AGENCY

Article 1868. Definition of agency – A person binding himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter.

A. Concept:
I. Very broad – enough to include all situations in which one person is employed to render
service for another. Excludes – the relationship of (1) employer and employee, (2) master and
servant, (3) employer and independent contractor.

II. A Fiduciary relationship – implies power in an agent to contract with a 3rd person on behalf
of the principal; this power to effect the principal’s contractual relations with 3rd persons that
differentiates the agent from the employee, servant, and the independent contractor.

III. Relates to commercial or business transactions – and may also arise in non-business
situations.

Note: The relationship between the parties – the hirer of service and the person whose service has been
hired – and their right and duties will depend upon the terms under which one works, represents, or for
acts of another.

B. Governing law – all agencies are governed by the Civil Code.

C. Characteristics of a Contract of Agency.

I. Consensual – based on the agreement of the parties which is perfected by mere consent.
II. Principal – it can stand by itself without need of another contract.
III. Nominate – it has its own name.
IV. Unilateral – if it is gratuitous because it creates obligations for only one of the parties.
V. Bilateral - if it is for compensation because it gives rise to reciprocal rights and obligations.
VI. Preparatory – it is entered into as a means to an end; creation of other transactions.

D. Nature, basis, and purpose of – Agency, when used in its broadest meaning is both a contract and
a representative relation.

I. Nature – contract; it is essential that the minds of the parties should meet in making it.
a. Manifestation of consent, requisites:
1. Intention of the principal that the agent shall act for him.
2. Intention of the agent to accept the authority and act on it.
3. Such intention of the parties must find expression either in words or conduct
between them – Overt acts.

b. The Agent, by legal fiction, becomes principal – Rationale: because the principal
authorized the agent 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/Absence of contract or consideration— may be created by:

1. Upon a consideration
2. By operation of law (e.g. Agency by estoppel)
3. Or a person who acts for another as principal may do so gratuitously

Note: Hence, there can be an agency or agency even without a contract or a consideration.

Note: An instance where the legal consequences of agency may attach where one person acts for another
without authority or in excess of his authority is when the principal subsequently ratifies it.

II. Basis— Agency is also a representative relation. The agent renders some service or does
something in representation or on behalf of another.

a. Personal contract of representation – Representation constitutes the basis of agency.

It is based on trust and confidence reposed by the principal on his agent. Agency is
generally revocable.

b. Acts of agents, by legal fiction, acts of principal – acts which are within the scope of
the agent’s authority produce the same legal and binding effects as if they were
personally done by the principal. By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence— example: notice to the
agent is, to all legal intents and purposes, notice to the principal.

c. Purpose— to extend the personality of the principal through the facility of the agent.

B. Parties to the Contract:

1. Principal – one whom the agent represents and from whom he derives his authority.
2. Agent— one who acts for and represents another. He has derivative authority in
carrying out the principal’s business.
3. third party— the party with whom the business is transacted.
C. Essential elements of agency:

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

i. By contract (orally or in writing), by conduct, or by ratification, by presumption

or operation of law.

2. The object— 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.

D. Relationship of third party with principal and agent:

1. Third party’s 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 contracted,
to the principal is the same as that in a contract in which there is no agent.

a. Agent has neither rights nor liabilities as against the third party. He cannot sue or be sued
on the contract. The Agent is not considered as the real party-in-interest.
>The legal situation is different where an agent is constituted as an assignee— the
agent may sue on a contract made for his principal. He is then the real party-in-
interest and may maintain an action upon such claim or right.

b. Note: Although the agent did not obtain his commissions or recoup his advances because
of the non-performance of the contract does not entitle him to file an action against the
buyer where he does not appear as a beneficiary of a stipulation pour autrui.

E. Capacity of the parties:

1. Principal – must be capacitated or have the legal capacity to enter into contract in his own right.

a. Note, General rule: An agent who assumes to contract in the name of a principal
without contractual capacity renders himself liable to third persons.

b. The acts of an agent done for an incompetent principal may be ratified by the latter
after he acquires capacity.

c. The agent is not liable where he was ignorant of the principal’s incapacity – the agent
does not warrant the full contractual capacity of his principal.

2. Agent – his capacity is usually immaterial.* Even one under legal disability (whose contracts are
not binding upon him) may nevertheless act as an agent and bind his principal although he cannot
be a principal appointing an agent. (Relative incapacity, not absolute –insane persons).

>Conclusive presumption of capacity to act of an agent in behalf of the principal; where

the latter knowingly and without dissent permits another to act.

>Agent must be competent to bind himself, insofar as his obligations to his principal are
concerned.

>The relationship of trust and confidence, results in the disqualification of agents to act
for the principal when it is their duty to act inconsistently toward another.
F. Acts that may be/not be delegated

GR: What a man may do in person, he may do thru another.

XPN:

1. Personal acts— personal performance is required by law or public policy or the agreement of
the parties.
a. Right to vote.
b. Will making.
c. Statements which are required to be made under oath.
d. A member of the board of directors or trustees of a corporation cannot validly act by
proxy because his right to attend the board meetings is personal to him.
e. An agent cannot delegate to a sub-agent the performance of acts which he has been
appointed to perform in person.
>re-delegation of the agency is detrimental to the principal as the second agent
has no privity of contract with the former.

2. Criminal acts or acts not allowed by law—there can be no agency in the perpetration of a crime
or an unlawful act. An attempt to delegate to another authority to do an act which, if done by the
principal would be illegal, is void.

a. Alien cannot purchase a land through a Filipino agent; our Constitution prohibits aliens to own
private agricultural lands.

b. Persons who, because of their position and relation with the persons under their charge or
property under their control, are prohibited from acquiring said property, cannot acquire the
same through the mediation of another.

c. The law on agency governing civil cases has no application in criminal cases— when a person
participates in the commission of a crime, he cannot escape punishment on the ground that he
simply acted as an agent of another party.

G. Determination of existence of agency:

Usually, no formalities are required for the creation of an agency relationship. The question of
whether an agency has been created is ordinarily a question of fact which may be established
either by direct or circumstantial evidence—the question is ultimately one of intention.

1. Designation by the parties—with respect to the relationship is not controlling. If an act done
by one person in behalf of another is in its nature is essentially one of agency, the former is
the agent of the latter notwithstanding he is not so called.

2. Fact of existence—determine the fact that one represents and is acting for another, not by
the consideration that it will be inconvenient or unjust if he is not held to be the agent of such
other.
3. Presumption of existence—for the relation to exist, there must be consent by both parties.
The law makes no presumption. It must exist as a fact.

4. Intention to create relationship— is important, otherwise there is generally no agency.

XPN:

a. Agency by estoppel—the agent may be estopped to deny his agency both as against the
asserted principal and the third persons interested in the transaction in which he is
engaged.
b. As between the principal and a third person—agency may exist without the direct assent
of the agent.

>principal: there must either an actual intention to appoint, or an intention naturally

inferable from his words or actions.
>Agent: there must be an intention to accept the appointment and act on it.

G. Nature of relations between principal and agent:

1. Fiduciary in character— since they are based on trust and confidence. The agent becomes the
fiduciary, a person having a duty to act primarily for the benefit of the principal.

2. Agent estopped from asserting interest adverse to his principal—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.

XPN:

a. The agent does not, by accepting the agency, lose any prior claim which he himself may have
to the property with which he deals.
b. The agent is not estopped to assert that money or property in his hands was not received by
him as agent for the principal; or
c. That the principal parted with his interest in the property subsequent to the delivery to him
as agent; or
d. That the property has been taken from the principal by a paramount title; or
e. That he has been lawfully required to account for another; or
f. That the title is in another to whom he would be liable if he should surrender the property to
the principal.

2. Agent must not act as an adverse party— the principal bargains, in the employment, for the
exercise of the disinterested skill, diligence and zeal of the agent, for his own exclusive benefit.
 Hence, in matters touching the agency, agents cannot act so as to bind their principals, where
they have an adverse interest in themselves. [go back to the fiduciary character of agency]

3. 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 with no independent initiative.