Agency

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Art. 1868. Agency

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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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Doctrine of Representation

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Acts in the name of the principal, the agent is, insofar as the world is concerned, essentially the principal acting in the particular contract or transaction on hand.

It produces the same legal effects and consequences as though the principal had been the one so acting in the given situation

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Elements of the Contract of Agency

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(a) consent;
(b) object or subject matter; and
(c) cause or consideration.

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Knowledge of the agent is equivalent to knowledge of the principal.

Except Where:

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a) Agent’s interests are adverse to those of the principal;

b) Agent’s duty is not to disclose the information, as where he is informed by way of confidential information; and

c) The person claiming the benefit of the rule colludes with the agent to defraud the principal

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Doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts except:

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a) expressly binds himself to the obligation and

b) second is when he exceeds his authority.

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Art. 1491[2] - An agent cannot purchase for herself the property of the principal which has been given to her management for sale or disposition except

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a) There is and express consent on the part of the principal ; or

b) If the agent purchases after the agency is terminated

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Kinds of agency

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Article 1876 - “general agency” when it encompasses all of the business of the principal [acts of administration]

Article 1876 - "special agency” as one which covers only one or more specific transactions. [acts of dominion or strict ownership]

A universal agent is one authorized to do all acts for his principal which can lawfully be delegated to an agent

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Art. 1878. Special powers of attorney are necessary in the following cases:

(nos. 1-5)

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a) To make such PAYMENTS as are not usually considered as acts of administration;

b) To effect NOVATIONS which put an end to obligations already in existence at the time the agency was constituted;

c) 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;

d) To WAIVE any obligation gratuitously;

e) To enter into any contract by which the ownership of an IMMOVABLE is transmitted or acquired either gratuitously or for a valuable consideration;

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Art. 1878. Special powers of attorney are necessary in the following cases:

(nos. 6-10)

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a) To make GIFTS, except customary ones for charity or those made to employees in the business managed by the agent;

b) To LOAN or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

c) To LEASE any real property to another person for more than one year;

d) To bind the principal to render some SERVICE without compensation;

e) To bind the principal in a contract of PARTNERSHIP;

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Art. 1878. Special powers of attorney are necessary in the following cases:

(nos. 11-15)

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a) To obligate the principal as a) GUARANTOR or surety;

b) To CREATE or convey real rights over immovable property;

c) To accept or repudiate an INHERITANCE;

d) To RATIFY or recognize obligations contracted before the agency;

e) Any other act of STRICT DOMINION

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Most ideal form of perfection of the contract of agency

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Art. 1871 - Both principal and agent being physically present at the time of perfection, the acceptance of the agency may be implied if the principal “delivers his power of attorney” to the agent and the latter “receives it without objection.”

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Would-be principal and the would-be agent not being physically present in one place, then there can be no implied acceptance of the agency from the silence or inaction of the agent, except in two instances:

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a) When the principal “transmit his power of attorney” to the agent, “who receives it without any objection;” or

b) When the principal entrusts to the agent “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.

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Agency by estoppel

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Article 1911 of the Civil Code, even when the agent has exceeded his authority (i.e., he acts without authority from the principal), the principal shall be solidarily with the agent if he allowed the agent to act as though he had full powers.

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Requisites of agency by estoppel

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a) the principal manifested a representation of the agent’s authority or knowingly allowed the agent to assume such authority;

b) the third person, in good faith, relied upon such representation;

c) relying upon such representation, such third person has changed his position to his detriment.

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How an agent should act “In the execution of the agency,” to be as follows:

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Article 1887

a) Agent must act “in accordance with the instructions of the principal;”

b) In default of guiding instructions, the agent “shall do all that a good father of a family would do, as required by the nature of the business.”

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In the event that the agent refuses to follow the instructions of the principal, then the obligatory nature of the agency relationship is preserved byconsequences mandated by law.

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First, the agent becomes personally liable for damages arising from a breach of his duty of obedience to the principal.

Second, since the agent had not given the principal’s consent to the contract or transaction entered into with a third party, the principal is not personally bound by the terms of such contract or transactions.

Third, it would then be the agent who may become personally liable for the contract or transaction.

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Duty of obedience.

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Article 1881 of the Civil Code provides that the agent must act “within the scope of his authority,” which means that since the agent acts in representation of the principal, he must enter into juridical relations on behalf of the principal and representing the will of the principal, and not his (agent’s) own will.

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Duty of diligence

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Article 1887 of the Civil Code provides that in default of the principal’s instructions, the agent “shall do all that a good father of a family would do, as required by the nature of the business.”

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Duty of loyalty

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Article 1889 “The agent shall be liable for damages if, there being a conflict between his interest and those of the principal, he should prefer his own."

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When the agent is empowered to borrow or lend money by the principal, then:

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Article 1890

a) If empowered to borrow money, he may be the lender at current interest; and

b) If empowered to lend money at interest, he cannot borrow without principal’s consent.

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instance when the agent is authorized to legally withhold from the principal property held under the agency?

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Article 1914 - the agent may retain in pledge the things which are the object of the agency until the principal effects the reimbursement and pays the indemnity provided in Articles 1912 and 1913.

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The agent would owe interest to the principal on the following items:

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a) On sums the agent applied to his own use from the time he used them; and

b) On sums owing the principal which remain outstanding at the time of extinguishment of the agency, interest to run from the time of such extinguishment.

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The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute:

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Art. 1892.

a) When he was not given the power to appoint one;

b) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent.

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Under the terms of Article 1892, when there is no prohibition on the part of the principal on the matter, then every agent has the power to appoint a sub-agent, but in such a case, the agent is responsible for acts of substitute when:

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a) he was not given power to appoint one; or

b) he was given such power without designating the person and substitute is notoriously incompetent or insolvent.

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Article 1898 - The following consequences shall flow in situations where the agent has acted without or in excess of his authority:

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(a) The contract entered into in the name of the principal shall be void as to the principal and the third party, if such third party with whom the agent contracted was aware of the limits of the powers granted by the principal;

(b) In such case, the agent would be liable personally to such third party, if he undertook to secure the principal’s ratification;

(c) If the agent did not undertake to secure the principal’s ratification, the agent does not become liable on the contract since the third party has no one to blame but himself, knowing fully well the limits to the agent’s authority.

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Even though the agent acts without or in excess of his authority, he would not be personally liable for the contracts or transactions he entered into in the name of the principal:

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(a) When the principal ratifies the contract or transactions (Arts. 1898 and 1910);

(b) As to third parties who relied upon the terms of the power of attorney as written, even if in fact the agent had exceeded the limits of his authority according to an understanding between the principal and the agent

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Rule of responsibility (liability) of two or more agents serving the same principal, even when they have been appointed simultaneously:

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Article 1894

(a) Joint, when nothing is stipulated; and

(b) Solidary, only when so stipulated.

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A third party would be directly liable to the agent himself even on contracts entered into pursuant to the agency arrangement, thus:

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(a) Where the agent contracts in his own name, on a matter that it within the scope of the agency (Art. 1883);

(b) Where the agent possesses a beneficial interest in the subject matter of the agency, such as a factor selling under a del credere commission (Art. 1907);

(c) Where a third party commits a tort against the agent.

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Specific Obligations of a Commission Agent

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a) Take Custody of Goods (Art. 1903);

b) Not to Commingle Similar Goods Belong to Different Principal

c) Cannot Sell on Credit without Principal’s Authorization
(Art. 1905);

d) To Inform the Principal of Every Pre-Authorized Sale on Credit (Article 1906)

e) Shall Bear the Risk of Collection under Del Credere Commission Set-up (Article 1908)

f) To Collect Credits of the Principal

g) Shall Be Responsible for His Fraud and Negligence

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Under Article 1908, should the commission agent receive on a sale, in addition to the ordinary commission, another called a guarantee commission, then:

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(i) He shall bear the risk of collection; and

(ii) He shall pay the principal the proceeds of sale on same terms agreed with purchaser

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In acts done by the agent in the name of the principal, but outside of the scope of his authority, the principal would still be bound personally, thus:

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(a) When the principal ratifies such contract, expressly or tacitly (Art. 1910, Civil Code);

(b) When the principal has allowed the purported agent to act as though he had full powers (Art. 1911, Civil Code); and

(c) When the principal has revoked the agency, but the third party have acted in good faith without notice of such revocation.

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If no particular formula has been agreed upon on the agent’s compensation, then the following rules should apply:

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a) The principal shall pay the agent’s commission only on the legal basis that the agent has complied with his obligations with the principal; and

b) The principal shall be liable to the agent for the reasonable value of the agent’s services.

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the principal is not liable for the expenses incurred by the agent in the following cases:

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Article 1918.


a) if the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the benefits derived from the contract;

b) When the expenses were due to the fault of the agent;

c) When the agent incurred them with knowledge that an unfavorable result would ensue, if the principal was not aware thereof; or

d) When it was stipulated that the expenses would be borne by the agent, or that the latter would be allowed only a certain sum.

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Art. 1919. Agency is extinguished:

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(1) By its revocation;

(2) By the withdrawal of the agent;

(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;

(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;

(5) By the accomplishment of the object or purpose of the agency;

(6) By the expiration of the period for which the agency was constituted. (1732a)

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Implied Revocation

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Art. 1923. The appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice thereof was given to the former agent, without prejudice to the provisions of the two preceding articles. (1735a)

Art. 1924. The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. (n)

Art. 1926. A general power of attorney is revoked by a special one granted to another agent, as regards the special matter involved in the latter. (n)

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Under Article 1927 of the Civil Code, an agency cannot be revoked when:

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a) bilateral contract depends upon the agency for its fulfillment;

b) it is the means of fulfilling an obligation already contract;

c) a partner is appointed manager of a partnership in the contract of partnership and the removal from management is unjustifiable.

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act done by the agent after the death of his principal is valid and effective only under two conditions, viz: (

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a) that the agent acted without knowledge of the death of the principal, and

b) that the third person who contracted with the agent himself acted in good faith