Explanation of Article 492
The article addresses two cases in which the agent's contract in purchasing is attributed to the agent and not to the principal:
The first paragraph addresses the first case, which relates to the effect of the agent's violation of his obligations stated in Article (490) by not purchasing for more than the equivalent price if the principal has not specified the price, and by not purchasing for more than the price specified by the principal if the price has been specified;
The paragraph states that if the agent purchases for his principal at a loss, meaning at a price higher than the usual equivalent price when the principal has not specified the price, or if the agent purchases for more than the price specified by the principal;
In both cases, whether purchasing at a loss or for more than the specified price, the principal has the option between two choices:
The first option: The principal does not approve the agent's action; in this case, the purchase is attributed to the agent and not to the principal, even if the agent mentioned in the contract that he is purchasing in his capacity as an agent for his principal; because he violated his obligation to exercise due diligence in executing the agency and not to exceed the limits of the agency; thus, the contract is not executed in favor of the principal.
The execution of the purchase in favor of the agent and not the principal does not prevent the other contracting party who contracted with the agent from requesting the annulment of the contract due to a mistake in the identity of the contracting party if the conditions for annulment due to mistake are met.
The second option: The principal approves the agent's action; in this case, the contract is attributed to the principal, and he has the right to demand compensation from the agent for the excess over the price specified if the price was specified, or compensation for the amount of the loss, which is the excess beyond the usual without the minor excess if the price was not specified and the item sold did not have a known and determined market value.
It is understood from the paragraph that if the principal did not specify the price and the agent's purchase was not at a loss, meaning not at an excess beyond the usual; the principal cannot insist on the contract not being executed in his favor, and two scenarios are excluded from this:
The first scenario: If the principal did not specify the price, and the item sold had a known and determined market value; and the agent purchased it with a minor excess; the principal can demand compensation from the agent for that excess in application of Article (490) and cannot insist on the contract not being executed in his favor.
The second scenario: If the principal did not specify the price, and the item sold did not have a known and determined market value; and the agent purchased it with a minor excess; the principal cannot request compensation or insist on the contract not being executed in his favor; because such occurrences in dealings among people are customary.
The second paragraph addresses a second case in which the agent's contract in purchasing is attributed to the agent and not to the principal, which is when the agent explicitly states in the purchase that he is buying the item for himself in the presence of the principal, the purchase is for the agent; because the principal's silence with knowledge that the agent is buying for himself is considered implicit approval that what the agent purchased is for himself and not for the principal, and what the paragraph contains is an exception to the rule established in paragraph (1) of Article (591); so if the agency is for purchasing a specific item and the agent explicitly states at the time of purchase that he is buying the item for himself in the presence of the principal without objection from him; the purchase is for the agent.
Related To
Article 492
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If an agent makes a purchase at an unconscionable price or at a price higher than the price specified by the principal, the contract shall, if not ratified by the principal, be deemed concluded for the benefit of the agent. If, however, the contract is ratified by the principal, it shall be enforceable against him and he may demand compensation from the agent.
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A purchase shall be deemed made for the agent's account if the agent declares, in the presence of the principal, that he purchased the thing for his own account.