ART 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 of the principal shall be void.
(1721)

Sub-agent
- A 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.

Kahit sabihin nya na the substitution is without her knowledge and authority, it is still
valid. There are 2 ways to have a valid and binding substitution.

When substitution valid:

1. If the agent was given the power to appoint by the principal
2. If the agent was not given the power to appoint but there’s also no prohibition

Dahil wala naman syang prohibition, the law recognizes the validity of the substitution if
the same is beneficial to the principal because the agency has thus been executed in
fulfillment of its object. (if otherwise:)

Effect of substitution
1. Substitution not authorized, not prohibited
o If substitution occasioned damage
 Agent primarily responsible for the acts of the sub as if he himself
executed them
2. When prohibited
o When agent appoints a sub-agent against the prohibition of the principal,
he exceeds his authority and all acts of the substitute shall be void
3. When authorized (agent is given the power to appoint a substitute)
o Principal designated a substitute
 Consequence is absolute exemption of the agent
o Principal did not designate any particular person to be appointed
 The substitution has the effect of releasing the agent form his
responsibility
 XPN: person the agent appointed is notoriously
incompetent or insolvent
- Principal may proceed against both the agent and the
sub for damages
 If agent and sub both act within the scope of their authority
 Neither any of them will be held personally liable

Aside from damages, the principal may furthermore bring an action against the substitute
under Article 1893:
Art. 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.

- This right of action against the sub is an exemption to the general rule that
contracts are binding only between the contracting parties, their assigns, and
heirs.

Effect of death of Agent

- Authority proceeds from principal
o Death of agent does not affect his authority
- But where sub-agent is a substitute for the agent and acts under authority from
him and to whom he is accountable
o Death of agent terminates the authority even though the power of
substitution is given in the original power.

Since nabanggit ko na rin ang about sa sub-agent, let me just add about Articles 1894-
1895 regarding responsibility if there are two or more agents.

Art. 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. (1723)

Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the
non-fulfillment of 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. (n)

Under this articles, if there is no stipulation as to the liability of the agents, the
presumption is a joint obligation.

On the other hand, if solidarity is agreed upon, each of the agents becomes solidarily
liable:
1. For the nonfulfillment of the agency
o Even though fellow agents acted within the scope of their authority
2. For the fault or negligence of his fellow agents
o Except: fellow agents acted beyond the scope of their authority
 Agent who exceeds his powers does not act as such, solidary
liability cannot be demanded

ADDITIONAL POINTERS

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. (n)

Reason
- Agency being a fiduciary relation, the agent is required to observe utmost good
faith and loyalty to the principal. He must look after the principal’s interests as if
they were his own.
o Principal may waive the benefit of the rule so far as he is concerned, if he
does so with full knowledge of the fact
  Case sample:
P authorized A to buy specific goods. A must not sell P goods
belonging to him. Such sale is voidable unless P ratifies the sale. The
reason is that A’s obligation to P requires him to buy at the lowest
price while his self-interest prompts him to sell at the highest price
obtainable. Their interests are conflicting.

Basis
- To shut door against temptation and keep the agent’s eye single to the rights and
welfare of his principal.

Exception (agent’s interest is superior)

Example: where he has a security interest in goods of the principal in his possession
- He may protect this interest even if in doing so he disobeys the principal’s orders
or injures his interest.

Art. 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. (1725)

When agent personally liable

1. When he expressly binds himself
o He thereby obligates himself personally and by his own act.
2. When he exceeds his authority
o He really acts without authority therefore the contract is unenforceable
against the principal unless the latter ratifies it (Art 1910)
 Agent personally liable because by his wrongful omission he
deprives the third party with whom he contracts of any remedy
against the principal
 XPN: if agent has sufficient notice of his powers to third
persons dealing with him and such person nevertheless
contracts, neither the principal nor the agent is bound.
o In case agent denies liability
 Authority must be proved by the principal or thee third person If
he wants to hold the agent personally liable
3. When agent by his acts prevents performance on the part of the principal
o Liable to third persons because as agent he is precluded from doing any
positive act that could prevent performance on the part of his principal. He
is obviously not permitted to intercept and appropriate the thing which
the principal is bound to deliver.
4. When a person acts as an agent without authority or without principal
o He himself is regarded as principal possessed of all the rights and subject
to all liabilities of a principal
o A person who contracts as the representative of a non-existent principal is
the real party to the contract (e.g. proposed corporation or an
unincorporated association)
5. Person who purports to act as an agent of an incapacitated principal
o Incurs personal liability
 XPN: third party was aware of the incapacity at the time of making
the contract.
Liability of Third Persons toward Agent

GR: Liability on agent’s contracts is to the principal not to the agent because such
contracts are not his own but his principal’s

XPN:
1. Agent contracts in his own name for an undisclosed principal
o Agent may sue third party to enforce contract
2. Agent possesses a beneficial interest in the subject matter of the agency
o A factor selling under a del credere commission (Art 1907) or an auctioneer
by virtue of his lien would illustrate such an agent
3. Agent pays money of his principal to a third party by mistake or under a contract
which proves subsequently to be illegal (agent being ignorant with respect to such
illegal nature)
4. Third party commits tort against the agent
o Agent may sue for a tort committed against him even though the alleged
tortious act is also a wrong against the principal. The same way an agent
cannot use as defense the agency to an action based on a tort committed
by him.

Art. 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 if 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
principal's ratification. (n)

Effect where third person aware of limits of agent’s powers

1. Agent acts in the name of the principal and within the scope of his authority
o Agent assumes no liability
o Effect of the representation is to bind the principal as though he personally
entered into the contract
2. Agent acts in excess of his authority, even in the name of the principal
o Agent is the one personally liable unless ratified by principal subsequently
3. Liability of an agent who exceeds the scope of his authority depends upon
whether the third person is aware of the limits of the agent’s power
o Notice was given of the agent’s powers to the person with whom he
contracted
 Agent not bound nor liable for damages
o Agent promised to undertook to secure principal’s ratification and failed
 Personally liable
o Ratification obtained
 Principal becomes liable

Art. 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. (n)

Effect of ignorance of agent

- If principal appoints an agent who is ignorant, the fault is his alone. Equity
demands that the principal should be bound by the acts of his agent. Principal
cannot set up ignorance of the agent.