Short answer. In a contract of agency, one person acts in representation of another — binding the principal, not themselves, to third parties. An employee works for an employer but does not legally stand in the employer's place. The defining element of agency is representation with the principal's consent or authority.
What the law says
By the 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.
Civil Code, Article 1868 — Contract of Agency Defined. Read the full provision →
The statutory definition of agency
Article 1868 defines the contract of agency in a single sentence: By the 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. Three elements stand out. First, the agent commits to rendering a service or doing something. Second, that act is done in representation or on behalf of the principal — meaning the legal consequences attach to the principal, not the agent. Third, the agent must have the consent or authority of the principal to act in that capacity.
How agency differs from employment
The core difference is where the legal effect of the work lands. An employee renders services for an employer under the employer's direction and control, but the employee does not legally step into the employer's shoes when dealing with outsiders. The employee's acts are attributed to the employer through separate doctrines of vicarious liability, not through representation. An agent, by contrast, acts as the principal in dealings with third parties — contracts the agent signs bind the principal directly, as though the principal had signed them personally, within the scope of the agent's authority.
Consent or authority — and why it matters
Agency can arise from an express grant of authority — a written power of attorney or specific instruction — or it can arise from the circumstances, including prior conduct that leads a third party reasonably to believe the agent is authorized. Acting without authority or exceeding it has important consequences: the principal may not be bound, and the agent who exceeded their authority can be personally liable to the third party. Understanding whether someone is acting as an agent, and the limits of that authority, determines who the third party can sue if something goes wrong.
Practical situations where the distinction matters
If you hired someone to sell your property, negotiate a contract, or collect payments on your behalf, that person is likely your agent — and their acts within the scope of that authority bind you. If you paid someone a salary to handle your office, they may be an employee, not an agent, with different legal implications for third parties who dealt with them. The classification affects who is liable on contracts, whether obligations were validly created, and what remedies exist when authority is abused. When in doubt about how a relationship is classified under the law, the purpose of the work and the scope of the person's authority to represent you are the key facts.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Edita A. De Leon, Lara Bianca L. Sarte and Renzo Edgar L. Sarte, G.R. No. 243733, January 12, 2021 — read the decision on LawPhil →
- Dale Strickland vs. Ernst & Young LLP/Dale Strickland vs. Punongbayan & Araullo, G.R. No. 193782 / G.R. No. 210695, August 1, 2018 — read the decision on LawPhil →
- The Hongkong & Shanghai Banking Corporation, Limited vs National Steel Corporation and Citytrust Banking Corporation, G.R. No. 183486, February 24, 2016 — read the decision on LawPhil →
- Bank of the Philippine Islands and FGU Insurance Corporation vs. Yolanda Laingo, G.R. No. 205206, March 16, 2016 — read the decision on LawPhil →