a sale,
the buyer pays the price;
(3)In an agency to sell, the
agent, in dealing with the
thing received, is bound to
act
according
to
the
instructions of his principal,
while in a sale, the buyer can
deal with the thing as he
pleases, being the owner.

The elementary notion of

sale is the transfer of title to
a thing from one to another,
while the essence of agency
involves the idea of an
appointment of one to act for
another.
Agency is a relationship
which often results in a sale,
but the sale is a subsequent
step in the transaction.

AGENCY V. BAILMENT
(1)The bailee is possessed of no
power to bind the bailor in
personal liability and he owes

neither loyalty nor obedience

to the bailor.
(2)A bailee, however, may be
constituted an agent as to
third parties, where, for
example, he is vested with
ostensible authority to sell or
to make binding contracts
with respect to the subject
matter of the bailment.

AGENCY V. GUARDIANSHIP
The distinctions are:
(1) While the agent derives his
authority from his principal, the
guardian, although he acts for and
on behalf of his ward, does not
derive his authority so to act from
the ward (2 C.J.S.
1027.);
(2) The relation of principal and
agent is founded upon consent of
the parties thereto, while that of
guardian and ward may be created
irrespective of the consent or
capacity of the ward;
(3) Agents are subject to the
control of their principals, while
guardians are not subject to the
direction of their wards;
(4) A legal guardian is substituted
by law, while ordinarily an agent is
the appointee of the principal and
his power may at any time be
abrogated or modified by the
principal (see 3 Am.
Jur. 2d 421.); and

(5) While an agent represents one

who has capacity to contract for
himself where he present, a
guardian represents one who has
no such capacity.

AGENCY V. TRUST
(1)In trust, the title and control
of the property under the
trust instrument passes to
the trustee who acts in his
own name, while the agent
represents and acts for his
principal;
(2)While a trust may ordinarily
be terminated only by the
fulfillment of its purpose, an
agency may in general be
revoked at any time;
(3)Agency is formed with the
thought
of
constant
supervision and control by
principal, whereas a trust is
based on the idea of
discretion in the trustee and
guidance by the settler or
cestui only to a limited extent
and when expressly provided
for;
Notes:

While trust is not an agency,

it is possible for a trustee to
be an agent also where
extensive
direction
and
control are kept over the
trustee. (First Wisconsin Trust
Co. v. Wisconsin Dept. of
Taxation)

Incidentally, a director of a
corporation
acts
in
a
fiduciary capacity but the
relationship is not of trust but
agency.

AGENCY
V.
ADMINISTRATION

JUDICIAL

(1)A judicial administrator is

appointed by the court. He is
not only the representative of
the said court, but also of the
heirs and creditors of the
estate. In agency, such is not
the case;
(2)A
judicial
administrator,
before entering into his
duties, is required to file a
bond. This is not true in case
of agency;
(3)The protection which the law
gives the principal, in limiting
the powers and rights of an
agent, stems from the fact
that control by the principal
can
only
be
through
agreements; whereas, the
acts
of
a
judicial
administrator are subject to
specific provisions of law and
orders of the appointing
court.

Agency may be oral, unless the law

requires a specific form.
KINDS OF AGENCY
Agency
follows:

may

be

classified

as

(1) As to manner of its creation:

(a) express. one where the agent
has been actually authorized by
the principal, either orally or in
writing (Art.1869.); or
(b) implied. one which is 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 (Ibid.), or from the acts of
the agent which carry out the
agency, or from his silence or
inaction
according
to
the
circumstances. (Art. 1870.)
An implied agency is an actual
agency as much as an express
agency. The enumeration of cases
of implied agency in Articles 1869
and 1870 is not exclusive.
(2) As to its character:

Art. 1869. 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.

(a) gratuitous. one where the

agent receives no compensation
for his services (Art. 1875.); or
(b) compensated or onerous.
one where the agent receives
compensation for his services.

(3) As to
covered:

extent

of

when the law requires a

specific form for the agency
is Article 1874.

business

(a) general. one which comprises

all the business of the principal
(Art. 1876.); or

Art. 1874. When a sale of a

piece 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.

(b) special. one which comprises

one or more specific transactions.
(4) As to authority conferred:
(a) couched in general terms.
one which is created in general
terms and is deemed to comprise
only acts of administration (Art.
1877.); or
(b) couched in specifc terms.
one
authorizing
only
the
performance of a specific act or
acts. (see Art. 1878.)
(5) As to its nature and effects:

(2)Agency may even be implied

from words and conduct of
the
parties
and
the
circumstances
of
the
particular case. But agency
cannot be inferred from mere
relationship or family ties.

Notes:

It is not essential that an

agent should be appointed
directly by the principal, but
the appointment may be
made through another, as by
referring an applicant to
another and representing
that he has authority to act,
or the relation may arise out
of an agreement to employ
the agent of another, such
person then becoming the
agent of the first party.

An agent appointed by the

directors of a corporation to
act for the corporation is an
agent of the corporation and
not of the directors.

(a) ostensible or representative.

one where the agent acts in the
name and representation of the
principal (Art. 1868.); or
(b) simple or commission. one
where the agent acts in his own
name but for the account of the
principal.
FORM OF AGENCY
(1)In general, there are no
formal
requirements
governing the appointment
of an agent. The agents
authority may be oral or
written. It may be in public or
private writing. An instance

PRESUMPTION OF AGENCY

General Rule: Agency is not

presumed. The relation between
principal and agent must exist as a
fact.
It is a rule that whatever
statements
or
communications
made by the parties (supposed
principal and agent) between
them, if anything thereto appears
contrary to their intention, the
latter will always prevail.

POWER OF ATTORNEY

Exceptions: A presumption of
agency may arise, however, in
those few cases where an agency
may arise by operation of law or to
prevent unjust enrichment.
Art. 1870. 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 the
circumstances.

Art. 1871. 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 any objection.

As
regards
implied
acceptance by the agent, the
law distinguishes between
cases (1) where persons are
present (Art. 1871) and (2)
where persons are absent
(Art. 1872).
The agency is impliedly
accepted
if
the
agent
receives a power of attorney
from the principal himself

personally
without
any
objection,
both
being
present.
The
presumption
of
acceptance may be rebutted
by contrary proof.

It 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
written
authorization itself is the
power of attorney, and this is
clearly indicated by the fact
that it has also been called a
letter of attorney.
Its primary purpose is not to
define the authority of the
agent as between himself
and his principal but to
evidence the authority of the
agent to third parties within
whom the agent deals; and
the person holding a power
of attorney is shown and
designated as an attorneyin-fact, thus distinguishing
such
person
from
an
attorney-at-law.
A power of attorney must be
strictly construed and strictly
pursued. Under this rule, the
instrument will be held to
grant only those powers
which are specified and
defined, and the agent may
neither
go
beyond
nor

deviate from the power of

attorney.
Power
of
attorneys
are
ordinarily subjected to a
strict construction as to
preclude all authority not
expressly
given,
or
necessarily to be inferred
(Cummins v. Beaumont).
A special power of attorney
executed in a foreign country
is generally not admissible in
evidence
as
a
public
document in our courts.
(Teotoco v. Metropolitan Bank
and Trust Co.).
The rule however is not
absolute and should not be
applied to the extent of
destroying the very purpose
of the power. If the language
will permit, a construction
should be adopted which will
carry out, instead of defeat,
the
purpose
of
the
appointment. Even if there

are repugnant clauses in a

power of attorney, they
should be reconciled, if
possible, so as to give effect
to the instrument in keeping
with its general intent or
predominant purpose.
Art. 1872. Between persons who
are absent, the acceptance of the
agency cannot be implied from the
silence of the agent, except:
(1)When the principal transmits
his power of attorney to the
agent,
who
receives
it
without any objection;
(2) When the principal entrusts
to him by letter or telegram a
power
of
attorney
with
respect to the business in
which
he
is
habitually
engaged as an agent, and he
did not reply to the letter or
telegram.