How to terminate a contract of agency

The contract of agency may be extinguished by the following modes:

  1. By revocation of the agency;
  2. By the withdrawal of the agent;
  3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
  4. By the dissolution of the firm or corporation which entrusted or accepted the agency;
  5. By the accomplishment of the object or purpose of the agency; or
  6. By the expiration of the period for which the agency was constituted.[1]

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Obligations of the Principal in a Contract of Agency

To be bound by obligations contracted by agent

The principal is required to comply with all the obligations which the agent may have contracted within the scope of his authority.[1] The principal cannot set up the ignorance of the agent as to circumstances whereof the principal himself was, or ought to have been, aware.[2]

Unless the principal expressly or tacitly ratifies an ultra vires act of the agent, the principal is not bound to any obligations where the agent has exceeded his powers.[3]

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Obligations of the Agent

To be liable for damages

The agent is bound by his acceptance to carry out the agency.[1] Consequently, he is liable for the damages which, through his non-performance, the principal may suffer.[2] For business that already began on the death of the principal, the agent must finish the same if delay entails any danger.[3]

Best Legal Practices:

Scope and extent of power expressly stated in written power of attorney – The agent should ensure that the scope and extent of the powers granted to him by the principal be expressly stated in the written power of attorney.

Duties and responsibilities also stipulated in written power of attorney – The agent should also ensure that the exact duties and responsibilities be stipulated in the written power of attorney.

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Ultra vires in agency

The agent is required to act within the scope of his authority.[1] If the agent acts outside the scope of his power, his acts are ultra vires[2] resulting in their nullity and they cannot be given any effect.[3]

Sargasso Construction & Development Corporation v.
Philippine Ports Authority
G.R. No. 170530, 06 July 2010

Plaintiff Sargasso Construction & Development Corporation, Pick and Shovel, Inc., and Atlantic Erectors, Inc. formed a joint venture and were subsequently awarded by defendant Philippine Ports Authority the construction of Pier 2 and the rock causeway (R.C. Pier 2) for the port in San Fernando, La Union. The construction was for the development of Northwest Luzon Growth Quadrangle. Plaintiff offered to develop a reclamation project adjacent to Pier 2 as extra work for over Php36 Million. In response, defendant’s General Manager replied that it would grant the extra work if the cost is lowered to Php30,794,230.89. Plaintiff apparently agreed as afterwards a Notice of Award was issued by the General Manager over the reclamation project. However, defendant’s board of directors did not approve the award when it was presented by the general manager. Thus, plaintiff instituted this complaint for specific performance and damages against defendant.

HELD: Defendant was not liable.  In the law on agency, “the agent must act within the scope of his authority to bind his principal. So long as the agent has authority, express or implied, the principal is bound by the acts of the agent on his behalf, whether or not the third person dealing with the agent believes that the agent has actual authority. Thus, all signatories in a contract should be clothed with authority to bind the parties they represent.” For a government contract, it is perfected “only upon approval by a competent authority, where such approval is required.”

As PPA’s corporate power flows from its board of directors, the office can only be bound with authority of the board. Plaintiff failed to present competent evidence that would establish that defendant’s general manager “possessed such actual authority delegated either by the Board of Directors, or by statutory provision. The authority of government officials to represent the government in any contract must proceed from an express provision of law or valid delegation of authority. Without such actual authority being possessed by PPA’s general manager, there could be no real consent, much less a perfected contract, to speak of.”

Best Legal Practices:

Secure board resolution from authorized representative of a corporation – When transacting with an authorized representative of a corporation or firm, secure the board resolution evidencing the authority and power granted to such person. As corporate powers are exercised by the board of directors, the proper legal document showing that the board authorized a representative is a board resolution.

Executive Committee resolution sufficient in lieu of board resolution – If an executive committee has been formed which is authorized to exercise certain powers of the board, a committee resolution will be sufficient in lieu of a board resolution as evidence of authority granted to a representative.

Secretary’s certificate sufficient for ordinary transactions – In commercial transactions, a secretary’s certificate is ordinarily considered acceptable as proof of authorization. This practice is borne out of convenience due to the difficulty of obtaining a board resolution requiring the signatures of the directors. By legal standards, a secretary’s certificate may suffer from infirmity as it is a document which simply states that the corporate secretary attests or certifies that a board resolution exists on a subject matter. If no such board resolution exists, the corporation cannot be held liable.

Obtain directors’ certificate for high level transactions – For high level transactions or those involving substantial amounts, it is best to obtain a directors’ certificate whereby all the required signatures of the directors will be reflected.

When more advantageous to principal

In acting within the scope of authority, the agent may do such acts as may be conducive to the accomplishment of the purpose other than what principal has specified.[4] Consequently, the limits of the agent’s authority are not exceeded if it has been performed in a manner more advantageous to the principal than that specified by him.[5]

When agent acts in his own name

If the agent acts in his own name, the principal has no right of action against the person with whom the agent has contracted.[6] Conversely, the third person does not have any right of action against the principal.[7] It is the agent who is directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal.[8]

Agent not personally liable by default

The agent who acts in his capacity as such is not personally liable to the party with whom he contracts unless: (a) the agent expressly binds himself; or (b) the agent exceeds the limits of his authority without giving such party sufficient notice of his powers.[9]

Best Legal Practices:

Agent to expressly declare in what capacity he/she is exercising when dealing with third party – The agent should expressly declare in what capacity, whether personal or as an agent, he/she is exercising when dealing with a third party.

When agent is not personally liable despite ultra vires

If the agent enters into a contract in the name of the principal and the agent acts in ultra vires in so doing, and the principal does not ratify such contract, it is void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal.[10] The agent is liable only if he undertook to secure the principal’s ratification.[11]


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[1] Ibid. Article 1881.

[2] Ultra vires means acting outside the scope of one’s authority.

[3] Acebedo Optical Company, Inc., v. Court of Appeals, et al., 385 Phil. 956, 978.

[4] CIVIL CODE. Article 1881.

[5] Ibid. Paragraph 1, Article 1883.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Ibid. Article 1897.

[10] Ibid. Article 1898.

[11] Ibid.

Kinds and Scope of Agency

The kinds and scope of agency depend on the terms and conditions of the agency contract.

General and special agency

An agency may be general or special.[1] A general agency comprises “all the business of the principal.”[2] A special agency comprises “one or more specific transactions.”[3]

Agency couched in general terms

If an agency is couched in general terms, it comprises only act of administration even if: (a) the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or (b) the agency should authorize a general and unlimited management.[4]

Limited powers

A special power to sell does not include the power to mortgage.[5] Conversely, a special power to mortgage does not include the power to sell.[6]

A special power to compromise does not authorize submission to arbitration.[7]


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[1] Ibid. Paragraph 1, Article 1876.

[2] Ibid. Paragraph 2, Article 1876.

[3] Ibid.

[4] Ibid. Article 1877.

[5] Ibid. Article 1879.

[6] Ibid.

[7] CIVIL CODE. Article 1880.

Agency presumed for compensation

An agency is presumed to be for a compensation, unless otherwise agreed and upon and there is such a proof.[1]

Tongko v. The Manufacturers Life Insurance Co. (Phils.), Inc.
G.R. No. 167622, 29 June 2010 (En Banc)

Complainant Gregorio V. Tongko filed a labor complaint against defendant The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) for illegal dismissal. Prior thereto, the parties entered into a contractual relationship which had two basic phases: (a) 1st Phase (started on 01 July 1977)  was under a Career Agent’s Agreement (the “Agreement”) which expressly provided, among others, that “the Agent is an independent contractor and nothing contained herein shall be construed or interpreted as creating an employer-employee relationship between the Company and the Agent”; (b) 2nd Phase (started in 1983) was when complainant was named Unit Manager in Manulife’s Sales Agency Organization, and subsequently he became Branch Manager in 1990, and afterwards Regional Sales Manager in 1996. Complainant’s gross earnings consisted of commissions, persistency income, and management overrides. Whenever complainant submitted his tax returns which are under oath, he declared that himself as self-employed from the beginning applying deductions for business expenses to arrive at his taxable business income. Hence, Manulife withheld 10% tax on complainant’s earnings.

Sometime in 2001, defendant Manulife commenced manpower development programs at the regional sales management level.  Through written notice, defendant informed complainant of the poor performance of their region bringing into question his leadership skills. A month later, defendant ended the services of complainant by sending a notice of termination of agency. Hence, complainant instituted a labor complaint against defendant. As a defense, defendant challenged the jurisdiction of the labor tribunals on the ground that no employer-employee relationship existed as the parties entered into a contract of agency.

The labor arbiter dismissed the complaint finding no employer-employee relationship. The National Labor Relations Commission (NLRC) reversed the labor and found defendant liable for illegal dismissal. The Court of Appeals (CA) overturned the NLRC and reinstated the labor arbiter’s decision. Before the Supreme Court, the high tribunal initially found the insurance company liable and ordered it to pay Tongko backwages and separation pay for illegal dismissal. The insurance company elevated the case to the en banc.

HELD: Manulife was not liable. Considering the factual antecedents were set in the insurance industry, the Insurance Code primarily governs with the Labor Code and Civil Code applying suppletorily. “The Labor Code concept of ‘control’ has to be compared and distinguished with the ‘control’ that must necessarily exist in a principal-agent relationship.  The principal cannot but also have his or her say in directing the course of the principal-agent relationship, especially in cases where the company-representative relationship in the insurance industry is an agency.”

An insurance agency contract is required to be expressly agreed upon. “Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license and for the designation by the insurance company.  In the present case, the Agreement fully serves as grant of authority to Tongko as Manulife’s insurance agent. This agreement is supplemented by the company’s agency practices and usages, duly accepted by the agent in carrying out the agency. By authority of the Insurance Code, an insurance agency is for compensation, a matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary.”

The rule requiring the agent to act in accordance with the instructions of the principal is pertinent “for purposes of the necessary control that the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude into the labor law concept of control so that minute consideration of the facts is necessary.”

Here, it must be pointed out that “the only contract or document extant and submitted as evidence in the present case is the Agreement – a pure agency agreement in the Civil Code” and by the express terms of the Agreement the parties agreed to a contract of agency. Thus, “while Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal contract regarding these undertakings appears in the records of the case.”

While not conclusive, the parties’ legal characterization of their intent is critical. The Supreme Court took judicial notice “that as a matter of Insurance Code-based business practice, an agency relationship prevails in the insurance industry for the purpose of selling insurance.  The Agreement, by its express terms, is in accordance with the Insurance Code model when it provided for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the system of compensation the Agreement provides, which likewise is in accordance with the production-based sales commissions the Insurance Code provides.” (Emphasis supplied.)

Moreover, Tongko did not adduce evidence that would establish the fact that Manulife exercised “means-and-manner control” over him as he climbed the sales ladder. “In 1983, Tongko was appointed unit manager.  Inexplicably, Tongko never bothered to present any evidence at all on what this designation meant.  This also holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales Manager in 1996. The best evidence of control – the agreement or directive relating to Tongko’s duties and responsibilities – was never introduced as part of the records of the case. The reality is, prior to de Dios’ letter, Manulife had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the agents under his wing.  As discussed below, the alleged directives covered by de Dios’ letter, heretofore quoted in full, were policy directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their own selling activities.”

It must be noted that the general law on agency “expressly allows the principal an element of control over the agent in a manner consistent with an agency relationship.  In this sense, these control measures cannot be read as indicative of labor law control.” The principal may issue directives to achieve the assigned tasks insofar as “they do not involve the means and manner of undertaking these tasks.”


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[1] Ibid. Article 1875.

Express or implied agency

An agency may be expressly agreed upon or implied.[1] It may be oral unless otherwise required by law to be in a specific form.[2] Conversely, it is implied from: (a) the acts of the principal, or (b) his silence or his failure to repudiate the agency, in both cases the principal knows that another person is acting on his behalf without his authority.[3]

An agent may accept the agency expressly or impliedly.[4] Acceptance is implied from: (a) agent’s acts which carry out the agency, or (b) his silence or inaction according to the circumstances.[5]

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