Nature of Agency
Agency is a representative contract by which one person, the agent, binds himself to render some service or to do something in representation or on behalf of another, the principal, with the consent or authority of the latter. Article 1868 is important because it makes representation and authority the core of agency, not merely assistance, employment, or cooperation.
The agent does not ordinarily acquire the rights or incur the obligations intended for the principal when he acts within the scope of authority and in the principal's name. The juridical effect of the agent's act passes directly to the principal, because the agent is the principal's juridical extension for the authorized act.
Agency is consensual because it is perfected by consent; nominate because it is specifically regulated by the Civil Code; preparatory because it is commonly used to enter into other juridical relations; representative because the authorized act is treated as the act of the principal; and fiduciary because it rests on trust, confidence, loyalty, and accountability.
Although agency is a contract, its external effect is a power to affect the principal's legal relations with third persons. The internal contract explains the rights and obligations between principal and agent; the external authority determines whether third persons may hold the principal bound.
Essential Elements
- Consent. The principal must consent to be represented, and the agent must accept the undertaking, either expressly or impliedly.
- Authority. The agent must be empowered to act for the principal, whether the authority is actual, apparent, express, implied, general, or special.
- Representation. The act must be done for the principal and, as a rule, in the principal's name, so that the principal becomes the party affected by the transaction.
- Lawful object. The act to be performed must be possible, lawful, and susceptible of representation.
- Juridical effect. The act must be capable of creating, modifying, transmitting, or extinguishing rights or obligations for the principal.
Agency is not presumed from the bare fact that one person is related to, employed by, or associated with another. The person who alleges agency must prove the principal's authorization or conduct creating authority; however, agency may be established by circumstantial evidence when the principal's acts, omissions, or course of dealing reasonably show consent.
The principal must have capacity to do the act through another, because no one can validly authorize through an agent what he cannot validly do personally. The agent must be capable of understanding and performing the undertaking, but when he acts within authority and in the principal's name, the principal is the party who is bound by the authorized transaction.
Only acts capable of representation may be the object of agency. Purely personal acts, acts requiring personal judgment that the law does not allow to be delegated, and acts prohibited by law or public policy cannot be validly performed through an agent.
Representative Character
The defining feature of agency is that the agent acts for another. An employee may render labor, a contractor may produce a result, and a broker may bring parties together, but an agent is authorized to affect the principal's juridical position.
When an agent acts in the principal's name and within authority, the principal is bound as though he personally acted. When the agent acts without authority, beyond authority, or after authority has ended, the principal is not bound unless he ratifies the act or is estopped from denying the authority.
Authority is not measured only by the agent's private understanding. Third persons may rely on authority that the principal has intentionally or negligently held out, but they cannot create authority by relying solely on the agent's self-serving declarations.
Ratification is the principal's adoption of an unauthorized act. It produces the effect of authority from the beginning as between the principal and the third person, provided the act is capable of ratification, the principal had knowledge of material facts, and the third person's rights have not intervened in a manner protected by law.
Fiduciary Character
Agency is fiduciary because the agent is expected to act with loyalty, obedience, diligence, and good faith. The agent must prefer the principal's interest over his own in matters covered by the agency, must not secretly profit from the undertaking, and must account for what he receives by reason of the agency.
The fiduciary character also explains why agency is generally revocable and why death, civil interdiction, insanity, or insolvency may affect the relation. These consequences arise because the principal chose the agent's personal confidence, skill, discretion, or trustworthiness.
The fiduciary nature does not prevent the agency from being onerous. The Civil Code presumes agency to be for compensation unless there is proof to the contrary, so gratuitous agency is possible but not presumed when the facts indicate a business undertaking.
Agency Distinguished from Related Relations
| Relation | Controlling Distinction | Practical Effect |
|---|---|---|
| Agency and employment | Employment emphasizes service under control; agency emphasizes representation and authority to affect legal relations. | An employee is not necessarily an agent, but an employee may also be an agent if authorized to bind the employer. |
| Agency and independent contract | An independent contractor undertakes a result according to his own means; an agent acts for and represents the principal. | A contractor usually does not bind the client to third persons unless separate authority to represent is given. |
| Agency to sell and sale | In agency to sell, ownership remains with the principal until sale to a buyer; in sale, ownership or title is transferred to the buyer under the contract. | The agent must account for the price and proceeds, while a buyer generally deals with the property as owner after transfer. |
| Agency and brokerage | A broker ordinarily negotiates or brings parties together; an agent may conclude or bind the principal if authority includes that power. | A broker's right is usually to commission for procuring the meeting of minds, while an agent's power depends on the authority conferred. |
| Agency and partnership | A partner acts as co-owner and as an agent of the partnership in partnership business; an ordinary agent does not acquire co-ownership merely by acting for the principal. | Sharing profits may evidence several relations, but representation and co-ownership determine the legal characterization. |
| Agency and trust | A trustee holds or administers property for a beneficiary; an agent represents the principal in juridical acts. | A trustee may hold legal title, while an agent usually acquires no title to the subject matter unless the transaction so provides. |
Form and Proof of Agency
Agency may be constituted expressly or impliedly, and it may generally be oral unless the law requires a specific form. The law values consent and authority more than formal wording, but certain transactions require written authority because of their gravity or because the subject matter demands reliable proof.
A power of attorney is the usual written evidence of authority. It is not the agency itself but the instrument by which the principal manifests the agent's authority to the agent and to third persons.
Express and Implied Constitution
Express agency exists when the principal directly grants authority by words, writing, conduct amounting to direct authorization, or a formal power of attorney. The grant may be broad or narrow, but its scope is determined by the principal's manifestation, the nature of the business, and the surrounding circumstances.
Implied agency arises from acts of the principal, silence, lack of action, failure to repudiate another's acts, or conduct that reasonably indicates consent to representation. It may also arise from the agent's conduct when the circumstances show that he accepted and performed the agency.
Implied agency cannot rest on convenience alone. The relevant inquiry is whether the principal, by words, conduct, or omission when there was a duty to speak, allowed a reasonable belief that the alleged agent had authority.
Acceptance by the Agent
The agent's acceptance may be express or implied. Acceptance is implied when the agent performs the authorized act, receives the power without objection in circumstances indicating assent, or otherwise behaves consistently with undertaking the agency.
Between persons who are present, acceptance may be implied when the principal delivers a power of attorney to the agent and the agent receives it without objection. The physical or contemporaneous delivery supplies a context in which silence may fairly indicate assent.
Between persons who are absent, silence does not ordinarily imply acceptance. The Civil Code recognizes exceptions when the principal transmits a power of attorney and the agent receives it without objection, or when the principal entrusts a power concerning business in which the recipient habitually acts as agent and the recipient fails to reply.
Written Authority for Sale of Land or an Interest in Land
Article 1874 requires written authority when a sale of a piece of land or any interest therein is made through an agent. Without written authority, the sale through the agent is void, not merely unenforceable.
This rule concerns the agent's authority to sell, not the mere fact that the principal and third person later discuss the transaction. A person who deals with an alleged agent in a sale of land must verify the written authority, because oral permission is insufficient to bind the owner to the sale.
The written authority need not use ritual language if the intent to authorize the sale of the identified land or interest is clear. However, authority to administer, manage, collect rentals, pay taxes, negotiate, or look for buyers is not the same as written authority to sell.
Special Power and Form
Article 1878 requires a special power of attorney for acts of strict dominion and other acts that substantially affect the principal's property, rights, or obligations. The requirement is primarily one of specific authority: the principal must clearly authorize the particular act or class of acts, rather than rely on a general grant.
A special power need not always be in a separate document if the written authority itself clearly grants the special act. For land sales, the separate rule requiring written authority remains controlling; for other special acts, the decisive point is that the principal's authorization must be specific enough to cover the act performed.
Notarization is not generally an element of agency, but it may be necessary for registration, public-document requirements, dealings with registries, or the evidentiary and formal requirements of the transaction to be performed.
Notice to Third Persons
When the principal specially informs a person that another has authority, the agent is deemed authorized with respect to that person. When the principal announces the authority by public advertisement, the agent is deemed authorized with respect to persons who deal in reliance on the public notice.
The authority publicly or specially announced is treated as continuing until notice of revocation is given in the same manner or in a manner reasonably sufficient to reach the affected persons. This rule protects third persons who rely on the principal's own manifestation of authority.
Private limitations between principal and agent do not prejudice third persons who in good faith relied on the authority that the principal made apparent. Conversely, a third person who knows the limitation, ignores suspicious circumstances, or relies only on the agent's assertion cannot claim the protection of apparent authority.
Kinds of Agency
Agency may be classified according to manner of creation, form, compensation, extent of business covered, nature of authority, relation to third persons, and interest protected. The classification matters because it determines what the agent may do, how authority is proven, and whether the principal is bound.
| Basis | Kinds | Key Consequence |
|---|---|---|
| Manner of creation | Express or implied | Authority may be conferred by direct words or inferred from conduct, silence, acquiescence, or course of dealing. |
| Form | Oral or written | Oral agency is generally valid, but written authority is indispensable when the law requires it, especially for sale of land through an agent. |
| Compensation | Gratuitous or onerous | Agency is presumed compensated unless contrary proof shows a gratuitous undertaking. |
| Business covered | General or special | A general agency covers all business of the principal; a special agency covers one or more specific transactions. |
| Authority conferred | General terms or special power | General terms cover acts of administration only; acts of dominion require special authority. |
| Third-person reliance | Actual, apparent, or agency by estoppel | The principal is bound by actual authority and may also be bound by authority he caused third persons reasonably to believe. |
| Name used in contracting | In principal's name or in agent's own name | Acting in the principal's name directly binds the principal; acting in the agent's own name generally binds the agent, subject to exceptions involving the principal's property. |
| Interest protected | Ordinary agency or agency coupled with interest | Ordinary agency is generally revocable; an agency created also to protect the agent's or a third person's interest may limit the principal's power to revoke to the prejudice of that interest. |
General and Special Agency
Article 1876 classifies agency as general or special. A general agency comprises all the business of the principal, while a special agency comprises one or more specific transactions.
The classification concerns the business covered, not the importance of the act. A person authorized to manage all ordinary operations of a business may be a general agent, while a person authorized to sell one specific parcel, sign one contract, or collect one debt is a special agent for that transaction.
A general agency is not the same as unlimited power. Even when an agency covers all business of the principal, the agent remains confined to acts within the nature of the business, the authority granted, and the legal limits on agency.
Agency Couched in General Terms
Article 1877 provides that an agency couched in general terms comprises only acts of administration, even if the principal states that he withholds no power or that the agent may execute acts considered appropriate. Broad language does not convert administrative authority into authority to alienate, encumber, compromise, or waive substantial rights.
Acts of administration preserve, manage, use, enjoy, or make productive the principal's property or business in the ordinary course. Examples include collecting ordinary receivables, paying routine expenses, preserving property, renewing ordinary operational arrangements, and doing acts necessary for maintenance of the business.
Acts of dominion dispose of, encumber, substantially alter, or prejudice the principal's property or rights. Examples include selling land, mortgaging property, donating property, compromising substantial claims, renouncing rights, borrowing money in the principal's name, or binding the principal as guarantor or surety.
Special Power of Attorney for Acts of Dominion
Article 1878 requires special authority for acts that the law treats as too consequential to be inferred from general management. The agent must be specifically empowered because these acts may transfer ownership, create real rights, waive protections, impose unusual liabilities, or surrender substantial claims.
Special authority is required to make payments not ordinarily considered acts of administration, effect novations that extinguish obligations, compromise, submit disputes to arbitration, waive important procedural or substantive rights, abandon prescription already acquired, and gratuitously waive obligations.
Special authority is also required to enter into contracts by which ownership of immovable property is transmitted or acquired, make gifts other than customary gifts for charity or to employees, borrow or lend money except urgent borrowing indispensable to preserve the things under administration, and lease real property to another for more than one year.
The same requirement applies when the agent binds the principal to render service without compensation, enters the principal into a partnership, obligates the principal as guarantor or surety, creates or conveys real rights over immovable property, accepts or repudiates inheritance, recognizes obligations contracted before the agency, or performs any other act of strict dominion.
A special power to sell does not include authority to mortgage, and a special power to mortgage does not include authority to sell. Sale transfers ownership; mortgage creates a real security without transferring ownership, so each act requires its own specific authorization.
A special power to compromise does not include authority to submit the controversy to arbitration. Compromise and arbitration are distinct juridical acts: compromise settles the dispute by mutual concessions, while arbitration submits the dispute to decision by arbitrators.
Express, Implied, Actual, and Apparent Authority
Express authority is directly granted by the principal. Implied authority includes powers necessary or incidental to carry out the express authority, powers usual in the business entrusted, and powers inferred from the principal's conduct.
Actual authority exists between principal and agent when the principal truly authorized the act. It may be express or implied, and it is measured by the principal's manifestation to the agent and the reasonable implications of the undertaking.
Apparent authority exists as to third persons when the principal's words, conduct, silence, or course of dealing would lead a reasonably prudent person to believe that the agent had authority. The appearance must be traceable to the principal, not merely to the agent.
Agency by estoppel arises when the principal, by representation or culpable silence, causes a third person to believe in the agency, the third person relies in good faith, and the third person would suffer prejudice if the principal were allowed to deny the authority.
The agent's apparent authority may be broader than his private instructions, but only because the principal created or tolerated the appearance. Secret instructions protect the principal against the agent internally but do not defeat the rights of innocent third persons who relied on the principal's manifestation.
Agency in the Principal's Name and in the Agent's Own Name
The usual agency is disclosed and representative: the agent acts in the principal's name and within authority, so the principal is directly bound and the third person acquires rights against the principal.
If the agent acts in his own name, the general rule is that the principal has no action against the persons with whom the agent contracted, and those persons have no action against the principal. The agent is directly bound as though the transaction were his own.
The important exception is where the contract involves things belonging to the principal. In that situation, the principal's ownership or interest may justify direct consequences between the principal and the third person, notwithstanding that the agent used his own name.
The distinction protects third persons who dealt with the agent as the apparent contracting party, while also preventing an agent from defeating the principal's rights over the principal's property by merely contracting in the agent's own name.
Gratuitous and Onerous Agency
Agency is onerous when the agent is entitled to compensation for services or acts performed. Compensation may be expressly agreed upon, implied from the nature of the business, fixed by usage, or determined from the circumstances.
Agency is gratuitous when the agent undertakes the representation without compensation. Gratuitous character does not erase fiduciary duties; it affects the economic terms of the relation, not the agent's duty of obedience, loyalty, diligence, and accounting.
The presumption of compensation is rebuttable. Family relationship, friendship, accommodation, or isolated assistance may help prove gratuitous intent, but the conclusion depends on the parties' agreement and circumstances.
Ordinary Agency and Agency Coupled with Interest
Ordinary agency exists primarily for the principal's benefit and is generally revocable according to the rules on extinguishment of agency. The principal may ordinarily withdraw authority, subject to liability for damages when revocation violates contractual obligations or causes compensable injury.
An agency coupled with interest exists when the authority is created not merely for service to the principal but also as a means of protecting a present interest of the agent or a third person. The interest must be in the subject matter or purpose of the agency, not merely an interest in earning commission.
Because the authority secures or implements another protected interest, revocation cannot be used to defeat that interest in bad faith or contrary to the juridical arrangement. The agency aspect remains representative, but its revocability is affected by the interest it was designed to protect.
Authority Incidental to the Agency
An agent authorized to perform an act is also authorized to perform acts necessary, usual, and proper to accomplish the authorized purpose. Incidental authority is read with the express authority, the nature of the business, trade usage, and the principal's known objectives.
The agent does not exceed authority when he performs the agency in a manner more advantageous to the principal than that specified, provided he remains within the substance of the authority. More favorable execution does not cure lack of authority for a different juridical act.
Incidental authority cannot supply a special power that the law requires. A general instruction to manage property may imply authority to preserve it, but it does not imply authority to sell, mortgage, donate, compromise, or waive substantial rights.