ART. 1901. A third person cannot set up the fact thatthe agent has exceeded his powers, if the principal hasratified, or has signified his willingness to ratify theagent’s acts. (n)Ratification by the principal.(1) Binding effect of ratification. — The principal is not boundby the contract of his agent should the latter exceed his power. Thecontract is unenforceable but only as regards him. Hence, he mayratify the contract giving it the same effect as if he had originallyauthorized it. (see Art. 1910, par. 2.) Under the above article, thethird person cannot set up the fact that the agent exceeded hisauthority to disaffirm his contract not only after the principal hasratified the agent’s acts but even before such ratification wherehe has signified his willingness to ratify. In such a case, the thirdperson can be compelled to abide by his contract.The ratification shall have retroactive effect. It relates backto the time of the act or contract ratified and is equivalent tooriginal authority. (see Board of Liquidators vs. Kalaw, 20 SCRA987 [1967].)Art. 1901 OBLIGATIONS OF THE AGENT510 AGENCY(2) Only principal can ratify. — It is fundamental in the law ofagency that only the principal and not the agent can stamp theimprimatur of ratification. There must be knowledge on the partof the principal of the things he is going to ratify. It can hardly besaid that there was ratification on his part in the absence of proofthat he had knowledge of what was to be ratified. (Brownell vs.Parreno, [C.A.] No. 16714-R, May 27, 1958, 54 O.G. 7412.) Beforeratification by the principal or expression of willingness on hispart to ratify, the third person may repudiate the act of the agent.(see Art. 1317.)In a case, the Supreme Court held that the State cannotimpugn the validity of the compromise agreement executed bythe Solicitor General on behalf of the State (in an expropriationproceeding) on the ground that it was executed by the counsel ofthe owner of the property, without any showing of having beenespecially authorized to bind the property thereby, because suchalleged lack of authority may be questioned only by the principalor client, and the principal has on the contrary confirmed andratified the compromise agreement. (Commissioner of PublicHighways vs. San Diego, 31 SCRA 616 [1970].)(3) Receipt by principal of benefits of transaction. — It is anestablished principle of law that where a person acts for anotherwho accepts or retains the benefits or proceeds of his effort withknowledge of the material facts surrounding the transaction, thelatter must be deemed to have ratified the methods employed, ashe may not, even though innocent, receive or retain the benefitsand at the same time disclaim responsibility for the measures bywhich they were acquired. This is in accord with the principleto the effect that a principal may not accept the benefits of atransaction and repudiate its burdens. (2 Am. Jur. 181-182.)(a) A principal is deemed to have received the benefitsof the unauthorized sale of his property and thereby ratifiedthe transaction where the checks issued by the buyer in favor

of the principal were credited to the latter’s account with abank or endorsed and negotiated by him. (see Rafferty vs.Province of Cebu, 52 Phil. 548 [1928]; Pamdico [Manila], Inc.vs. Alto Electronics Corp., [C.A.] No. 14904-R, June 8, 1956.)Art. 1901511(b) A principal who seeks to enforce a sale made by hisagent cannot ordinarily allege that the agent exceeded hisinstructions in warranting the goods, because he must acceptthe contract as a whole if he means to rely on any portion. Forthe same reason, he cannot treat the sale good for the agreedprice, but bad as to the agreed mode of payment. (Shomingervs. Peofody, 57 Com. 42, 17 A. 278 [1889], cited in Mechem,Cases on the Law of Agency, pp. 323-324.)

ART. 1902. A third person with whom the agentwishes to contract on behalf of the principal may requirethe presentation of the power of attorney, or theinstructions as regards the agency. Private or secret ordersand instructions of the principal do not prejudicethird persons who have relied upon the power of attorneyor instructions shown them. (n)

Presentation of power of attorney or instructionsas regards agency.As a rule, a third person deals with an agent at his peril.Hence, he is bound to inquire as to the extent of the agent’s authority,and this is especially true where the act of the agent is ofan unusual nature.Ignorance of the agent’s authority is no excuse. So, it is hisduty to require the agent to produce his power of attorney toascertain the scope of his authority. He may also ask for theinstructions of the principal. (Art. 1887.)Third person not bound by principal’sprivate instructions.While the third person is chargeable with knowledge of theterms of the power of attorney as written and the instructionsdisclosed to him, he is not bound and cannot be affected by theprivate or secret orders and instructions of the principal in thesame way that he cannot be prejudiced by any understandingbetween the principal and the agent. (Art. 1900.) Such secretorders or instructions cannot be invoked as against third partiesif the agent has apparent authority.Art. 1902 OBLIGATIONS OF THE AGENT512 AGENCYEXAMPLES:(1) P employed A under a power of attorney to sell aparcel of land for not less than P200,000.00. In this case, A hasno power to bind P by selling the property for less than thespecified amount to T. His statement to T that he is authorizedto sell at a lower price is not admissible against P.(2) Suppose, in the same example, the authority given to Ais to sell at any reasonable price, with a secret instruction to keepthe minimum price (P200,000.00) secret. A sold the property to

T at P180,000.00. T is not bound by the secret instruction of Pwho is bound by the contract, his liability being based upon theapparent authority of A. (see Art. 1900.)

ART. 1903. The commission agent shall be responsiblefor the goods received by him in the terms andconditions and as described in the consignment, unlessupon receiving them he should make a written statementof the damage and deterioration suffered by thesame. (n)Factor or commission agentdefined.A factor or commission agent is one whose business is to receiveand sell goods for a commission (also called factorage) and whois entrusted by the principal with the possession of goods tobe sold, and usually selling in his own name. (See Art. 1868, redistinctions between commission agent and broker.) He may actin his own name or in that of the principal.An ordinary agent need not have possession of the goods ofhis principal, while the commission agent must be in possession.Liability of commission agentas to goods received.If the commission agent received goods consigned to him,he is responsible for any damage or deterioration suffered bythe same in the terms and conditions and as described in theconsignment. The phrase “in the terms and conditions and asdescribed in the consignment” refers to the quantity, quality, andphysical condition of the goods.Art. 1903513To avoid liability, the commission agent should make a writtenstatement of the damage or deterioration if the goods receivedby him do not agree with the description in the consignment.

ART. 1904. The commission agent who handlesgoods of the same kind and mark, which belong todifferent owners, shall distinguish them by countermarks,and designate the merchandise respectivelybelonging to each principal. (n)

Obligation of commission agent handlinggoods of same kind and mark.This provision explains itself. The evident purpose is to preventany possible confusion or deception. He may not comminglethe goods without authority.14An agent is also under a duty not to mingle his principal’sproperty with his own or to deal with his principal’s propertyin a way which would make it appear to be his own property.Ordinarily, the agent must hold the property only in the nameof the principal. Where he violates that duty by mingling theproperty with his own, he becomes a debtor of the principal andliable to him for any losses suffered as a result of the mingling.Two exceptions exist to these general rules. First, by custom,some agents, such as auctioneers, normally are permitted to

mingle their principal’s property with their own. Second, someagents, such as collecting banks, are permitted to mingle thefunds of their principal (depositor) with their own and theproperty of other principals. (Sell on Agency, p. 124.)14Art. 472. If by the will of the owners two things of the same or different kinds aremixed, or if the mixture occurs by chance, and in the latter case the things are not separablewithout injury, each owner shall acquire a right proportional to the part belonging tohim, bearing in mind the value of the things mixed or confused. (381)Art. 473. If by the will of only one owner, but in good faith, two things of the sameor different kinds are mixed or confused, the right of the owners shall be determined bythe provisions of the preceding article.If the one who caused the mixture or confusion acted in bad faith, he shall lose thething belonging to him thus mixed or confused, besides being obliged to pay indemnityfor the damages caused to the owner of the other thing with which his own was mixed.(382)Art. 1904 OBLIGATIONS OF THE AGENT514 AGENCYILLUSTRATIVE CASE:A co-owner made withdrawals of sugar owned in common.Facts: The sugar of A and B were stored together in onesingle mass without separation or identification in a warehouse.A made withdrawals of sugar without express statement as towhose sugar was being withdrawn, whether his or B’s.Issue: Is there legal basis for B’s contention that as thetaking of the sugar was without his consent, and that of A withA’s consent, all that remained is B’s?Held: No. As the mass of sugar in the warehouse wasowned in common, and as it is not possible to determine whosesugar was withdrawn and whose was not, the mass remainingmust pertain to the original owners in the proportion of theoriginal amounts owned by each of them. (Montelibano vs.Bacolod Murcia Milling Co., 95 Phil. 407 [1954].)

ART. 1905. The commission agent cannot, withoutthe express or implied consent of the principal, sell oncredit. Should he do so, the principal may demand fromhim payment in cash, but the commission agent shallbe entitled to any interest or benefit, which may resultfrom such sale. (n)

Right of principal where sale on creditmade without authority.A commission agent can sell on credit only with the expressor implied consent of the principal. If such sale is made withoutauthority, the principal is given two alternatives:(1) He may require payment in cash, in which case, anyinterest or benefit from the sale on credit shall belong to theagent since the principal cannot be allowed to enrich himself atthe agent’s expense; or(2) He may ratify the sale on credit in which case it will haveall the risks and advantages to him. (see Green Valley Poultry &Allied Products, Inc. vs. Intermediate Appellate Court, 133 SCRA697 [1984].)

Art. 1905515EXAMPLE:P authorized A, his commission agent, to sell certain merchandisefor P20,000.00 cash. A sold the merchandise to B oncredit for P21,000.00.P may demand the payment of P20,000.00 in cash. ShouldA eventually collect P21,000.00 from B, A need not turn over theoverprice of P1,000.00 as he is entitled to it. (see Art. 1891.)If P ratifi ed the sale on credit and B could pay only up toP19,000.00, A is not liable for the difference of P2,000.00.

ART. 1906. Should the commission agent, with authorityof the principal, sell on credit, he shall so informthe principal, with a statement of the names of the buyers.Should he fail to do so, the sale shall be deemedto have been made for cash insofar as the principal isconcerned. (n)

Obligation of commission agent wheresale on credit authorized.Under this article, an authorized sale on credit shall bedeemed to have been on a cash basis (Art. 1905.) insofar as theprincipal (not third parties) is concerned, upon failure of the agentto inform the principal of such sale on credit with a statementof the names of the buyers. The purpose of the provision is toprevent the agent from stating that the sale was on credit whenin fact it was made for cash.Again, the agent shall be entitled to the benefits arising fromthe credit sale. The principal may also choose to ratify the sale oncredit with all its resulting benefits and risks. (See Art. 1905.)EXAMPLE:Suppose, in the preceding example, A was authorized by Pto sell on credit but he failed to so inform P with a statement ofthe name of the buyer.In this case, P may demand from A the payment of theP20,000.00 in cash. As far as the buyer is concerned, the saleis on credit and he is not liable to pay before the arrival of theperiod agreed upon.Art. 1906 OBLIGATIONS OF THE AGENT516 AGENCY

ART. 1907. Should the commission agent receive ona sale, in addition to the ordinary commission, anothercalled a guarantee commission, he shall bear the risk ofcollection and shall pay the principal the proceeds ofthe sale on the same terms agreed upon with the purchaser.(n)Meaning and purpose of guaranteecommission.(1) Guarantee commission (also called del credere commission)is one where, in consideration of an increased commission,the factor or commission agent guarantees to the principalthe payment of debts arising through his agency. (Mechem on

Agency, Sec. 2534.) An agent who guarantees payment of thecustomer’s account in consideration of the higher commission iscalled a del credere agent.(2) The purpose of the guarantee commission is to compensatethe agent for the risks he will have to bear in the collection of thecredit due the principal.Article 1907 applies to both cash and credit sales because itmakes no distinction.

Nature of liability of a del credereagent.An agent with a del credere commission is liable to the principalif the buyer fails to pay or is incapable of paying. But he isnot primarily the debtor. On the contrary, the principal may suethe buyer in his own name notwithstanding the del credere commission,so that the latter amounts to no more than a guaranty.15In other words, the liability of the del credere agent is acontingent pecuniary liability — to make good in the eventthe buyer fails to pay the sum due. It does not extend to other15Art. 2047. By guaranty a person called the guarantor, binds himself to the creditorto fulfill the obligation of the principal debtor in case the latter should fail to do so.If a person binds himself solidarily with the principal debtor, the provisions of Section4, Chapter 3, Title I of this Book shall be observed. In such case the contract is calleda suretyship. (1822a)Art. 1907517obligations of the contract (Thomas Gabriel & Sons vs. Churchill& Sim, K.B. 1272 [1914].), such as damages for failure of the buyerto accept and pay for the goods.A del credere agent may sue in his name for the purchase pricein the event of non-performance by the buyer.

ART. 1908. The commission agent who does not collectthe credits of his principal at the time when theybecome due and demandable shall be liable for damages,unless he proves that he exercised due diligencefor that purpose. (n)Obligation of commission agent to collectcredits of principal.A commission agent who has made an authorized sale oncredit (Art. 1906.) must collect the credits due the principal atthe time they become due and demandable. If he fails to doso, he shall be liable for damages unless he can show that thecredit could not be collected notwithstanding the exercise of duediligence on his part. (see Arts. 1173, 1174.) Where the agent isnot liable, the principal’s remedy is to proceed against the debtor.This article does not apply to a case where there is a guaranteecommission. (Art. 1907.)

ART. 1909. The agent is responsible not only forfraud, but also for negligence, which shall be judgedwith more or less rigor by the courts, according towhether the agency was or was not for a compensation.(1726)Liability of agent for fraud and negligence/intentional wrong.(1) In the fulfillment of his obligation, the agent is responsibleto the principal not only for fraud (Art. 1171.) committed by himbut also for negligence. (Art. 1172.) It is his duly to notify theprincipal of all relevant and material facts or any informationhaving a bearing on the interests of the principal (e.g., a debtorArts. 1908-1909 OBLIGATIONS OF THE AGENT518 AGENCYwho owes the principal a substantial amount of money is aboutto sell his property) as soon as reasonably possible after learningthem. The circumstance that the agency is or is not gratuitouswill be considered by the courts in fixing the liability of theagent for negligence (not fraud). Agency is presumed to be forcompensation. (Art. 1875.)It has been held that the failure of a sub-agent with whom filmhas been left for safekeeping to insure against loss by fire doesnot constitute negligence or fraud on its part when it has receivedno instruction to that effect from its principal, the insurance ofthe film not forming part of the obligation imposed upon it bylaw. (International Films vs. Lyric Film Exchange, 63 Phil. 778[1936].) But the agent is liable when he does not discharge theagency with due promptness, or according to the instructions ofhis principal, or within the limits of his authority, or when hedoes not make use of the powers conferred on him. (11 Manresa541-542.)(2) Quasi-delict or tort may be committed by act or omission.If it causes damage to another, there being fault or negligence,the guilty party is liable for the damage done. (Art. 2176.) Article1909 speaks of negligence (simple carelessness). The agent, to besure, is also liable for torts committed willfully. As a general, rule,the principal is not responsible if the agent’s tort was intentionalrather than merely negligent. The reason is that an intentionalwrong committed by one employed is more likely motivated bypersonal reasons than by a desire to serve or benefit his employer.The principal is solidarily liable if the tort was committed bythe agent while performing his duties in furtherance of theprincipal’s business.16ILLUSTRATIVE CASES:1. Principal relied on the gratuitous promise of agent to insureformer’s goods.Facts: A, agent, promised without consideration to insureP’s goods against loss. A failed to keep his promise to insurethe goods which were destroyed by fi re.16See “Liability of principal for tort of agent,’’ under Article 1910.Art. 1909519Issue: May P hold A liable for the loss of the goods?Held: Yes. An agent who gratuitously assumes the agency

obligation and neglects to carry it out is generally not liablefor his nonfeasance. But where the agent knows or shouldknow that the principal, in reliance upon his promise to do thegiven act, will refrain from doing the act himself, liability fornonfeasance attaches. (see Merselman vs. Wicker, 30 S.E. [2d] 317[Tenn.], cited in Teller, p. 225.)________ ________ ________2. Broker sold shares at minimum price fi xed by principal butbelow prevailing market price.Facts: P ordered his broker A, to sell his gold shares at aminimum price of P0.15 which A did. On the day of the sale,gold shares were sold at prices ranging from P0.16 to P0.195,or at an average of P0.175. P brought suit to recover from A thedifference between the value of his shares at P0.175 and theprice of P0.15 at which they were sold.Issue: Is P entitled to recover the said difference?Held: Yes. A should have sold the shares at the highestpossible price. He failed to exercise the prudence and tact ofa good father of a family which the law required of him. (TanTiong Teck vs. Securities and Exchange Commission, 69 Phil. 425[1940].)________ ________ ________3. Action is brought by bank to recover unauthorized loansboth against its manager and the borrowers.Facts: A, a manager of PNB, violated standing regulationsregarding the granting of loans; and what is more, thru hiscarelessness, laxity, and negligence, he allowed loans to begranted to persons who were not entitled to receive loans. PNBbrought action against both A and the borrower to recover theloans granted.Issue: Is it necessary for PNB to fi rst go against the borrower,exhaust all remedies against him and then hold A liable onlyfor the balance?Held: No. PNB could proceed against A for losses it hadsustained in consequence of the unauthorized loans releasedby him. The cause of action of PNB accrued and the injuryArt. 1909 OBLIGATIONS OF THE AGENT520 AGENCYto it was complete on the very day that the amounts of theunauthorized loans were released by A.Ordinarily, if the principal collects either judicially orextra-judicially a loan made by an agent without authority, hethereby ratifi es the said act of the agent. However, in the case atbar, PNB is merely trying to diminish as much as possible theloss to itself and automatically decrease the fi nancial liabilityof A. (Phil. National Bank vs. Bagamaspad and Ferrer, 89 Phil. 365[1951].)________ ________ ________4. Bank allowed a depositor to withdraw from the proceeds ofthe treasury warrants deposited with the former, even before the saidwarrants had been declared cleared.Facts: G opened an account with GSAL (a savings andloan association) and deposited over a period of two months38 treasury warrants drawn by a government agency with a

total value of more than P1.7 million. Six of these were directlypayable to G while the others appear to have been indorsed bytheir respective payees followed by G as second indorser. Thewarrants were subsequently indorsed by C, Cashier of GSAL,and deposited to GSAL’s savings account with a branch ofMBTC (bank) which forwarded them to the Bureau of Treasuryfor special clearing. In the meantime, G was not allowed towithdraw from his account.After more than two weeks, “exasperated” over C’s repeatedinquiries as to whether the warrants had been cleared, andalso as an accommodation for a “valued client,” MBTC fi nallydecided to allow GSAL to withdraw from the proceeds of thewarrants. In turn, GSAL subsequently allowed G to make withdrawalsfrom his own account. Later, MBTC informed GSALthat 32 of the warrants had been dishonored by the Bureau ofTreasury and demanded the refund of the amount GSAL hadpreviously withdrawn, to make up for the defi cit in its account.Issue: Was MBTC negligent in giving GSAL the impressionthat the treasury warrants had been cleared and thatconsequently, it was safe to allow G to withdraw the proceedsthereof from his account with it?Held: Yes. (1) MBTC not entitled to refund of amountswithdrawn by GSAL. — The argument of MBTC that GSALwould have exercised more care in checking the personalArt. 1909521circumstances of G before accepting his deposit does not holdwater. It was G who was entrusting the warrants, not GSALthat was extending him a loan. And moreover, the treasurywarrants were subject to clearing pending which the depositorcould not withdraw its proceeds. x x x In stressing that it wasacting only as a collecting agent for GSAL, MBTC seems to besuggesting that as mere agent it cannot be held liable to theprincipal. This is not exactly true. On the contrary, Article 1909clearly provides that x x x.(2) MBTC exhibited extraordinary carelessness. — Theamount involved was not trifling (and this was in 1979).Despite the lack of clearance — and notwithstanding that ithad not received a single centavo from the proceeds of thetreasury warrants — it allowed GSAL to withdraw — not once,not twice, but thrice — from the uncleared treasury warrantsin the total amount of P968,000.00. It “presumed” that thewarrants had been cleared. For a bank with its long experience,this explanation is unbelievably naive.MBTC misled GSAL. There may have been no clearance butthat clearance could be implied from MBTC allowing GSAL towithdraw from its account three times. The total withdrawalwas in excess of its original balance before the treasury warrantswere deposited, which only added to its beliefs that they hadindeed been cleared. (Metropolitan Bank Trust Co. vs. Court ofAppeals, 194 SCRA 169 [1991].)— oOo —Art. 1909 OBLIGATIONS OF THE AGENT522 AGENCY

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