Obligations of the Agent

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Liabilty for damages – The agent is bound by his acceptance to carry out the agency.[1] Consequently, he is liable for the damages which, through his non-performance, the principal may suffer.[2] For business that already began on the death of the principal, the agent must finish the same if delay entails any danger.[3]

Best Legal Practices

  • Scope and extent of power expressly stated in written power of attorney – The agent should ensure that the scope and extent of the powers granted to him by the principal be expressly stated in the written power of attorney.
  • Duties and responsibilities also stipulated in written power of attorney – The agent should also ensure that the exact duties and responsibilities be stipulated in the written power of attorney.

When agent and principal had different agreement not reflected in written authority – Insofar as third persons are concerned, an act is deemed to have been performed within the scope of the agent’s authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.[4]

Same; When third party cannot put up defense of ultra vires – In the above mentioned situation, the third person cannot set up the fact that the agent has exceeded his powers if the principal has: (a) ratified it, or (b) signified his willingness to ratify the agent’s acts.[5]

To be obligated by third person to present power of attorney – The third person may require the agent to present the power of attorney, or the instructions as regards the agency, both coming from the principal.[6]

Private or secret orders and instructions of principal – Third persons who have relied upon the power of attorney or instructions shown them cannot be prejudiced by private or secret orders and instructions of the principal.[7]

Best Legal Practices

  • Agent to bring original and photocopies of authorization – The agent should bring original and photocopies of the authorization documents during the first meeting with a third party. If the third party requires the agent to present the authorization documents, the agent may deliver the photocopy and compare it with the original one.
  • Caveat is on third party dealing with an agent – The caveat (warning) is on the third party dealing with an agent. If later on it is found out that the agent was not authorized by the principal, the third party will not have any claim against the principal. It is for this reason that the law grants the third party a right to require the agent to present the power of attorney or instructions from principal.

Diligence of a good father of a family in custody and preservation of goods received – If a person refuses or declines an agency, he is bound to observe the diligence of a good father of a family in the custody and preservation of the good forwarded to him by the owner until the latter should appoint an agent or take charge of the goods.[8]

To advance necessary funds if required by contract – The agent is required to advance the necessary funds if there is a stipulation to that effect except when the principal is insolvent.[9]

To follow instructions of principal – In the performance of the agency, the agent is to act in accordance with the instructions of the principal.”[10]

Default standard of care is diligence of a good father of a family – By default, the agent is required to observe all that a good father of a family would do, as required by the nature of the business.[11]

Philippine National Bank v. Manila Surety & Fidelity Co.
G.R. No. L-20567, 30 July 1965 (En Banc)

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 ATACO’s 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 Bank’s 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.)

Not to act in a way that it will manifestly result in loss or damage to principal – The agent cannot carry out an agency if its execution or performance would manifestly result in the loss or damage to the principal.[12]

In conflict of interest, agent to prefer interest of principal over own – The agent is liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own.[13]

If empowered to borrow money, agent may be lender – The agent may be the lender at the current rate of interest if he was empowered to borrow money.[14] If the agent is authorized to lend money at interest, he cannot borrow it without the consent of the principal.[15]

To account and deliver whatever received by virtue of agency – Every agent is required 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.[16] Any stipulation waiving the agent’s obligation to account is void.[17]

Best Legal Practices

  • Agent to disclose all information received – The agent should disclose all information received in writing (e.g. e-mail) to have a documentation of such fact.
  • Agent to turn-over any and all property received – The agent is required to turn-over any and all property received by him even if the same is his commission or compensation. Otherwise, the agent may open himself to criminal liability for estafa, among others.

Substitute appointed by agent – If the principal has not prohibited it,[18] the agent may appoint a substitute but he remains responsible for the acts of the substitute when: (a) when the agent was not given the power to appoint one,[19] or (b) he was given such power, but without designating the person, and the person was notoriously incompetent or insolvent.[20]

Two or more agents not solidarily liable by default; Consequences if solidarity is stipulated – If solidarity has not been expressly stipulated, two or more agents even if appointed simultaneously are not solidarily liable.[21] If solidarity has been expressly stipulated, each of the agents is responsible for the non-fulfillment of agency, and for the fault or negligence of his fellow agents, except in the latter case when the fellow agents acted beyond the scope of their authority.[22]

Liability for interest by the agent – The agent owes interest on the sums he has applied to his own use from the day on which he did so, and those which he still owes after the extinguishment of the agency.[23]

Agent not personally liable by default – The agent who acts in his capacity as such is not personally liable to the party with whom he contracts unless: (a) the agent expressly binds himself; or (b) the agent exceeds the limits of his authority without giving such party sufficient notice of his powers.[24]

Best Legal Practices

  • Agent to expressly declare in what capacity he/she is exercising when dealing with third party – The agent should expressly declare in what capacity, whether personal or as an agent, he/she is exercising when dealing with a third party.

When agent is not personally liable despite ultra vires – If the agent enters into a contract in the name of the principal and the agent acts in ultra vires in so doing, and the principal does not ratify such contract, it is void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal.[25] The agent is liable only if he undertook to secure the principal’s ratification.[26]

Commission agent; Responsibility for goods received by him in terms and conditions and as described in consignment by default – The commission agent is responsible for the goods received by him in the terms and conditions and as described in the consignment, unless upon receiving them he should make a written statement of the damage and deterioration suffered by the same.[27]

Same; Distinguish goods of same kind and mark belonging to different owners – If the commission agent handles goods of the same kind and mark belonging to different owners, he is required to distinguish them by countermarks, and designate the merchandise respectively belonging to each principal.[28]

Same; Cannot sell on credit without consent from principal – Without the express or implied consent of the principal, the commission agent cannot sell on credit.[29] If the commission agent has the required consent, he is required to inform the principal through a statement of the names of the buyers.[30] If without the required consent, the principal may demand from him payment in cash; however, the commission agent is entitled to any interest or benefit, which may result from such sale.[31]

Same; Commission agent who has guaranteed commission bears risk of collection – In addition to ordinary commission, the commission agent may receive on sale a guarantee commission.[32] If so, the commission agent bears the risk of collection and he is required to pay the principal the proceeds of the sale on the same terms and conditions agreed upon with the purchaser.[33]

Same; Liability of commission agent when credit is due and demandable – Unless otherwise the commission agent proves that he has exercised due diligence, the commission agent is liable for damages if he does not collect the credits owing to the principal at the time when they become due and demandable.[34]

Extent of liability of agent for fraud and negligence – The agent is liable for fraud and negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for compensation.[35]

Best Legal Practices

  • Release, Waiver, and Quitclaim – After the termination of the contract of agency, the agent should ask from the principal a release, waiver, and quitclaim.

[1] CIVIL CODE. Article 1884.

[2] Ibid. Paragraph 1, Article 1884.

[3] Ibid.

[4] CIVIL CODE. Article 1900.

[5] Ibid. Article 1901.

[6] Ibid. Article 1902.

[7] Ibid.

[8] CIVIL CODE. Article 1885.

[9] Ibid. Article 1886.

[10] Ibid. Paragraph 1, Article 1887.

[11] Ibid. Paragraph 2, Article 1887.

[12] Ibid. Article 1888.

[13] Ibid. Article 1889.

[14] Ibid. Article 1890.

[15] Ibid.

[16] CIVIL CODE. Paragraph 1, Article 1891.

[17] Ibid. Paragraph 2, Article 1891.

[18] “All acts of the substitute appointed against the prohibition of the principal shall be void.” (Paragraph 2, Article 1892, Civil Code)

[19] CIVIL CODE. Article 1892 (1). Moreover, “the principal may furthermore bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution.” (Article 1893, Civil Code).

[20] Ibid. Article 1892 (2). See similar comment in immediately preceding footnote.

[21] Ibid. Article 1894.

[22] Ibid. Article 1895.

[23] Ibid. Article 1896.

[24] Ibid. Article 1897.

[25] Ibid. Article 1898.

[26] Ibid.

[27] CIVIL CODE. Article 1903.

[28] Ibid. Article 1904.

[29] Ibid. Article 1905.

[30] Ibid. Article 1906. “Should he fail to do so, the sale shall be deemed to have been made for cash insofar as the principal is concerned (Ibid.).

[31] Ibid. Article 1905.

[32] Ibid. Article 1907.

[33] Ibid.

[34] CIVIL CODE. Article 1908.

[35] Ibid. Article 1909.

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