AGENCY (Notes) 1

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CHAPTER 3
OBLIGATIONS 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
Binding effect of Contract of Agency: latter to act as though he had full powers.

Since a contract of agency is merely preparatory The principal shall be liable although the agent acted outside
contract, it is well within the legal capacity or both parties to the scope of his authority:
enter into any stipulation, obligation and undertaking by
which they can tailor-fit the relationship to best achieve the 1. When the principal ratifies such contract, expressly or tacitly
purposes or objectives of the agency. (1910)
2. When the principal has allowed the purported agent to act
The contract of agency is one of representation and bounded as though he had full powers (1911)
by fiduciary duties on the part of the agent, then the principal 3. When the principal has revoked the agency, but the third
has the power to evolve the relationship beyond the written party has acted in good faith without notice of such revocation
terms of the instrument, and the agent under his fiduciary (1921)
duty of obedience, must comply with such new instructions of
the principal. This point highlights the essential characteristic Paragraph 1 – implied (tacit ratification)
of agency as a preparatory contract. Ratification can be made by the corporate board either
expressly or impliedly. Implied ratification may take various forms –
like silence or acquiescence; by acts showing approval or adoption of
Principal bound by the contracts made by the agent in his
the contract; or by acceptance and retention of benefits flowing
behalf:
therefrom.4 (Emphasis supplied)

Art. 1910. The principal must comply with all the obligations which From the time Juvencio issued the authorization letter on 14
the agent may have contracted within the scope of his authority. June 1991 to the present, or over a period of more than 20 years, Dizon
As for any obligation wherein the agent has exceeded his power, the Copper never questioned Juvencio’s authority to write the 14 June 1991
principal is not bound except when he ratifies it expressly or tacitly. letter to BCI authorizing BCI to file the MPSA-P-III-16 application.
(1727) Justice Perez points out that "when there exists other facts that clearly
deny or contradict any such intent on the part of the principal –
Art. 1897. The agent who acts as such is not personally liable to the implied ratification cannot be inferred from such mere silence." Dizon
party with whom he contracts, unless he expressly binds himself or vs Dizon
exceeds the limits of his authority without giving such party sufficient
OR when similar acts have been approved by the
notice of his powers. (1725)
directors as a matter of general practice, custom and policy, the
general manager may bind the company without formal
The central principle of Agency: all the contracts and authorization of the board of directors (EG When, in usual
transactions entered into by the agent on behalf of the course of business, an officer has been allowed in his official
principal within the scope of his authority are binding on the capacity to manage its affairs, his authority to represent the
principal as though he himself has entered into them directly. corporation may be implied from the manner in which he has
This tenet, referred to as the doctrine of representation. been permitted by the directors to manage its business).

PRINCIPAL NOT BOUND BY CONTRACTS MADE Paragraph 2 under 1911 speaks of Agency by Estoppel or
WITHOUT AUTHORITY OR OUTSIDE THE SCOPE OF Doctrine of Apparent Authority in Corporate Law.
AUTHORITY -It is intended to protect the rights of innocent
persons. In such a situation, both the principal and the agent
1403 provides: acts done by the agent who has exceeded his may be considered as joint tortfeasors whose liability is joint
power would not bind the principal, and would thus not be and solidary.
void, but unenforceable.
The doctrine of apparent authority provides that a corporation
The party suing has the burden of proving the existence of the will be estopped from denying the agent’s authority if it
agency notwithstanding the purported denial of the principal. knowingly permits one of its officers or any other agent to act
If agency is proved = the principal shall be liable. within the scope of an apparent authority, and it holds him out
If agency is not proved = the agent will become personally to the public as possessing the power to do those acts. The
liable. doctrine of apparent authority does not apply if the principal
did not commit any acts or conduct which a third party knew
WHEN PRINCIPAL IS BOUND BY THE ACTS DONE and relied upon in good faith as a result of the exercise of
OUTSIDE THE SCOPE OF HIS AUTHORITY: reasonable prudence. Moreover, the agent’s acts or conduct
must have produced a change of position to the third party’s
Art. 1910. x x x As for any obligation wherein the agent has exceeded detriment.
his power, the principal is not bound except when he ratifies it
expressly or tacitly. (1727)
 AGENCY (Notes) 2
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Example: In a real estate company. The Agent committed (1) If the agent acted in contravention of the principal's
double sale. The principal raised the defence that the agent instructions, unless the latter should wish to avail himself of
overstepped its powers. But the principal was adjudged guilty the benefits derived from the contract;
of estoppels because it has accepted the payments remitted by
(2) When the expenses were due to the fault of the agent;
the agent without objection to the double sales effected by its
agent. (3) When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was not
LIABILITY OF THE PRINCPAL FOR AGENT’S TORT aware thereof;

GR: Principal is liable to injured third parties for the (4) When it was stipulated that the expenses would be borne
torts committed by the agent at the principal’s direction or in by the agent, or that the latter would be allowed only a
the course of and within the scope of the agent’s authority. certain sum
It goes without saying that since the act of negligence
was that of the agent, he becomes civilly liable to the injured Dominion Insurance vs CA: While the alw on agency
parties, even when he acts in representation of the principal. prohibits the area manager from obtaining
reimbursement, his right to recover may still be
Art. 1909. The agent is responsible not only for fraud, but also for justified under ObliCon: 1236:
negligence, which shall be judged with more or less rigor by the courts, x x x Whoever pays for another may demand
according to whether the agency was or was not for a compensation. from the debtor what he has paid, except
that if he paid without the knowledge or
against the will of the debtor, he can recover
OBLIGATIONS OF THE PRINCIPAL TO THE AGENT only insofar as the payment has been
beneficial to the debtor. (1158a)
1. To pay Agent’s Compensation
GR: Compensation in accordance with the terms agreed upon 3. To indemnify agent for the DAMAGES sustained
when agency was constituted.
If none: Art. 1913. The principal must also indemnify the agent for all the
(1) The principal shall pay the agent’s commission damages which the execution of the agency may have caused the
only on the legal basis that the agent has complied latter, without fault or negligence on his part.
with his obligations with the principal; and
(2) The principal shall be liable to the agent for the Counterbalance to the provision in Art 1884 that makes the
reasonable value of the agent’s services. agent liable for damages sustained by the principal for the
agent’s refusal to perform his obligations under the agency.
Note: 1875: Agency is presumed to be for a compensation,
unless there is proof to the contrary. The relationship is one of the principal and agent, articles 1911
and 1913 shall apply, that all expenses incurred and any losses
2. To advance the SUMS requested for execution of the Agency sustained, by the agent in pursuit of the business of the
principal and those undertaken upon instruction of the
Art. 1912. The principal must advance to the agent, should the latter so principal, should be reimbursed by the principal to the agent.
request, the sums necessary for the execution of the agency.
Right of Agent to retain in pledge for advances and damages
Should the agent have advanced them, the principal must reimburse
him therefor, even if the business or undertaking was not successful, Art. 1914. The agent may retain in pledge the things which are the
provided the agent is free from all fault. object of the agency until the principal effects the reimbursement and
pays the indemnity set forth in the two preceding articles. (1730)
The reimbursement shall include interest on the sums advanced, from
the day on which the advance was made. (1728)
This is an exception to the duty of the agent, expressed in Art
1891, to deliver to the principal everything he received even if
The reimbursement shall include interest on the sums
not due to the principal.
advanced, from the day on which the advance was made.
OBLIGATION OF TWO OR MORE PRINCIPALS TO
A. When principal NOT LIABLE to reimburse Agent
AGENT APPOINTED FOR COMMON TRANSACTIONS
for his expenses:
Art. 1915. If two or more persons have appointed an agent for a
Art. 1918. The principal is not liable for the expenses common transaction or undertaking, they shall be solidarily liable to
incurred by the agent in the following cases: the agent for all the consequences of the agency. (1731)

The rule in this article applies even when the appointments

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. By virtue of this solidarity, the agent
can recover from any principal the whole compensation and
indemnity owing to him by the others. The parties, however,
may, by express agreement, negate this solidary responsibility,
The solidarity does not disappear by the mere partition
effected by the principals after the accomplishment of the
agency.

RIGHTS OF PERSONS WHEN FACED WITH CONFLICTING

Art. 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. (n)

Art. 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. (n)