OBLIGATION OF THE AGENT (Art.

1884-1909)
A. OBLIGATIONS OF AN AGENT WHO ACCEPTS THE AGENCY:
Art. 1884. The Agent is bound by his acceptance to:
A. Carry out the agency;
B. Liable for damages suffered by the principal which is brought about by the
agents non-performance;
C. Finish the business already started on the death of the principal in case delay
poses as a threat
to the principal.
Note: Acceptance depends upon the discretion of the prospective agent. He may accept or
refuse the agency. If he refuses, he cannot be compelled to act as an agent of somebody.
However, once he accepts the contract of agency, he must comply with the duties as he has
made himself an obligor of the principal.
Note: On Agents Liability. The general rule is that an agent cannot be held liable for
damages as long as he performs his duties as an agent of the principal. However,
(exception) he can be held liable for damages despite performing his duties as agent of the
principal if he binds himself to be liable for such.
Note: On Death of Principal. The general rule is that the principals death automatically
extinguishes the contract of agency. However, (exception) if the non-execution of a duty
which the agent has started prior to the principals death may cause danger to the subject of
the agency or the principal, the law directs the agent to finish such.
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 the a good father of a family would do, as required by the
nature of the business.
Note: Instructions. Instructions are the means or orders for carrying out the powers and
duties granted to the agent. The principals instructions to the agent form part of the agency
but are binding only between the principal and the agent.
Acting in accordance with the instructions of the principal means that the agent is to
carry out the details of the execution of the agency. For example, The principal directs his
agent not to accept checks as payment, except when these are managers check.
Acting within the scope of the agents authority means that the agent is to carry out
his duties only within the extent granted to him. For example, if an agent is authorized to
sell a parcel of land located in a particular place, an agent can only sell such parcel of land
located in that particular place only and no other.
When is an agent deemed to have performed with the Scope of His (Agents)
Authority? It is deemed so when the act is performed within the terms of the power of
attorney as written.
Basis for Determination of Scope of Authority:
A. Written statement of the contract of agency.
B. Written provisions of the contract of agency.
Note: It is the written provisions that shall be the basis for the determination and NOT
THE UNWRITTEN arrangement between the principal and the agent.
Note: When an agent disregards the instructions given to him by the principal,
he exceeds his authority. In which case, he is liable to third persons who dealt with him in
good faith.
B. OBLIGATIONS OF AN AGENT WHO REFUSES THE AGENCY:
Art. 1885. In case a person declines an agency, he is bound to:
A. 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.
The owner shall, as soon as possible:
A. Either appoint an agent; or
B. Take charge of the goods.

If the person who refused the contract of agency, but has custody of the goods,
refuses to take care of said goods will be liable for damages to the principal.
If the owner of the goods causes unnecessary delay in either appointing an agent or
taking charge of the goods himself, the person who declined the agency, but has custody of
the goods will be exempt from any responsibility in cases of damages of said goods.
C. SCOPE OF AUTHORITY:
Art. 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.
Note: Therefore, an agent cannot be held liable to 3rd persons as long as he is acting in behalf of his
principal and not for himself. If he acts within the scope of authority granted to him by the principal, he
obligates the principal to comply with the obligations he has contracted within said scope of authority.

Art. 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 if 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.
Note: Under Art. 1898, the law is being considerate to the agent who acts beyond his scope
of authority so long as it is for the benefit of the principal. It states that the act can be
considered VALID if the principal ratifies the same, if not, the act is VOID, and the principal
cannot be bound in the contract since he did not authorize it. In this case, the agent
becomes personally liable for acting in excess of his authority.
Remedies of Third Persons.
If the third person knew of the limits of the powers granted to the agent, the
contract is VOID.
If the third person IS NOT AWARE of the limits of the powers of the agent, the
contract is UNENFORCEABLE, and may be ratified before it is revoked by the third person.
If IT IS NOT RATIFIED BY THE PRINCIPAL, the agent is liable to the third person.
Art. 1899. If a duly authorized agent acts in accordance with the orders of the principal, the
latter (principal) cannot set up the ignorance of the agent as to circumstances whereof he
himself was, or ought to have been, aware.
Note: Art. 1899 only applies if the following REQUISITES are present:
1. Duly authorized agent acts in behalf of the principal;
2. Agent follows the orders or instruction of the principal.
According to Art. 1899, the principal, therefore, cannot excuse himself from complying with
the obligations of the contract entered into by his agent in his behalf due to defects
unknown to the agent, since the law presupposes that he himself should have known these.
The agent, also, cannot be held accountable for such, since he was merely acting on the
orders of the principal.
D. POWER TO BORROW MONEY:
Art. 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 not been authorized to lend money at
interest, he cannot borrow it without the consent of the principal.
Note: Under Art. 1890, the principal allows the agent to lend money, however, the agent is
prohibited from being the borrower himself. This is to protect the principal as the agent may
not be a good payer; giving rise to conflict of interest. However (exception), the agent may
be the borrower himself, if the principals consents to it. The consent may be: Verbal / In
writing
Art. 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.
Note: Art. 1886 presupposes a situation where, sometimes, the principal does not have the
funds to maintain or sustain the agency, but IS NOT INSOLVENT. Under this article, the

agent and the principal are allowed to agree that the expenses be advanced by the agent if
he has the financial capability. These cash advances are subject to reimbursement.
However, IF THE PRINCIPAL IS INSOLVENT, the agent is not bound to provide the funds
because he may not be paid or reimbursed by the principal who does not have the capacity
to pay.
Art. 1896. The agent owes the interest on the sums he has applied to his own use from the
day on which he did so, and on those which he still owes after the extinguishment of the
agency.
Note: An agent is liable for payment of interest from the day of conversion and from
the extinguishment of the agency for the sums he still owes the principal. The interest will
be the legal rate of interest unless there is a specific agreement. Otherwise, he will be
criminally liable for ESTAFA under Art. 315 (1) (b) of the RPC. Additionally, if the agent is
a lawyer, he will be liable administratively.
Note: If the agent owes the principal certain sums, the principal does need to demand
it from him as he has the obligation to deliver to the principal whatever he may have
received by virtue of the agency.
E. TRANSPARENCY:
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.
Note: Art. 1891 directs every agent to render an account of his transactions and deliver all
proceeds of the agency to the principal even if some or all are not due to the principal. Full
transparency is required because the agent holds a fiduciary position.
If the agent submits an unfaithful account, the principal has the right to pass upon the
correctness thereof; meaning he can show the inaccuracy of the account.
Note: A stipulation which exempts an agent from render an account to his
principal is VOID for being contrary to public policy and akin to waiver of future fraud.
Adding this stipulation will encourage fraud to the prejudice of the principal.
Note: Exceptions to Art. 1891. An agent is exempted from rendering accounts in the
following situations: [LARPS]
A. Lawyer exercises his lien over the funds, documents, papers of his client which he may
retain until his fees and disbursements have been paid.
B. Agent only acted as middleman - merely brings together the vendor and vendee and does
not take part in any negotiation concerning the transaction.
C. Right of lien exists in favor of the agent. - Lien the agent obtains for his service
D. Principal is informed of the gift or bonus the agent received from the purchaser and the
principal does not object to it.
E. Solution Indebiti - is a case where one had paid a debt, or done an act or remitted a claim
because he thought that he was bound in law to do so, when he was not. In such cases of
mistake, there is an implied obligation to pay back the money. Examples, erroneous
payment of interest not due, erroneous payment of rental not called for in view of the
expiration of the lease contract.
E. PROHIBITIONS IN CARRYING OUT THE AGENCY:
Art. 1888. An agent shall not carry out an agency if its execution would manifestly result in
loss or damage to the principal.
Note: Rationale behind Art. 1888. In carrying out the agency damage or loss is effected,
negating the agents purpose which is to carry out a service for the principals benefit.

F. AUTHORITY OF TO APPOINT A SUBSTITUTE/ACTIONS OF THE PRINCIPAL

TOWARDS BOTH AGENT AND HIS SUBSTITUTE:
Art. 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 of the principal shall be void.
Note: The general rule is that an agent may appoint a substitute or sub-agent. However
(exception), if the principal prohibits the agent from doing so, he cannot legally appoint one. If
the agent appointed a sub-agent despite this prohibition, all acts of the sub-agent shall be
VOID and consequently, the principal is not bound by his acts.
If the agreement of agency is silent on this matter, the agent may appoint a substitute and the
acts of the substitute will bind the principal.
ON THE SUB-AGENTS ACTS OF MISAPPROPRIATION. The general rule is that the
primary agent IS NOT LIABLE for the conversion or misappropriation of the sub-agent unless:
A.It is shown that the agent personally benefited from the transaction;
B.He connived or conspired with the sub-agent in its misappropriation.
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.
Note: Pursuant to Art. 1892 (1) and (2), the principal has a right of action against the primary
agent and his sub-agent with respect to obligations contracted by the sub-agent. In other words,
the principal may sue both the agent and the sub-agent.
Effect of Authorized Substitution. If the authorized substitution is carried out, the agent is
released from the obligations which he has assumed. His responsibility is now limited to his act
of appointing a substitute against the prohibition of the principal (Art. 1892 par. 2) The principal
can direct his action only against the substitute who discharges his duty as such in consequence
of the abdication of the agent.
Art. 1893.

G. LIABILITIES OF AGENT(S):
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.
Note: The rule of strict fidelity in the discharge of the agents powers requires that the agent
should choose to protect the interest of the principal over his own. The agent cannot sacrifice the
principals interest to his own, otherwise, he will be liable for damages caused to his principal.
Prohibitions.
A. An agent cannot compete with his principal concerning the agencys subject matter.
B. An agent who is authorized to sell or lease a property of his principal cannot substitute his
own property in the transaction. Neither can he buy or lease the property of the principal for
himself.
Rationale Of Letter B Prohibition: A fiduciary or trust relationship exists between the agent
and the principal, and it is elementary that in regard to property forming the subject matter of the
agency, the agent is estopped from acquiring or asserting a title adverse to that of the principal.

Note: If an agent prefers his own interest, he must renounce the agency. But, his
renunciation must not be because he can obtain profit from a transaction after his renunciation.
In this way, he evades the damages he has caused the principal.
The responsibility of two or more agents, even though they have been appointed
simultaneously, is not solidary, if solidarity has not been expressly stipulated.
Note: Art. 1894 contemplates a situation where ONE PRINCIPAL appoints two or more
agents to carry out a business. In this situation, the Liability of each agent is limited only to his
individual acts to the principal. This rule is true even if the agents were simultaneously
appointed. The agents responsibility only becomes solidary or joint only when solidarity has
been agreed upon in the contract of agency.
Art. 1894.

If solidarity has been agreed upon, each of the agents is responsible for the nonfulfillment of agency, and for the fault or negligence of his fellows agents, except in the latter
case when the fellow agents acted beyond the scope of their authority.
Note: Therefore, if the contract of agency stipulates an agreement of solidarity of liability, each
agent becomes responsible for:
A. The fulfillment of the agency;
B. The fault or negligence of the co-agents
Exception to Letter B: An agent cannot be held liable for fault or negligence of co-agent if
the co-agent has exceeded his authority. The INNOCENT AGENT IS NOT LIABLE even if
there is an agreed solidarity agreement.
Example: Alpha and Beta are appointed solidary agents. The agency was not fufilled due to
Alphas
negligence. The principal sued Beta. Will the suit prosper?
Answer: It depends. If Alpha acted within the scope of his authority, Beta, the innocent
agent can be made liable pursuant to the solidary agreement of the contract of agency. If Beta
paid the damages
suffered by the principal due to Alphas negligence, then Beta can recover
from Alpha what he has paid to the principal.
If Alpha did not act within the scope of his authority, the Beta, the innocent agent cannot
be held liable
despite the existence of the solidarity agreement.
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.
Note: Art. 1909 is to be read together with Art. 1171 and 1172 which presupposes a circumstance
where the agent has committed fraud or negligence.
Art. 1171 - Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void.
Art. 1172 - Responsibility arising from negligence in the performance of every kind of obligation
is also demandable, but such liability may be regulated by the courts, according to the
circumstances.
Therefore, under Art. 1909, if the agent is not guilty of fraud or negligence, then he is
absolved from liability. However, if the agent fails to exercise prudence in any of the
transactions he performs in behalf of his principal, which results in either loss or damage to the
principal, he is liable for negligence.
Art. 1895.

Note: In determining the extent of liability of the agent, the court considers whether the
contract of agency is gratuitous or for compensation. If it is for compensation, the liability will
be more than when it is not for compensation.
G. IN RELATION TO 3RD PARTIES:
Art. 1900. So far as third persons

are concerned, an act is deemed to have been performed

within the scope of the agent's 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.
Note: The written provisions of the contract shall be the yardstick and not the
UNWRITTEN arrangement between the principal and the agent. It does not even matter if
the agent exceeded his authority under the unwritten arrangement between the principal and
the agent, it will still be considered within the scope of the agents authority because 3 rd
persons are not bound by the unknown internal arrangement of the principal and agent.
Under Art. 1900, the authority contemplated here is in writing.
Also, the power of attorney is in writing because unless it is so, it cannot be physically presented
to third persons.
A third person cannot set up the fact that the agent has exceeded his powers, if the
principal has ratified, or has signified his willingness to ratify the agent's acts.
Note: Implied Ratification. Ratification may be express or implied. Regardless of its form,
Art. 1901.

ratification is retroactive in effect. Only the principal, and not the agent may validly ratify.
Effects of Ratification and Expression of Willingness to Ratify.
BEFORE the principal has made the ratification or the expression of willingness to ratify, the
3rd person may revoke the act of the agent.
AFTER the principal has made the ratification of the contract entered into by his agent in his
behalf, or after the principal has signified his willingness to ratify the contract, the 3 rd person
can no long disaffirm the contract by claiming that the agent exceeded his authority.
Note: A THIRD PERSON CANNOT QUESTION THE LACK OF AUTHORITY OF THE
AGENT.

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.
Art. 1902.

Note: Art. 1902 is an exception to the General Rule of Art. 1901 that a third person cannot
question the lack of authority of an agent. Art. 1902 accepts that a third person is bound to
inquire into the extent of authority or scope of the agents authority in order for them to be
guided by the actions they are to undertake. However, they are not required to go beyond
the terms of the written power of attorney. He is not bound by the secret or private orders
and instructions of the principal in the same that he cannot be prejudiced by any
understanding between the principal and the agent which is not written.
H. COMMISSION AGENT:
Art. 1903. The commission

agent shall be responsible for the goods received by him in the

terms and conditions and as described in the consignment, unless upon receiving them he should
make a written statement of the damage and deterioration suffered by the same.
Note: Commission agent is a person whose business is to receive and sell goods
entrusted to him by the principal for a commission and i usually selling in his own name. He
is in possession of the goods to be sold and he can sell in his own name or that of the

principal.
He is responsible for:
A. Any damage suffered by the goods;
B. Any deterioration suffered by the goods
in the terms and conditions as described by the consignment agreement.
He may avoid the enumerated responsibilities by making a written statement of the
damage or deterioration of the good received by him and state that they do not match with
the description made in the consignment. If there is damage or deterioration to the goods
consigned, there is a rebuttable presumption that the same were caused in the custody of
the agents.
AN AGENT IS DIFFERENT FROM A BROKER.
A. Income
Agent receives a commission upon closing of a successful sale.
Broker earns his pay merely by bringing the buyer and seller together even if no sale is
eventually made.
B. Possession of Thing To Be Sold
Agent has possession or custody of the thing that he disposes as it is forwarded or
endorsed to him by his principal upon his acceptance.
Broker does not have possession or custody of the thing that is to be disposed as he
merely brings the person
in possession of the thing to be sold and the purchaser; only
acting as a go between.

Art. 1904. The commission agent who handles goods of the same kind and mark, which belong
to different owners, shall distinguish them by countermarks, and designate the merchandise
respectively belonging to each principal.
Note: It is the responsibility of the commission agent to provide identifying marks on the
goods belonging to different owners so that segregation will be easy. Goods must not be comingled to avoid confusion. However, IF THE GOODS ARE MIXED BY THE WILL OF THE
OWNERS, BY CHANCE, OR BY THE WILL OF ONE OF THE OWNERS IN GOOD FAITH,
each co-owner acquires a right in the goods in proportion to the part belonging to
him.
Note: On Fungible Goods. A warehouseman may mingle or mix fungible goods with other
good of the same kind and grade if it is authorized by agreement or custom. In such case,
the VARIOUS DEPOSITORS of the mingled goods shall own the entire mass in
common and each depositor, shall be entitled to such portion thereof as the amount
deposited by him bears to the whole.

Art. 1905. The commission agent cannot, without the express or implied consent of the
principal, sell on credit. Should he do so, the principal may demand from him payment in cash,
but the commission agent shall be entitled to any interest or benefit, which may result from such
sale.
Note: Art. 1905 prohibits a commission agent from selling on credit without the express or
implied consent of the principal, otherwise the principal has the right to demand cash
payment from him (agent). However, any interest or benefit arising from such sale shall
pertain to the commission agent as compensation for his efforts.
See example on page 354-355 of Pinedas book on Partnership, Agency & Trusts.

Art. 1906. Should the commission agent, with authority of the principal, sell on credit, he shall
so inform the principal, with a statement of the names of the buyers. Should he fail to do so, the
sale shall be deemed to have been made for cash insofar as the principal is concerned.
Note: Art. 1906, on the other hand, contemplates a situation where the commission agent is
authorized by the principal to sell on credit. As such, he is therefore required to submit a

written statement to the principal indicating the names of the buyer or buyers on credit.
Failure to give such statement will result in the presumption that the sale was made in cash
and the principal can demand cash payment.
Rationale of Art. 1906: This is to protect the principal and discourage the commission agent
from misusing the proceeds of the sale or from delaying the delivery of the proceeds of the
sale to the principal.

Art. 1907. Should the commission agent receive on a sale, in addition to the ordinary
commission, another called a guarantee commission, he shall bear the risk of collection and shall
pay the principal the proceeds of the sale on the same terms agreed upon with the purchaser.
Note: A Guarante Commission is a commission which is paid to the commission agent in
additiotn to the ordinary commission agreed upon. It is an increase in the total commission
to be received by the agent if the business succeeds.
When there is a guarantee commission, the agent becomes a guarantor in the
payment of the purchase price whether the sale is on cash or installment basis.
The purpose of the Guarantee Commission is to compensate the agent for the
inconveniences and risks he has to undergo in the collection of the purchase price payable
to the principal.
The liability of the Del Credere Agent rises when the buyer fails to pay the principal. In
such a case, the agent has to pay the principal since the purpose of his guarantee
commission is to ensure the principals payment. He cannot excuse himself from paying
precisely because by being a Del Credere Agent he assumes the risk of collection for the
principal.
The buyer who failed to pay can be sued by either the principal or the del credere
agent as anyone of them is a real party-in-interest. However, only one of them can sue. If a
suit is filed by either of them at the same time, the suit of the principal should be
preferred as he is the primary source of agency.

Art. 1908. The commission agent who does not collect the credits of his principal at the time
when they become due and demandable shall be liable for damages, unless he proves that he
exercised due diligence for that purpose.
Note: A commission agent is responsible for collecting the credits of his principal
when they become due and demandable. Failure to do so will make him
(commission agent) liable to the principal for damages if the principal suffered any.
Exception: The agent incurs no liabilities if he exercised due diligence in the collection of
the credits.

OBLIGATION OF THE PRINCIPAL (Art. 1910-1918)

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Note: Whatever has been done or executed by the agent within the scope of his authority is
binding upon the principal and he must comply with all the obligations arising from the
authorized acts of the agent.
If the agent exceed his authority, the principal is not bound by the agents acts which
becomes unenforceable, unless the principal ratifies the act or expresses his willingness to
ratify the same.
Absent the ratification of the principal, the agent alone is liable to any third person he has
contracted with.
Mismanagement of the Agent of the Principals business does not excuse the

principal from his liability to third persons.

Acceptance of Benefits is considered implied ratification. Implied Ratification is deduced
from the performance of acts or continuance of acts already begun or complying with the
obligations imposed.

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.
Note: Under this provision the contract entered into by the agent in excess of his authority
is unenforceable as long as it is not ratified by the principal. However, if the principal knows
that his agent acted beyond his powers and allowed him to act as if he had full powers, he
also becomes liable together with his agent.
Apparent Authority is that which, though not actually granted, the principal knowingly
permits the agent to represent him (principal) as if he was clothed with full authority. The
apparent authority must have existed prior to the act in controversy, otherwise the
person cannot be said to have relied upon such apparent authority in dealing with the
assumed agent. Apparent authority is not founded in negligence of the principal, but in the
conscious permission of acts beyond the powers granted.
Agency or Authority by Estoppel arises in cases where the principal by his negligence
permits his agent to exercise powers not granted to him, even though the principal has no
notice of knowledge of the conduct of the agent. The rule of estoppel has its basis in the
negligence of the principal in failing to properly supervise and control the affairs of the
agent.

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.
Note: Presupposes an instance where a particular agency will require immediate spending
of money. The principal must advance the needed money to the agent. If the principal fails
to provide the necessary funds and the agent uses his own funds, the principal must
reimburse the agent even if the business did not succeed.
The caveat, however, is that the agent must NOT COMMIT the following actions in
order for him to be reimbursed:
Art. 1918. (1) agent must not act in contravention of the principal's instructions, unless the latter

should wish to avail himself of the benefits derived from the contract;
(2) the expenses must not be due to the fault of the agent;
(3) the agent must not have incurred these expenses 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.
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.
Note: The principal is not only required to reimburse the agent, he is also required to pay
the agent any damages he might have incurred in the execution of the agency to no fault of
his own. But if the agent suffered damages in the execution of the agency through his
negligence, then he is also liable to the principal.
See example on page 375-376 of Pinedas book.
Note: Indemnity presupposes agency. A party cannot ask for indemnity from a principal

if there is no contract of agency between them.

Art. 1914. The agent may retain in pledge the things which are the object of the agency until the
principal effects the reimbursement and pays the indemnity set forth in the two preceding
articles.
Note: Art. 1914 presupposes a circumstance where the agent used his own money to
execute the agency, as such, he therefore has the right to retain as pledge or security for
payment the objects of the agency until the principal has reimbursed him. This also includes
indemnity for damages without his fault.
Requisites For the Exercise of Lien.
A. The things subject of the agency are still in the agents possession or custody or control.
B. His custody or possession or control of such things are lawful.
C. He is in custody or possession or control of such things in his capacity as agent of the
principal.

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.
Note: Art. 1915 applies when an agent is appointed for a common transaction by two or
more persons. Meaning one agent, different principals.
Whether the appointment of the agent is jointly or separately made, as long as the
appointment is for the performance of a common transaction or undertaking, the liability of
the principal is solidary or joint. This also applies with attorney-in-fact or with 3 rd persons.

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.
Note: Art. 1916 is a situation where the principal and the agent separately contracted on
the same thing that is the subject of the agency. When this happens, the following rules shall
be observed:
1. The contract of prior date shall prevail.
2. If it is a double sale, Art. 1544 shall apply, if applicable.

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
See examples on pages 379-380 of pinedas book.

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.
Note: When the agent acts in bad faith in purchasing a property, the principal is deemed to
be in bad faith.

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 principal's 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.
Note: If the agent commits any of the enumerated acts under Art. 1918, the principal does
not need to reimburse the agent of any expenses he incurred in the execution of the agency.
The reason for each prohibited act is as follows:
Prohibition 1- to punish the agent for disobeying the principals orders or instructions. But if
the principal will receive the benefits therefrom, it is as if he ratified the actions of his agent
and is therefore bound to pay him.
Prohibition 2 - it is only fair for the agent to bear the expenses caused by his negligence
Prohibition 3 - to punish the agent, he should not carry out the agency if the execution would
result in the loss or damage of the principal.
Prohibition 4 - this stipulation excuses the principal from expenses. The parties are free to
enter into allowable stipulations. It is not unlawful for them to agree that the agent shall be
liable only up to a certain or lesser sum.