Kinds and Scope of Agency

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What constitutes a 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]

Power to sell excludes power to mortgage – 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]

Power to compromise authority to submit to arbitration – A special power to compromise does not authorize submission to arbitration.[7]

Agent to act within scope of authority; Ultra vires – The agent is required to act within the scope of his authority.[8] If the agent acts outside the scope of his power, his acts are ultra vires[9] resulting in their nullity and they cannot be given any effect.[10]

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.

Same; 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.[11] 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.[12]

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.[13] Conversely, the third person does not have any right of action against the principal.[14] 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.[15]

[1] CIVIL CODE. 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.

[8] Ibid. Article 1881.

[9] Ultra vires meansacting outside the scope of one’s authority.

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

[11] CIVIL CODE. Article 1881.

[12] Ibid. Paragraph 1, Article 1883.

[13] Ibid.

[14] Ibid.

[15] Ibid.

©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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