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ARTICLE 1868.

“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. (1709a)”

 All situations which one is employed to render some service for another
 excludes relationship
o Employer and employee
o Master and servant
o Employer and independent contractor

 Agency is a FIDUCIARY relationship which implies a power in an agent to contract with a 3rd party
o Power to effect the principals contractual relations with 3rd person
o Examples:

 Governing Law – Civil Code

Terms
Agency – The relationship of principal and agent
o May be used to denote the place at which business is transacted
o Used as Sense of instrumentality- by which thing is done
o Refer to Exclusive right of a person to sell a product for another in a specific territory

Characteristics of a contract ( CPPUN)


1. Consensual – based on agreement, perfected by mere consent
2. Principal – can stand on itself
3. Preparatory – entered into means to an end- creation of another transaction
4. Unilateral – If GRATUITOUS because it creates obligation for only one parties (if bilateral creates reciprocal
rights
5. Nominate – Has its own name

Nature, Basis, and Purpose of Agency


AGENCY – both a CONTRACT and a REPRESENTATIVE RELATION

1. Nature- Since contract, minds must meet


a. Manifestation of consent
 PRINCIPAL: must intend that agent shall act for him
 AGENT: must intend to accept the authority

Consent must be Expressed or Conduct between them

b. Agent, by Legal Fiction, becomes PRINCIPAL


 Authorized to perform all acts which the principal would have him do
 Can only be affected with Consent and Authority of the principal
(cannot be compelled by court or law)

c. Consideration and Contract NOT necessary since May be done through


 Since agency may be done through Operation of law or Gratuitously
o LGU and Municipal corporations acts as agents for State
o Agency may be done thru RATIFICATION by agent

2. Basis- Agency is a representative relation – to render some service or do something


a. Representation is the Basis of Agency
i. It is a personal contract of representation based on TRUST AND CONFIDENCE
ii. Agency is REVOCABLE

b. Acts of Agent within authority = Acts of the Principal


i. Converted into his legal or juridical presence
ii. ART 1322- Time acceptance is communicated to the agent who is deemed
authorized to receive the acceptance.
1. If agent bought in bad faith= principal bought in bad faith
2. Notice to agent = notice to principal
3. Purpose –
To EXTEND the personality of the principal through the facility of the agent
 Due to expansion of commercial transactions
 Many businesses are organized corporations which can only act through agents

Parties to the Contract


1. PRINCIPAL –
a. One whom the agent REPRESENTS and from which he DERIVES authority
b. Person represented
c. No principal= no agency
2. AGENT
a. Who acts for & Represents another
b. Person acting in a representative capacity
c. Has derivative authority in carrying out the principals business
d. He may employ his own agent, in which he becomes principal to the latter
e. When he transacts, A 3rd party is ADDED to the agency relationship.

Essential elements of Agency


1. Consent- express/ implied
2. Object- Execution of a juridicial act in relation to 3rd persons
3. Agent acts a representative – not for himself
4. Agent acts within the scope of his authority
5. Parties must be Competent to act

 Agency relationship is consensual in nature


o Parties mutually agree on its creation
o May express consent by contract 1868
o Orally or in writing, by conduct 1869
o Or by ratification 1910
o Or by operation of law
 E.g. Partners are agents of partnership

Relationship of 3rd party with principal and agent


1. 3rd party’s contract is with the principal not agent
a. Liability to such 3rd enforceable against the principal, NOT AGENT
2. Where agency exists, 3rd party to the principal is same to contract as if no agent
a. Agent has no rights nor liabilities in the contract
i. Unless agent is made an assignee
b. Agent who was not paid by non-performance of contract CANNOT entitle him action against 3rd
party, (when agent is not a beneficiary of a stipulation pour autrui)
c. Agent may bring action as an ASSIGNEE of such contract

Capacity of parties
1. Parties- Capacitated, or have the legal capacity to enter contract
Person not capacitated, cannot do it indirectly through another
a. Can either be Natural or Artificial One
i. Can be legal entities such as corporations
ii. Voluntary Association is not a legal entity
b. State of war, Enemy Alien, cannot appoint an Agent in the belligerent territory
c. Generally: Agent who assumes contract for principal without contractual capacity is liable
i. Although may be ratified once principal latter acquired capacity
ii. Agent is not liable where he was ignorant of principal capacity
iii. In example: Agent doesn’t warrant the full contractual capacity of his principal
2. Agent- Generally anyone can be an agent. He doesn’t have to possess full capacity because he derives
authority from the principal.
a. Some mental capacity is required, therefore completely incapable persons cannot be agents
b. In some cases additional qualifications may exist
c. Agent must be competent to bind himself to the Principal
d. Disqualified if it is their duty to act inconsistently toward another.

Other names used to designate the parties


Agent- Attorney, attorney in fact, proxy, delegate, representative
Principal – employer, constituent, chief

Acts that may be/ not be delegated to agents


1. Personal Acts- Where law or public policy or agreement requires personal performance
a. Right to vote
b. Making a will
c. Statements under oath
d. A member of the board of directors/ trustees. Right to attend board meetings
e. Agent cannot delegate to sub agent, acts which he has been appointed to perform

2. Criminal acts/ act not allowed by law – to delegate act which would be illegal is VOID
a. Aliens cannot appoint Filipino agent to buy land, prohibited Article 13 sec 3 and 7
b. Persons not allowed to obtain prop cannot obtain through agent
c. Cannot escape criminal liability because he acted as an agent.

Determination of existence of Agency


1. Designation by the parties- Wording is not necessary
2. Fact of existence
i. determined by one whom is representing and is acting for another
ii. Not determined by consideration
iii. It will be an agency, whether or not parties understood or not
3. Presumption of existence
i. Cannot be inferred from mere relationship or family ties
ii. For relationship to exist, Consent of both needed= MUST EXIST AS FACT
iii. Proving its existence lays on person alleging it
4. Intention to create relationship
i. Both must have intent
ii. Once one has declared agency, he/she is estopped from denying
5. As between the principal and a third person
i. Agency may exist without the direct assent of the agent.
ii. Principal and agent don’t need to personally meet

Nature of relations between principal and agent


1. Relations fiduciary in character
a. Since they are based on trust and confidence which varies from situation to situation.
b. There are instances that fiduciary continue after the termination of the relationship
i. Agent obligated to account to the principal for all profits arising from the agency

2. Agent estopped from asserting interest adverse to his principal


a. Estopped from asserting acquiring title adverse to the principal
b. However, agent does not lose any prior claim which he may have to the property prior to
acceptance of agency.
i. Can claim he received prop not as agent
ii. Principal parted when he was given property
iii. That property was taken from principal by a paramount title
iv. Title is in another
v. He as lawfully required to account for another
3. Agent must not act as an adverse party
a. Agent cannot purchase property whose administration has been entrusted to him
i. Unless the principal consents, then it is Voidable.
ii. However he may buy it after the termination of the agency
b. Principal authorizes to sell the goods, agent mustn’t sell it to himself
i. Since conflict price, Principal wants to sell highest price, agent wants cheapest
ii. But if it is A FIXED PRICE the agent may sell to himself.

4. Agent must not act for an adverse party -Agent cannot serve 2 masters unless both consent or only acts as
a middle man
a. Agent for a Foreign company = cannot be an agent for a local company
b. If acts for both principals without consent of either he is chargeable as trustee and is responsible
for any loss sustained by the principal though such action,
i. Cannot recover compensation from either principal
c. When 2nd principal knows and the 1st principal doesn’t
i. The first principal has the right to affirm or rescind the transcation
ii. Can recover damages from the third party and the agent irrespective of any proof
d. 2 employment known and consented by principal, principal is bound but cannot recover from the
other
i. cannot complain of breach of faith
5. Agent must not use or disclose secret information
Requirement of good faith and loyalty demand agent not to divulge confidential information
i. After the termination of the contract the agent has no duty to abstain from keeping
information
1) But not unjuriously use or disclose unique or confidential information
entrusted to him only for the principals use

6. Agent must give notice of material facts


o Every single known fact must be given notice
o Failure to do so, agent will be held liable for damages for any loss suffered or injury incurred.
o Principal must also give information about agency relationship

Knowledge of agent imputed of principal


1) Agent’s duty of notification
a. Agent required to notify the principal of all matters that are material to subject matter of the
agency
b. Notify of knowledge imputed to the principal
i. Knowledge that property to buy is encumbered by an unrecorded mortgage

2) Relationship of attorney and client


a. Client always needs to be informed

3) Knowledge of the principal


a. THEORY OF IMPUTED KNOWLEDGE – Knowledge of the agent is knowledge of the principal
i. 3 EXCEPTIONS
1. agent’s interest is adverse to those of the principal
2. Agent’s duty is not to disclose information, as where he is informed by way of
confidential information
3. Person claiming the benefit of the rule COLLUDES with the agent to Defraud
the principal
Agent subject to principal’s control
1) Subject matter of Agency-
What differentiates agency is CONTROL, Agent agrees to act under CONTROL or DIRECTION of another
2) Act of Agent –
Principals control depends on
a. Type of agency
b. Facts of the particular case
BUT GENERALLY: agent cannot disregard the direct acts of the Principal, (even when he has promised not to
do so, he becomes liable in damages for breach of promise)

Agency and similar contracts or relations


o Most distinctive part of the contract of agency if power of Agent to bring out business relations between
principal and 3rd persons

Agency distinguished from Loan


LOAN : Lender- Borrower, AGENCY: Principal- Agent
1) Money advances to another is Money lent = no agency
a. One who has no interest in purpose of money where lender has no interest = not an agent of
lender
2) AGENT: given money for business of principal, BORROWER: given money for his own purposes
3) Checks are deposited in collecting bank = agency is created
4) Deposits in Bank with instructions to apply it in satisfaction of debt
a. Debtor and creditor relationship with agency
i. Bank to pay the debt

Agency distinguished from Lease Services


1) AGENCY: basis is representation, LEASE OF SERVICE: it is employment
2) AGENCY: agent exercises discretionary powers, LEASE OF SERVICE : only ministerial functions
3) AGENCY: 3 people involved, LEASE OF SERVICE: lessor and lessee
4) AGENCY: commercial/ business transactions, LEASE OF SERVICE: to matters of mere manual or mechanical
execution, in which servant acts under the direction and control of the master

Agent is superior than the Employee


o AGENT Entitled to use his discretion as to the means to accomplish the end for which he is employed
o EMPLOYEE is directed by master, what and how it is to be done.
o Agent is to establish relationship with 3rd party, while employee is not

Agency distinguished from independent contract


1) CONTRACT FOR A PIECE OF WORK: one party contract undertakes to accomplish a certain result according to his own method and
without being a subject to the other parties
2) AGENCY: agent is subject to the control and direction of the principal, CONTRACT OF PIECE OF WORK: exercises his employment
independently, and not in representation of the employer
3) Employer is not liable for damages caused by independent contractor/ employees of contractor to 3rd parties
4) Independent contractor at the same time for certain purposes be an agent of the employer \

Agency distinguishes from partnership


o A contract of partnership is a contract of agency
o PARTNER: acts for co-partners, partnership, also himself, AGENT: Acts only for principal
o Partnership: a contract of mutual agency
o BOTH: can only bind within scope of authority, fiduciary
o Must be distinguished in 2 concepts
1) Control by the principal –
a. Not applicable to partnership, not subject to co-partners control
2) Liability of the agent
a. Partner binds co-partners and himself while Agency –
3) Sharing of profits
a. Partnership = profits belong to everyone
b. Agency = takes his share as agreed measure of compensation
c. Receipt by a person of the share of the profits of a business is not prima facie evidence that
he is a partner in the business if received as “ wages of an employee:

Agency distinguished from negotiorum gestio


1) There is representation in both
2) AGENCY: expressly conferred representation NG: no authority and knowledge of the owner
3) AGENCY: Contract NG: Quasi Contract
Agency distinguished from Brokerage
BROKER:
o Engaged for others on a commission,
o negotiator between other parties,
o never in his own name, name of those who employed him

BROKERAGE: refers trade or occupation of the broker

1) A COMMISSION AGENT- engaged in purchase of sale for another, placed in his possession and his
disposal, Maintains relationship with principal, purchaser, and property
BROKER- No relation with the thing he buys or sells, merely an intermediary/ negotiator with the
custody or possession, Only office is to bring together the parties to the transaction never acting in his
own name
o Brokers are classified accordance with the type of property they are authorized to
sell
2 kinds of Brokers
1. Those authorized to secure customers for their principals, the resulting
contract being made by the principal parties
2. Authorized to effect contracts

2) AGENT- receives commission upon successful conclusion


BROKER- earns commission by merely bringing buyer and seller together

o Agent is broader than broker


o Brokers are agents, with limited power, they have no charge or control of the
property, but only as go-betweens in executing a sale.
o Aren’t agents in the larger sence, which is entitled to receive payment

Agency distinguished from Sale


1) AGENCY TO SELL: agent receives the goods of the principal
SALE: buyer receives the goods

2) AGENCY TO SELL: Agent delivers the proceeds of the sale


SALE: buyer pays the price

3) AGENCY TO SELL: can return the object in case he is unable to sell it


SALE: buyer cannot return the object sold

4) AGENCY TO SELL: bound to act according to the instructions of the principal


SALE: buyer can deal with thing as he pleases

o Agency is appointment of one to act for another


o Which results into sale
o Sale transfer of title to a thing from one to another.
o Subsequent step in transaction

Agency distinguished from bailment


Bailment:
o incident to the relation of principal and agent
o Entrusted to another with authority to sell, ordinarily in cases of bailment
o Relation between principal and agent doesn’t exist because Bailor has no control over the bailee
o Bailee over whose actions the bailor has no control IS NOT AN AGENT

2 ELEMENTS of agency not in bailment


1. Bailee no power to bind bailor in personal liability
2. no loyalty and obedience to bailor
Bailee may be constituted an agent to 3rd parties

Agency distinguished from guardianship


1. GUARDIAN : doesn’t derive authority from ward
2. GUARDIAN: may be created irrespective of consent or capacity
3. GUARDIAN: not subject to the direction of their wards
4. GUARDIAN: substituted by law
AGENT: is the appointee of the principal, his power may any time be abrogated or modified by principal
5. GUARDIAN: represents someone who has no capacity
AGENT : represents one with capacity

Agency distinguished from trust


Agency v. judicial admin
ARTICLE 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

Agency may be oral, unless the law requires a specific form. (1710a)

ARTICLE 1870. 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. (n)

ARTICLE 1871. Between persons who are present, the acceptance of the agency may also be implied if the principal delivers
his power of attorney to the agent and the latter receives it without any objection. (n)

ARTICLE 1872. Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the
agent, except:

(1) When the principal transmits his power of attorney to the agent, who receives it without any objection;

(2) 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. (n)

ARTICLE 1873. If a person specially informs another or states by public advertisement that he has given a power of attorney
to a third person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who
received the special information, and in the latter case with regard to any person.
The power shall continue to be in full force until the notice is rescinded in the same manner in which it was given. (n)
ARTICLE 1874. 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. (n)

ARTICLE 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary. (n)

ARTICLE 1876. An agency is either general or special.

The former comprises all the business of the principal. The latter, one or more specific transactions. (1712)

ARTICLE 1877. An agency couched in general terms comprises only acts of administration, even if the principal should state
that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the
agency should authorize a general and unlimited management. (n)

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