THE PRINCIPAL
COMPLY WITH OBLIGATIONS WHEN ESTOPPED
ART 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
Liability of Principal Because of Estoppel
Reason for the law: The principal may be said to be in estoppel and therefore innocent
third persons should not be prejudiced. It cannot be denied that here the principal failed to
adopt the needed measures to prevent misrepresentation.
Solidary Liability
This is an instance when solidarity is imposed by law. It would seem, however, that this
Article is unjust for if the agent is considered innocent and acting within the scope of his
authority, he should be exempted from liability.
COMPLY WITH OBLIGATIONS LIABILITY OF THE PRINCIPAL
ART 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
ART 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.
To pay Agents Compensation
If no particular formula has been agreed upon, the ff rules shall apply:
(a) The principal shall pay the agents commission only on the legal basis that the agent
has complied with his obligations with the principal; and
(b) The principal shall be liable to the agent for the reasonable value of the agents
services
Solidary Liability of Principals
solidarity is the rule because of the common transaction
i.e. even if the agent has been appointed separately, the rule should apply in the interest
of justice.
The liability of the principals is solidary for all the consequences of the agency each
principal may be sued by the agent for the entire amount due & not just for his
proportionate share.
Obligations are presumed to be joint unless the law or contract says it is solidary.
COMPLY WITH OBLIGATIONS THINGS BELONGING TO THE PRINCIPAL
ART 1883. If an agent acts in his own name, the principal has no right of action
against the
persons with whom the agent has contracted; neither have such persons
against
the principal.
In such case the agent is the one directly bound in favor of the person with
whom he has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal.
The provisions of this article shall be understood to be without prejudice to
the actions between the principal and agent.
Things Belonging to the Principal
This means that in the case of this exception, the agents apparent representation yields
to the principals true representation; and that, in reality and in effect, the contract must
be considered as entered into between the principal and the third person and
consequently, if the obligations belong to the former, to him alone must also belong the
rights arising from the contract.
This exception is necessary for the protection of third person against possible collusion
between the principal and the agent.
THE PRINCIPAL
OBLIGATION OF THE PRINCIPAL TO AGENTS ADVANCE/REIMBURSE
ART. 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. (1728)
ART. 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 principals 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. (n)
Purpose
the Principal is under the obligation to provide the means with which to execute the
agency, unless otherwise stipulated. Should the principal fail to comply with his obligation,
the agent will not be liable for the damages.
Obligation to reimburse agent for funds advanced by latter
In case the agent advanced the sums necessary for the execution of the agency, whether
on his own initiative or by virtue of stipulation, such must be reimbursed by the principal
with interest therein.
Demand is not necessary in order that delay on the part of the principal shall exist
The obligation is founded on the implied promise to pay and as a proximate consequence
of the good faith execution of the agency.
The obligation to reimburse the agent cannot be defeated by the fact that the business or
undertaking was unsuccessful, provided that the agent is free from fault. If in the
performance of the obligation of the agent is coupled with the diligence of a good father of
a family, then the agent has complied with his duty.
Reasons on why principal not liable for expenses incurred by agent
(1) To punish the agent; for the exception, the benefits is implied ratification
(2) Due to the fault of the agent
(3) The agent is guilty of bad faith and lack of diligence
(4)An express stipulation which is not contrary to law, morals, good customs, public order, or
public policy is biding between the parties
OBLIGATION OF THE PRINCIPAL TO AGENTS INDEMNIFY
ART. 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. (1729)
Obligation to indemnify agent for damages
The Rule is based on equity. Since the principal receives the benefits of the agency and
has the right to demand damages from the agent should the agent not perform the
agency, the principal should answer for damages resulting the execution of thereof
without the fault or negligence on the part of the agent.
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.
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.
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.
No obligation to indemnify where no agency relation exists and where it appears that the
agent acted in his own account.
OBLIGATION OF THE PRINCIPAL TO AGENTS COMPENSATE
ART. 1875. Agency is presumed to be for a compensation, unless there is proof to
the contrary. (n)
AGENCY PRESUMED TO BE WITH COMPENSATION
The agent does not have to prove that the agency is for compensation
The prima facie presumption that the agency is for compensation may be contradicted
by contrary evidence
LIABILITY OF PRINCIPAL TO PAY COMPENSATION
(1) AMOUNT the principal must pay the agent the compensation agreed upon, or the
reasonable value of the agents services if no compensation was specified
(2) COMPLIANCE BY AGENT WITH HIS OBLIGATION the liability of the principal to pay
commission presupposes that the agent has complied with his obligation to the principal
(3) PROCURRING CAUSE OF TRANSACTION the broker/agent must be the instrumental in the
consummation of the sale to be entitled to a commission
(4) EVASION OF COMMISSION IN BAD FAITH the principal cannot unjustly deprive the broker
of his commission as his duly constituted agent by cancelling the written authority only to
act on the sale at a later date.
(5) COMPENSATION CONTINGENT OF PROFITS the agent is not entitled to compensation until
the principal realizes profit.
(6) REDUCTION BY PRINCIPAL OF OVERPRICE the principal would be liable for the difference
if he accepted the reduced price to the prejudice of the agent.
(7) COMMISSION PAYABLE BY OWNER OF PROPERTY SOLD in sale of real property where a
commission is payable to the agent, it is the owner and not the buyer who must pay the
commission.
(8) GRANT OF COMENSATION ON EQUITABLE GROUND
General rule: agent is not entitled to any commission until he has successfully done the
job given to him, especially when his authority has expired.
EXCEPTION/S:
(a)When the agent/broker had diligently taken steps to bring back together the owner
and the buyer
(b)When through the agent/broker, the principal met the buyer who was willing to pay
the price offered for the sale
(c) Despite the expiration of agents authority, the agent/broker had diligently taken
steps to bring back together the parties such that the sale was finalized and
consummated between them
(9) RIGHT OF AGENTS COMPANION TO COMPENSATION where no express or implied
understanding that the agent that no part of the compensation that the agent is to receive
can be paid to any companion or helper of his, such companion or helper is entitled to
compensation.
o Such companion may join the agent as a party to a case against the principal for the
recovery of compensation
(10)TERMINATION OF AGENCY CONTRACT when there is no time fixed for the continuance of
the contract, either party is at liberty to terminate it at will, subject only to requirements of
good faith
(11)RIGHT OF AGENT TO COMPENSATION IN CASE OF DOUBLE AGENCY an agent acting at
once for both contracting parties (i.e. vendor and vendee) assumes a double agency.
(a) Needs full knowledge and consent of both principals, or unless his employment was
merely to bring the parties together. The key is in fully informing both parties.
(b) The agent can recover from neither where his employment is concealed from or not
assented to by the other.
(c) Where only one principal had knowledge, then both that principal and agent are guilty of
the fraud of the rights of the other principal.
RIGHTS AND OBLIGATIONS OF THE THIRD PARTY
RIGHTS OF THE THIRD PARTIES
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)
General Rule
o A third person deals with an agent at his own peril. Hence, he is bound to inquire as to the
extent of the agents authority especially where the act of the agent is of an unusual
nature.
Ignorance of the agents authority is no excuse.
It is the 3rd partys duty to require the agent to produce his power of attorney to
ascertain the scope of his authority and he may also ask for the instructions of the
principal
The 3rd party is not bound and cannot be affected by the private instructions of the
principal in the same way that he cannot be prejudiced by any understanding between the
principal and the agent.
Such secret orders or instructions cannot be invoked against 3 rd parties.
OBLIGATIONS OF THIRD PARTIES
Obligation
1.
Ascertain the existence of agency
2.
Ascertain the nature and extent of authority
EXTINGUISHMENT OF AGENCY
ART. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal
or of the agent;
(4) By the dissolution of the firm or corporation which entrusted or
accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted.
(1732a)
Once an agency is shown to have existed, an agency relation will be presumed to have
continued.
Burden of proving a revocation or other termination of agency is on the party asserting
such termination or revocation
REVOCATION
ART. 1920. The principal may revoke the agency at will, and compel the agent to
return the
document evidencing the agency. Such revocation may be express or
implied. (1733a)
ART. 1925. When two or more principals have granted a power of attorney for a
common
transaction, anyone of them may revoke the same without the consent of
the others. (n)
An agency may be terminated by the subsequent acts of the parties:
o REVOCATION principal terminates the contract of agency
o WITHDRAWAL or RENUNCIATION agent terminates the contract of agency
Agency generally revocable at will by principal, EXCEPT as provided by Art 1927. Reasons
for the rule:
(a) Authority of the agency emanates from the principal
(b) Confidence is the cardinal basis of the relationship between principal and agent
hence once such confidence disappears, the relationship should cease
(c) The principal-agent relationship is consensual and personal in nature and no one
can be forced to retain another as his agent against his will.
Where the agency is constituted for a fixed period principal shall be liable for damages
due to a wrongful discharge of the agent before the expiration of the period fixed. Action
for indemnity would be derived from the contract of the parties.
o EXCEPT when
(1) it is expressly stated that the principal has the absolute right to revoke the
contract of agency and
(2) there is no time fixed for the continuance of the agency.
RETURN OF DOCUMENT EVIDENCING AGENCY:
o Principal can compel the agent to return the document evidencing the agency
to prevent the agent from making use of the power of attorney and avoid liability to third
persons who may subsequently deal with the agent on the faith of the instrument
KINDS OF REVOCATION
(a) EXPRESS in writing
(b) IMPLIED principal appoints a new agent for the same business or transaction;
principal directly manages the business entrusted to the agent; when after
granting a general power of attorney, grants a special power of attorney to
another agent
NOTICE OF REVOCATION
(1) To agent - express notice is not always necessary
(2) To third persons actual notice MUST be brought home to former customers, while
notice by publication is sufficient in some
RENUNCIATION
Agent may give notice to the principal; in effect the agent is resigning.
An agent cannot legally terminate an agency in order to take advantage of the
principals condition or to profit by information resulting from his agency.
REASON FOR THE RULE:
o principal-agent relationship is consensual and a voluntary relationship hence, the law will
not compel parties to continue an agency if they do not want to do so.
FORMS OF RENUCIATION:
(a) EXPRESS agent notifies principal
(b) IMPLIED agent conducted himself in a clearly incompatible manner with his
duties as agent; abandonment of the object of his agency; committing fraud
upon his principal; agent institutes an action against his principal
REVOCATION Effect on third persons
ART. 1921. If the agency has been entrusted for the purpose of contracting with
specified
persons, its revocation shall not prejudice the latter if they were not given
notice thereof. (1734)
ART. 1922. If the agent had general powers, revocation of the agency does not
prejudice third
persons who acted in good faith and without knowledge of the revocation.
Notice of the revocation in a newspaper of general circulation is a
sufficient warning to third persons. (n)
If the agency is created for the purpose of contracting with specific persons, its revocation
will not prejudice such third persons until notice thereof is given them.
3rd parties have the right to presume that the representation continues to exist in the
absence of notification by the principal. Notice is not required if the 3 rd party already
knows of the revocation.
In the case of a general power of attorney, innocent 3 rd persons will not be prejudiced by
the revocation before they had knowledge thereof.
Under Art 1921 notice of revocation MUST be personal; under Art 1922 it may be
personal
ART. 1873. If a person specially informs another or states by public advertisement
that he has
given a power of attorney to a third person, the latter thereby becomes a
duly authorized agent, in the former case with respect to the person who
received the special information, and in the latter case with regard to any
person.
The power shall continue to be in full force until the notice is rescinded in
the same manner in which it was given. (n)
Communication of Existence of Agency: 2 ways
(1) by special information (letter) agent is considered with such respect to the person to whom
it was given.
(2) by public advertisement agent is considered with such regard to any person i.e. newspaper,
radio, etc. posters or billboard
In either case, the agency is deemed to exist whether there is an actual agency or not.
The power of attorney must be revoked in the same manner in which it was given
REVOCATION OF AGENCY Appointment of a new agent
ART. 1923. The appointment of a new agent for the same business or transaction
revokes the
previous agency from the day on which notice thereof was given to the
former agent, without prejudice to the provisions of the two preceding
articles. (1735a)
(1) Implied revocation of previous agency principal appoints a new agent for the same
business or transaction provided there is incompatibility without prejudice to the rights of
third persons who acted in good faith and without knowledge of the revocation.
Communication to the agent makes the revocation effective.
o no revocation if the appointment of another agent is not incompatible with the
continuation of a like authority in the first agent, or the first agent is not given
notice of the appointment of the new agent.
(2) substitution of counsel of record: REQUISITES
(a) a written request for substitution
(b) filed with the written consent of the attorney to be substituted
(c) with written consent of the attorney to be substituted
(d) in case the consent of the attorney to be substituted cannot be obtained, there
must be at least a proof of notice that the motion for substitution was served on
him in the manner prescribed by the Rules of Court.
REVOCATION OF AGENCY Direct management by the principal
ART. 1924. The agency is revoked if the principal directly manages the business
entrusted to
the agent, dealing directly with third persons. (n)
Another case of implied revocation
Should be distinguished from Art 1916
EXCEPTIONS:
(a) if the desire of the principal is for him and the agent to manage the business together
(b) if the purpose of the principal is to avoid the payment of the agents commission hence
the revocation is made in bad faith
REVOCATION When agency cannot be revoked/ agency coupled with an interest
ART. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it
is the
means of fulfilling an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable. (n)
Art 1927 is an EXCEPTION to the general rule that the principal may revoke an agency at
will:
(1) when the agency is created not only for the interest of both the principal but also for
the interest of third persons; and
(2) when the agency is created for the mutual interest of both the principal and the agent
In both cases, the agency is deemed as one coupled with an interest. It becomes part of
another obligation or agreement.
ART. 1930. The agency shall remain in full force and effect even after the death of
the
principal, if it has been constituted in the common interest of the latter
and of the agent, or in the interest of a third person who has accepted
the stipulation in his favor. (n)
GENERAL RULE: Agency is terminated instantly by the death of the principal.
EXCEPTIONS:
(1) if the agency has been constituted in the common interest of the principal and the
agent;
(2) if it has been constituted in the interest of a 3 rd person who has accepted the
stipulation in his favor
WITHDRAWAL
ART. 1928. The agent may withdraw from the agency by giving due notice to the
principal. If
the latter should suffer any damage by reason of the withdrawal, the
agent must indemnify him therefor, unless the agent should base his
withdrawal upon the impossibility of continuing the performance of the
agency without grave detriment to himself. (1736a)
Agent may likewise renounce or withdraw from the agency at any time, subject to liability
for breach of contract or for tort.
Applies whether the agency is gratuitous or for compensation and is based on the
constitutional provision against involuntary servitude.
IF WITHOUT JUST CAUSE: agent should give due notice to the principal and indemnify the
principal should the latter suffer damage by reason of such withdrawal
IF WITH JUST CAUSE: agent cannot be held liable; i.e. due to a fortuitous event or a grave
detriment to the agent
DEATH/ CIVIL INTERDICTION/ INSANITY/ INSOLVENCY OF THE PRINCIPAL
ART. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal
or of the agent;
(4) By the dissolution of the firm or corporation which entrusted or
accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted.
(1732a)
