On transacting with agents and other authorized persons

I n a long line of cases, the Supreme Court consistently held that persons dealing with an agent must ascertain not only the fact of agency, but also the nature and extent of his authority. While this principle must be complied with since it is deemed written into law, it also serves as practical advice, particularly for persons intending to buy and sell properties through their representatives.

In order to authorize another to buy or sell properties on your behalf, you usually execute a contract of agency or issue a special power of attorney (SPA) in his favor.

Agency refers to a contract in which a person (the agent), binds himself to render some service or to do something in representation or on behalf of another (the principal), with the latter’s consent or authority.

It is well-settled jurisprudence that agency is based on representation. In this regard, the Supreme Court declared that the agent acts for and on behalf of the principal on matters within the scope of his authority. Moreover, the agent’s acts have the same legal effect as if they were personally executed by the principal.

Thus, as a general rule, an agent who acts within the scope of his authority may not be held personally liable to the third party with whom he contracts.

Like most contracts, agency is consensual—that is, the principal intends to appoint the agent, while the latter intends to accept the appointment and act on it. Consent to create an agency relationship may either be express or implied from the acts, silence, or inaction of the principal and agent.

While agency may be oral, the Civil Code requires that it be in written form in certain situations. For instance, the authority of the agent to sell land or any interest therein must be in writing. Otherwise, the sale shall be considered void.

Meanwhile, an SPA, which specifies the acts that an agent is authorized to perform and is necessary to, among others: enter into any contract by which the ownership of an immovable is transmitted or acquired gratuitously or for a valuable consideration; lease any real property to another person for more than one year; create or convey real rights over immovable property; and perform any other act of strict dominion.

Furthermore, should the principal so intend, an SPA must specify that the agent is authorized to sell and mortgage the property. This is because the special power to sell excludes the power to mortgage, while the special power to mortgage excludes the power to sell.

Notably, the Civil Code does not require that the SPA be in writing. Nevertheless, as held by the Supreme Court, the SPA must be duly established by evidence other than the self-serving assertion of the purported agent that such authority was given to him, more so a notarized SPA, which carries with it the presumption of due execution.

Unlike the agent’s authority to sell land or any interest therein, failure to execute an SPA in any of the enumerated transactions will merely render them unenforceable.

Thus, under the Civil Code, contracts entered into the name of another by a person who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable—that is, they remain valid, but cannot be enforced by the third parties. The supposed principal, however, may expressly or impliedly ratify the transaction before it is revoked by the contracting party.

Moreover, a general power of attorney, and not an SPA, is instead executed if it failed to enumerate any of the mentioned acts, or is otherwise couched in general terms.

Unlike in an SPA, a general power of attorney merely covers acts of administration, which refer to acts performed in the course of business.

A general power of attorney exists even when it should state that: the principal does not withhold any power from the agent; the agent may execute acts he deems appropriate; or the agent is authorized to perform general and unlimited management.

Whether general or special, powers of attorney are generally construed strictly. Thus, courts will not infer or presume broad powers from these documents, which do not include the property or subject the agent is authorized to act upon.