III.

Obligations of the Agent o But if the principal appoints a person as exclusive agent
to sell the principal’s property in a specified territory,
1. General obligations to the principal the principal may not compete with the agent in that
territory, either personally or by other agents.
2. Specific obligations and liabilities to the principal
o An agency contract, to have the effect of giving the
a. Act within the scope of authority
agent an exclusive territory which the principal may not
Art. 1879. A special power to sell excludes the power to invade to make sales, must sufficiently designate the
mortgage; and a special power to mortgage does not include the territory within which the agent is to have exclusive
power to sell. (n) rights.
 Contracts for exclusive agencies arise for the protection of
 The agent cannot sell (Art. 1878, Nos. 5, 15) or mortgage (No. the agent that he should be the exclusive agent and should
12) the property belonging to the principal without special be protected against the chance of other agents reaping the
power. benefit of his labor in securing purchasers.
o An authority to sell the principal’s property does not o The idea that the owner shall be excluded from the right
carry with it or imply the authority to mortgage and vice to sell his own property is so inconsistent with the
versa. Much less can it be construed to include an notion of ownership and the jus disponendi that clear
authority to represent the principal any litigation. an unequivocal language must be employed to negate
o Sale and mortgage are distinct from each other. such right.
o The power conferred on the agent to sell “for such price  The words “exclusive sale” may be construed to be
or amount and under such terms and conditions as said an inhibition upon the owner to grant to any one
attorney-in-fact may deem just and proper” is broad else the power to sell rather than an inhibition upon
enough to cover exchange other than money his right to sell.
 The sale proscribed by a special power to mortgage under  Power to revoke vs right to revoke
Art. 1879 is a voluntary and independent contract, and not o The principal always has the power to revoke but not
an auction sale resulting from extrajudicial foreclosure. having the right to do so in those cases wherein he has
o It matters not that the authority to extrajudicial agreed not to exercise his power during a certain
foreclosure was granted by the AIF and not by the period.  damages if he exercises his power within the
mortgagor personally. The stipulation in that regard, period.
although ancillary, forms an essential part of the
mortgage contract and is inseparable therefrom. No Art. 1880. A special power to compromise does not authorize
creditor will agree to enter into a mortgage contract submission to arbitration. (1713a)
without that stipulation intended for his protection.
 While the principal may have confidence in the agent’s
(???)
judgment, the arbitrator designated may not possess the
 The power to sell any kind of realty belonging and might
trust of the principal.
belong to the principal covers not only the property
 The authority to submit to arbitration does not include the
belonging to him at the time of the execution of the power,
power to compromise.
but also such as he might afterwards have during the time
o The principal may not have trust in the agent’s
it is in force (Katigbak case).
judgment in making a settlement.
 A mere authority to a real estate agent “to sell” property at
a certain price and for a certain commission does not carry
Art. 1881. The agent must act within the scope of his authority.
with it the implied power to make a contract of sale in
He may do such acts as may be conducive to the accomplishment
behalf of the principal but as merely authorizing the agent
of the purpose of the agency. (1714a)
to find a purchaser and submit his offer to the principal for
acceptance.
 In the absence of express authorization, authority to sell Art. 1882. The limits of the agent's authority shall not be
contemplates the sale for cash and not for credit. considered exceeded should it have been performed in a manner
more advantageous to the principal than that specified by him.
 Unless otherwise agreed, authority to buy or sell does not
(1715)
include authority to rescind or modify the terms of the sale
after its completion, nor to act further with reference to the
 Authority – the power of the agent to affect the legal
subject matter except to undo fraud or to correct mistakes.
relations of the principal by acts done in accordance with
 The appointment of a person as exclusive agent to sell
the principal’s manifestation of consent to him.
specified property is not equivalent to giving the agent an
o The authority of the agent is the very essence of the
exclusive power of sale.
principal and agent relationship.
o In the former, the principal may sell through his own
efforts; in the latter, he may not compete with the
agent.
  Authority vs power o Apparent or ostensible – when it is conferred by words,
Authority Power conduct or even by silence of the principal (Art. 1869)
As to existence The source or The effect. which causes a third person reasonably to believe that
cause. a particular person, who may or may not be the
Thus, an agent principal’s agent, has actual authority to act for the
granted authority principal.
by the principal has o General – when it refers to all the business of the
the power to act for principal.
him. o Special – when it is limited only to one or more specific
transactions.
The power of the o Emergency or authority by necessary operation of law –
agent is also the when it is demanded by necessity or by virtue of the
limitation upon his existence of an emergency, or unexpected situation
ability to bind the that requires prompt action by the agent, and the
principal. principal cannot be reached in sufficient time for advice
As to scope The extent depends It is within his or instruction.
upon the purpose power if he has the  The agency terminates when the emergency has
of the agency. legal ability to bind passed.
the principal to a  Requisites for the agent to bind the principal:
An act is within the third person o The agent must act within the scope of his authority.
authority of the although the act o The agent must act in behalf of the principal.
agent if it is not a constitutes a  A person is not bound by the act of another when:
violation of his duty violation of his duty o The latter acts without or beyond the scope of his
to the principal. to the principal. authority in the former’s name.
o The latter acts within the scope of his authority but in
An agent with his own name.
authority to do an  Except when the transaction involves things
act also has the belonging to the principal.
power to bind the  The agent is not deemed to have exceeded the limits of his
principal, but the authority should he perform the agency in a manner more
latter may exist advantageous to the principal than that indicated by the
without the former. latter.
So far as third No distinction exists. An act within the o This is a rule of equity.
persons are power of the agent is deemed within the  Liability of the principal/agent for acts of the agent beyond
concerned scope of his authority even if the agent has his authority or power
exceeded the limits of his authority or he Principal Agent
has no authority whatever do so as in the GR: principal is not bound by Principally liable either to the
following cases:  see page 434 – 435 the acts of an agent beyond his principal or to the third party, in
limited powers. the absence of ratification by
The power of the agent to subject his the principal.
principal to liability at the instance of third Exceptions:
persons is much wider than his authority. 1. Where the principal’s If the principal is liable to the
acts have contributed to third party on the ground of
 Kinds of authority: deceive a third person in apparent authority, the agent’s
o Actual – when it is actually granted. It may be express or good faith. liability is to the principal.
implied. 2. Where the limitations
o Express – when it is directly conferred by words, either upon the power created If the principal is not liable to
orally or in writing. by him could not have the third person because the
o Implied – when it is incidental to the transaction or been known by the third facts are such no apparent
reasonably necessary to accomplish the main purpose person. authority is present, then the
of the agency (Art. 1881) or enable the agent to perform 3. Where the principal has agent’s liability is to the third
his assigned duties and therefore, the principal is placed in the hands of the party.
deemed to have actually intended the agent to possess, agent instruments signed
although the principal has said nothing about the by him in blank If the agent personally assumes
particular aspect of the agent’s authority. responsibility for the particular
transaction, if the principal
 4. Where the principal has defaults, he, in effect, also agency of the general rule in contracts that any person
ratified the acts of the becomes obligated as co- guilty of fraud, negligence, or delay in the fulfilment of
agent. principal. his obligation (Art. 1170).
 Although the death of the principal extinguishes the agency,
b. Carry out the agency the agent has an obligation to conclude the business
already begun on the death of the principal.
Art. 1884. The agent is bound by his acceptance to carry out the o This is in accord with the principles of equity.
agency, and is liable for the damages which, through his non- o But the duty exists only should delay entail any danger.
performance, the principal may suffer.  The agency shall also remain in full force even after the
death of the principal if it has been constituted in the
He must also finish the business already begun on the death of
the principal, should delay entail any danger. (1718) common interest of the both of them, or in the interest of a
third person who has accepted the stipulation in his favor.
o Where an agent makes use of the power of attorney
 Obligations, in general, of the agent to the principal:
after the death of his principal, the agent has the
o Good faith and loyalty to his trust, agent’s first duty –
obligation to deliver the amount collected by him by
the relationship is a fiduciary one.
virtue of said power to the administrator of the estate
 The presumption is that an agent has performed his
of the principal.
duty in good faith, and the principal, until notice is
received of a breach of relational duties, may rely
Art. 1928. The agent may withdraw from the agency by giving due
upon his agent’s faithfulness. notice to the principal. If the latter should suffer any damage by
 The general rule as to loyalty does not apply to cases reason of the withdrawal, the agent must indemnify him therefor,
where no relation of trust or confidence exists unless the agent should base his withdrawal upon the
between the parties (ex.: where the agent is bound impossibility of continuing the performance of the agency
merely as an instrument to perform a service, or without grave detriment to himself. (1736a)
where there is no showing of an agency
relationship.  The agent may renounce or withdraw from the agency at
o Obedience to principal’s instruction – if the agent fails any time, without the consent of the principal, even in
to obey, he becomes liable for any loss the principal violation of the latter’s contractual rights, subject to liability
incurs even though he can show that he acted in good for breach of contract or for tort.
faith or exercised reasonableness. o This is based on the constitutional prohibition against
 Even a gratuitous agent must follow instructions or involuntary servitude.
become responsible for any loss resulting from o It is also consistent with the concept that agency is a
failure to do so. voluntary relationship between the parties.
 But an agent is not liable if he violates the principal’s  Withdrawal without just cause – indemnify the principal
instructions for a good reason. should he suffer damage by reason of such withdrawal.
 An agent must know the extent of his authority. If o The reason for this is that the agent fails in his obligation
he is in doubt, he should ask the principal for and as such, he answers for losses and damages
clarification. occasioned by the non-fulfilment.
o Exercise of reasonable care – by accepting an  Withdrawal with just cause – the agent cannot be held
employment whose requirement he knows, without liable.
stipulating otherwise, the agent impliedly undertakes o While the agent is forbidden to prefer his interests to
that he possesses a degree of skill reasonably or those of the principal, he is not required to sacrifice his
ordinarily competent for the performance of the own interests just to serve the principal.
service, and that in performing his undertaking, he will
exercise reasonable care, skill, and diligence. Art. 1929. The agent, even if he should withdraw from the agency
 He does not agree that he will make no mistake or for a valid reason, must continue to act until the principal has had
that he will exercise the highest skill or diligence. reasonable opportunity to take the necessary steps to meet the
situation. (1737a)
 Specific obligations of the agent to the principal
o See page 457 – 459
 The purpose is to prevent damage or prejudice to the
 A person is free to refuse to be an agent but once he accepts
principal.
the agency, he is bound to carry it out in accordance with
 The law reconciles the interests of the agent with those of
its terms in good faith and following the instructions, if any,
the principal, and if it permits the withdrawal of the agent,
of the principal.
it is on the condition that no damage results to the principal,
o If the agent fulfils his duty, he is not personally liable
and if the agent desires to be relieved of the obligation of
unless he expressly binds himself.
making reparations when he withdraws for a just cause, he
o But upon his failure to do so, he is liable for the damage
must continue to act so that no injury may be caused to the
which the principal may suffer. This is an application to
principal.
  The obligation in Art. 1929 is similar to that provided in Art.
Art. 1890. If the agent has been empowered to borrow money,
1885 in the case of a person who declines an agency. 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
c. Not to carry out the agency it without the consent of the principal. (n)

Art. 1888. An agent shall not carry out an agency if its execution
 The agent cannot, without a special power of attorney, loan
would manifestly result in loss or damage to the principal. (n)
or borrow money.

 The agent, upon acceptance of the agency, is not bound in

Art. 1491. The following persons cannot acquire by purchase,
all cases to carry out the agency in accordance with the
even at a public or judicial auction, either in person or through
instructions of the principal.
the mediation of another:
o Thus, the agent must not carry out the agency if its
execution would manifestly result in loss or damage to (1) The guardian, the property of the person or persons who
the principal. may be under his guardianship;
 The duty of the agent who is merely an extension of the
(2) Agents, the property whose administration or sale may have
personality of the principal is to render service for the
been entrusted to them, unless the consent of the principal has
benefit of the principal and not to act to his detriment.
been given;

d. Loyalty (3) Executors and administrators, the property of the estate

under administration;
Art. 1889. The agent shall be liable for damages if, there being a
(4) Public officers and employees, the property of the State or
conflict between his interests and those of the principal, he
of any subdivision thereof, or of any government-owned or
should prefer his own. (n)
controlled corporation, or institution, the administration of
 The reason for this rule is that agency is a fiduciary which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner
relationship.
whatsoever, take part in the sale;
o As the law does not distinguish, the rule is the same
whether the agency is onerous or gratuitous. (5) Justices, judges, prosecuting attorneys, clerks of superior
 The underlying basis of the rule precluding an agent from and inferior courts, and other officers and employees
engaging in self-dealing is to shut the door against connected with the administration of justice, the property and
temptation and keep the agent’s eye single to the rights and rights in litigation or levied upon an execution before the court
welfare of his principal. within whose jurisdiction or territory they exercise their
o The rule is one of preventive, not remedial justice, respective functions; this prohibition includes the act of
which operates however fair the transaction may have acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
been – however free from every taint of moral wrong.
any litigation in which they may take part by virtue of their
o The principal, however, may waive the benefit of the
profession.
rule so far as he is concerned, if he does so with full
knowledge of the facts; but in the absence of such (6) Any others specially disqualified by law. (1459a)
waiver, the rule is absolute.
 Normally, where there is a conflict between the agent’s
own interests and those of the principal, the agent has the d. Diligence
duty to prefer the principal’s interest over his own.
o However, where the agent’s interest are superior, such Art. 1885. In case a person declines an agency, he is bound to
as where he has a security interest in goods of the observe the diligence of a good father of a family in the custody
principal in his possession, he may protect this interest and preservation of the goods forwarded to him by the owner
even if in so doing he disobeys the principal’s orders or until the latter should appoint an agent or take charge of the
injures his interest. goods. (n)
o An agent is not required to expose himself to great
 This rule is based on equity.
physical risks not within the contemplation of the
o The owner, however, must act as soon as practicable,
parties, or to perform services when he is ill.
either:
o If the conflict resulted from his breach of a duty owed
 By appointing an agent or
to the principal, the agent cannot prefer his own
 By taking charge of the goods
interest.
Art. 1887. In the execution of the agency, the agent shall act in o But the agent need not follow instructions that are
accordance with the instructions of the principal. outside the scope of the agency relationship agreed
upon or that may subject him to unreasonable risk of
In default thereof, he shall do all that a good father of a family loss, damage, or injury to himself.
would do, as required by the nature of the business. (1719)  If the agent exceeds, violates, or fails to act upon such
instructions, he will be liable to the principal for any loss or
 Instructions – private directions which the principal may
damage resulting therefrom.
give the agent in regard to the manner of performing his
 In the absence of specific instructions of the principal, the
duties as such agent but of which a third party is ignorant.
agent shall do all that a good father of a family taking care
o They are secret if the principal intended them not to be
of the business as if it were his own would do as required
made known to such party.
by the nature of the business.
 Instructions vs authority
o If the agent acts in good faith and with due care, he is
Instructions Authority
not liable for losses due to errors or mistakes of
Direct the manner of The sum total of the powers
judgment as regards to matters with which he is vested
transacting the authorized committed or permitted to the
with discretionary powers.
business and contemplates agent by the principal.
o Presumed that he acted in good faith and in accordance
only a private rule of guidance
with his power as he understood it.
to the agent and are
 The agent has the power, not the right, in many cases to
independent and distinct in
bind his principal even when he acts beyond his authority.
character.
o However, when an agent, in executing the orders and
May be limited in scope and
commissions of his principal, carries out the instructions
such limitations are themselves
he has received from his principal, and does not appear
a part of the authority.
to have exceeded his authority or to have acted with
Refer to the manner or mode of Relates to the subject with
negligence, deceit, or fraud, he cannot be held
his action with respect to which the agent is empowered
responsible for the failure of his principal to accomplish
matters which in their to deal or the kind of business
the object of the agency.
substance are within the scope or transactions upon which he
 A departure from instructions may be justified by a sudden
of permitted action. is empowered to act.
emergency. This rule is applicable only where the principal
Instructions limiting the agent’s Limitations of authority are
cannot be consulted and where the circumstances cannot
authority are without operative as against those who
admit delay.
significance as against those have or are charged with
 Ambiguous instructions may also justify an agent in not
dealing with the agent with knowledge of them.
following instructions. The agent will not be liable if he
neither knowledge or notice of
chooses reasonably one of two possible interpretations.
them.
o Customs and usage may aid in the interpretation but not
Not expected to be made Contemplated to be made
to the extent of overruling positive instructions to the
known to those with whom the known to the third person
contrary.
agent deals. dealing with the agent.
o Nor will the agent be justified in following ideas of his
own which are not within any interpretation of the
 Liability of principal to third person instructions.
o If an act done by an agent is within the apparent scope
 An agent may not be said to have breached the agency
of authority with which he has been clothed, it matters
contract by reason of an insubstantial departure from the
not that it is directly contrary to the instructions of the
principal’s instructions which does not affect the result.
principal.
o However, a departure cannot usually be termed
 The principal will, nevertheless, be liable unless the
“insubstantial” in the face of the principal’s
third person with whom the agent dealt knew that
countervailing instruction, for the principal has a right
he was exceeding his authority or violating his
to determine what he will consider important.
instructions.
o A trivial mistake will not be held a bar to the agent’s
o Third persons dealing with an agent do so at their peril
claim for compensation.
and are bound to inquire as to the extent of his
authority, but they are not required to investigate the
instructions of the principal.
 It is the fundamental duty of the agent to obey all the
reasonable and lawful instructions given to him by his
principal.
o He must follow instructions even if he thinks they are
capricious or unwise.