Agency: Obligations of the Agent (Arts. 1884 - 1909)

CHAPTER 2

Obligations of the Agent

Article 1884. 

The agent is bound by his acceptance 

to carry out the agency, 

and is liable for the damages which,

through his non-performance,

the principal may suffer.

He must also finish the business already begun

on the death of the principal, 

should delay entail any danger.

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Article 1885. 

In case a person declines an agency, 

he is bound to observe 

the diligence of a good father of a family 

in the custody and preservation of the goods 

forwarded to him by the owner 

until the latter should appoint an agent or take charge of the goods.

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Article 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.

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Article 1887. 

In the execution of the agency, 

the agent shall act in accordance 

with the instructions of the principal.

In default thereof, 

he shall do all that a good father of a family would do, 

as required by the nature of the business.

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Article 1888. 

An agent shall not carry out an agency 

if its execution would manifestly result 

in loss or damage to the principal.

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Article 1889. 

The agent shall be liable for damages if,

there being a conflict between

his interests and those of the principal, 

he should prefer his own.

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Article 1890. 

If the agent has been empowered 

to borrow money, 

he may himself be the lender 

at the current rate of interest. 

If he has been authorized 

to lend money at interest, 

he cannot borrow it 

without the consent of the principal.

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Article 1891. 

Every agent is bound 

to render an account of his transactions 

and to deliver to the principal 

whatever he may have received 

by virtue of the agency, 

even though it may not be owing to the principal.

Every stipulation exempting the agent 

from the obligation to render an account 

shall be void.

Article 1892. 

The agent may appoint a substitute 

if the principal has not prohibited him from doing so; 

but he shall be responsible for the acts of the substitute:

(1) When he was not given the power 

to appoint one;

(2) When he was given such power, 

but without designating the person, 

and the person appointed was notoriously incompetent or insolvent.

All acts of the substitute appointed 

against the prohibition of the principal 

shall be void. 

Article 1893. 

In the cases mentioned in Nos. 1 and 2 of the preceding article, 

the principal may furthermore bring an action 

against the substitute 

with respect to the obligations 

which the latter has contracted 

under the substitution.

Article 1894. 

The responsibility of two or more agents, 

even though they have been appointed simultaneously, 

is not solidary, 

if solidarity has not been expressly stipulated.

Article 1895. 

If solidarity has been agreed upon, 

each of the agents is responsible 

for the non-fulfillment of agency, 

and for the fault or negligence of his fellows agents, 

except in the latter case 

when the fellow agents 

acted beyond the scope of their authority.

Article 1896.

The agent owes interest 

on the sums he has applied to his own use 

from the day on which he did so, 

and on those which he still owes 

after the extinguishment of the agency.

Article 1897. 

The agent who acts as such 

is not personally liable 

to the party with whom he contracts, 

unless he expressly binds himself 

or exceeds the limits of his authority 

without giving such party sufficient notice of his powers.

Article 1898. 

If the agent contracts in the name of the 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 aware of the limits of the powers granted by the principal. 

In this case, however, 

the agent is liable 

if he undertook to secure the principal's ratification.

Article 1899. 

If a duly authorized agent 

acts in accordance with the orders of the principal, 

the latter cannot set up the ignorance of the agent 

as to circumstances whereof he himself was, 

or ought to have been, aware.

Article 1900. 

So far as third persons are concerned,

an act is deemed to have been performed 

within the scope of the agent's authority, 

if such act is within the terms of the power of attorney, 

as written, 

even if the agent has in fact 

exceeded the limits of his authority 

according to an understanding between the principal and the agent.

Article 1901. 

A third person 

cannot set up the fact 

that the agent has exceeded his powers, 

if the principal has ratified, or 

has signified his willingness to ratify the agent's acts.

Ratification by the principal. 

1. Binding effect of ratification. 
• The principal is not bound by the contract of his agent should the latter exceed his power.
• The contract is unenforceable but only as regards him. 
• Hence, he may ratify the contract giving it the same effect as if he had originally authorized it. (see Art. 1910, par. 2.) 
• Under the above article, the third person cannot set up the fact that the agent exceeded his authority to disaffirm his contract not only after the principal has ratified the agent’s acts but even before such ratification where he has signified his willingness to ratify.
• In such a case, the third person can be compelled to abide by his contract. 
• The ratification shall have retroactive effect.
• It relates back to the time of the act or contract ratified and is equivalent to original authority. 
2. Only principal can ratify. 
• It is fundamental in the law of agency that only the principal and not the agent can stamp the imprimatur of ratification. 
• There must be knowledge on the part of the principal of the things he is going to ratify. 
• It can hardly be said that there was ratification on his part in the absence of proof that he had knowledge of what was to be ratified. 
• Before ratification by the principal or expression of willingness on his part to ratify, the third person may repudiate the act of the agent. (see Art. 1317.) 
• In a case, the Supreme Court held that the State cannot impugn the validity of the compromise agreement executed by the Solicitor General on behalf of the State (in an expropriation proceeding) on the ground that it was executed by the counsel of the owner of the property, without any showing of having been especially authorized to bind the property thereby, because such alleged lack of authority may be questioned only by the principal or client, and the principal has on the contrary confirmed and ratified the compromise agreement.
3. Receipt by principal of benefits of transaction. 
• It is an established principle of law that where a person acts for another who accepts or retains the benefits or proceeds of his effort with knowledge of the material facts surrounding the transaction, the latter must be deemed to have ratified the methods employed, as he may not, even though innocent, receive or retain the benefits and at the same time disclaim responsibility for the measures by which they were acquired. 
• This is in accord with the principle to the effect that a principal may not accept the benefits of a transaction and repudiate its burdens. 
• A principal is deemed to have received the benefits of the unauthorized sale of his property and thereby ratified the transaction where the checks issued by the buyer in favor of the principal were credited to the latter’s account with a bank or endorsed and negotiated by him.
• A principal who seeks to enforce a sale made by his agent cannot ordinarily allege that the agent exceeded his instructions in warranting the goods, because he must accept the contract as a whole if he means to rely on any portion. For the same reason, he cannot treat the sale good for the agreed price, but bad as to the agreed mode of payment.

Article 1902. 

A third person 

with whom the agent wishes to contract 

on behalf of the principal 

may require the presentation of the power of attorney, 

or the instructions as regards the agency. 

Private or secret 

orders and instructions 

of the principal 

do not prejudice third persons 

who have relied upon the 

power of attorney or instructions shown them.

Presentation of power of attorney or instructions as regards agency. 

• As a rule, a third person deals with an agent at his peril. 
• Hence, he is bound to inquire as to the extent of the agent’s authority, and this is especially true where the act of the agent is of an unusual nature. 
• Ignorance of the agent’s authority is no excuse. 
• So, it is his duty to require the agent to produce his power of attorney to ascertain the scope of his authority. 
• He may also ask for the instructions of the principal. (Art. 1887.)

Third person not bound by principal’s private instructions. 

• While the third person is chargeable with knowledge of the terms of the power of attorney as written and the instructions disclosed to him, he is not bound and cannot be affected by the private or secret orders and instructions of the principal in the same way that he cannot be prejudiced by any understanding between the principal and the agent. (Art. 1900.) 
• Such secret orders or instructions cannot be invoked as against third parties if the agent has apparent authority.

Examples:

1. P employed A under a power of attorney to sell a parcel of land for not less than P200,000.00. In this case, A has no power to bind P by selling the property for less than the specified amount to T. His statement to T that he is authorized to sell at a lower price is not admissible against P.
2. Suppose, in the same example, the authority given to A is to sell at any reasonable price, with a secret instruction to keep the minimum price (P200,000.00) secret. A sold the property to T at P180,000.00. T is not bound by the secret instruction of P who is bound by the contract, his liability being based upon the apparent authority of A. (see Art. 1900.)

Article 1903. 

The commission agent 

shall be responsible for the goods 

received by him 

in the terms and conditions 

and as described in the consignment, 

unless upon receiving them 

he should make a written statement 

of the damage and deterioration 

suffered by the same.

Factor or commission agent defined. 

• A factor or commission agent is one whose business is to receive and sell goods for a commission (also called factorage) and who is entrusted by the principal with the possession of goods to be sold, and usually selling in his own name. (See Art. 1868, re distinctions between commission agent and broker.) 
• He may act in his own name or in that of the principal. 
• Ordinary agent — need not have possession of the goods of his principal
• Commission agent — must be in possession of the goods of his principal

Liability of commission agent as to goods received. 

• If the commission agent received goods consigned to him, he is responsible for any damage or deterioration suffered by the same in the terms and conditions and as described in the consignment. 
• The phrase “in the terms and conditions and as described in the consignment” refers to the:
• quantity
• quality
• physical condition of the goods
• To avoid liability, the commission agent should make a written statement of the damage or deterioration if the goods received by him do not agree with the description in the consignment. 

Article 1904. 

The commission agent 

who handles goods 

of the same kind and mark, 

which belong to different owners,

shall distinguish them by countermarks, 

and designate the merchandise 

respectively belonging to each principal.

Obligation of commission agent handling goods of same kind and mark. 

• This provision explains itself. 
• The evident purpose is to prevent any possible confusion or deception. 
• He may not commingle the goods without authority. 
• An agent is also under a duty not to mingle his principal’s property with his own or to deal with his principal’s property in a way which would make it appear to be his own property. 
• Ordinarily, the agent must hold the property only in the name of the principal.
• Where he violates that duty by mingling the property with his own, he becomes a debtor of the principal and liable to him for any losses suffered as a result of the mingling. 
• Two exceptions exist to these general rules:
1. By custom, some agents, such as auctioneers, normally are permitted to mingle their principal’s property with their own. 
2. Some agents, such as collecting banks, are permitted to mingle the funds of their principal (depositor) with their own and the property of other principals. 

Article 1905. 

The commission agent cannot,

without the express or implied consent of the principal, 

sell on credit. 

Should he do so, 

the principal may demand from him 

payment in cash, 

but the commission agent 

shall be entitled to 

any interest or benefit, 

which may result from such sale.

Right of principal where sale on credit made without authority. 

A commission agent can sell on credit only with the express or implied consent of the principal. If such sale is made without authority, the principal is given two alternatives: 

1. He may require payment in cash, in which case, any interest or benefit from the sale on credit shall belong to the agent since the principal cannot be allowed to enrich himself at the agent’s expense; or 
2. He may ratify the sale on credit in which case it will have all the risks and advantages to him. 

Article 1906. 

Should the commission agent,

with authority of the principal, 

sell on credit, 

he shall so inform the principal, 

with a statement of the names of the buyers. 

Should he fail to do so, 

the sale shall be deemed

to have been made for cash 

insofar as the principal is concerned.

Obligation of commission agent where sale on credit authorized. 

• Under this article, an authorized sale on credit shall be deemed to have been on a cash basis (Art. 1905.) insofar as the principal (not third parties) is concerned, upon failure of the agent to inform the principal of such sale on credit with a statement of the names of the buyers. 
• The purpose of the provision is to prevent the agent from stating that the sale was on credit when in fact it was made for cash. 
• Again, the agent shall be entitled to the benefits arising from the credit sale. 
• The principal may also choose to ratify the sale on credit with all its resulting benefits and risks. (See Art. 1905.)

Article 1907. 

Should the commission agent 

receive on a sale, 

in addition to the ordinary commission, 

another called a guarantee commission,

he shall bear the risk of collection 

and shall pay the principal the proceeds of the sale 

on the same terms agreed upon with the purchaser.

Meaning and purpose of guarantee commission. 

• Guarantee commission (also called del credere commission) is one where, in consideration of an increased commission, the factor or commission agent guarantees to the principal the payment of debts arising through his agency. 
• A del credere agent is an agent who guarantees payment of the customer’s account in consideration of the higher commission.
• The purpose of the guarantee commission is to compensate the agent for the risks he will have to bear in the collection of the credit due the principal. 
• Article 1907 applies to both cash and credit sales because it makes no distinction.

Nature of liability of a del credere agent. 

• An agent with a del credere commission is liable to the principal if the buyer fails to pay or is incapable of paying. 
• But he is not primarily the debtor. 
• On the contrary, the principal may sue the buyer in his own name notwithstanding the del credere commission, so that the latter amounts to no more than a guaranty. 
• In other words, the liability of the del credere agent is a contingent pecuniary liability — to make good in the event the buyer fails to pay the sum due. 
• It does not extend to other obligations of the contract, such as damages for failure of the buyer to accept and pay for the goods. 
• A del credere agent may sue in his name for the purchase price in the event of non-performance by the buyer.

Article 1908. 

The commission agent

who does not collect the credits of his principal 

at the time when they become due and demandable 

shall be liable for damages, 

unless he proves that he exercised due diligence for that purpose.

Obligation of commission agent to collect credits of principal.

• A commission agent who has made an authorized sale on credit (Art. 1906.) must collect the credits due the principal at the time they become due and demandable. 
• If he fails to do so, he shall be liable for damages unless he can show that the credit could not be collected notwithstanding the exercise of due diligence on his part. (see Arts. 1173, 1174.) 
• Where the agent is not liable, the principal’s remedy is to proceed against the debtor. This article does not apply to a case where there is a guarantee commission. (Art. 1907.)

 

Article 1909. 

The agent is responsible 

not only for fraud, 

but also for negligence, 

which shall be judged 

with more or less rigor by the courts,

according to whether the agency 

was or was not for a compensation.

Liability of agent for fraud and negligence/ intentional wrong. 

• In the fulfillment of his obligation, the agent is responsible to the principal not only for fraud (Art. 1171.) committed by him but also for negligence. (Art. 1172.)
• It is his duty to notify the principal of all relevant and material facts or any information having a bearing on the interests of the principal (e.g., a debtor who owes the principal a substantial amount of money is about to sell his property) as soon as reasonably possible after learning them. 
• The circumstance that the agency is or is not gratuitous will be considered by the courts in fixing the liability of the agent for negligence (not fraud). 
• Agency is presumed to be for compensation. (Art. 1875.)
• It has been held that the failure of a sub-agent with whom film has been left for safekeeping to insure against loss by fire does not constitute negligence or fraud on its part when it has received no instruction to that effect from its principal, the insurance of the film not forming part of the obligation imposed upon it by law. 
• But the agent is liable when he does not discharge the agency with due promptness, or according to the instructions of his principal, or within the limits of his authority, or when he does not make use of the powers conferred on him. 
• Quasi-delict or tort may be committed by act or omission. 
• If it causes damage to another, there being fault or negligence, the guilty party is liable for the damage done. (Art. 2176.) Article 1909 speaks of negligence (simple carelessness). 
• The agent, to be sure, is also liable for torts committed willfully. As a general, rule, the principal is not responsible if the agent’s tort was intentional rather than merely negligent. 
• The reason is that an intentional wrong committed by one employed is more likely motivated by personal reasons than by a desire to serve or benefit his employer. 
•  The principal is solidarily liable if the tort was committed by the agent while performing his duties in furtherance of the principal’s business.