AGENCY ESSENTIAL ELEMENT
By a 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
Broad enough to cover situations where 1 person is employed to
render service to another BUT
Excludes employment relationship (1700), master and servant
(1680) and of employer and independent contractor (1713)
Agency is a relationship where the agent has the power to contract
with a 3rd person on behalf of the principal.
This power to act for and on behalf of the principal differentiates
the agent from an employee, a servant and an independent
contractor.
BAR (200,2003): A asked B to buy some groceries for her in the
supermarket. Was there a nominate contract between A and B? In
the affirmative, what was it? Explain. Yes there was a nominate
contract of agency. When B accepted the request of A to buy some
things for her in the supermarket, B bound himself to render some
service or to do something in representation or on behalf of
another, with the consent or authority of the latter.
BAR (2004): A, a foreign manufacturer of computers and B, a
local distributor entered into a contract whereby B agreed to order
1,000 units and to resell them in RP with mark up of 10%. All
unsold units shall be returned at the same price they were ordered.
B shall be free from any claim for defects. Is the contract sale or
agency? The contract is a contract of agency. The notion of sale is
negated by the following indicia: (a) the price is fixed by the
manufacturer with a 10% mark up constituting the commission; (b)
manufacturer reacquires the units at the same price; © warranty for
the units was borne by the manufacturer.
Form of Acceptance by Agent
A. Express - when it is oral or written
B. Implied -when it can be inferred from the acts of the
agent which carry out the agency, or from his silence of
inaction according to the circumstances
1. Between persons who are present – implied
acceptance if the principal delivers his
power of attorney to the agent and the latter
receives it without any objection
2. Between persons who are absent –
acceptance not deemed implied from the
silence of the agent EXCEPT:
a. When the principal transmits his power of
attorney to the agent, who receives it without any
objection
b. 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
Way of Giving Notice of Agency & Its Effect
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 such
with regard to any person
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; and
4.The agent acts within the scope of his authority (Rallos v. Felix
and CA, 81 SCRA 251)
Parties
Principal – one whom the agent represents and from whom he
derives his authority; he is the person represented.
May either be a natural person or an artificial one
Includes legal entities such as corporations or partnerships
Agent- one who acts for and represents another; he is the person
acting in a representative capacity. He may employ his own agent
in which case he becomes a principal with respect to the latter
Need not possess full capacity to act insofar as 3 rd persons are
concerned
Even one under legal disability may be an agent
Presumption of Agency
GENERAL RULE: Agency is not presumed.
Where the relation of agency is dependent upon the acts of the
parties, the law makes no presumption of agency, and it is always a
fact to be proved, with the burden of proof resting upon the person
alleging the agency (Keller v. Rodriguez, 44 Phil 19)
EXCEPTIONS:
1.Agency by operation of law (1803)
2.To prevent unjust enrichment
3.Lawyer is presumed to have authority to appear and represent
client (Rule 138, Rules of Court)
Kinds of Agency
As to manner of creation
 Express – agent has been actually authorized by the
principal, either orally or in writing (1869)
 Implied – implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency
knowing that the agency is acting on his behalf without authority
or from the acts of the agent which carry out the agency, or from
his silence or inaction according to the circumstances (1870)
As to its character
 Gratuitous – agent receives no compensation for his
services
 Compensated or onerous – agent receives
compensation for his services (1875)
As to extent of business covered
 General – comprises all the business of the principal
(1876)
 Special – comprises one or more specific transactions
 Special Powers of Attorney
1. To make such payments as are not usually considered
POWER OF ATTORNEY as acts of administration
instrument in writing by which one person, as principal, appoints 2. To effect novations which put an end to obligations
another as his agent and confers upon him the authority to perform already in existence at the time the agency was
certain specified acts or kinds of acts on behalf of the principal; constituted
primary purpose is to evidence agent’s authority to third parties
within whom the agent deals 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
Power of Attorney, How Construed: prescription already acquired
GR: strictly construed and strictly pursued; held to grant only those
4. To waive any obligation gratuitously
specified powers
Exception: when strict construction will destroy the very purpose 5. To enter into any contract by which the ownership of an
of the power immovable is transmitted or acquired either
gratuitously or for a valuable consideration
6. To make gifts, except customary ones for charity or
Sale of a Piece of Land/Any Interest Therein: agent’s authority
those made to employees in the business managed by
must be in writing, otherwise sale is void
the agent
7. To loan or borrow money, unless the latter act be urgent
Agency Couched in General Terms: covers only MERE ACTS
and indispensable for the preservation of the things
OF ADMINISTRATION even if
which are under administration
a. the principal should state that he withholds no
power 8. To lease any real property to another person for more
b. the agent may execute such acts as he may than one year
consider appropriate
c. the agency should authorize a general and 9. To bind the principal to render some service without
unlimited management compensation
10. To bind the principal in a contract of partnership
11. To obligate the principal as a guarantor or surety

Power to compromise does not include submission to

arbitration. 12. To create or convey real rights over immovable
property
NOTE: Agent always liable for fraud but not for negligence, which 13. To accept or repudiate an inheritance
shall be judged with more or less rigor by the courts, according to
whether the agency was or was not for a compensation. 14. To ratify or recognize obligations contracted before the
agency
15. Any other act of strict dominion

If power of atty differs from understanding of P and A (1994) Not Included in the Power to Mortgage:
1.to sell
(BAR)A realty corp has B as exclusive sales agent of its properties. 2.to execute a second mortgage
A told B that B could not collect payments from buyers. 3.to mortgage for the agent’s or any 3 rd persons’ benefit, UNLESS
Nonetheless, B collected downpayments from C and did not turn clearly indicated
over the payments to A. Who shall bear the loss for B’s
defalcation, A or C?

ANSWER: Assuming that B had written authority to sell properties

and such written authority allowed B to collect payments, A shall
bear the loss of B’s defalcation. Even if B exceeded the limits of
his authority based on A’s instructions, if B collected pursuant to
his written authority, C can safely assume that B acted within the
scope of his authority. Thus, it shall be A who shall bear the loss.

1900- So far as third persons are concerned, an act is deemed to

have been performed within the scope of the agent’s 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 understanding between the principal and the agent.
OBLIGATIONS OF THE AGENT
Obligations of the Agent to the Principal
 To carry out the agency which he accepted
 To answer for damages which through his performance
the principal might suffer
 Based on 1170, any person guilty of fraud, negligence
or delay in the fulfillment of his obligation or who fails to comply
with the terms thereof shall be liable for damages
 To finish the business already begun on the death of the
principal should delay entail any danger
GENERAL RULE: Death of the principal extinguishes the
agency BUT
 agent must conclude business which has already
begun
EXCEPTION:
death of P or A will not extinguish the agency if
 Agency is constituted for the common interest of the
P and A
 Agency is constituted in the interest of a 3 rd person
who has accepted the stipulation in his favor
• To observe the diligence of a GFF in the custody and
preservation of goods forwarded to him by the owner in case he
declines an agency, until an agent is appointed (1885)
• Principal has the obligation to appoint a new agent or to
take over management
 To be responsible in some cases for the acts of his
substitute
GENERAL RULE: Agent may appoint a sub-agent or substitute
EXCEPTION: If principal prohibits
Agent becomes liable for acts of sub-agent if agent appoints
without the power to appoint OR sub-agent is notoriously
incompetent or insolvent
Any act done by the substitute or sub-agent in behalf of the
principal is deemed an act of the principal. Consequently, neither
the agent nor the substitute can be held personally liable so long as
they act within the scope of their authority (Lorca v. Dineros, 103
Phil 122)
Substitute or sub-agent (1999)
QUESTION: X appoints Y as agent to sell his products, can Y
appoint a sub-agent and if he does what are the effects of such
appointment?Yes, Y may appoint a substitute or sub-agent unless
the principal prohibits appointment.
Y becomes liable for acts of sub-agent if agent appoints without
the power to appoint OR sub-agent is notoriously incompetent or
insolvent.
 To advance the necessary funds should there be a
stipulation to do so (1886)unless the principal is insolvent
 To act in accordance with the instructions of the
principal
 If without instructions, to do all that a GFF would do
(1887)
 Not to carry out the agency if its execution would
manifestly result in loss or damage to the principal (1888)
 If there is a conflict between his interest and that of the
principal and he prefers his own, he is liable for damages (1889)
 If he is authorized to lend money at interest, he must
not loan to himself (1890)
 To render an account of his transactions and to deliver
to the principal whatever he may have received by virtue of the
agency (1891)
 This obligation is not applicable if the agent merely
acted as middleman tasked to bring together the vendor and the
vendee who themselves thereafter will negotiate the terms and
conditions of the transaction (Domingo v. Domingo, 42 SCRA 131)
 If he has several principals dealing with same goods, he
must distinguish countermarks and designate the merchandise
respectively belonging to each principal (1904)
 To pay interest on funds he applied for his own use
(1896)
 To inform the principal, where an authorized sale of
credit has been made of such sale (1906)
 To bear the risk of collection, should he also receive a
guarantee commission (1907)
 To indemnify the principal for damages for his failure
to collect the credits of his principal at the time that they become
due (1908)
 To be responsible for fraud or negligence (1909)
 To pay in cash the proceeds of sale when agent allowed
the sale of a property on credit without the express or implied
consent of the principal (1905)
 When allowed to sell on credit, to inform the principal
of the sale and the names of the buyers (1906)

Obligation of Agent to 3rd persons
 General Rule: An agent who acts as such is not
personally liable to the party with whom he contracts
 Liability will be on the principal
Exception: He binds himself or exceeds the limits of his authority
without giving such party sufficient notice (1897)
 If he gives the party notice, the contract is VOID,
unless agent undertook to secure principal’s ratification. (1898)
If agent acts in his own name
 the principal has no right of action against 3 rd persons
with whom agent contracted with and vice versa
GENERAL RULE: Agent is liable to 3rd persons
EXCEPTION: contract involves things belonging to the principal
then principal becomes liable BUT without prejudice to action
between agent and principal in both cases (1883)
Liability of Principal for Acts of the Agent
 An agent acting in his own name does not bind the
principal but when the contract involves things belonging to the
principal, the contract is considered as entered into between the 3 rd
person and the principal (PNB v. Agudelo, 58 Phil 635)
 The exception in 1883 is applicable when the money
used by the agent to buy the property belonged to the principal
(SyJuco v. Sy-Juco, 40 Phil 634)
Ignorant Agent
1899 – 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 of.
 If the P appoints an ignorant agent, the P is still bound
by the agent’s acts.
 Even if agent is ignorant, principal is liable if agent acts
within the scope of his authority and in accordance with
instructions of the P.
When power of atty and agreement of principal and agent are
inconsistent
 1900- If agent acts within scope of power of attorney,
as written, but agent exceeded the limits of his authority according
to understanding between the principal and the agent, principal is
still liable to the 3rd person.
Third party cannot use agent’s lack of authority to evade
obligation
 If agent acted outside the scope of his authority but
principal ratifies or expressed willingness to ratify, 3rd person
cannot set up agent’s exceeding his powers to evade liability
(1901)
OBLIGATIONS OF THE PRINCIPAL
Obligations of Principal to Agent
 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
 To advance to the agent, should the latter so request,
sums for execution of the agency
 Reimburse agent for all advances provided the agent is
free from fault
 Indemnify agent for all the damages which the
execution of the agency may have caused the latter without fault or
negligence on his part
 Pay compensation agreed upon or if no compensation
was specified, the reasonable value of the agent’s services
Note: Agent has right to retain in pledge objects of agency until
principal reimburses damages and compensation
When the principal is not liable for agent’s expenses (1918)
 Agent acted in contravention of principal’s instructions,
unless principal wishes to avail of the benefits of the contract
 Expenses were due to agent’s fault
 Agent incurred expenses knowing result will be
unfavorable result and principal was unaware
 When it is stipulated that expenses would be borne by
the agent and he is only entitled to a certain sum
Obligations of the Principal to 3rd persons
 Must comply with all obligations contracted by the
agent within the scope of his authority (1910)
 Even if agent exceeded his authority, still bound if he
ratified the contract (1910)
 Ratification may extend to valid acts, voidable acts,
unrevoked acts
 If there are 2 or more principals in a common
transaction, they shall be solidarily liable to the agent for all
consequences of the undertaking (1915)

 two persons contract with regard to the same thing
 One persons contracts with agent
 The other contracts the principal
 2 contracts are incompatible :
 Prior date shall be preferred.
 - if the agent acted in good faith, the principal shall be
liable for damages to the 3rd persons
 - if the agent acted in bad faith, agent shall be liable
AGENCY BY ESTOPPEL
Estoppel of agent – one who professes to be the agent of another is
estopped to deny his agency as against his asserted principal and
the 3rd persons
Estoppel of principal – If
 Principal knew that a person is representing himself as
agent;
 Principal knew the transactions entered into by the
supposed agent;
 Principal fails to repudiate the agency; THEN
 Principal cannot deny the agency with respect to the
agent, the sub-agent and 3rd persons
Illustration : Agency by Estoppel
Pedro tells Maria that Jose can sell goods for and on behalf of
Pedro. Pedro instructs Jose not to sell but just determine the
highest price Maria can offer.. Jose sells goods to Maria. The sale
is binding on Pedro
Illustration: Implied Agency
Pedro gives Jose a note for collection or to receive payment
thereon. Jose collects from Maria but does not give the amount to
Pedro. Pedro cannot deny that Jose was his implied agent by virtue
of the note for collection. Thus, Maria cannot be made to pay
again.
Negotiorium Gestio is the management of business or affairs of an
absentee. Negotiorium and Agency both have the element of
representation.
BAR (1995):A owns a row of residential apartments which he rents
out to tenants. One April1, 1991, he left for the US without
appointing any administrator to manage his apartments such that
unpaid rentals accumulated for 3 years. B, niece of A, concerned
with the interest of A took it upon herself to administer the
property. As a consequence, she incurred expenses in collecting
the rents and even spent for necessary repairs to preserve the
property.
What juridical relation between A and B, if any, has resulted from
B’s unilateral act of assuming the administration of A’s
apartments?
The juridical between A and B is that of Negotiorium Gestio. B
voluntarily took charge of the agency or management of the
business or property of A without any power from A whose
property was neglected. B is called the gestor negotiorium or
officious manager (2144).
Sevilla v. CA, 160 SCRA 171
Sevilla was branch manager of a company and is a bona fide travel
agent who was entitled to 4% of airline fare collected through her
efforts. Her work was not supervised by the agency and her
compensation depends on her booking success.
ISSUE: Is Sevilla an employee of the travel agency, an agent or a
partner?
Partnership was NOT intended by the parties. Sevilla admitted that
she has no say as to whether the business will continue to run or
not. Principal-agent relationship was intended. Sevilla solicited
airline fares for and on behalf of the principal. As compensation,
she received 4% of the collection as commission. The agency is
coupled with an interest.
Responsibility of 2 or More Agents Appointed Simultaneously:
GR: liable jointly
Exception: solidarity has been expressly stipulated; each of the
agents becomes solidarily liable for (1) the non-fulfillment of the
agency; of for (2) the fault or negligence of his fellow agent
Exception to the exception: when one of the other agent/s acts
beyond the scope of his authority – innocent agent is NOT liable
NOTE however that if two or more persons have appointed an
agent for a common transaction or undertaking, they shall be
solidarily liable to the agent for all the consequences of the agency.
Any of them also revoke the agency.
Broker: negotiate contracts relative to property in behalf of others
and for a compensation or fee
When Broker Entitled to Compensation: whenever he brings to his
principal a party who is able and willing to take the property, and
enter into a valid contract upon the terms named by the principal,
although the particulars may be arranged and the matter negotiated
and completed between the principal and the purchaser directly
(NOTE: A broker is never entitled to commission for unsuccessful
efforts.)
Law on Double Agency: disapproved by law for being against
public policy and sound morality EXCEPT where the agent acted
with full knowledge and consent of the principals
Compensation for a Double Agent:
a. with knowledge of both principals - recovery can
be had from both principals
b. without the knowledge of both principals - the
agent can recover from neither
c. with knowledge of one principal - as to the
principal who knew of that fact and as to the
agent, they are in pari delicto and the courts shall
leave them as they were, the contract between
them being void as against public policy and good
morals
Attorney-In-Fact: one who is given authority by his principal to do
a particular act not of a legal character
NOTE: The term is, in loose language, used to include agents of all
kinds, but in its strict sense, it means an agent having a special
authority created by a deed.
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, and usually selling in his own
name
Obligations of a Commission Agent
1. responsible for the goods received by him, as described
in the consignment, UNLESS upon receiving them he should
make a written statement of the damage and deterioration
suffered by the same
2. if goods are of the same kind and mark but belonging to
different owners, make a distinction by counter marks and
 designate the merchandise respectively belonging to each
principal
3. cannot, without consent of the principal, sell on credit;
should he do, principal may demand payment in cash, but the
commission agent entitled to any interest/benefit which may
result from such sale
4. if a del credere agent receiving guarantee commission,
bears the risk of collection and pay the principal the proceeds
of the sale on the same terms agreed upon with the purchaser
5. liable for damages if agent does not collect the credits
of his principal at the time when they become due and
demandable, UNLESS he proves, that he exercised due
diligence for that purpose
EXTINGUISHMENT OF AN AGENCY
1. REVOCATION
termination of the agency by the subsequent act of the principal
Principal’s Liability for Damages Despite Revocation
1. if the agency was constituted for a fixed period, the principal
shall be liable for damages occasioned by the wrongful
discharge of the agent before the expiration of the period fixed
2. even if there was no time fixed for the continuance of the
agency, but the agent can prove that the principal acted in bad
faith by revoking the agency in order to avoid the payment of
commission about to be earned, the principal can be held liable
for damages
Necessity of Notice of Revocation
1. as to the agent - express notice always necessary;
sufficient notice if the party to be notified actually knows, or
has reason to know, a fact indicating that his authority has been
terminated/suspended; revocation without notice to the agent
will not render invalid an act done in pursuance of the
authority
2. as to 3rd persons – express notice necessary
a.as to former customers - actual notice must be given to them
because they always assume the continuance of the agency
relationship
b.as to other persons - notice by publication is enough
BAR (2001): A sold a parcel of land in Cebu to B for P100M in
annual installments for 10 years, but title remains with A until full
payment. To enable B to pay the price, A executed a power of atty
authorizing B to subdivide the lot, sell the individual lots and
deliver the proceeds to A, to be applied to the purchase price. 5
years later, A revoked the power of atty and took over the sale of
the subdivision lots. Is the revocation valid?
The revocation is not valid. The power of atty given is irrevocable
because it is coupled with an interest; the agency is a means of
fulfilling the obligation of the buyer to pay the price of the land. In
short, the bilateral contract is dependent on the agency.
Revocation, Not allowed:
 If a bilateral contract depends on the agency
 It is a means of fulfilling an obligation already
contracted
 If partner is appointed manager of a partnership in the
contract of partnership and his removal from the management is
unjustifiable
 If there’s an interest stipulated (BAR)
Implied Revocation of Agency
1. principal appoints a new agent for the same business or
transaction, only if there is incompatibility); effective
as between the principal and the agent only if
communicated to the agent; does not prejudice rights of
third persons acting in GF without knowledge of the
revocation
2. principal directly manages the business entrusted to the
agent, dealing directly with 3rd persons
3. general power is revoke if Special power is given to a
new agent
Effect of Issuance of a SPA: The general power is impliedly
revoked as to matters covered by the special power because a
special power naturally prevails over a general power.
Effect of Extinguishment Without Notice: act of agent deemed
valid insofar as 3rd parties acting in good faith and without
knowledge of revocation
2.WITHDRAWAL OF THE AGENT
termination of the agency by the subsequent act of the agent
3.DEATH, CIVIL INTERDICTION, INSANITY OR INSOLVENCY OF
THE PRINCIPAL OR OF THE AGENT
Exceptions to Extinguishment by Death
1. if marami ang agent at ang principal
2. if the act of the agent was executed without the
knowledge of the death of the principal and the third
person who contracted with the agent acted in good
faith
3. to avoid damage
4. if it has been constituted in the common interest of the
principal and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor
BAR: Stating briefly the thesis to support your answer to each of
the following cases, will the death of the agent end an agency?
ANSWER: Yes, under Article 1919 of the Civil Code, the general
rule is that death of the agent is one of the grounds for the
extinguishment of an agency. However, death of the agent will not
extinguish the agency if the agency was entered into for the
common interest of the principal and the agent or constituted in
favor of 3rd person who accepted the stipulation in his favor
Can the heirs continue the agency?
GR: agency calls for personal services on the part of the agent;
rights & obligations intransmissible
Exception:
1agency by operation of law, or a presumed or tacit agency
2agency is coupled with an interest in the SM of the agency (ex.
power of sale in a mortgage)
4.DISSOLUTION OF THE FIRM OR CORPORATION WHICH
ENTRUSTED OR ACCEPTED THE AGENCY
5.ACCOMPLISHMENT OF THE OBJECT OR PURPOSE OF THE
AGENCY
6.EXPIRATION OF THE PERIOD FOR WHICH THE AGENCY WAS
CONSTITUTED
4blue 95 NOTE: list not exclusive; causes particular only to
agency; may be extinguished by the modes of extinguishment of
obligations in general whenever they are applicable, like loss of the
thing and novation
4blue 95 notes:Agency is TERMINATED, as a matter of law, upon
the outbreak of war.
2006 notes:Presumption of Continuance of Agency: It means that
when once shown to have existed, an agency relation will be
presumed to have continued, in the absence of anything to show its
termination.
Continuance of Agency: parties must be (1)present, (2) capacitated
and (3) solvent