Agency: Nature, Form and Kinds of Agency (Arts. 1868 - 1883)

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. 

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Concept of Agency 

• Agency is a fiduciary relationship which implies a power in an agent to contract with a third person on behalf of a principal. 
• It is the 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 a contract of agency (CPN-UBP)

1. Consensual – based on the agreement of the parties which is perfected by mere consent 
2. Principal – it can stand by itself without another contract 
3. Nominate – has its own name 
4. Unilateral/Bilateral – can be gratuitous or by reason of compensation giving rise to reciprocal rights and obligations 
5. Preparatory – entered into as a means to an end.

Nature of Agency 

From the viewpoint of a contract.

• Manifestation of consent
• the principal must intend that the agent shall act for him, the agent must intend to accept the authority and act on it, and such intention of the parties must find expression either in words or conduct between them.
• Agent, by legal fiction, becomes principal
• in acting for the principal, by legal fiction, becomes the principal authorized to perform all acts which the latter would have him do.
• Presence/absence of contractual consideration 
• consideration is not necessary; 
• relationship may be created by operation of law or a person who acts for another as principal may do so gratuitously. 
• without a contract or a consideration there can be an agency power.

Basis of Agency

• Its basis is representation. 
• The agent renders some service or does something “in representation or on behalf of another.”
• Personal contract of representation
• Acts of agency, by legal fiction, acts of principal 

Purpose of Agency 

• The purpose of agency is to extend the personality of the principal through the facility of the agent to render some service to do or something.

Parties and their Capacities to a Contract of Agency  (P-A)

1. Principal 
• one whom the agent represents and from whom he derives his authority
• he is the person represented
• may be either a natural person or an artificial one
• must be capacitated or have the legal capacity to enter into contract in his own right
• ❌ voluntary association of persons which is not a legal entity = no legal existence, no capacity to appoint an agent
• ❌ during the state of war, an enemy alien may not appoint an agent to act in the belligerent territory with which his nation is at war
2. Agent
• one who acts for and represents another
• he is the person acting in a representative capacity. 
• his capacity is immaterial.
• no personal liability, does not have to possess full capacity to act for himself insofar as third persons are concerned
• mental capacity is necessary as an agent, absolutely incapacitated such as insane persons cannot be agents

Essential Elements of a Contract of Agency (CORS-C)

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. 
4. The agent acts within the scope of his authority. 
5. The parties must be competent to act as principal and agent

• ❌ Consideration is not required.

Creation of Agency Relationship

• It is based on the concept that the parties mutually agree on its creation. 
• Consent may be:
• oral 
• expressed by contract
• by operation of law
• by ratification.
• On the part of the principal, there must be an intention to appoint the agent, while on the part of the agent, there must be an intention to accept the appointment and act on it. 

Relationship of Third Party with Principal and Agent

• Since an agent’s contract is not his own but his principal’s a third party’s liability on such contract is to the principal and not to the agent. 
• Third person’s liability is enforceable against the principal, not the agent. 
• 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. 
• Agent as an Assignee 
• In such a case, the agent may, in his own behalf, sue on a contract made for his principal, as an assignee of such contract.
• He may bring an action founded on a contract made for his principal as an assignee of such contract. 
• 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.

Acts that may be/not be delegated to agents (P-C)

1. Personal acts 
• If 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. 
• Right to vote during election 
• Making of a will 
• Statements which are required to be made under oath
2. Criminal acts or acts not allowed by law
• If done by the principal would be illegal, thus void. 
• There can be no agency in the perpetration of a crime or an unlawful act.
• Alien cannot purchase land through a Filipino agent
• Persons prohibited from acquiring property cannot acquire the same through the mediation of another c
• Law on agency has no application in criminal cases. 

Determination of existence of agency

• The question is ultimately one of intention. 

1. Designation by the parties – not controlling
• an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he is not so-called
2. Fact of existence –  one represents and is acting for another.
• it will be an agency whether the parties understood the exact nature of the relation or not
3. Presumption of existence – cannot be inferred
• there must be consent by both parties
• law makes no presumption, it must exist as a fact
4. Intention to create relationship – absence of such intent, no agency 
• principal
• actual intention to appoint 
• intention naturally inferable from his words or actions
• agent:
• intention to accept the appointment and act on it
5. As between the principal and a third party – agency may exist without the direct assent of the agent
• by directing a third person to deal with another as agent, the principal necessarily authorizes the agent to act for him
• not necessary that the principal personally encounter the third person with whom the agent entire acts

Nature of relations between principal and agent

1. Relations fiduciary in character 
• based on trust and confidence, on a degree which varies considerably from situation to situation
2. Agent estopped from asserting interest adverse to his principal 
• his position is analogous to that of a trustee and he cannot, consistently with the principles of good faith, be allowed to create himself an interest in opposition to that of his principal 
• he has to refrain from placing one’s self in a position which ordinarily conflicts between self-interest and integrity.
3. Agent must not act as an adverse party 
• 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 consents, or unless he is a mere middleman or intermediary with no independent initiative.
• where an agent acts for both parties without the knowledge or consent of either, he is chargeable as trustee for all the profits of the transaction, and is responsible for any loss sustained by the principal, and cannot recover compensation from either principal
• where the third party (second principal) is aware of the dual employment but the principal is not, the latter has the right to affirm or rescind the transaction and recover damages from the third party and the agent irrespective any proof of actual fraud or that an improper advantage has been gained over him
• if double employment is with knowledge and consent of the principal, such principal is bound but he cannot recover from the other; he cannot complain of the agency’s breach of faith.
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 to the principal’s injury and expense
6. Agent must give notice of material facts 
• agent must make known to his principal every and all material facts, of which the agent has cognizance, which concern the transaction and subject matter of agency
• 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

1. Agent’s duty of notification 
• 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
2. Relationship of attorney and client 
• he is entitled to the fullest disclosure of why certain steps are taken and why certain matters are either included or excluded from the documents he is made to sign. 
3. Knowledge of the principal 
• the theory of imputed knowledge of the agent to the principal, not the other way around

Exception to the rule imputing knowledge of agent to the principal:

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 
3. Where the person claiming the benefit of the rule colludes with the agent to defraud the principal.

Agency vs. Lease of Service 

• Agency
• Basis is representation
• Agent exercises discretionary powers 
• Three persons are involved: Principal, agent, third person
• Lease of Service
• Basis is employment
• Lessor ordinarily performs only ministerial functions
• Two persons are involved: lessor (master/employer) and the lessee

Agency vs. Independent Contract

• Agency
• Agent is subject to control and discretion of the principal
• Agent represents the principal with respect to matters entrusted to him
• Agent is not liable
• Independent Contract
• Independent contractor is no subject to control of the employer
• Independent contractor exercises his employment independently and not in representation
• Employer may be liable in case of negligence

Agency vs. Negotiorum Gestio

• Agency
• Contract
• Representation is expressly conferred and with authority and with knowledge of principal
• Acts according to the express will of the principal
• Negotiorum Gestio
• Quasi-contract
• Representation is expressly conferred and with authority and with knowledge of principal
• Gestor acts according to the presumed will of the owner

Agency vs. Partnership

• Agency
• Pure agency
• Agent is controlled by the principal
• Agent has no personal liability if he acts within the scope of his authority
• Share of profits is an agreed measure of compensation for his services or the like
• Partnership
• Mutual agency
• Co-partner cannot be subject to another co-partner’s right to control
• Partner acting as agent for the partnership binds not only the firm members but himself as well
• Profits belong to all the parties as common proprietors in agreed proportions

Agency vs. Trust

• Agency
• Agent represents and acts for his principal
• Agency may in general be revoked at any time
• Trust
• Title and control of the property under trust instrument passes to the trustee who acts in his own name
• Trust may be terminated only by fulfillment of its purpose 

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.

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Kinds of Agency (CCCAN)

1. As to manner of its creation:  (C-EI)
• Express
• oral or in writing (authority) 
• Implied (not exclusive) 
• principal
• from the acts of the principal
• from his silence or lack of action
• from his failure to repudiate the agency knowing that another person is acting on his behalf without authority  
• agent
• from the acts of the agent which carry out the agency 
• from his silence or inaction according to the circumstances
2. As to its character: (C-GC)
• Gratuitous 
• Compensated or onerous 
3. As to extent of business covered: (C-GS)
• General 
• comprises all the business of the principal
• Special 
• comprises one or more specific transactions
4. As to authority conferred: (A-GS)
• Couched in general terms 
• created in general terms and is deemed to comprise only acts of administration
• Couched in specific terms 
• authorizing only the performance of a specific act/s. 
5. As to its nature and effects: (N-RS)
• Ostensible or representative
• agent acts in the name and representation of the principal 
• Simple or commission
•  agent acts in his own name but for the account of the principal

Form of Agency 

• General rule: It is created by contract which may be:
• oral
• written
• implied
• Exceptions: 
1. When form is required for the validity of the contract 
2. When it is required to make the contract effective against third person 
3. When it is required for the purpose of proving the existence of a contract such as those provided in the Statute of Frauds.

Appointment of Agent

• 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. 

Presumption of Agency 

• General rule: Agency is not presumed. 
• The relation between principal and agent must exist as a fact. 
• Burden of proof rests upon the person alleging the agency to show, not only the fact of its existence, but also its nature and extent. 
• Exception: Presumption may arise in those cases where an agency may arise by operation of law or to prevent unjust enrichment. 

Authority of attorney to appear on behalf of his client 

• Authority in an action presumed.
•  Scope of authority – an act performed by counsel within the scope of a “general or implied authority” is regarded as an act of the client.
• Exceptions:
1. Where reckless or gross negligence of counsel deprives the client of due process of law 
2. When its application will result in outright deprivation of the client’s liberty or property
3. Where the interest of justice so requires
• Authority outside the court
• The extent of authority of a lawyer, when acting on behalf of his client outside of court is measured by the same test as that which is applied to an ordinary agent.

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.

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Form of acceptance by agent. 

• There must be consent by both parties, either express or implied.
• Principal (Art. 1869.)
• Agent. (Art. 1870.) 
• It does not depend upon express appointment and acceptance.

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.

 

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Acceptance between persons present.

• Two cases of implied acceptance by the agent:
1. where persons are present (Art. 1871.)
2. where persons are absent. (Art. 1872.)

Implied acceptance by the agent, persons are present

• Agent receives a power of attorney from the principal himself personally without any objection, both being present
• Presumption of acceptance may be rebutted by contrary proof.

Power of Attorney (POA) 

•  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 acts or kinds of acts on behalf of the principal. 

Purpose of Power of Attorney

• To evidence the authority of the agent to third parties within whom the agent deals; 
• the person holding a power of attorney is shown and designated as an “attorney-in-fact,” thus distinguishing such person from an attorney-at-law
• Not to define authority

Construction of Powers of Attorney 

• Rule of strict construction
• The act done must be legally identical with that authorized to be done. 
• Where the mode of exercising their power is prescribed in the instrument in which it is created, there must be strict compliance therewith in every substantial particular. 
• Qualification of the rule
• Not absolute and should not be applied to the extent of destroying the very purpose of the power. 

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.

BPA-AA-CI-FSA,E:

1. WPT-PA-A-RWO

2. WPE-LTPA-RBHEA-NR-LT

Implied acceptance by the agent, persons are absent

• If both the principal and the agent are absent, acceptance of the agency by the agent is not implied from his silence or inaction.
• Exceptions:
1. Agent writes a letter acknowledging receipt of the power of attorney but offers no objection to the creation of the agency.
2. Power of attorney is with respect to the business in which he is habitually engaged as an agent.
3. Inferred from the agent's acts which carry out the agency, as when he begins to act under the authority conferred upon him.
• Article 1871 — the principal personally delivers the power of attorney to the agent
• Article 1872 — the principal transmits the power of attorney to the agent

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.

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Communication of existence of agency.

Two ways of giving notice of agency:

1. By special information
• the person appointed as agent is considered such with respect to the person to whom it was given
2. By public advertisement
• the agent is considered as such with regard to any person
• Form:
• newspaper
• radio
• posters
• billboards, etc.

Manner of revocation of agency.

• The power of attorney must be revoked in the same manner in which it was given.
• If agency has been entrusted for the purpose of contracting with specified persons 
• its revocation shall not prejudice the latter if they were not given notice thereof
• If the agent had general powers 
• revocation of the agency does not prejudice third persons who acted in good faith and without knowledge of the revocation.
• Notice of revocation in a newspaper of general circulation is a sufficient warning to third persons. 
• Revocation made in any manner is effective where the person dealing with the agent has actual knowledge thereof; otherwise, bad faith and fraud would be committed. 

Estoppel to deny agency.

• Estoppel of agent
• one professing to act as agent for another may be estopped to deny his agency both as against his asserted principal and the third person interested in the transaction in which he is engaged.
• Estoppel of Principal
• As to agent
• One who knows that another is acting as his agent and fails to repudiate his acts, or accepts the benefits of them, will be estopped to deny the agency as against such other.
• As to sub-agent
• To estop the principal from denying his liability to a third person, he must have known or be charged with knowledge of the fact of the transaction and the terms of the agreement between the agent and sub-agent.
• As to third persons
• One who knows that another is acting as his agent or permitted another to appear as his agent, to the injury of third persons who have dealt with the apparent agent as such in good faith and in the exercise of reasonable prudence, is estopped to deny the agency.
• Estoppel of third persons. 
• A third person, having dealt with one as an agent may be estopped to deny the agency as against the principal, agent, or third persons in interest. 
• He will not, however, be estopped where he has withdrawn from the contract made with the unauthorized agent before receiving any benefits thereunder.
• Estoppel of the government.
• The government is neither estopped by the mistake or error on the part of its agents. 
• But it may be estopped through affirmative acts of its officers acting within the scope of their authority. 

Agency by Estoppel vs. Implied Agency

• Agency by Estoppel
• There is no agency at all, but one assuming to act as agent has apparent or ostensible authority to represent another There is an actual agency.
• It may be invoked only by a third person who in good faith relied on the conduct of the principal in holding the agent out as being authorized
• Should be restricted to cases in which authority is not real but apparent
• Implied Agency
• There is an actual agency
• Reliance is not necessary since the agent is a real agent
• Being actual agency, it is a fact to be proved by deductions or inferences from other acts 

• ✅An agent by implied appointment is a real agent with all the rights and liabilities 
• ❌ An apparent agent, an agent by estoppel, is no agent at all, and as against the principal, has none of the rights of an agent.

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.

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Sale of land through agent.

• General rule: 
• written
• oral
• Exceptions: 
• the sale of a piece of land (not any other real estate) or any interest thereon, like usufruct, mortgage, etc., through an agent is void unless the authority of the agent to sell is in writing.
• should, however, be considered as merely voidable since the sale can be ratified by the principal such as by availing himself of the benefits derived from the contract.
• ❌ an agency to purchase need not be in writing
• however, a special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired 
• ❌ real estate broker is not within Article 1874
• authority is limited to finding prospective purchasers
• agency couched in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned
• to authorize a conveyance of real estate, a power of attorney must be plain in its terms

Article 1875. 

Agency is presumed to be for a compensation,

unless there is proof to the contrary.

APC-UPC

Agency presumed to be with compensation.

• Old Civil Code: Agency was presumed to be gratuitous.
• New Civil Code: Prima facie presumption that the agency is for a compensation may be contradicted by contrary evidence.
•  A person who agrees to act as an agent without compensation is a gratuitous agent.
• The principal is liable for the damage to third persons caused by the torts of the gratuitous agent whose services he accepted
• However, the circumstances that the agency was for compensation or not, shall be considered by the court in determining the extent of liability of an agent for fraud or negligence.

Liability of principal to pay compensation

• Amount
• As agreed upon, or 
• reasonable value of the agent’s services, if no compensation was specified
• Compliance by agent with his obligation 
• payment by the principal to the agent presupposes that the latter has complied with his obligations as such to the principal
• Procuring cause of transaction 
• the governing rule is that the agent must prove that he was the guiding cause for the transaction or, as has been said, the “procuring cause” thereof, depending upon the facts of the particular case; otherwise, he is not entitled to the stipulated broker’s commission. 
• Procuring cause
• refers to a cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime objective of the employment of the broker – producing a purchaser ready, willing and able to buy on the owner’s terms
• Evasion of commission in bad faith
• the principal cannot evade payment of the commission agreed upon by inducing the agent to sign a deed of cancellation of the written authority after the agent had found a buyer, and later selling the property to the buyer
• Compensation contingent on profits 
• when the compensation is contingent or dependent upon the realization of profit, the agent is not entitled to compensation until the principal realizes the profit. 
• Commission payable by owner of property sold
• owner and not the buyer who must pay
• Grant of compensation on equitable ground.
• General Rule: when efforts are unsuccessful or where there was no effort on his part, he has no right to demand compensation
• Exceptions:
• The broker was not the main cause of the sale as the buyer did not want the broker's mediation or involvement in the negotiation. Court denied the broker's claim for the full professional fee but acknowledged the broker's efforts by granting compensation of P100,000 for facilitating the transaction.
• Even if the agent's authority expired, if they actively worked to bring the parties together resulting in a finalized sale, they deserve their commission.
• Right of agent’s companion to compensation
• companion or helper is entitled to compensation, even if the principal never dealt, directly or indirectly with such companion or helper
• Termination of agency contract
• either party is at liberty to terminate it at will, subject only to the ordinary requirements of good faith
• Validity of exclusive sales agency agreement
• not contrary to law, good customs, or public policy
• aims to pin down the seller to his obligation to give what is due to his broker for his efforts during the life of the agency
• Sale through another agent
• broker cannot complain of the principal’s conduct in selling the property through another agent before the broker’s efforts were crowned with success

Right of agent to compensation in case of double agency. 

• With knowledge of both principals
• recovery may be had by the agent
• with full knowledge and free consent of both principals
• employment was merely to bring the parties together.
• Without knowledge of both principals.
• agent can recover from neither
• With knowledge of one principal.
• second employer and the agent are guilty of the wrong committed against the first employer
• contract itself is void as against public policy and good morals, and both parties thereto being in pari delicto, the law will leave them as it finds them

Factors in fixing the amount of attorney’s fees.

1. time and labor required
2. novelty and difficulty of the questions involved
3. skill requisite to conduct properly the cause
4. preclude the lawyer’s appearance for others in cases likely to arise out of the transaction
5. involve the loss of other business while employed in the particular case
6. customary charges of the bar for similar services
7. amount involved in the controversy and the benefits resulting to the client
8. contingency or the certainty of the compensation
9. character of the employment

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.

AGS-F,ABP-L,OMST

General and special agencies.

The distinction here is based on the scope of the business covered. 

• General agency ≠ couched in general terms (Art. 1877.)

Classes and kinds of Agents (UGS)

1. Universal Agent
• employed to do all acts that the principal may personally do, and which he can lawfully delegate another the power of doing. 
2. General Agent 
• employed to transact all the business of his principal, or all business of a particular kind or in a particular place, or in other words, to do all acts, connected with a particular trade, business, or employment
3. Special or Particular Agent 
• authorized to act in one or more specific transactions, or to do one or more specific acts, or to act upon a particular occasion. 

Special Types of Agents (AAA-BCF)

1. Attorney at law 
• business is to represent clients in legal proceedings
2. Attorney in fact 
• given authority by his principal to do a particular act not of a legal character
• agent having a special authority created by deed
3. Auctioneer 
• business is to sell property for others to the highest bidder at a public sale 
4. Broker 
• to act as intermediary between two other parties 
• ex: insurance broker, real estate broker
5. Cashier in bank 
• business is to represent a baking institution in its financial transactions 
6. Factor 
• commission merchant; 
• business is to receive and sell goods for a commission being entrusted with the possession of the goods involved in the transaction.

General Agent v.  Special Agent

• General Agent
• authorized to do all acts connected with the business or employment in which the principal is engaged
• authorized to conduct a series of transactions over time involving a continuity of service
• may bind principal by an act within the scope of authority although contrary to his special instructions
• continuing and unrestricted by limitations other than those which confine the authority bounds of what is usual, proper and necessary
• authority created in a general agent does not terminate by the mere revocation of his authority without notice to the third party
•  Special Agent
• authorized to do only one or more specific acts in pursuance of particular instructions or with restrictions necessarily implied from the act to be done
• authorized to conduct a single transaction or a series of transactions not involving continuity of service
• cannot bind principal in a manner beyond or outside specific acts which he is authorized to perform
• temporary and naturally suggests limitations of power which third persons must inform themselves
• duty imposed upon the third party to inquire makes termination of the relationship as between the principal and agent effective as to such third party unless the agency has been entrusted for the purpose of contracting with such third party

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. 

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Agency couched in general terms. 

• May be a:
1. general agency (Art. 1876, par. 1.) or 
2. special agency (Art. 1876, par. 2.) 
• It includes only acts of administration.
• An express power is necessary to perform any act of strict ownership even if the principal should state: 
• He withholds no power; 
• That the agent executes such acts as he may consider appropriate; or 
• Through the agency, should authorize a general or unlimited management

Acts of Administration 

• Acts which do not imply the authority to alienate for the exercise of which an express power is necessary.
• Examples:
• right to sue for the collection of debts owing to the principal
• pay the debts of the principal
• to sell the a land if authority is limited to management and admistration

Construction of contracts of agency 

1. Contracts of agency as well as general powers of attorney must be interpreted in accordance with the language used by the parties. 
2. The real intention of the parties is primarily to be determined from the language used and gathered from the whole instrument.
3. In case of doubt, resort must be had to the situation, surroundings, and relations of the parties. 
4. The intention of the parties must be sustained rather than defeated.
5. If the contract be open to two constructions, one of which would uphold while the other would overthrow it, the former is to be chosen.
6. The acts of the parties in carrying out the contract will be presumed to have been done in good faith and in conformity with and not contrary to the intent of the contract. 

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. 

SPA-NFC:

(PNCWO-GLLCP-GCIOS)

Definition of terms

• Payment
• delivery of money or the performance in any other manner of an obligation
• Novation 
• extinction of an obligation through the creation of a new one which substitutes it by changing the object or principal conditions thereof, substituting a debtor, or subrogating another in the right of the creditor
• Compromise 
• a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced.
• Arbitration 
• parties submit their controversies to one or more arbitrators for decision.
• Gift or donation 
• act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it

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.

SPS-EPM-SPM-NIPS

Scope of authority to sell/to mortgage

• The agent cannot sell or mortgage the property belonging to the principal without special power. 
• An authority to sell the principal’s property does not carry with it or imply the authority to mortgage.
• In the absence of special authority, the sale or mortgage will be unenforceable against the principal as the agent “has acted beyond his powers.” 
• In the absence of express authorization, authority to sell contemplates the sale for cash and not for credit. 
• Authority to buy or sell does not include authority to rescind or modify the terms of the sale after its completion, nor to act further with reference to the subject matter except to undo fraud or to correct mistakes.

Article 1880. 

A special power to compromise 

does not authorize submission to arbitration.

SPC-NASA

 

Scope of special power to compromise/ to submit to arbitration.

• The authority of the agent to compromise or make settlements of claims or accounts for the principal includes by implication the power to do whatever things are usual and necessary which the principal himself can do to effectuate such compromise or settlement.
• But he is not thereby authorized to submit to arbitration because while the principal may have confidence in the agent’s judgment, the arbitrator designated may not possess the trust of the principal. 
• It would seem that the authority to submit to arbitration does not include the power to compromise. The principal may not have trust in the agent’s judgment in making a settlement.

 
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.

AA-WSA-DSA-CAPA

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.

LAA-NCE-PMMAP-TSH

Authority of an agent.

• Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestation of consent to him. 
• The authority of the agent is the very essence — the sine qua non — of the principal and agent relationship. 
• Authority — includes only authority to act for the benefit of the principal
• Source of Authority — always the principal and never the agent.

Authority vs. Power

• Authority
• source or cause
• Power 
• effect

Kinds of Authority (AA-EI-GS-ENO)

1. Actual
• actually granted, may be express or implied
• results from what the principal indicates to the agent
2. Express
• directly conferred by words
3. Implied
• incidental to the transaction or reasonably necessary to accomplish the main purpose of the agency
4. Apparent or ostensible
• conferred by words, conduct or even by silence of the principal
• causes a third person reasonably to believe that a particular person, who may or may not be the principal’s agent, has actual authority to act for the principal
• authority by estoppel 
• the apparent authority of an agent can only arise by the acts or conduct of the principal, making the principal responsible
• agent has authority if it appeared reasonable from the viewpoint of the third party
• the principal’s liability is limited only to third persons who, in good faith, believed that actual authority exists.
• apparent authority is the term used where no express or implied authority is present.
5. General 
• refers to all the business of the principal 
6. Special 
• limited only to one or more specific transactions 
7. Emergency or authority by necessity or by operation of law 
• when it is demanded by necessity or by virtue of the existence of an emergency
• terminates when the emergency has passed

When principal bound by act of agent.

• Requisites:

1. The agent must act within the scope of his authority; and
2. The agent must act in behalf of the principal.

• Authority possessed by agent.
• principal is bound by either actual or apparent authority of the agent
• as the agent has actual authority, express or implied, the principal is bound by the acts of the agent on his behalf, whether or not the third person dealing with the agent believes that the agent has actual authority
• under the doctrine of apparent authority (estoppel), the principal is liable only as to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none has been given; the principal may or may not be liable to the apparent agent
• Authority ratified by another (principal).
• an agency relationship is created by ratification, and neither the principal nor the third person can set up the fact that the agent had no authority or exceeded his powers

When a person not bound by act of another. 

1. The latter acts without or beyond the scope of his authority in the former’s name; and
2. The latter acts within the scope of his authority but in his own name, except when the transaction involves things belonging to the principal.

Unauthorized acts in the name of another unenforceable.

• If an agent acts without authority or in excess or beyond the scope of his authority, there is no representation.
• Such act is unauthorized, and, therefore, unenforceable, whether or not the party with whom the agent contracted was aware of the limits of the agent’s power, unless the principal ratifies the transaction before it is revoked by the other contracting party or is in estoppel to deny the agent’s authority.

Where acts in excess of authority more advantageous to principal.

• The agent is not deemed to have exceeded the limits of his authority should he perform agency in a manner more advantageous to the principal than that indicated by him, since he is authorized to do such acts as me by conducive to the accomplishment of the purpose of the agency. 

Liability of Principal/Agent for acts of agent beyond his authority or power

• Principal
• General Rule: The principal is not bound by the acts of an agent beyond his limited powers.
• Exceptions: (DKBR)

1. Where his (principal’s) acts have contributed to deceive a third person in good faith; 
2. Where the limitations upon the power created by him could not have been known by the third person; 
3. Where the principal has placed in the hands of the agent instruments signed by him in blank; and
4. Where the principal has ratified the acts of the agent.

• Agent. 
• The agent who exceeds his authority is personally liable either to the principal or to the third party, in the absence of ratification by the principal.

1. If the principal is liable to the third party on the ground of apparent authority, the agent’s liability is to the principal. 
2. If the principal is not liable to the third person because the facts are such no apparent authority is present, then the agent’s liability is to the third party. 
3. If the agent personally assumes responsibility for the particular transaction, if the principal defaults he, in effect, also becomes obligated as a co-principal. 

Action must be brought by and against principal.

• An action is not properly instituted when brought in the name of an attorney-in-fact (“aporado”) and not in the name of the principal, the real party-in-interest, and in such case the complaint must be dismissed not upon the merits, but on the ground that is has been improperly instituted.
• When the principal is bound by the act of the agent, the action must be brought against the principal, not against the agent. 
• The bringing of the action against the agent cannot have any legal effect except that of notifying the agent of the claim. 
•  Beyond such notification, the filing of the action can serve no other purpose. 

 
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.

AAON-PNRA-AP-AC-NSPAP

A-DB-FPC-THO-E,CITBP

PA-SU-WPA-BPA

Kinds of principal.  (DPU)

1. Disclosed Principal
• At the time of the transaction contracted by the agent, the other party thereto has known that the agent is acting for a principal and of the principal’s identity
2. Partially Disclosed Principal
• The other party knows or has reason to know that the agent is or may be acting for a principal but is unaware of the principal’s identity.
• The liability of the third party and the principal is the same as in the case of a disclosed principal, except that the agent is also liable to the third party, unless they agree otherwise.
3. Undisclosed Principal
• If the party has no notice of the fact that the agent is acting as such for a principal.
• If a person purports to act for a non-existent principal, obviously he is liable to the party with whom he contracted. Since there is no principal, there is no agent at all; the person merely claims to be one. 

Agency with undisclosed principal.

• General Rule: 
• The agent is the one directly liable to the person with whom he had contracted as if the transaction were his own:
1. being authorized to act on behalf of the principal
2. acts instead in his own name
• No representation of the principal when the agent acts in his own name.
• Principal cannot have a right of action against the third person nor the third person against him.
• An agent who enters into a contract in his own name without disclosing the identity of his principal renders himself personally liable even though the third person knows that he is acting as agent, unless it affirmatively appears that it was the mutual intention of the parties to the contract that the agent should not be bound.
• It is well-settled principle that the agent shall be liable for acts or omission of the principal only if the latter is undisclosed. 
• Exception: 
• When the contract involves things belonging to the principal. 
• Necessary for the protection of third persons against possible collusion between the agent and the principal.
• The contract must be considered as entered into between the principal and the third person.
• Remedy of principal.
• Right to demand from the agent damages for his failure to comply with the agency.
• Remedy of third person.
• Right of action not only against the principal but also against the agent, when the rights and obligations which  are the subject-matter of the litigation cannot be legally and  juridically determined without hearing both of them.