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Art. 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. (1718)

General Obligations of an Agent

1. To act with the utmost good faith and loyalty for the furtherance and advancement of the interests of the principal

2. To obey the principal’s instructions

3. To exercise reasonable care Specific Obligations:

1. To carry out the agency he has accepted.

2. To answer for damages which through his nonperformance the principal may suffer.

3. To finish the business already begun on the death of the principal should delay entail danger.

4. To observe the diligence of a good father or a family in the custody and preservation of the goods forwarded to him by the owner in case he declines an agency, until an agent is appointed.

5. To advance the necessary funds should there be a stipulation to do so. 6.

6. To act in accordance with the instructions of the principal, and in default thereof, to do all that a good father of a family would do.

7. Not to carry out the agency if its execution would manifestly result in loss or damage to the principal.

8. To answer for damages if there be a conflict between his interests and those of the principal, he should prefer his own.

9. Not to loan to himself if he has been authorized to lend money at interest.

10. To render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency.

11. To distinguish goods by countermarks and designate the merchandise respectively belonging to each principal in case of a commission agent who handles goods of the same kind and mark which belong to different owners

12. To be responsible in certain cases for the act of the substitute appointed by him.

13. To pay interest on funds he has applied to his own use

14. To inform the principal, where an authorized sale of credit has been made, of such sale

15. To bear the risk of collection, should he receive also on sale, a guarantee commission

16. To indemnify the principal for damages for his failure to collect the credits of his principal at the time that they become due

17. To be responsible for fraud or negligence

Art. 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. (n) Purpose: principle of equity

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. (n)

Funds: the agent shall advance the necessary funds to carry out the agency should there be a stipulation to such, except if the principal is insolvent

Art. 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. (1719)

Instructions: private directions which the principal may give the agent in regard to the manner of performing his duties as such agent but of which a third party is ignorant. They are said to be secret if the principal intended them not to be made known to such party.

Authority Instructions

Sum total of the powers committed or permitted to the agent by the principal

Direct the manner of transacting the authorized business and contemplates only a private rule of guidance to the agent and are independent and distinct in character

Relates to the subject with which the agent is empowered to deal or the kind of business or transactions upon which he is empowered to act

Manner or mode of his action with respect to matters in which their substance are within the scope of the permitted action

Limitations of authority are operative as against those who have or are charged with knowledge of them

Instructions limiting the agent’s authority are without significance as against those dealing with the agent with neither knowledge nor notice of them

Contemplated to be made known to the third person dealing with the agent

Not expected to be made known to those with whom the agent deals

When agent may depart from instructions of the principal: 1. sudden emergency

2. ambiguous instructions – there are two possible interpretations, and the agent chooses reasonably one of them

3. departure is insubstantial

When agent has the right to disobey the instructions: 1. if it is for the performance of illegal acts

2. to protect his security interest in the subject matter of the agency

Art. 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal. (n)

Agent is an extension of the personality of the principal: thus, he must render service for the benefit of the principal and not to act to his detriment. He must not carry out the agency if its execution would manifestly result in loss or damage to the principal.

Art. 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. (n)

Reason: agency is a fiduciary relation, thus the agent is required to observe utmost good faith and loyalty towards his principal. The above rule is the same whether the agent is onerous or gratuitous.

Art. 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. (n)

If agent empowered to borrow money: he may be the lender at the current rate of interest, since there is no danger of the principal suffering any damage since the current rate of interest would have to be paid in any case if the loan were obtained from a third person. Current rate and not a higher rate of interest, since the agent should be working for the benefit of the principal

Agent empowered to lend money: he may not be borrower without the consent of the principal, because the agent may be a bad debtor and result in a conflict of interest

Art. 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. (1720a)

Secret profit: an agent who takes secret profit without revealing the same to his principal is guilty of breach of loyalty to the principal and forfeits his right to collect the commission from the principal, even if the principal does not suffer any injury as a result of the breach of fidelity Stipulation exempting agent from obligation to account is void: such stipulation is contrary to public policy as it would encourage fraud

Conversion of funds: if agent fails to deliver the funds and instead converts or appropriates such for his own use, the agent is liable for estafa

Art. 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. (1721)

Art. 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. (1722a)

Sub-agent: a person employed or appointed by an agent as his agent, to assist him in the performance of an act for the principal which the agent has been empowered to perform Power to appoint a sub-agent or substitute:

1. There is no prohibition – the agent is responsible for all acts of the sub- agent

2. There is prohibition – the acts of the sub-agent are void as to the principal 3. There is authority to appoint but no designation by the principal as to who –

the agent is liable for the acts of the sub-agent if the latter is notoriously incompetent or insolvent

4. There is authority to appoint and there is designation by the principal – agent is not liable for the acts of the sub-agent

Art. 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. (1723)

Joint agents: agents appointed by one or more principals under such circumstances as to induce the inference that it was their intent that all should all in conjunction in consummating the transaction for which they were appointed.

Presumption: Obligation of agents is joint

Art. 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. (n) If solidarity has been agreed upon, each of the agents becomes solidarily liable:

1. for the non-fulfillment of the agency even though in this case, the fellow agents acted beyond the scope of their authority

2. for the fault or negligence of his fellow agents provided the latter acted within the scope of their authority

Art. 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. (1724a)

Demand is not necessary: agent is bound to deliver to the principal whatever he may have received by virtue of the agency

Two instances when agent is liable for interest:

1. when he converts to his personal use the funds of the principal, he is liable for interest from the day on which he did so

2. when he still owes the principal sums after the extinguishment of the agency, he is liable for interest from the date the agency is extinguished

Third party’s liabilities towards the agent:

1. where the agent contracts in his own name for an undisclosed principal, the agent may sue the third party to enforce the contract

2. where the agent possesses a beneficial interest in the subject matter of the agency 3. where the agent pays money of his principal to a third party by mistake or under a

contract which proves subsequently to be illegal, the agent being ignorant with respect to its illegal nature

4. where the third party commits a tort against the agent

Art. 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. (1725)

General rule: agent is not personally liable to third parties with whom he contracts by virtue of the agency and within the scope of his authority

Exceptions:

1. When the agent expressly binds himself

2. When the agent exceeds his authority – unless the principal ratifies his act

Art. 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. (n)

If agent contracts in the name of the principal but exceeds his authority, the agent shall be personally liable

• however, if the third party was aware of the limitations of his authority, the agent shall not be liable and the contract shall be void

o however, if the agent undertook to secure the principal’s ratification and failed, he shall be liable

Art. 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. (n)

If an agent acts in behalf of the principal and in accordance with the latter’s orders, the agent shall not be personally liable.

If the agent is ignorant, the principal bears the liability. Equity demands that a principal shall be bound by the acts of his agent as long as one acts within the scope of his authority and in accordance with the orders of the principal.

Art. 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. (n)

Scope or agent’s authority: includes not only the actual authorization conferred upon the agent by his principal, but also that which has apparently or impliedly been delegated to him

• If not in writing – every person dealing with an assumed agent is put upon an inquiry and must discover upon his peril, to hold the principal liable, the fact of agency and the nature and extent of authority of the agent

• If in writing – third persons dealing with the agent is not required to inquire further than the terms of the written power of attorney

Ways by which the agent’s authority may be broadened or restricted:

1.) By implication – agent’s authority extends not only to express requests, but also to those acts and transactions incidental thereto. It embraces all the necessary and appropriate means to accomplish the desired end.

2.) By usage and custom

a.) An agent’s authority may not be enlarged through usage and custom in the following cases: Where it is sought to…

i. Vary the terms of an express authorization;

ii. Dispense with a legal requirement enacted for the principal’s benefit;

iii. Change a rule of law or dispense with a formality required by law; iv. Vary an essential quality of the agency relationship.

i. General rule: principal must have notice of the alleged custom, before the agent’s acts, in accordance therewith, may bind the principal. Exceptions:

i. Where the principal and the agent reside in the same community, the usage is definite and well-known, and the agent has no notice that he is to act to the contrary;

ii. Where the agent is authorized to deal in a particular place or in a particular market exchange.

3.) By necessity – the existence of an emergency or other unusual conditions may operate to invest in an agent authority to meet the emergency, provided:

a.) Emergency really exists;

b.) Agent is unable to communicate w/ the principal;

c.) Agent’s enlarged authority is exercised for the principal’s protection; and d.) The means adopted are reasonable under the circumstances.

4.) By certain doctrines a.) Apparent authority b.) Liability by estoppel; c.) Ratification.

5.) By the ejusdem generis rule –where in an instrument of any kind, an enumeration of specific matters is followed by a general phrase is held to be limited in scope by the specific matters.

General rule: Motive of agent in entering into a contract with a third person is immaterial. Exceptions:

1.) Where the third person knew that the agent was acting for his benefit, in which case, the principal is not liable to the third person; and

2.) Where the owner is seeking recovery of personal property of w/c he has been unlawfully deprived.

Principal’s responsibility for an agent’s misrepresentation:

1.) Within the scope of the agent’s authority – Principal is subject to liability for lass caused to another by the 3rd persons reliance upon a deceitful representation of an agent in the course of his employment if:

a.) Representation is authorized;

b.) Within the implied authority of the agent to make for the principal; or c.) Apparently authorized.

2.) Beyond the scope of the agent’s authority a.) General rule: Principal is not bound.

b.) Exception: when the principal takes advantage of a contract made under the false misrepresentation of his agent.

3.) For the agent’s own benefit, within the scope of his agency – Principal is liable

Art. 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. (n) Ratification has retroactive effect: it relates back to the tome of the act or contract ratified and is equivalent to original authority

Receipt by principal of benefits of transaction: principal deemed to have ratified it, as he may not accept the benefits and repudiate its burdens

Art. 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. (n)

Ignorance of the agent’s authority not an excuse: it is the third person’s duty to require the agent to produce his power of attorney to ascertain the scope of is authority. He may also ask for the instructions of the principal.

Private instructions: third person is not bound or affected by the private or secret orders of the principal

Art. 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. (n)

Factor or commission agent: one whose business is to receive and sell goods for a commission (called a factorage) and who is entrusted by the principal with the possession of goods to be sold, and usually selling in his own name. He may act in his own name or in that of the principal.

Art. 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