ARTS 1889-1900, NCC

LAPAAN, ROXANNE DAPHNE O.

LIM, JARVIN YVANN C.
MANANGAN. ROGEL F.
MORANTE, RODALYN B.

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

 Rule:
Agents obligation not to prefer his own interests to those of the

principal

Reason:
He is not permitted without the knowledge and consent of the

principal, nor to assume two distinct and opposite characters in the

same transaction, i.e. acting for himself and pretending to act for his
principal
He is likewise prohibited from dealing in the agency matter on his own

account and for his own behalf without the consent of his principal

 Basis
To shut the door against temptation and keep the agents eye single

to the rights and welfare of his principal

WHERE THE AGENTS INTERESTS ARE SUPERIOR

He may protect this interest even if in doing so he disobeys the principals orders

or injures his interest

If the conflict resulted from his breach of a duty owed to the principal, the agent

cannot prefer his own interest

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

 Rule
Obligation not to loan to himself

Reason:
This may bring conflict of interest
The transaction may be prejudicial to 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.

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;
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 shall be void.

 Rule:
Agent may appoint a sub-agent

Reason:
Convenience and practical utility

 Exceptions:
When prohibited by the principal
When the work entrusted to the agent to carry out requires special

knowledge, skill, or competence

Exception: When so authorized by the principal

WHEN AGENT IS RESPONSIBLE FOR THE ACT OF THE

SUBSTITUTE

He is not given the power to appoint

He was given such power but without designating the person, and the person

appointed was notoriously incompetent or insolvent

Reason:
This is an abuse by the agent of the principals confidence

SUB-AGENT

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

EFFECTS OF SUBSTITUTION

As to relations of
principal, agent, and
sub-agent

Substitution
authorized by
principal

Substitution
prohibited by
principal

Substitution
neither authorized
nor prohibited by
principal

There exists fiduciary

relationship:
Principal-Agent,
Agent-Sub-agent; and
Principal-sub-agent

The principal and

sub-agent are
strangers to each
other

There exists fiduciary

relationship when
sub-agent is in actual
control of business
and the principal
knows of his
appointment or
knows that his
appointment is
necessary

EFFECTS OF SUBSTITUTION
Substitution
authorized by
principal

Substitution
prohibited by
principal

Substitution
neither
authorized nor
prohibited by
principal

As to effect of
death of agent on
sub-agents
authority

Death of the agent

does not affect
authority

Regardless of
death of agent, the
sub-agent has no
authority

Death of agent
terminates
authority

As to acts of subagent representing

principal

Valid except when

sub-agent acted
beyond the scope
of authority

Acts of the
substitute shall be
void

Valid except when

sub-agent acted
beyond the scope
of authority

EFFECTS OF SUBSTITUTION

As to responsibility
of agent to acts of
sub-agent

Substitution
authorized by
principal

Substitution
prohibited by
principal

Substitution
neither
authorized nor
prohibited by
principal

Agent is released
from responsibility

Agent is
responsible for the
acts of the subagent

Agent is
responsible for the
acts of the subagent

ILLUSTRATION
Ikaw muna
bahala, bes.

Umalis si boss.
Ikaw na
Kbye
bahala..

Boss

In-charge

Suuure
!

ILLUSTRATION

Is X responsible for damages caused by Z?

Is the substitution valid?
Are the acts of Z in the name of X valid?

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

ILLUSTRATION
Nagpapa-rent po
ba kayo? *shows
cash*

Oo naman!
*explains house
rules*

In-charge

Boarder
s

ILLUSTRATION

Can X bring an action against Z?

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

 Rule:
Responsibility of two or more agents is joint

Exception:
When solidarity had been expressly stipulated

ARTICLE 1895

If solidarity has been agreed upon, each of the agents is responsible

for the non-fulfilment of the 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

ILLUSTRATIONS
I hereby
appoint the
both of you
to manage
my
business.

Hala!
Nawala ko
yung
P100,000!
Copy that,
boss!

Boss

Incharge

Incharge

ILLUSTRATIONS

X appointed Y and Z to manage his business. If because of Y's negligence the

store incurred P100,000 loss, is Z liable for damages?

In the above if solidarity was agreed upon what then?

ILLUSTRATIONS
Hindi na siguro
mapapansin ni
boss kung kumuha
ako ng P200,000
*evil laugh*

EARLIER THAT DAY

Incharge

ILLUSTRATIONS

If solidarity was agreed upon but it was found out that the reason the store

incurred P100,000 loss was because Y pocketed P200,000 what then?

ARTICLE 1896

The agent owes interest on the sums he has applied to his own
usefrom the day on which he did so, and on those which he still owes
after the extinguishment of the agency.

LIABILITY OF THE AGENT FOR INTEREST

Rule: The agent owes interest on
The funds of the principal converted to his personal use by way of compensation or

indemnity without prejudice to a criminal action that may be brought against him
Reckoning period: From the day he did so

The sums owed after the extinguishment of the agency

Demand not essential for delay

Reason:
The agent is bound to deliver to the principal whatever he may have received by virtue 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

LIABILITY OF AGENT TO THIRD PERSONS

Rule:
There is no liability on the part of the agent who acted as such to the third party

contracted with.

Exceptions:
Express binding
If the agent exceeds the limit of his authority
Exception:
If the third party was given sufficient notice

On the contract

Authorized

Unauthorized

Not liable to third

persons

Liable for damages

as principal

Tort Cases (those

Agent liable to third
which infringes the
persons
right of third persons)

Agent liable to third

persons

ILLUSTRATION

Insert animation here

THIRD PARTYS LIABILITIES TO THE AGENT

Rule:
The third partys liability on the agents contracts is to the principal

Exceptions:
Where the agent contracts in his own name for an undisclosed principal
Where the agent possesses a beneficial interest in the subject matter of the agency
Where the agent pays money of his principal by mistake or under a contract which

subsequently proves to be illegal, the same being ignorant of its nature

Where the third party commits a tort against the agent

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 of 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 principals
ratification

Agent acts in the

name of the
principal and
within scope of
authority

Agent acts in
excess of authority
and third person is
not aware of limits

Agent acts in
excess of authority
and third person is
aware of limits

Agent has no liability

Agent is personally
liable

Agent is not liable for

damages

Exception:
Subsequent
ratification by the
principal

Exception:
The agent undertook
to secure principals
ratification and failed

The contract is
unenforceable
against the principal

The contract is void

Contract is valid

ILLUSTRATION

Insert animation here

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.

EFFECT OF IGNORANCE OF AGENT

Rule:
The principal should be bound by the acts of the agent

Reason:
If the principal appoints an agent who is ignorant, the fault is his alone

ARTICLE 1900

So far as third persons are concerned, an act is deemed to have been

performed within the scope of the agents 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.

THOSE APPARENTLY OR IMPLIEDLY DELEGATED/AUTHORITY

NOT IN WRITING

Third person must establish:

Fact of agency
Nature and extent of authority of agent

THOSE APPARENTLY OR IMPLIEDLY DELEGATED/AUTHORITY

NOT IN WRITING

Third person must act with ordinary prudence and reasonable diligence
Example:
P principal appointed A agent to sell 1 unit of townhouse owned by P, but A is dealing

2 units to X a third person instead of only 1 unit, and X has good reason to believe
that A is not authorized to sell 2 units and still went ahead with the transaction with A,
in the absence of the principals ratification of As action, X cannot claim protection.
Refuse to deal with the agent
Ascertain from the principal the true condition of his affairs.

THOSE APPARENTLY OR IMPLIEDLY DELEGATED/AUTHORITY

NOT IN WRITING

The fact that one is dealing with an agent, whether the agency be general or

special, should be a danger signal

The authority or extent of authority of an agent cannot be established by his own

representations out of court

ILLUSTRATION
ELECTRIC PLANTS FOR
SALE
Ill give you
10% for any
plant you
could sell

Ill buy one!

*gives cash*
DEAL!

Custome
r

ILLUSTRATION

Is the payment to A binding to P?

ACTUAL AUTHORIZATION CONFERRED/AUTHORITY IN

WRITING
If the authority is in writing, a third 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 Ps factory for

such price and upon such terms and conditions as A may deem reasonable, However,
P and A had an understanding that A should sell the factory for not less than P5
million and for cash. A sold the factory to B on credit for P4.5 million.
Under Article1900, 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.

METHODS OF BROADENING AND RESTRICTING AGENTS

AUTHORITY
A principal may assume rights and incur liabilities in respect of his agents acts or

transactions other those for which express authorization has been given and an
agents authority may be enlarged or restricted in a number of ways:
By implication
This means that the agents authority extends not only to the express requests, but

also to those acts and transactions incidental thereto. It embraces all the necessary
and appropriate means to accomplish the desired end.
By usage and Custom
They may enlarge as well as restrict the scope of agents authority

HOW RESTRICTED

Where it is sought to vary the terms and express authorization

To dispense with a legal requirement
Where it is sought to change a rule of law
Where it is sought to vary an essential quality of the agency relationship

HOW ENLARGED

Where principal and agent reside in the same community

Where the agent is authorized to deal in a particular place , market or exchange
By necessity
Emergency really exists
Agent is unable to communicate with the principal
Enlarged authority is exercised for the principals protection
Means adopted are reasonable under the circumstances

HOW ENLARGED

By certain doctrines
Apparent authority
Liability of setoppel
Ratification

By rule of ejusdem generis

RESPONSIBILITY OF PRINCIPAL WHERE AGENT ACTED WITH

IMPROPER MOTIVES

Rule:
The motive of the agent in entering into a contract with a third person is immaterial

Exceptions:
Where the third person knew that the agent was acting for his private benefit
Where the owner is seeking recovery of personal property of which he has been

unlawfully deprived

ILLUSTRATION
(WHERE THE THIRD PERSON KNEW THAT THE AGENT WAS ACTING FOR HIS
PRIVATE BENEFIT)

A, who had authority to draw checks on Ps account on Ps affairs, bought a car for

his own use from T, giving in payment a check drawn on Ps account and signed
by himself as agent.
To sign and deliver checks in payment of his debts was not within the authority of

A as agent acting in the affairs of P, and T had notice by the check itself that A
was dealing for his own private benefit with the money of his principal.

ILLUSTRATION
(WHERE THE OWNER IS SEEKING RECOVERY OF PERSONAL PROPERTY OF WHICH HE HAS
BEEN UNLAWFULLY DEPRIVED)

Where an agent entrusted with a diamond ring for sale to a named party, had in
fact a preconceived design to steal it and convert the proceeds, and did in fact
pledge it for his own debt, the principal is entitled to recover the ring.

PRINCIPALS RESPONSIBILITY FOR AGENTS

MISREPRESENTATION
Within the scope of agents authority
A principal is subject to liability for loss caused to another by the others reliance upon a

deceitful representation of an agent in the course of his employment if the

representation is authorized, or within the implied authority of the agent to make for the
principal, or apparently authorized, whether the agent was authorized by him or not to
make the representation.

Beyond the scope of agents authority

The principal is not bound by the misrepresentation of his agent committed beyond the

scope of his authority.

PRINCIPALS RESPONSIBILITY FOR AGENTS

MISREPRESENTATION

For the agents own benefit

The weight of authority holds the principal liable. Given the agents fraudulent act within

the scope of the authority, the principal is subjected to liability though done by the
agent solely to effect a fraudulent design for his own benefit.

ILLUSTRATION
(WITHIN THE SCOPE OF AGENTS AUTHORITY)

P (company) employed A to solicit and receive subscriptions for stock. T brought

an action for tort for misrepresentation made by A in the sale of stock. P claims
that there was no proof that it had authorized A to make the alleged
misrepresentation and had no knowledge that they had been made.
To give such facts was necessarily incumbent on A and was strictly in line of his

duties, and, therefore, P is responsible for any misrepresentation in an action for

fraud and deceit.

ILLUSTRATION
(BEYOND THE SCOPE OF AGENTS AUTHORITY)

P employed A to sell a horse but expressly forbade A to warrant the horse sound.

T, induced by the warranty of A, paid twice the price he would have paid for an
unsound horse. Having discovered the horse to be unsound, T sought rescission of
the sale.
The contract is obtained by means of a false representation made by A, because

A had no authority.

ILLUSTRATION
(FOR THE AGENTS OWN BENEFIT)

A principal has often been held liable on contracts entered into by his agent from

improper motives, or violations by the agent of his fiduciary duty, as where an

agent with a general power of attorney to issue checks, issues checks for his own
benefit.