OBLIGATIONS OF

THE PRINCIPAL

ARTICLES 1910-1918 of the New Civil Code

Specific obligations of the principal
 As defined by the contract
**In the absence of an express agreement,the following items are the principal’s specific obligations
imposed by law:

(1) To comply with all the obligations which the agent may have contracted within the scope of his
authority (Arts. 1910) and in the name of the principal (Arts. 1868, 1883.);
(2) To advance to the agent, should the latter so request, the sums necessary for the execution of the agency
(Art. 1912.);
(3) To reimburse the agent for all advances made by him, provided the agent is free from fault (Art. 1912
par 2.);
(4) To 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 (Art. 1913); and
(5) To pay the agent the compensation agreed upon, or if no compensation was specified, the reasonable
value of the agent’s services. (Arts. 1875, 1306.)
Article 1910: The principal must comply with all
the obligations which the agent may have
contracted within the scope of his authority.
LIABILITY OF PRINCIPAL TO 3RD PERSONS

GR: Principal is liable to 3rd persons for acts committed and obligations contracted by
the agent in the principal’s behalf in the course and within the actual or apparent scope of
the agent’s authority. Principal should bear the damages caused to 3rd persons.

Action must be brought upon the principal and not against the agent since an agent is not
a party to the contract sued upon and the party suing has no cause of action against the
agent.

A principal is Estopped to Deny responsibility when he placed the agent in such position
that led person with ordinary prudence believe and assume the agent possessed such
authority.
Agency from necessity doctrine

“Agent’s ordinary power is enlarged when there is an

emergency and agent is unable to get in touch with
the principal. However, this is limited only to
accidents or to the necessity of the situation and it
ceases to exist when the emergency ends.
liability of 3rd PERSONS
TO PRINCIPALS
1. In Contract:
3rd person is liable to the principal upon contracts entered
into by the agent, as though principal himself entered into it
directly.
2. In tort:
3rd person is liable to the principal, insofar as the agent is
involved in the tort, when:
(a) Third person damages or injures property or interest of the
principal in the possession of the agent;
(b) Third person colludes with the agent to injure or defraud the
principal; and
(c) Third person induces the agent to violate his contract with
the principal to betray the trust reposed upon him by the
principal.
3. In respect of property received:

Agent does not have legal title to property entrusted to his

possession by the principal but can have power to affect transfer of the
property.

4. In respect of negotiable instrument:

Innocent holder for value(3rd person) is protected by law.


LIABILITY OF PRINCIPAL
FOR MISMANAGEMENT OF
BUSINESS BY HIS AGENT
Mismanagement of an agent does not
relieve principal from responsibility as
to the 3rd person.
LIABILITY OF PRINCIPAL FOR TORT
OF AGENT
Principal is civilly liable to 3rd persons for torts of an
agent committed at the principal’s direction or in the
course and within the scope of agent’s employment.
Without knowledge on his part and agent’s
disobedience cannot be considered as a defense in an
action for damages.
Agent and Principal are solidary liable. 3rd person
may sue both or choose whom he will hold.
Motivation-deviation
test
-test in order to determine whether or not to impose
the agent’s tort liability to the principal.
2 factors (2 must be present):

(a)satisfactory evidence that the employee in

doing the act, in the doing of which the tort was
committed, was motivated in part, at least, by a
desire to serve his employer.
(b) satisfactory evidence that the act, in the
doing of which the tort was committed, was not
an extreme deviation from the normal conduct
of such employee.
Essence of Agency is
Representation
Obligations contracted by the agent are
for and in behalf of the principal to
bind him as if he personally contracted.

Agent must act: (a)within the scope of

his authority, (b)in a representative
capacity,and (c) in the principal’s name.
Otherwise, principal assumes no
liability.
 DOMINGO vs
ROBLES
Ratio:

CASE no. 57 The registered owner who places in the

hands of another an executed document
Sale is made with of transfer of registered land effectively
the aid of an agent,
act of an agent is represents to a third party that the holder
act of a principal of such document is authorized to deal
with the property.
General Rule:

Agent who exceeds his authority is Article 1910 par.2:

not deemed a representative of the
principal. As for any obligation wherein the
agent has exceeded his power, the
Exception: principal is not bound except when
he ratifies it expressly or tacitly.
Principal ratifies the act of agent
expressly or impliedly.
5 Conditions for ratification to be effective:

(1) The principal must have the capacity and

power to ratify;
(2) He must have had knowledge or had reason
to know of material or essential facts about the
transaction; Acts that may be
ratified
(3) He must ratify the acts in its entirety; a. Valid/void acts
(4) The act must be capable of ratification; b. Voidable acts
c. Unrevoked acts
(5) The act must be done in behalf of the d. Criminal acts
principal. e. Tortious acts
 Effects of Ratification by Principal
1.With respect to agent: relieves agent from liability as to 3rd persons
of the unauthorized transaction and he can recover compensation due
to the ratified act from the principal.

2.With respect to principal himself: assumes responsibility for the

unauthorized act but not to the acts outside the authority approved by
ratification.

3.With respect to 3rd persons: bound by the ratified act as if it has

been authorized in the first instance. If the 3rd person is liable to the
principal under the unauthorized act of the agent, said 3rd person is
not relieved from liability.
 FORMS OF
RATIFICATION
1. Express ratification
2. Implied
Case no. 58 Manila Memorial Park Cemetery,
Inc. vs Pedro Linsangan, GR No.
Ratification must be
done by the principal 151319
not by the agent and
principal must have
knowledge of the acts
The acts of an agent beyond the
he is to ratify. scope of his authority do not bind
the principal, unless he ratifies
them, expressly or impliedly
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.
 Ratification
Rests on intention (express
or implied) regardless of
prejudice to another
Affects the entire
transaction and from the
beginning.
Substance of ratification is
confirmation of the
unauthorized act or
contract after it has been
done or made
Estoppel
Rests on prejudice rather
than intentions
Affects only relevant parts
of the transaction and from
that time only when
estoppel may be said to be
spelled out.
Substance of estoppel is
the principal’s inducement
to another to act to his
prejudice
 Apparent authority
Though not actually granted,
principal knowingly permits the
agent to exercise or holds him out
as possessing.
Not founded in negligence of the
principal but in the conscious
permission of acts beyond the
powers granted.
Authority by
estoppel
Arises in those cases where the
principal, by his culpable
negligence, permits his agent to
exercise powers not granted to
him even though the principal may
have no notice or knowledge of
the conduct of the agent
Its basis is in the negligence of
the principal in failing properly to
supervise the affairs of the agent,
in allowing the agent exercise
powers not granted to him and 3rd
person believes he possess the
requisite authority
 Implied Agency Agency by estoppel

There is an actual Authority of the agent

agency is not real but only
apparent
principal alone is liable If estoppel caused by
principal: he is liable
to any 3rd personIf it is
caused by agent: only
agent is liable
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.
OBLIGATION TO
ADVANCE FUNDS
Agent is bound by his acceptance to carry
out the agency while principal is obliged to
provide means to execute the agency. In the
absence of stipulation that the agent shall
advance the necessary funds(Art. 1886),
principal must advance to the agent upon
his request the sums necessary for the
execution of the agency.
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, the said advances must be
reimbursed by the principal with interest
from the day the advance was made.
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.
OBLIGATION TO INDEMNIFY
AGENT FOR DAMAGES
Principal receives the benefits of the agency and has a
right to demand damages from the agent should the
latter not perform the agency

No obligation to indemnify if:

1.Damages is caused by wrongful acts of 3rd persons
2.Agent acted upon his own account
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.

RIGHT OF AGENT TO
RETAIN IN PLEDGE
OBJECT OF AGENCY
Once principal failed to reimburse or
indemnify agent, the agent now has a
right to retain in pledge the things
which are object of the agency.
Nature of the lien of the
agent
1. only limited to subject matter of
agency
2. Right requires possession by agent
of the subject matter
3.Right cannot be delegated to a sub-
agent
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.

Distinction of the principals are in a profit or

GR: Requisites for solidary liability
when there are joint (1) There are two or more
principals they must unite principals;
to appoint an agent and (2) The principals have all
concurred in the appointment of
acts of the said agent
the same agent; and
binds the members of the (3) The agent is appointed for a
group jointly. common transaction or
undertaking.
non-profit association:
In profit association, principal is personally
liable on all business contracts.
In non-profit association, principal is liable only
under 2 circumstances:
1.members assented to the particular act or
transaction in respect of which personal liability
is sought to be fastened ex. voting
2.member assented by his conduct ex. A contract
was proposed and nobody dissented
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.
RULE WHEN 2 OR MORE PERSONS CONTRACT
SEPARATELY WITH AGENT AND PRINCIPAL
WITH THE SAME THING

If 2 contracts are incompatible, one with prior date shall be

preferred and this is subject to the rules in ART. 1544:

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.
LIABILITY TO 3RD PERSONS OF
AGENT OR PRINCIPAL WHO
CONTRACTS SEPARATELY
 If in good faith (within the scope of
his authority), principal incurs
liability
 If in bad faith, he alone, as an agent
in bad faith incurs liability
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.
MODES OF
EXTINGUISHMENT

ARTICLES 1919-1932 of the New Civil Code

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 accepted the
agency;
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.
JURISPRUDENCE:
In the case of Lavina vs.
Court of Appeals, 171
SCRA 691 (1989), it was
held that a dead client has
no personality and cannot
be represented by an
attorney.
Exception:
1.That the agency is
coupled with interest; (Art.
1930) and
2.That the act of the agent
was executed without
knowledge of the death of
the principal and the third
person who contracted
with the agent acted in
good faith. (Art. 1931)
 In case of death of one of several principals or
agents
I.The death of one of several principals does
not revoke the agent’s authority nor does the death of
one of several agents put an end to the agency of all,
whether the responsibility of the several principals or
agents is joint or solidary.
II.The intention of the parties controls except
as otherwise provided by law.
 In case of civil interdiction
 In case of death of the principal or agent
The power to foreclose survives the
death of mortgagor.

Section 7, Rule 86 of the Rules of Court grants
three (3) remedies to a mortgagee in case a
mortgagor dies. These are:
a.To waive the mortgage and claim the entire debt
from the estate of the mortgagor as an ordinary
action;
b.To foreclose the mortgage judicially and prove
any deficiency as an ordinary claim; and
c.To rely on the mortgage exclusively, foreclosing
the same at any time before it is barred by
prescription without right to file a claim for any
deficiency.
In case of expiration of term
I.Where the agency, by the terms of the original
agreement, is created for a fixed period or is to end at
a certain time, the expiration of such period or the
arrival of that time, results in the termination of the
relationship, even though the purpose for which the
agency was created has not been accomplished. But
the parties may consent to the continuation of the
agency relationship.
II.If no time or date is specified, it terminates at the
end of a reasonable period of time. Since it is at will,
either party may terminate the agency by giving
notice to the other.
III.A period may be implied from the terms of the
agreement.
Art. 1919 gives only those causes of extinction
which are peculiar to agency. The list is not
exclusive.

i. An agency may also be extinguished by modes of

extinguishment of obligations in general when applicable, like
loss of the thing or novation.
ii. During the existence of a state of war, a contract of agency
is inoperative if the agent or the principal is an enemy alien.
iii. An agency terminates if a change in the law makes the
purpose of the agency unlawful.
iv. A sub-agent’s authority terminates with the termination
of the agent’s authority.
v. If the principal and agent have originally agreed that the
agency will continue until a specified event occurs, the
happening of that specified event terminates the agency.

In case of loss or destruction of subject
matter
Exception:
a.If it is possible to substitute other material for that which was
destroyed without substantial detriment to either party or if the
destroyed subject matter was not in fact essential to the
contract, the agency may continue.
A partial loss or destruction of the subject matter does not
always result in a complete termination of the agency, and
under such circumstances, while the agency may be ended
insofar as the destroyed property is concerned, it may continue
in existence as to other property not affected.
In case of change of conditions
Exceptions:
a.If the original circumstances are restored within a
reasonable period of time, the agent’s authority may
be revived.
b.Where the agent has reasonable doubts as to
whether the principal would desire him to act, his
authority will not be terminated if he acts
reasonably.
When the principal and agent are in close daily
contact, the agent’s authority to act will not
terminate upon a change of circumstances if the
agent knows the principal is aware of the change and
does not give him new instructions.
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.

Liability of principal for damage caused by revocation

1.The principal shall be liable for damages occasioned by the wrongful

discharge of the agent before the expiration of the period fixed. In such
case, the action for indemnity would be derived not from the law, but
from the contract of the parties. When done by the
principal, it is called
2.Where no time for the continuance of the agency is fixed by its terms, “revocation”, and
the principal is at liberty to terminate it at will subject only to the when done by the
agent, it is usually
requirements of good faith.
spoken of as
“withdrawal” or
“renunciation.”
 Notice of revocation

1.To agent.
As between the principal and agent,
express notice to the agent that the agency is
revoked is not always necessary.
Revocation may be
2.To third persons.
express or implied. Revocation of an agency becomes
operative as to the agent, from the time the
revocation is made known to him. Thus, it
has been held that actual notice must be
brought home to former customers, while
notice by publication is sufficient as to other
persons.
 Form of renunciation
 Renunciation of agency
It is not always
necessary for the by the agent
agent to renounce the
agency expressly.
An agent cannot legally terminate an
agency in order to take advantage of
the principal’s condition or to profit by
information resulting from his agency.

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.
NOTE: Under Art. 1921, the
notice of revocation must be
personal; under Art. 1922, it may
be personal.
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.
Art. 1923.
The appointment of a new
agent for the same business
or transactions 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.
Revocation by appointment of new agent
No substitution of counsel of record is allowed unless
the following essential requisites of a valid substitution
concur:
a.There must be a written request for substitution;
b.It must be filed with the written consent of the client;
c.It must be with the written consent of the attorney to be
substituted; and
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.
Jurisprudence:
In the case of Santana-Cruz vs. Court of
Appeals, 361 SCRA 520 (2001), the authority
of the attorney-in-fact was revoked by the
principal, the real party-in-interest in a pending
litigation. It was held that the revocation did not
affect the authority of the counsel retained by
said agent – he remained counsel of record of
the principal absent a valid substitution of
counsel. The first counsel may not be presumed
substituted by a new counsel merely from the
filing of a formal appearance by the latter.

Art. 1924. The agency is revoked if
the principal directly manages the
business entrusted to the agent,
dealing directly with third persons
Jurisprudence:
In the case of International Exchange Bank
vs. Briones, 822 SCRA 103 (2017), the Spouses
Briones’ claim for loss cannot be seen as an
implied revocation of the agency or their way of
excluding petitioner. They did not disregard or
bypass petitioner when they made an insurance
claim; rather, they had no choice but to
personally do it because of their agent’s
negligence. This is not an implied termination
or revocation of agency provided for under Art.
1924 of the Civil Code.
Art. 1925. When two or Art. 1926. A general
more principals have power of attorney is
granted a power of revoked by a special one
attorney for a common granted to another agent
transaction, any one of as regards the special
them may revoke the matter involved in the
same without the latter.
consent of the other.
An agency is coupled with an
interest:
a.Where the agent has parted with
value or incurred liability at the
principal’s request, looking to the
exercise of the power as means of
reimbursement or indemnity; or
b.Where the interest in the thing
concerning which the power is to
be exercised arises from an
assignment, pledge, or lien
created by the principal with the
agent being given the power to
deal with the thing in order to
make the assignment, pledge, or
lien effectual.
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.
Exceptions:
1.When the agency is created not only
Revocability of agency
coupled with an
for the interest of the principal but also
interest for the interest of third persons; and
2.When the agency is created for the
i. Where there is no just mutual interest of both the principal and
cause. the agent.
ii. Where there is a just
cause.
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.

1.Without just cause.

The law imposes upon the agent the duty to give due notice to the principal and if the
withdrawal is without just cause, to indemnify the principal should the latter suffer
damage by reason of such withdrawal.

2.With just cause.

If the agent withdraws from the agency for a valid reason as when the withdrawal is based
on the impossibility of continuing with the agency without grave detriment to himself, or
is due to a fortuitous event, the agent cannot be held liable.
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.

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.
In the following cases, the agency
remains in full force and effect even
after the death of the principal:
1. If the agency has been constituted in
the common interest of the principal and
the agent; (Art. 1927) and
2. If it has been constituted in the interest
of a third person who has accepted the
stipulation in his favor.
Art. 1931.

Anything done by the agent, without

knowledge of the death of the principal or of
any other cause which extinguishes the
agency, is valid and shall be fully effective
with respect to third persons who may have
contracted with his in good faith.
Article 1932. If the agent dies, his heirs must notify the
principal thereof, and in the meantime adopt such
measures as the circumstances may demand in the
interest of the latter.
The rights and obligations of the agent arising from the contract are not
transmissible to his heirs.

Exceptions:
1.The heirs’ duty to continue the agency after the death of the agent arises from
what may be termed as an agency by operation of law or a presumed tacit agency.
2.Where the agency is one coupled with an interest in the subject matter of the
agency. An agency coupled with interest survives the death of the agent. It is
transmitted to his heirs or representatives.
THANK YOU!

GROUP 2
Baybay, Sharla P.
Caniban, Darlene C.
Herradura, Joy P.
Lorenzo, Junette Mae C.
Miondas, Junaira D.
San Juan, Vince Jay C.