C.

Agency
Syllabus: Civil Law/VII/C

1. Nature, Form, and Kinds

A contract of agency is defined as one where "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". Its primary objective is
to extend the personality of the principal, meaning the agent acts for and
derives authority from the principal. This is embodied in the legal fiction qui
facit per alium facit per se.

The essential elements required for a contract of agency to exist are:

1. Consent, express or implied, of the parties to establish the relationship.

There must be an intention to appoint on the principal's part and an
intent to accept and act on it from the agent; otherwise, no agency
exists.

2. Object, which is the execution of juridical acts in relation to third parties.

3. The agent acts as a representative and not for himself.

4. The agent acts within the scope of his authority.

5. There must be a cause or consideration for the agency.

Characteristics of Agency
Agency possesses several key characteristics:

• Nominate and Principal: It has its own specific name and governing rules
(Title X, Book IV of the Civil Code), which take precedence over general
provisions on obligations and contracts. The essential nature of agency
is acts done by one person on behalf of another who authorized such
acts.

• Unilateral and Primarily Onerous: While the agent performs services at

the principal's request, compensation is presumed, implying the
principal's intent to compensate. An agency may be gratuitous if the
agent receives no compensation.
 • Consensual: It is perfected by mere consent. This consent must not be
compelled by law or court.

• Personal, Representative, and Derivative: The agent's authority

emanates from the principal, and the agent's act is considered the act of
the principal when done within the scope of authority. This personal
nature means agency is generally extinguished by the death of the
principal or agent.

• Fiduciary and Revocable: The relationship is based on trust and

confidence, meaning the agent is estopped from asserting an adverse
interest to the principal and must not disclose secret information.
Agency is generally revocable at the principal's will, as it's a personal
contract based on trust.

• Preparatory Contract: The object of agency is for the agent to enter into
juridical acts with third parties on the principal's behalf.

Kinds of Agency
Agencies are categorized based on different criteria:

• Based on Business/Transactions Encompassed (Art. 1876):

◦ Universal Agent: Authorized to do all acts for the principal that can
be lawfully delegated.

◦ General Agent: Authorized to perform all acts pertaining to a

business of a certain kind or at a particular place. A general agency
comprises all the principal's business.

◦ Special Agent: Authorized to perform a particular act or on a specific

occasion, usually under specific instructions. A special agency
comprises one or more specific transactions.

• Whether It Covers Legal Matters:

◦ Attorney-at-Law: Requires client authorization to settle an action.

◦ Attorney-in-Fact: A general term for an agent, not necessarily a

lawyer.

• Whether it covers acts of administration or acts of dominion:

◦ Agency Couched in General Terms (Art. 1877): Only covers acts of

mere administration, not acts of strict dominion.

◦ Special Power of Attorney (SPA) (Art. 1878): Required for acts of

strict dominion or ownership, such as transmitting or acquiring
ownership of immovables (e.g., sale of land), making payments not
 usually considered acts of administration, effecting novations,
compromising, waiving obligations gratuitously, making gifts (with
exceptions), borrowing/loaning money (with exceptions), executing
contracts where ownership of immovables is transmitted or acquired,
accepting/repudiating inheritance, ratifying prior obligations, or any
other act of strict dominion. An SPA for a land sale must be in writing
to be valid, otherwise the sale is void. However, the requirement for
an SPA under Art. 1878 refers to the nature of authorization, not
necessarily its form (it can be oral or written if express).

How Agency May Be Constituted

Agency can be constituted in various ways:

• From the Principal's Side (Art. 1869): Agency can be express or implied
from the principal's acts, silence, inaction, or failure to repudiate the
agency even when aware that another is acting on their behalf without
authority. Acquiescence for a long period or appropriation of benefits
from the agent's acts can also constitute agency.

• From the Agent's Side (Arts. 1870, 1871, 1872): Acceptance by the agent
may be implied from their acts or silence/inaction under the
circumstances. Implied acceptance occurs if the principal delivers a
power of attorney and the agent receives it without objection, or when
the principal entrusts a power of attorney by letter/telegram for a
business the agent habitually engages in, and the agent does not reply.

• From Third Parties (Arts. 1873, 1408, 1921, 1922): Agency is generally
not presumed to exist, and third persons dealing with an agent must
ascertain the fact and extent of agency by requiring presentation of a
power of attorney or instructions.

• Agency by Estoppel (Apparent Authority): This arises when the

principal's manifestations, explicit or implied, lead third persons to rely
on the agent's apparent authority. This doctrine requires proof of
reliance on representations that predated the action taken. Apparent
authority may even survive the termination of actual authority or the
agency relationship.

Commission Agents
Special rules apply to commission agents:

• Responsibility for Goods (Art. 1903): The commission agent is

responsible for goods received as described in the consignment, unless
 a written statement of damage/deterioration is made upon receipt. The
agent is relieved from liability if goods are lost by robbery, for instance,
under force majeure conditions.

• Distinguishing Goods (Art. 1904): If handling various goods for different

owners, the agent must distinguish them by countermarks if of the same
kind and mark.

• Selling on Credit (Art. 1905, 1906): A commission agent cannot sell on

credit without the principal's consent; otherwise, it's considered a cash
sale. If authorized to sell on credit, the agent must inform the principal
with buyer names; failure to do so also results in it being considered a
cash sale.

• Guarantee/Del Credere Commissions (Art. 1907): If the agent receives a

guarantee commission, they bear the risk of collection and pay the
principal the proceeds on the same terms agreed with the purchaser.

2. Obligations of Agent and Principal

Obligations of the Agent

An agent has several key obligations:

• Diligence: The agent must act with the care of a good father of a family.
Failure to collect sums due, allowing funds to be exhausted, results in
personal liability for damages.

• Accounting: The agent is obligated to render an accounting of all

transactions and deliver to the principal whatever was received by virtue
of the agency, even if not strictly "owing" to the principal. Any stipulation
exempting the agent from this duty is void.

• Prohibited Acts: An agent is prohibited from buying property entrusted

to them for administration or sale without the principal's consent (Art.
1491). If an agent engages in fraud against the principal for extrinsic
benefit, they are acting outside the scope of agency.

• Interest on Funds: An agent is liable for interest on sums applied to their

own use (from the time of use) and on sums owing to the principal (from
the time agency is extinguished).

• Solidary Liability (Exception): Generally, if two or more agents are

appointed, their responsibility is not solidary unless expressly stipulated.

• Sub-Agents (Art. 1892): An agent may appoint a substitute unless

prohibited by the principal. The agent is responsible for the substitute's
 acts if not expressly given the power to appoint one, or if the designated
substitute was notoriously incompetent or insolvent.

Effects of Agent's Acts

The consequences of an agent's acts depend on the scope of their
authority and whether the principal ratifies:

◦ Within Scope of Authority: The principal is bound, and the agent is

generally not personally liable.

◦ Without or Beyond Scope of Authority: The contract is

unenforceable as against the principal, but the agent is bound to the
third person. However, if the third party is aware of the agent's
limited powers, the contract is void but the agent may still be liable if
they undertook to secure ratification. The principal can ratify these
acts, making the contract binding.

◦ Agent Acts in Own Name (Art. 1883): The principal has no right
against the third person, and the agent is directly bound, as if the
transaction were their own. An exception exists if the contract
involves things belonging to the principal.

Obligations of the Principal

The principal also has obligations within the agency arrangement:

• Compensation: The principal must pay the agent's agreed compensation

or the reasonable value of services.

• Advances/Reimbursement: The principal must advance sums requested

for execution of the agency and reimburse the agent for expenses,
including interest, provided the agent is free from fault.

• Indemnification: The principal must indemnify the agent for damages

caused by the execution of the agency without the agent's fault or
negligence.

• Liability to Third Parties: The principal is bound by contracts entered

into by the agent within the scope of authority. Even if the agent
exceeded authority, the principal can be bound through ratification,
express or implied, provided the principal has full knowledge of all
material facts. If the principal allowed the agent to act as if they had full
powers, the principal is solidarily liable with the agent. However, if the
third person knows the agent is acting beyond their power, the principal
is not liable unless they ratify.
3. Extinguishment

Extinguishment of Agency
Agency can be extinguished by various modes, including:

• Revocation (Art. 1919): The principal may revoke the agency at will.
Revocation becomes operative as to the agent when made known to
them. For third persons, general power revocation is effective unless
they deal in good faith without knowledge; a newspaper notice is
sufficient warning. The appointment of a new agent or direct
management by the principal can imply revocation.

• Withdrawal of Agent (Art. 1919).

• Death, Civil Interdiction, Insanity, or Insolvency of Principal or Agent

(Art. 1919). An exception applies if the agency is for the common interest
of principal and agent or a third party who accepted the stipulation
(agency coupled with interest). Acts done by the agent without
knowledge of the principal's death are valid regarding good faith third
persons.

• Dissolution of Firm or Corporation (Art. 1919).

• Completion of the object or purpose of the agency.

• Other Modes of Extinguishment of Obligations: Agency can also be

extinguished by general modes applicable to obligations, such as loss of
the thing or novation.

Agency in the Larger Context of Special Contracts

Agency is specifically listed as a special contract. This categorization is
significant because special contracts are governed by specific legal
provisions that often modify or supplement the general principles of
contracts. For instance, while contracts generally bind only the parties, their
assigns, and heirs (principle of relativity, Art. 1311), agency provides a
mechanism for a principal to be bound by the acts of another (the agent)
with third parties. The law on agency explicitly outlines rules regarding the
agent's authority and the principal's liability that are unique to this
relationship, such as the strict requirements for certain acts (e.g., selling real
property via an agent), and the circumstances under which an agent can be
held personally liable despite acting for a principal. This underscores how
special laws, like those governing agency, apply preferentially to regulate
particular types of agreements.
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