Reporter: EDREA G.

TAM-ABON (LLB-3A)
TOPICS: Article 1884, 1885 and 1886

Title X. AGENCY
CHAPTER 2: OBLIGATIONS OF THE AGENT

General Obligations of an Agent to his Principal:

1.) To act with the utmost good faith and loyalty for the furtherance and
advancement of the interests of the principal.
2.) To obey the principals instructions.
3.) To exercise reasonable care.

Specific obligations of agent to principal:

(1) To carry out the agency which he has accepted (Art. 1884);
(2) To answer for damages which through his performance the principal may
suffer (Ibid.);
(3) To finish the business already begun on the death of the principal should
delay entail any danger (Ibid.);
(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 (Art. 1885.);
(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 confl ict 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

1
 commission (Art. 1907.);
(16) To indemnify the principal for damages for his failure to collect the credits of
his principal at the time that they become due (Art. 1908.); and
(17) To be responsible for fraud or negligence. (Art. 1909.

ART. 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. (1718)

(1) Obligation 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 and following the
instructions, if any of the principal. He is normally expected to exercise the degree of
care and skill that is reasonable under the circumstances. By contract, the parties may
make the agents duty of diligence in carrying out the agency either stricter or more
lenient. If the agent fulfills his duty, he is not personally liable unless he expressly binds
himself.

(2) Obligation to answer for damages.

On the other hand, upon his failure to do so, he is liable for the damage which the
principal may suffer. This rule 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. Having accepted the agency when he was free to refuse it, the agent betrays
the confidence reposed on him if he does not fulfill the mandate. The damages to which
the principal is entitled are those which result from the agents non-performance. As
there can be no indemnity when there has been no damage, the principal must prove
his damages and the amount thereof

(3) Obligation to finish business upon principals 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
rule is in accord with the principles of equity. But the duty exists only should delay entail
any danger. 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 latter and of the agent,
or in the interest of a third person who has accepted the stipulation in his favor. Where
an agent makes use of the power of attorney after the death of his principal, the agent

2
has the obligation to deliver the amount collected by him by virtue of said power to the
administrator of the estate of the principal.

Philippine National Bank v. Manila Surety & Fidelity Co.

G.R. No. L-20567, 30 July 1965 (En Banc)

FACTS:
Petitioner Philippine National Bank (PNB) opened a letter of credit and advanced
thereon $120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this
amount, 2,000 tons worth P279,000.00 were released and delivered to ATACO under a
trust receipt guaranteed by respondent Manila Surety & Fidelity Co. up to the amount of
P75,000.00. To pay for the asphalt, ATACO constituted the Bank its assignee and
attorney-in-fact to receive and collect from the Bureau of Public Works the amount
aforesaid out of funds payable to the assignor under the purchase order. The
assignment stipulated, inter alia, this power of attorney shall also remain irrevocable
until ATACOs total indebtedness to the said Bank has been fully liquidated. When PNB
demanded payment, ATACO (later on subrogated by Manila Surety & Fidelity)
disclaimed liability arguing that PNB was negligent for failing to collect from the principal
debtor Bureau of Public Works.

PNB contends that the power of attorney obtained from ATACO was merely an
additional security in its favor, and that it was the duty of the surety, and not that of the
creditor, to see to it that the obligor fulfills his obligation, and that the creditor owed the
surety no duty of active diligence to collect any sum from the principal debtor.

HELD:
PNB was liable. This argument of appellant Bank misses the point. The Court of
Appeals did not hold the Bank answerable 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 such collections, since an agent is required to act with the
care of a good father of a family (Civ. Code, Art. 1887) and becomes liable for the
damages which the principal may suffer through his non-performance (Civ. Code, Art.
1884). Certainly, the Bank could not expect either ATACO or the surety to collect from
the Bureau of Public Works the moneys it had failed to demand. Not only because these
parties had the right to expect that the Bank would diligently perform its duty under its
power of attorney, but because they could not have collected from the Bureau even if
they had attempted to do so. It must not be forgotten that the Banks power to collect
was expressly made irrevocable, so that the Bureau of Public Works could very well
refuse to make payments to the principal debtor itself, and a fortiori reject any demands
by the surety. (Emphasis supplied.)

3
 ART. 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. (n)

(4) Obligation of person who declines an agency.

In the event a person declines an agency, he is still bound to observe the

diligence of a good father of a family (see Art. 1163.) in the custody and preservation of
the goods forwarded to him by the owner. This rule is based on equity.

The owner, however, must act as soon as practicable either

(1) by appointing an agent or
(2) by taking charge of the goods.

The obligation of an agent who withdraws from an agency is provided in Article

1929.

What is the rule if a person declines agency?

In the event 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.

Duty of Owner in case an Agency is Declined:

He must act as soon as possible by appointing an agent or by taking charge of
the goods.

ART. 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. (n)

(5) Obligation to advance necessary funds.

As a rule, the principal must advance to the agent, should the latter so request,
the sums necessary for the execution of the agency. The contract of agency, however,
may stipulate that the agent shall advance the necessary funds.
In such case, the agent is bound to furnish such funds except when the principal
is insolvent. The exception is based on the principals obligation to reimburse the agent.
Incidentally, the insolvency of the principal is a ground for extinguishment of agency.
In certain cases, the principal is not liable for the expenses incurred by the agent.

4
 In a contract of agency, may the parties stipulate that the agent shall advance the
necessary funds?
YES.

What is the obligation then of the agent?

He is bound to furnish such funds.
Except: When the principal is insolvent. This exception is based on
the principals obligation to reimburse the agent.