Chapter 3 A principal is liable for the acts of his agent within his
express authority because the act of such agent is
Obligations of the Principal
Article 1910
Obligations in general of principal to agent
The duties and liabilities of the principal are primarily
based upon:
1. the contract and
2. the validity of the contract between them.
The principal is under an obligation to deal fairly and
in good faith with his 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.
The principal may be justified in refusing to perform
his part of the contract when the agent has already
breached the contract.
Specific Obligation of principal to agent
(1) To comply with all the obligations which the agent
may have contracted within the scope of his
authority (Arts. 1910, 1881, 1897.) and in the name
of the principal (Arts. 1868, 1883.)
(2) To advance to the agent, should the latter so
request, the sums necessary for the execution of the
agency (Art. 1912.)
(3) To reimburse the agent for all advances made by
him, provided the agent is free from fault (Ibid.);
(4) 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 (Art.
1913.); and
(5) 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.
GR:
where the relation of agency legally exists, 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.
The principal becomes liable to the third party when
he ratifies an authorized act of his agent.
the act of the principal.
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.
An agency by estoppel may involve the expansion of
the authority given to a designated agent or create
authority in the alleged agent though not actually
granted.
Examples in pages 524-528
Liability of third persons to principal
An agent is the instrumentality of the principal
whose primary design is to obtain rights against third
parties. The principal’s rights are the third parties’
liabilities.
1. in contract
(a) It follows that the third party may not set-off or
allege any defense against the agent, in an action by
the principal to enforce the contract other than one
which arises out of the particular contract upon
which the action is brought.
(b) Since notice by a third party to the agent is notice
to the principal, the third party is not liable for
damages for failure of the agent to give notice to his
principal.
2. in tort
(a) Where the third person damages or injures
property or interest of the principal in the possession
of the agent.
(b) Where the third person colludes with the agent
to injure or defraud the principal; and
(c) 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 to property received
- The principal cannot recover money and negotiable
instruments wrongfully transferred by his agent to
innocent holders for value who have no knowledge
or notice of the agent’s wrongful acts.

Liability of principal for mismanagement of
business by his agent.
the mismanagement of the business of a party by his
agents does not relieve said party from the
responsibility that he had contracted to third
persons.
Where the agent’s acts bind the principal, the latter
may seek recourse against the agent.
Illustrative examples at page 535 backwards.
Liability of principal for tort of agent
As a general rule, the principal is civilly liable to third
persons for torts of an agent committed at the
principal’s direction or in the course and within the
scope of the agent’s employment.
The principal cannot escape liability so long as the
tort was committed by the agent while performing
his duties in furtherance of the principal’s business or
at his direction although outside the scope of his
employment or authority.
The “business hazard theory” advances the
argument that “it is thought that the hazards of
business should be borne by the business directly. It
is reasoned that if the cost then is added to the
expense of doing business, it will ultimately be borne
by the consumer of the product; that the consumer
should pay the costs which the hazards of the
business have incurred.”
Act of ratification purely voluntary
Conditions for ratification.
In addition to an intent to ratify, the following
conditions must be fulfilled for ratification to be
effective:
(1) The principal must have the capacity and power
to ratify.
(2) He must have had knowledge or had reason to
know of material or essential facts about the
transaction.
(3) He must ratify the acts in its entirety.
(4) The act must be capable of ratification; and
(5) The act must be done in behalf of the principal.
Forms of ratification
An unauthorized act may be ratified (or affirmed)
expressly or impliedly. There is express ratification
where, for example, the principal simply informs the
agent, the third party, or someone else of his
intention to honor the agent’s unauthorized dealings.
The principal can nevertheless be deemed to have
impliedly communicated his intent to ratify by words
or conduct that had amounted to ratification or even
by silence or inaction where under the circumstances
a reasonable person would have expressed
objections to what the agent’s had done.
For an act of the principal to be considered as an
implied ratification of an unauthorized act of an
agent, such act must be inconsistent with any other
hypothesis than that he approved and intended to
adopt what had been done in his name.
Persons entitled to ratify.
1. has the power or authority to do so.
2. A principal is incapable of ratifying an act if his
own position has, in the interval between the time
the agent performed the act and the time when the
ratification is supposed to have occurred, so altered
that he is no longer capable of doing the original act.
3. A voidable act or transaction by reason of
incapacity to give consent may be ratified but the
defect must first be removed before a valid
ratification can take place.
4. the third party has a right to withdraw from the
transaction prior to ratification.
Article 1911
Estoppel is a bar which precludes a person from
denying or asserting anything contrary to that which
has been established as the truth by his own deed or
representation either express or implied.
Ratification and estoppel distinguished.
1. Ratification differs from estoppel mainly in that
the former rests on intention, express or implied,
regardless of prejudice to another, whereas estoppel
rests on prejudice rather than intention.
2. While ratification is retroactive and makes the
agent’s unauthorized act good from the beginning,
estoppel operates upon something which has been
done but after the misleading act and in reliance on
it and may only extend to do so much of such act as
can be shown to be affected by the estopping
conduct.
Ratification by a principal of an unauthorized act of (a) If the estoppel is caused by the principal, he is
his agent has occasionally been grounded upon the liable to any third person who relied on the
doctrine of an equitable estoppel. A clear distinction, misrepresentation.
however, exists between an estoppel in pais (or by
(b) If the estoppel is caused by the agent, then only
conduct) and ratifi cation. The substance of
the agent is liable.
ratification is confirmation of the unauthorized act or
contract after it has been done or made, whereas,
the substance of estoppel is the principal’s
inducement to another to act to his prejudice. Acts
and conduct amounting to an estoppel in pais may in
Article 1912
some instances amount to a ratification; but on the
other hand, ratification may be complete without
any elements of estoppel. Obligation to advance funds.

When principal solidarily liable with the agent.
The third person with whom the agent dealt may sue
either the agent or the principal alone, or both. The
agent should be exempt from liability if he acted in
good faith.
the principal is under obligation to provide the
means with which to execute the agency. In the
absence of stipulation that the agent shall advance
the necessary funds (Art. 1886.), the principal must
advance to the agent upon his request the sums
necessary for the execution of the agency. (Art. 1912,
par. 1.)

If the principal fails to comply with his obligations,

the agent will not be liable for the damage which,
Apparent authority distinguished from authority by
through his non-performance, the principal may
estoppel.
suffer.

Apparent authority is that which though not actually

Obligation to reimburse agent for funds advanced
granted, the principal knowingly permits the agent to
by latter.
exercise or holds him out as possessing.

Authority by estoppel 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.
Apparent authority is not founded in negligence of
the principal but in the conscious permission of acts
beyond the powers granted.
the rule of estoppel has its basis 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.
Implied agency distinguished from agency by
estoppel.
Implied agency should be distinguished from agency
by estoppel.
In case the agent advanced the sums necessary for
the execution of the agency, whether on his own
initiative or by virtue of stipulation, the said
advances must be reimbursed by the principal with
interest from the day the advance was made. (see
Art. 1896.)
Demand is not necessary in order that delay on the
part of the principal shall exist.
The agent simply obligates himself to represent the
principal and not that all the business entrusted to
him shall be successful. If the mission was executed
with the diligence of a good father of a family, then
the agent has complied with his duty; and if nothing
less is required of him, neither is he expected to do
more.

(1) In the former, there is an actual agency. The Article 1913

principal alone is liable.

(2) In an agency by estoppel, the authority of the

agent is not real but only apparent: Since the principal receives the benefits of the
agency and has a right to demand damages from the
agent should the latter not perform the agency (Art.
1884.), he should answer for the damages resulting
from the execution thereof without fault or
negligence on the part of the agent.
Having no personal interest in the act other than the
performance of his duty, the agent should not be
required to suffer loss from the doing of an act
apparently lawful in itself, and which he has
undertaken to do by the direction and for the benefit
and advantage of his principal.
the liability of the principal for damages is limited
only to that which the execution of the agency has
caused the agent. Thus, no promise to indemnify will
be implied for losses or damages caused by the
independent and unexpected wrongful acts of third
persons for which the principal is in no way
responsible.
“If, for example, a broker while going upon his
principal’s business should be waylaid by a robber, or
should be injured by the negligence of a motor
vehicle driver, the principal would not be liable more
than he would be if the agent, during the existence
of the agency, should contract a contagious disease
or be struck by lightning.”
Article 1914
Nature of agent’s right of lien.
1. Right limited to subject matter of agency.
The lien of the agent is specific or particular
in character, and not a general lien so as to
give the agent a right to retain the
principal’s goods for claims disconnected
with the business of the agency.
2. Right requires possession by agent of
subject matter.
An agent in order to have a lien, must have
some possession, custody, control, or
disposing power in and over the subject
matter in which the lien is claimed.
To entitle the agent to a lien, the funds or
property against which it is asserted must
be in his actual or constructive possession,
and he must have acquired that possession
lawfully and in his capacity as agent.
3. Right generally only in favor of agent.
In the absence of a ratification of a sub-
agent’s acts by the principal, the right of lien
exists only in favor of the agent and cannot
be claimed by one to whom the agent
delegates his authority where no privity
exists between sub-agent and the principal.
Article 1915
An example of an exception to the rule is partnership
though it is usually cited as an example of joint
(solidary) principalship. An agent appointed by the
partnership or by a partner thereof acting within the
scope of the partnership business binds all the
partners by his valid acts or transactions.
Requisites for solidary liability.
(1) There are two or more principals.
(2) The principals have all concurred in the
appointment of the same agent; and
(3) The agent is appointed for a common transaction
or undertaking.
Each principal may be sued by the agent for the
entire amount due and not just for his proportion ate
share.
A transaction or undertaking is common to all
principals if it is one as to which their interests are in
accord and in harmony.
The rule in Article 1915 applies even when the
appointments were made by the principals in
separate acts, provided that they are for the same
transaction. The solidarity arises from the common
interest of the principals and not from the act of
constituting the agency. The parties, however, may,
by express agreement negate this solidarity
responsibility.
When principals are members of a non-profit
organization.
A distinction has been made in respect of the liability
of the principals of a profit association as compared
to that of a non-profit or voluntary association.

While the principals in the first are personally liable

on all business contracts, the principals or members
in the second are liable personally only under two
circumstances:

(1) Where the member assented to the particular act

or transaction in respect of which personal liability is
sought to be fastened. Such assent is usually
indicated by an affirmative vote at the meeting
where the proposal is discussed. Thus, in a case
(citing Wilcox vs. Arnold, 162 Mass. 577.), it was held
that only the members of a college class who voted
in favor of the publication of a class book were liable
to the printing firm for the non-payment of the
contract price; and

(2) Where the member assented by his conduct, e.g.,

at a meeting at which the contract was proposed,
nobody dissented.

Article 1916
As read in the Civil code.
Article 1917
As read in the Civil code.
Article 1918
As read in the Civil code.