Concept of Agency

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What constitutes an agency – In a contract of agency, “a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.”[1]

Same; Essential elements – The essential elements of an agency are: (1) that there is consent, whether express or implied, of the parties to establish a relationship of agency; (2) that the object is the execution of a juridical act in relation to a third person; (3) that the agent acts as a representative and not for himself; and (4) that the agent acts within the scope of his authority.[2]

Sps. Viloria v. Continental Airlines, Inc.
G.R. No. 188288, 16 January 2012

Complainant Spouses Fernando and Lourdes Viloria initiated a complaint for sum of money with damages against defendant Continental Airlines, Inc. Prior thereto, Sps. Viloria purchased 2 roundtrip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. The tickets were bought at USD 400.00 each from a travel agency called “Holiday Travel”, with a certain Margaret Mager was representative. The spouses alleged that they bought the tickets after Mager informed them that there were no available seats at Amtrak, an intercity passenger train service provided in the U.S. Afterwards, the spouses asked to be rescheduled to an earlier date which could not be processed as Mager informed them of full bookings at Continental Airlines. After Mager presented another option of purchasing a more expensive ticket from another airline, the spouses opted to demand refund of their tickets. Refund was denied. Mr. Viloria went to an Amtrak station and made inquiries of trips which he later learned that several seats were available any time and day chosen by the spouses supposedly in direct contradiction to what Mager told them. The spouses purchased the tickets at Amtrak. After the spouses filed their complaint, defendant CAI claimed that they had no contract of agency with Holiday Travel.

HELD: Defendant CAI was not liable. It was never established that defendant CAI was the principal of Holiday Travel as all of the elements of agency are present in their contractual relations. “The first and second elements are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third persons on CAI’s behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.” Thus, estoppel bars CAI from denying the contract of agency with Holiday Travel.

However, in terms of liability, the spouses’ cause of action is anchored “on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault.” No evidence was presented to establish CAI’s alleged liability. ” Apart from their claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to Mager’s complained act either by instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.”

It may appear unjust that CAI’s consider Sps. Viloria bound by the contract (despite the fraud by Mager) and at the same time CAI disavow liability from Mager’s supposed misrepresentation. “However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort.”

Nature of agency – A contract of agency is personal, representative, and derivative.[3] “The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority.”[4]

Same; Express or implied constitution – An agency may be expressly agreed upon or implied.[5] It may be oral unless otherwise required by law to be in a specific form.[6] 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.[7]

Acceptance of agency; Express or implied – An agent may accept the agency expressly or impliedly.[8] Acceptance is implied from: (a) agent’s acts which carry out the agency, or (b) his silence or inaction according to the circumstances.[9]

Same; Between those who were present or absent – Between persons who are present in the same place, 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.[10] Between those who are absent, the acceptance of the agency cannot be implied from the silence of the agent, except: (a) when the principal transmits his power of attorney to the agent, who receives it without any objection, or (b) 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.[11]

Same; Notice via special information or public advertisement – If the principal specially informs another that the former has given a power of attorney to a third person, the latter becomes the duly authorized agent.[12] If the principal states by public advertisement that he has given a power of attorney to a third person, the latter becomes the duly authorized agent to any person or everyone.[13] In both circumstances, the power of agency continues to be in full force until the notice is rescinded in the same manner in which it was given.”[14]

Best Legal Practices

  • Publish in papers of general circulation the revocation of agency – As revocation of an agency depends on how third persons were notified, the manner previously observed in notifying a third party of the agency should be followed in the revocation as well. If a third person is given notice of the agency through a letter, another letter should be sent informing him of the revocation. The same goes for notice made by publication.
  • Publish in papers of general circulation the revocation of agency – For good measure, and even after a special notice of revocation, it is best to publish the revocation of the agency in papers of general circulation. The publishing of notices in such manner binds the whole world so to speak.

Presumed for compensation – An agency is presumed to be for a compensation, unless otherwise agreed and upon and there is such a proof.[15]

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.”

[1] CIVIL CODE. Article 1868. Unauthorized contracts are governed by Article 1317 and the principles of agency in the Civil Code (Article 1404, Civil Code).

[2] Rallos v. Felix Go Chan & Sons Realty Corporation, G.R. No. L-24332, 31 January 1978. Qui facit per alium facit se. He who acts through another acts himself.

[3] Ibid.

[4] Ibid.

[5] CIVIL CODE. Paragraph 1, Article 1869.

[6] Ibid. Paragraph 2, Article 1869.

[7] Id at 5.

[8] CIVIL CODE. Article 1870.

[9] Ibid.

[10] CIVIL CODE. Article 1871.

[11] Ibid. Article 1872.

[12] Ibid. Paragraph 1, Article 1873.

[13] Ibid.

[14] CIVIL CODE. Paragraph 2, Article 1873.

[15] Ibid. Article 1875.

©2020 BUSINESSLAW.PH. All rights reserved. Statements and opinions of the author are of his own, and does not reflect any organization he may be connected or affiliated. All information herein are for educational and general information only. The content should not be considered as a legal advice or opinion. Please consult a lawyer to address your specific concerns.
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