LAW ON Agency Chapter 2 PDF

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Obligations of the agentArticle 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which, through his nonperformance, the principal may suffer.He must also finish the business already begun on the death of the principal, should delay entail any danger.O...

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LAW ON AGENCY – 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 nonperformance, the principal may suffer. He must also finish the business already begun on the death of the principal, should delay entail any danger.

Obligations, in general, of agent to principal. (1) Good faith and loyalty to his trust, agent’s first duty. (2) Obedience to principal’s instruction. (3) Exercise of reasonable care.

(12) To be responsible in certain cases for the acts of the substitute appointed by him (Art. 1892.); (13) To pay interest on funds he has applied to his own use (Art. 1896.); (14) To inform the principal, where an authorized sale of credit has been made, of such sale (Art. 1906.); (15) To bear the risk of collection, should he receive also on a sale, a guarantee commission (Art. 1907.); (16) To indemnify the principal for damages for his failure to collect the credits of his principal at the time that they become due (Art. 1908.); and (17) To be responsible for fraud or negligence. (Art. 1909.)

Specific obligations of agent to principal. (1) To carry out the agency which he has accepted; (2) To answer for damages which through his performance the principal may suffer (Ibid.); (3) To finish the business already begun on the death of the principal should delay entail any danger (Ibid.); (4) 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 in case he declines an agency, until an agent is appointed (Art. 1885.); (5) To advance the necessary funds should there be a stipulation to do so (Art. 1886.); (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

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. 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. 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.

would do (Art. 1887.);

Instructions (of principal) defined.

(7) Not to carry out the agency if its execution would manifestly result in loss or damage to the principal (Art. 1888.);

Instructions are 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.

(8) To answer for damages if there being a conflict between his interests and those of the principal, he should prefer his own (Art. 1889.); (9) Not to loan to himself if he has been authorized to lend money at interest (Art. 1890.); (10) To render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency (Art. 1891.); (11) To distinguish goods by countermarks and designate the merchandise respectively belonging to each principal, in the case of a commission agent who handles goods of the same kind and mark, which belong to different owners (Art. 1904.);

Instructions distinguished from authority. (1) Authority (see Arts. 1881, 1882.), the sum total of the powers committed or permitted to the agent by the principal, may be limited in scope and such limitations are themselves a part of the authority, but instructions 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;

LAW ON AGENCY – Chapter 2 (2) Authority 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, while instructions refer to the manner or mode of his action with respect to matters which in their substance are within the scope of permitted action; (3) Limitations of authority are operative as against those who have or are charged with knowledge of them (see Art. 1900.), while instructions limiting the agent’s authority are without significance as against those dealing with the agent with neither knowledge nor notice of them; (see Art. 1902.) and

lend money at interest, he cannot borrow it without the consent of the principal. 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.

EXAMPLES:

(4) Authority is contemplated to be made known to the third person dealing with the agent, while instructions are not expected to be made known to those with whom the agent deals.

(1) P employs A as a full-time salesman. A must turn over to P any overprice received by him for goods he is to sell at a certain price. He may not make any profit out of the agency beyond his stipulated compensation.

(see 2 C.J.S. 1200-1202.)

(2) In the same example, A also sold goods for B without the knowledge of P. In this case, P is also entitled to all commissions or compensation earned by A on sales of B’s goods in violation of the contract of agency.

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

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;

EXAMPLES: (1) P authorized A to buy specified goods. A must not sell P goods belonging to him (A) without the full knowledge and assent of P. Such sale is voidable although the price may have been just. The reason is that A’s obligation to P requires him to buy at the lowest possible price while his self-interest prompts him to sell at the highest price obtainable. P, however, may elect to ratify the sale. (2) Similarly, if P authorized A to sell goods, A must not sell to himself either directly or indirectly. The reason is that his duty to sell at the highest price for the principal conflicts with his interest to buy at the lowest price possible.

(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.

(3) P authorized A to sell specified goods for a certain price. If A instead sells goods of the same kind and quality belonging to him for the same price to B, A, is liable for damages. He should not prefer his own interests to those of P.

Sub-agent defined.

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

Effects of substitution.

A sub-agent is 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.

(1) Substitution prohibited. — When the substitute is appointed by the agent against the express

LAW ON AGENCY – Chapter 2 prohibition of the principal, the agent exceeds the limits of his authority. (Art. 1881.) The law says that all acts of the substitute in such a case shall be void. (2) Substitution authorized. — If in the contract of agency, the agent is given the power to appoint a substitute and the principal did not designate any particular person to be appointed, the substitution has the effect of releasing the agent from his responsibility unless the person appointed is notoriously incompetent or insolvent. (3) Substitution not authorized, but not prohibited. — If the agent appoints a substitute when he was not given the power to appoint one (Ibid., No. 1.), the law recognizes the validity of the substitution if the same is beneficial to the principal because the agency has thus been executed in fulfillment of its object.

EXAMPLE: P authorized A to manage P’s business affairs during the time that P was in the province. A allowed T to manage the store for him. (1) Is A responsible for damages caused by the acts of T? Yes, if T was appointed by A against the prohibition of P that he shall not entrust the management of the store to another person; or he was not given the power to appoint one; or he was given the power, but T is “notoriously incompetent or insolvent.’’

EXAMPLE: A and B were appointed by P to manage the latter’s business. Is A liable to P for damages in the amount of P10,000.00 caused by the fault or negligence of B? (1) The presumption is that their responsibility is joint. Hence, A is not liable. But if both A and B were at fault, they shall be liable for P5,000.00 each. (2) If solidarity has been agreed upon, P may recover P110,000.00 either from A or B. If A pays P5,000.00, P can still go against A and B for the balance as long as the entire amount has not been paid. (see Art. 1216.)

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.

When agent may incur personal liability.

No, if A was given the power and T was not “notoriously incompetent or insolvent,” or T is the person designated by P to be appointed as substitute.

(1) When the agent expressly binds himself, he thereby obligates himself personally and by his own act. Thus, the agent may be bound with the third person when the latter, not having faith in the financial ability of the principal, enters into the contract on condition that the agent’s financial ability is “back of it.”

(2) Is the substitution valid? No, if A was prohibited by P from appointing a substitute. Yes, if A was given the power, or even if he was not given the power, there was no prohibition imposed by P.

(2) When the agent exceeds his authority, he really acts without authority and, therefore, the contract is unenforceable against the principal unless the latter ratifies the act.

(3) Are the acts of T in the name of P valid? No, if T was appointed by A against the prohibition of P or T acted beyond the scope of his authority. (see Art. 1910.)

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 fellow agents, except in the latter case when the fellow agents acted beyond the scope of their authority.

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.

Effect where third person aware of limits of agent’s powers.

LAW ON AGENCY – Chapter 2 (1) If the agent acts in the name of the principal (Art. 1883, par. 1.) and within the scope of his authority (Art. 1881.), the agent assumes no liability. The effect of the representation is to bind the principal as though he personally entered into the contract. (2) If the agent acts in excess of his authority, even if he contracts in the name of the principal, the agent is the one personally liable unless there is subsequent ratification by the principal. (3) The agent is not bound nor liable for damages in case he gave notice of his powers to the person with whom he has contracted (Art. 1897.) nor in case such person is aware of the limits of the powers granted by the principal. The effect is to make the contract, which is unenforceable as against the principal, void even as between the agent and the third person, and consequently, not legally binding as between them. However, if the agent promised or undertook to secure the principal’s ratification and failed, he is personally liable. If the ratification is obtained, then the principal becomes liable.

EXAMPLE: If B, in the preceding example, knew that A was not authorized to sell P’s car for P130,000.00, the sale is void even as between A and B. However, if B bought the car on the assurance of A that he would obtain the consent of P, A would be liable in case of failure to obtain such ratification. If P’s consent is subsequently given, then there is ratification and the sale will be binding on P. (see Art. 1901.)

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.

Scope of agent’s authority as to third persons.

Scope of 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. (1) Where authority not in writing. — Every person dealing with an assumed agent is put upon an inquiry and must discover upon his peril, if he would hold the principal liable, not only the fact of the agency but the nature and extent of authority of the agent. (2) Where authority in writing. — Nevertheless, if the authority of the agent is in writing, such person is not required to inquire further than the terms of the written power of attorney.

EXAMPLE: P gave A a written power of attorney wherein A is authorized to sell P’s factory for such price and upon such terms and conditions as A may deem reasonable. However, P and A had an understanding to the effect that A should sell the factory for not less than P5 million and for cash. A sold the factory to B on credit for P4,500,000.00. Under Article 1900, P is bound. As far as B is concerned, A acted within the scope of his authority. Here, A has the power to make the sale binding on P even though as between them, A has no authority to make such sale.

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.

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.

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.

LAW ON AGENCY – Chapter 2 (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.)

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

EXAMPLE: 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. An ordinary agent need not have possession of the goods of his principal, while the commission agent must be in possession.

P authorized A, his commission agent, to sell certain merchandise for P20,000.00 cash. A sold the merchandise to B on credit for P21,000.00. P may demand the payment of P20,000.00 in cash. Should A eventually collect P21,000.00 from B, A need not turn over the overprice of P1,000.00 as he is entitled to it. (see Art. 1891.) If P ratified the sale on credit and B could pay only up to P19,000.00, A is not liable for the difference of P2,000.00.

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.

EXAMPLE:

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. 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

Suppose, in the preceding example, A was authorized by P to sell on credit but he failed to so inform P with a statement of the name of the buyer. In this case, P may demand from A the payment of the P20,000.00 in cash. As far as the buyer is concerned, the sale is on credit and he is not liable to pa...