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
As to relations of
principal, agent, and
sub-agent
Substitution
authorized by
principal
Substitution
prohibited by
principal
Substitution
neither authorized
nor prohibited by
principal
There exists fiduciary
relationship:
Principal-Agent,
Agent-Sub-agent; and
Principal-sub-agent
The principal and
sub-agent are
strangers to each
other
There exists fiduciary
relationship when
sub-agent is in actual
control of business
and the principal
knows of his
appointment or
knows that his
appointment is
necessary
EFFECTS OF SUBSTITUTION
Substitution
authorized by
principal
Substitution
prohibited by
principal
Substitution
neither
authorized nor
prohibited by
principal
As to effect of
death of agent on
sub-agents
authority
Death of the agent
does not affect
authority
Regardless of
death of agent, the
sub-agent has no
authority
Death of agent
terminates
authority
As to acts of subagent representing
principal
Valid except when
sub-agent acted
beyond the scope
of authority
Acts of the
substitute shall be
void
Valid except when
sub-agent acted
beyond the scope
of authority
EFFECTS OF SUBSTITUTION
As to responsibility
of agent to acts of
sub-agent
Substitution
authorized by
principal
Substitution
prohibited by
principal
Substitution
neither
authorized nor
prohibited by
principal
Agent is released
from responsibility
Agent is
responsible for the
acts of the subagent
Agent is
responsible for the
acts of the subagent
ILLUSTRATION
Ikaw muna
bahala, bes.
Umalis si boss.
Ikaw na
Kbye
bahala..
Boss
In-charge
Suuure
!
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
Nagpapa-rent po
ba kayo? *shows
cash*
Oo naman!
*explains house
rules*
In-charge
Boarder
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
to manage
my
business.
Hala!
Nawala ko
yung
P100,000!
Copy that,
boss!
Boss
Incharge
Incharge
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
boss kung kumuha
ako ng P200,000
*evil laugh*
EARLIER THAT DAY
Incharge
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
On the contract
Authorized
Unauthorized
Not liable to third
persons
Liable for damages
as principal
Tort Cases (those
Agent liable to third
which infringes the
persons
right of third persons)
Agent liable to 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
name of the
principal and
within scope of
authority
Agent acts in
excess of authority
and third person is
not aware of limits
Agent acts in
excess of authority
and third person is
aware of limits
Agent has no liability
Agent is personally
liable
Agent is not liable for
damages
Exception:
Subsequent
ratification by the
principal
Exception:
The agent undertook
to secure principals
ratification and failed
The contract is
unenforceable
against the principal
The contract is void
Contract is valid
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 give you
10% for any
plant you
could sell
Ill buy one!
*gives cash*
DEAL!
Custome
r
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.
