Art.

1890 - OBLIGATION (OF AGENT) NOT TO LOAN TO HIMSELF

Q: Can an agent loan or borrow money?

A: The agent, without a special power of attorney, cannot loan or borrow money.

As borrower, he may himself be the lender at the current rate of interest.

Why? There is no danger of the principal suffering any damage since the current rate
of interest would have to be paid.

As lender, he cannot be the borrower without the consent of the principal.

Why?
- the agent may prove to be a bad debtor
- there is a possible conflict of interest
- the transaction may thus be prejudicial to the principal

Art. 1891 - OBLIGATION TO RENDER ACCOUNTS

Duty of the agent:

- to render an account; and
- to deliver to the principal all money or property which may have come to his hands
or of a sub-agent appointed by him (includes gifts from the 3rd party)

Source of Profits
- it is immaterial whether such money or property is the result of the performance or
violation of the agent's duty, if it be the fruit of agency

Secret Profit
- an agent who takes a secret profit from the vendee without revealing the same to
his principal is guilty of breach of his loyalty to the latter

- the agent forfeits his right to collect the commission from his principal, even if the
latter does not suffer any injury

Stipulation exempting agent from obligation to account is void

- the highest loyalty that is required of an agent
- the duty to account is imposed upon the agent as an absolute obligation

Liable for Estafa

- if the agent fails to deliver and instead converts or appropriates for his own use the
money or property belonging to the principal
- he cannot retain his commission

When Obligation to Account not applicable

1.) if the agent acted only as a middleman with the task of merely bringing together
the vendor and the vendee
2.) if the agent had informed the principal of the gift or bonus or profit he received
from the purchaser and his principal did not object thereto
3.) where a right of lien exists i favor of the agent

Art. 1914 - the agent may retain the things until the principal effects the
reimbursement and pays the indemnity

Art. 1892 and 1893 - POWER OF AGENT TO APPOINT SUB-AGENT OR SUBSTITUTE

GR: The agent may appoint a sub-agent or substitute.

XPN: Unless prohibited by the principal.

- in this situation, the agent is a principal with respect to the substitute

Note: The agent may no delegate to a sub-agent where the work entrusted to him by
the principal to carry out requires special knowledge, skill or competence.

Unless he has been authorized to do so by the principal.

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

Right of Principal
- while the selection of an agent is determined by the trust and confidence the
principal has in the agent, the principal has the right of action against the agent, and
the sub-agent with respect to the obligations which the latter has contracted under
the substitution

Relation among the Principal, Agent and Sub-Agent

1.) Sub-agent appointed by agent on latter's sole account

principal - not liable to 3rd parties for the sub-agent's acts

agent - liable to the principal or 3rd parties if the sub-agent acts wrongfully

2.) Sub-agent appointed by agent with authority from principal

- fiduciary relationship exists

- an act done by the sub-agent is deemed an act of the principal

agent/sub-agent - cannot be held personally liable so long as they act within the
scope of their authority
Q: Can a sub-agent may also be the agent of the principal.
A: Yes.
- if he is in actual control of the business;
- if the principal knows of his appointment, or knows that his appointment is
necessary; and
- if the agent was not prohibited from employing a sub-agent

Effect of death of Principal or Agent

Authority of sub-agent proceeds from principal

- the death of agent who appointed him does not affect his authority

Sub-agent is a substitute for the agent

- the death of agent terminates his authority even though the power of substitution
is given in the original power

Effect of Substitution

prohibited
- all acts of the substitute shall be void
- the agent exceeds the limits of his authority

not prohibited
- agent will be liable to 3rd persons for the acts of the sub-agent within the scope of
his authority

authorized
a) principal did not designate
- the agent is released from his responsibility unless the persons appointed is
notoriously incompetent
- the principal may proceed against both the agent and the sub-agent for damages he
may have suffered

b) sub-agent is not the person designated

- consequence is the absolute exemption of the agent

not authorized,but not prohibited

- substitution is valid if the same is beneficial to the principal
- if substitution has occasioned damage to the principal, the agent shall be primarily
responsible for the acts of the sub-agent

Art. 1894 - TWO OR MORE AGENTS

'The responsibility of two or more agents, even though they have been appointed
simultaneously, is not solidary, if solidarity has not been expressly stipulated."

Q: Can a principal appoint more than 1 agent?

A: Yes. Each one to act separately in a particular branch of principal's business.

Art. 1895 - NATURE OF LIABILITY OF TWO OR MORE AGENTS

GR: Not solidary.

XPN: Unless solidarity has been expressly stipulated.

Solidarity Stipulated
- each of the agents become solidarily liable:

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

Note: The innocent agent has a right later on to recover from the guilty or negligent
agent.

No Solidary Liability
- if an agent exceeds his powers
- in such a case, he does not act as agent
- therefore, the principal assumes no liability to 3rd persons
- no solidary liability can be demanded by the principal

Art. 1896 - LIABILITY OF AGENT FOR INTEREST

The agent owes interest on:

1) the sums he applied to his own use from the day on which he did so;
2) the sum which he still owes after the extinguishment of the agency

Demand no longer necessary

- the agent is bound to deliver to the principal whatever he may have received by
virtue of the agency

Art. 1897 - WHEN AGENT MAY INCUR PERSONAL LIABILITY

[Rule: The principal is responsible for acts of the agent done within the scope of his
authority and should bear any damage caused to 3rd persons.]

GR: The agent is not personally liable to the party with whom he contracts.
XPN: Unless he expressly binds himself or he exceeds the limits of his authority, or by
his acts he incurs the liabilities of a principal under the contract.

When the agent expressly binds himself

- he thereby obligates himself personally and by his own act
- the agent may be bound with the 3rd person

When the agent exceeds his authority

- the contract is unenforceable against the principal unless the latter ratifies the act
- the agent is personally liable, because by his wrong or omission, he deprives the 3rd
person with whom he contracts, of any remedy against the principal
- neither the principal nor the agent is bound if the agent has sufficient notice of his
powers to 3rd persons dealing with him, and such person nevertheless contract with
the agent
- that the agent exceeded his authority must be proved by the principal or by the 3rd
person

When an agent by his act prevents performance on the part of the principal
- he can be held liable to 3rd persons
- reason: one who has intervened in the making of a contract in the character of
agent cannot be permitted to intercept and appropriate the thing which the principal
is bound to deliver, and thereby make performance by the principal impossible

When a person acts as an agent without authority or without principal

- regarded as principal possessed of all the rights and subject to all the liabilities of a
principal
- a person who contracts as the representative of a non-existent principal is the real
party to the contract

A person who purports to act as agent of an incapacitated principal

- agent also incurs personal liability unless the 3rd party was aware of the incapacity
at the time of making the contract

Third Party's liability to Agent

a) where the agent contracts in his own name for an undisclosed principal;
b) where the agent possesses a beneficial interest in the subject matter of the
agency;
c) where the agent pays money of his principal to a 3rd party by mistake or under a
contract which proves subsequently to be illegal, the agent being ignorant with
respect to its illegal nature;
d) where the 3rd party commits a tort against the 3rd party

Art. 1898 - AGENT'S LIABILITY ACTING IN THE NAME OF PRINCIPAL

VOID if the agent:
a) contracts in the name of the principal
b) exceeding the scope of his authority
c) and the principal does not ratify the contract
d) the party with whom the agent contracted is aware of the limits of the powers
granted by the principal

Agent not personally liable

- if he acts in the name of the principal and within the scope of his authority

Agent personally liable

- if he acts in excess of his authority, even if he contracts in the name of the principal
- unless subsequently ratified by the principal

Effect where 3rd person aware of limits of agent's powers

a) Agent gave notice of his powers or 3rd person aware of limits
- the agent is not bund nor liable for damages
- the contract is void

b) Agent promised to secure principal's ratification

- the agent is personally liable
- if ratification is obtained, the principal becomes liable

Art. 1899 - EFFECTS OF IGNORANCE OF AGENT

"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."
- if the principal appoints an agent who is ignorant, the fault is his alone

Art. 1900 - SCOPE OF AGENT'S AUTHORITY AS TO 3RD PERSONS

Scope of Agent's Authority

- includes not only the actual authorization conferred upon him by his principal, but
also that which has apparently or impliedly been delegated to him

1) Where authority is not in writing

- every person dealing with an assumed agent is put upon an inquiry not only the fact
of the agency, but the nature and extent of authority of the agent
- otherwise, he is chargeable with knowledge of the agent's authority, and his
ignorance of that authority will not be an excuse
- 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
- authority is established upon the basis of manifestations of the principal himself