III. OBLIGATIONS OF THE AGENT

Question 1

General Obligations

Answer 1

1. Act within the scope of authority
2. Carry out the agency
3. Not to carry out the agency
4. Loyalty
5. Diligence
6. Account/Deliver
7. Solidary liability
8. Pay Interest
9. Fraud; negligence
10. Specific obligations of commission agents

Question 2

Does a spell power to mortgage include the power to sell?

Answer 2

NO. Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell.

Question 3

Does a special power to compromise include the power to submit to arbitration?

Answer 3

NO. Art. 1880. A special power to compromise does NOT authorize submission to arbitration.

Question 4

The agent must act ________. He may do such acts as may be ________.

Answer 4

Art. 1881. The agent must act within the scope of his authority. He may do such acts as may be conducive to the accomplishment of the purpose of the agency.

Question 5

Art. 1882. The limits of the agent’s authority shall not be considered exceeded should it have been ________.

Answer 5

performed in a manner more advantageous to the principal than that specified by him.

Question 6

Art. 1887. In the execution of the agency, the agent shall act in accordance with _________.
In default thereof, he shall do ________.

Answer 6

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.

Question 7

Define “authority”.

Answer 7

Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestation of consent to him.

The authority of the agent is the very essence -the sine qua non- of the principal and agent relationship.

Question 8

Authority vs. Power

Answer 8

Authority:

• cause OR effect
• an agent grant­ed authority by the principal has thereby the “power” to act for him, which is taken to mean an ABILITY on the part of the agent to produce a change in a given legal relation, by doing and not doing a given act.”

Power

• EFFECT
• LIMITATION upon his ability to bind the principal, for it is well-settled that an agent binds his principal only as to acts within his actual or apparent authority.

Question 9

Scope of authority to sell/to mortgage

Answer 9

The agent cannot sell (Art. 1878, Nos. 5, 15.) or mortgage (No. 12.) the property belonging to the principal without special power.

Effect of sale without authority: unenforceable against the principal as the agent “has acted beyond his
powers.”

Question 10

Art. 1884. The agent is bound by________, and is liable for the damages which, through his ________, the principal may suffer.
He must also ________ already begun on the death of the principal, should ________.

Answer 10

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.

Question 11

Art. 1928. The agent may withdraw from the agency by _________ If the latter should suffer any damage by reason of the withdrawal, the agent must _________.

Answer 11

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,

Question 12

When must an agent continue to act even if he has validly withdrawn?

Answer 12

Art. 1929. The agent, even if he should withdraw from the agency for a valid reason, must continue to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation.

Question 13

When may an agent not carry out the agency?

Answer 13

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

Question 14

Liability of an agent during a conflict of interest

Answer 14

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.

Question 15

If the agent is empowered to borrow, may he also lend?

Answer 15

YES. Art. 1890. If the agent has been empowered to borrow money, he may himself be the lender at the current rate of interest.

Question 16

If the agent is empowered to lend, may he also borrow?

Answer 16

NO. Art. 1890 (par. 2) If he has been authorized to lend money at interest, he cannot borrow it without the consent of the principal.

Question 17

[AS TO AGENTS] Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

Answer 17

GR: (2) Agents, the property whose administration or sale may have been entrusted to them,

EXC #1: Unless the consent of the principal has been given.
EXC #2: When the sale was consummated AFTER the termination of the agency

Question 18

Declined agency

Answer 18

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.

Question 19

Does the degree of care observed by the agent change when he/she is not compensated for his agency?

Answer 19

NO. Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

Question 20

Art. 1891. Every agent is bound to render _________ and to deliver to the principal _________, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be ________.

Answer 20

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.

Question 21

When may an agent be deemed solidarily liable?

Answer 21

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.

Question 22

Responsibility for negligence when solidary liability is stipulated

Answer 22

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 fellow agents,

Question 23

Art. 1896. The agent owes interest on the sums:

Answer 23

(1) He has applied to his own use from the day on which he did so, and
(2) On those which he still owes after the extinguishment of the agency. (1724a)

Question 24

Responsibility of agent when there is fraud or negligence

Answer 24

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

Question 25

Specific obligations of commission agents

Answer 25

1. ) Be responsible for goods received unless he makes a written statement of damages upon reception (Art. 1903)
2. Distinguish with countermarks goods of the same kind and designate their principal-owners (Art. 1904)
3. Not sell on credit absent express consent of the principal and pay the principal in cash if the agent sold on credit without consent (Art. 1905)
4. Make a statement of buyers when authorized to sell on credit or have the sale be deemed to be in cash (Art. 1906)
5. Bear the risk of collection of a guarantee commission and pay the principal its proceeds (Art. 1907)
6. Be liable for damages due to non-collection of demandable credits unless he proves due diligence (Art. 1908)

Question 26

When may the agent advance the necessary funds?

Answer 26

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.

Question 27

When is the obligation to account not applicable?

Answer 27

[NOT AN AGENT]
If the broker acted only as a middleman with the task of merely
bringing together the vendor and the vendee.

[DISCLOSED AND UNOBJECTED GIFT]
If the agent or broker had informed the principal of the gift or bonus
or profit, he received from the purchaser and his principal did not
object thereto.

[RIGHT OF LIEN]
Where a right of lien exists in favor of the agent (Article 1914) to retain
in pledge the things which are the object of the agency until the
principal effects the reimbursement and pays the indemnity provided
in Articles 1912 and 1913

Question 28

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:

Answer 28

(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.

Question 29

Can a principal bring an action against a subagent?

Answer 29

YES. ART. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article (Art. 1892), the principal may furthermore bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution.

ART. 1892(1) and (2):
(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.

Question 30

Liability if subagent was appointed WITHOUT principal’s authority vs. If subagent was appointed WITH the principal’s authority

Answer 30

[WITHOUT AUTHORITY]

• No liability for the principal; agent will be liable to the principal and third persons if sub acts wrongly
• Death of agent terminates sub’s authority

[WITH AUTHORITY]

• Fiduciary relationship betw. principal and sub, neither agent or sub will be liable if acting within their authority
• Death of agent does NOT terminate sub’s authority

Question 31

Effects of substitution

Answer 31

(1) If prohibited: The agent exceeds his authority. The agent is liable to third persons for the acts of the sub within the sub’s authority.
(2) If authorized: The agent is released unless the appointed is notoriously incompetent or insolvent and the principal may proceed against BOTH for damages.
(3) If authorized and principal designates: The agent is absolutely exempted.
(4) If not prohibited and not authorized: Substitution is valid if beneficial to the principal. The agent is liable to the principal if not. The agent has a right of action against the substitute.

Question 32

ART. 1883 :If an agent acts in his own name the principal has no right of action against _______ neither have such persons against the _______.

Answer 32

the persons with whom the agent has contracted; neither have such persons against the principal.

GR: 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.
EXC: Except when the contract involves things belonging to the principal.

Question 33

Distinguish a disclosed, partially disclosed and undisclosed principal and their possible liabilities.

Answer 33

1. Disclosed - the agent discloses that he is representing a principal and identifies the principal.
   The third party should look to the principal alone for liability or performance under the contract entered by the agent. Similarly, the principal can successfully sue the third party on the contract.
2. Partially disclosed - the agency is disclosed but the principal is undisclosed.
   The partially disclosed principal may enforce against the third person the contract of the agent like any disclosed principal. Similarly, the third person has a right of action against the principal.
   In sum, the liability of the third party and the principai is the same as in the case of a disclosed principal, except that the agent is also liable to the third party, unless they agree otherwise.
3. Undisclosed - the existence and identity of the principal are unknown to the third party.
   If a person purports to act for a non-existent principal, obviously he is personally liable to the party with whom he contracted.

Question 34

GR: ARTICLE 1897. The agent who acts as such is not personally liable to the party with whom he contracts…

What are the exceptions?

Answer 34

EXC:

1. Unless he expressly binds himself or
2. exceeds the limits of his authority without giving such party sufficient notice of his powers. (1725)
3. (PNB v. Fairchild) Even if the principal is aware of the agent’s acts but such acts prevent the principal from fulfilling his obligation

Question 35

Estoppel in pais vs. ratification

Answer 35

The substance of ratification is confirmation of the unauthorized act or contract after it has been done or made.
The substance of estoppel is the principal’s inducement to another to act to his prejudice.
Acts and conduct amounting to an estoppel in pais may in some instances amount to a ratification; but on the other hand, ratification may be complete without any elements of estoppel.

Question 36

What is the duty of third parties dealing with agents?

Answer 36

Every person dealing with an
agent is duty bound to determine the extent of such agent’s authority.

In other words, a third party is bound to exercise due diligence in
determining the extent of authority of the agent to bind his principal.