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. (Art. 1868)
AGENCY relationship which implies a power in an agent to
contract with a third person on behalf of a principal.
CHARACTERISTICS OF A CONTRACT OF AGENCY
Consensual -- perfected by mere consent
Principal can stand by itself without the need of another
contract
Nominate it has its own name
Unilateral if it is gratuitous because it creates obligations for
only one of the parties, or bilateralif it is for compensation
because it gives rise to reciprocal rights and obligations
Preparatory it isentered into as a means to an end
ESSENTIAL ELEMENTS OF AGENCY
There is consent, express or implied, of the parties to establish
relationship.
The object is execution of juridical act in relation to third
persons.

The agent acts as representative and not for himself.

The agent acts within the scope of his authority.
The relationship of an agent to his principal is fiduciary in character
since it is based on trust and confidence.
PARTIES OF THE CONTRACT
Principal one whom the agent represents and from whom he
derives his authority (any person who is capacitated to act in
his own right may be a principal)
Agent one who acts for and represents another (persons who
are absolutely incapacitated, such as insane person cannot be
agents; he must be competent to bind himself)
ACTS THAT CANNOT BE DONE THRU AN AGENT
Personal acts if personal performance is 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 of the latter.
Criminal acts or acts not allowed by law an attempt to
delegate to another authority to do an act which, if done by the
principal would be illegal, is VOID.

AGENCY DISTINGUISHED FROM SIMILAR CONTRACTS

Simi

Age

Agency

Loan
borro
wer is
given
mone
y for
purpo
ses of
his
own
and
he
must
gener
ally
return
it
agent
may
be
given
fund
to
advan
ce the
princi
pal's
busin
ess

Lease
of
Servic
e

the
basis
is
employ
ment

the
basis
is
repres
entatio
n

Independent
Contract

Partners
hip

copartners
acts not
only for
his copartners
and the
partners
hip but
also as
principal
of
himself

the independent
contractor
exercises
his
employment
independently

agent is subject
to the control
and direction of
the
principal
whom
he
represents

agent
acts for
his
principal

Negotiorium
gestio

not only without

the authority of
the owner of the
business but is
without
his
knowledge;
quasi-contract

representation
is
expressly
conferred;
contract

Broker
age

broker
has no
relatio
n with
the
thing
he
buys
or sells

commi
ssion
agent
is one
engag
ed in
the
purcha
se or
sale
for
anothe
r

KINDS OF AGENCY
As to manner of its creation
Express agent has been actually authorized by the
principal either orally or in writing
Implied implied from the acts of the principal, from his
silence or lack of action, or his failure to repudiate the
agency
As to its character
Gratuitous agent receives no compensation for his
services
Compensated or Onerous agent receives
compensation for his services
As to extent of business covered
General comprises all the business of the principal
Special comprises one or more specific transactions
As to authority conferred
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 or acts.
As to its nature and effects
Ostensible or representative agent acts in the name
and the representation of the principal
Simple or commission agent acts for the account of the
principal but in his own name.
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. (Art. 1870)
The agency is impliedly accepted if the agent receives a power of
attorney from the principal himself personally without any
objection, both being present.
Power of Attorney written authorization to an agent to perform
specified acts in behalf of his principal which acts, when performed,
shall have binding effect on the principal.
If both the principal and the agent are absent, acceptance by the
agent is not implied from his silence or inaction except when the
principal transmits his power of attorney to the agent, who receives it
without any objection, or 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.
TWO WAYS OF GIVING NOTICE OF AGENCYWITH DIFFERENT
EFFECTS
If by special information, the person pointed as agent is
considered such with respect to the person to whom it was
given.
If by public advertisement, the agent is considered as such
with regard to any person.
The power of attorney must be revoked in the same manner in which
it was given.

Agency

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. (Art. 1874)
Agency is presumed to be for a compensation, unless there is a
proof to the contrary. (Art. 1875)
CLASSIFICATION OF AGENTS
Universal agent authorized to do all acts that the principal
may personally do, and which he can delegate to another the
power of doing.
General agent authorized to transact all business of his
principal, to do all acts connected with a particular trade,
business or employment.
Special or particular agent authorized to act in one or more
specific transactions or to act upon a particular occasion.
An agency couched in general terms may be a general agency or
special agency.
WHEN SPECIAL POWERS OF ATTORNEY ARE NECESSARY(Art.
1878)
To make payment. (Payment is the delivery of money or the
performance in any other manner of an obligation)
To effect novations which put an end to obligations already in
existence at the time the agency is constituted.
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.
To waive an obligation gratuitously.
To convey or acquire immovable.
To make gifts.
To loan or borrow money.
To lease realty to another for more than one year.
To bind the principal to render service gratuitously.
To bind the principal in acontract of partnership.
To obligate the principal as a guarantor or surety.
To create or convey real rights over immovable property
belonging to his principal.
To accept or repudiate inheritance.
To ratify obligations contracted before the agency.
Any other act of strict dominion.
A special power to sell excludes the power to mortgage; and a
special power to mortgage excludes the power to sell (Art. 1879)
A special power to compromise does not authorize submission to
arbitration (Art. 1880)
Authority of an agent power of the agent to affect the legal
relations of the principals by acts done in accordance with the
principals manifestation of consent to him.
KINDS OF AUTHORITY
Actual actually granted and it may be express or implied
Express conferred by words
Implied incidental to the transaction or reasonably necessary
to accomplish the purpose of the agency

Apparent or ostensible conferred by conduct or even by

silence.
General refers to all the business of the principal
Special limited to only oneor more specific transactions
Authority by necessity demanded by the virtue of the
existence of emergency.
WHEN PRINCIPAL BOUND BY ACT OF AGENT
Requisites
The agent must act within the scope of his authority.
The agent must act in behalf of the principal.
Ratification by the principal
If the agent acts without authority or in excess or beyond
the scope of his authority, such shall be unenforceable,
unless it is ratified by the person on whose behalf it has
been executed, before it is revoked by the other contracting
party.
The limits of the agents authority shall not be considered exceeded
should it have been performed in a manner more advantageous to
the principal than that specified by him. (Art. 1882)
WHEN PRINCIPAL BOUND BY ACTS OF AGENT BEYOND HIS
POWERS
When principals acts have contributed to deceive a third
person in good faith.
When the limitations upon the power created by him could not
have been known by the third person.
When the principal has placed in the hands of the agent
instruments signed by him in blank.
When the principal has ratified the acts of the agent.
KINDS OF PRINCIPAL
Disclosed principal other party has notice that the agent is
acting for principal and of the principals identity.
Partially disclosed principal other party has notice that the
agent is or may be acting for a principal but has no notice of the
principals identity.
Undisclosed principal other party has no notice thatthe
agent is acting for a principal.
If an agent acts in his own name, he is the one directly liable to the
person with whom he had contracted as if the transaction were his
own.
If an agent acts in his own name and involves the things belonging to
the principal, the principal is bound by the act of agent as if the
contract is entered into between the principal and the third person.

1.

2.
3.

OBLIGATIONS OF THE AGENT

The agent is bound by his acceptance to carry out the agency, and
is liable for the damages, whichthrough his non-performance the
principal may suffer. (Art. 1884)
He must also finish the business already begun on the death of the
principal, should delay entail any danger. (Art. 1884)
In case a person declines an agency, he is bound to observe the
diligence of a good father of a family in the custody and the
preservation of the goods forwarded to him by the owner until the

Agency

latter should appoint an agent or take charge of the goods himself.

(Art.1885)
4. Should there be a stipulation that the agent shall advancethe
necessary funds, he shall be bound to do so except when the
principal is insolvent. (Art. 1886)
Rule: The principal must advance to the agent, should the
latter so request, the sums necessary for the execution of
agency.
In case of insolvency, the principal is not liable for the
expenses incurred by the agent.
5. In the execution of agency, the agent shall act in accordance with
the instructions (reasonable and lawful) of the principal. (Art.
1887)
Authority: extent or limitation of the agents power to represent
the principal; Instructions: private directions which the principal
may give the agent to follow in the discharge of his duties.
If the agent exceeds, violates or fails to act upon such
instruction, he will be liable for any loss or damage resulting
therefrom.
In the absence of specific instructions, the agent shall do all that
good father of the family would as required by the nature of
the business
If the agent acts in good faith and withdue care, the agent is
not liable for losses due to errors or mistakes of judgments as
regards to matters with which he is vested with discretionary
powers.
6. An agent shall not carry out an agency if its execution would
manifestly result in loss or damage to the principal. (Art. 1888)
7. The agent shall be liable for damages, if there being a conflict
between his interests and those of the principal, he should prefer his
own. (Art. 1889)
8. If the agent is empowered to borrow money, he may himself be the
lender at the current rate of interest. If he has been authorized to
lend money at interest, he cannot borrow it without the consent of
the principal.
9. Every agent is bound to render an account of his transactions and
to deliverto the principal what he may have received by virtue of
the agency, even though it may not be owing to the principal. Every
stipulation exempting the agent from the obligation to render an
account shall be void.
10. The agentmay appoint a substituteif the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the
substitute when
(1)he was not given the power to appoint one;
(2) he was given such power, but withoutdesignating the
person, and the person appointed was notoriously incompetent or
insolvent.
All acts of the substitute appointed against the prohibition of the
principal shall be void. (Art. 1892)
Subagent person to whom the agent delegates as his agent,
the performance of an act for the principal where the agent has
empowered to perform through his representative.
Principal has a right of action not only against the agent but also
against the substitute (Art. 1893)

EFFECTS OF SUBSTITUTION
Substitution prohibited. all acts of substitute shall be
void
Substitution authorized. the substitution has the effect
of releasing the agent from his responsibility unless the
person appointed is notoriously incompetent or
insolvent.
Substitution not authorized, but not prohibited. the
law recognizes the validity of the substitution if the same is
beneficial to the principal. If the substitution has
occasioneddamage to the principal, the agent shall be
primarily responsible for the acts of substitution.
The responsibility of two or more agents, even though they have
been appointed simultaneously, is not solidary, if solidarity has
not been expressly stipulated. (Art. 1894)
If solidarity has been agreed upon, each of the agents is
responsible for the non-fulfillment of the agency, and for the
fault or negligence of his fellow agents, except in the latter
case when the fellow agents acted beyond the scope of their
authority. (Art. 1895)
11. The agent owes interest on the sums he has applied to his own
use from the day on which he did so, and on those which he still
owes after the extinguishment of the agency. (Art. 1896)
When agent may incur personal liability. (Art. 1897)
When the agent expressly binds himself
When the agent exceeds his authority
Effects where third person aware of limits of agents power
(Art. 1898)
If the agent acts in excess of his authority, even if he
contracts in the name of the principal, the agent is the one
personally liable, unless there is subsequent ratification
by the principal.
The agent is not bound in case he gave notice of his
powers to the person with whom he has contracted nor in
case such person is aware of the limits of the power
granted by the principal.
o If the agent promised to secure the principals
ratification and failed, he is personally liable.
o If the ratification is obtained, then the principal
becomes liable.
If a duly authorized agent acts in accordance with the orders
of the principal, the latter cannot set up the ignorance of the
agent as to circumstances whereof he himself was, or ought to
have been aware. (Art. 1899)
So far as third persons are concerned, an act is deemed to have
been performed within the scope of the agents authority, if such
act is within the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the
agent.(Art. 1900)
A third person cannotset up the fact that the agent has
exceeded his powers, if the principal has ratified, or has
signified his willingness to ratify the agents acts. (Art. 1901)

Agency

12.

13.

14.

15.

16.

A third person with whom the agent wishes to contract on behalf

of the principal may requirethe presentation of the power of
attorney, or instructions as regards to the agency. Private or
secret orders and instructions of the principal do not prejudice
third persons who have relied upon the power of attorney or
instructions shown them. (Art. 1902)
The commission agent who handles goods of the same kind, which
belong to different owners, shall distinguish them by
countermarks, and designate the merchandise respectively
belonging to each principal. (Art. 1904)
Factor or commission agent one whose business is to
receive and sell goods for a commission and who is entrusted
by the principal with the possession of goods to be sold.
The commission agent shall be responsible for the goods
received by him in the terms and conditions as described in
the consignment, unless upon receiving them he should make
a written statement of the damage and deterioration suffered
by the same. (Art. 1903)
Should the commission agent, with authority of the principal, sell on
credit, he shall so inform the principal, with a statement of the
names of the buyer.Should he fail to do so, the sale shall be
deemed to have been made for cash insofar as the principal is
concerned. (Art. 1906)
Its purpose is to prevent the agent form stating tha the sale was
on credit when in fact it was made for cash.
The commission agent cannot, without the express or implied
consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit,
which may result from such sale. (Art. 1905)
Should the commission agent receive on a sale, in addition to
ordinary commission, another called a guarantee commission, he
shall bear the risk of collection and shall pay the principal the
proceeds of the sale on the same terms agreed upon with the
purchaser. (Art. 1907)
Guarantee commission (del credere commission) one where
in consideration of an increased commission the factor or
commission agent guarantees to the principal the payment of
debt arising through his agency.
The purpose of guarantee commission is to compensate the
agent for the risk he will have to bear in the collection of the
credit due to principal.
The commission agent who does not collect the credits of his
principal at the time when they become due and demandable shall
be liable for damages, unless he proves that he exercise due
diligence for that purpose. (Art. 1908)
The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the
courts, according to whether the agency was or was not for
compensation.

OBLIGATIONS OF THE PRINCIPAL

1.

2.
3.

4.

To comply with all the obligations which the agent may have
contracted within the scope of his authority and in the name of the
principal.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly. (Art. 1910)
Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter
to act as though he had full powers. (Art. 1911)
Apparent authority vs. Authority by estoppel
Apparent authority is that which though not actually
granted, the principal knowingly permits the agent to
exercise or holds him out of possessing.
Authority by estoppelarises in those cases where the
principal by his culpable negligence permits his agent to
exercise power not granted to him, even though the
principal may have no notice or knowledge of the conduct
of the agent.
To advance to the agent, should the latter so request, the sums
necessary for the execution of agency. (Art. 1912)
To reimburse the agent from all advancesmade by him, even if the
business or undertaking was not successful, provided the agent is
free from all fault. (Ibid.)
Reimbursement shall include interest on the sums advanced,
from the day on which the advance was made.
To indemnify the agent for all the damages which the execution of
the agency may have caused the latter without fault of negligence to
his part. (Art. 1913)
If the principal fails reimburse of indemnify the agent as required
in Art. 1912 & Art. 1913, the agent has a right to retain in
pledge the things which are the object of the agency (Art. 1914)
If two or more principals have appointed an agent for a common
transaction or undertaking, the liability of the principals is
solidary for all consequences of the agency; that is each
principal may be sued by the agent for the entire amount due
and not just for his proportionate share. (Art. 1915)
When two persons contract with regard to the same thing, one
of them with the agentand the other with the principal, and the
two contracts are incompatible with each other, that of prior
date shall be preferred, without prejudice to the provisions of
article 1544. (Art. 1916)
If the agent has acted in good faith, the principal shall be
liable in damages to the third person whose contract must
be rejected. If the agent acted in bad faith, he alone shall
be responsible (Art. 1917)
The principal is not liable for the expenses incurred by the
agent:
If the agent acted in contravention of the principals
instruction, unless the latter should wish to avail himself of
the benefits derived from contract.
When the expenses were due to the fault of the agent.
When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was not
aware thereof.

Agency

5.

When it was stipulated that the expenses would be borne

by the agent, or that the latter would be allowed only a
certain sum. (Art. 1918)
To pay the agent compensation agreed upon, or f no compensation
was specified, the reasonable value of the agents services

MODES OF EXTINGUISHMENT OF AGENCY

Agency is extinguished:
1. By its revocation
2. By the withdrawal of the agent
3. By then 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 of the purpose of the
agency
6. By the expiration of the period for which the agency was
constituted. (Art. 1919)
Civil interdiction is a form of disqualification which deprives the
offender during the period of his sentence of the right to manage his
property and disposed of such property by any act or any
conveyance inter vivos.
The principal may revoke at will, and compel the agent to return the
document (if the authority is in writing) evidencing the agency. Such
revocation may be expressed or implied. (Art. 1920)
While the principal may have absolute power to revoke the
agency at any time, he must respond in damages in those cases
wherein not having the right to do so, he should discharge the
agent.
Implied revocation an example is when the principal appoints
a new agent for the same business or transaction (Art. 1923) or
when the principal directly manages the business entrusted to
the agent, dealing directly with third persons. (Art. 1924).
If the 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. (Art. 1921)
If the agency had general powers, its revocation does not
prejudice third persons who acted in good faith and without
knowledge of revocation. Notice of the revocation in the
newspaper of general circulation is a sufficient warning to
third persons. (Art. 1922)
The appointment of a new agentfor the same business or
transaction revokes the previous agency from the day on which
notice thereof was given to the former agency, without prejudice
to the provisions of two preceding articles. (Art. 1923)
When two or more principals have granted a power of attorney
for a common transaction, any one of them may revoke the
same without the consent of the others. (Art. 1925)
A general power of attorney is revoked by a special one granted
to another agent, as regards the special matter involved in the
latter. (Art. 1926)
An agency cannot be revoked if a bilateral contract depends
upon it, or if it is the means of fulfilling an obligation already

contracted, or if a partner is appointed manager of a partnership

in the contract of partnership and his removal from the
management is unjustifiable. (Art. 1927)
The agent may withdraw from the agency by giving due notice to the
principal. If the latter should suffer any damage by reason of the
withdrawal, the agent must indemnify him therefor, unless the agent
should base his withdrawal upon the impossibility of continuing the
performance of the agency without grave detriment to himself. (Art.
1928)
Even when the agent withdraws from the agency for a valid
reason, he must continue to act until the principal has ha had
reasonable opportunity to take necessary steps. (Art. 1929)
The agency shall remain in full force and effect even after the death
of the principal, if it has been constituted in the common interest of

Agency

the latter and of the agent, or in the interest of a third person who has
accepted the stipulation in his favor (Art. 1930)
Anything done by the agent, without knowledge of the death of
the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith. (Art.
1931)
If the agent dies, his heirs must notify the principal thereof, and
in the meantime adopt such measures as the circumstances
may demand in the interest of the latter. (Art. 1932)