A comprehensive legal article on the creation, scope, effects, liabilities, and termination of agency under Philippine civil law

Agency is one of the most practical and heavily litigated relationships in Philippine private law because it governs how one person (the agent) can validly act in representation of another (the principal) so that the legal effects attach to the principal as though the principal acted personally. The core statutory framework is found in Articles 1868 to 1923 of the Civil Code of the Philippines (Book IV, Obligations and Contracts, Title on Agency), supplemented by general contract principles and related provisions (e.g., on consent, form, estoppel, damages, and certain disqualifications).

1) Concept and nature of agency

A. Definition and the “representation” requirement (Art. 1868)

Under Article 1868, agency is a contract whereby a person binds himself to render some service or do something in representation of or on behalf of another, with the consent or authority of the latter.

Two features distinguish agency from many other service relationships:

Representation: the agent acts as a legal extension of the principal.
Authority: the principal confers power so the agent’s acts can bind the principal.

B. Agency is consensual, fiduciary, and generally revocable

Consensual: formed by agreement (express or implied).
Fiduciary: the agent owes loyalty and must prioritize the principal’s interest.
Generally revocable: the principal can usually revoke authority, subject to recognized exceptions (notably “agency coupled with an interest,” or agency created for the benefit of a third person in accepted circumstances).

C. Agency versus similar relationships (why classification matters)

Correct classification affects who is liable, what proof is required, and what formalities apply:

Agency vs. Sale: In sale, the seller transfers ownership; in agency to sell, the agent markets/negotiates for the principal, and title passes from principal to buyer (not from agent).
Agency vs. Brokerage: A broker typically brings parties together; a broker does not automatically have authority to bind the principal unless given that authority.
Agency vs. Employment: Employment centers on control over the means and methods of work; agency centers on representation and authority to affect legal relations.
Agency vs. Partnership: A partner is both principal and agent of the partnership in many contexts; an agent is not co-owner of the principal’s business by default.
Agency vs. Independent Contractor: An independent contractor undertakes to deliver a result; an agent is empowered (within authority) to represent.

2) Essential elements and capacity

A. Elements commonly required

Agency generally requires:

Consent of principal and agent (may be express or implied)
Object: service or juridical acts the agent is to do
Representation: agent acts in the principal’s name or on the principal’s behalf
Authority: power conferred by principal (express, implied, or apparent/estoppel in proper cases)

B. Capacity of the principal and the agent

The principal should have capacity to enter into the underlying juridical acts (or through lawful representation).
The agent must have capacity to act, though agency often focuses on whether the principal validly authorized the agent and whether the agent acted within that authority.

Special issues arise when the principal is a corporation (authority must be consistent with corporate powers and internal authorization rules) or when the principal is incapacitated (guardianship/representative authority rules may intervene).

3) Formation of agency: express, implied, and by conduct

A. Express and implied agency

Agency may be constituted:

Expressly: orally or in writing, depending on the act to be performed.
Impliedly: by acts of the principal that reasonably indicate consent (e.g., allowing someone to habitually transact for you and honoring those acts).

B. Acceptance by the agent

Acceptance can be:

Express (written or oral acceptance), or
Implied (by performing the acts of agency, receiving benefits, or conduct consistent with acceptance).

C. Agency by estoppel / apparent authority (a practical doctrine)

Even when an agent lacks actual authority, a principal may be bound as to third persons when:

The principal’s representations, conduct, or negligence caused a third party to reasonably believe the agent had authority, and
The third party relied on that appearance of authority in good faith.

This doctrine is often decisive in commercial disputes (banks, corporate officers, dealership transactions, real estate marketing).

4) Form and proof: when agency must be in writing

A. General rule: form is flexible—until the underlying act requires form

Many agencies can be oral and still valid between principal and agent. However, Philippine law and practice impose strict formalities for specific transactions.

B. Sale of land through an agent: written authority (Art. 1874)

A critical rule in Philippine practice is Article 1874, which generally requires that when a sale of a piece of land or any interest therein is through an agent, the agent’s authority must be in writing, otherwise the sale is void.

This is why real estate transactions routinely require a Special Power of Attorney (SPA) for:

Sale of land / condominium units
Signing deeds of absolute sale, deeds of donation, deeds of mortgage
Handling title transfer processes (BIR, Registry of Deeds, LGU)

C. Special Power of Attorney for acts of strict dominion (Art. 1878)

Article 1878 identifies acts that typically require a special power (SPA), reflecting the difference between:

Acts of administration (routine management), and
Acts of strict dominion (disposing of or heavily affecting ownership/rights)

While phrasing varies by specific item, acts commonly treated as requiring special authority include:

Compromise, submission to arbitration, waiver of rights that substantially prejudice the principal
Renunciation of rights, including rights to appeal in certain contexts
Borrowing or lending (especially lending), and similar financial undertakings
Creating, conveying, or encumbering real rights over immovable property (sale, mortgage, donation)
Entering into partnership in the principal’s name
Binding the principal as guarantor/surety
Making gifts (donations)
Other acts considered strict dominion

Practical note: Many institutions (banks, registries, developers) demand SPAs that are not only written but also notarized, and if executed abroad, consularized/apostilled and sometimes authenticated according to current rules and internal policies.

5) Scope of authority: general vs. special, express vs. implied

A. Authority is interpreted in light of purpose and instructions

An agent’s authority may be:

Express: specifically stated in the SPA/contract
Implied: incidental powers reasonably necessary to carry out the express authority
Customary: powers normally accompanying that kind of agency (subject to limits and good faith)

B. General vs. special agency

A general agency typically covers a series of acts or a broad area of management.
A special agency is limited to a specific transaction or a clearly defined set of acts.

C. The “name of the principal” rule: binding effect depends on representation

As a rule, to bind the principal, the agent should act:

Within authority, and
In the name of the principal (or in a manner clearly on the principal’s behalf)

If an agent contracts in his own name, the general effect is that the agent becomes personally bound, although the principal may still have rights or obligations in particular situations depending on ownership of the subject matter and the third party’s knowledge.

D. Ratification: curing lack of authority

If an agent acted without authority or exceeded authority, the principal may:

Ratify the act (expressly or impliedly), which generally makes the act effective as if authorized from the beginning, provided the principal ratifies with knowledge of the material facts and the act is not inherently void.

Implied ratification often arises when the principal:

Accepts benefits of the unauthorized transaction, or
Fails to timely repudiate while knowing the material terms and allowing reliance.

6) Duties and liabilities of the agent (Arts. 1884–1909 range in substance)

Agency is heavily duty-driven. The agent must act not merely competently but loyally.

A. Core duties of the agent

To carry out the agency with due diligence and in accordance with instructions
To act within authority; avoid ultra vires acts
Duty of loyalty / good faith: avoid conflicts of interest and self-dealing
To account: render an accounting of transactions and funds/property handled
To deliver to the principal what the agent receives by virtue of the agency (including benefits, rebates, or other proceeds connected to the agency)
To preserve and protect the principal’s property and interests in the agent’s custody
To inform the principal of material facts relevant to the agency

B. Delegation and substitutes (sub-agency)

An agent’s power to appoint a substitute depends on authority and circumstances:

If substitution is authorized, the agent may appoint one, subject to rules on choosing a suitable substitute.
If substitution is not authorized, the agent may be liable for resulting damages and may also remain responsible for the substitute’s acts.

C. Self-dealing and prohibited purchases (related civil law limits)

Even beyond the agency title itself, Philippine civil law restricts certain persons (including agents in some contexts) from purchasing property they administer or sell due to conflicts of interest. This frequently surfaces in litigation involving agents who “buy” the principal’s property or cause it to be sold under suspicious circumstances.

D. When the agent becomes personally liable

Even if acting for a principal, the agent can be personally liable when:

The agent expressly binds himself
The agent exceeds authority and the principal does not ratify
The agent acts in bad faith, commits fraud, or is negligent
The agent contracts in his own name (subject to nuances on undisclosed principals and ownership)

7) Duties and liabilities of the principal (Arts. 1910–1918 range in substance)

Agency is reciprocal: the principal gains the benefit of representation and must shoulder corresponding burdens.

A. Principal’s obligations to the agent

Common principal obligations include:

To comply with obligations the agent contracted within authority
To pay compensation if the agency is onerous (or promised)
To reimburse the agent for necessary and reasonable expenses incurred in executing the agency
To indemnify the agent for damages the agent suffers without fault in executing the agency
To advance funds when necessary for execution (depending on agreement and circumstances)

Failure to reimburse or indemnify may allow the agent to assert rights to retain certain items or pursue claims, subject to legal limits.

B. Principal’s liability to third persons

As a general rule, the principal is liable to third persons for contracts the agent enters into within authority and on the principal’s behalf.

8) Effects on third persons: disclosed vs. undisclosed principal, and good faith dealing

A. Disclosed principal (most common)

When the agent makes clear the principal’s identity and acts within authority:

The principal is bound;
The agent is typically not personally bound, unless he expressly assumes liability or acts improperly.

B. Undisclosed principal / agent acting in own name

When an agent deals in his own name, third-party rights and principal rights depend on:

Whether the transaction involves things belonging to the principal
Whether the third person knew or should have known the agent was acting for another
Whether the principal later ratified or intervened

This area is fact-intensive and often turns on documents, communications, and commercial practice.

C. Protection of good faith third persons (notice matters)

A repeated theme in agency law is notice:

Third persons who deal with an agent in good faith may be protected when they reasonably rely on authority appearances created by the principal.
Conversely, third persons who have notice of limitations (or who are put on inquiry by obvious red flags) may be unable to enforce against the principal if the agent exceeded authority.

9) Extinguishment/termination of agency (Arts. 1919–1923 range in substance)

Agency ends not only by “ending the relationship” but also by events that make representation legally impossible or unnecessary.

A. Common causes of termination

Agency is generally extinguished by:

Revocation by the principal
Withdrawal/renunciation by the agent
Death, civil interdiction, insanity, or insolvency of principal or agent (subject to protective rules for third persons in good faith)
Accomplishment of the object or purpose of the agency
Expiration of the term or condition agreed upon
Mutual agreement
Dissolution or cessation of a juridical principal/agent (corporation/partnership), depending on context

B. Revocation: express and implied

Revocation may be:

Express: clear notice to the agent (and often to third persons who may deal with the agent)
Implied: conduct inconsistent with continuance of authority (e.g., principal directly taking over management of the same business, appointing another agent for the same matter in a manner incompatible with the first)

C. Effectivity of termination as to third persons: notice is crucial

A recurring practical rule is that termination (especially by revocation) may not defeat the rights of third persons who:

Dealt with the agent in good faith,
Without knowledge of the revocation/termination, and
Under a reasonable belief of authority traceable to the principal’s acts.

This is why prudent principals provide:

Written revocation to the agent, and
Notice to known counterparties, banks, customers, and other institutions that previously dealt with the agent.

D. “Irrevocable” agency and agency coupled with interest

While agency is generally revocable, it may be treated as not freely revocable when:

The agency is coupled with an interest (the agent has a legal interest in the subject matter), or
It is constituted for the benefit of a third person who has accepted it, or
The parties’ agreement and the nature of the relationship justify restricting revocation (often still allowing revocation for just cause, with liability for damages if wrongful)

10) Common Philippine applications and recurring legal problems

A. Real estate sales and transfers (where agency disputes are frequent)

Key recurring issues:

Lack of written authority for sale of land (Art. 1874)
SPA that is too general, missing authority for acts of strict dominion (Art. 1878)
Forged SPAs or fraudulent notarization
Agents receiving purchase price but failing to remit (often leading to civil suits and sometimes criminal complaints like estafa, depending on facts)
Title transfer requirements (BIR, Registry of Deeds, LGU) interacting with proof of authority

B. Corporate agency (officers and representatives)

Issues include:

Whether an officer had actual or apparent authority
Whether corporate acts complied with board approvals and internal rules
Whether counterparties exercised due diligence (e.g., checking board resolutions, secretary’s certificates)

C. Banking and finance

Banks often require:

Specific forms of authority (SPA with particular powers)
Specimen signatures and verification protocols Because banks deal heavily with authority risk, agency disputes often turn on compliance with documentary requirements.

D. Litigation pattern: agency is often decided by documents and conduct

Courts typically examine:

The written SPA/authority (if any)
Communications and past dealings (course of performance)
Whether the principal accepted benefits (ratification indicators)
Whether third parties acted in good faith and with reasonable prudence

11) Practical compliance guidance embedded in the Civil Code framework

A. For principals

Put authority in writing when transactions are high-value or formal (especially real property).
Draft SPAs with specificity: property descriptions, authorized acts, price ranges, signing authority, receiving funds, and limits.
Require periodic accounting and documentary reporting.
Revoke in writing and notify known third parties when ending authority.

B. For agents

Stay within authority; obtain written expansions where needed.
Sign contracts in a way that clearly shows representation (e.g., “Principal, by Agent”).
Keep careful records; segregate principal’s funds; issue receipts in the principal’s name when appropriate.
Disclose conflicts and avoid self-dealing.

C. For third parties dealing with agents

Ask for the SPA and verify it matches the transaction (especially for sale/mortgage/leases of real property and other acts of strict dominion).
Confirm identity and status of the principal (and corporate authority if the principal is a corporation).
Be alert to red flags: unusually broad SPAs, missing notarization where expected, inconsistent instructions, or refusal to provide documents.

12) Remedies and consequences when agency goes wrong

A. Principal against agent

Damages for breach of instructions, negligence, or bad faith
Accounting and delivery of funds/property received
Rescission or repudiation of unauthorized transactions (when legally available)
Recovery of property and provisional remedies in proper cases (e.g., injunction, attachment, replevin), depending on facts and procedural rules

B. Agent against principal

Action for compensation (if onerous)
Reimbursement of necessary expenses
Indemnification for damages incurred without fault in execution of agency

C. Third parties

Enforcement against the principal when authority (actual, implied, or apparent) exists or when the principal ratifies
Claims against the agent when the agent exceeded authority, misrepresented authority, or bound himself

13) Core takeaways of Articles 1868–1923 in one view

Agency is fundamentally about representation + authority: the agent’s acts can bind the principal.
Authority can be express, implied, or apparent (estoppel-driven), but high-risk acts often demand special and written authority.
Real property sales through an agent require written authority (Art. 1874).
Many acts of strict dominion require a Special Power of Attorney (Art. 1878).
The agent owes diligence, loyalty, and accounting; the principal owes reimbursement, indemnity, and compliance with authorized obligations.
Termination is common and generally allowed, but its effect on third persons depends heavily on notice and good faith.