OBLIGATIONS OF AN AGENT

ARTS 1889-1900, NCC

ARTICLE 1889

The agent shall be liable for damages if, there being a conflict
between his interests and those of the principal, he should prefer his
own
 Rule:
Agents obligation not to prefer his own interests to those of the
principal

Reason:
He is not permitted without the knowledge and consent of the
principal, nor to assume two distinct and opposite characters in the
same transaction, i.e. acting for himself and pretending to act for his
principal
He is likewise prohibited from dealing in the agency matter on his own
account and for his own behalf without the consent of his principal
 Basis
To shut the door against temptation and keep the agents eye single
to the rights and welfare of his principal
WHERE THE AGENTS INTERESTS ARE SUPERIOR

He may protect this interest even if in doing so he disobeys the principals orders
or injures his interest
If the conflict resulted from his breach of a duty owed to the principal, the agent
cannot prefer his own interest
ARTICLE 1890

If the agent has been empowered to borrow money, he may himself

be the lender at the current rate of interest. If he has been authorized
to lend money at interest, he cannot borrow it without the consent of
the principal
 Rule
Obligation not to loan to himself

Reason:
This may bring conflict of interest
The transaction may be prejudicial to the principal
ARTICLE 1891

Every agent is bound to render an account of his transactions and to

deliver to the principal whatever he may have received by virtue of
the agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render
an account shall be void.
ARTICLE 1892

The Agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
1) When he was not given the power to appoint one;
2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent
or insolvent.
All acts of the substitute appointed against the prohibition shall be void.
 Rule:
Agent may appoint a sub-agent

Reason:
Convenience and practical utility
 Exceptions:
When prohibited by the principal
When the work entrusted to the agent to carry out requires special
knowledge, skill, or competence
Exception: When so authorized by the principal
WHEN AGENT IS RESPONSIBLE FOR THE ACT OF THE
SUBSTITUTE

He is not given the power to appoint

He was given such power but without designating the person, and the person
appointed was notoriously incompetent or insolvent

Reason:
This is an abuse by the agent of the principals confidence
SUB-AGENT

Person employed or appointed by an agent as his agent, to assist him in the

performance of an act for the principal which the agent has been empowered to
perform
EFFECTS OF SUBSTITUTION

Substitution Substitution Substitution

authorized by prohibited by neither authorized
principal principal nor prohibited by
principal
As to relations of There exists fiduciary The principal and There exists fiduciary
principal, agent, and relationship: sub-agent are relationship when
sub-agent Principal-Agent, strangers to each sub-agent is in actual
Agent-Sub-agent; and other control of business
Principal-sub-agent and the principal
knows of his
appointment or
knows that his
appointment is
necessary
EFFECTS OF SUBSTITUTION

Substitution Substitution Substitution

authorized by prohibited by neither
principal principal authorized nor
prohibited by
principal
As to effect of Death of the agent Regardless of Death of agent
death of agent on does not affect death of agent, the terminates
sub-agents authority sub-agent has no authority
authority authority
As to acts of sub- Valid except when Acts of the Valid except when
agent representing sub-agent acted substitute shall be sub-agent acted
principal beyond the scope void beyond the scope
of authority of authority
EFFECTS OF SUBSTITUTION

Substitution Substitution Substitution

authorized by prohibited by neither
principal principal authorized nor
prohibited by
principal
As to responsibility Agent is released Agent is Agent is
of agent to acts of from responsibility responsible for the responsible for the
sub-agent acts of the sub- acts of the sub-
agent agent
ILLUSTRATION
Umalis si boss.
Ikaw muna Suuure
Ikaw na
bahala, bes. Kbye !
bahala..

Boss In-charge

X Y Z
ILLUSTRATION

Is X responsible for damages caused by Z?

Is the substitution valid?

Are the acts of Z in the name of X valid?

ARTICLE 1893

In the cases mentioned in Nos. 1 and 2 of the preceding article, the

principal may furthermore bring an action against the substitute with
respect to the obligations which the latter has contracted under the
substitution
ILLUSTRATION
Oo naman!
Nagpapa-rent po *explains house
ba kayo? *shows rules*
cash*
In-charge

Y Boarder Z
s
ILLUSTRATION

Can X bring an action against Z?

ARTICLE 1894

The responsibility of two or more agents, even though they have

been appointed simultaneously, is not solidary, if solidarity has not
been expressly stipulated
 Rule:
Responsibility of two or more agents is joint

Exception:
When solidarity had been expressly stipulated
ARTICLE 1895

If solidarity has been agreed upon, each of the agents is responsible

for the non-fulfilment of the agency, and for the fault or negligence of
his fellow agents, except in the latter case when the fellow agents
acted beyond the scope of their authority
ILLUSTRATIONS
I hereby
appoint the
both of you Hala!
to manage Nawala ko
my yung
business. P100,000!
Copy that,
boss!
Boss In- In-
charge charge

X Y Z
ILLUSTRATIONS

X appointed Y and Z to manage his business. If because of Y's negligence the

store incurred P100,000 loss, is Z liable for damages?

In the above if solidarity was agreed upon what then?

ILLUSTRATIONS

Hindi na siguro
mapapansin ni
EARLIER THAT DAY boss kung kumuha
ako ng P200,000
*evil laugh*
In-
charge

Y
ILLUSTRATIONS

If solidarity was agreed upon but it was found out that the reason the store
incurred P100,000 loss was because Y pocketed P200,000 what then?
ARTICLE 1896

The agent owes interest on the sums he has applied to his own
usefrom the day on which he did so, and on those which he still owes
after the extinguishment of the agency.
LIABILITY OF THE AGENT FOR INTEREST

Rule: The agent owes interest on

The funds of the principal converted to his personal use by way of compensation or
indemnity without prejudice to a criminal action that may be brought against him
Reckoning period: From the day he did so
The sums owed after the extinguishment of the agency

Demand not essential for delay

Reason:
The agent is bound to deliver to the principal whatever he may have received by virtue of the
agency
ARTICLE 1897

The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the
limits of his authority without giving such party sufficient notice of his
powers
LIABILITY OF AGENT TO THIRD PERSONS

Rule:
There is no liability on the part of the agent who acted as such to the third party
contracted with.

Exceptions:
Express binding
If the agent exceeds the limit of his authority
Exception:
If the third party was given sufficient notice
 Authorized Unauthorized
On the contract Not liable to third Liable for damages
persons as principal
Tort Cases (those Agent liable to third Agent liable to third
which infringes the persons persons
right of third persons)
ILLUSTRATION

Insert animation here

THIRD PARTYS LIABILITIES TO THE AGENT

Rule:
The third partys liability on the agents contracts is to the principal

Exceptions:
Where the agent contracts in his own name for an undisclosed principal
Where the agent possesses a beneficial interest in the subject matter of the agency
Where the agent pays money of his principal by mistake or under a contract which
subsequently proves to be illegal, the same being ignorant of its nature
Where the third party commits a tort against the agent
ARTICLE 1898

If the agent contracts in the name of the principal, exceeding the

scope of his authority, and the principal does not ratify the contract. It
shall be void of the party with whom the agent contracted is aware of
the limits of the powers granted by the principal. In this case,
however, the agent is liable if he undertook to secure the principals
ratification
Agent acts in the Agent acts in Agent acts in
name of the excess of authority excess of authority
principal and and third person is and third person is
within scope of not aware of limits aware of limits
authority
Agent has no liability Agent is personally Agent is not liable for
liable damages

Exception: Exception:
Subsequent The agent undertook
ratification by the to secure principals
principal ratification and failed
Contract is valid The contract is The contract is void
unenforceable
against the principal
ILLUSTRATION

Insert animation here

ARTICLE 1899

If a duly authorized agent acts in accordance with the orders of the

principal, the latter cannot set up the ignorance of the agent as to
circumstances whereof he himself was, or ought to have been,
aware.
EFFECT OF IGNORANCE OF AGENT

Rule:
The principal should be bound by the acts of the agent

Reason:
If the principal appoints an agent who is ignorant, the fault is his alone
ARTICLE 1900

So far as third persons are concerned, an act is deemed to have been

performed within the scope of the agents authority, if such act is
within the terms of the power of attorney, as written, even if the agent
has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.
THOSE APPARENTLY OR IMPLIEDLY DELEGATED/AUTHORITY
NOT IN WRITING

Third person must establish:

Fact of agency
Nature and extent of authority of agent

Third person must act with ordinary prudence and reasonable diligence
Example:
P principal appointed A agent to sell 1 unit of townhouse owned by P, but A is dealing 2 units to X a third
person instead of only 1 unit, and X has good reason to believe that A is not authorized to sell 2 units and still
went ahead with the transaction with A, in the absence of the principals ratification of As action, X cannot
claim protection.
Refuse to deal with the agent
Ascertain from the principal the true condition of his affairs.
THOSE APPARENTLY OR IMPLIEDLY DELEGATED/AUTHORITY
NOT IN WRITING

The fact that one is dealing with an agent, whether the agency be general or special,
should be a danger signal

The authority or extent of authority of an agent cannot be established by his own

representations out of court
ILLUSTRATION

ELECTRIC PLANTS FOR

SALE
Ill buy one!
Ill give you
*gives cash*
10% for any
plant you
could sell DEAL!
Custome
r

P A B
ILLUSTRATION

Is the payment to A binding to P?

ACTUAL AUTHORIZATION CONFERRED/AUTHORITY IN
WRITING

If the authority is in writing, a third person is not required to inquire further than the terms
of the written power of attorney
Example:
P gave A a written power of attorney wherein A is authorized to sell Ps factory for such price and upon such
terms and conditions as A may deem reasonable, However, P and A had an understanding that A should sell
the factory for not less than P5 million and for cash. A sold the factory to B on credit for P4.5 million.
Under Article1900, P is bound. As far as B is concerned, A acted within the scope of his authority. Here, A has
the power to make the sale binding on P even though as between them, A has no authority to make such sale.
METHODS OF BROADENING AND RESTRICTING AGENTS
AUTHORITY

A principal may assume rights and incur liabilities in respect of his agents acts or
transactions other those for which express authorization has been given and an agents
authority may be enlarged or restricted in a number of ways:
By implication
this means that the agents authority extends not only to the express requests, but also to those acts and
transactions incidental thereto. It embraces all the necessary and appropriate means to accomplish the
desired end.
By usage and Custom
They may enlarge as well as restrict the scope of agents authority
HOW RESTRICTED

Where it is sought to vary the terms and express authorization

To dispense with a legal requirement
Where it is sought to change a rule of law
Where it is sought to vary an essential quality of the agency relationship
HOW ENLARGED

Where principal and agent reside in the same community

Where the agent is authorized to deal in a particular place , market or
exchange
By necessity
Emergency really exists
Agent is unable to communicate with the principal
Enlarged authority is exercised for the principals protection
Means adopted are reasonable under the circumstances
By certain doctrines
Apparent authority
Liability of setoppel
Ratification
By rule of ejusdem generis
RESPONSIBILITY OF PRINCIPAL WHERE AGENT ACTED WITH
IMPROPER MOTIVES

Rule:
The motive of the agent in entering into a contract with a third person is immaterial

Exceptions:
Where the third person knew that the agent was acting for his private benefit
Where the owner is seeking recovery of personal property of which he has been unlawfully deprived
ILLUSTRATION
(WHERE THE THIRD PERSON KNEW THAT THE AGENT WAS ACTING FOR HIS
PRIVATE BENEFIT)

A, who had authority to draw checks on Ps account on Ps affairs, bought a car for
his own use from T, giving in payment a check drawn on Ps account and signed
by himself as agent.

To sign and deliver checks in payment of his debts was not within the authority of
A as agent acting in the affairs of P, and T had notice by the check itself that A
was dealing for his own private benefit with the money of his principal.
ILLUSTRATION
(WHERE THE OWNER IS SEEKING RECOVERY OF PERSONAL PROPERTY OF WHICH HE HAS
BEEN UNLAWFULLY DEPRIVED)

Where an agent entrusted with a diamond ring for sale to a named party, had in
fact a preconceived design to steal it and convert the proceeds, and did in fact
pledge it for his own debt, the principal is entitled to recover the ring.
PRINCIPALS RESPONSIBILITY FOR AGENTS
MISREPRESENTATION

Within the scope of agents authority

A principal is subject to liability for loss caused to another by the others reliance upon a deceitful
representation of an agent in the course of his employment if the representation is authorized, or
within the implied authority of the agent to make for the principal, or apparently authorized,
whether the agent was authorized by him or not to make the representation.

Beyond the scope of agents authority

The principal is not bound by the misrepresentation of his agent committed beyond the scope of his
authority.
PRINCIPALS RESPONSIBILITY FOR AGENTS
MISREPRESENTATION

For the agents own benefit

The weight of authority holds the principal liable. Given the agents fraudulent act within the scope
of the authority, the principal is subjected to liability though done by the agent solely to effect a
fraudulent design for his own benefit.
ILLUSTRATION
(WITHIN THE SCOPE OF AGENTS AUTHORITY)

P (company) employed A to solicit and receive subscriptions for stock. T brought an action
for tort for misrepresentation made by A in the sale of stock. P claims that there was no
proof that it had authorized A to make the alleged misrepresentation and had no
knowledge that they had been made.

To give such facts was necessarily incumbent on A and was strictly in line of his duties,
and, therefore, P is responsible for any misrepresentation in an action for fraud and deceit.
ILLUSTRATION
(BEYOND THE SCOPE OF AGENTS AUTHORITY)

P employed A to sell a horse but expressly forbade A to warrant the horse sound. T,
induced by the warranty of A, paid twice the price he would have paid for an unsound
horse. Having discovered the horse to be unsound, T sought rescission of the sale.

The contract is obtained by means of a false representation made by A, because A had no

authority.
ILLUSTRATION
(FOR THE AGENTS OWN BENEFIT)

A principal has often been held liable on contracts entered into by his agent from improper
motives, or violations by the agent of his fiduciary duty, as where an agent with a general
power of attorney to issue checks, issues checks for his own benefit.