Obligations of the principal third persons.
This responsibility is not altered by the fact
Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of
his authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly. (1727)
Obligations, in general, of principal to agent
Since an agency is essentially a contractual and consensual
relationship between the principal and the agent, the duties
and liabilities of the principal are primarily based upon the
contract and the validity of the contract between them. In
addition to his contractual duties, the principal is under an
obligation to deal fairly and in good faith with his agent who
owes the same duty to his principal. The agency relationship
is a fiduciary one. The specific obligations of the parties to
each other enumerated in the law are merely specific
applications of the general fiduciary obligation.
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 obligations of principal to agent
The contract creating the agency normally defines the specific
obligations or duties of the principal to an agent. In the
absence of express agreement, the law imposes upon the
principal certain obligations to his agent, among which are
the following:
(1) 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;
(2) To advance to the agent, should the latter so request, the
sums necessary for the execution of the agency;
(3) To reimburse the agent for all advances made by him,
provided the agent is free from fault;
(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; 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
General rule — It may be stated as a general rule that 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
that the agent also may be liable, nor by the fact that some of
the acts are to the principal’s advantage while others are to
his disadvantage. The principal becomes liable to the third
party when he ratifies an authorized act of his agent.
Reason for liability — A principal is liable for the acts of his
agent within his express authority because the act of such
agent is the act of the principal. Where the agent acts within
the scope of the authority which the principal holds himself
out as possessing, or knowingly permits him to assume, the
principal is made responsible, because to permit him to
dispute the authority of the agent in such a case would be to
enable him to commit a fraud upon innocent third parties.
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. The rule that
the principal is responsible for the acts of his agent within the
apparent scope of his authority applies only where the
principal is responsible for such appearance of authority.
A registered owner who places in the hands of another an
executed document of transfer of registered land effectively
represents to a third party that the holder of such document
is authorized to deal with the property. ​(Domingo v. Robles,
453 SCRA 812 [2005])
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. The principal is
bound by either the actual (express or implied) or apparent
authority of the agent.
A bank is liable to innocent third persons where
representation is made in the course of its normal business
by an agent even though such agent abused his authority.
(Rural Bank of Milaor vs. Ocfemia, 325 SCRA 99 [2000])
Waiver of claim against principal — Since it is the principal
who should be answerable for the obligation arising from the
agency, if a third person waives his claims against the
principal, he cannot assert them against the agent. ​(Bedia vs.
White, 204 SCRA 273 [1991])
Agency from necessity or by operation of law — An agency
from necessity is created, or the ordinary powers of an agent
may be enlarged, when an emergency occurs and an
employee or an agent is unable to get in touch with his
employer. The “agency from-necessity” doctrine has been
most frequently applied, although it in no wise so limited, to
accidents.
The authority is limited to the necessity and ceases to exist
when the emergency has passed.
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.
In contract — 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. This proposition results from the representative
nature of agency. The relationship of the third party to the
principal is the same as that in a contract in which there is no
agent. A 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.
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.
In tort — The third person’s tort liability to the principal,
insofar as the agent is involved in the tort, arises in three
main factual situations:
(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.
In respect of property received — An agent does not have
legal title to property entrusted to his possession by the
principal, but in some cases he possesses a power to effect a
transfer thereof, valid as against the principal. 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.
In respect of negotiable instruments, however, the law
protects third parties who are bona fide holders thereof or
holders in due course. 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.
The fact that the agent defrauded the principal in not turning
over the proceeds of the transactions
to the latter cannot in any way relieve nor exonerate him
from liability to the third person who relied on his agent’s
authority. It is an equitable maxim that as between two
innocent parties, the
one who made it possible for the wrong to be done should be
the one to bear the resulting loss. ​(Cuison vs. Court of
Appeals, 227 SCRA 391 [1993])
Where the agent’s acts bind the principal, the latter may seek
recourse against the agent.
Liability of principal for tort of agent
General rule — 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.
Nor is it a defense in an action for damages against the
principal that the act which caused the tort was unknown to
him or even that it was in disobedience to his instructions.
Whether the tort is committed willfully or negligently has no
effect on the extent or degree of the principal’s liability.
Reason for liability — This rule is based upon the principle
that he who does an act through another does it himself. If
the principal has the power of control over an agent, he
should take responsibility for the latter’s action, and since the
agent’s acts are for the principal’s benefit, the principal
should also be responsible for the consequences of the
agent’s improper behavior.
The agent, to be sure, is also liable with the principal and
their liability shall be solidary, i.e., the third person may sue
both the principal and the agent or choose whom he will
hold.
Motivation-deviation test — The bounds of the agent’s
authority are not the limits of the principal’s tort liability, but
rather the “scope of the employment” which may or may not
be within the bounds of authority. Scope of employment is
much wider than scope of authority. But an act is not
necessarily done within the scope of employment by reason
merely of the fact that it is done during the employment.
Two factors considered:
(a) Satisfactory evidence that the employee in doing the act,
in the doing of which the tort was committed, was motivated
in part, at least, by a desire to serve his employer; and
(b) Satisfactory evidence that the act, in the doing of which
the tort was committed, was not an extreme deviation from
the normal conduct of such employee.
Where the two factors are present, such liability is imposed,
but that where either of the two factors is missing, such
liability is not imposed.
Representation, essence of agency
Agent acts in a representative capacity — Representation
being the essence of agency, it is evident that the obligations
contracted by the agent are for and in behalf of the principal
to bind him as if he personally contracted. It is not enough,
however, that the agent should act within the scope of
his authority. The agent must also act in a representative
capacity, in the principal’s name; otherwise, the principal
assumes no liability.
Agent acts within limits of his authority — The agent who
exceeds his authority is not deemed a representative of the
principal. In effect, he acts without authority and becomes
personally liable for any damage caused. Hence, the principal
is not bound unless he ratifies the act expressly or impliedly.
Without such ratification, the agent is the one personally
liable. Of course, the principal must have capacity to ratify
the unauthorized act.
Meaning of ratification
Ratification is the adoption or affirmance by a person of a
prior act which did not bind him, but which was done or
professed to be done on his account thus giving effect to the
acts as if originally authorized. The doctrine applies to the
ratification of the act of an agent in excess of his authority or
the act of one who purports to be an agent but is really not. It
may be implied from the principal’s conduct, e.g., acceptance
of benefits by the principal under a contract entered in his
name.
Act of ratification purely voluntary
The very idea of ratification implies that the principal has an
option to ratify or not, and that he has this advantage over
the other party, to wit: that he may hold the other party
whether the other party wishes it or not whereas the other
party cannot hold him if he is not willing to be held. The
failure or refusal of the principal to ratify the unauthorized
acts of his agent makes the latter personally in damages to
the third party.
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. Ratification is based on waiver — the intentional
relinquishment of a known right. It cannot be inferred from
acts that a principal has a right to do independently of the
authorized act of the agent.
If a writing is required to grant an authority to do a particular
act, ratification of the act must also be in writing. ​(Woodchild
Holdings, Inc. vs. Roxas Electric & Construction Co., Inc., 436
SCRA 235 [2004])
Persons entitled to ratify
In order that one may be entitled to ratify the unauthorized
act of an agent, it is necessary that the ratifier has the power
or authority to do, on his account, the original act which is
sought to be ratified.
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.
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.
The 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 a desire to
withdraw from the transaction. There can be no ratification
of an illegal transaction.
Knowledge by ratifier of material facts essential
Meaning of material facts — Within the meaning of the
requirement, they are those which reasonably ought to be
known by the principal, having in mind the factors of time,
place, and circumstance, and especially the situation of the
parties. The problem is one which must be determined by
reference to the facts of the particular case.
Full and complete knowledge — In order to bind a principal by
ratification, he must have been in possession of all the facts
and must have acted in the light of such facts.
If material facts were suppressed or unknown, there can be
no valid ratification, regardless of the purpose or lack thereof
in concealing such facts. This principle does not apply if the
principal’s ignorance of the material facts and circumstances
was willful, or that the principal chooses to act in ignorance of
the facts. However, the general rule is that ratification cannot
be implied as against the principal who is ignorant of the
facts.
Burden to show such knowledge
Party relying on the ratification — Whoever, therefore, seeks
to rely on a ratification is bound to show that it was made
under such circumstances as in law to be binding on the
principal, especially to see that all material facts were made
known to him.
The burden of making inquiries and of ascertaining the truth
is not cast on him who is under no obligation to assume a
responsibility, but rests on the party who is endeavoring to
obtain a benefit or advantage for himself. The needful
information or knowledge is always within the reach of him
who is either party or privy to a transaction which he seeks to
have ratified, rather on him who did not authorize it, and to
the details of which he may be a stranger.
When actual knowledge assumed — This does not mean that
the principal can be willfully ignorant, or purposely shut his
eyes to means of information within his own possession and
control and thereby escape the consequence of a ratification
of unauthorized acts into which he has deliberately entered.
What this means is that the principal must have either actual
knowledge of material facts or sufficient knowledge or notice
of other facts so that it would have been easy to find out the
material facts. Actual knowledge will be assumed where the
principal’s reckless disregard of the natural consequences of
known facts induces an inference that he was willing to
assume a risk in respect of the facts. Similarly, actual
knowledge will be assumed where the principal has actual
knowledge of a fact or facts that a person of ordinary
intelligence would thereby infer the existence of the fact or
facts about which the dispute exists.
Ratification must be entire
The act must be ratified in its entirety or not at all. A person
cannot ratify that portion which is beneficial or advantageous
to him and repudiate that portion which is burdensome or
disadvantageous. In other words, the principal cannot accept
the benefits of a transaction and refuse to accept the
obligations that are part of it.
The acceptance of the result of the act, moreover, ratifies the
whole transaction including the means whereby that result
was achieved. This rule is constantly applied to promises,
misrepresentations, and even fraud upon which the contract
was based. A principal, therefore, who ratifies with
knowledge is ordinarily liable for any wrong flowing from
such promises, misrepresentations, or fraud.
At the time of accepting the benefits of the act, the person
may be ignorant of the practices resorted to. Even so, he is
liable unless he attempts to undo the thing within a
reasonable time after he is advised of it. The rule, however, is
not broad enough to constitute ratification of another act
which, though closely related to the ratified act, is not a part
of it.
Acts that may be ratified
Valid/void acts — Usually, those acts that may be authorized
(i.e., they are valid) may be ratified. Acts which are absolutely
void cannot be authorized nor ratified.
Voidable acts — Acts which are merely voidable may be
ratified. The reason is that a voidable act is not inoperative
but imperfectly inoperative. Ratification is a method by which
a voidable act may be ratified.
Unrevoked acts — The act or transaction must remain
capable of ratification. The general rule is that a principal
must ratify his agent’s unauthorized contract before it is
revoked by the other contracting party. The third party’s
contract with the unauthorized agent may be said to
constitute an offer to the principal which can be revoked by
the offeror before acceptance by the offeree. This aspect of
the doctrine of ratification would appear to contradict a
fundamental concept of the doctrine, that of relation back to
the time when the contract was originally entered into.
The third party’s offer to a principal arising out of a contract
with his unauthorized agent, may be revoked in one of two
ways: first, as indicated above, by express revocation, and
second, by a change in the nature of the contract as originally
entered into.
Acts must be done in behalf of principal
An act, to be capable of ratification, must be done by one
party as agent for someone else. Stated in another way, a
principal cannot ratify the unauthorized act of another person
unless that person purported to act as agent for, and in the
name of, the principal, and not in his own behalf.
The rule operates to prevent one person from acquiring the
right of another. One person may enter into a fruitful
contract with another person; a stranger cannot acquire
rights in the contract by attempting to ratify it.
Effects of ratification by principal
By ratification, the relation of principal and agency is created
since ratification by a principal is equivalent to prior
authority. Once made, ratification becomes irrevocable.
With respect to agent — Ratification relieves the agent from
liability to the third party to the unauthorized transaction,
and to his principal for acting without authority and he may
recover compensation due for performing the act which has
been ratified.
With respect to principal himself — The principal who ratifies
thereby assumes responsibility for the unauthorized act, as
fully as if the agent had acted under original authority but he
is not liable for acts outside the authority approved by his
ratification. Thus, ratification does not render the principal
liable for fraudulent misrepresentations made by the agent
without his knowledge.
With respect to third persons — Ordinarily, a third person is
bound by a ratification to the same extent as he would have
been bound if the ratified act had been authorized in the first
instance, and he cannot raise the question of the agent’s
authority to do the ratified act. Where a third person is liable
to a principal under an unauthorized act of his agent, the
third person may not be relieved of his liability on the theory
that the principal ratified the agent’s acts merely because the
principal made an unsuccessful effort to collect from the
agent.
To be effective, ratification need not be communicated or
made known to the agent or the third party. The act or
conduct of the principal rather than his communication is the
key. But before ratification, the third party is free to revoke
the unauthorized contract.
Retroactive effect of ratification
Ratification so operates upon an unauthorized act to have
retroactive effect. The authority created by ratification is
subsequent but it is equivalent to initial approval or prior
authority. The effect is the same as where the principal
allowed the agent to act as though the latter had full
authority from the beginning. But to the generally retroactive
effect of ratification, there are four well-recognized
exceptions:
(1) ​Rights of third parties — Where to do so would be to
defeat rights of third parties which have accrued between the
time of the making of the unauthorized contract and the time
of ratification. Where, however, the intervening act is inferior
in importance to the retroactive effect of ratification, the
ratification will be given full effect, even to the detriment of
the intervening rights.
(2) ​Intervening act or omission otherwise rightful — Where to
do so would be to render wrongful an otherwise rightful act
or omission which has taken place between the making of the
unauthorized contract and the time of its ratification.
(3) ​Circumvention of legal rule or provision — Where to do so
would be to allow the circumvention of a rule of law
formulated in the interest of public policy.
(4) ​Withdrawal by third party from contract — If the third
party has withdrawn from the contract, the act or transaction
is no longer capable of ratification. There is no ratification
with retroactive effect to speak of.
Art. 1911. Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers. (n)
Meaning of estoppel
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. Through estoppel, an admission or
representation is thus rendered conclusive upon the person
making it and cannot be denied or disproved as against the
person relying thereon.
Ratification and estoppel distinguished
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. In the former, the party is bound because he
intended to be, while in the latter, he is bound
notwithstanding the absence of such intention because the
other party will be prejudiced and defrauded by his conduct,
unless the law treats him as legally bound.
Ratification affects the entire transaction and from the
beginning, while estoppel affects only the relevant parts of
the transaction and from that time only when estoppel may
be said to be spelled out.
The substance of 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 (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.
When principal solidarily liable with the agent
The 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. 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.
Apparent authority distinguished from authority by estoppel
Apparent authority is that which though not actually granted,
the principal knowingly permits the agent to 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, whereas 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.
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 agency distinguished from agency by estoppel
Implied agency should be distinguished from agency by
estoppel.
(1) In the former, there is an actual agency. The principal
alone is liable.
(2) In an agency by estoppel, the authority of the agent is not
real but only apparent:
(a) If the estoppel is caused by the principal, he is liable to any
third person who relied on the misrepresentation.
(b) If the estoppel is caused by the agent, then only the agent
is liable.
Art. 1912. The principal must advance to the agent, should
the latter so request, the sums necessary for the execution
of the agency.
Should the agent have advanced them, the principal must
reimburse him therefor, even if the business or undertaking
was not successful, provided the agent is free from all fault.
The reimbursement shall include interest on the sums
advanced, from the day on which the advance was made.
(1728)
Obligation to advance funds
The agent is bound by his acceptance to carry out the agency.
On the other hand, 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, the principal must advance to the agent
upon his request the sums necessary for the execution of the
agency.
If the principal fails to comply with his obligations, the agent
will not be liable for the damage which, through his
nonperformance, the principal may suffer.
Obligation to reimburse agent for funds advanced by latter
An agency is for the principal’s benefit. 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.
Demand is not necessary in order that delay on the part of
the principal shall exist.
Obligation founded on implied promise to repay — The
general rule is that, where one is employed or directed by
another to do an act in his behalf, not manifestly wrong, the
law implies a promise by the principal to reimburse the agent
for expenditures incurred as a proximate consequence of the
good faith execution of the agency, which includes interest
thereon. This rule is based upon the principle that a request
to undertake an agency, the proper execution of which
involves the expenditure of money on the part of the agent,
operates not only as an implied request on the part of the
principal to incur such expenditure but also as a promise to
repay it.
Obligation not affected even if undertaking not successful —
The law adds that the obligation to reimburse the agent
cannot be defeated by the fact that “the business or
undertaking was not successful” provided the agent is free
from all fault. The reason for this rule is that 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.
Even if the agency be gratuitous, Art. 1912 will still apply;
hence the agent will still be entitled to reimbursement and
interest. This is so because the reimbursement and interest
spoken of in Art. 1912 does not refer to compensation or
commission. ​(Paras)
Art. 1913. The principal must also 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.
(1729)
Obligation to indemnify agent for damages
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, he should answer for the
damages resulting from the execution thereof without fault
or negligence on the part of the agent. Article 1913 is also a
logical corollary to the rule which makes the agent liable to
the principal for damages or losses which the latter may
suffer because of his non-performance, fraud, or negligence.
Where damages caused by the execution of agency — The
agent has the right to assume that the principal will not call
upon him to perform any duty which would render him liable
in damages to third persons. 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. If in the performance of such an act, therefore, the
agent invades the rights of third persons, and incurs liability
to them, the loss should fall rather upon him for whose
benefit and whose direction it was done, than upon him
whose only intention was to do his duty to his principal.
Where damages caused by wrongful acts of third persons —
However, that 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.
Where agent acted upon his own account — Similarly, there is
no obligation to indemnify where no agency relation exists, as
where it appears that the supposed agent acted upon its own
account and not as an agent, in the legal sense.
Article 1913 is based on equity, and applies even if the agency
be gratuitous. ​(Paras)
Art. 1914. 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 set forth in the two
preceding articles. (1730)
Right of agent to retain in pledge object of agency
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 the agency.
This is an instance of legal pledge or pledge which is created
by operation of law.
Unlike contractual pledges, however, the agent is not entitled
to the excess in case the things are sold to satisfy his claim
and the proceeds thereof are more than the amount due.
Nature of agent’s right of lien
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.
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. The lien does not arise
where possession of the property is acquired by the agent
under a contract which expressly or impliedly shows a
contrary intention, as where it is delivered to him for a
particular purpose inconsistent with the existence of the lien
thereon. 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.
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.
Art. 1915. If two or more persons have appointed an agent
for a common transaction or undertaking, they shall be
solidarily liable to the agent for all the consequences of the
agency. (1731)
Nature of liability of two or more principals to their agents
Under Article 1915, the so-called joint principals are solidarily
liable to the agent for all the consequences of the agency. On
the other hand, the responsibility of two or more agents,
even though they have been appointed simultaneously, is
joint, not solidary.
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.
The liability of the principals is solidary for all the
consequences of the agency; that is, each principal may be
sued by the agent for the entire amount due and not just for
his proportionate 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. ​(De
Castro vs. Court of Appeals, 384 SCRA 607 [2002])
Where principals are members of a non-profit association
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.
(2) Where the member assented by his conduct.
Art. 1916. When two persons contract with regard to the
same thing, one of them with the agent and the other with
the principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without
prejudice to the provisions of Article 1544. (n)
Rule where two persons contract separately with agent and
principal
Two persons may contract separately with the agent and the
principal with regard to the same thing. If the two contracts
are incompatible with each other, the one of prior date shall
be preferred. This is subject, however, to the rules under
Article 1544 which provides as follows: “If the same thing
should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable
property.
Should it be immovable property, the ownership shall belong
to the person acquiring it who in good faith first recorded it in
the Registry of Property.
Should there be no inscription, the ownership shall pertain to
the person who, in good faith was first in the possession; and,
in the absence thereof, to the person who presents the oldest
title, provided there is good faith.”
Art. 1917. In the case referred to in the preceding article, if
the agent has acted in good faith, the principal shall be
liable in damages to the third person whose contract must
be rejected. If the agent acted in bad faith, he alone shall be
responsible. (n)
Liability to third person of agent or principal who contracts
separately

Whether the principal or the agent will be the one liable for
damages to the third person who has been prejudiced under
Article 1916 depends on whether the agent acted in bad faith
or not. If the agent acted in good faith and within the scope
of his authority, the principal incurs liability. If the agent
acted in bad faith, he alone shall be responsible to such third
person.
Art. 1918. The principal is not liable for the expenses
incurred by the agent in the following cases:
(1) If the agent acted in contravention of the principal's
instructions, unless the latter should wish to avail himself of
the benefits derived from the contract;

(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was not
aware thereof;
(4) When it was stipulated that the expenses would be
borne by the agent, or that the latter would be allowed only
a certain sum. (n)
When principal not liable for expenses incurred by agent

In the four cases provided in this article, the principal is not

liable for expenses incurred by the agent.
(a) ​Reason for Par. 1 — to punish the agent. (Reason for the
exception — such is implied ratification)

(b) ​Reason for Par. 2​ — self-evident.

(c) ​Reason for Par. 3 — such is tantamount to bad faith and
lack of due diligence.
(d) ​Reason for Par. 4 — this stipulation would not contravene
good morals or public policy, etc. (Paras)