TITLE X

AGENCY

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.

DEFINITION
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 [Article 1868].
Agency may refer to both a contract, as defined in the provision, and the representative relation created.
As a relation, agency is fiduciary (based on trust and confidence), which implies a power in an agent to
contract with a third person on behalf of a principal.
The basis of agency is representation [Victorias Milling v. CA]
In an agent-principal relationship, the personality of the principal is extended through the facility of the
agent. In so doing, 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 of the principal,
which must not, in any way, be compelled by law or by any court. [Orient Air v. CA ]
CHARACTERISTICS
The contract of agency is:
1. Consensual, perfected by mere consent;
2. Nominate, has its own name;
3. Preparatory, entered into as a means to enter into other contracts;
4. Principal, does not depend on another contract for existence and validity;
5. Bilateral, if for compensation, giving rise to reciprocal rights and obligations, but unilateral, if
gratuitous, creating obligations only for the agent.
CONSTITUTION OF AGENCY
ESSENTIAL ELEMENTS

1.
2.
3.
4.

There is consent, express or implied, of the parties to establish the relationship;

The object is the execution of a juridical act in relation to third persons;
The agent acts as a representative and not for himself; and
The agent acts within the scope of his authority. [Rallos v. Felix Go Chan (1978)]

PARTIES

1. Principal- one whom the agent represents and from whom he derives his authority; and
2. Agent- who acts for and represents the principal, having derivative authority in carrying out the
business of the latter.
Juridical persons such as corporations and partnerships can be principals and agents [Article 1919(4)].
CAPACITY OF PARTIES

(1) A principal must have legal capacity to enter into contract in his own right.
(2) An agent must have legal capacity to enter into the contract of agency, although he may not have
capacity to enter into the particular contract subject of agency.
Ratio: One who acts through an agent in law does the act himself. As such, the capacity to act by an
agent depends in general on the capacity of the principal to do the act himself as if he were present.

INTENTION OF PARTIES

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 on the part of the agent, there must be an intention to accept the
appointment and act on it. [Victorias Milling v. CA (2000)]
General rule: In the absence of such intent, there is generally no agency.
Exceptions:
(1) Agency by estoppel; and
(2) Agency by operation of law.
Article 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.
Agency may be oral, unless the law requires a specific form.
Article 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.
Article 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.
Article 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.
CONSENT OF PARTIES

1. An agency is either express or implied. This is true on the part of the principal as well as on the
part of the agent. It does not require express appointment and acceptance.
2. As to the principal, the appointment of an agent maybe express, or implied:
a. From his acts;
b. From his silence or lack of action; or
c. From his failure to repudiate the agency, knowing that another person is acting on his
behalf without authority.
3. The appointment may be oral, unless the law requires a specific form. [Article 1869]
4. As to the agent, acceptance may also be express, or implied.
a. From his acts which carry out the agency;
b. From his silence or inaction according to the circumstances [Article 1870];
c. Both the principal and the agent being present if:
i. The principal delivers his power of attorney to the agent; and
ii. The agent receives it without any objection[Article 1871];
d. Both the principal and the agent being absent, when:
i. The principal transmits his power of attorney to the agent, who receives it without
any objection; or

ii. 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.
5. In other cases between persons who are absent, acceptance cannot be implied from the silence
of the agent. [Article 1872]
POWER OF ATTORNEY

A power of attorney 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 of kinds of acts on his behalf.
The written authorization itself is the power of attorney. It has also been called a "letter of attorney."
Its primary purpose is not to define the authority of the agent, but to evidence the authority of the agent to
third parties with whom the agent deals. The person holding the power of attorney is designated as an
"attorney-in-fact."
FORM OF CONTRACT

General rule: There are no formal requirements governing the appointment of an agent.
Exceptions:
1. When the law requires a specific form [2nd par.,Article 1869];
2. When a sale of piece of land or any interest therein is through an agent, in which case the
authority shall be in writing; otherwise the sale is void [Article 1874];
3. When the law requires a special power of attorney [Article 1878].
DESIGNATION BY THE PARTIES

The manner in which the parties designate the relationship is not controlling. The use of this term
("agent") in one clause of the contract cannot dominate the real nature of the agreement as revealed in
other clauses, no less than in the caption ["agency agreement"] of the agreement itself.[Albadejo y Cia v.
Phil. Refining (1923)]
ACTS DELEGATED

General rule: What a person may do in person, he may do through another.

Exceptions:
1. Personal acts, which the law or public policy requires to be performed personally (e.g., to vote,
make a will, make statements under oath, or attend board meetings as director or trustee of a
corporation);
2. Criminal acts;
3. Acts not allowed by law to be done by the principal.
PRESUMPTION OF EXISTENCE

General rule: It [agency] must exist as a fact. The law makes no presumption thereof. The person alleging
it has the burden of proof to show, not only the fact of its existence, but also its nature and extent. [People
v. Yabut (1977)]
Exceptions: A presumption of agency may arise:
1. Where an agency may arise by operation of law (e.g., all the partners being considered agents
of the partnership when the manner of management has not been agreed upon); or
2. To prevent unjust enrichment.
Article 1873. If a person specially informs another or states by public advertisement that he has given a power
of attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case with
respect to the person who received the special information, and in the latter case with regard to any person.
The power shall continue to be in full force until the notice is rescinded in the same manner in which it was
given.

COMMUNICATION OF EXISTENCE OF AGENCY

There are two ways of giving notice of agency (that a person has given a power of attorney to a third
person), with different effects:
1. If a person specially informs another (e.g., by letter), the person appointed as agent is
considered such with respect to the person specially informed;
2. If a person states by public advertisement, the person appointed as agent is considered such
with regard to any person.
In either case, the power of the agent continues in full force until the notice is rescinded in the same
manner in which it was given. [Article 1873]
DUTY OF THIRD PERSON

The person dealing with the agent must act with ordinary prudence and reasonable diligence.
Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot
claim protection. [Keeler Electric v. Rodriguez (1922)]
EFFECT
EXTENSION OF PERSONALITY

It bears stressing that in an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized
to perform all acts which the latter would have him do. [Litonjua v. Eternit Corp. (2006)]
THEORY OF IMPUTED KNOWLEDGE

An important implication of this extension of personality is the general rule that knowledge of the agent is
imputed to the principal even though the agent never communicated such knowledge to the principal.
Requisites:
1. Actual notice to the agent;
2. Notice must pertain to a matter of fact and not of law;
3. The fact must be within the scope of the agent's authority.
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:
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 (e.g., he is informed by way of
confidential information);
3. Where the person claiming the benefit of the rule colludes with the agent to defraud the principal.
Article 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.
Article 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary.
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.
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.
Article 1878. Special powers of attorney are necessary in the following cases:
(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 judgment,
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 a valuable consideration;
(6) To make gifts, except 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.
Article 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does
not include the power to sell.
Article 1880. A special power to compromise does not authorize submission to arbitration.
Article 1881. The agent must act within the scope of his authority. He may do such acts as may be conducive
to the accomplishment of the purpose of the agency.
Article 1882. 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.
Article 1883. If an agent acts in his own name, the principal has no right of action against the persons with
whom the agent has contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the
transaction were his own, except when the contract involves things belonging to the principal.
The provisions of this article shall be understood to be without prejudice to the actions between the principal
and agent.