OBLIGATIONS OF THE AGENT

Article 1884 – The agent is bound by his acceptance to carry out the agency and is liable for
the damages which, through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should delay
entail any danger.

1. Good faith and loyalty to his trust, agent’s first duty – the relationship existing between
the principal and agent is fiduciary one, demanding conditions of trust and confidence.
In all transactions affecting the matter of agency, it is the duty of the agent to act with
the utmost good faith and loyalty for the furtherance and advancement of the interests
of the principal. The duty to be loyal to the principal demands that the agent looks out
for the best interest of the principal as against his own or those of the 3 rd party.

Agent’s act which tend to violate his fiduciary duty are not only invalid as to the
principal but are also against public policy.

Presumption: In the absence of proof to the contrary, the presumption is that an agent
has performed his duty in good faith, and the Principal, until notice is received of a
breach of relational duties, may rely upon his agent’s faithfulness.

General rule as to loyalty does not apply to cases where no relation of trust or
confidence exists between the parties.

2. Obedience to principal’s instruction – An agent must obey all lawful orders and
instructions of the principal within the scope of the agency. If he fails to do so, he
becomes liable for any loss the principal incurs even though he can show that he acted
in good faith or exercised reasonableness. Even gratuitous agent must follow
instructions or become liable.

But he is not liable if he violates the principal’s instructions for good reason. An agent
must know the extent of his authority and in doubt he should ask the principal.

3. Exercise of reasonable care – by accepting an employment whose requirements he

knows, the agent impliedly undertakes that he possesses a degree of skill reasonably or
ordinarily competent for the performance of the service and that in performing his
undertaking, he will exercise reasonable skill, that he will take the usual precautions.
Failure to do so constitutes a breach of his duty.

Specific obligations of agent to principal

1. To carry out the agency which he has accepted;

2. To answer for damages which through his performance the principal may suffer;
 3. To finish the business already begun on the death of the principal should delay entail
any danger;
4. To observe the diligence of a good father of a family in the custody and preservation of
the goods forwarded to him by the owner in case he declines an agency, until an agent
is appointed;
5. To advance the necessary funds should there be a stipulation to do so (Art 1886);
6. To act in accordance with the instructions of the principal, and in default thereof, to do
all that a good father of a family would do (Art 1887)
7. Not to carry out the agency if its execution would manifestly result in loss or damage to
the principal (Art 1888);
8. To answer for damages if there being a conflict between his interests and those of the
principal, he should prefer his own (Art 1889);
9. Not to loan to himself if he has been authorized to lend money at interest (Art 1890);
10. To render an account of his transactions and to deliver to the principal whatever he may
have received by virtue of the agency (Art 1891);
11. To distinguish goods by countermarks and designate the merchandise respectively
belonging to each principal, in the case of a commission agent who handles goods of the
same kind and mark, which belong to different owners (Art 1904);
12. To be responsible in certain cases for the acts of the substitute appointed by him (Art
1892);
13. To pay interest on funds he has applied to his own use (Art 1896);
14. To inform the principal, where an authorized sale of credit has been made, of such sale
(Art 1906);
15. To bear the risk of collection, should he receive also on a sale, a guarantee commission
(Art 1907);
16. To indemnify the principal for damages for his failure to collect the credits of his
principa at the time they become due (Art 1908); and
17. To be responsible for fraud or negligence (Art 1909);

Obligations to carry out the agency

A person is free to refuse to be an agent, but once he accepts the agency, he is bound to carry it
out in accordance with its terms in good faith (Art 1159) and following the instructions of the
principal (Art 1887).

If the agent fulfills his duty, he is not personally liable unless he expressly binds himself (Art
1897).

Obligation to answer for damages

Failure to fulfill his duty, he is liable for the damages which the principal may suffer.
This is an application to Agency of the general rule in contracts that any person guilty of fraud,
negligence, or delay in the fulfillment of his obligation, or who in any other manner fails to
comply with the terms thereof, shall be liable for damages.

The damages to which the principal is entitled are those which result from the agent’s non-
performance. No indemnity when there has been no damage; the principal must prove his
damages and the amount thereof.

Case: PNB vs. Manila Surety, 14 SCRA 776

Creditor-assignee neglected in its duty to collect the sums due the debtor-assignor from the
latter’s debtors, thereby allowing such funds to be exhausted by other creditors.

An agent is required to act with care of a good father of a family and becomes liable for
damages which the principal may suffer through his non-performance.

In present case, the court did not hold the bank liable for negligence in failing to collect from the
principal debtor but for its neglect in collecting the sums due to the debtor from the Bureau of
Public Works, contrary to its duty as holder of an exclusive and irrevocable power of attorney to
make collections.

Obligations to finish business upon principal’s death

Although the death of the principal extinguishes the Agency, the agent has an obligation to
conclude the business already begun on the death of the principal.

The agency shall also remain in full force even after the death of the principal if it has been
constituted in the common interest of the principal and agent, or in the interest of 3 rd person
who has accepted the stipulation in his favor.

Where an agent makes use of the power of attorney after death of the principal, the agent has
the obligation to deliver the amount collected by him by virtue of said power to the
administrator of the estate of the principal (Ramos vs. Cavives, 4 Phil 440)

Article 1885. In case a person declines an agency, he is bound to observe the diligence of a
good father of a family in the custody and preservation of the goods forwarded to him by the
owner until the latter should appoint an agent. The owner shall as soon as practicable either
appoint an agent or take charge of the goods.

OBLIGATION OF PERSON WHO DECLINES AN AGENCY

He is still bound to observe the diligence of a good father of a family in the custody and
preservation of the goods forwarded to him by the owner. The owner, however, must act as
soon as practicable either by:
 1. Appointing an agent; or
2. Taking charge of the goods.
Article 1886. Should there be a stipulation that the agent shall advance the necessary funds,
he shall be bound to do so except when the principal is insolvent.

OBLIGATION TO ADVANCE NECESSARY FUNDS

The principal must advance to the agent, should the latter request, the sums necessary for the
execution of the agency.

The contract may however stipulate that agent shall advance necessary funds. In such case, the
agent is bound to furnish such funds except when the principal is insolvent. The insolvency of
the principal is a ground for extinguishment of agency (Art 1912). In certain cases, the principal
is not liable for the expenses incurred by the agent (Art 1918).

Article 1887. In the execution of the agency, the agent shall act in accordance with the
instructions of the principal.

In default thereof, he shall do all that a good father of a family would do, as required by the
nature of the business.

INSTRUCTIONS – are private directions which the principal may give the agent in regard to the
manner of performing his duties as such agent but of which a 3 rd party is ignorant. Said to
SECRET if the principal intended them not to be made known to such party.

INSTRUCTIONS vs AUTHORITY

1. AUTHORITY, the sum total of the powers committed or permitted to the agent by the
principal. INSTRUCTIONS direct the manner of transacting the authorized business and
contemplate only a private rule of guidance to the agent and are independent and
distinct in character.

2. AUTHORITY related to the subject with which the agent is empowered to deal or the
kind of business or transactions upon which he is empowered to act. INSTRUCTIONS
refer to the manner or mode of his action with respect to matters which in their
substance are within the scope of permitted action.

3. Limitations of Authority are operative as against those who have or are charged with
knowledge of them. Instructions limiting the agent’s authority are without significance
as against those dealing with the agent with neither knowledge nor notice of them; and
4. AUTHORITY is contemplated to be made known to the 3 rd person dealing with the agent
(Binds 3rd party). INSTRUCTIONS are not expected to be made known to those with
whom the agent deals (does not bind 3rd party).