BUSINESS ORGANIZATION I

AGENCY

 Article 1317 CC
o No one may contract in the name of another without being
authorized by another.
 Article 1403 CC
o Contract entered in the name of another without authority or
legal representation shall be unenforceable.
 Article 1868 CC
o “By the contract of agency a person binds himself to render
some service or to do something in representation or behalf of
another, with the consent or authority of the latter”
o Creating between a principal and an agent an on-going legal
relationship which imposes personal obligations on both parties.
 Doctrine of Representation
o The acts of the agent on behalf of the principal within the scope
of the authority given have the SAME LEGAL EFFECTS AND
CONSEQUENCES as though the principal had been the one
acting in the given situation.
 Eurotech Industrial Technologies vs. Cuizon
o “The underlying principle of the contract of agency is to
accomplish results by using the services of others- to do a great
variety of things like selling, buying, manufacturing and
transporting. Its purpose is to extend the personality of the
principal or the party for whom another acts and from
whom he or she derives the authority to act.

 PARTIES TO A CONTRACT OF AGENCY

o The Principal- the person represented (mandante)
o The Agent- the person who acts for and in representation of
another (mandatario) – attorney-in-fact, proxy, delegate,
representative
 ELEMENTS OF THE CONTRACT OF AGENCY
o Consent (Express or Implied)
o Object or Subject Matter
o Cause or Consideration
 In the case of Rallos vs. Felix Go Chan & Sons Realty Corp., the
following are the essential elements of the contract of agency:
o Consent (express or implied)
 o Object
o Agent acts as representative and not for himself
o Agent acts within the scope of its authority
 **Last two elements are meant to emphasize the
relationship of agency
 CONSENT
o Article 1317 of NCC- No person may be represented by another
without his will; and that no person can be compelled against his
will to represent another.
o Exception to the rule: AGENCY BY ESTOPPEL
o Capacity of the Parties
 principal must have the capacity to contract and must be a
natural or juridical person
 if one of the parties has no legal capacity to contract, the
contract of agency is merely VOIDABLE.
 If the principal has NO LEGAL CAPACITY and the agent
enters into a contract with a third party, the contract is
voidable and subject to annulment.
 If the PRINCIPAL has LEGAL CAPACITY and the AGENT has
NO LEGAL CAPACITY- underlying agency relationship is
voidable.
 When INCAPACITATED AGENT enters a contract with the
third party, the resulting contract is VALID for the agent’s
incapacity is irrelevant.
 Article 1919 NCC- if the principal or agent is placed under
civil interdiction or has become insane or insolvent, the
agency is ipso facto extinguished.
 Principle of Relativity
 agency as a personal relationship based on purpose
of representation.
 When the principal or agent dies or becomes legally
incapacitated, the agency relation should ipso jure
cease
o OBJECT OR SUBJECT MATTER
 Object or subject matter is SERVICE- the legal undertaking
of the agent to enter into juridical acts with third persons
on behalf of the principal.
 The obligation created in contract of agency is a unilateral
obligation “to do”.
o CONSIDERATION OR COMMISSION
 Article 1875- Agency is presumed to be for a
compensation, unless there is a proof to the contrary.
 The cause or consideration in agency is the compensation
or commission that the principal agreed or committed to
pay the agent for the latter’s services.
 Manotok Bros. Inc. vs CA – the sale of the object was
perfected three days after the expiration of the agency
period- agent is still entitled to the commission based on
the doctrine held in Prats vs. CA. The agent was the
efficient procuring cause in bringing about the sale thus
agent is entitled to compensation.

o ESSENTIAL CHARACTERISTICS OF AGENCY

 Nominate and Principal
 Principal contract because it can stand on its own
without the need of other contract to validate it.
 So set apart by law and provided its own set of rules
and legal consequences that any other arrangement
shall fall under Law on Agency.
 Consensual
 Article 1869- Agency may be EXPRESS or IMPLIED
from the acts of the principal. May be ORAL unless
the law requires a specific form
 Article 1870- Acceptance by the AGENT may also be
expressed or implied.
 Contract of Agency is perfected by mere consent. It
is essentially a consensual contract and that as a
general rule no for or solemnity is required in order
to make it valid, binding, and enforceable.
 Unilateral and Primarily Onerous
 Onerous in nature- agent expects compensation for
his services in form of commissions.
 A unilateral contract as it only creates an obligation
on the part of the agent- the fulfillment of the
primary obligation of the agent gives rise to the
subordinate obligation of the principal to pay the
agreed compensation.
 Personal, Representative and Derivative
 Article 1897- The agent who acts is not personally
liable to the party whom he contracts, unless he
 expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice
of his powers.
 Agency is a “service contract”, the characteristic of
representation is the mark of agency when compared
to other service contracts.
 The personal, representative and derivative nature of
the contract comes from the fact that the authority
of the agent to act emanates from the powers
granted to him by the principal; his act is the act of
the principal- Qui facit per alim facit per se- He who
acts through another acts himself
 The strongest feature is “control”- the agent is under
the control and instruction of the principal.
o In Eurotech vs. Cuizon, it is said that the basis
of agency is representation, that is, the agent
acts for and on behalf of the principal on
matters within the scope of his authority and
said acts have the same legal effects as if they
were personally executed by the principal. By
legal fiction, the actual or real absence of the
principal is converted into his legal or juridical
presence.
 PRINCIPLES flowing from the Personal,
Representative and Derivative Characteristic
o The contract entered into with third persons
pertains to the PRINCIPAL and NOT to the
AGENT, the agent is stranger to said contract
although he physically was the one who
entered into it in a representative capacity.
 Agent has NO rights or obligations from
the contract, NO legal standing. If the
agent purchases a property in bad faith,
the principal is deemed to be in good
faith.
o Generally, all acts that the principal can do in
person, he may do through an agent, except
those under public policy are strictly personal
to the participant.
 o A suit against an agent in personal capacity
cannot, without compelling reasons, be
considered a suit against the principal.
o Notice to the agent should always be construed
as notice binding on the principal, even when
in fact the principal never became aware
thereof.
o Knowledge of an agent is equivalent to the
knowledge of the principal.
o EXCEPTIONS:
 Agent’s interests are adverse to the
principal
 Agent’s duty is not to disclose the
information, as where is informed by way
of confidential information
 The person claiming the benefit of the
rule colludes with the agent to defraud
the principal.
 Fiduciary and Revocable
 Fiduciary because it is based on trust and
confidence.
o As regards to the property forming the subject
matter of the agency, the agent is estopped
from asserting or acquiring a title adverse to
that of the principal.
o In a conflict-of-interest situation, the agent
cannot choose a course that favors himself to
the detriment of the principal; he must choose
to the best advantage of the principal.
o The agent cannot purchase for herself the
property of the principal which has been given
to her management for sale or disposition
o UNLESS:
 There is an express consent from the
principal
 IF the agent purchases after the agency
is terminated
 Generally, the agency may be revoked by the
principal at will.
 Preparatory and Progressive
  A contract of agency does not exist for its own
purpose as it is a preparatory contract for an agent
to enter into juridical acts with the public in the
name of the principal.
 Agency contract is merely a tool or medium resorted
to achieve a greater objective of being able to enter
into juridical relations on behalf of the principal.

 KINDS OF AGENCY
o Based on the Business of Transactions Covered
 General/Universal Agency
 when it encompasses all of the business of the
principal (Art. 1876 NCC)
 one addressed to general public
 Special/ Particular Agency
 Covers only one or more specific transactions.
 Siasat vs. IAC- Three types of Agency:
 Universal- A universal agent is one authorized to do
all acts for his principal which can lawfully be
delegated to an agent.
 General- A general agent is one authorized to do all
acts pertaining to a business of a certain kind or at a
particular place, or all acts pertaining to a business
of a particular class or series.
 Special- A special agent is one authorized to do
some particular act or to act upon some particular
occasion.
o When it covers litigation matters
 Attorney-at-Law
 Attorney-in-Fact
o Whether it covers acts of administration of acts of ownership
 General Power of Attorney
 Special Power of Attorney
