Partnership, Agency, and Trust
Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)
Chapter 2
OBLIGATIONS OF THE AGENT
ART. 1884
Obligations, in general, of agent to principal
a) Good faith and loyalty to his trust, agent’s first duty
b) Obedience to principal’s instruction
c) Exercise of reasonable care
Specific obligations of agent to principal
1) To carry out the agency he has accepted.
2) To answer for damages which through his non-performance the principal may
suffer.
3) To finish the business already begun on the death of the principal should delay
entail danger.
4) To observe the diligence of a good father or a family in the custody and
preservation of the goods forwarded to him by the owner in case he declines
an agency, until an agent is appointed.
5) To advance the necessary funds should there be a stipulation to do so.
6) To act in accordance with the instructions of the principal, and in default
thereof, to do all that a good father of a family would do.
7) Not to carry out the agency if its execution would manifestly result in loss or
damage to the principal.
8) To answer for damages if there be a conflict between his interests and those of
the principal, he should prefer his own.
9) Not to loan to himself if he has been authorized to lend money at interest.
10) Not to render an account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency.
11) To distinguish goods by countermarks and designate the merchandise
respectively belonging to each principal.
12) To be responsible in certain cases for the act of the substitute appointed by
him.
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13) To pay interest on funds he has applied to his own use.
14) To inform the principal, where an authorized sale of credit has been made, of
such sale.
15) To bear the risk of collection.
16) To indemnify the principal for damages for his failure to collect the credits of
his principal at the time that they become due; and
17) To be responsible for fraud or negligence.
Obligation to carry out the agency
A person is free to refuse to be an agent but once he accepts the agency, he is bound to
carry it out in accordance with its terms in good faith and following the instructions, if
any, of the principal.
Obligation to answer for damages
Upon the agent’s failure to carry out his obligation, he is liable for the damage which
the principal may suffer.
Obligation to finish business upon principal’s death
The agent has an obligation to conclude the business already begun on the
death of the principal.
The agency shall also remain in full force even after the death of the principal
if it has been constituted in the common interest of the latter and of the agent, or in
the interest of a third person who has accepted the stipulation in his favor.
ART. 1885
Obligation of person who declines an agency
He is still bound to observe the diligence of a good father of a family (Art. 1163.)
in the custody and preservation of the goods forwarded to him by the owner. This rule
is based on equity.
The owner, however, must act as soon as practicable either by:
a) appointing an agent; or
b) taking charge of the goods.
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Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)

ART. 1886
Obligation to advance necessary funds Effect of violation of principal’s instructions
General Rule: the principal must advance to the agent the sums necessary for the Liability of principal to third person - The principal will be liable unless the third person
execution of the agency. with whom the agent dealt knew that he was exceeding his authority or violating his
instructions.
Exception: The contract of agency, however, may stipulate that the agent shall advance
the necessary funds. Based on principal’s obligation to reimburse the agent. Obligation to act in accordance with principal’s instructions
a) Duty to obey reasonable and lawful instructions – it is the fundamental duty of
ART. 1887 the agent to obey all the reasonable and lawful instructions given to him by his
Instructions (of principal) defined principal.
Instructions are private directions which the principal may give the agent in regard to b) Liability for loss or damage – if agent exceeds, violates, or fails to act upon
the manner of performing his duties as such agent but of which a third party is ignorant. such instructions, he will be liable to the principal for any loss or damage.
c) Duty to act in good faith and with due care – absence of specific instructions of
Instructions distinguished from authority the principal, the agent shall do all that a good father of a family taking care of
the business as if it were his own would do as required by the nature of the
Instructions Authority business.
direct the manner of transacting the The sum total of the powers committed d) Exemption from liability for failure of undertaking - agent has the power to bind
authorized business and contemplates or permitted to the agent by the principal, his principal even when he acts beyond his authority. Accordingly, the law
only a private rule of guidance to the may be limited in scope and such imposes upon him the duty not to exceed the authority given him by his
agent and are independent and distinct in limitations are themselves a part of the principal.
character. authority. e) Right to disobey principal’s instructions – agent may disobey the principal’s
refer to the manner or mode of his action relates to the subject with which the instruction where it calls for the performance of illegal acts, or where he is
with respect to matters which in their agent is empowered to deal or the kind of privileged to do so to protect his security interest in the subject matter of the
substance are within the scope of business or transactions upon which he is agency.
permitted action. empowered to act.
limiting the agent’s authority are without operative as against those who have or When departure from principal’s instructions justified
significance as against those dealing with are charged with knowledge of them. a) A sudden emergency;
the agent with neither knowledge nor b) If the instructions are ambiguous; or
notice of them. c) If the departure is so insubstantial that it does not affect the result and the
Not expected to be made known to those contemplated to be made known to the principal suffers no damage thereby.
with whom the agent deals. third person dealing with the agent.

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Partnership, Agency, and Trust
Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)
ART. 1888
When agent shall not carry out agency
The agent, upon acceptance of the agency, is not bound in all cases to carry out the
agency in accordance with the instructions of the principal. Thus, the agent must not
carry out the agency if its execution would manifestly result in loss or damage to the
principal.
Rationale: The duty of the agent who is merely an extension of the personality of the
principal is to render service for the benefit of the principal and not to act to his
detriment. Furthermore, an agent must exercise due diligence in carrying out the agency.
ART. 1889
Obligation not to prefer his own interests to those of principal
He is not permitted without the knowledge and consent of the principal, to assume two
distinct and opposite characters in the same transaction — acting for himself and
pretending to act for his principal.
Rationale: An agent occupies a fiduciary position and therefore is bound to exercise
loyalty, obedience, and diligence with respect to the interest of the principal.
Where agent’s interests are superior
General Rule: the agent has the duty to prefer the principal’s interest over his own.
Exception: he has a security interest in goods of the principal in his possession, he
may protect this interest even if in so doing he disobeys the principal’s orders or
injures his interest.
ART. 1890
Obligation not to loan to himself
The agent can lend money to the principal using the agent’s own funds at the current
rate of interest and NOT at a higher interest rate because the agent is supposed to act
for the principal’s benefit.
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If the agent is authorized to lend the principal’s money, with interest, to third persons,
the agent can’t be the borrower without the consent of the principal because the agent
may not be a good borrower or he may be insolvent or he may not be a good risk.
There is a danger here that the interest of the principal would be jeopardized.
This would also seem to be the case if the agent is authorized to lend money w/o
interest because of the same reason.
ART. 1891
Obligation to render accounts
It is the duty of the agent to account for and to deliver to the principal (or an authorized
third party) all money and property which may have come into his hands or of a sub-
agent appointed by him by virtue of or as a result of the agency.
Note: Includes gifts from third party in connection with the agency.
Stipulation exempting agent from obligation to account void
The stipulation in paragraph 2 of Article 1891 is contrary to public policy as it would
encourage fraud. It is in the nature of a waiver of an action for future fraud which is
void.
Liability for conversion
If the agent fails to deliver and instead converts or appropriates for his own use the
money or property belonging to the principal, the agent is liable for estafa.
When obligation to account not applicable
1) If the agent or broker acted only as a middleman with the task of merely bringing
together the vendor and the vendee.
2) if the agent or broker had informed the principal of the gift or bonus or profi t he
received from the purchaser and his principal did not object thereto.
3) Where a right of lien exists in favor of the agent.
a) The agent may retain in pledge the things which are the object of the agency
until the principal effects the reimbursement and pays the indemnity.
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Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)
b) A lawyer shall have a lien upon the funds, documents and papers of his client
and may retain the same until his lawful fees and disbursements have been paid.
Obligation to turn over proceeds of agency
The agent must account for the very property or funds he has received for his principal.
ART. 1892-1893
Sub-agent defined
A sub-agent is 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.
Power of agent to appoint sub-agent or substitute
General rule: The agent may appoint a sub-agent or substitute. The agent in this
situation is a principal with respect to the substitute
Exceptions:
1) If prohibited by the principal.
2) The work entrusted to him by the principal to carry out requires special knowledge,
skill, or competence.
Relation among the principal, agent and sub-agent
In reality, the sub-agent is a stranger to the principal who originally gave life to
the agency. But if the agent is authorized to appoint a sub-agent, the relation of principal
and agent exists between the principal and the sub-agent. That is, the sub-agent may be
the agent of the principal if he is in actual control of the business and the principal
knows of his appointment or knows that his appointment is necessary. Consequently,
any act done by the sub-agent in behalf of the principal is deemed an act of the principal;
so neither agent nor sub-agent may be held personally liable as long as they act within
the scope of their authority.
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Effects of substitution
Substitution prohibited – the agent exceeds the limits of his authority.
Substitution authorized - the substitution has the effect of releasing the agent from his
responsibility unless the person appointed is notoriously incompetent or insolvent
because this would be an abuse by the agent of the principal’s confidence.
Substitution not authorized, but not prohibited - 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.
ART. 1894-1895
Necessity of concurrence where there are two or more agents
A principal, however, may appoint more than one agent, each one to act separately in
a particular branch of his principal’s business or in a particular locality.
It is, of course, advisable that when a principal hires several agents to act for him, that
he defines their powers — whether they may act only as a unit or whether they may act
separately.
Nature of liability of two or more agents to their principal
1) Joint obligation - each debtor is liable only for a proportionate part of the debt.
2) Solidary - each debtor is liable for the entire obligation. They become liable for:
a) for the non-fulfillment of the agency even though in this case, the fellow agents
acted beyond the scope of their authority; and
b) for the fault or negligence of his fellow agents provided the latter acted within
the scope of their authority.
3) An agent who exceeds his powers does not act as such agent, and, therefore, the
principal assumes no liability to third persons.
ART. 1896
The agent owes interest on the sums he has applied to his own use from the day on
which he did so, and on those which he still owes after the extinguishment of the agency.
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Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)
ART. 1897
Duties and liabilities of agent to third persons
1) General rule: The agent is liable to third persons for his torts which result in an
injury to the third person.
2) Unauthorized assumption of agency - One who unauthorizedly assumes to act for
another is guilty of a wrong, and is liable for the damage to those dealing with him
in reliance on his assumed authority in that they are deprived of the benefit of the
responsibility of the principal.
3) Nature of liability
a) General Rule: A purported agent will be held personally liable as principal on
a contract executed without authority if the contract contains apt words to bind
him personally, or if such was the intention of the parties.
b) Exception: in the absence of an apt expression or intention, the nature of his
liability is the subject of some divergence in judicial opinion.
4) Tort cases - Agency is no defense to action against an agent based upon commission
of tort. If the tort is committed by the agent within the scope of his authority, both
the principal and the agent are liable.
5) Where duty violated owed solely to principal - an agent is generally not responsible
to third persons for injury resulting from nonfeasance, meaning by that term, the
omission of the agent to perform a duty owed solely to his principal by reason of
his agency.
ART. 1898
Effect where third person aware of limits of agent’s powers
1) When the agent acts in the name of the principal and within the scope of his
authority - The effect of the representation is to bind the principal as though he
personally entered into the contract.
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2) If the agent acts in excess of his authority - the agent is the one personally liable
unless there is subsequent ratification by the principal.
3) The agent is not bound nor liable for damages in case he gave notice of his powers
to the person with whom he has contracted nor in case such person is aware of the
limits of the powers granted by the principal.
ART. 1899
Effect of ignorance of agent
If the 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.
ART. 1990
Scope of agent’s authority as to third persons
It includes not only the actual authorization conferred upon the agent by his principal,
but also that which has apparently or impliedly been delegated to him.
1) Where authority not in writing - Every person dealing with an assumed agent is put
upon an inquiry and must discover upon his peril, if he would hold the principal
liable, not only the fact of the agency but the nature and extent of authority of the
agent. If he does not make such an inquiry, he is chargeable with knowledge of the
agent’s authority, and his ignorance of that authority will not be an excuse.
a) He must act with ordinary prudence and reasonable diligence to ascertain
whether the agent is acting and dealing with him within the scope of his powers.
b) The mere representation or declaration of one that he is authorized to act on
behalf of another cannot of itself serve as proof of his authority to act as agent
or of the extent of his authority as agent.
c) The authority or extent of authority of an agent cannot be established by his
own representations out of court but upon the basis of the manifestations of the
principal himself.
2) Where authority in writing - such person is not required to inquire further than the
terms of the written power of attorney. the principal is estopped from claiming that
the agent exceeded his authority. The rule is necessary to protect the interests of
third persons.
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Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)

Methods of broadening and restricting agent’s authority willingness to ratify the agent’s acts.
a) By implication
b) By usage and custom Effect of the principal receiving the benefits of the transaction
c) By necessity He is deemed to have ratified it. A principal may not accept the benefits of a transaction
d) By certain doctrines and at the same time repudiate its burdens.
e) By the rule of ejusdem generis
ART. 1902
Responsibility of principal where agent acted with improper motives Presentation of power of attorney or instructions as regards agency
General rule: The motive of the agent in entering into a contract with a third person is A third person deals with an agent at his peril. Hence, he is bound to inquire as to the
immaterial. it is not competent to the court to look into the mind of the agent, and if he extent of the agent’s authority, and this is especially true where the act of the agent is
had applied his authority for his own ends, to hold that the principal is not bound. of an unusual nature.

Rationale: It would be impossible for the business of a mercantile community to be Third person not bound by principal’s private instructions
carried on, if a person dealing with an agent was bound to go behind the authority of Third person is not bound and cannot be affected by the private or secret orders and
the agent in each case, and inquire whether his motives did or did not involve the instructions of the principal in the same way that he cannot be prejudiced by any
application of the authority for his own private purposes understanding between the principal and the agent.

Exceptions: ART. 1903

a) where the third person knew that the agent was acting for his private benefit. Factor or commission agent defined
b) where the owner is seeking recovery of personal property of which he has been One whose business is to receive and sell goods for a commission (also called factorage)
unlawfully deprived. and who is entrusted by the principal with the possession of goods to be sold, and
usually selling in his own name.
ART. 1901
Effect of ratification by the principal Liability of commission agent as to goods received
Ratification of a contract gives it the same effect as if the principal had originally He is responsible for any damage or deterioration suffered by the same in the terms and
authorized it. conditions and as described in the consignment.

Who must ratify the contract? ART. 1904

Only the principal. But there must be knowledge on the part of the principal of the Obligation of commission agent handling goods of same kind and mark
things he is going to ratify. The commission agent who handles goods of the same kind and mark, which belong to
different owners, shall distinguish them by countermarks, and designate the
When can the third person repudiate the contract? merchandise respectively belonging to each principal.
Before actual ratification by the principal, or before the principal has signified his
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Partnership, Agency, and Trust
Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)

ART. 1905 ART. 1908

Right of principal where sale on credit made without authority
1) He may require payment in cash, in which case, any interest or benefit from the sale
on credit shall belong to the agent since the principal cannot be allowed to enrich
himself at the agent’s expense.
2) He may ratify the sale on credit in which case it will have all the risks and
advantages to him.
ART. 1906
Obligation of commission agent where sale on credit authorized
An authorized sale on credit shall be deemed to have been on a cash basis upon failure
of the agent to inform the principal of such sale on credit with a statement of the names
of the buyers.
Obligation of commission agent to collect credits of principal
A commission agent who has made an authorized sale on credit must collect the credits
due the principal at the time they become due and demandable.
ART. 1909
Liability of agent for fraud and negligence/ intentional wrong
In the fulfillment of his obligation, the agent is responsible to the principal not only for
fraud committed by him but also for negligence.
Quasi-delict or tort may be committed by act or omission. If it causes damage to
another, there being fault or negligence, the guilty party is liable for the damage done.

Rationale: To prevent the agent from stating that the sale was on credit when in fact it
was made for cash.

ART. 1907
Meaning and purpose of guarantee commission
Guarantee commission - one where, in consideration of an increased commission, the
factor or commission agent guarantees to the principal the payment of debts arising
through his agency.

Purpose: to compensate the agent for the risks he will have to bear in the collection of
the credit due the principal.

Nature of liability of a del credere agent

An agent with a del credere commission is liable to the principal if the buyer fails to
pay or is incapable of paying. But he is not primarily the debtor. On the contrary, the
principal may sue the buyer in his own name notwithstanding the del credere
commission, so that the latter amounts to no more than a guaranty.

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Partnership, Agency, and Trust
Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)
Chapter 3
OBLIGATIONS OF THE PRINCIPAL
ART. 1910
Obligations, in general, of principal to agent
The primary obligation of the principal to the agent is simply that of complying with
the terms of their employment contract, if one exists.
Specific obligations of principal to agent.
a) To comply with all the obligations which the agent may have contracted within
the scope of his authority and in the name of the principal;
b) To advance to the agent, should the latter so request, the sums necessary for the
execution of the agency;
c) To reimburse the agent for all advances made by him, provided the agent is free
from fault;
d) To indemnify the agent for all the damages which the execution of the agency
may have caused the latter without fault or negligence on his part;
e) To pay the agent the compensation agreed upon, or if no compensation was
specified, the reasonable value of the agent’s services.
Liability of principal to third persons
General rule: the principal will be liable to third persons for all acts committed by the
agent and obligations contracted by him in the principal’s behalf in the course and
within the actual (express or implied) or apparent scope of his authority, and should
bear the damage caused to third persons.
Rationale: The act of the agent is the act of the principal.
Estoppel to deny - The principal is bound by the act of his agent when he has placed
the agent in such position that persons of ordinary prudence are thereby led to believe
and assume that the agent is possessed of certain authority, and to deal with him in
reliance on such assumption.
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Waiver of claim against principal - if a third person waives his claims against the
principal, he cannot assert them against the agent.
Agency from necessity or by operation of law – created when an emergency occurs and
an employee or an agent is unable to get in touch with his employer.
Liability of third persons to principal
1) Contract
a) A third person is liable to the principal upon contracts entered into by his agent,
in the same manner as though the contract were entered into by the principal
himself.
2) Tort
a) The third person’s tort liability to the principal, insofar as the agent is involved
in the tort, arises in three main factual situations:
i) Where the third person damages or injures property or interest of the
principal in the possession of the agent;
ii) Where the third person colludes with the agent to injure or defraud the
principal; and
iii) Where the third person induces the agent to violate his contract with the
principal to betray the trust reposed upon him by the principal.
3) In respect of property received
a) In the absence of a law or the possession by the agent of apparent authority or
circumstances working an estoppel against the principal, the latter may recover
property from the agent’s transferee.
Liability of the principal for mismanagement of the business by the agent
Mismanagement of the business of the principal by the agent does not relieve said
principal from the responsibility that he had contracted to 3rd persons. But where the
agent’s acts bind the principal, the latter may seek recourse against the agent.
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Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)

Liability of principal for a tort committed by the agent c) Silence

The principal is civilly liable to 3rd persons for torts of an agent committed at the d) Inaction
principal’s direction or I the course and within the scope of the agent’s employment.
The principal cannot escape liability whether the tort is committed willfully or Persons entitled to ratify
negligently so long as the tort is committed by the agent while performing his duties in a) In order that one may be entitled to ratify the unauthorized act of an agent, it is
furtherance of the principal’s business. Nor is it a defense that the act which caused the necessary that the ratifier has the power or authority to do, on his account, the
tort was unknown to him or even that it was in disobedience to his instructions. original act which is sought to be ratified.
b) A principal is incapable of ratifying an act if his own position has so altered that
Meaning of ratification he is no longer capable of doing the original act.
Ratification - the adoption or affirmance by a person of a prior act which did not bind c) A voidable act or transaction by reason of incapacity to give consent may be
him, but which was done or professed to be done on his account, thus giving effect to ratified but the defect must first be removed.
the act as if originally authorized. d) third party has a right to withdraw from the transaction prior to ratification. The
principal will not be permitted to ratify after the third party has already indicated
The doctrine applies to the ratification of the act of an agent in excess of his authority a desire to withdraw from the transaction.
of the act of one who purports to be an agent but who is really not. It may be implied
from the acceptance of benefits by the principal under a contract entered in his name. Effects of ratification with respect to the principal:
The authority created by ratification is subsequent but it is equivalent to prior authority. a) He assumes responsibility for the unauthorized act, as fully as if the agent had
acted under original authority; but
Conditions to ratification b) He is not liable for acts outside the authority approved by his ratification.
a) Intent to ratify;
b) Principal must have capacity & power to ratify; Effects of ratification with respect to third persons
c) He must have had knowledge of material facts; a) Third person is bound by ratification to the same extent as he would have been
d) The act must be done in behalf of the principal; bound if the ratified act had been authorized in the first instance; and
e) Principal must ratify acts in its entirety; b) He cannot raise the question of the agent’s authority to do the ratified act.
f) The act must be capable of ratification
ART. 1911
Forms of ratification Estoppel – a bar which precludes a person from denying or asserting contrary to that
1) Ratification may be: which has been established as the truth by his own deed or representation either express
a) Express or implied. (19 Am. Jur. 601)
b) Implied
2) Form of: Ratification and estoppel distinguished
a) Words 1) Ratification
b) Conduct a. Rests on intention, express or implied, regardless of prejudice to another.
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Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)
b. Party is bound because he intended to be.
c. Affects the entire transaction and from the beginning
d. Substance of ratification is confirmation of the unauthorized act or
contract after it has been done or made.
2) Estoppel
a. Rests on prejudice rather than intention.
b. Party is bound notwithstanding the absence of such intention because
the other party will be prejudiced or defrauded by his conduct.
c. Affects only the relevant parts of the transaction and from that time only
when estoppel may be said to be spelled out.
d. Substance of estoppel is the principal’s inducement to another to act to
his prejudice.
Note: Acts and conduct amounting to an estoppel in pais (or by conduct) may in some
instances amount to a ratification; but on the other hand, ratification may be complete
without any elements of estoppel.
Note: So far as rights of third persons are concerned, the distinctions are of little
importance because the principal is bound by the acts of the agent whether the conduct
of the principal constitutes ratification or whether it constitutes estoppel.
When Principal Solidarily Liable with Agent
Agent must have acted in the name of a disclosed principal and the third person
was not aware of the limits of the power granted by the principal.
Art. 1911 is based on the principle of estoppel and it is necessary for the
protection of innocent third persons.
The third person with whom the agent dealt with may sue either the agent or
the principal alone, or both. The agent should be exempt from liability if he acted in
good faith.
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Apparent Authority Distinguished from Authority by Estoppel
1) Apparent Authority
a. That which though not actually granted, the principal knowingly permits
the agent to exercise or holds him out as possessing.
b. It is not founded in negligence of the principal but in the conscious
permission of acts beyond the powers granted.
2) Authority by Estoppel
a. Arises in those cases where the principal, by his culpable negligence,
permits his agent to exercise powers not granted to him, even though
the principal may have no notice or knowledge of the conduct of the
agent.
b. Its basis is in the negligence of the principal in failing properly to
supervise the affairs of the agent, allowing him to exercise powers not
granted to him, and so justifies others in believing he possesses the
requisite authority.
Note: The doctrine of powers by estoppel can apply only in those cases in which a third
party acted to his detriment in reliance upon the appearance of authority the principal
has held the agent out as having. The presence of such reliance is unnecessary to spell
out an apparent authority.
Implied Negligence Distinguished from Agency by Estoppel
a) Implied Negligence
a. There is an actual agency.
b. The principal alone is liable.
b) Agency by Estoppel
a. The authority of the agent is not real but only apparent:
i. If the estoppel is caused by the principal, he is liable to any third
person who relied on the misrepresentation.
If the estoppel is caused by the agent, then only the agent is liable.
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Obligations of the Agent and Obligations of the Principal (ART. 1884 to 1918)

ART. 1912
Obligation to Advance Funds ART. 1915
The principal in under the obligation to provide the means with which to Requisites for solidary liability.
execute the agency. 1) There are two or more principals;
If the principal fails to comply, the agent will not be liable for the damages 2) The principals have all concurred in the appointment of the same agent;
through his non-performance. 3) The agent is appointed for a common transaction or undertaking.
Note: Absence of stipulation, the principal must advance necessary funds to the agent ART. 1916
upon his request. Rule where two persons contract separately with agent and principal
It is allowed, however, if the two contracts are incompatible with each other, the one
Obligation to Reimburse Agent for Funds Advanced by latter of prior date shall be preferred.
In case the agent advanced the sums necessary for the execution of the agency,
the said advances must be reimbursed by the principal with interest from the day the ART. 1917
advance was made. Liability to third person of agent or principal who contracts separately
If the agent acted in good faith and within the scope of his authority, the principal incurs
ART. 1913 liability. If the agent acted in bad faith, he alone shall be responsible to such third person.
The principal must also indemnify the agent for all the damages which the executive of
the agency may have caused the latter, without fault or negligence on his part. ART. 1918
When principal not liable for expenses incurred by agent
Rational: Equity. Since the principal receives the benefits of the agency, and has a 1) If the agent acted in contravention of the principal’s instructions, unless the
right to demand damages from the agent should the latter not perform the agency, he latter should wish to avail himself of the benefits derived from the contract;
should answer for the damages resulting from the execution thereof without fault or 2) When the expenses were due to the fault of the agent;
negligence on the part of the agent. 3) When the agent incurred them with knowledge that an unfavorable result would
ensue, if the principal was not aware thereof;
ART. 1914 4) When it was stipulated that the expenses would be borne by the agent, or that
Right of agent to retain in pledge object of agency the latter would be allowed only a certain sum.
If the principal fails to reimburse or indemnify the agent as required in Articles 1912
and 1913, the agent has the right to retain in pledge the things which are the object of Rationale (in reference to the numbers above):
the agency. 1) To punish the agent, but when the principal has availed of the benefits, he is
deemed to have impliedly ratified the agent’s acts.
Nature of agent’s right of lien 2) It is self-evident.
1) Right limited to subject matter of agency 3) The agent is guilty of bad faith and lack of diligence;
2) Right requires possession by agent of subject matter 4) An express stipulation which is not contrary to law, morals, good customs,
3) Right generally only in favor of agent public order or public policy is binding between the parties.
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Laurel, Ronald Julian T. San Beda College - Alabang
2016400001