Manner of contract is subject to ratification,
Establishment/Formation of
Agency
Note: the discussion hereunder are
premised on the fact that the
purported principal in the contract
that have been entered into in his
name alleges that the agent was
never appointed or that the agent
was appointed but acted beyond his
scope of authority.
The issues relating to the extent of
the power and authority of the
agent, should arise only when the
principal denies being bound by the
contracts entered into by the agent
with 3rd parties.
Even if in fact agent acted without
or in excess authority, or there is no
reasonable to prove the extent of
his power and authority, if the
principal accepts or ratifies the
contract, then there is no issue to
be resolved. Every unenforceable
or inaction according
which cleanses it of all defects as
though it was perfected without
flaws.
Q: How Agency may be
constituted?
A: Article 1869 and Article 1870
provides how agency may be
constituted.
Article 1869 – Agency may be
express or implied from the acts of
the principal, from his silence or
lack of action, or his failure to
repudiate the agency, knowing that
another person is acting on his
behalf without authority. Agency
may be oral, unless the law requires
a specific form.
Article 1870 – Acceptance by the
agent may also be express, or
implied from his acts which carry
out the agency, or from his silence
to the
circumstances.
Note:
The contract of agency, being a
consensual contract, is perfected by
mere consent, or merely by the
meeting of the minds on the object
(service: to enter into juridical acts
on behalf of the principal) and upon
the consideration agreed upon,
which primarily is a valuable
consideration or may be pure
liberality on the part of the agent.
Lim VS. CA – the SC noted that there
are some provisions of law which
require certain formalities for
particular contracts:
 When the form is required
for the validity of the
contract
 When it is required to make
the contract effective as
against 3rd parties such as
 those mentioned in Article
1357 and 1358 of the NCC
 When the form is required
for the purpose of proving
the existence of the contract,
such as those provided by
the Statue of Frauds in
Article 1403
1. Perfection from the Side of the
Principal
On the side of the principal, Article
1869 of the NCC provides that an
agency is constituted (e.g. principal
has given his consent to the agency
arrangement) from his acts formally
adopting it, or from his silence or in
action, or particularly from his
failure to repudiate the agency
knowing someone is acting in his
name.
Certainly, the ideal form by which
the principal is deemed to have
entered into a contract of agency is
when he issues a written power of
attorney to the person designated 2. Perfection from the Side of the
as agent; nonetheless, there is no Agent
requirement that for agency to arise
On the side of the agent, Article
it must be in writing, for in fact
1870 of the NCC provides that his
Article 1869 says it may be oral or
acceptance of the agency (e.g.
may be deduced from the act of the
agent has given his consent to the
principal.
agency arrangement) may be
Illustrations express or implied form his acts
which carry out the agency, or from
1. Equitable PCI – Bank VS. Ku – the
his silence or inaction according to
court ruled that where the law firm
the circumstances
allowed the employee of its client
to occasionally receive its mail, and Note:
having formally objected to the
From a transactional point of view,
receipt by said employee of a court
every act of the agent in pursuance
process, or taken any steps to put a
of the agency is always express, it
stop to it, it was construed to mean
never have been implied because
that an agency relationship had
the requirement is that he must
been established, to which receipt
enter into a contract in the name of
of the court process by said
the principal. Thus, whenever any
employee was legally deemed to be
agent enters into any contract in
service to the law firm.
pursuance of the agency, his
acceptance of his designation as an
agent is never implied nor
presumed, for precisely he enters
unto such contract clearly in the
name of the principal.
There seems to be an indication in
Article 1870 that there such a thing
as implied acceptance of the
appointment on the part of the
agent from his silence or inaction
according to the circumstances.
Since a contract of agency is
essentially a preparatory contract, it
is hard to imagine that there is a
constituted contract of agency by
the mere silence or inaction of the
agent. In fact, the proper
interpretation of the silence or
inaction of the designated agent is
that he has accepted the
appointment, and that is the reason
why he has not acted one way or
the other.
However, the usefulness of
providing presumptive rules of
implied acceptance on the part of
the agent do serve some
commercial ends in the sense that
one who accepts an agency is from
that time on bound by the fiduciary
duties of diligence and fidelity, such
that if it fails to act when the
circumstances required that he
should have so acted to protect the
interest of the principal, he can be
made liable for breach of duty, and
cannot claim later on that he had no
accepted the designation. In the
same way, it would be wrong for an
agent to take advantage of
confidential information or trade
secrets relayed to him by the
principal, and in order to avoid
liability, he should claim that he
never accepted the appointment
since he entered into the
transaction in his own name.
But, always take note, the policy is
not well – served under the broad
and all-encompassing provision of
Article 1870, since the better rule
would be that a principal should
never presume that a designated
person has accepted the agency by
mere silence so that he should be
vigilant in protecting his rights.
3. Instances When there is deemed
to be a meeting of the minds
between the Principal and the
Agent
Article 1871 – Between persons
who are PRESENT, the acceptance
of the agency may also be implied
if the principal delivers his power
of attorney to the agent and the
latter receives it without any
objection
Article 1872 – Between persons
who are ABSENT, the acceptance of
the agency cannot be implied from
the silence of the agent, EXCEPT:
 When the principal
transmits his power of
attorney to the agent, who
 receives it without any
objection
 When the principal entrusts
to him by letter or telegram
a power of attorney with
respect to the business in
which he is habitually
engaged as an agent, and he
did not reply to the letter or
telegram.
Note: The general rule under Article
1872 of no implied acceptance on
the part of the agent, is actually
contrary to the implied acceptance
rule laid down in Article 1870 that
“acceptance by the agent may also
be implied from his silence or
inaction according to all
circumstances.” Under Article 1872,
other than the two circumstances
laid out therein, courts should not
draw any conclusion of implied
acceptance on the part of the
purported agent by his silence or
inaction. It would be better that
Article 1870 be deleted entirely, as
Article 1872 provides for the better
rule.
The language used in Article 1871
and 1872 indicate that the “power
of attorney” must constitute a
written instrument, because in both
cases the articles refer to situations
where the principal delivers his
power of attorney to the agent, and
when the principal transmits his
power of attorney to the agent,
which require that it must be in
writing, which today would include
electronic document and mail,
which are considered to be
equivalent to a written instrument
under the Electronic Commerce
Law.
4. Perfection of the Contract of
Agency as it affects 3rd persons
Article 1873 – If a person specially
informs another or states by public
advertisement that he has given a
power of attorney to a 3rd person,
the latter thereby becomes a duly
authorized agent, in the former
case with respect to the person
who received the special
information, and in the latter case
with regard to any person. The
power shall continue to be in full
force until the notice is rescinded
in the same manner in which it was
given.
Article 1921 – if the agency has
been entrusted for the purpose of
contracting with specified persons,
its revocation shall not prejudice
the latter if they were not given
notice thereof.
Article 1922 – If the agent had
general powers, revocation of the
agency does not prejudice 3rd
persons who acted in good faith
and without knowledge of the
revocation. Notice of the
revocation in a newspaper of
general circulation is a sufficient
warning to 3rd persons.
Note: Rallos VS. Yangco case held
that a long – standing client, acting
in good faith and without
knowledge, having sent goods to
sell on commission to the former
agent of the defendant, could
recover damages from the
defendant, when no previous notice
of the termination of agency was
given to the said client. It was the
duty of the defendant on the
termination of the relationship of
principal and agent to give due and
timely notice thereof to the
plaintiffs. Failing to do so, the
defendant was held responsible to
them for whatever goods may have
been in good faith and without
negligence sent to the agent
without knowledge, actual or
constructive of the termination of
the relationship.
1. Rules on the Existence of So, if the character assumed by the
Agency, as to 3rd parties agent is of such a suspicious or
unreasonable nature, or if the
Although an agency contract is
authority which he seeks is of such
consensual in nature and generally
an unusual or improbable character,
requires no formality to be
the party dealing with him may not
perfected, valid and binding, the SC
shut his eyes to the real state of the
has stressed in Lopez VS Tioco, that
case but should refuse to deal with
an agency arrangement is never
the agent at all, or should ascertain
presumed; and Yoshizaki VS Joy
from the principal the true
Training Center of Aurora, Inc. that
condition of affairs.
persons dealing with an agent must
ascertain not only the fact of People VS Yabut – held that
agency, but also the nature and although the perfection of a
extent of the agent’s authority. contract of agency may take an
implied form, the existence of an
Thus, jurisprudence provides that a
agency relationship is never
3rd person must act with ordinary
presumed. The relationship of
prudence and reasonable diligence
principal and agent cannot be
to ascertain whether the agent is
inferred from mere family
acting and dealing with him within
relationship; for the relation to exist
the scope of his powers. Obviously,
there must be consent by both
if he knows or has good reason to
parties. The law makes no
believe that the agent is exceeding
presumption of agency.
his authority, he cannot claim
protection.
Recio VS Heirs of the Spouse Aguedo
and Maria Altamirano – reiterates
that when a 3rd party relied upon
the words of the purposed agent
without securing a copy of the
special power of attorney, such 3rd
party was bound by the risk
accompanying such trust on the
mere assurance of the purported
agent. Thus, in the absence of a
written power of attorney, the
burden of proof to show that an
agent acted within the scope of his
authority would be with such 3rd
party.
On the other hand, Article 1873 of
the NCC provides that the
declaration by a person that he has
appointed another as his agent is
deemed to have constituted such
person as an agent (even when the
designated person is at that point
unaware of his designation as
agent), insofar as the person to
whom such declaration has been
made.
Thus, what is clear therefore is that
3rd parties must NEVER take the
word or representation of the
purported agent at face value; they
are mandated to apprise
themselves of the extent of powers
of the purported agent.
On the other hand, 3rd parties can
take the word, declaration and
representation of the purported
PRINCIPAL with respect ot the
appointment and extent of powers
of the purported agent.
The principle is self – evident from
the nature of agency as a relation
of representation – that an agent
acts as though he were the
principal – and therefore if the
principal himself says so, then it is
taken at face value as a contractual
commitment.
2. Agency by Estoppel
Article 1873 – if a person specially
informs another or states by public
advertisement that he has given a
power of attorney to a 3rd person,
the latter thereby becomes a duly
authorized agent, in the former
case with respect to the person
who received the special
information, and in the latter case
with regard to any person. The
power shall continue to be in full
force until the notice is rescinded
in the same manner in which it was
given.
Article 1911 - Even when the agent
has exceeded his authority, the
principal is solidarily liable with the
agent if the former allowed the
latter to act as though he had full
powers.
Note: Under Article 1873 of the
NCC, if a person specially informs
another or states by public
advertisement that he has given a
power of attorney to a 3rd person,
the latter thereby becomes a duly
authorized agent, even if previously
there was never a meeting of minds
between them.
Litonjua, Jr. VS. Eternit Corp., - it
was held that for an agency by
estoppel to exist, the following
must elements must be established:
 The principal manifested a
representation of the agent’s
authority or knowingly
allowed the agent to assume
such authority;
 The 3rd person, in good faith,
relied upon such
representation;
 Relying upon such
representation, such 3rd
person has changed his
position to his detriment.
Yun Kwan Byung VS. PAGCOR – an
agency by estoppel, which is
similar to the doctrine of apparent
authority, requires proof of reliance
upon the representations, and that,
in turn, needs proof that the
representations predated the action
taken in reliance thereto. Thus, it
was held that implied agency is
derived from the acts of the
principal, from his silence or lack of
action, or his failure to repudiate
the agency, knowing that another
person is acting on his behalf
without authority. In agency by
estoppel, there is no agency at all,
but the one assuming to act as
agent has apparent, although not
real, authority to represent
another. The law makes no
presumption of agency and proving
its existence, nature and extent is
incumbent (mandatory) upon the
person alleging its existence.
Formal Requirements on Grant of
Powers To Agent
The discussions are in this section is
based on the premise that even
when an agent has been duly
appointed by the principal, such
agent must still act within the
scope of his authority in order to
make the resulting juridical acts
entered into in the name of the
principal, valid and binding on the
latter. This is consistent with the
duty of obedience owed by the
agent to the principal.
Article 1317 – No one may contract
in the name of another without
being authorized by the latter, or
unless he has by law a right to
represent him.
A contract entered into in the
name of another by one who has
no authority or legal
representation, or who has acted
beyond his powers, shall be
unenforceable, unless it is ratified,
expressly or impliedly, by the
person on whose behalf it has been
executed, before it is revoked by
the other contracting party.
Article 1403 – the following
contracts are unenforceable, unless
they are ratified.
 Those entered into in the
name of another person by
one who has been given no
authority or legal
representation, or who has
acted beyond his powers
Note: A careful consideration of the
formal requirements pertaining to
contracts of agency, it goes into
issues of “enforceability” and not
into issues of “nullity”
From the view point of the
principal – a contract that has been
entered in his name by another
without the consent or outside the
scope of authority is non – existent
or void
From the view point of the court –
the contract is not void but merely
unenforceable.
General Powers of Attorney
Article 1877 – An agency couched
in general terms comprises ONLY
acts of administration, even if the
principal should
 States that he withholds no
power or that the agent
 States that the agent may
executed such acts as he
may consider appropriate,
or
 Authorizes general and
unlimited management.
Note: The general rule is that in the
absence of the grant of special
power of attorney, the agent is
deemed to have been granted only
a general power of attorney, and his
powers cover only acts of
administration.
The term “acts of administration”
has the same legal significance as
“to act in the ordinary course of
business.” What constitutes an act,
transaction or contract that is
within the ordinary course of
business is determined by the
nature of the business itself that
has been placed under the
administration of the agent
Example: if the act, transactions or
contract in question is a matter that
from the nature of the business is
expected to occur and for which
action is expected without much
changing the course of the
business, then it is a mere act of
administration.
On the other hand, if the act,
transaction or contract, is of a
nature, considering the business
being managed, as something that
is not expected to happen or
decided upon in the day – to – day
affairs, then it would constitute an
act of ownership or strict dominion,
one which is extraordinary, and not
in the ordinary course of business.
*Today, the power to sue is
considered a power of “Strict
ownership” Example: the power of
the agent to “exact the payment of
sums of money by legal means”
*Today, the power to employ
personnel, is not strict ownership,
and does not need a special power
of attorney to validly employer
personnel. Thus, it is considered as
general powers of the agent.
Q: Must Powers of Attorney Be in
Writing?
A: The clearest manner by which
there is specific grant of power of
strict ownership is that it be in
writing; otherwise, the presumption given no such authority to
under Article 1877 of the Civil Code the agent. Except, that every
must prevail, that the agent can agent is presumed to be
only pursue acts of administration. granted with authority to
bind the principal for acts of
Note:
administration.
 A person dealing with an
Q: How such 3rd party shall be
agent is put upon inquiry and
deemed to have acted with due
must discover upon his peril
diligence?
the authority of the agent.
 Every person dealing with an A: The 3rd party should
agent is duty bound to
 Demand a written authority
determine the extent of such
coming from the principal;
agent’s authority.
otherwise, it would be
 Thus, a 3rd party is bound to
grossly and inexcusably
exercise due diligence in
negligent for such 3rd party
determining the extent of
to enter into a contract with
authority of the agent to
such agent “without a
bind his principal.
written authorization from
 A 3rd party who does not
his alleged principal”
exercise the modicum of
diligence is deemed not to be Note: The power of attorney be in
dealing in good faith and he writing is to be more critical to the
cannot enforce the contract constitution of a special power of
against the principal who has
attorney, but it is not critical in a
general powers of attorney.
Thus – when what was constituted
was general power of attorney, it
covers only acts of administration.
On the other hand, when what was
constituted was an oral power
special power of attorney, then
lacking the written evidence if
what particular power of
ownership has been granted to the
agent, the 3rd party may only
reasonably presume that the agent
is granted powers of
administration.
Thus, Article 1878 of the NCC
provides that a special power of
attorney is necessary to confer
power in the agency that would
constitute acts of ownership; ideally
the agency contract must be in
writing
When, a special power of attorney,
or the conferment of powers to the
agent to execute acts of strict every authority to pursue the
ownership on behalf of the resulting contract (if he ratifies the
principal, is done orally, the agency same) and the 3rd party – would be
relationship is valid between the estopped from refusing to comply
principal and the agent, but not to with a contract he willingly entered
the 3rd party, the latter must require into absent the written authority of
written evidence of his power to the agent.
execute acts of strict ownership,
Q: How do the courts interpret the
otherwise, they are bound to enter
written contract of agency?
into a contract at their own risk.
A: It must be interpreted in
Article 1878 does not state that the
accordance with the language used
special power of attorney be in
by the parties. The real intention of
writing; but the same must be duly
the parties is primarily to be
established by evidence other than
determined form the language
self – serving assertion of the party
used. The intention is to be
claiming that such authority was
gathered from the whole
verbally given him. The Rules of
instrument. If there is doubt as to
Court requires for attorneys to
the interpretation of the contract,
compromise the litigation of their
resort would be interpreted as the
client a “special power of authority”
regards to the situation,
- Jurisprudence.
surroundings and relations of the
A verbal special power of attorney parties.
would not be void, but rather
unenforceable for the principal has
Note: Jurisprudence holds that in a
power of attorney where the
intention of the principal is only to
confer powers of administration, it
would be dangerous to use words
that have always been associated
with powers of strict dominion,
such as
 To sell
 To purchase
 To borrow
 To mortgage
The current rule is that whether
what is granted is an authority to
merely general power of attorney
or special power of attorney is not
determined from the title given to
the instrument, but on the nature
of the power given under the
operative provisions of such
instrument. Thus, when what is
granted to the agent is entitled a
general power of attorney or a
special power of attorney, the rule
of strict construction still prevails –
Jurisprudence.
Q: What is a “Power of Attorney?”
A: it is an instrument in writing by
which one person, as principal,
appoints another as his agent and
confers upon him the authority to
perform certain specified acts or
kinds of acts on behalf of the
principal.
The written authorization itself is
the power of attorney and it usually
called as “letter of attorney”
Note: It is practically reiterated the
principle that the only reliable
manner by which to prove the
existence of a special power of
attorney is through a written
instrument signed by the principal.
The court unequivocaby declared
that the requirement under Article
1878 refers to the nature of the
authorization and not to its form.
Be that as it may, the authority
must be duly established by
competent and convincing
evidence other than the self –
serving assertion of the party
claiming that such authority was
verbally given.
Article 1878 – Special Powers of
Attorney are necessary in the
following cases:
 To make such payment as
are not usually considered
as acts of administration.
 To effect novations which
put an end to obligations
already in existence at the
time the agency was
constituted.
 To compromise, to submit
questions to arbitrations, to
renounce the right to appeal
from judgement, to waive
objections to the avenue of
an action or to abandon a
 prescription already
acquired.
 To waive any obligation
gratuitously.
 To enter into any contract
by which the ownership of
an immovable is transmitted
or acquired either
gratuitously or for a valuable
consideration
 To make gifts, except
customary ones for charity
or those made to employees
in the business managed by
the agent
 To loan or borrow money,
unless the latter act be
urgent and indispensable for
the preservation of the
things which are to under
administration
 To bind the principal to
render some service without
compensation
 To bind principal in a
contract of partnership
 To obligation the principal as
guarantor or surety.
 To create or convey real
rights over immovable
property
 To accept or repudiate an
inheritance
 To ratify or recognize
obligations contracted
before the agency
 Any other act of strict
dominion
Article 1879 – a special power to
sell excludes the power to
mortgage; and a special power to
mortgage does not include the
power to sell.
Article 1880 – a special power to
compromise does not authorize
submission to arbitration.
Note:
Article 1878 of the NCC enumerates
14 instances which described as
“acts of strict dominion” and which
cannot be deemed to be within the
scope of authority of the agent
unless expressly granted.
The 15 case enumerated in Article
1878 actually cover the general
rule: A duly appointed agent has no
power to exercise on behalf of the
principal any act of strict dominion
unless it is under a special power of
attorney.
Failure to meet the requirement
that it be in writing through a
special power of attorney would
make the situation NOT VOID BUT
MERELY UNENFORCEABLE since the
principal may ratify the same.
What makes an agency a “special
power of Attorney”
An agent has special power of
attorney only when the act or
contract enumerated specifically
under Article 1878 has been literally
“named” in the grant of commission
by the principal must literally be
written or expressed for the
commission to constitute a special
power of attorney.
Note: A general power of attorney
may include a special power if such
special power is mentioned in the
general power.
Q: Does the grant of special power
to sell include the power to
mortgage, and vice versa?
A: No, under Article 1879, “A special
power to sell excludes the power to
mortgage, and a special power to
mortgage does not include the
power to sell.
It should be noted however that
Jurisprudence provides that the sale
proscribed (prohibited) under
Article 1879 refer to a voluntary
sale affected through the agent, it
does not cover the public sale that
happens as part of the foreclosure
on the mortgage duly constituted.
Note: Sale of A Piece of Land
Through an Agent
Article 1874, when a sale of a piece
of land or any interest therein is
through an agent, the authority of
the latter shall be in writing;
otherwise, the sale shall be void.
(whether the sale is gratuitously or
for a valuable consideration)
Q: Does Article 1874 Cover Agency
to Purchase Land or any interest
therein?
A: No, jurisprudence holds that the
coverage of Article 1874 refers only
to agency to sell or dispose of
immovable whereas the language of
Article 1878 (5) covers a special
power to attorney refers to
“transmit or acquire” ownership of
immovable.
Q: Is an oral contract of agency to
sell a parcel of land itself void?
A: No, for essentially every contract
of agency is consensual in
character, even those special power
of attorney covered by Article 1878,
which need only be formally
expressed or “named” by the
principle for the powers to arise,
and can never be presumed from
the fact of appointment of the
agent, or from the nature of the
business assigned under powers of
administration.
Q: Is sale of a piece of land
pursuant to an Oral Special Power
to sell void or unenforceable?
A: recent decisions of the SC convey
clear implication that a special
power of attorney required under
Article 1878 in the conveyance of
immovable property must be that
which is writing as mandated under
Article 1874 for the sale of a piece
of land.
A special power of attorney is
necessary to enter into any contract
by which the ownership of an
immovable is transmitted or
acquired for a valuable
consideration, without an authority
in writing, it could not validly sell
the subject property and hence
void.
Article 1898 – If the agent contracts
in the name of the principal,
exceeding the scope of his
authority, and the principal does
not ratify the contract, it shall be
void if the party with whom the
agent contracted is aware of the
limits of the powers granted by the
principal. In this case, however, the
agent is liable if he undertook to
secure the principal’s ratification.
Article 1901 – A 3rd person cannot
set up the fact that the agent has
exceeded his powers, if the
principal has ratified or has
signified his willingness to ratify
the same.
Q: How Detailed must be the
special power of Attorney?
A: other than the requirement be in
writing, no other formality is
required for the special power of
attorney under Article 1874. Thus,
specific description of the land to be
sold is not necessary
Jurisprudence
Note: an agent cannot validly
purchase the property of the
principal held for sale even when
the agent has been granted a
special power of attorney to sell a
pieice of land or any interest in it,
such power does not include by
implication the power to sell to
himself, unless there was such
prior authorization given by the
principal.
Q: What are the
consequences/implications of “To
lease Real Property for more than 1
year” by the agent.
A:
 The lease of real property for
more than 1 year is an act of
strict ownership since a lease
of more than 1 year creates a
right in rem. Thus, a special
– power attorney is needed.
 The lease of real property for
1 year or less would be
considered an act of
administration and may be in
the form of general power of
attorney.
Q: What is the Doctrine of Implied
Powers flowing from express
powers?
A: the rule on the Doctrine of
Implied powers provides that even
when the rule on special power of
attorney is that in any of the cases
covered within the first 14
paragraphs of Article 1878 are
deemed to have been granted to
the agent ONLY when so “named”
or “expressly granted” by the
principal, there is still applicable the
doctrine of “implied powers” – that
the grant of express powers or
special powers of attorney must
necessarily include all power
implied or incidental to such
express power, even if they
amount to acts of ownership or
strict dominion.
Example: an agent granted under a
power of attorney the authority to
deal with property which the
principal might or could have done powers of administration other than
if personally present, is deemed those that are incidental to those
authorized to engage the services of specifically granted.
a lawyer to preserve the ownership
Thus, it covered the principle that
and possess of the properties of the
when an agent has been granted an
principal.
express power of attorney, then the
Special Power of Attorney Excludes agent cannot execute any other act,
General Power of Attorney over whether it be an act of
the Matter Covered administration, or an act of
ownership outside the language of
Article 1926 – A general power of
the power of attorney.
attorney is revoked by a special
one granted to another agent, as
regards the special matter involved
in the latter.
Q: Does the grant of specific power
of attorney (whether general or
special) exclude from the agent the
power to execute all other acts of
administration?
A: Yes, under the principle that if
the principal decide to detail the
powers he grants to the agent, then
he means to exclude all other