C. Agency

XI. AGENCY

A. Nature, Form, and Kinds (Civil Code, arts. 1868-1883)

B. Obligations of Agent and Principal (Civil Code, arts. 1884-1918)

C. Extinguishment (Civil Code, arts. 1919-1932)

DEFINITION OF AGENCY

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. (CIVIL CODE, Art. 1868)

How Agency is Extinguished (EDWARD)

• By the Expiration of the period for which the agency was constituted.
• By the Death, civil interdiction, insanity or insolvency of the principal or of the agent;
• By the Withdrawal of the agent;
• By the Accomplishment of the object or purpose of the agency;
• By its Revocation;
• By the Dissolution of the firm or corporation which entrusted or accepted the agency (CIVIL CODE, Art. 1919)

Characteristics:

• Consensual: perfected by mere consent; (CIVIL CODE, Art. 1869, Art. 1870) The basis for agency is representation; on principal part, there must be an intention to appoint, or such intention is naturally inferable from words or actions; on part of the agent, there must be an intent to accept the appointment and act on it; in the absence of either, there is no agency. (Dominion Insurance Corp. v. CA, 376 SCRA 239 [2002])
• Nominate: it has its own name; It will be an agency whether or not parties understood the exact nature of the relation. (Doles v. Angeles, G.R. No. 149353, June 26, 2006.)
• Preparatory: The object of agency is for the agent to enter on behalf of the principal and within the scope of his authority into juridical acts with third parties (Rallos v. Felix Go Chan & Sons Realty Corp., G.R. No. L- 24332, Jan. 31,1978.)
• Principal: it does not depend on another contract for its existence and validity; (Doles v. Angeles, G.R. No. 149353, June 26, 2006.)
• Unilateral/Bilateral and Primarily Onerous:
• Unilateral: if contract is gratuitous or it creates obligations for only one party (i.e. the agent) (Urban Bank, Inc. v. Peña, G.R. No. 145817, 145822, 162562, Oct. 19, 2011.)
• Bilateral: if contract is for compensation or gives rise to reciprocal rights and obligations (Urban Bank, Inc. v. Peña, G.R. No. 145817, 145822, 162562, Oct. 19, 2011.)

NOTE: Agency is presumed to be for compensation, unless there is proof to the contrary. (CIVIL CODE, Art. 1875)

Basis: Representation

The acts of the agent on behalf of the principal within the scope of his authority produce the same legal and binding effects as if they were personally done by the principal. (Litonjua, Jr. v. Eternit Corp., G.R. No. 144805, June 6, 2006.)

The distinguishing features of agency are its representative character & its derivative authority. (Rallos v. Felix Go Chan & Sons Realty Corp., Gr. No. L-24332, Jan. 31, 1978.)

Presumption of Continuance of Agency

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

As a rule, agency is extinguished by the death, civil interdiction, insanity, or insolvency of the principal or agent, subject to the exceptions under Civil Code Articles 1930 and 1931 (Civil Code, Art. 1919).

Parties to the Contract of Agency

• Principal
• May be a natural or a juridical person
• Must be capacitated. (CIVIL CODE, Art. 1327) General rule: If a person is capacitated to act in his own right, he can act through an agent.
• The agent is not liable where he was ignorant of the principal’s incapacity.
• Agent
• Like the principal, the agent may be either a natural or juridical person, and must be capacitated.
• One who is absolutely incapacitated (ex. insane persons) cannot be an agent.

NOTE: From the time the agent acts or transacts the business for which he has been employed in representation of another, a third party is added to the agency relationship the party with whom the business is transacted (De Leon, 2010).

What happens if the subject matter of the agency is lost or destroyed?

General rule: In the absence of any agreement by the parties to the contrary, the loss or destruction of the subject matter of the agency terminates the agent’s authority to deal with it.

Ratification of the management by the owner of the business

The ratification of the management by the owner of the business produces the effects of an express agency, even if the business may not have been successful. (Art. 2149, NCC)

Ratification means that the owner agrees to whatever the officious manager has done. It cures even the defects which the officious manager has committed. If ratification happens, the law on agency applies and even if the business is not successful, such agency by virtue of ratification shall be recognized. (Sta. Maria, 2017)

Exceptions:

• Agency by operation of law, or a presumed or tacit agency
• Agency is coupled with an interest in the subject matter of the agency (e.g. power of sale in a mortgage).

Revocation

Termination of the agency by the subsequent act of the principal

Distinction between Agency and Guardianship

Renunciation/Withdrawal

Termination of the agency by the subsequent act of the agent

Distinction between Agency and Judicial Administration

As to Manner of Creation

• Express agent has been explicitly authorized by the principal, either orally or in writing. (CIVIL CODE, Art. 1869)
• Implied agency 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. The agent’s acceptance may separately be implied from acts carrying out the agency. (CIVIL CODE, Arts. 1869-1870)

As to Extent of Business of the Principal

• General - agency comprises all the business of the principal (CIVIL CODE, Art. 1876)
• Special - agency comprises one or more specific transactions (CIVIL CODE, Art. 1876)

Agent of the Testator Subscribing under his Express Direction

The essential thing for validity is that the agent wrote the testator’s name. It would be a good thing, but not required, for the agent to indicate the fact of agency or authority. (Barut v. Cabacungan, G.R. No. L-6285)

Forms of Agency

General rule: Appointment of an agent may be oral or written; no formal requirement (CIVIL CODE, Art. 1869)

Exception: When the law requires a specific form (e.g., sale of a piece of land or any interest therein through an agent, the agent’s authority must be in writing, otherwise the sale is void) (CIVIL CODE, Art. 1874)

How Agency May be Constituted from Side of Third Parties:

• Agency is not presumed to exist - persons dealing with an agent must ascertain not only the fact of agency, but also the nature and extent of his authority he must require the presentation of the power of attorney, or the instructions as regards the agency. Payments made to an agent under a valid SPA are deemed payments to the principal. (Spouses Salvador v. Spouses Gonzales, G.R. No. 199990, February 4, 2015.)
• Agency by Estoppel with Respect to Third Parties - one who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in the following pre-assumptions or deductions, which the law expressly directs to be made from particular facts, are deemed conclusive. (Macke v. Camps, G.R. No. 2962, Feb. 27, 1907.)

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 (Macondray & Co., Inc. v. Sellner, G.R. No. 9184, Feb. 2, 1916.) Verify G.R. No. 9184 against G.R. No. L-9184 before citing.
• A broker is not entitled to commission for unsuccessful efforts. (Guardex Enterprises v. NLRC, G.R. No. 66541, Nov. 20, 1990.)
• The broker should be paid his commission where he is the efficient procuring cause in bringing the sale. (Prats v. CA, G.R. No. L- 39822, Jan. 31, 1978; Manotok Brothers, Inc. v. Court of Appeals, G.R. No. 94753, April 7, 1993.)

Distinction between Apparent Authority and Authority by Estoppel

A principal may be held liable under the Doctrine of Apparent Authority when the principal’s liability arises from: (a) his manifestations of the existence of the agency which need not be expressed, but may be general and implied, or acts of the agent which suggest the existence of a principal-agency relationship which are known to the principal and which the principal does not deny; and (b) the reliance of third persons upon the conduct of the principal or agent. (Professional Services, Inc. v. Court of Appeals, G.R. No. 126297, February 11, 2008.)

When Principal is not bound by act of Agent

General Rule: The agent acts without or beyond the scope of his authority in the principal’s name (CIVIL CODE, Art. 1897, 1910, Art. 1403 (1)

Exceptions: So far as third persons are concerned, an act is deemed to be 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 an understanding between the principal and the agent; (CIVIL CODE, Art. 1900)

• Where the principal has ratified the acts of the agent, expressly or impliedly (CIVIL CODE, Art. 1910)

If an agent contracts in his own name, the agent is directly bound to the third person; the principal generally has no right of action against the third person, and the third person has no right of action against the principal, except when the contract involves things belonging to the principal (CIVIL CODE, Art. 1883)

NOTE: The agent is not deemed to have exceeded his authority should he perform the agency in a manner more advantageous to the principal than that indicated by him, since he is authorized to do such acts as may be conducive to the accomplishment of the purpose of the agency. (CIVIL CODE, Art. 1882)

In the absence of an agreement to the contrary, a managing agent (i.e. one entrusted with the care and management of a business) may enter into contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. (Eurotech v. Cuizon, G.R. No. 167552, Apr. 23, 2007.)

Forms of Acceptance by Agent

• Express - when it is oral or written (CIVIL CODE, Art. 1870)
• Implied - when it can be inferred from the acts of the agent which carry out the agency, or from his silence or inaction according to the circumstances (CIVIL CODE, Art. 1870)

Between persons who are present - there is implied acceptance if the principal delivers his power of attorney to the agent and the latter receives it without any objection (CIVIL CODE, Art. 1871)

Necessity of Notice of Revocation

• As to the agent - notice is not 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 or suspended; revocation without notice to the agent will not render invalid an act done in pursuance of the authority
• As to 3rd persons if the agent had general powers, revocation does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons (CIVIL CODE, Art. 1922)
• As to former customers - notice must be given to them because they always assume the continuance of the agency relationship
• As to other persons - notice by publication is enough (CIVIL CODE, Art. 1922)

Q: How is implied acceptance manifested as between persons who are present and those who are absent?

A: As between persons who are present, the acceptance of the agency may be implied if the principal delivers his power of attorney to the agent and the latter receives it without any objection. (CIVIL CODE, Art. 1871). Meanwhile, as to those who are absent, the acceptance of the agency cannot be implied from the silence of the agent, except when the principal delivers 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. (CIVIL CODE, Art. 1872)

Ways of Giving Notice of Agency and its Effect

• By special information - the person appointed as agent is considered as such with respect to the person to whom it was given. (CIVIL CODE, Art. 1873)
• By public advertisement - the agent is considered as such with regard to any person. (CIVIL CODE, Art. 1873)

Agency Couched in General Terms

Covers only mere acts of administration (not acts of dominion) even if:

• The principal should state that he withholds no power
• The agent may execute such acts as he may consider appropriate
• The agency should authorize a general and unlimited management (CIVIL CODE, Art.1877)

How to Construe Contracts of Agency

Contracts of agency, as well as general powers of attorney, must be interpreted in accordance with the language used by the parties.

• The real intention of the parties is primarily determined from the language used and gathered from the whole instrument.
• In case of doubt, resort must be had to the situation, context, and relations of the parties. The intention of the parties must be sustained, not defeated.
• If the contract is open to two (2) constructions, one of which would uphold the intention while the other would overthrow it, the former is to be chosen. (Liñan v. Puno, G.R. No. L-9608, Aug. 7, 1915.)

Agency by Estoppel

There is really no agency at all, but the alleged agent seemed to have apparent or ostensible, although not real, authority to represent another. (Country Bankers Insurance Corporation v. Keppel Cebu Shipyard, et. al., G.R. No. 166044, June 18, 2012.)

Requisites of Agency by Estoppel

• The principal manifested a representation of the agent’s authority or knowingly allowed the agent to assume such authority;
• The third person, in good faith, relied upon such representation; and
• Relying upon such representation, such third person has changed his position to his detriment (Country Bankers Insurance Corporation v. Keppel Cebu Shipyard, et. al., G.R. No. 166044, June 18, 2012.)

How Agency is revoked

• Principal may revoke the agency (express or implied) at will and compel agent to return the document evidencing the agency. (CIVIL CODE, Art. 1920)
• Agency has been entrusted for purpose of contracting with specified persons revocation will not prejudice specified persons if they were not notified. (CIVIL CODE, Art. 1921)
• If the agent had general powers revocation does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of revocation in a newspaper of general circulation is a sufficient warning. (CIVIL CODE, Art. 1922)
• The appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice was given to the former agent. (CIVIL CODE, Art. 1923)
• Agency is revoked if principal directly manages the business entrusted to the agent, dealing directly with third persons (CIVIL CODE, Art. 1924)
• 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. (CIVIL CODE, 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. (CIVIL CODE, Art. 1926)
• The power shall continue to be in full force until the notice is rescinded in the same manner in which the notice was given. (Civil Code, Art. 1873). Where the agency was entrusted for contracting with specified persons, revocation does not prejudice them if they were not given notice (CIVIL CODE, Art. 1921); where the agent had general powers, notice of revocation in a newspaper of general circulation is a sufficient warning to third persons. (CIVIL CODE, Art. 1922)

Effects of Assignment

• Creditors do not become the owner of the properties; they are merely assignees with authority to sell (hence, the legal contract involved is one of Agency and not Sale);
• Debtor is released up to the amount of the net proceeds of the sale, UNLESS there is a stipulation to the contrary
• Creditors will collect credits in the order of preference agreed upon, or in default of agreement, in the order ordinarily established by law.