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筆記 Agency, Trust and Partnership – Atty.

Genevieve Nueve-Co 1

Title X: Agency

Chapter 2: Obligations of the Agent

ART. 1884. The agent is bound by his acceptance to otherwise, the agent impliedly undertakes
carry out the agency and is liable for the damages that he possesses a degree of skill reasonably
which, through his non-performance, the principal or ordinarily competent for the performance
may suffer. of the service, and that in performing his
undertaking, he will exercise reasonable
He must also finish the business already begun on the care, skill and diligence. He does not agree
death of the principal, should delay entail any that he will make no mistake whatsoever, or
danger. that he will exercise the highest skill or
diligence, but he does agree that he will
Obligations of Agent to Principal (In General) exercise reasonable skill, and that he will take
the usual precautions as a reasonably careful
(1) Good faith and loyalty to his trust, agent’s first duty agent would under similar circumstances.
š As has been pointed out (see discussions under š Failure to do so constitutes a breach of his
Art. 1868.), the relationship existing between duty.
principal and agent is a fiduciary one,
demanding conditions of trust and confidence. Specific obligations of agent to principal
š Accordingly, in all transactions concerning or 1. To carry out the agency which he has accepted;
affecting the subject matter of the agency, it is 2. To answer for damages which through his
the duty of the agent to act with the utmost good performance the principal may suffer;
faith and loyalty for the furtherance and 3. To finish the business already begun on the death
advancement of the interests of the principal. of the principal should delay entail any danger;
š It is immaterial in the application of this rule that 4. To observe the diligence of a good father of a
the agency is one coupled with interest or that the family in the custody and preservation of the
compensation given the agency is small or goods forwarded to him by the owner in case he
nominal, or that it is a gratuitous agency. declines an agency, until an agent is appointed;
š Presumption — An agent’s acts which tend to 5. To advance the necessary funds should there be
violate his fiduciary duty are not only invalid as to a stipulation to do so;
the principal but are also against public policy. In 6. To act in accordance with the instructions of the
the absence of proof to the contrary, however, principal, and in default thereof, to do all that a
the presumption arises that an agent has good father of a family would do;
performed his duty in good faith, and the 7. Not to carry out the agency if its execution would
principal, until notice is received of a breach of manifestly result in loss or damage to the principal;
relational duties, may rely upon his agent’s 8. To answer for damages if there being a conflict
faithfulness. between his interests and those of the principal,
š General rule as to loyalty when not applicable — he should prefer his own;
The general rule as to loyalty does not apply to 9. Not to loan to himself if he has been authorized to
cases where no relation of trust or confidence lend money at interest;
exists between the parties, as where the agent is 10. To render an account of his transactions and to
bound merely as an instrument, more properly as deliver to the principal whatever he may have
a servant, to perform a service, or where there is received by virtue of the agency;
no showing of an agency relationship. 11. To distinguish goods by countermarks and
designate the merchandise respectively
(2) Obedience to principal’s instruction belonging to each principal, in the case of a
š An agent must obey all lawful orders and commission agent who handles goods of the
instructions of the principal within the scope of same kind and mark, which belong to different
the agency. If he fails to do so, he becomes owners;
liable for any loss the principal incurs even 12. To be responsible in certain cases for the acts of
though he can show that he acted in good the substitute appointed by him;
faith or exercised reasonableness. (Even a 13. To pay interest on funds he has applied to his own
gratuitous agent must follow instructions) use;
š But an agent is not liable if he violates the 14. To inform the principal, where an authorized sale
principal’s instructions for a good reason. of credit has been made, of such sale;
š Related to the agent’s duty to obey instructions 15. To bear the risk of collection, should he receive
is the duty to keep within the limits of his also on a sale, a guarantee commission;
authority when acting for the principal. 16. To indemnify the principal for damages for his
failure to collect the credits of his principal at the
(3) Exercise of reasonable care time that they become due; and
š By accepting an employment whose 17. To be responsible for fraud or negligence.
requirements, he knows, without stipulating
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 2

Obligation to carry out the agency


) A person is free to refuse to be an agent but Obligation to Advance Necessary Funds
once he accepts the agency, he is bound to As a rule, the principal must advance to the agent,
carry it out in accordance with its terms in good should the latter so request, the sums necessary for the
faith and following the instructions, if any, of the execution of the agency. The contract of agency,
principal. however, may stipulate that the agent shall advance
) He is normally expected to exercise the degree the necessary funds. In such case, the agent is bound to
of care and skill that is reasonable under the furnish such funds except when the principal is insolvent.
circumstances. The exception is based on the principal’s obligation to
) If the agent fulfills his duty, he is not personally reimburse the agent. Incidentally, the insolvency of the
liable unless he expressly binds himself. principal is a ground for extinguishment of agency.

Obligation to answer for Damages NB: In certain cases, the principal is not liable for the
o On the other hand, upon his failure to do so, he expenses incurred by the agent.
is liable for the damage which the principal
may suffer. ART. 1887. In the execution of the agency, the agent
o Having accepted the agency when he was shall act in accordance with the instructions of the
free to refuse it, the agent betrays the principal.
confidence reposed on him if he does not fulfill
the mandate. In default thereof, he shall do all that a good father of
o As there can be no indemnity when there has a family would do, as required by the nature of the
been no damage, the principal must prove his business.
damages and the amount thereof.
“Instructions”
See pp. 453 for illustration. š are private directions which the principal
may give the agent in regard to the manner
Obligation to finish business upon principal’s death of performing his duties as such agent but of
) Although the death of the principal extinguishes which a third party is ignorant.
the agency, the agent has an obligation to š They are said to be secret if the principal
conclude the business already begun on the intended them not to be made known to
death of the principal. The rule is in accord with such party.
the principles of equity. But the duty exists only
should delay entail any danger.
) 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 Authority Instructions
and of the agent, or in the interest of a third
person who has accepted the stipulation in his
favor. Where an agent makes use of the power of •The sum total of the •Direct the manner of
powers committed or transacting the
attorney after the death of his principal, the agent
permitted to the authorized business
has the obligation to deliver the amount agent by the principal, and contemplates
collected by him by virtue of said power to the may be limited in only a private rule of
administrator of the estate of the principal. scope and such guidance to the
limitations are agent and are
ART. 1885. In case a person declines an agency, he is themselves a part of independent and
bound to observe the diligence of a good father of a the authority distinct in character
family in the custody and preservation of the goods •relates to the subject •Refer to the manner or
forwarded to him by the owner until the latter should with which the agent mode of his action
appoint an agent. The owner shall as soon as is empowered to deal with respect to
or the kind of business matters which in their
practicable either appoint an agent or take charge
or transactions upon substance are within
of the goods. which he is the scope of
empowered to act permitted action
Obligation of person who declines an agency •Limitations of authority •Instructions limiting the
In the event a person declines an agency, he is still are operative as agent’s authority are
bound to observe the diligence of a good father of a against those who without significance as
family in the custody and preservation of the goods have or are charged against those dealing
forwarded to him by the owner. This rule is based on with knowledge of with the agent with
equity. The owner, however, must act as soon as them neither knowledge nor
practicable either: •Contemplated to be notice of them
(1) by appointing an agent; or made known to the •Not expected to be
third person dealing made known to those
(2) by taking charge of the goods.
with the agent with whom the agent
deals
ART. 1886. Should there be a stipulation that the agent
shall advance the necessary funds, he shall be bound
to do so except when the principal is insolvent.
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 3

Effect of violation of principal’s instructions of his principal to accomplish the object of


(1) Liability of principal to third person. — If an act done the agency.
by an agent is within the apparent scope of the authority § Since an agent is required to exercise only
with which he has been clothed, it matters not that it is ordinary care, skill, and diligence, he is not,
directly contrary to the instructions of the principal. The in the absence of an agreement, an
principal will, nevertheless, be liable unless the third insurer of the success of his undertaking,
person with whom the agent dealt knew that he was and does not guarantee the principal
exceeding his authority or violating his instructions. against incidental losses.
U Third persons dealing with an agent do so at (5) Right to disobey principal’s instructions. — The
their peril and are bound to inquire as to the agent may disobey the principal’s instruction
extent of his authority, but they are not required where it calls for the performance of illegal acts, or
to investigate the instructions of the principal. where he is privileged to do so to protect his
The principal will be liable to third persons, security interest in the subject matter of the
under the doctrine of estoppel for any agency.
unauthorized acts of the agent who exceeds
the instructions given to him. When departure from principal’s instructions justified
(1) A departure from instructions may be justified by a
(2) Liability of agent to principal. — infra. sudden emergency. Where some unexpected
emergency or unforeseen
Refer to pp. 457 for examples. event occurs which will admit no delay for
communication with the principal, the agent is justified
Obligation to act in accordance with principal’s in adopting the course which seems best to him under
instructions the circumstances.
(1) Duty to obey reasonable and lawful instructions. —
It is the fundamental duty of the agent to obey all (2) Ambiguous instructions are another instance which
the reasonable and lawful instructions given to him may justify an agent in not following instructions. The
by his principal. agent will not be liable if he chooses reasonably one of
§ He must follow instructions even if he thinks two possible interpretations. Customs and usage may
they are capricious or unwise. aid in the interpretation of ambiguous instructions but
§ But an agent need not follow instructions not to the extent of overruling positive instructions to the
that are outside the scope of the agency contrary. Nor will the agent be justified in following ideas
relationship agreed upon or that may of his own which are not within any interpretation
subject him to unreasonable risk of injury to of the instructions.
himself. § Where instructions are ambiguous, the agent is
(2) Liability for loss or damage. — If the agent exceeds, not chargeable with disobedience or its
violates, or fails to act upon such instructions, he will consequences in case he makes an honest
be liable to the principal for any loss or damage mistake and adopts a construction different
resulting therefrom. from that intended by the principal.
(3) Duty to act in good faith and with due care. — In § If the instructions are ambiguous, the agent
the absence of specific instructions of the principal, cannot disregard them altogether. He fulfills his
the agent shall do all that a good father of a family duty, when acting in good faith, he interprets
taking care of the business as if it were his own them in a manner that is reasonable under the
would do as required by the nature of the business. circumstances. It is the duty of the principal to
§ If he acts in good faith and with due care, couch his instructions in clear terms.
the agent is not liable for losses due to
errors or mistakes of judgment as regards (3) An agent may not be said to have breached the
to matters with which he is vested with agency contract by reason of an insubstantial
discretionary powers. departure from the principal’s instructions, which does
§ It will be presumed that the agent acted not affect the result. However, a departure cannot
in good faith and in accordance with his usually be termed “insubstantial” in the face of the
power as he understood it. principal’s countervailing instruction, for the principal
(4) Exemption from liability for failure of undertaking. — has a right to determine what he will consider important.
The agent has the power (not the right) in many § But it has been said that a trivial mistake will not
cases to bind his principal even when he acts be held a bar to the agent’s claim for
beyond his authority. compensation.
§ Accordingly, the law imposes upon him § Thus, if A is instructed to execute a deed on July
the duty not to exceed the authority given 1st but it is mistakenly executed on July 2nd
him by his principal. However, when an without damage to principal, it would seem
agent, in executing the orders and that the principal should not be able to treat
commissions of his principal, carries out the the departure so seriously as to constitute it a
instructions he has received from his breach of the agency contract.
principal, and does not appear to have
exceeded his authority or to have acted ART. 1888. An agent shall not carry out an agency if
with negligence, deceit, or fraud, he its execution would manifestly result in loss or
cannot be held responsible for the failure damage to the principal.
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 4

injures his interest.


When agent shall not carry out agency
The agent, upon acceptance of the agency, is not Ø An agent, to be sure, is not required to expose
bound in all cases to carry out the agency in himself to great physical risks not within the
accordance with the instructions of the principal. Thus, contemplation of the parties, or to perform
the agent must not carry out the agency if its execution services when he is ill. On the other hand, if the
would manifestly result in loss or damage to the principal. conflict resulted from his breach of a duty
owed to the principal, the agent cannot prefer
Reason: The duty of the agent who is merely an his own interest.
extension of the personality of the principal is to
render service for the benefit of the principal ART. 1890. If the agent has been empowered to borrow
and not to act to his detriment. Furthermore, an money, he may himself be the lender at the current rate
agent must exercise due diligence in carrying of interest. If he has been authorized to lend money at
out the agency. interest, he cannot borrow it without the consent of the
principal.
ART. 1889. The agent shall be liable for damages if, there Obligation not to loan to himself
being a conflict between his interests and those of the The agent cannot, without a special power of attorney,
principal, he should prefer his own. loan or borrow money. (see Art. 1878[7].)

Obligation not to prefer his own interests Ø If he has been expressly empowered to borrow
to those of principal. money, he may himself be the lender at the
current rate of interest for there is no danger of
Reason — Agency being a fiduciary relation, the agent the principal suffering any damage since the
is required to observe utmost good faith and loyalty current rate of interest would have to be paid
towards his principal. in any case if
Ø He must look after the principal’s interests as if the loan were obtained from a third person.
they were his own.
Ø He is not permitted without the knowledge and Ø If the agent has been authorized to lend money
consent of the principal, to assume two distinct at interest, he cannot be the borrower without
and opposite characters in the same the consent of the principal because the agent
transaction — acting for himself and may prove to be a bad debtor. There is here a
pretending to act for his principal. possible conflict of interest. The transaction
Ø He is prohibited from dealing in the agency may thus be prejudicial to the principal.
matter on his own account and for his own
behalf without the consent of his principal,
freely given with full knowledge of all the ART. 1891. Every agent is bound to render an account of
circumstances which might affect the his transactions and to deliver to the principal whatever
transaction. he may have received by virtue of the agency, even
Ø An agent, therefore, is liable for damages if, though it may not be owing to the principal.
there being a conflict between his interests Every stipulation exempting the agent from the
and those of the principal, he should prefer his obligation to render an account shall be void.
own. Obligation to render accounts
Ø The rule is the same whether the agency is It is the duty of the agent to account for and to deliver
onerous or gratuitous, since the law does not to the principal (or an authorized third party) all money
distinguish and property which may have come into his hands or of
a sub-agent appointed
Basis: to shut the door against temptation and keep the by him by virtue of or as a result of the agency.4 This
agent’s eye single to the rights and welfare of his includes gifts from the third party in connection with the
principal. agency.
Ø The rule is one of preventive, not remedial
justice, which operates however fair the Source of profits. — It is immaterial whether such money
transaction may have been — however free or property is the result of the performance or violation
from every taint of moral wrong. of the agent’s duty, if it be the fruit of the agency.
Ø See examples on p. 462 Ø If his duty be strictly performed, the resulting
profit accrues to the principal as the legitimate
consequence of the relation;
Where the agents are superior Ø If profit accrues from his violation of duty while
Ø Where there is a conflict between the agent’s executing the agency, that likewise belongs to
own interests and those of the principal, the the principal, not only because the principal
agent has the duty to prefer the principal’s has to assume the responsibility of the
interest over his own. transaction, but also because the agent
Ø However, where the agent’s interests are cannot be permitted to derive advantage
superior, such as where he has a security from his own default.
interest in goods of the principal in his Ø It matters not how fair the conduct of the
possession, he may protect this interest even if agent may have been in a particular case, nor
in so doing he disobeys the principal’s orders or
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 5

that the principal would have been no better money or property belonging to the
off if the agent had strictly pursued his power, beneficiary of a trust
nor that the principal was not, in fact, injured
by the intervention of the agent for his own When obligation to account not applicable
profit. The result in both cases is the same. Ø The duty embodied in Art. 1891 will not apply if
Ø See examples and illustrative cases, p. 465-466 the agent or broker acted only as a
middleman with the task of merely bringing
Secret profit — It has been held that an agent who takes together the vendor and the vendee, who
a secret profit in the nature of a bonus, gratuity or themselves thereafter will negotiate on the
personal benefit from the vendee, without revealing the terms and conditions of transaction
same to his principal, the vendor, is guilty of breach of Ø if the agent or broker had informed the
his loyalty to the principal and forfeits his right to collect principal of the gift or bonus or profit he
the commission from his principal received from the purchaser and his principal
Ø Even if the principal does not suffer any injury did not object thereto.
by reason of such breach of fidelity, or that he Ø Where a right of lien exists in favor of the agent,
obtained better results, or that the agency is a the rule is not also applicable.
gratuitous one, or that usage or custom allows o The agent may retain in pledge the
it; things which are the object of the
because the rule is to prevent the possibility of agency until the principal effects the
any wrong, not to remedy or repair an actual reimbursement and the pays the
damage. indemnity provided
Ø By taking such profit or bonus or gift or propina o A lawyer shall have a lien upon the
from the vendee, the agent thereby assumes a funds, documents and papers of his
position wholly inconsistent with that of being client and may retain the same until
an agent for his principal, who has a right to his lawful fees and disbursements
treat him, insofar as his commission is have been paid
concerned, as if no agency existed.
Ø The fact that the principal may have been Obligation to turn over proceeds
benefited by the valuable services of the said Ø The obligation imposed upon the agent to
agent does not exculpate the agent who has render an accounting and report of his
only himself to blame for such a result by reason collections, presupposes the duty of
of his treachery or perfidy simultaneously turning over his collections.
Ø See illustrative cases, p. 468-469 Ø “Report” imports a statement of collections.
Ø “Accounting” means settling of accounts of
administration or agency; delivery or payment
Stipulation exempting agent from obligation to account of property funds or money coming into the
void hands of the agent; submission of a statement
-Because it encourage fraud. It is in the nature of a of receipts and disbursements with the trust
waiver of an action for future fraud which is void. funds coming into his hands and
Ø Paragraph 2 of Article 1891 is designed to stress tender or turning over to the one to which he is
the highest loyalty that is required of an agent. liable, moneys and property in respect thereto.
Ø Article 1891 (and Art. 1909.) imposes upon the The payment is part of the accounting.
agent the absolute obligation to make a full Ø The agent must account for the very property
disclosure or complete account to his principal or funds he has
of all his transactions and other material facts received for his principal. All profits made and
relevant to the agency, so much so that the any advantage gained
law does not countenance any stipulation by an agent in the execution of his agency
exempting the agent from such obligation and should belong to the
condemns as principal.
void such stipulation. The duty of an agent is
likened to that of a trustee. This is not a Nature of agent’s possession of goods or proceeds
technical or arbitrary rule but a rule founded on received in agency
the highest and truest principle of morality as Possession of Servant or Possession of Agent
well as of the strictest justice Messenger
Does not pertain to both Has both the physical
Liability for Conversion physical and juridical and juridical possession
Ø Estafa: If the agent fails to deliver and instead possession of the goods of the goods received in
converts or appropriates for his own use the received in agency agency, or the proceeds
money or property belonging to the principal. thereof, which take the
(Art. 315, par. 1[b], Revised Penal Code.) place of the goods after
Ø He cannot retain the commission pertaining to their sale by the agent.
him by subtracting the same from his
collections. His duty to turn over the
Ø The duty of an agent to account for money or proceeds of the agency
property in his hands belonging to his principal depends upon his
is similar to that of a trustee in possession of discharge as well as the
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 6

result of the accounting principal which the agent has been empowered to
between him and the perform.
principal, and he may
not set up his right of Power of agent to appoint sub-agent or substitute
possession as against
† Unless prohibited by the principal, the agent
that of the principal until
may appoint a sub-agent or substitute.
the agency is terminated
o The agent in this situation is a principal
with respect to the substitute. The law
allows such substitution for reasons of
convenience and practical utility.
Possession of teller of Possession of Agent
o An agent may not delegate to a
bank
subagent where the work entrusted to
The teller is a mere Agent can even assert, him by the principal to carry out
custodian or keeper of as against his own requires special knowledge, skill, or
the funds received, and principal, an competence unless he has been
has no independent right independent,
authorized to do so by the principal.
or title to retain or possess autonomous right to
† While ordinarily the selection of an agent is
the same as against the retain the money or
determined largely by the trust and
bank. goods received in
confidence that the principal has in the agent,
consequence of the
the principal need not fear prejudice as he has
In payment by third agency, as when the a right of action not only against the agent but
persons to the teller is principal fails to also against the substitute with respect to the
payment to the bank reimburse him for
obligations which the latter has contracted
itself advances he has made,
under the substitution. (Art. 1893.)
and indemnify for
o This right of action against the
damages suffered
substitute is an exception to the
without his fault. (Art.
general rule that contracts are
1914.) binding only between the contracting
parties, their assigns and heirs.
A receiving teller of a Where a sales agent
bank who misappropriates or fails to Relation among the principal, agent, and sub-agent
misappropriates money turn over to his principal
received by him for the proceeds of things or Sub-agent appointed by agent on latter’s sole account
bank is guilty of qualified goods he was
† In reality, the sub-agent is a stranger to the
theft on the theory that commissioned or
principal who originally gave life to the
the possession of the authorized to sell for the
agency.
latter is the possession of latter, he is guilty of
o This is particularly true where the sub-
the bank he being a estafa. (Art. 315, par.
agent has been employed by the
mere bank employee. 1[c], Revised Penal
agent on the latter’s own account to
Code.)
assist him in what he has undertaken
to do for the principal.
o The principal will not be liable to third
ART. 1892. The agent may appoint a substitute if the parties for the sub-agent’s acts but
principal has not prohibited him from doing so; but he the agent will be liable to the
shall be responsible for the acts of the substitute: principal or third parties if the sub-
agent acts wrongfully.
(1) When he was not given the power to appoint one;

Sub-agent appointed by agent with authority from


(2) When he was given such power, but without
principal
designating the person, and the person appointed was
notoriously incompetent or insolvent. † Where, however, the agent is authorized to
appoint a sub- agent, a fiduciary relationship
All acts of the substitute appointed against the exists between the principal and the agent, the
prohibition of the principal shall be void. agent and sub-agent, and the principal and
the sub-agent.
ART. 1893. In the cases mentioned in Nos. 1 and 2 of the † Any act done by the substitute or sub-agent in
preceding article, the principal may furthermore bring behalf of the principal is deemed an act of the
an action against the substitute with respect to the principal.
obligations which the latter has contracted under the † Consequently, neither the agent nor the
substitution. substitute can be held personally liable so long
as they act within the scope of their authority.
† The sub-agent may also be the agent of the
SUB-AGENT principal if he is in actual control of the business
à a person employed or appointed by an agent as his and the principal knows of his appointment, or
agent, to assist him in the performance of an act for the knows that his appointment is necessary, and
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 7

the agent was not prohibited from employing F If the substitution has occasioned damage to
a sub-agent. the principal, the agent shall be primarily
responsible for the acts of the substitute as if he
Effect of death of principal/agent himself executed them. The principal has also
a right of action against the substitute. (Art.
† If the authority of the sub-agent proceeds from 1893.)
the principal, the death of the agent who F It has been held that an attorney who takes a
appointed him does not affect his authority. claim “for collection” without qualification as
† But where the sub-agent is a substitute for the to his liability is liable for the defaults of his own
agent and acts under authority from him and clerks and agents, and if he sends the claim to
to whom he is accountable, the death of the another attorney for collection, he is generally
agent terminates his authority even though the held liable for the latter’s defaults.
power of substitution is given in the original o Villa vs. Garcia Bosque: A substitute
power. appointed to collect the deferred
installments from the sale of property
made by an attorney-in-fact has no
Effects of substitution
authority to enter into a new contract
with the transferee by modifying the
Substitution prohibited
terms of the sale and releasing the
r When the substitute is appointed by the agent solidary sureties in the original
against the express prohibition of the principal, contract.
the agent exceeds the limits of his authority.
(Art. 1881.) EXAMPLE:
r The law says that all acts of the substitute in P authorized A to manage P’s business affairs during the
such a case shall be void. (Art. 1892, par. 2.) time that P was in the province. A allowed T to manage
o Thus, if the agent is authorized to sell the store for him.
goods of the principal, the sale made
by a substitute designated by the (1) Is A responsible for damages caused by the acts of
agent against the prohibition of the T? Yes, if T was appointed by A against the prohibition of
principal is void. P that he shall not entrust the management of the store
to another person; or he was not given the power to
ª If the principal has not prohibited the agent from
appoint one; or he was given the power, but T is
appointing a substitute, he will be liable to third persons
“notoriously incompetent or insolvent.’’
for the acts of the sub-agent within the scope of his
authority, whether or not such sub-agent is known to the Ê No, if A was given the power and T was not
principal. “notoriously incompetent or insolvent,” or T is
the person designated by P to be appointed
Substitution authorized as substitute.
þ If in the contract of agency, the agent is given (2) Is the substitution valid?
the power to appoint a substitute and the
principal did not designate any particular Ê No, if A was prohibited by P from appointing a
person to be appointed, the substitution has substitute.
the effect of releasing the agent from his Ê Yes, if A was given the power, or even if he was
responsibility unless the person appointed is not given the power, there was no prohibition
notoriously incompetent or insolvent (Art. imposed by P.
1892[2].) (3) Are the acts of T in the name of P valid?
o Reason: because this would be an
abuse by the agent of the principal’s Ê No, if T was appointed by A against the
confidence. prohibition of P or T acted beyond the scope of
þ The principal may proceed against both the his authority. (see Art. 1910.)
agent and the substitute for damages he may
have suffered. ART. 1894. The responsibility of two or more agents, even
o But if the substitute is the person though they have been appointed simultaneously, is not
designated by the principal, the solidary, if solidarity has not been expressly stipulated.
consequence is the absolute
exemption of the agent. ART. 1895. If solidarity has been agreed upon, each of
the agents is responsible for the non-fulfillment of the
Substitution not authorized, but not prohibited agency, and for the fault or negligence of his fellow
agents, except in the latter case when the fellow agents
F If the agent appoints a substitute when he was acted beyond the scope of their authority. (n)
not given the power to appoint one, the law Necessity of concurrence where there are two or more
recognizes the validity of the substitution if the agents.
same is beneficial to the principal because the
agency has thus been executed in fulfillment à In American Law, the term joint agents is used in a
of its object. restricted sense to mean agents appointed by one or
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 8

more principals under such circumstances as to induce recover from the guilty or negligent agent. (Art.
the inference that it was the principal’s intent that all 1217, par. 2.)
should act in conjunction in consummating the
transaction for which they were appointed.   An agent who exceeds his powers does not act as
such agent, and, therefore, the principal assumes no
F A distinction is made between a private “joint liability to third persons. Since this is so, solidary liability
agency” and a public “joint agency” (created cannot be demanded by the principal.
by law, or essentially public in character). In the
former, the agency cannot be exercised EXAMPLE:
except by the concurrence of all the agents A and B were appointed by P to manage the latter’s
while in the latter, it may be exercised by a business. Is A liable to P for damages in the amount of
majority. P10,000.00 caused by the fault or negligence of B?

Ü Generally, it is presumed in American law that when a (1) The presumption is that their responsibility is
principal employs more than one agent to represent him joint. Hence, A is not liable. But if both A and B
in the same matter of business, they are joint agents as were at fault, they shall be liable for P5,000.00
used above. each.
(2) If solidarity has been agreed upon, P may
r Our law does not make the same presumption recover P110,000.00 either from A or B. If A pays
except as to the separate liability of the P5,000.00, P can still go against A and B for the
agents. balance as long as the entire amount has not
o A principal, however, may appoint been paid. (see Art. 1216.)
more than one agent, each one to (3) Incidentally, “joint” liability in the common law
act separately in a particular branch system is the equivalent of “solidary” or
of his principal’s business or in a “several” liability in our jurisdiction. (see Art.
particular locality. 1915.)
o Such agents are called several
agents in American law, and are to
act separately and when more than ART. 1896. The agent owes interest on the sums he has
one agent is appointed with applied to his own use from the day on which he did so,
reference to the same business, they and on those which he still owes after the extinguishment
are still several agents if it appears of the agency.
that it was the intention of the
principal that they should act Liability of agent for interest
separately, and an execution of the à Article 1896 contemplates two distinct cases.
power by one of them is valid and
binding on the principal. (1) The first refers to sums belonging to the
Ü It is, of course, advisable that when a principal hires principal which the agent applied to his own
several agents to act for him, that he defines their use and
powers — whether they may act only as a unit or (2) the second, to sums which the agent still owes
whether they may act separately. the principal after the expiration of the agency.

Nature of liability of two or more agents to their principal ‘ The agent who converted to his personal use the
funds of the principal is liable for interest by way of
I In a joint obligation, each debtor is liable only for a compensation or indemnity (not to be confused with
proportionate part of the debt. interest for delay) which shall be computed from the day
on which he did so.
Ê If it is solidary, each debtor is liable for the entire ë Of course, the agent’s liability is without
obligation. (Art. 1216.) The presumption is that prejudice to a criminal action that may be
an obligation is joint. (Arts. 1207, 1208.) The rule brought against him because of the
in Article 1894 follows the general principle conversion. (Art. 315, par. 1[b], Revised Penal
respecting solidarity. Code.)

De Borja vs. De Borja: While there is no liability for interest


_ If solidarity has been agreed upon, each of the
on sums which have not been converted for the agent’s
agents becomes solidarily liable:
own use, the agent who is found to owe the principal
sums after the extinguishment of the agency is liable for
(a) for the non-fulfillment of the agency even interest from the date the agency is extinguished.
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 Demand not essential for delay to exist
provided the latter acted within the scope of Is it always necessary that a demand for
their authority. (Art. 1895.) payment be made by the principal in order
(c) The innocent agent has a right later on to that delay shall exist?
à A negative answer seems evident in view of
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 9

the clear provisions of the article. (see Art. bound would, in effect, create a new
1169[1].) contract for the parties.
o Under the majority rule, liability of the
9 It is clear that if by provision of law the purported agent, dependent on the
agent is bound to deliver to the facts of the particular case, is
principal whatever he may have predicated on a breach of an implied
received by virtue of the agency (Art. warranty or promise of authority, or in
1891.), demand is no longer tort for deceit or misrepresentation. Of
necessary. course, when governed by statute,
the purported agent, according to its
Art. 1897. The agent who acts as such is not personally provisions, will be held liable on the
liable to the party with whom he contracts, unless he contract itself, or for breach of the
expressly binds himself or exceeds the limits of his implied warranty of authority.
authority without giving such party sufficient notice of
his powers. Tort cases
• Agency is no defense to action against an
Duties and liabilities of agent to third persons agent based upon commission of tort, his
liability being neither increased nor decreased
General Rule: The principal is responsible for the acts of by the fact of his agency.
the agent done within the scope of his authority and • If the tort is committed by the agent within the
should bear any damage caused to third persons. The scope of his authority, both the principal and
agent acquires no rights whatsoever, nor does he incur the agent are liable. It is no defense by the
any liabilities arising from the contract entered into by agent that the benefit obtained by the tort has
him on behalf of his principal. been turned over to the principal.

The duties of an agent to third persons and his Where duty violated owed solely to principal
corresponding liabilities must be considered with • An agent is liable to third persons for injury
reference to the character of his act as to whether it is resulting from his misfeasance or malfeasance,
authorized or unauthorized, and also with reference to meaning by these terms, the breach of a duty
the nature of liability which it sought to assert as being in owed to third persons generally independent
contract or in tort. of the particular duties imposed by his agency.
• But an agent is generally not responsible to
Unauthorized assumption of agency third persons for injury resulting from
• One who unauthorizedly assumes to act for nonfeasance, meaning by that term, the
another is guilty of a wrong, and is liable for the omission of the agent to perform a duty owed
damage to those dealing with him in reliance solely to his principal by reason of his agency.
on his assumed authority in that they are • An agent cannot, as such, “be subject to any
deprived of the benefit of the responsibility of obligations toward third persons other than
the principal. those of his principal. Those duties are not
• Indeed, the assumed agent, by his act, imposed upon him by law. He has agreed with
impliedly warrants or represents that he has no one except his principal to perform them. In
authority, thereby predicating liability for the failing to do so, he wrongs no one but the
damage sustained. This implied warranty and principal, who alone can hold him
its accompanying liability is not confined responsible.”
merely to the making of contracts but extends
to all unauthorized acts perpetrated in his
assumed agency.
• If no damages have been sustained, no liability
for the agent’s false assumption of authority
exists.

Nature of liability
• 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. However, in the absence of an
apt expression or intention, the nature of his
liability is the subject of some divergence in
judicial opinion.
o According to the weight of authority,
the purported agent is not liable on
the contract itself, for the reason that
there has been no intention to bind
the agent, and to hold that he is
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 10

When agent may incur personal liability (See pages 492-495 for examples)

When the agent expressly binds himself, he thereby Art. 1898. If the agent contracts in the name of the
obligates himself personally and by his own act. principal, exceeding the scope of his authority, and
the principal does not ratify the contract, it shall be
void if the party with whom the agent contracted is
When the agent exceeds his authority, he really acts aware of the limits of the powers granted by the
without authority and, therefore, the contract is principal. In this case, however, the agent is liable if
unenforceable against the principal unless the latter
he undertook to secure the principal's ratification.
ratifies the act.
•The agent becomes personally liable because by his Effect where third person aware of limits of agent’s
wrong or omission, he deprives the third person with powers
whom he contracts of any remedy against the
• If the agent acts in the name of the principal
principal. The third person would be defrauded if he
would not be allowed to recover from the agent. and within the scope of his authority,
è The agent assumes no liability. The
•That the agent exceeded his authority must be
proved by the principal if he denies liability, or by the effect of the representation is to bind
third person if he wants to hold the agent personally the principal as though he personally
liable, on that ground. Note that in case of excess of entered into the contract.
authority by the agent, the law does not say that a • If the agent acts in excess of his authority, even
third person can recover from both the principal and if he contracts in the name of the principal,
the agent. è the agent is the one personally liable
unless there is subsequent ratification
by the principal.
When an agent by his act prevents performance on the è The rule that a contract entered into
part of the principal, he can be held liable to third by one who has acted beyond his
persons. powers shall be unenforceable refers
to the unenforceability of the
•The agent in any event must be precluded from contract against the principal, and
doing any positive act that could prevent
does not apply where the action is
performance on the part of his principal. This much,
against the agent himself for
ordinary good faith towards the other contracting
party requires. contracting in excess of the limits of
his authority.
• The liability of an agent who exceeds the
When a person acts as an agent without authority or scope of his authority depends upon whether
without a principal, he is himself regarded as a the third person is aware of the limits of the
principal, possessed of all the rights and subject to all
agent’s power.
the liabilities of a principal.
è The agent is not bound nor liable for
A person who purports to act as agent of an damages in case he gave notice of
incapacitated principal also incurs personal liability his powers to the person with whom
unless the third party was aware of the incapacity at the he has contracted nor in case such
time of making the contract. person is aware of the limits of the
powers granted by the principal.

(See pages 498-499 for examples)


General Rule: A third party’s liability on agent’s contracts
is to the principal, not to the agent, because such
Art. 1899. If a duly authorized agent acts in
contracts are not his own but his principal’s.
accordance with the orders of the principal, the latter
cannot set up the ignorance of the agent as to
Exceptions:
circumstances whereof he himself was, or ought to
1. Where the agent contracts in his own name for
have been, aware.
an undisclosed principal, in which case, the
agent may sue the third party to enforce the
contract • It is enough that the agent acts within the
2. Where the agent possesses a beneficial scope of his authority and in accordance with
interest in the subject matter of the agency. the instructions of the principal.
3. Where the agent pays money of his principal to • If the principal appoints an agent who is
a third party by mistake or under a contract ignorant, the fault is his alone. Equity demands
which proves subsequently to be illegal, the that the principal should be bound by the acts
agent being ignorant with respect to its illegal of his agent.
nature
4. Where the third party commits a tort against Art. 1900. So far as third persons are concerned, an
the agent. The converse is also true: an agent act is deemed to have been performed within the
may sue for a tort committed against him, even scope of the agent's authority, if such act is within the
though the alleged tortious act is also a wrong terms of the power of attorney, as written, even if the
against the principal. agent has in fact exceeded the limits of his authority
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 11

according to an understanding between the principal • Exception: An agent’s authorization may not,
and the agent. however, be enlarged through usage and
custom in the following cases:
Scope of agent’s authority includes not only the actual o Where it is sought to vary the terms of
authorization conferred upon the agent by his principal, an express authorization, as where
but also that which has apparently or impliedly been the agent appointed to sell for cash
delegated to him. only, seeks to allege a custom to sell
for credit
•Every person dealing with an o Where it is sought thereby to dispense
assumed agent is put upon an with a legal requirement enacted for
inquiry and must discover upon the principal’s benefit (as for
his peril, if he would hold the example, Art. 2112, that the pledge
principal liable, not only the fact may appropriate the thing pledged
of the agency but the nature only if after the first and second public
and extent of authority of the auctions, the thing is not sold)
agent. o Where it is sought thereby to change
•He must act with ordinary a rule of law (as for example, a law
prudence and reasonable makes illegal certain contracts) or to
Where diligence to ascertain whether
dispense with a formality required by
the agent is acting and dealing
authority is with him within the scope of his law (as for example, the Statute of
not in powers. Frauds)
writing •The fact that one is dealing with o Where it is sought to vary an essential
an agent, whether the agency quality of the agency relationship, as
be general or special, should be where a broker acting under an
a danger signal. The mere authority to sell stock, purchased
representation or declaration of principal’s stock for himself, and then
one that he is authorized to act introduces a custom in the market,
on behalf of another cannot of empowering him to do so
itself serve as proof of his
• General Rule: Requires that the principal must
authority to act as agent or of
the extent of his authority as have notice of the alleged custom before the
agent. agent’s acts, in accordance therewith, may
bind the principal.
o Exceptions:
§ Where the principal and the
agent reside in the same
•If the authority of the agent is in community, the usage is
writing, such person is not
definite and well-known,
required to inquire further than
the terms of the written power of and the agent has no
attorney. As far as he is notice that he is to act to
concerned, an act of the agent the contrary
within the terms of the power of § Where the agent is
attorney as written is within the authorized to deal in a
Where scope of the agent’s authority, particular place or in a
authority is although the agent has in fact particular market or
in writing exceeded the limits of his actual exchange.
authority according to the secret
3. By necessity
understanding between him and
the principal. • The existence of an emergency or other
•In such a case, the principal is unusual conditions may operate to invest in an
estopped from claiming that the agent authority to meet the emergency,
agent exceeded his authority. provided:
The rule is necessary to protect o the emergency really exists;
the interests of third persons. o the agent is unable to communicate
with the principal;
o the agent’s enlarged authority is
exercised for the
o principal’s protection; and
(See pages 501-508 for examples) o the means adopted are reasonable
Methods of broadening and restricting agent’s authority under the circumstances.
(I - UNCE) 4. By certain doctrine
1. By implication • The doctrines of apparent authority (see Art.
• This means that the agent’s authority extends 1911.), of liability by estoppel (Art. 1873.), and
not only to the express requests, but also to of ratification (Art. 1910.) are additional
those acts and transactions incidental thereto. methods by which authorization may be
It embraces all the necessary and appropriate created.
means to accomplish the desired end. 5. By the rule of ejusdem generis
2. By usage and custom • “Of the same kind or species”
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 12

• The term is a method for stating the rule that deceitful representation of an agent in the
where, in an instrument of any kind, an course of his employment if the representation
enumeration of specific matters is followed by is authorized, or within the implied authority of
a general phrase, the general phrase is held to the agent to make for the principal, or
be limited in scope by the specific matters. apparently authorized, whether the agent was
authorized by him or not to make the
Responsibility of principal where agent acted with representation.
improper motives • A principal who has cloaked his agent with
apparent authority is estopped to deny said
authority. Innocent third persons should not be
General Rule prejudiced if the principal failed to adopt the
needed measures to prevent
misrepresentation, much more so if the
•The motive of the agent in entering in to a
principal ratified the agent’s acts beyond the
contract with a third person is immaterial. latter’s authority.
•Where a written authority given to an agent • Rationale: Agent’s position facilitates the
covers the thing done by him on behalf of consummation of the fraud in that from the
the principal, it is not competent to the point of view of the third person, the
court to look into the mind of the agent, and transaction seems regular on its face and the
if he had applied his authority for his own agent appears to be acting in the ordinary
course of the business confided to him.
ends, to hold that the principal is not bound.
Beyond the scope of agent’s authority
• The principal is not bound by the
misrepresentation of his agent committed
beyond the scope of his authority.
Exceptions
• It does not follow, however, that he can take
•Where the third person knew that the agent advantage of a contract made under the false
representation of an agent. The theory is that
was acting for his private benefi t. In other
the one who accepts the benefit of a contract
words, the principal is not liable to the third must also accept responsibility for the means
person. by which such contract was procured.
•Where the owner is seeking recovery of
personal property of which he has been For the agent’s own benefit
unlawfully deprived. • The weight of authority holds the principal
liable for his agent’s fraudulent acts committed
within the scope of his agency, where the
agent’s fraud was perpetrated for his own
benefit. Given the agent’s fraudulent act within
Contra: “Where a mortgagor is a retail merchant the scope of the authority, the principal is
engaged in selling articles or merchandise of the same subjected to liability though done by the agent
kind as the mortgaged property and the mortgagee solely to effect a fraudulent design for his own
permits the mortgagor to keep the mortgaged property benefit.
in his salesroom, among such other articles constituting • Similarly, a principal has often been held liable
his stock in trade, which he is selling in the regular course on contracts entered into by his agent from
of trade, in such case, even though the permission is improper motives, or violations by the agent of
coupled with the proviso that the mortgaged property his fiduciary duty, as where an agent with a
may be used for purposes of demonstration only, one general power of attorney to issue checks,
who purchases the mortgaged property in the regular issues checks for his own benefit.
course of trade in good faith obtains good title
unencumbered by the mortgage. (See pages 514-515 for examples)

If the law were otherwise, no one would dare purchase ART. 1901. A third person cannot set up the fact that the
at the merchant’s retail store a fur coat, a suit of clothes, agent has exceeded his powers, if the principal has
a piano, a radio set, or any other article of merchandise, ratified, or has signified his willingness to ratify the agent’s
without first searching the records in the office of the acts.
country clerk and recorder. x x x Where one of two
innocent persons must suffer loss because of the Ratification by the principal.
fraudulent act of a third person, the law places the loss (1) Binding effect of ratification.
upon the one who put it in the power of the third person ➔ The principal is not bound by the contract of his
to commit the fraud.” agent should the latter exceed his power. The
contract is unenforceable but only as regards
Principal’s responsibility for agent’s misrepresentation him. Hence, he may ratify the contract giving it
Within the scope of agent’s authority the same effect as if he had originally
• A principal is subject to liability for loss caused authorized it.
to another by the other’s reliance upon a
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 13

➔ Under the above article, the third person Presentation of power of attorney or instructions as
cannot set up the fact that the agent regards agency.
exceeded his authority to disaffirm his contract RULE: a third person deals with an agent at his peril.
not only after the principal has ratified the ➔ Hence, he is bound to inquire as to the extent
agent’s acts but even before such ratification of the agent’s authority, and this is especially
where he has signified his willingness to ratify. true where the act of the agent is of an unusual
➔ In such a case, the third person can be nature.
compelled to abide by his contract. ➔ Ignorance of the agent’s authority is no
➔ The ratification shall have retroactive effect. It excuse.
relates back to the time of the act or contract ➔ So, it is his duty to require the agent to produce
ratified and is equivalent to original authority. his power of attorney to ascertain the scope of
his authority. He may also ask for the
(2) Only principal can ratify. instructions of the principal.
➔ It is fundamental in the law of agency that only
the principal and not the agent can stamp the Third person not bound by principal’s private instructions.
imprimatur of ratification. ➔ While the third person is chargeable with
➔ There must be knowledge on the part of the knowledge of the terms of the power of
principal of the things he is going to ratify. attorney as written and the instructions
➔ Before ratification by the principal or disclosed to him, he is not bound and cannot
expression of willingness on his part to ratify, the be affected by the private or secret orders and
third person may repudiate the act of the instructions of the principal in the same way
agent. (see Art. 1317.) that he cannot be prejudiced by any
understanding between the principal and the
(3) Receipt by principal of benefits of transaction. agent.
➔ It is an established principle of law that where ➔ Such secret orders or instructions cannot be
a person acts for another who accepts or invoked as against third parties if the agent has
retains the benefits or proceeds of his effort apparent authority.
with knowledge of the material facts
surrounding the transaction, the latter must be ART. 1903. The commission agent shall be responsible for
deemed to have ratified the methods the goods received by him in the terms and conditions
employed, as he may not, even though and as described in the consignment, unless upon
innocent, receive or retain the benefits and at receiving them he should make a written statement of
the same time disclaim responsibility for the the damage and deterioration suffered by the same.
measures by which they were acquired.
◆ This is in accord with the principle to Factor or commission agent defined.
the effect that a principal may not A factor or commission agent is one whose business is to
accept the benefits of a transaction receive and sell goods for a commission (also called
and repudiate its burdens. factorage) and who is entrusted by the principal with the
possession of goods to be sold, and usually selling in his
Ø A principal is deemed to have received the own name. (See Art. 1868, re distinctions between
benefits of the unauthorized sale of his property commission agent and broker.)
and thereby ratified the transaction where the ➔ He may act in his own name or in that of the
checks issued by the buyer in favor of the principal.
principal were credited to the latter’s account ➔ An ordinary agent need not have possession of
with a bank or endorsed and negotiated by the goods of his principal, while the
him. commission agent must be in possession.
Ø A principal who seeks to enforce a sale made
by his agent cannot ordinarily allege that the Liability of commission agent as to goods received.
agent exceeded his instructions in warranting ➔ If the commission agent received goods
the goods, because he must accept the consigned to him, he is responsible for any
contract as a whole if he means to rely on any damage or deterioration suffered by the same
portion. For the same reason, he cannot treat in the terms and conditions and as described
the sale good for the agreed price, but bad as in the consignment.
to the agreed mode of payment. ➔ The phrase “in the terms and conditions and as
described in the consignment” refers to the
quantity, quality, and physical condition of the
ART. 1902. A third person with whom the agent wishes to goods.
contract on behalf of the principal may require the ➔ To avoid liability, the commission agent should
presentation of the power of attorney, or the instructions make a written statement of the damage or
as regards the agency. Private or secret orders and deterioration if the goods received by him do
instructions of the principal do not prejudice third not agree with the description in the
persons who have relied upon the power of attorney or consignment.
instructions shown them.
ART. 1904. The commission agent who handles goods of
the same kind and mark, which belong to different
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 14

owners, shall distinguish them by countermarks, and Purpose of the provision: to prevent the agent from
designate the merchandise respectively belonging to stating that the sale was on credit when in fact it was
each principal. made for cash.

Obligation of commission agent handling goods of same • Again, the agent shall be entitled to the benefits arising
kind and mark. from the credit sale.
➔ This provision explains itself. The evident • The principal may also choose to ratify the sale on credit
purpose is to prevent any possible confusion or with all its resulting benefits and risks.
deception. He may not commingle the goods
without authority. EXAMPLE:
➔ An agent is also under a duty not to mingle his Suppose, in the preceding example, A was authorized
principal’s property with his own or to deal with by P to sell on credit but he failed to so inform P with a
his principal’s property in a way which would statement of the name of the buyer.
make it appear to be his own property. In this case, P may demand from A the payment of
GENERAL RULE: the agent must hold the property only in the P20,000.00 in cash. As far as the buyer is concerned,
the name of the principal. Where he violates that duty the sale is on credit and he is not liable to pay before the
by mingling the property with his own, he becomes a arrival of the period agreed upon.
debtor of the principal and liable to him for any losses
suffered as a result of the mingling. ART. 1907. Should the commission agent receive on a
sale, in addition to the ordinary commission, another
EXCEPTIONS: called a guarantee commission, he shall bear the risk
● First, by custom, some agents, such as of collection and shall pay the principal the proceeds
auctioneers, normally are permitted to mingle of the sale on the same terms agreed upon with the
their principal’s property with their own. purchaser.
● Second, some agents, such as collecting Guarantee commission (also called del credere
banks, are permitted to mingle the funds of commission) is one where, in consideration of an
their principal (depositor) with their own and increased commission, the factor or commission agent
the property of other principals. guarantees to the principal the payment of debts arising
through his agency.
ART. 1905. The commission agent cannot, without the
express or implied consent of the principal, sell on credit. del credere agent - an agent who guarantees payment
Should he do so, the principal may demand from him of the customer’s account in consideration of the higher
payment in cash, but the commission agent shall be commission
entitled to any interest or benefit, which may result from
such sale. Purpose of the Guarantee Commission: is to
compensate the agent for the risks he will have to bear
Right of principal where sale on credit made without in the collection of the credit due the principal.
authority.
A commission agent can sell on credit only with the Article 1907 applies to both cash and credit sales
express or implied consent of the principal. because it makes no distinction.
If such sale is made without authority, the principal is
given two alternatives: NATURE OF LIABILITY OF A DEL CREDERE AGENT
1. He may require payment in cash, in which
case, any interest or benefit from the sale on P An agent with a del credere commission is liable to the
credit shall belong to the agent since the principal if the buyer fails to pay or is incapable of
principal cannot be allowed to enrich himself paying.
at the agent’s expense; or P But he is not primarily the debtor.
2. He may ratify the sale on credit in which case it P On the contrary, the principal may sue the buyer in his
will have all the risks and advantages to him. own name notwithstanding the del credere commission,
so that the latter amounts to no more than a guaranty.
ART. 1906. Should the commission agent, with P the liability of the del credere agent is a contingent
pecuniary liability — to make good in the event the
authority of the principal, sell on credit, he shall so
buyer fails to pay the sum due.
inform the principal, with a statement of the names of
P It does not extend to other obligations of the contract,
the buyers. Should he fail to do so, the sale shall be
such as damages for failure of the buyer to accept and
deemed to have been made for cash insofar as the
pay for the goods.
principal is concerned.
P A del credere agent may sue in his name for the
purchase price in the event of non-performance by the
OBLIGATION OF COMMISSION AGENT WHERE SALE ON
buyer.
CREDIT AUTHORIZED
Upon failure of the agent to inform the principal of
ART. 1908. The commission agent who does not
such sale on credit with a statement of the names of the
collect the credits of his principal at the time when
buyers, an authorized sale on credit shall be deemed to
they become due and demandable shall be liable for
have been on a cash basis insofar as the principal (not
damages, unless he proves that he exercised due
third parties) is concerned.
diligence for that purpose.
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 15

ILLUSTRATIVE CASES:
OBLIGATION OF COMMISSION AGENT TO COLLECT (1) Facts: A, agent, promised without consideration to
CREDITS OF PRINCIPAL insure P’s goods against loss. A failed to keep his
A commission agent who has made an authorized sale promise to insure the goods which were destroyed by
on credit must collect the credits due the principal at the fire.
time they become due and demandable. Issue: May P hold A liable for the loss of the goods?
Held: Yes. An agent who gratuitously assumes the
If he fails to do so: he shall be liable for damages agency obligation and neglects to carry it out is
Exception: unless he can show that the credit could not generally not liable for his nonfeasance. But where
be collected notwithstanding the exercise of due the agent knows or should know that the principal, in
diligence on his part. reliance upon his promise to do the given act, will
refrain from doing the act himself, liability for
Where the agent is not liable, the principal’s remedy: is nonfeasance attaches.
to proceed against the debtor.
(2) Facts: P ordered his broker A, to sell his gold shares
Note: This article does not apply to a case where there is at a minimum price of P0.15 which A did. On the day
a guarantee commission. of the sale, gold shares were sold at prices ranging
from P0.16 to P0.195, or at an average of P0.175. P
brought suit to recover from A the difference
ART. 1909. The agent is responsible not only for fraud, between the value of his shares at P0.175 and the
but also for negligence, which shall be judged with price of P0.15 at which they were sold.
more or less rigor by the courts, according to whether Issue: Is P entitled to recover the said difference?
the agency was or was not for a compensation. Held: Yes. A should have sold the shares at the highest
possible price. He failed to exercise the prudence
LIABILITY OF AGENT FOR FRAUD AND NEGLIGENCE/ and tact of a good father of a family which the law
INTENTIONAL WRONG required of him.
(1) In the fulfillment of his obligation, the agent is
responsible to the principal not only for fraud committed (3) Facts: A, a manager of PNB, violated standing
by him but also for negligence. regulations regarding the granting of loans; and what
Š It is his duly to notify the principal of all relevant is more, thru his carelessness, laxity, and negligence,
and material facts or any information having a he allowed loans to be granted to persons who were
bearing on the interests of the principal as soon not entitled to receive loans. PNB brought action
as reasonably possible after learning them. against both A and the borrower to recover the loans
Š Whether or not the agency is for compensation granted.
or gratuitous: will be considered by the courts Issue: Is it necessary for PNB to first go against the
in fixing the liability of the agent for negligence borrower, exhaust all remedies against him and then
(not fraud). hold A liable only for the balance?
Š Presumption: Agency is for compensation. Held: No. PNB could proceed against A for losses it
Š The agent is liable: had sustained in consequence of the unauthorized
1. when he does not discharge the agency loans released by him. The cause of action of PNB
with due promptness, or accrued and the injury to it was complete on the very
2. according to the instructions of his day that the amounts of the unauthorized loans were
principal, or released by A.
3. within the limits of his authority, or Ordinarily, if the principal collects either judicially or
4. when he does not make use of the extra-judicially a loan made by an agent without
powers conferred on him. authority, he thereby ratifies the said act of the agent.
However, in the case at bar, PNB is merely trying to
(2) Quasi-delict or tort may be committed by act or diminish as much as possible the loss to itself and
omission. If it causes damage to another, there being automatically decrease the financial liability of A.
fault or negligence, the guilty party is liable for the
damage done. (Art. 2176.) (4) Facts: G opened an account with GSAL (a savings
Š Article 1909 speaks of negligence (simple and loan association) and deposited over a period of
carelessness). two months 38 treasury warrants drawn by a
Š The agent, to be sure, is also liable for torts government agency with a total value of more than
committed willfully. P1.7 million. Six of these were directly payable to G
Š General Rule: the principal is not responsible if while the others appear to have been indorsed by
the agent’s tort was intentional rather than their respective payees followed by G as second
merely negligent. indorser. The warrants were subsequently indorsed by
o Reason: an intentional wrong committed C, Cashier of GSAL, and deposited to GSAL’s savings
by one employed is more likely motivated account with a branch of MBTC (bank) which
by personal reasons than by a desire to forwarded them to the Bureau of Treasury for special
serve or benefit his employer. clearing. In the meantime, G was not allowed to
Š The principal is solidarily liable if the tort was withdraw from his account.
committed by the agent while performing his After more than two weeks, “exasperated” over C’s
duties in furtherance of the principal’s business. repeat- ed inquiries as to whether the warrants had
筆記 Agency, Trust and Partnership – Atty. Genevieve Nueve-Co 16

been cleared, and also as an accommodation for a


“valued client,” MBTC finally decided to allow GSAL
to withdraw from the proceeds of the warrants. In
turn, GSAL subsequently allowed G to make with-
drawals from his own account. Later, MBTC informed
GSAL that 32 of the warrants had been dishonored by
the Bureau of Treasury and demanded the refund of
the amount GSAL had previously withdrawn, to make
up for the deficit in its account.
Issue: Was MBTC negligent in giving GSAL the
impression that the treasury warrants had been
cleared and that consequently, it was safe to allow G
to withdraw the proceeds thereof from his account
with it?
Held: Yes. (1) MBTC not entitled to refund of amounts
withdrawn by GSAL. — The argument of MBTC that
GSAL would have exercised more care in checking
the personal circumstances of G before accepting
his deposit does not hold water. It was G who was
entrusting the warrants, not GSAL that was extending
him a loan. And moreover, the treasury warrants were
subject to clearing pending which the depositor
could not withdraw its proceeds. x x x In stressing that
it was acting only as a collecting agent for GSAL,
MBTC seems to be suggesting that as mere agent it
cannot be held liable to the principal. This is not
exactly true. On the contrary, Article 1909 clearly
provides that xxx

(2) MBTC exhibited extraordinary carelessness. — The


amount involved was not trifling (and this was in 1979).
Despite the lack of clearance — and notwithstanding
that it had not received a single centavo from the
proceeds of the treasury warrants — it allowed GSAL
to withdraw — not once, not twice, but thrice — from
the uncleared treasury warrants in the total amount
of P968,000.00. It “presumed” that the warrants had
been cleared. For a bank with its long experience, this
explanation is unbelievably naive.
MBTC misled GSAL. There may have been no
clearance but that clearance could be implied from
MBTC allowing GSAL to withdraw from its account
three times. The total withdrawal was in excess of its
original balance before the treasury warrants were
deposited, which only added to its beliefs that they
had indeed been cleared.