CIVIL LAW: SPECIAL CONTRACTS – AGENCY

Obligations of the Agent and Principal

Under the Philippine Civil Code, the law governing agency is primarily found in Articles 1868 to 1932. The provisions meticulously outline the reciprocal obligations of both the agent and the principal. Below is an exhaustive analysis:

I. Obligations of the Agent

The agent’s duties derive from the fiduciary nature of agency. They are summarized as follows:

A. Duty to Act Within the Scope of Authority (Art. 1881-1884)

Performing the Agency
The agent must act within the limits of the authority granted by the principal. Exceeding authority renders the agent personally liable unless the principal ratifies the action (Art. 1881).
- Express Authority: Clearly defined and granted by the principal.
- Implied Authority: Arises as a necessary means to accomplish the expressly granted authority.
Prohibition Against Unauthorized Delegation (Art. 1892)
The agent may not delegate the agency to another person unless:
- There is express consent from the principal.
- The delegation is indispensable for the execution of the agency.

B. Duty of Diligence and Skill (Art. 1884)

The agent is obligated to perform the agency with the diligence of a good father of a family, taking into account the specific circumstances of the transaction.

If compensated, the agent must exercise professional skill and care.
Failure to observe diligence makes the agent liable for damages.

C. Duty to Render an Account (Art. 1891)

The agent must render an account of all transactions undertaken on behalf of the principal and deliver all sums or property received in relation to the agency.

The agent is responsible for loss or damage due to negligence or fraud.
Failing to account may lead to liability for damages or even criminal action.

D. Duty of Loyalty and Good Faith (Art. 1889)

The agent must act in good faith and in the best interests of the principal.
Agents are prohibited from using or disclosing confidential information or engaging in self-dealing transactions without the principal's knowledge and consent.

E. Prohibition Against Conflicts of Interest

The agent must avoid any transaction where personal interests conflict with those of the principal.
Any profit derived by the agent due to conflict of interest must be returned to the principal.

F. Liability for Unauthorized Acts (Art. 1882, 1883)

If the agent exceeds authority or acts without authority, they are personally liable to the third party unless the principal ratifies the act.

II. Obligations of the Principal

The principal’s duties toward the agent are equally significant and ensure the agent is supported and protected.

A. Duty to Compensate the Agent (Art. 1875-1876)

The principal is required to pay the agent the agreed compensation for the services rendered.
If no specific amount is agreed upon, a reasonable compensation based on the circumstances must be provided.

B. Duty to Reimburse Necessary and Useful Expenses (Art. 1912)

The principal must reimburse the agent for all necessary and useful expenses incurred in the execution of the agency.
The obligation includes expenses incurred due to unforeseen circumstances necessary for the fulfillment of the agency.
Advances made by the agent must also be refunded with legal interest if applicable.

C. Duty to Indemnify for Damages (Art. 1913)

The principal must indemnify the agent for losses or damages suffered without fault in the execution of the agency.
This includes liabilities arising from third-party claims resulting from authorized acts of the agent.

D. Duty to Ratify Authorized Acts (Art. 1910)

When the agent acts within the scope of authority or when the principal ratifies unauthorized acts, the principal assumes full responsibility for those acts.

E. Duty of Non-Interference

Once the agency relationship is established, the principal must allow the agent to act freely within the scope of authority granted.
Undue interference or contradictory instructions may breach the principal’s obligations.

III. Joint and Solidary Liability in Agency (Art. 1915)

When an agency is jointly undertaken by multiple agents:

If the act performed by one agent falls within the scope of authority, all agents are liable to the principal or third parties, jointly or solidarily, as stipulated by the agreement.

IV. Extinguishment of Agency and Obligations Arising

Upon termination of agency:

The agent must return all funds or property of the principal.
The principal must settle all compensation, reimbursements, and indemnity owed to the agent.

Termination may occur due to:

Revocation by the principal (Art. 1920).
Renunciation by the agent (Art. 1927).
Death, civil interdiction, insanity, or insolvency of the principal or agent (Art. 1919).

Key Judicial Doctrines and Applications

Exceeding Authority and Ratification
Unauthorized acts of the agent bind the principal only upon ratification, whether express or implied. The burden of proof lies with the third party alleging ratification.
Agent’s Liability to Third Parties
- If the agent discloses the principal’s identity and acts within authority, only the principal is liable.
- An undisclosed principal or a misrepresentation makes the agent personally liable.
Termination and Third-Party Notification
- Upon termination of the agency, the principal must notify third parties to prevent reliance on the agent’s authority.

Practical Notes and Recommendations

For Agents: Obtain written authority, maintain meticulous records, and avoid conflicts of interest.
For Principals: Clearly define the scope of authority, promptly reimburse expenses, and respect the agent’s discretion within the granted authority.
For Third Parties: Verify the agent’s authority to avoid legal disputes on representation.

This framework ensures a clear understanding of obligations and liabilities, fostering transparency and accountability in agency relationships under Philippine law.