Agency | SPECIAL CONTRACTS

CIVIL LAW > VII. SPECIAL CONTRACTS > C. AGENCY

Agency is a juridical relationship in civil law where one person, the principal, authorizes another, the agent, to act on their behalf and represent them in dealings with third parties. Below is an exhaustive discussion of the concept of agency under Philippine law as governed by the Civil Code of the Philippines (Articles 1868 to 1932).

1. DEFINITION AND NATURE

  • Article 1868: By the contract of agency, a person binds themselves to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.
    • The agent acts in a representative capacity.
    • Agency is fiduciary in nature, involving trust and confidence.

2. ELEMENTS OF AGENCY

  1. Consent:
    • The principal consents to the agent’s authority.
    • The agent consents to act on behalf of the principal.
  2. Representation:
    • The agent acts in the name and for the account of the principal.
  3. Capacity:
    • Both the principal and agent must have legal capacity to enter into the contract of agency.
    • A principal must be capacitated to bind themselves to obligations created by the agent.
    • An agent needs sufficient capacity to bind the principal.

3. KINDS OF AGENCY

By Scope of Authority:

  1. General Agency:
    • The agent is authorized to act for the principal in all matters or in all transactions of a general nature.
  2. Special Agency:
    • The agent is authorized to act for a specific act or transaction.

By Nature of Relationship:

  1. Gratuitous Agency:
    • The agent acts without compensation.
  2. Onerous Agency:
    • The agent receives compensation for their service.

By Creation:

  1. Express Agency:
    • Authority is expressly given, orally or in writing.
  2. Implied Agency:
    • Authority is inferred from the principal’s acts or omissions.

4. CREATION OF AGENCY

Modes:

  1. By Agreement:
    • Express (written or oral).
    • Implied (through conduct).
  2. By Law:
    • Created by legal mandate (e.g., legal representation).
  3. By Necessity:
    • An agency may arise from the necessity to preserve or protect the principal’s interest.

5. ESSENTIAL FEATURES

  1. Consent:
    • Both parties must voluntarily enter into the relationship.
  2. Fiduciary Relationship:
    • The agent must act in the principal’s best interest.
  3. Personal Confidence:
    • The relationship is based on mutual trust and confidence.
  4. No Transfer of Ownership:
    • Agency does not transfer ownership of property to the agent.
  5. Acts in Representation:
    • The agent acts on behalf of the principal, creating rights and obligations for the principal vis-à-vis third parties.

6. DUTIES AND OBLIGATIONS

A. Duties of the Agent:

  1. Obedience (Art. 1887):
    • Follow the principal's lawful instructions.
  2. Diligence (Art. 1884):
    • Exercise ordinary diligence, or as specified in the contract.
  3. Accountability (Arts. 1891-1892):
    • Render accounts of transactions.
    • Return all property or money received for the principal.
  4. Good Faith:
    • Avoid conflicts of interest.
    • Act in the best interest of the principal.
  5. Non-delegation (Art. 1892):
    • The agent cannot delegate authority unless allowed by the principal.

B. Duties of the Principal:

  1. Compensation (Art. 1875):
    • Pay the agent for services, if stipulated or customary.
  2. Reimbursement (Art. 1912):
    • Reimburse the agent for expenses incurred in good faith.
  3. Indemnity:
    • Indemnify the agent for damages sustained without the agent’s fault.
  4. Good Faith:
    • Avoid arbitrary revocation of authority.

7. MODES OF TERMINATION

By Agreement:

  • Mutual consent of both parties.

By Expiration:

  • Fulfillment of the purpose of the agency.
  • Expiration of the period specified in the agency agreement.

By Operation of Law:

  1. Death, Civil Interdiction, or Incapacity of the principal or agent.
  2. Change in circumstances:
    • Event rendering the agency’s performance impossible.
  3. Extinction of the Subject Matter:
    • If the object of the agency no longer exists.

By Revocation:

  1. By the Principal:
    • May revoke the agent’s authority at will, unless it is coupled with an interest.
    • Revocation must be communicated.
  2. By the Agent:
    • The agent may resign, provided it does not prejudice the principal.

Irrevocable Agency:

  • Agencies "coupled with an interest" cannot be revoked unilaterally by the principal.
  • Examples: Agency involving a mortgagee or creditor.

8. LEGAL EFFECTS

  1. Contracts with Third Parties:

    • The principal is bound by the acts of the agent within the scope of authority.
    • Acts beyond the agent's authority do not bind the principal unless ratified.

  2. Liability of the Agent:

    • Agent is personally liable when acting without or beyond authority unless the principal ratifies.
    • The agent may also be liable if they fail to disclose the principal's identity.

  3. Ratification:

    • A principal may retroactively authorize acts done by the agent beyond their authority (Art. 1910).

9. AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS

  1. From Lease of Services:
    • Agency involves representation, while lease of services involves mere execution of labor or work.
  2. From Partnership:
    • Agency lacks co-ownership of business; the agent merely acts on behalf of the principal.
  3. From Trust:
    • A trust involves ownership of property, while agency involves representation without transfer of ownership.

10. PROVISIONS ON SPECIAL TYPES OF AGENCY

  1. Agency by Operation of Law:

    • Examples include agency created by estoppel or necessity.

  2. Agency for Sale or Purchase:

    • An agent authorized to sell must observe the conditions of the sale (Art. 1900).

  3. Agency Coupled with an Interest:

    • Authority cannot be revoked at will (Art. 1927).

This comprehensive overview of agency under Philippine civil law provides a detailed understanding of its principles, elements, duties, and legal implications.

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