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This article was originally published on June 1, 2022 and has been updated to reflect recent legal developments.

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE:

Article 1917 of the Civil Code, in relation to Article 1916, provides that 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.

Article 1868 of the Civil Code states that by the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

In Ramon Rallos v. Felix Go Chang & Sons Realty Corporation and Court of Appeals, G.R. No. L-24332, January 31, 1978, the Supreme Court held that agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority.

The issue of liability becomes particularly significant in situations contemplated under Article 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.

Article 1916 is expressly subject to Article 1544, which governs double sales:

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.

With respect to damages, Article 1917, in relation to Article 1916, provides that: 

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.

Furthermore, Article 1918 states that 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.

Accordingly, pursuant to Article 1916, 1917, and 1918 of the Civil Code, liability to the prejudiced third person depends on whether the agent acted in good faith or bad faith, as expressly provided by law.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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