Agency

Concept and Function of Agency

Agency is the juridical relation in which one person, called the agent, acts in representation or on behalf of another, called the principal, with authority to affect the principal's legal relations with third persons. Its central idea is representation: the authorized act of the agent is legally the act of the principal.

The Civil Code definition treats agency as a contract, but its practical operation is broader than a simple internal agreement. It creates an internal relation between principal and agent, an external relation between principal and third persons, and a possible personal relation between agent and third persons when the agent acts without authority, exceeds authority, or acts in his own name.

Agency is usually preparatory and representative. It is preparatory because the agent is appointed to enter into other juridical acts; it is representative because the agent's authority enables the principal to acquire rights, assume obligations, transfer property, or modify legal relations without personally appearing in the transaction.

The relation is fiduciary. The principal relies on the agent's loyalty, diligence, and obedience to authority; the agent must prefer the principal's interest over personal advantage in matters covered by the agency. This fiduciary character explains the rules on accounting, self-dealing, conflict of interest, secret profit, substitution, and revocation.

Agency is generally consensual, nominate, principal, bilateral if for compensation or if obligations arise on both sides, and generally revocable. It may be gratuitous or onerous, but compensation is presumed unless a contrary intention appears from the nature of the relation, the agreement, or the circumstances.

Essential Elements

Agency requires consent, object, and cause, but its distinctive elements are authority and representation. The principal must confer authority, the agent must accept it, and the agent must act within the scope of that authority in the principal's name or on the principal's account.

• Consent of the principal. The principal must authorize another to act for him, either expressly or impliedly. Authority cannot arise solely from the agent's self-serving declarations.
• Acceptance by the agent. Acceptance may be express, implied from acts, or inferred from the agent's silence when the circumstances make rejection inconsistent with good faith, previous dealings, or the agent's profession.
• Representative capacity. The agent must act for the principal and not merely for himself. If representation is absent, the contract may be a sale, lease of services, brokerage, management arrangement, or another juridical relation.
• Lawful object. The agency must concern acts that may lawfully be delegated. Purely personal acts, acts prohibited by law, and acts requiring personal judgment or personal appearance cannot be performed through an agent.
• Capacity of the principal. The principal must have capacity to do the act authorized, because the act of the agent is treated as the act of the principal. A person cannot accomplish through an agent what he cannot lawfully do personally.

The agent's capacity is considered differently. Since the agent primarily lends representation, a person with limited capacity may in proper cases act as agent, but his personal liability to the principal or to third persons remains governed by the rules on capacity and obligations.

Form and Manner of Creation

Agency may be express or implied. Express agency arises from spoken or written words. Implied agency arises from acts of the principal, acts of the agent known to and tolerated by the principal, prior dealings, commercial usage, or other circumstances showing an intention to authorize representation.

No special form is required for agency as a general rule. It may be oral, written, public, private, or inferred from conduct. Form becomes controlling when the law requires a particular form for the validity, enforceability, or proof of the authority or of the act to be performed.

Authority to sell a piece of land or any interest in land must be in writing; without written authority, the sale made through the agent is void as to the principal. This is stricter than the ordinary rule on unauthorized contracts because the law treats written authority as a condition for a valid sale of real property by an agent.

A special power of attorney is required for acts of strict ownership or extraordinary significance, such as selling or encumbering real property, making gifts, compromising, submitting to arbitration, borrowing or lending money in the principal's name, entering into obligations beyond ordinary administration, waiving substantial rights, or performing acts which the law treats as requiring specific authority.

A general power couched in broad language authorizes only acts of administration, even if it appears comprehensive. Acts of dominion require clear and specific authority because they alter ownership, create burdens on property, waive rights, or expose the principal to extraordinary liability.

Kinds and Classifications

Agency may be classified according to the scope of business, manner of creation, legal effect of representation, and nature of the agent's undertaking. The classifications matter because they determine the extent of authority, the liability of the parties, and the protection of third persons.

Commercial terminology may describe particular agents, but the controlling question remains the legal authority conferred. A broker ordinarily brings parties together and does not, by that fact alone, have authority to conclude the contract. A commission agent usually buys or sells goods for another, sometimes in his own name, and may assume additional duties arising from custody, sale on credit, or a del credere undertaking.

Authority and Scope

Authority is the agent's power to affect the principal's juridical position. It may be actual, apparent, express, implied, general, special, original, delegated, broad, or restricted. The scope of authority is determined from the principal's manifestation, the terms of the power, the nature of the business, ordinary usage, and the acts reasonably necessary to carry out the agency.

Actual authority exists when the principal truly consents to the agent's act. Express actual authority is stated in words; implied actual authority includes acts necessary or incidental to the execution of the express authority. Authority to perform a juridical act normally carries authority to do ordinary acts needed to complete it, but it does not include extraordinary acts inconsistent with the principal's ownership or with specific limitations.

Apparent authority exists when the principal, by words, conduct, negligence, or silence, leads a third person to believe that the agent is authorized. The appearance must come from the principal, not merely from the agent. A third person who knows the limitation, or who deals with the agent despite suspicious circumstances, cannot rely on apparent authority in good faith.

Authority must be interpreted in favor of the purpose of the agency but against unauthorized alienation of rights. A power to manage does not include a power to sell; a power to sell does not automatically include a power to mortgage; a power to compromise does not arise from a power to collect; and a power to borrow in the principal's name must be clearly conferred.

Private instructions bind the agent internally, but they do not necessarily defeat the rights of third persons who deal in good faith within the apparent or written authority exhibited by the principal. Between principal and agent, violation of instructions may create liability even if the principal is bound to the third person.

Legal Effects of the Agent's Acts

When the agent acts in the principal's name and within the scope of authority, the contract is directly between the principal and the third person. The agent is ordinarily not personally liable because he merely represents the principal.

When the agent acts beyond authority, the principal is not bound unless he ratifies the act or is estopped from denying authority. The agent may become personally liable to the third person if he undertook to bind the principal without authority and failed to give sufficient notice of the limits of his powers.

When the agent acts in his own name, the third person generally has no direct action against the principal, and the principal generally has no direct action against the third person. The agent is the party bound, except when the contract involves things belonging to the principal or when the nature of the transaction and the circumstances justify recognition of the principal's rights.

Ratification is the principal's adoption of an unauthorized act. It may be express or implied from acceptance of benefits, failure to repudiate despite knowledge, pursuit of rights under the transaction, or conduct inconsistent with rejection. Ratification requires knowledge of material facts and produces the effect of authority from the beginning, without impairing rights already acquired by third persons in good faith.

Estoppel differs from ratification. Ratification is voluntary adoption after the act; estoppel prevents denial of authority because the principal's conduct misled another before or during the transaction. Both may bind the principal, but their factual basis and consequences are distinct.

Obligations of the Agent

The agent must carry out the agency in accordance with the principal's authority and instructions. If execution becomes impossible, impracticable, or prejudicial because of changed circumstances, the agent must notify the principal when notice is reasonably possible and must act to protect the principal's interest.

The agent must observe the diligence of a good father of a family, unless the agreement, the nature of the agency, or the agent's profession requires a higher standard. He is liable for fraud, negligence, disobedience, bad faith, and acts beyond authority that cause damage to the principal.

The agent must render an account and deliver to the principal whatever he received by virtue of the agency, even if it was not owed to the principal by the third person. This duty covers proceeds, documents, fruits, accessories, rebates, discounts, secret commissions, and other benefits connected with the agency.

The agent may not prefer personal interest over the principal's interest in the subject matter of the agency. He may not secretly profit, acquire for himself property entrusted to him for sale without the required consent, represent adverse interests without disclosure, or use confidential information obtained through the agency to the principal's prejudice.

The agent must not exceed authority. If he does more than authorized, the principal may reject the unauthorized act unless he ratifies it; if the authorized and unauthorized portions are separable, the principal may be bound only as to the authorized portion when separation is legally and practically possible.

Substitution is allowed when the principal has not prohibited it, but the original agent may remain liable for the substitute in cases recognized by law, especially when he had no authority to appoint a substitute or when he selected a notoriously incompetent or insolvent person. If substitution is made against an express prohibition, the substitute's acts do not bind the principal.

When several agents are appointed, their liability is not solidary unless solidarity is expressly stipulated or clearly imposed by law. Each agent is responsible for his own fault, participation, or undertaking, subject to the terms of the appointment and the nature of the transaction.

Obligations of the Principal

The principal must comply with obligations validly contracted by the agent within the scope of authority. The principal cannot accept the benefits of the agency and reject the burdens that are inseparable from the authorized transaction.

The principal must advance funds needed for the execution of the agency when required by agreement or by the nature of the task. If the agent advances funds in good faith, the principal must reimburse the agent with proper interest and must indemnify him for damages suffered without the agent's fault in the execution of the agency.

The principal must pay the agent's compensation when agreed, when implied from the circumstances, or when the agency is within the agent's occupation. Compensation may be lost or reduced when the agent acts in bad faith, violates material instructions, earns secret profits, or fails to perform the undertaking that is the basis of the commission.

When two or more principals appoint an agent for a common transaction, they may be solidarily liable to the agent for the consequences of the agency. The common interest and joint appointment justify protecting the agent who performed for all of them under one undertaking.

The principal is not bound by unauthorized acts merely because the actor claimed to be an agent. Liability arises from authority, ratification, estoppel, or the principal's acceptance of benefits with knowledge of the material facts.

Relations with Third Persons

A third person dealing with an agent must determine whether the agent has authority, especially when the transaction involves real property, unusual obligations, waiver of rights, or acts of ownership. Good faith is strongest when the third person relies on the principal's own manifestations and weakest when reliance rests only on the agent's assertions.

If the principal is disclosed and the agent acts within authority, the third person must proceed against the principal, not the agent. If the agent expressly binds himself, acts without authority, exceeds authority without adequate notice, or contracts in his own name, the agent may be personally liable.

If the principal is undisclosed, the agent is generally treated as the contracting party. The principal may still be affected when the property or right involved is his and the circumstances show that the transaction was in substance for his account, but the protection of third persons who relied on the agent's personal credit must be considered.

A third person who knows that the agent is acting beyond authority cannot compel the principal to perform. A third person who deals with an agent despite a written power that plainly lacks the required authority assumes the risk of non-binding effect, subject only to later ratification by the principal.

Conflict of Interest and Fiduciary Limits

The fiduciary nature of agency imposes limits beyond the literal wording of authority. Even a broadly empowered agent must act loyally, disclose material facts, avoid adverse interests, and refrain from making the agency an instrument of self-enrichment at the principal's expense.

Self-dealing is especially suspect. An agent entrusted to sell property cannot become the buyer through himself or an intermediary without the principal's informed consent where the law or the fiduciary duty forbids the transaction. The rule prevents the agent from manipulating price, information, or timing against the principal.

Double agency is likewise restricted. One person may not serve two principals with opposing interests in the same transaction unless both principals know the material facts and consent. Without informed consent, the agent's divided loyalty may justify rescission, denial of compensation, damages, or other relief appropriate to the transaction.

A del credere undertaking illustrates how agency may include a guarantee-like obligation. When an agent, for additional compensation or under a special undertaking, guarantees the solvency or performance of the third person, he assumes liability beyond ordinary agency while remaining bound by the duties of an agent.

Extinguishment of Agency

Agency ends by the modes agreed upon by the parties and by causes recognized by law. The usual causes are revocation by the principal, withdrawal of the agent, expiration of the term, accomplishment of the object, death, civil interdiction, insanity, insolvency of either principal or agent, and dissolution of the juridical entity that is principal or agent.

Revocation reflects the personal and fiduciary character of agency. The principal may generally revoke the agency at will because representation cannot ordinarily be forced upon a principal who no longer trusts the agent. Revocation may be express or implied from acts inconsistent with the continuation of the agency, such as appointing another agent for the same matter or directly managing the business entrusted.

Revocation may produce liability for damages when it violates an agreement, is made in bad faith, or defeats rights already vested in the agent or third persons. It may also be ineffective against third persons who dealt in good faith without notice when the principal's prior manifestations reasonably continued to indicate authority.

Agency may be irrevocable when it is coupled with an interest, when it is a means of fulfilling an obligation already contracted, or when a bilateral contract depends on it. The agent's interest must be a real interest in the subject matter or security arrangement, not merely an interest in earning commissions.

The agent may withdraw from the agency, but he must notify the principal and may be liable for damages if withdrawal is unjustified and prejudicial. No agent is required to continue when performance would cause grave detriment, require unlawful acts, or become impossible under the circumstances.

Death ordinarily extinguishes agency because authority is personal, but the law protects urgent acts and good-faith transactions where immediate termination would unjustly prejudice the principal's estate, the agent, or third persons. Acts done without knowledge of the principal's death may remain effective in favor of third persons in good faith, and an agent may be required to finish matters already begun when delay would cause danger.

On the agent's death, his heirs must notify the principal and take reasonable measures to protect the principal's interests until the principal can act. This duty is not a continuation of the agency by the heirs but a protective obligation arising from the fiduciary relation and the need to avoid avoidable loss.

Distinctions from Related Relations

Agency must be distinguished from other contracts because the label chosen by the parties does not control the legal effect. The decisive inquiry is whether one person is authorized to represent and bind another in juridical acts.

Operational Principles

The principal is bound when authority, representation, and action within scope concur. The agent is bound when he steps outside representation, assumes personal liability, acts without authority, or contracts in his own name. The third person is protected when reliance is traceable to the principal's manifestations and is consistent with good faith.

The law balances commercial convenience and protection of ownership. Agency allows a person to act through another, but it does not allow unauthorized deprivation of property, secret conflicts, or careless reliance on a supposed agent whose authority is legally insufficient.

The safest doctrinal sequence is to identify the act done, determine whether the act may be delegated, examine the form and scope of authority, determine whether the agent acted in the principal's name, test for excess or absence of authority, and then consider ratification, estoppel, personal liability, fiduciary breach, and extinguishment.