OBLIGATION NOT TO PREFER HIS OWN INTERESTS TO THOSE OF PRINCIPAL

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.

1.) Reason for the Rule Agency being a fiduciary relation, the agent is required to observe outmost good
faith and loyalty towards his principal.

2.) Basis of the Rule To shut the door against temptation and keep the agents eye single to the rights and
welfare of his principal.

This rule is one of preventive, not remedial justice. Thus, it operates however fair the transaction may
have been.

3.) Example

a.) P(Principal) authorized A(Agent) to buy a car. A is selling a car.

b.) P authorized A to sell a car. A wants to buy a car.

4.) Waiver of the Rule: The principal may waive the benefit of the rule so far as he is concerned, IF he does
so with full knowledge of the facts.

OBLIGATION NOT TO LOAN TO HIMSELF.

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 been authorized to lend money at interest, he cannot borrow it without the consent
of the principal.

The agent cannot, without a special power of attorney, loan or borrow money.

1. If he has been expressly empowered to borrow money, he may himself be the lender at the current
rate of interest.

2. If he has been authorized to lend money at interest, he cannot be the borrower without the consent of
the principal
OBLIGATION TO RENDER ACCOUNTS

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.

1.) Source of Profits It is immaterial whether such money or property is the result of the performance or
violation of the agents duty IF IT BE THE FRUITS OF THE AGENCY.

Example:

a.) Performance

P employs A as a full-time salesman. A must turn over to P any overprice received by him for goods
he is to sell at a certain price.

b.) Violation

In the same example, A also sold goods for B without the knowledge of P. In this case, P is also
entitled to all commissions or compensation earned by A on sales of Bs goods in violation of the contract of
agency.

2.) Secret Profit An agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the
vendee, without revealing the same to his principal, the vendor is guilty of breach of his loyalty to the principal
and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by
reason of such breach of loyalty or that heobtained better results.

Example:

P paid A P10,000 as the latters remuneration for his services in negotiating the sale of the formers
house. While acting as Ps agent, A received from B, the purchaser, P2,000 as a secret profit.

P ins entitled to recover back from A the P10,000 retained by him by way of commission.
3. Stipulation exempting agent from obligations to account VOID

*Reason:

a. Contrary to public policy it would encourage fraud.

b. It is in the nature of a waiver of an action for future fraud which isvoid under Art. 1171

Article 1171.Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void.

*Paragraph 2 of Art. 1891 is designed to stress highest loyalty that is required of an agent.

4. When obligation to account not applicable

a.) If the agent had informed the principal of the gift or bonus or profit he received from the purchaser and
his principal did not object thereto.

b.) Where a right of lien exists in favor of the agent.

Example:

A lawyer shall have a lien upon the funds of his client and may the same until his fees and
disbursements have been paid. (Sec. 37, Rule 138, Rules of Court)

5.) Liability for Conversion

If the agent fails to deliver and instead converts or appropriates for his own use the money or property
belonging to the principal, the agent is liabe for estafa [(Art. 315, par. 1 (b), RPC); By misappropriating or
converting, to the prejudice of another, money, goods, or any other personal property received by the
offender in trust.

The duty of an agent to account for money or property in his hands belonging to his principal is
similar to that of a trustee in possession of money or property belonging to the beneficiary of a trust.