Agency

Extinguishment | Agency | SPECIAL CONTRACTS

Extinguishment of Agency Under Civil Law

In Philippine civil law, the extinguishment of an agency is governed by the provisions of the Civil Code of the Philippines, particularly under Articles 1919 to 1929. These articles enumerate the various causes by which an agency may be terminated, as well as the rights and obligations of the parties upon its extinguishment.

I. Causes of Extinguishment of Agency (Article 1919)

An agency is extinguished by any of the following causes:

  1. By revocation of the agency by the principal:

    • The principal has the right to revoke the agency at will unless it is irrevocable for a valid reason, such as the agency being coupled with an interest.
    • Revocation may be express or implied (e.g., appointing another agent for the same task or directly performing the acts within the scope of the agent's authority).

  2. By withdrawal of the agent:

    • The agent may renounce the agency at will, provided it does not cause prejudice to the principal. If the withdrawal is untimely or unjustified, the agent may be liable for damages.

  3. By the death, civil interdiction, insanity, or insolvency of the principal or of the agent:

    • Death: The agency generally terminates upon the death of either party. However, if the agency is coupled with an interest, it survives the death of the principal.
    • Civil Interdiction or Insanity: These conditions render the parties legally incapacitated to continue the agency relationship.
    • Insolvency: The financial incapacity of either party, especially if it affects the performance of obligations under the agency, may lead to extinguishment.

  4. By the dissolution of the firm or corporation which entrusted or accepted the agency:

    • If either the principal or agent is a juridical entity and it ceases to exist, the agency is terminated.

  5. By the accomplishment of the object or purpose of the agency:

    • The agency naturally ends when the task or transaction for which the agency was created is completed.

  6. By the expiration of the period for which the agency was constituted:

    • If the agency is for a fixed term, it ends when the term expires. For agencies without a fixed term, termination depends on the will of the parties or the occurrence of implied acts of revocation.

II. Legal Effects of Extinguishment

Upon the termination of the agency, the following legal consequences ensue:

  1. End of Authority:

    • The agent's authority to act on behalf of the principal ceases immediately. Any acts performed after termination are generally void or unenforceable against the principal, except where the agent or third parties acted in good faith and without knowledge of the termination.

  2. Duty to Render Account:

    • The agent must account for all transactions conducted under the agency and return all funds, property, or documents belonging to the principal.

  3. Notification to Third Parties:

    • It is the duty of the principal to notify third parties of the termination of the agency. If third parties are not notified, the principal may be bound by acts of the agent who continues to act within the scope of the former authority.

III. Revocation of Agency

While the principal generally has the power to revoke the agency, this is subject to several important considerations:

  1. Revocation is Irrevocable When Coupled with Interest:

    • If the agent has an interest in the subject matter of the agency (e.g., collateral for a debt), the principal cannot revoke the agency unilaterally without the agent’s consent.

  2. Express or Implied Revocation:

    • Express revocation requires clear communication, such as a letter or notice to the agent.
    • Implied revocation can occur through actions inconsistent with the continuation of the agency, such as appointing another agent for the same matter.

  3. Good Faith Requirement:

    • Revocation must not cause undue harm to the agent. A revocation made in bad faith can give rise to liability for damages.

IV. Renunciation by the Agent

  1. Voluntary Renunciation:

    • The agent may terminate the agency at will, provided sufficient notice is given to the principal to avoid unnecessary prejudice.

  2. Liability for Untimely or Unjustified Withdrawal:

    • If the agent withdraws in a manner that causes harm or loss to the principal, the agent may be held liable for damages unless there are valid reasons for the renunciation (e.g., moral or legal grounds).

V. Effects of Death, Civil Interdiction, or Insolvency

  1. Death:

    • Upon the death of either the principal or the agent, the agency generally terminates. Exceptions include:
      • Agencies coupled with interest.
      • Transactions already initiated by the agent where third parties are unaware of the principal’s death.

  2. Civil Interdiction or Insanity:

    • The legal incapacity of either party terminates the agency.

  3. Insolvency:

    • If insolvency affects the ability to perform obligations (e.g., the principal cannot pay or the agent cannot carry out the task), the agency is extinguished.

VI. Dissolution of Juridical Entities

  • If the principal or the agent is a corporation, partnership, or other juridical entity, the dissolution of the entity automatically ends the agency.

VII. Accomplishment of Purpose or Expiration of Term

  1. Completion of Purpose:

    • Once the specific task or objective is achieved, the agency ends by operation of law.

  2. Expiration of Term:

    • If the agency is constituted for a fixed period, it automatically ends when the period lapses.

VIII. Obligations of the Parties After Termination

  1. Principal's Obligations:

    • Compensate the agent for services rendered, if applicable.
    • Reimburse expenses properly incurred by the agent in the performance of duties.

  2. Agent's Obligations:

    • Deliver all property and funds belonging to the principal.
    • Render a full accounting of all transactions conducted on behalf of the principal.

  3. Third-Party Rights:

    • Acts of the agent that bind third parties may continue to bind the principal if third parties acted in good faith and had no notice of the termination.

IX. Special Rules for Agency Coupled with Interest

  1. Definition:

    • An agency coupled with interest is one where the agent has a vested interest in the subject matter, making the agency irrevocable without the agent’s consent.

  2. Survival of Agency:

    • This type of agency is not extinguished by the death, insanity, or incapacity of the principal.

  3. Examples:

    • A creditor acting as an agent to sell collateral securing a loan.

X. Jurisprudential Principles

Philippine jurisprudence has further refined these principles. The courts emphasize that:

  1. Good Faith and Equity:

    • The termination of agency must observe principles of good faith and fairness to protect both the principal and the agent from unnecessary harm.

  2. Irrevocability of Agency Coupled with Interest:

    • Courts have consistently upheld the principle that agency coupled with interest survives revocation or the death of the principal.

  3. Third-Party Protection:

    • If third parties deal with an agent in good faith, the principal may still be bound by the agent’s actions even after termination unless third parties had actual or constructive notice of the agency's termination.

This comprehensive framework ensures that agency relationships are terminated fairly and equitably, protecting the rights and obligations of all parties involved.

Obligations of Agent and Principal | Agency | SPECIAL CONTRACTS

CIVIL LAW: SPECIAL CONTRACTS – AGENCY

Obligations of the Agent and Principal

Under the Philippine Civil Code, the law governing agency is primarily found in Articles 1868 to 1932. The provisions meticulously outline the reciprocal obligations of both the agent and the principal. Below is an exhaustive analysis:

I. Obligations of the Agent

The agent’s duties derive from the fiduciary nature of agency. They are summarized as follows:

A. Duty to Act Within the Scope of Authority (Art. 1881-1884)

  1. Performing the Agency
    The agent must act within the limits of the authority granted by the principal. Exceeding authority renders the agent personally liable unless the principal ratifies the action (Art. 1881).

    • Express Authority: Clearly defined and granted by the principal.
    • Implied Authority: Arises as a necessary means to accomplish the expressly granted authority.

  2. Prohibition Against Unauthorized Delegation (Art. 1892)
    The agent may not delegate the agency to another person unless:

    • There is express consent from the principal.
    • The delegation is indispensable for the execution of the agency.

B. Duty of Diligence and Skill (Art. 1884)

The agent is obligated to perform the agency with the diligence of a good father of a family, taking into account the specific circumstances of the transaction.

  • If compensated, the agent must exercise professional skill and care.
  • Failure to observe diligence makes the agent liable for damages.

C. Duty to Render an Account (Art. 1891)

The agent must render an account of all transactions undertaken on behalf of the principal and deliver all sums or property received in relation to the agency.

  • The agent is responsible for loss or damage due to negligence or fraud.
  • Failing to account may lead to liability for damages or even criminal action.

D. Duty of Loyalty and Good Faith (Art. 1889)

  • The agent must act in good faith and in the best interests of the principal.
  • Agents are prohibited from using or disclosing confidential information or engaging in self-dealing transactions without the principal's knowledge and consent.

E. Prohibition Against Conflicts of Interest

  • The agent must avoid any transaction where personal interests conflict with those of the principal.
  • Any profit derived by the agent due to conflict of interest must be returned to the principal.

F. Liability for Unauthorized Acts (Art. 1882, 1883)

  • If the agent exceeds authority or acts without authority, they are personally liable to the third party unless the principal ratifies the act.

II. Obligations of the Principal

The principal’s duties toward the agent are equally significant and ensure the agent is supported and protected.

A. Duty to Compensate the Agent (Art. 1875-1876)

  • The principal is required to pay the agent the agreed compensation for the services rendered.
  • If no specific amount is agreed upon, a reasonable compensation based on the circumstances must be provided.

B. Duty to Reimburse Necessary and Useful Expenses (Art. 1912)

  • The principal must reimburse the agent for all necessary and useful expenses incurred in the execution of the agency.
  • The obligation includes expenses incurred due to unforeseen circumstances necessary for the fulfillment of the agency.
  • Advances made by the agent must also be refunded with legal interest if applicable.

C. Duty to Indemnify for Damages (Art. 1913)

  • The principal must indemnify the agent for losses or damages suffered without fault in the execution of the agency.
  • This includes liabilities arising from third-party claims resulting from authorized acts of the agent.

D. Duty to Ratify Authorized Acts (Art. 1910)

  • When the agent acts within the scope of authority or when the principal ratifies unauthorized acts, the principal assumes full responsibility for those acts.

E. Duty of Non-Interference

  • Once the agency relationship is established, the principal must allow the agent to act freely within the scope of authority granted.
  • Undue interference or contradictory instructions may breach the principal’s obligations.

III. Joint and Solidary Liability in Agency (Art. 1915)

When an agency is jointly undertaken by multiple agents:

  • If the act performed by one agent falls within the scope of authority, all agents are liable to the principal or third parties, jointly or solidarily, as stipulated by the agreement.

IV. Extinguishment of Agency and Obligations Arising

Upon termination of agency:

  1. The agent must return all funds or property of the principal.
  2. The principal must settle all compensation, reimbursements, and indemnity owed to the agent.

Termination may occur due to:

  • Revocation by the principal (Art. 1920).
  • Renunciation by the agent (Art. 1927).
  • Death, civil interdiction, insanity, or insolvency of the principal or agent (Art. 1919).

Key Judicial Doctrines and Applications

  1. Exceeding Authority and Ratification
    Unauthorized acts of the agent bind the principal only upon ratification, whether express or implied. The burden of proof lies with the third party alleging ratification.

  2. Agent’s Liability to Third Parties

    • If the agent discloses the principal’s identity and acts within authority, only the principal is liable.
    • An undisclosed principal or a misrepresentation makes the agent personally liable.

  3. Termination and Third-Party Notification

    • Upon termination of the agency, the principal must notify third parties to prevent reliance on the agent’s authority.

Practical Notes and Recommendations

  • For Agents: Obtain written authority, maintain meticulous records, and avoid conflicts of interest.
  • For Principals: Clearly define the scope of authority, promptly reimburse expenses, and respect the agent’s discretion within the granted authority.
  • For Third Parties: Verify the agent’s authority to avoid legal disputes on representation.

This framework ensures a clear understanding of obligations and liabilities, fostering transparency and accountability in agency relationships under Philippine law.

Nature, Form, and Kinds | Agency | SPECIAL CONTRACTS

CIVIL LAW > VII. SPECIAL CONTRACTS > C. AGENCY > 1. NATURE, FORM, AND KINDS

The contract of agency in the Philippines is governed by Articles 1868 to 1932 of the Civil Code of the Philippines. Below is a comprehensive discussion of its nature, form, and kinds:

1. Nature of Agency

Definition

  • Article 1868: By the contract of agency, a 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.
  • Essential Characteristics:
    • Principal-agent relationship: Based on trust and confidence (fiduciary relationship).
    • Representation: The agent acts on behalf of the principal.
    • Authority: The agent derives authority from the principal’s consent, express or implied.
    • Service-oriented: Primarily established for a service or action to be performed.

General Principles

  • Consent: The principal must expressly or impliedly consent to the agent acting on their behalf.
  • Good faith: Both principal and agent are expected to act in good faith and for the benefit of one another.
  • Scope of authority: The agent must operate within the authority conferred by the principal, subject to applicable laws and the terms of the contract.

Nature of Obligation

  • Unilateral or bilateral: It can be unilateral if only the agent binds himself, or bilateral if both parties have obligations.
  • Principal-agent relationship: Can be gratuitous (without compensation) or onerous (with compensation).

2. Form of Agency

No Special Form Generally Required

  • General Rule (Article 1869): The contract of agency is valid and enforceable in whatever form it may be entered into, whether oral or written.
  • Exceptions: When the law requires a specific form:
    • Sale of land or interest therein (Article 1874): The authority of the agent must be in writing.
    • When the act to be performed requires a specific form: If the law prescribes a certain form for the act the agent is authorized to perform (e.g., a public instrument), the authority must also follow the same form.

Express vs. Implied Agency

  • Express Agency: Arises from a clear agreement between the principal and the agent, whether verbal or written.
  • Implied Agency: May arise from the conduct of the principal or from the circumstances indicating intent to create the agency.

3. Kinds of Agency

Based on Manner of Creation

  1. Express Agency: Formed explicitly by agreement of the parties.
  2. Implied Agency: Derived from actions or circumstances (e.g., a manager making decisions on behalf of a business).
  3. Agency by Estoppel (Article 1911):
    • Occurs when the principal’s acts create a reasonable belief in a third party that the agent has authority, even if such authority was not granted.
    • The principal is estopped from denying the agent’s authority if a third party has relied on it in good faith.

Based on Authority

  1. General Agency: Confers broad powers over a wide range of actions or transactions.
    • Example: An agent empowered to manage a business.
  2. Special Agency: Limited to specific acts or transactions.
    • Example: An agent authorized to sell a specific property.

Based on Compensation

  1. Gratuitous Agency: Agent acts without expectation of payment.
  2. Onerous Agency: Agent is compensated for their service.

Based on Agent's Representation

  1. Agent with Disclosed Principal: The third party knows the identity of the principal.
  2. Agent with Undisclosed Principal: The agent acts without revealing the principal’s identity to the third party.
  3. Agent Acting in Own Name (Article 1883): The agent acts in their own name but for the account of the principal.

Based on Relationship Between Principal and Agent

  1. Agency Couched with Interest: The agent has an interest in the subject matter of the agency.
    • Example: An agent who is also a creditor of the principal, tasked to sell property to settle debts.
  2. Revocable Agency: Can be terminated by the principal at will.
  3. Irrevocable Agency: Cannot be terminated unilaterally when:
    • A bilateral contract depends on the agency.
    • It is made for the agent’s benefit.

Supplementary Rules

Presumptions and Principles

  1. Agency presumed when one acts on behalf of another (Article 1869): When a person acts in the name of another and the latter ratifies it.
  2. Acts beyond authority (Article 1881): The principal is not bound unless they ratify such acts or the third party has knowledge of the limitation of the agent’s authority.

Duties of the Agent

  • Fidelity: Act in the best interest of the principal.
  • Diligence: Exercise ordinary diligence unless a higher degree is stipulated.
  • Accounting: Render accounts and return profits or benefits obtained from the agency (Article 1891).

Duties of the Principal

  • Reimbursement: Pay the agent for expenses incurred.
  • Compensation: Remit payment if the agency is onerous.
  • Indemnification: Compensate for damages due to non-performance of obligations or lack of authority (Article 1912).

This outline encompasses the essential aspects of the Nature, Form, and Kinds of Agency under Philippine law. Each provision highlights both general principles and specific legal stipulations, ensuring clarity and precision in understanding agency contracts.

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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