PARTNERSHIP, AGENCY AND TRUST

AGENCY LAW (ARTICLE 1868 1932)

I. NATURE, FORM AND KNDS OF AGENCY

A. Nature 1868
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.

Article 1883. xxxx

xxxx
The provisions of this article shall be understood to be without prejudice to the
actions between the principal and agent.
JBL Reyes Observation: this article does not draw clearly the distinction between
lease of services and agency without representation. The laborer also does something
or renders service on behalf of another. The true essence of the distinction, it is
submitted that the agents enters or is designed to enter judicial relations with or
without representation of the principal. (XVI Lawyers Journal, March 31, 1951, p. 138)

Concept of Agency
-

Agency is a fiduciary relationship which implies a power in an agent to contract

with a third person on behalf of a principal.
It relates to commercial or business transactions (properly speaking). Agency
relationship may also arise in non-business situations, as for example, a person
returns an article to a lender for a borrower-friend.

Governing law
1. Civil agency governed by the Civil Code.
2. Commercial agency governed by the Code of Commerce.
Characteristics of a contract of agency (CPNUBP)
1. Consensual it is based on the agreement of the parties which is perfected by
mere consent.
2. Principal - it can stand on itself without the need of another contract.
3. Nominate it has its own name.
4. Unilateral if gratuitous, bec. It creates obligation for only one of the parties
5. Bilateral - if it is for compensation bec. it gives rise to reciprocal rights and
obligations.
6. Preparatory it is entered into as a means to an end.
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Nature, basis and purpose of agency

1. Nature essential that there is meeting of the minds of the parties.
a. Manifestation of consent principal must intend that the agent shall act for
him, agent must intend to accept the authority and to act on it, and such
intention must find expression either in words or conduct between them.
b. Agent, by legal fiction, becomes principal authorized to perform all acts
which the latter would have him do. Only with consent and authority.
c. Presence/Absence of contract or consideration although the agency is
usually a contractual one, either express or implied, based upon a
consideration (Art. 1875), this is not necessarily so; that is, the relationship
may be created by operation of law (agency by estoppel).
2. Basis Agency is a representative relation (basis is representation).
a. Personal contract of representation based on trust and confidence reposed
by the principal on his agent, agency is generally revocable.
b. Acts of agents, by legal fiction, acts of principal acts of the agent on behalf
of the principal within the scope of his authority (Art. 1881) produce the
same legal and binding effect as if they were personally done by the
principal.
3. Purpose to extend the personality of the principal through the facility of the
agent to render some service to do or something.
NOTES:

Since agency is a contract, there must be consent, object and cause

GR: What a man may do in person, he may do thru another.
EX: There are acts which the agent may not do for the principal:
o Personal Acts; and
o Criminal Acts.

Parties to the contract

1. Principal one whom the agent represents and from who he derives his
authority; he is the person represented.
2. Agent one who acts for and represents another; he is the person acting in a
representative capacity. Has derivative authority to in carrying the principals
business.

Essential Elements of agency

1.
2.
3.
4.

There is consent, express or implied, of the parties to establish the relationship.

The object is the execution of a juridical act in relation to third persons;
The agent acts as a representative and not for himself; and
The agent acts within the scope of his authority.
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Creation of agency relationship

-

An agency relationship is consensual in nature. It is based on the concept that

the parties mutually agree on its creation.
A person may express his consent by contract (Art. 1868), orally or in writing,
by conduct (Art. 1869), or by ratification (Art. 1910), or the consent may arise
by presumption or operation of law.

B. Kinds 1869, 1876

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.
Kinds of Agency
1. As to manner of its creation:
a. Express one where the agent has been actually authorized by the principal,
either orally or in writing; or
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 (Art. 1810).
NOTE:
Agency by ratification ratification may produce the effect of an express of implied
agency. (Art. 1901, 1910, 2nd par.)
Agency by estoppel or implication the principal cannot deny the existence of the
agency after the third parties, relying on his conduct, have had dealings with the
supposed agent. (Art. 1911)
Agency by operation of law see Art 1884, par. 2; 1929; 1931; and 1932.
2. As to its character:
a. Gratuitous one where the agent receives no compensation for his services
(Art. 1875); or
b. Compensated or onerous one where the agent receives compensation for
his services.

3. As to the extent of business covered:

a. General one which comprises all the business of the principal. (Art. 1876)
b. Special one which comprises one or more specific transactions.

4. As to authority conferred:
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a. Couched in general terms one which is created in general terms and is

deemed to comprise only acts of administration (Art. 1877); or
b. Couched in specific terms one authorizing only the specific performance of
a specific act or acts. (Art 1878)
5. As to its nature and effects:
a. Ostensible or representative one where the agents in the name and
representation of the principal. (Art. 1868)
b. Simple or commission one where the agent acts in his own name but for
the account of the principal.

Article 1876. An agency is either general or special. The former comprises all the
businesses of the principal. The latter, one or more specific transactions.

Classes and kinds of agents

1. 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.
2. General agent one employed to transact all the business of his principal, or all
business of a particular kind or in a particular place, or in other words, to do all
acts, connected with a particular trade, business, or employment.
3. 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.
Special types of agents
1. Attorney-at-law one whose business is to represent clients in legal
proceedings.
2. Auctioneer one whose business is to sell property for others to the highest
bidder at a public sale.
3. Broker one whose business is to act as intermediary between 2 other parties
such as insurance broker and real estate broker.
4. Factor (Synonymous: commission merchant) - one whose business is to receive
and sell goods for a commission, being entrusted with the possession of the
goods involved in the transaction.
5. Cashier in bank one whose business is to represent a banking institution in its
financial transactions.
6. Attorney-in-fact one who is given authority by his principal to do a particular
act not of a legal character. In loose language, used to include agents of all
kinds. In strict sense, an agent having a special authority created by deed.

C. Acceptance 1870-1873
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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)

Forms and Acceptance by Agent:

1. Express when it is oral or written.
2. 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.
a. 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.
b. Between persons who are absent
- Acceptance not deemed implied from the silence of the agent.
EX:
i.
When the principal transmits his power of attorney to the agent who
receives it without any objection.
ii.
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.
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.
Ways of Giving Notice of Agency
1. By special information the person appointed as agent is considered sucg
with respect to the person whom it was given.
2. By public advertisement the agent is considered such with regard to any
person.

Agency by estoppel there is no agency at all, but the alleged agent seemed to
have apparent or ostensible, although no real authority to represent another.
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D. Form 1874 & 1878

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 1878. Special powers of attorney are necessary in the following cases:
(1)

To make such payments as are not usually considered as acts of administration;

(2)
To effect novations which put an end to obligations already in existence at the
time the agency was constituted; siLrmi
(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 prescription already acquired;
(4)

To waive any obligation gratuitously;

(5)
To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;
(6)
To make gifts, except customary ones for charity or those made to employees in
the business managed by the agent; casia
(7)
To loan or borrow money, unless the latter act be urgent and indispensable for
the preservation of the things which are under administration;
(8)

To lease any real property to another person for more than one year;

(9)

To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety; musawi
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)

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

F. Scope 1881, 1877, 1879, 1880, 1882, 1883

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ARTICLE 1881.
The agent must act within the scope of his authority. He may
do such acts as may be conducive to the accomplishment of the purpose of the
agency. (1714a)
Article 1877. An agency couched on 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.
ARTICLE 1879.
A special power to sell excludes the power to mortgage; and a
special power to mortgage does not include the power to sell. (n)
ARTICLE 1880.
A special power to compromise does not authorize submission
to arbitration. (1713a)
ARTICLE 1882.
The limits of the agent's authority shall not be considered
exceeded should it have been performed in a manner more advantageous to the
principal than that specified by him. (1715)
ARTICLE 1883.
If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has contracted; neither have such
persons against the principal.

G. Cases
1. Characteristics
RALLOS vs FELIX GO CHAN
FACTS:

Concepcion and Gerundia both surnamed Rallos were sisters and registered coowners of a parcel of land

The sisters executed a SPECIAL POWER OF ATTORNEY in favor of their brother,

Simeon Rallos, authorizing him to sell for and in their behalf the said lot

March 3, 1955 Concepcion Rallos died September 12, 1955, Simeon sold the
lot to Felix Go Chan- deed registered in the Registry of Deeds and TCT was issued in
the name of Felix Go Chan

Ramon Rallos, administrator of the Intestate estate of Concepcion filed a

complaint praying that the sale be declared UNENFORCEABLE and the share of
Concepcion in the lot be reconveyed to her estate and that TCT in the name of Felix
Go Chan be cancelled and a new one be issued in the name of the corporation and the
Intestate estate of Concepcion

TC: in favor of Ramon deed of sale declared null and void insofar as the share
of Concepcion, and ordered Register of Deeds to issue new TCT in the name of
corporation and estate

CA: in favor of Felix Go Chan sales is VALID

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ISSUE: what is the legal effect of an act performed by an agent AFTER the death of his
principal? Is the sale valid?

HELD: NO

No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him. A contract entered into in the
name of another by one who has no authority or the legal representation or who has
acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party
o
Out of the above given principles, sprung the creation and acceptance of the
RELATIONSHIP OF AGENCY whereby one party, called the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons.
o

The essential elements of agency are:

(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 a third person;

(3)

the agents acts as a representative and not for himself, and

(4)

the agent acts within the scope of his authority

o
AGENCY-basically personal representative and derivative in nature.
The
authority of the agent to act emanates from the powers granted to him by his
principal; his act is the act of the principal if done within the scope of the authority.
Qui facit per alium facit se. "He who acts through another acts himself"

ART 1919 CC- from A1709 of the Spanish CC- agency is extinguished by the
death, civil interdiction, insanity or insolvency of the principal or the agent

MANRESA: the juridical basis of agency is representation-it is not possible for the
representation to continue to exist once the death of either is established

POTHIER: agrees with Manresa; by the nature of agency, death extinguishes it

LAURENT: juridical tie between the principal and the agent is servered ipso jure

COMMON LAW: death of the principal effects instantaneous and absolute

revocation of the authority of the agent unless the power be coupled with an interest

GR: DEATH extinguishes agency

Exceptions:

1.
Art 1930 if it has been constituted in the common interest of the principal and
of the agent, or in the interest of a 3rd person who has accepted the stipulation in his
favor

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2.
Art 1931 anything done by agent without the knowledge of the death of the
principal is valid and fully effective with respect to third persons who may have
contracted with him in GF

Under 1931 there must be concurrence of the BOTH conditions below:

1.

that the agent acted without knowledge of the death of the principal, and

2.
that the third person who contracted with the agent himself acted in good faith
(GF-3rd person no knowledge of death of the principal)

Since Ramon knew of the death of his sister Concepcion, Art 1931 is not
applicable

Revocation by an act of the principal should be distinguished from revocation by

operation of law such as the death of the principal. In the latter, the extinguishment
is instantaneously effective

CC does not impose a duty on the heirs to notify the agent of the death of the
principal (it is the reverse which is required, heirs of agent must notify principal of the
death of the agent)

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in

American jurisprudence, no such conflict exists in our own for the simple reason that
our statute, the Civil Code, expressly provides for two exceptions to the general rule
that death of the principal revokes ipso jure the agency
2. Modes of Formation

3.
4.
5.
6.
7.

Effects
Presumption of compensation
Entitlement of agent to commission after expiration of his authority
Distinguished from other contracts and relations
Construction

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II. OBLIGATIONS OF THE AGENT

A. Principal obligations of the agent 1884, 1887 and 1891
ARTICLE 1884. The agent is bound by his acceptance to carry out the agency, and
is liable for the damages which, through his non-performance, the principal may
suffer.
He must also finish the business already begun on the death of the principal, should
delay entail any danger. (1718)
ARTICLE 1887. In the execution of the agency, the agent shall act in accordance
with the instructions of the principal.
ARTICLE 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency, even
though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall
be void. (1720a)
B. To carry out the agency in accordance with the instructions of the
principal
1. Authority to advance funds 1886
ARTICLE 1886. Should there be a stipulation that the agent shall advance the
necessary funds, he shall be bound to do so except when the principal is insolvent. (n)
2. Authority to borrow money 1890
ARTICLE 1890. If the agent has been empowered to borrow money, he may himself
be the lender at the current rate of interest. If he has been authorized to lend money
at interest, he cannot borrow it without the consent of the principal.
3. Authority to appoint substitute 1892
ARTICLE 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the acts of the
substitute:
(1)

When he was not given the power to appoint one; casia

(2)
When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.

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All acts of the substitute appointed against the prohibition of the principal shall be
void. (1721)
4. Conflict of Interest 1889
ARTICLE 1889. The agent shall be liable for damages if, there being a conflict
between his interests and those of the principal, he should prefer his own. (n)
5. Liability for use of principals funds 1896
ARTICLE 1896. The agent owes interest on the sums he has applied to his own use
from the day on which he did so, and on those which he still owes after the
extinguishment of the agency. (1724a)

6. Liability for fraud and negligence 1909

ARTICLE 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation. (1726)
7. Responsibility of two or more agents 1894-1895
ARTICLE 1894. The responsibility of two or more agents, even though they have
been appointed simultaneously, is not solidary, if solidarity has not been expressly
stipulated. (1723)
ARTICLE 1895. If solidarity has been agreed upon, each of the agents is responsible
for the non-fulfillment of the agency, and for the fault or negligence of his fellows
agents, except in the latter case when the fellow agents acted beyond the scope of
their authority. (n)
C. Liability of agent to third persons
1. Agent acting as such 1897
ARTICLE 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers. (1725)
2. Agent exceeds the scope of his authority 1898-1899
ARTICLE 1898. If the agent contracts in the name of the principal, exceeding the
scope of his authority, and the principal does not ratify the contract, it shall be void if
the party with whom the agent contracted is aware of the limits of the powers granted
by the principal. In this case, however, the agent is liable if he undertook to secure the
principal's ratification. (n) aisa dc
ARTICLE 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. (n)
3. Where agents authority not known to third person 1900-1902
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ARTICLE 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 an understanding between the principal and the
agent. (n)
ARTICLE 1901. A third person cannot set up the fact that the agent has exceeded
his powers, if the principal has ratified, or has signified his willingness to ratify the
agent's acts. (n)
ARTICLE 1902. A third person with whom the agent wishes to contract on behalf of
the principal may require the presentation of the power of attorney, or the
instructions as regards the agency. Private or secret orders and instructions of the
principal do not prejudice third persons who have relied upon the power of attorney or
instructions shown them. (n)
D. Commission agent 1903-1906, 1908-1909
ARTICLE 1903. The commission agent shall be responsible for the goods received
by him in the terms and conditions and as described in the consignment, unless upon
receiving them he should make a written statement of the damage and deterioration
suffered by the same. (n)
ARTICLE 1904. The commission agent who handles goods of the same kind and
mark, which belong to different owners, shall distinguish them by countermarks, and
designate the merchandise respectively belonging to each principal. (n)
ARTICLE 1905. The commission agent cannot, without the express or implied
consent of the principal, sell on credit. Should he do so, the principal may demand
from him payment in cash, but the commission agent shall be entitled to any interest
or benefit, which may result from such sale. (n)
ARTICLE 1906. Should the commission agent, with authority of the principal, sell on
credit, he shall so inform the principal, with a statement of the names of the buyers.
Should he fail to do so, the sale shall be deemed to have been made for cash insofar
as the principal is concerned. (n)
ARTICLE 1908. The commission agent who does not collect the credits of his
principal at the time when they become due and demandable shall be liable for
damages, unless he proves that he exercised due diligence for that purpose. (n)
ARTICLE 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation. (1726)

1. Del credere agent 1907

ARTICLE 1907. Should the commission agent receive on a sale, in addition to the
ordinary commission, another called a guarantee commission, he shall bear the risk of
collection and shall pay the principal the proceeds of the sale on the same terms
agreed upon with the purchaser. (n)
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E. Cases
1. Carry out the agency
2. Liability for damages
3. Rendition of accounts

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