Agency: Obligations of the Principal (Arts. 1910 - 1918)

 CHAPTER 3

Obligations of the Principal

Article 1910. 

The principal must comply 

with all the obligations 

which the agent may have contracted 

within the scope of his authority.

As for any obligation 

wherein the agent has exceeded his power, 

the principal is not bound 

except when he ratifies it expressly or tacitly. 

Obligations, in general, of principal to agent. 

• Since an agency is essentially a contractual and consensual relationship between the principal and the agent, the duties and liabilities of the principal are primarily based upon the contract and the validity of the contract between them. 
• In addition to his contractual duties, the principal is under an obligation to deal fairly and in good faith with his agent who owes the same duty to his principal. The agency relationship is a fiduciary one. 
• The primary obligation of the principal to the agent is simply that of complying with the terms of their employment contract, if one exists. 
• The principal may be justified in refusing to perform his part of the contract when the agent has already breached the contract.

Specific obligations of principal to agent. 

• The contract creating the agency normally defines the specific obligations or duties of the principal to an agent. 
• In the absence of express agreement, the law imposes upon the principal certain obligations to his agent, among which are the following:

1. To comply with all the obligations which the agent may have contracted within the scope of his authority (Arts. 1910, 1881, 1897.) and in the name of the principal (Arts. 1868, 1883.); 
2. To advance to the agent, should the latter so request, the sums necessary for the execution of the agency (Art. 1912.); 
3. To reimburse the agent for all advances made by him, provided the agent is free from fault (Ibid.); 
4. To indemnify the agent for all the damages which the execution of the agency may have caused the latter without fault or negligence on his part. (Art. 1913.); and 
5. To pay the agent the compensation agreed upon, or if no compensation was specified, the reasonable value of the agent’s services. (Arts. 1875, 1306.) 

Liability of principal to third persons. 

• General rule: 

• The principal will be liable to third persons for all acts committed by the agent and obligations contracted by him in the principal’s behalf in the course and within the actual (express or implied) or apparent scope of his authority, and should bear the damage caused to third persons. 
• This responsibility is not altered by the fact that the agent also may be liable, nor by the fact that some of the acts are to the principal’s advantage while others are to his disadvantage.
• The principal becomes liable to the third party when he ratifies an authorized act of his agent.

1. Reason for liability.
• A principal is liable for the acts of his agent within his express authority because the act of such agent is the act of the principal. 
• Where the agent acts within the scope of the authority which the principal holds himself out as possessing, or knowingly permits him to assume, the principal is made responsible, because to permit him to dispute the authority of the agent in such a case would be to enable him to commit a fraud upon innocent third parties.
2. Estoppel to deny.
• The principal is bound by the act of his agent when he has placed the agent in such position that persons of ordinary prudence are thereby led to believe and assume that the agent is possessed of certain authority, and to deal with him in reliance on such assumption. 
• The rule that the principal is responsible for the acts of his agent within the apparent scope of his authority applies only where the principal is responsible for such appearance of authority.
• A registered owner who places in the hands of another an executed document of transfer of registered land effectively represents to a third party that the holder of such document is authorized to deal with the property. 
• An agency by estoppel may involve the expansion of the authority given to a designated agent or create authority in the alleged agent though not actually granted. (see Art. 1911.)
•  The principal is bound by either the actual (express or implied) or apparent authority of the agent. 
• Thus, it has been held that if a bank could give the authority to sell to a licensed broker, there is no reason to doubt the authority to sell of two of the bank’s vice-presidents (with whom the broker finalized the details of the contract to sell) whose precise job in the bank was tomanage and administer its real estate property.
• A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent even though such agent abused his authority. 

Liability of third persons to principal. 

• An agent is the instrumentality of the principal whose primary design is to obtain rights against third parties. 
• The principal’s rights are the third parties’ liabilities. 

1. In contract.
• A third person is liable to the principal upon contracts entered into by his agent, in the same manner as though the contract were entered into by the principal himself. 
• This proposition results from the representative nature of agency. 
• The relationship of the third party to the principal is the same as that in a contract in which there is no agent. 
• It follows that the third party may not set-off or allege any defense against the agent, in an action by the principal to enforce the contract other than one which arises out of the particular contract upon which the action is brought. 
• Since notice by a third party to the agent is notice to the principal, the third party is not liable for damages for failure of the agent to give notice to his principal. 
• Thus, in a case where A, who handled travel arrangements of P, was duly informed by B, P’s travel agent, of the advice of the office manager of T (air carrier) of the rejection of the request for extension beyond the period of their validity of plane tickets of P without paying the fare differentials and additional travel taxes brought about by increased fare rate and travel taxes, the court ruled that, to all legal intents and purposes, A was the agent of P and notice to her was notice to P.
2. In tort. 
• The third person’s tort liability to the principal, insofar as the agent is involved in the tort, arises in three main factual situations:
1. Where the third person damages or injures property or interest of the principal in the possession of the agent; 
2. Where the third person colludes with the agent to injure or defraud the principal; and 
3. Where the third person induces the agent to violate his contract with the principal to betray the trust reposed upon him by the principal.
3. In respect of property received. 
• An agent does not have legal title to property entrusted to his possession by the principal, but in some cases he possesses a power to effect a transfer thereof, valid as against the principal.
• In the absence of a law or the possession by the agent of apparent authority or circumstances working an estoppel against the principal, the latter may recover property from the agent’s transferee. 
• In respect of negotiable instruments, however, the law protects third parties who are bona fide holders thereof or holders in due course.
• The principal cannot recover money and negotiable instruments wrongfully transferred by his agent to innocent holders for value who have no knowledge or notice of the agent’s wrongful acts.

Liability of principal for mismanagement of business by his agent. 

• Under general rules and principles of law, the mismanagement of the business of a party by his agents does not relieve said party from the responsibility that he had contracted to third persons.
• Thus, the fact that the agent defrauded the principal in not turning over the proceeds of the transactions to the latter cannot in any way relieve nor exonerate him from liability to the third person who relied on his agent’s authority. 
• It is an equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 
• Where the agent’s acts bind the principal, the latter may seek recourse against the agent.

Liability of principal for tort of agent. 

• General rule.
• The principal is civilly liable to third persons for torts of an agent committed at the principal’s direction or in the course and within the scope of the agent’s employment.
• The principal cannot escape liability so long as the tort was committed by the agent while performing his duties in furtherance of the principal’s business or at his direction although outside the scope of his employment or authority. 
• Not a defense in an action for damages against the principal:
• that the act which caused the tort was unknown to him or 
• that it was in disobedience to his instructions. 
• No effect on the extent or degree of the principal’s liability, whether the tort is:
• committed willfully or
• committed negligently

1. Reason for liability.
• This rule is based upon the principle that he who does an act through another does it himself.
• If the principal has the power of control over an agent, he should take responsibility for the latter’s action, and since the agent’s acts are for the principal’s benefit, the principal should also be responsible for the consequences of the agent’s improper behavior. 
• The agent, to be sure, is also liable with the principal and their liability shall be solidary, i.e., the third person may sue:
• both the principal and the agent or 
• choose whom he will hold
2. Business hazard theory.
• In the common law, several theories have been offered to explain the rule. 
• The “business hazard theory” advances the argument that “it is thought that the hazards of business should be borne by the business directly. It is reasoned that if the cost then is added to the expense of doing business, it will ultimately be borne by the consumer of the product; that the consumer should pay the costs which the hazards of the business have incurred.” 
3. Motivation-deviation test.
• The bounds of the agent’s authority are not the limits of the principal’s tort liability, but rather the “scope of the employment” which may or may not be within the bounds of authority. 
• Scope of employment is much wider than scope of authority. 
• But an act is not necessarily done within the scope of employment by reason merely of the fact that it is done during the employment. 
• An examination of a large number of cases discussing vicarious liability for tort shows that where two factors are present, such liability is imposed, but that where either of the two factors is missing, such liability is not imposed. These factors are:
1. satisfactory evidence that the employee in doing the act, in the doing of which the tort was committed, was motivated in part, at least, by a desire to serve his employer; and 
2. satisfactory evidence that the act, in the doing of which the tort was committed, was not an extreme deviation from the normal conduct of such employee.
• For brevity, the above has been referred to as the “motivation-deviation test.’’

Q: A travelling salesman used his own car, but the principal paid for its upkeep. May the principal be held liable for the torts committed by the salesman in the course of the use of the car? 

Yes, the rule of respondeat superior applies in general only where the relationship is that of master and servant, but this is not to say that the rule can never apply to the principal- agent relationship. When the principal’s control over the agent’s particular activity can be spelled out, vicarious liability may result. By paying for the upkeep of the automobile, the principal may become liable for the salesman’s tort where the salesman was engaged at the time of the commission of the tort in furthering the principal’s business.

Q: A, a private detective employed by P at its retail store, arrested a customer knowing that she had not stolen anything, but for the purpose of extorting money from her. May P be held liable for A’s act? 

No. A master is liable for the servant’s act only where the act can reasonably be regarded as an incident or infurtherance of employment. Here, however, A took advantage of his employment in an effort to secure a private gain.

Representation, essence of agency. 

1. Agent acts in a representative capacity.
• Representation being the essence of agency, it is evident that the obligations contracted by the agent are for and in behalf of the principal to bind him as if he personally contracted.
• It is not enough, however, that the agent should act within the scope of his authority under Article 1910. (par. 1.) The agent must also act in a representative capacity (Art. 1868.), in the principal’s name; otherwise, the principal assumes no liability. (Art. 1883.)
2. Agent acts within limits of his authority. 
• Under the second paragraph of Article 1910, the agent who exceeds his authority is not deemed a representative of the principal.
• In effect, he acts without authority and becomes personally liable for any damage caused. 
• Hence, the principal is not bound unless he ratifies the act expressly or impliedly. 
• Without such ratification, the agent is the one personally liable.
• Of course, the principal must have capacity to ratify the unauthorized act. 

Meaning of ratification.

• As applied to the law of agency, ratification is the adoption or affirmance by a person of a prior act which did not bind him, but which was done or professed to be done on his account thus giving effect to the acts as if originally authorized. 
• The doctrine applies to the ratification of:
• the act of an agent in excess of his authority or 
• the act of one who purports to be an agent but is really not. 
• It may be implied from the principal’s conduct, e.g., acceptance of benefits by the principal under a contract entered in his name.

Act of ratification purely voluntary. 

• The very idea of ratification implies that the principal has an option to ratify or not, and that he has this advantage over the other party, to wit: that he may hold the other party whether the other party wishes it or not whereas the other party cannot hold him if he is not willing to be held. 
• It may appear unfair that one may ratify an unauthorized contract after he knows that it is to his own advantage to do so, and so bind the other party to his apparent disadvantage. 
• Further reflection, however, causes this apparent unfairness to disappear. 
• The other party, having agreed to be bound by his contract and not having withdrawn from it, has no ground to complain if compelled to perform, the original lack of authority having been cured. 
• The failure or refusal of the principal to ratify the unauthorized acts of his agent makes the latter personally in damages to the third party.

Conditions for ratification. 

In addition to an intent to ratify, the following conditions must be fulfilled for ratification to be effective: 

1. The principal must have the capacity and power to ratify; 
2. He must have had knowledge or had reason to know of material or essential facts about the transaction;
3. He must ratify the acts in its entirety;
4. The act must be capable of ratification; and
5. The act must be done in behalf of the principal. 

Forms of ratification. 

• An unauthorized act may be ratified (or affirmed) expressly or impliedly. 
• There is express ratification where, for example, the principal simply informs the agent, the third party, or someone else of his intention to honor the agent’s unathorized dealings. 
• The principal can nevertheless be deemed to have impliedly communicated his intent to ratify:
• by words or conduct that had amounted to ratification or 
• by silence or 
• inaction where under the circumstances a reasonable person would have expressed objections to what the agent’s had done. 
• For an act of the principal to be considered as an implied ratification of an unauthorized act of an agent, such act must be inconsistent with any other hypothesis than that he approved and intended to adopt what had been done in his name. 
• Ratification is based on waiver
• the intentional relinquishment of a known right. 
• It cannot be inferred from acts that a principal has a right to do independently of the authorized act of the agent. 
• Moreover, if a writing is required to grant an authority to do a particular act, ratification of the act must also be in writing. 
• Of course, the agent cannot ratify his own unauthorized acts. 

Persons entitled to ratify.

• In order that one may be entitled to ratify the unauthorized act of an agent, it is necessary that the ratifier has the power or authority to do, on his account, the original act which is sought to be ratified. 
• A principal is incapable of ratifying an act if his own position has, in the interval between the time the agent performed the act and the time when the ratification is supposed to have occurred, so altered that he is no longer capable of doing the original act. 
• A voidable act or transaction by reason of incapacity to give consent may be ratified but the defect must first be removed before a valid ratification can take place. 
• Thus, an infant is not bound by ratification of a contract entered by an agent.
• The third party has a right to withdraw from the transaction prior to ratification. 
• The principal will not be permitted to ratify after the third party has already indicated a desire to withdraw from the transaction. 
• Obviously, there can be no ratification of an illegal transaction.

Knowledge by ratifier of material facts essential. 

1. Meaning of material facts. 
• Within the meaning of the requirement, they are those which reasonably ought to be known by the principal, having in mind the factors of time, place, and circumstance, and especially the situation of the parties. 
• The problem is one which must be determined by reference to the facts of the particular case. 
• In a case, where an agent authorized to enter into contracts for carriage of goods for the principal common carrier unauthorizedly entered into a contract binding the principal as insurer, and paid over to the principal and principal accepted, money advanced by the third party, it was held that the principal could not be made liable in the absence of showing that he had knowledge of the terms of the contract, since that was a material fact. 
2. Full and complete knowledge.
• In order to bind a principal by ratification, he must have been in possession of all the facts and must have acted in the light of such facts.
• It has been held that to ratify the unauthorized act of an agent and make it binding on a corporation, it must be shown that the governing body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it relates. 
• Ratification by a corporation cannot be made by the same person who wrongfully assumed the power to make the contract.  
• General Rule: If material facts were suppressed or unknown, there can be no valid ratification, regardless of the purpose or lack thereof in concealing such facts. 
• Exceptions: 
1. If the principal’s ignorance of the material facts and circumstances was willful, or 
2. If the principal chooses to act in ignorance of the facts. 
• However, the general rule is that ratification cannot be implied as against the principal who is ignorant of the facts. 
3. Actual knowledge.
• The general rule requires actual knowledge on the part of the principal, as a condition to the imposition upon him of the obligation of his agent’s unauthorized acts. 
• This requirement springs from the fact that a principal has the election of repudiating or affirming an agent’s unauthorized act, and he ought not to be made liable in spite of his ignorance.

Burden to show such knowledge. 

1. Party relying on the ratification. 
• Whoever, therefore, seeks to rely on a ratification is bound to show that it was made under such circumstances as in law to be binding on the principal, especially to see that all material facts were made known to him. 
• The burden of making inquiries and of ascertaining the truth is not cast on him who is under no obligation to assume a responsibility, but rests on the party who is endeavoring to obtain a benefit or advantage for himself. 
• This is not only just but it is practicable. 
• The needful information or knowledge is always within the reach of him who is either party or privy to a transaction which he seeks to have ratified, rather on him who did not authorize it, and to the details of which he may be a stranger. 
2. When actual knowledge assumed.
• This does not mean that the principal can be willfully ignorant, or purposely shut his eyes to means of information within his own possession and control and thereby escape the consequence of a ratification of unauthorized acts into which he has deliberately entered. 
• What this means is that the principal must have either actual knowledge of material facts or sufficient knowledge or notice of otherfacts so that it would have been easy to find out the material facts. 
• Actual knowledge will be assumed where the principal’s reckless disregard of the natural consequences of known facts induces an inference that he was willing to assume a risk in respect of the facts. 
• Thus, where A, purporting to represent P but without authority, contracts to sell property to T, and then tells P of the contract, not including the terms, and P replies: “I am satisfied with anything you have done,” there is ratification which P cannot avoid. 
• Similarly, actual knowledge will be assumed where the principal has actual knowledge of a fact or facts that a person of ordinary intelligence would thereby infer the existence of the fact or facts about which the dispute exists. 
•  Here, the law says: “You must have known that fact B was true, since B is a necessary consequence of fact of A, and you had knowledge of fact A.” 

Ratification must be entire. 

• The act must be ratified in its entirety or not at all.
• A person cannot ratify that portion which is beneficial or advantageous to him and repudiate that portion which is burdensome or disadvantageous. 
• In other words, the principal cannot accept the benefits of a transaction and refuse to accept the obligations (e.g., warranties in a contract of sale) that are part of it. 
• The acceptance of the result of the act, moreover, ratifies the whole transaction including the means whereby that result was achieved. 
• This rule is constantly applied to promises, misrepresentations, and even fraud upon which the contract was based. 
• A principal, therefore, who ratifies with knowledge is ordinarily liable for any wrong flowing from such promises, misrepresentations, or fraud.
• At the time of accepting the benefits of the act, the person may be ignorant of the practices resorted to. 
• Even so, he is liable unless he attempts to undo the thing within a reasonable time after he is advised of it. 
• The rule, however, is not broad enough to constitute ratification of another act which, though closely related to the ratified act, is not a part of it. )
• Example:
• Without authority to sell, A represented himself as the agent of P in selling P’s horse to T who paid A. P accepted the payment from A after the latter informed him of all particulars relating to the sale. 
• In this case, P ratified the entire agreement through his act of accepting payment from A.
• In ratifying the sale, P is obligated on any warranties that accompany the contract. 

Acts that may be ratified. 

1. Valid/void acts. 
• Usually, those acts that may be authorized (i.e., they are valid) may be ratified. 
• Acts which are absolutely void cannot be authorized nor ratified.
2. Voidable acts.  
• Acts which are merely voidable may be ratified.
• The reason is that a voidable act is not inoperative but imperfectly inoperative. 
• Ratification, indeed, is a method by which a voidable act may be ratified.
3. Unrevoked acts.
• The act or transaction must remain capable of ratification. 
• The general rule is that a principal must ratify his agent’s unauthorized contract before it is revoked by the other contracting party. 
• In other words, the third party’s contract with the unauthorized agent may be said to constitute an offer to the principal which can be revoked by the offeror before acceptance by the offeree. 
• This aspect of the doctrine of ratification would appear to contradict a fundamental concept of the doctrine, that of relation back to the time when the contract was originally entered into. 
• The third party’s offer to a principal arising out of a contract with his unauthorized agent, may be revoked in one of two ways: 
1. as indicated above, by express revocation, and 
2. by a change in the nature of the contract as originally entered into
• Example:
• A, as agent of P, unauthorizedly entered into a contract of fire insurance. Thereafter, a fire occurred. P then seeks to ratify A’s unauthorized act. 
• May P validly ratify the contract of insurance? 
• No. When the fire occurred, the transaction A entered into ceased to exist. A entered into a contract for an insurance risk while P purported to enter into a contract for the payment of money involving no risk.
4. Criminal acts.
• The general rule is subject to qualification in one important particular. 
• A substantial number of cases hold that one whose name has been forged can ratify the act. 
• A slight majority of the cases, however, hold that since forgery involves a crime and a public wrong and is also opposed to public policy, it cannot be ratified. 
• This is another instance where ratification should not be confused with estoppel. 
• All would probably agree that a person who expressly or impliedly represents that his forged signature is genuine, would be estopped from denying its genuineness against one who has changed his position from the worse. 
5. Tortious acts. 
• An agency to commit a tort would generally be inoperative and, therefore, the ratification without more of a tort is inconceivable, and is, in fact, a rare phenomenon. 
• The usual case, however, presents the ratification of a transaction in general, which includes, by circumstance, a tort. 

Acts must be done in behalf of principal. 

• An act, to be capable of ratification, must be done by one party as agent for someone else. 
• Stated in another way, a principal cannot ratify the unauthorized act of another person unless that person purported to act as agent for, and in the name of, the principal, and not in his own behalf. 
• The rule operates to prevent one person from acquiring the right of another. 
• One person may enter into a fruitful contract with another person; a stranger cannot acquire rights in the contract by attempting to ratify it. (
• Example:
• A, agent, entered into a contract in his own name without disclosing the fact that he was really acting as agent of P, undisclosed principal. 
• A was not authorized to enter into the contract.

Effects of ratification by principal. 

• By ratification, the relation of principal and agency is created since ratification by a principal is equivalent to prior authority. 
•  Once made, ratification becomes irrevocable.

1. With respect to agent.
• Ratification relieves the agent from liability:
• to the third party to the unauthorized transaction, and 
• to his principal for acting without authority.
• The agent may recover compensation due for performing the act which has been ratified
2. With respect to principal himself. 
• The principal who ratifies thereby assumes responsibility for the unauthorized act, as fully as if the agent had acted under original authority but he is not liable for acts outside the authority approved by his ratification. 
• Thus, ratification does not render the principal liable for fraudulent misrepresentations made by the agent without his knowledge.  
3. With respect to third persons.
• Ordinarily, a third person is bound by a ratification to the same extent as he would have been bound if the ratified act had been authorized in the first instance, and he cannot raise the question of the agent’s authority to do the ratified act. (see Art. 1901.) 
• Where a third person is liable to a principal under an unauthorized act of his agent, the third person may not be relieved of his liability on the theory that the principal ratified the agent’s acts merely because the principal made an unsuccessful effort to collect from the agent.
• To be effective, ratification need not be communicated or made known to the agent or the third party. 
• The act or conduct of the principal rather than his communication is the key. 
• But before ratification, the third party is free to revoke the unauthorized contract.

Retroactive effect of ratification. 

• Ratification so operates upon an unauthorized act to have retroactive effect.
• The authority created by ratification is subsequent but it is equivalent to initial approval or prior authority. 
•  The effect is the same as where the principal allowed the agent to act as though the latter had full authority from the beginning. 
•  But to the generally retroactive effect of ratification, there are four well-recognized exceptions. 

1. Rights of third parties.
• Where to do so would be to defeat rights of third parties which have accrued between the time of the making of the unauthorized contract and the time of ratification. 
• Example:
• P sold his property to T. Thereafter, P ratified a sale which has been effected without authority by A before P had sold the property to T. 
• In this case, T’s title cannot be impaired by P’s subsequent ratification.
• A principal cannot ratify an unauthorized contract to sell by his agent, after he himself has disposed of the subject of such contract, for to do so would be to affect detrimentally intervening third party rights. 
• Where, however, the intervening act is inferior in importance to the retroactive effect of ratification, the ratification will be given full effect, even to the detriment of the intervening rights.
• Example:
• Without authority, A turned over a sum of money to X, binding P to a partnership agreement with X. T, judgment creditor of P, sought to levy execution on property which was the result of the business carried on by X with the money A had advanced.  Upon learning of T’s action, P ratified A’s act, binding him as partner of X. 
• Now, partnership creditors seek to subordinate T’s levy to their rights in partnership assets. Under the law, creditors of individual partners can attach only the partners’ interest in the firm after payment of firm debts.
• Therefore, the partnership creditors have preferential right over the property since it is partnership property.
2.  Intervening act or omission otherwise rightful. 
• Where to do so would be to render wrongful an otherwise rightful act or omission which has taken place between the making of the unauthorized contract and the time of its ratification. 
• Example:
• T, tenant, failed to comply with a notice to vacate as of the time when he received such notice from A. The act of A was unauthorized by P, landlord.
• Subsequently, P ratified the act of A.
• Surely, T cannot be held for his failure to comply with the notice. 
3. Circumvention of legal rule or provision.
• Where to do so would be to allow the circumvention of a rule of law formulated in the interest of public policy.
• Example:
• A, attorney, unauthorizedly filed an appeal from a judgment rendered against P within the period prescribed by law. 
• Later, but after such period, P ratified the appeal.
• The appeal must be dismissed “because the right of the judgment creditor to maintain the judgment had become fixed at the end of the prescribed period.”
4. Withdrawal by third party from contract. 
• If the third party has withdrawn from the contract, the act or transaction is no longer capable of ratification.
• There is no ratification with retroactive effect to speak of.

 

Article 1911. 

Even when the agent 

has exceeded his authority, 

the principal is solidarily liable with the agent 

if the former allowed the latter 

to act as though he had full powers.

Meaning of estoppel. 

• Estoppel is a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or representation either express or implied. 
• Through estoppel, an admission or representation is thus rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. (Art. 1431.)

Ratification and estoppel distinguished. 

• Ratification
1. rests on intention, express or implied, regardless of prejudice to another;
2. party is bound because he intended to be;
3. retroactive and makes the agent’s unauthorized act good from the beginning;
• affects the entire transaction and from the beginning;
4. substance of ratification is confirmation of the unauthorized act or contract after it has been done or made;
5. acts and conduct amounting to an estoppel in pais may in some instances amount to a ratification.
• Estoppel
1. rests on prejudice rather than intention; 
2. he is bound notwithstanding the absence of such intention because the other party will be prejudiced and defrauded by his conduct, unless the law treats him as legally bound;
3. operates upon something which has been done but after the misleading act and in reliance on it and may only extend to so much of such act as can be shown to be affected by the estopping conduct;
• affects only the relevant parts of the transaction and from that time only when estoppel may be said to be spelled out;
4. substance of estoppel is the principal’s inducement to another to act to his prejudice.
5. ratification may be complete without any elements of estoppel.

• So far as the rights of third persons are concerned, however, the distinctions are of little importance because the principal is bound by the acts of the agent whether the conduct of the principal constitutes ratification or whether it constitutes estoppel.

When principal solidarily liable with the agent.

• Under Article 1911, the agent must have acted in the name of a disclosed principal and the third person was not aware of the limits of the power granted by the principal. (See Art. 1898.) 
• Article 1911 is based on the principle of estoppel and it is necessary for the protection of innocent third persons. It is an instance when solidarity is imposed by law. (Arts. 1207, 1208.) 
• Both the principal and the agent may be considered as joint tortfeasors whose liability is solidary. 
• The third person with whom the agent dealt may sue either the agent or the principal alone, or both. 
• The agent should be exempt from liability if he acted in good faith.

Apparent authority distinguished from authority by estoppel.

• Apparent authority
1. is that which though not actually granted, the principal knowingly permits the agent to exercise or holds him out as possessing;
2. is not founded in negligence of the principal but in the conscious permission of acts beyond the powers granted;
3. reliance is unnecessary.
• Authority by estoppel 
• arises in those cases where the principal, by his culpable negligence, permits his agent to exercise powers not granted to him, even though the principal may have no notice or knowledge of the conduct of the agent;
• has its basis in the negligence of the principal in failing properly to supervise the affairs of the agent, allowing him to exercise powers not granted to him, and so justifies others in believing he possesses the requisite authority;
• can apply only in those cases in which a third party acted to his detriment in reliance upon the appearance of authority the principal has held the agent out as having.

Implied agency distinguished from agency by estoppel. 

• Implied Agency
1. There is an actual agency;
2. The principal alone is liable
• Agency by Estoppel
1. The authority of the agent is not real but only apparent;
2. If the estoppel is caused by:
• the principal — he is liable to any third person who relied on the misrepresentation
• the agent — then only the agent is liable

 

Article 1912. 

The principal must advance to the agent, 

should the latter so request, 

the sums necessary for the execution of the agency.

Should the agent have advanced them, 

the principal must reimburse him therefor, 

even if the business or undertaking was not successful, 

provided the agent is free from all fault.

The reimbursement shall include 

interest on the sums advanced, 

from the day on which the advance was made. 

Obligation to advance funds. 

• The agent is bound by his acceptance to carry out the agency. (Art. 1884.) 
• On the other hand, the principal is under obligation to provide the means with which to execute the agency. 
• In the absence of stipulation that the agent shall advance the necessary funds (Art. 1886.), the principal must advance to the agent upon his request the sums necessary for the execution of the agency. (Art. 1912, par. 1.) 
• If the principal fails to comply with his obligations, the agent will not be liable for the damage which, through his non-performance, the principal may suffer. (Art. 1884.) 

Obligation to reimburse agent for funds advanced by latter. 

• An agency is for the principal’s benefit. 
• In case the agent advanced the sums necessary for the execution of the agency, whether on his own initiative or by virtue of stipulation, the said advances must be reimbursed by the principal with interest from the day the advance was made. (see Art. 1896.) Demand is not necessary in order that delay on the part of the principal shall exist. (Art. 1169[1].) 

1. Obligation founded on implied promise to repay. 
• The general rule is that, where one is employed or directed by another to do an act in his behalf, not manifestly wrong, the law implies a promise by the principal to reimburse the agent for expenditures incurred as a proximate consequence of the good faith execution of the agency, which includes interest thereon. 
• This rule is based upon the principle that a request to undertake an agency, the proper execution of which involves the expenditure of money on the part of the agent, operates not only as an implied request on the part of the principal to incur such expenditure but also as a promise to repay it. 
2. Obligation not affected even if undertaking not successful.
• The law adds that the obligation to reimburse the agent cannot be defeated by the fact that “the business or undertaking was not successful” provided the agent is free from all fault. (Art. 1912.) 
• The reason for this rule is that the agent simply obligates himself to represent the principal and not that all the business entrusted to him shall be successful. 
• If the mission was executed with the diligence of a good father of a family, then the agent has complied with his duty; and if nothing less is required of him, neither is he expected to do more. 

Article 1913. 

The principal must also indemnify

the agent for all the damages 

which the execution of the agency 

may have caused the latter,
without fault or negligence on his part. 

Obligation to indemnify agent for damages. 

• The rule in the above article is based on equity. 
• Since the principal receives the benefits of the agency and has a right to demand damages from the agent should the latter not perform the agency (Art. 1884.), he should answer for the damages resulting from the execution thereof without fault or negligence on the part of the agent. 
• Article 1913 is also a logical corollary to the rule which makes the agent liable to the principal for damages or losses which the latter may suffer because of his non-performance (Art. 1884.), fraud, or negligence. (Art. 1909.) 

1. Where damages caused by the execution of agency.
• The agent has the right to assume that the principal will not call upon him to perform any duty which would render him liable in damages to third persons. 
• Having no personal interest in the act other than the performance of his duty, the agent should not be required to suffer loss from the doing of an act apparently lawful in itself, and which he has undertaken to do by the direction and for the benefit and advantage of his principal. 
• If in the performance of such an act, therefore, the agent invades the rights of third persons, and incurs liability to them, the loss should fall rather upon him for whose benefit and whose direction it was done, than upon him whose only intention was to do his duty to his principal. 
• Wherever then, the agent is called upon by his principal to do an act which is not manifestly legal, and which he does not know to be wrong, the law implies a promise on the part of the principal to indemnify the agent for such losses and damages as flowing directly and immediately from the execution of the agency. 
• Thus, an agent is entitled to be indemnified when he is compelled to pay damages for taking personal property by direction of his principal which, though claimed adversely by another, he has reasonable ground to believe belongs to his principal. 
2. Where damages caused by wrongful acts of third persons. 
• Be it noted, however, that the liability of the principal for damages is limited only to that which the execution of the agency has caused the agent. 
• Thus, no promise to indemnify will be implied for losses or damages caused by the independent and unexpected wrongful acts of third persons for which the principal is in no way responsible. 
• “If, for example, a broker while going upon his principal’s business should be waylaid by a robber, or should be injured by the negligence of a motor vehicle driver, the principal would not be liable more than he would be if the agent, during the existence of the agency, should contract a contagious disease or be struck by lightning.” 
3. Where agent acted upon his own account.
• Similarly, there is no obligation to indemnify where no agency relation exists, as where it appears that the supposed agent acted upon its own account and not as an agent, in the legal sense.

Article 1914. 

The agent may retain in pledge 

the things which are the object of the agency

until the principal effects the reimbursement 

and pays the indemnity 

set forth in the two preceding articles.

Right of agent to retain in pledge object of agency. 

• If the principal fails to reimburse or indemnify the agent as required in Articles 1912 and 1913, the agent has the right to retain in pledge the things which are the object of the agency. 
• This is an instance of legal pledge or pledge which is created by operation of law. 
• Unlike contractual pledges, however, the agent is not entitled to the excess in case the things are sold to satisfy his claim and the proceeds thereof are more than the amount due. (see Arts. 2115, 2121.)

Nature of agent’s right of lien.

1. Right limited to subject matter of agency. 
• The lien of the agent is specific or particular in character, and not a general lien so as to give the agent a right to retain the principal’s goods for claims disconnected with the business of the agency. 
2. Right requires possession by agent of subject matter. 
• An agent in order to have a lien, must have some possession, custody, control, or disposing power in and over the subject matter in which the lien is claimed.
• The lien does not arise where possession of the property is acquired by the agent under a contract which expressly or impliedly shows a contrary intention, as where it is delivered to him for a particular purpose inconsistent with the existence of the lien thereon. 
• To entitle the agent to a lien, the funds or property against which it is asserted must be in his actual or constructive possession, and he must have acquired that possession lawfully and in his capacity as agent.
3. Right generally only in favor of agent. 
• In the absence of a ratification of a sub-agent’s acts by the principal, the right of lien exists only in favor of the agent, and cannot be claimed by one to whom the agent delegates his authority where no privity exists between sub-agent and the principal.

Article 1915. 

If two or more persons 

have appointed an agent 

for a common transaction or undertaking, 

they shall be solidarily liable to the agent 

for all the consequences of the agency. 

Nature of liability of two or more principals to their agents. 

• In American law, the term “joint principals” relates to a group with substantially identical interests, and contemplates the appointment of an agent or agents empowered to bind the members of the group jointly (solidarily). 
• Generally speaking, all of the joint principals must unite in the appointment of an agent. 
• An example of an exception to the rule is partnership though it is usually cited as an example of joint (solidary) principalship.
• An agent appointed by the partnership or by a partner thereof acting within the scope of the partnership business binds all the partners by his valid acts or transactions. (see Arts. 1803[1], 1818.) 
• Co-owners, on the other hand, do not possess authority to bind the others. 
• The law does not imply a partnership among them because they develop or operate the common property, since they may rightfully do this by virtue of their respective titles. 
• It is to be noted that in the common law system, every debtor in a joint obligation is liable in solidum for the whole obligation. 
• Under Article 1915, the so-called joint principals are solidarily liable to the agent for all the consequences of the agency.
•  It would, therefore, be more appropriate to use the term “solidary principals.” 
• On the other hand, the responsibility of two or more agents, even though they have been appointed simultaneously, is joint, not solidary. (Art. 1894.) 

Requisites for solidary liability.

• There are three requisites for the application of the above article:

1. There are two or more principals; 
2. The principals have all concurred in the appointment of the same agent; and
3. The agent is appointed for a common transaction or undertaking. 

• The liability of the principals is solidary for all the consequences of the agency; that is, each principal may be sued by the agent for the entire amount due and not just for his proportionate share. 
• Thus, if P and O engage the professional services of A, a lawyer, for the recovery of a parcel of land of which they are co-owners, they are liable solidarily for the attorney’s fees. The principal who made the payment may claim from the other the share which corresponds to him. (Art. 1217, par. 2.) 
• A transaction or undertaking is common to all principals if it is one as to which their interests are in accord and in harmony. 
• The rule in Article 1915 applies even when the  appointments were made by the principals in separate acts, provided that they are for the same transaction. 
• The solidarity arises from the common interest of the principals and not from the act of constituting the agency. 
• The parties, however, may, by express agreement negate this solidarity responsibility.

Where principals are members of a non-profit association.

• A distinction has been made in respect of the liability of the principals of a profit association as compared to that of a non-profit or voluntary association. 
• Profit association — personally liable on all business contracts 
• The principals or members in the non-profit or voluntary association are liable personally only under two circumstances: 
1. Where the member assented to the particular act or transaction in respect of which personal liability is sought to be fastened. Such assent is usually indicated by an affirmative vote at the meeting where the proposal is discussed. 
• Thus, in a case, it was held that only the members of a college class who voted in favor of the publication of a classbook were liable to the printing firm forthe non-payment of the contract price; and 
2. Where the member assented by his conduct, e.g., at a meeting at which the contract was proposed, nobody dissented. 

Article 1916. 

When two persons contract 

with regard to the same thing, 

one of them with the agent 

and the other with the principal, 

and the two contracts are incompatible with each other, 

that of prior date shall be preferred, 

without prejudice to the provisions of article 1544. 

Rule where two persons contract separately with agent and principal. 

• Two persons may contract separately with the agent and the principal with regard to the same thing. 
• If the two contracts are incompatible with each other, the one of prior date shall be preferred. 
• This is subject, however, to the rules under Article 1544 which provides as follows: “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who, in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.”
• Ownership:
1. first taken possession thereof in good faith
2. if immovable property, first recorded it in the Registry of Property in good faith 
3. if no inscription, first in possession in good faith
4. in absence thereof, oldest title in good faith

Article 1917.

In the case referred to in the preceding article,

if the agent has acted in good faith, 

the principal shall be liable in damages 

to the third person whose contract must be rejected. 

If the agent acted in bad faith, 

he alone shall be responsible.

Liability to third person of agent or principal who contracts separately. 

• Whether the principal or the agent will be the one liable for damages to the third person who has been prejudiced under Article 1916 depends on whether the agent acted in bad faith or not. 
• If the agent acted in good faith and within the scope of his authority, the principal incurs liability.
• If the agent acted in bad faith, he alone shall be responsible to such third person. 
• Article 1916 governs the rights of third persons as between themselves.

Article 1918. 

The principal is not liable 

for the expenses incurred by the agent 

in the following cases:

(1) If the agent 

acted in contravention 

of the principal's instructions, 

unless the latter

should wish to avail himself 

of the benefits derived from the contract;

(2) When the expenses

were due to the fault of the agent;

(3) When the agent 

incurred them with knowledge 

that an unfavorable result would ensue, 

if the principal was not aware thereof;

(4) When it was stipulated 

that the expenses would be borne by the agent, 

or that the latter would be allowed only a certain sum. 

When principal not liable for expenses incurred by agent. 

• In the four cases provided in this article, the principal is not liable for expenses incurred by the agent. (see Art. 1912.)  (C-F-K-S)
1. If the agent acted in contravention of the principal's instructions, unless the latter should wish to avail himself of the benefits derived from the contract;
2. When the expenses were due to the fault of the agent;
3. When the agent incurred them with knowledge that an unfavorable result would ensue, if the principal was not aware thereof;
4. When it was stipulated that the expenses would be borne by the agent, or that the latter would be allowed only a certain sum. 
• The reason under No. 1 is evidently to punish the agent; for the exception, the acceptance of benefits is implied ratification; 
• Under No. 2, it is self-evident (see Arts. 1909, 1912, par. 2.); 
• Under No. 3, the agent is guilty of bad faith and lack of diligence (see Art. 1888.);  and
• Under No. 4, an express stipulation which is not contrary to law, morals, good customs, public order, or public policy is binding between the parties. (see Art. 1306.)