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Nature of the Contract of Agency

Contract of Agency

- a person binds himself to do something in representation or on behalf of another with the consent or
authority of the latter
- a fiduciary relationship which implies a power in an agent to contract with a third person on behalf of a


1. Consensual
2. Principal
3. Nominate
4. Unilateral and Bilateral - depending if gratuitous or for compensation
5. Preparatory - entered into as a means to an end

Essential Elements of Agency

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 act as a representative and not for himself
4. The agent acts within the scope of his authority

Capacity of the Principal

1. Legally Capacitated - a person who cannot legally enter into contracts directly should not be permitted
to do it indirectly to another
2. Natural Person or Artificial One - Partnerships and Corporations can be Principals or Agents

GR: If the principal is incapacitated, the agent is liable to third persons

XPn: If the agent had no knowledge of the incapacity

Acts that cannot be delegated to the agents

1. Personal Acts - such as right to vote, making a will, statements under oath

2. Criminal Acts or acts not allowed by law - an attempt to delegate to another an authority to do an act,
which, if done by the principal would be illegal


1. It is not essential that an agent should be appointed directly by the principal, bu the appointment may
be made through another
2. If relations exist which will constitute an agency, it will be an agency whether the parties understood the
exact nature of the relation or not
3. Agency by estoppel - The declarations of the agent alone are generally insufficient to establish the fact
or extent of his authority, but if one professes to act as agent of another, he may be estopped to deny his
agency both as against the asserted principal and the third person interested in the transaction which he
is engaged.
4. The agent is required to notify the principal of all matters that came to his attention that are material to
the subject matter of agency because it is presumed that the knowledge of the agent is imputed to that of
the principal


a. The agent’s interest is adverse to those of the principal

b. Where the agent’s duty is not to disclose the information as where he is informed by way of
confidential information
c. Where the person claiming the benefit of the rule colludes with the agent to defraud the

5. GR : Agency is not generally presumed

- it is held that 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. The burden of proof resting upon the person
alleging the agency to show, not only the fact of existence, but also its nature and extent.

a. Agency arises by operation of law
b. To prevent unjust enrichment

Kinds of Agency

1. As a manner of creation

A. Express - one where the agent has been actually authorized by the principal, either orally or in
writing [ Article 1869 ]
B. Implied - one which is 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, or from the acts of the agent which carry out the agency, or from his silence or inaction
according to the circumstances. [ Article 1869]

‣ GR: Agency may be express, implied or oral

XPn: ( Form of Contract )

a. When it requires for the validity of the contract

b. Required to make it effective
c. Required for the purpose of proving the existence of a contract such as those provided in
Statute of Frauds

‣ GR: The agent’s authority may be oral or written

a. If it involves a sale of a piece of land, the authority of the agent shall be in writing; Otherwise
it is void.

1. Acceptance by the agent may be express or implied [ Art 1870 ]

• Where persons are present - If the agent received a power of attorney personally by the principal without
any objection to both present there is presumption of applied acceptance.

Power of attorney - is an instrument in writing by which one person, as principal, appoints another as his

◦ It’s primary purpose is not to define the authority of the agent as between himself and his principal
but to evidence the authority of the agent to third parties within whom the agent deals

◦ GR: Power of Attorney is strictly construed and pursued

XPn: It should not be applied to the extent of destroying the very purpose of the power

◦ Powers of Attornery are ordinarily subjected to a strict construction as to preclude all authority not
expressly given, or necessarily to be inferred ( Cummins vs Beaumont )

• Where persons are absent

GR: Acceptance of Agency cannot be implied from the silence of the agent

1. Where the principal transmits his power of attorney to the agent, who receives it without any
2. When the principal entrust 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 of telegram.

Two ways of giving notice of agency with different effects:

1. By special information - ( i.e letter ) the person considered as agent is considered such with respect to the
person to whom it was given
2. By Public Advertisement - the agent is considered as such with regard to any person.

‣ It may be made in any form - newspaper, radio and by poster or billboards

Manner of revocation of agency

• The power of attorney must be revoked in the same manner in which it was given

2. As to its character

C. Compensated or Onerous - one where the agent receives compensation for his services [ Art. 1875 ]
D. Gratuitous - one where the agent receives no compensation for the agent

• GR: Agency is presumed to be for compensation

XPn: Gratuitous Agents

- The relation of principal and agent can be created although the agent receives no compensation.
Ordinarily, the promise of a gratuitous agent to perform is not enforceable. He is however, bound by the
acceptance to carry out agency.

• The liability of the principal to pay presupposes that the agent has complied with his obligation as such to
the principal

• Double Agency - An agent acting at once for both contracting parties

GR: Such agency is disapproved of by law

XPn: The agent acted with full knowledge and free consent of both principals or unless his employment was
merely to bring the parties together


a. With knowledge of both parties - when both parties have been fully informed, the right of
such agent to compensation cannot be denied on any just principle of morals or of law
b. Without knowledge of both principals - the agent can recover from neither
c. With knowledge of one principal - both the principal and the agent are guilty of the wrong
committed against the first employer, and the law will not enforce an executory contract
entered into in fraud of the rights of the first employer

3. As to the nature and extent of their authority

Classes of Agent [ Art 1876 ]

◦ General Agent- one employed to transact all the business of his principal, or all business of a
kind or in a particular place, or in other words, to do all acts, connected with a particular trade,
business, or

◦ Universal Agent - one employed to do all acts that the principal may personally do, and which he
can lawfully delegate to another the power of doing

◦ Special or Particular Agent - one authorized to act in one or more specific transactions, or to do one
or more specific acts or to act upon a particular occasion.

Attorney in Fact - one who is given authority by his principal to do a particular act not of a legal character.
It means an agent having a special authority created by deed.

4. As to authority conferred
a. General Terms - is deemed to comprise only acts of administration [ Art 1877 ]

• Even if the principal should state that:

◦ He withholds no power
◦ The agent may execute such acts as he may consider appropriate
◦ Even though he authorizes a general and unlimited management


‣ The authority of the agent is presumed to include all necessary and usual means to carry out
the agency into effect; as acts of administration will always be a question of fact and cannot be

b. Specific Terms - one authorizing only the performance of a specific act or acts [ See Art.
1878 ]


a. A special power to sell does not include the power to mortgage and vice versa, the special
power to mortgage does not include the power to sell

b. Exclusive Authority of Sale -

c. A special power to compromise does not authorize submission to arbitration [ Art 1880 ]

• Authority - power of the agent to affect legal relations of the principal by acts done in accordance with the
principal’s manifestation of consent to him.

◦ The extent of the agent’s authority as a general rule depends upon the purpose agency.

◦ Requisites for a principal to be bound by the acts of the agent;

‣ If he acted within the scope of his authority

The authority may either be actual or apparent authority of the agent

- Doctrine of Apparent Authority - the principal is liable only as to third persons who have been
reasonably to believe by the conduct of the principal that such actual authority exist, although
none has
been given

‣ If he acted in behalf of the principal

Instances where a person is not bound by the act of another:
◦ He acted without or beyond the scope of his authority in the person’s name

- The contract becomes unenforceable

◦ The latter acts within the scope of authority but in his own name, except when the transaction
involves things belonging to the principal. [ Art 1883 ] The agent is liable

GR: The person has no right of action against the person with whom the agent contracted and vice
versa. It
is as if it is the agent’s own transaction

XPn: When the contract involves things belonging to principal [ Art 1883]

• Where acts in excess of authority is advantageous to the principal, it is deemed that the agent did not
exceed his authority.

Kinds of Principal

1. Disclosed Principal - at the time of transaction contracted by agent, the other party thereto has known
that the agent is acting for a principal and of the principal’s identity
2. Partially disclosed principal - if the other party knows or has reason to know that the agent is or may be
acting for a principal but is unaware of the principal’s identity
3. Undisclosed Principal - If the party has no notice of the fact that the agent is acting as such for a