II.

OBLIGATIONS OF THE AGENT

A. Principal obligations of the agent - 1884, 1887 & 1891

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. (1718)

GENERAL OBLIGATION OF AN AGENT TO PRINCIPAL

1. To obey all lawful orders and instruction of the principal within the scope of
athority

If the fails to obey the principal’s instruction within the scope of the agency- the agent
becomes liable for any loss incurs to the Principal even though he acted in good faith or
reasonably exercise it.

2. To act with utmost good faith and loyalty for furtherance of principal’s interests

FIDUCIARY -THE DUTY OF GOOD FAITH, WHICH IMPOSED TO AGENT

THE OBLIGATION OF FAITHFUL SERVICE.

It is immaterial if the agency is one coupled with interest, the agent is liable to
the principal even if he is gratuitous agent.

Except : if the agent violate the instruction of the principal for good reasons.

3. To exercise reasonable care, skill and diligence of the Good Father of the family.

If the agent accept the job, he is presumed to possesses the a degree of skill OR
COMPETENT for the accomplishment of the JOB. BUT NOT NECESSARILY that
agent will agree that he will make no mistake but must take usual precautions as
a reasonably careful agent would do.

Failure to do so constitutes a breach of his duty.

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.
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ARTICLE 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. (1720a)

SPECIFIC OBLIAGTION OD THE AGENT

1. To carry out agency which he has accepted

2. To Answer for damages which through his non-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 diligence of a god father of a family in the custody or preservation

of the goods forwarded to him by the owner in case he declines an agency until
an agent is appointed.

5. To advance a necessary funds should there be a stipulation too do so

6. Not to carry out the agency if its execution would manifestly result in loss or
damage to the principal.

7. To answer for damages if there being a conflict between his interest and those
of the principal, he should prefer his own.

8. Not to loan to himself if he has been authorized to lend money at interest

9. To render an account to 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.

10. To be responsible for certain cases for the acts

11. To pay interest on funds he has applied to his own use.

12. To act in accordance with the instructions of the principal and in default
thereof, to do all that a good father of the family would do.

13. To inform the principal, where an authorized sale of credit has been made, of
such sale.

14. To distinguish goods by countermarks and designated the merchandise

respectively belonging to each principal, in the case of the commission agent
who handles goods of the same kind and mark, which belong to different owner.
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15. To bear the risk of collection, should receive also on sale, a guarantee of
commission

16. To indemnify the principal for damages for his failure to collect credits of his
principal at the time that they become due.

17.To be responsible for fraud and negligence.

B. To carry out the agency in accordance with the instructions of the principal
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. (
Such obligation entails that the agent shall
1. Be liable for the damages caused to the principal through his non-performance
[Art. 1884, Civil Code];
2. Finish the business already begun on the death of the principal, should delay entail
danger [Art. 1884, Civil Code];
3. Even if the agent withdraws, continue to act as an agent until the principal has had
reasonable opportunity to take the necessary steps to meet the situation [Art. 1929,
Civil Code].
The obligation to carry out the agency also includes the obligation to not carry out the
agency if its execution would manifestly result in loss or damages

OBLIGATION OF THE PERSON WHO DECLINES AN AGENCY

If the owner or principal has appointed a person to his agent and has already
forwarded the goods to the agent, whom he expected to accept but for some
reason did not accept, he is required to observe diligence of the good father of
the family in the custody or preservation of the said goods until the principal has
appointed a true agent to take care of the goods.

Failure to do on his part of the declining person will render him liable for
damages

WHEN THE AGENCY SHOULD NOT BE CARRIED OUT

If its execution would manifestly result in loss to the principal

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Because the duty of the agent who is merely an extension of the personality of
the principal is to render service for the benefit of the principal and not to act to
his detriment.

1. Authority to advance funds – 1886

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. (n)

(ARTICLE 1912. The principal must advance to the agent, should the latter so request,
the sums necessary for the execution of the agency.

Should the agent have advanced them, the principal must reimburse him therefor, even if
the business or undertaking was not successful, provided the agent is free from all fault.

The reimbursement shall include interest on the sums advanced, from the day on which
the advance was made. (1728))

IF THE AGENT FOR ADVANCE, THE SUM SHOULD BE NECESSARY FOR THE
EXECUTION OF THE AGENCY, HOWEVER IT SHOULD BE STIPULATED.

ARTICLE 1159. Obligations arising from contracts have the force

of law between the contracting parties and should be complied
with in good faith

SO IN SUCH CASE, THE AGENT IS BOUND TO FURNISH SUCH FUNDS EXCEPT

WHEN THE PRINCIPAL IN INSOLVENT , IT IS BASED ON THE PRINCIPAL’S
OBLIGATION TO REIMBURSED THE AGENT. HENCE, THE INSOLVENCY OF THE
PRINCIPAL IS A GROUND FOR THE EXTINGUIHMENT OF AGENCY.,

ARTICLE 1912. The principal must advance to the agent, should the latter
so request, the sums necessary for the execution of the agency.

Should the agent have advanced them, the principal must reimburse him
therefor, even if the business or undertaking was not successful, provided
the agent is free from all fault.
The reimbursement shall include interest on the sums advanced, from the day
on which the advance was made. (1728)

RTICLE 1918. The principal is not liable for the expenses incurred by the agent in the
following cases:
(1) If the agent acted in contravention of the principal’s instructions, unless the latter
should wish to avail himself of the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
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(3) When the agent incurred them with knowledge that an unfavorable result would
ensue, if the principal was not aware thereof;
(4) When it was stipulated that the expenses would be borne by the agent, or that the
latter would be allowed only a certain sum. (n)

2. Authority to borrow money – 1890

ARTICLE 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

OBLIGATION NOT TO LAON TO HIMSELF

1.If the agent has been empowered to borrow money, he may himself be the lender at
the current rate of interest.
Reason : The principal will suffer no prejudice or there is no danger of the principal
suffering the current rate of interest would have to be paid in any case if the loan were
obtained from a third person.

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

Reason : To protect the principal because the agent may be proved to be a bad debtor or
not good payer or may be insolvent, and a conflict of interest may arise. The transaction
may be prejudicial to the principal.
Except : When the principal gives his consent, either orally or In writing.

3. Authority to appoint substitute – 1892

ARTICLE 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the person
appointed was notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall be void.
(1721)

JUST IN CASE , THE PRINCIPAL MAY BRING AN ACTION AGAINTS A

SUBSTITUTE WITH RESPECT TO THE OBLIGATIONS THAT THE LATTER
CONTRACTED UNDER THE SUBSTITURION. Execption to rule 1893
All acts of the substitute appointed against the prohibitions of the principal
shall be void.

Sub-agent – a person appointed by the agent, to assist him in the performance of tan act
for the principal
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General Rule: An agent may appoint a substitute.

REASONS : For convenience and practical utility
ExceptionS:
1. When the principal prohibits the agent from doing so
2. When the work entrusted to the agent to carry out requires a special knowledge, skill
or competence.
All of the substitute’s acts shall be void [Art. 1892, Civil Code]
EXCEPTION TO THE 2ND EXCEPTION : WHEN AUTHORIZED BY THE
PRINCIPAL
Note : The agent in this case is a principal with respect to the substitute

RESPONSIBILITY OF 2 OR MORE AGENTS- NOT SOLIDARY , UNLESS

STIPULATED.

4. Conflict of interests – 1889

ARTICLE 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. (n)

5. Liability for use of principal’s funds – 1896

ARTICLE 1896. The agent owes interest on the sums he has applied to his own use from
the day on which he did so, and on those which he still owes after the extinguishment of
the agency. (1724a)

1. The agent who converted to his personal use the funds of the
principal is liable for interest by way of compensation or
indemnification
2. The who owes after the extinguishment of the agency is
liable for interest from the date the agency is extinguish.

1. Liability for fraud and negligence – 1909

ARTICLE 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation. (1726)

2. Responsibility of two or more agents - 1894-1895

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ARTICLE 1894. The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated.
(1723)
ARTICLE 1895. If solidarity has been agreed upon, each of the agents is responsible for
the non-fulfillment of the agency, and for the fault or negligence of his fellows agents,
except in the latter case when the fellow agents acted beyond the scope of their authority.
(n)

Liability of agent to third persons

GER. RULE : AGENT IS NOT PERSONALLY LIABLE TO THIRD PERSON

REASON : THE AGENT ACQUIRES NO RIGHT NOR DOES HE INCUR ANY

LIABILITIES FROM THE CONTRACT ENTERED INTO BY HIM ON BEHLAF OF
HIS PRINCIPAL.

EXCEPT :

1. Agent acting as such – 1897

ARTICLE 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.
2. Agent exceeds the scope of his authority - 1898-1899
ARTICLE 1898. If the agent contracts in the name of the principal, exceeding the scope
of his authority, and the principal does not ratify the contract, it shall be void if the party
with whom the agent contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to secure the
principal’s ratification. (n)
3. Where agent’s authority not known to third person - 1900-1902
ARTICLE 1900. So far 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. (n)

ARTICLE 1901. A third person cannot set up the fact that the agent has exceeded his
powers, if the principal has ratified, or has signified his willingness to ratify the agent’s
acts. (n)
ARTICLE 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions as
regards the agency. Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney or instructions shown
them. (n)
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Atty. Ira Paulo Pozon, MBA, JD, LLM, MCIArb 8

B. Commission agent - 1903-1906, 1908-1909

ARTICLE 1903. The commission agent shall be 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. (n)

ARTICLE 1906. Should the commission agent, with authority of the principal, sell on
credit, he shall so inform the principal, with a statement of the names of the buyers.
Should he fail to do so, the sale shall be deemed to have been made for cash insofar as the
principal is concerned. (n)

ARTICLE 1908. The commission agent who does not collect the credits of his principal
at the time when they become due and demandable shall be liable for damages, unless he
proves that he exercised due diligence for that purpose. (n)

ARTICLE 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation. (1726)

1. Del credere agent – 1907

ARTICLE 1907. Should the commission agent receive on a sale, in addition to the
ordinary commission, another called a guarantee commission, he shall bear the risk of
collection and shall pay the principal the proceeds of the sale on the same terms agreed
upon with the purchaser
C. Cases
1. Carry out the agency
3. Liability for damages
4. Rendition of accounts

III - OBLIGATIONS OF THE PRINCIPAL

A. To comply with obligations contracted by the agent - 1910

(a) Estoppel on the part of principal - 1911
(b) Agent’s compensation
B. To make advances to the agent upon the latter’s request - 1912, 1 st par.
C. To reimburse the agent’s advances - Art. 1912, 2nd par.
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(a) Agent’s lien - 1914

(b) Instances when principal not liable for agent’s expenses - 1918
D. To indemnify the agent for damages caused to the latter - 1913
E. Solidary principals – 1915
F. Rules in case principal and agent separately contract with 2 persons - 1916-
1917

 Shell Co. v Firemen’s Ins. Of Newark NJ, 100 Phil. 755

 De La Pena v Hidalgo, 16 Phil 450
 Conde v CA, 119 SCRA 245
 Rallos v Yangco, 20 Phil. 133
 Danon v Brimo, 42 Phil 133
 Infante v Cunanan, 93 Phil. 693
 Siasat v IAC, 139 SCRA 238
 German & Co v Donaldson, Sim & Co., 1 Phil 63
 Municipal Council of Iloilo v Evangelista, 55 Phil. 290
 Phil. National Bank v Agudelo y Gonzaga, 58 Phil 635
 Syjuco and Viardo v Syjuco, 40 Phil. 634
 Barton vs. Leyte Asphalt, G.R. 21237, March 22, 1924;
 International Films vs. Lyric Film, G.R. 42465, November 19, 1936;
 Switzerland General Insurance vs. Ramirez, G.R. L-48264, February 21, 1980;
 Samar Mining vs. Nordeutscher Lloyd, G.R. L-28673, October 23, 1984.
 Bravo-Guerrero, et al. vs. Bravo, et al., G.R. No. 152658, July 29, 2005.
 Macias vs. Warner Barnes, G.R. 16492, March 9, 1922;
 Severino vs. Severino, G.R. 18058, January 16, 1923;
 Philippine Sugar Estates vs. Poizat, G.R. 23352, December 31, 1925;
 Philippine National Bank vs. Manila Surety, G.R. L-20567, July 30, 1965;
 Green Valley Poultry vs. IAC, G.R. L-49395, December 26, 1984;
 Bordador vs. Luz, G.R. 130148, December 15, 1997.
 United States vs. Kiene, G.R. 3188, March 12, 1907;
 United States vs. Igpuara, G.R. 7593, March 27, 1913;
 Domingo vs. Domingo, G.R. L-30573, October 29, 1971.
 Agustinos Recoletos vs. Lichauco, G.R. 10934, February 26, 1916;
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 Lim Chai Seng vs. Trinidad, G.R. 16671, March 30, 1921.
 Prudential Bank v CA, 223 SCRA 350
 Cuison v CA, 227 SCRA 391

IV. MODES OF EXTINGUISHMENT OF AGENCY

A. E - Expiration of period - 1919
B. D - Death, etc. - 1919, 1930-1932
C. W - Withdrawal of agent - 1919, 1928-1929
D. A - Accomplishment of object or purpose - 1919
E. R - Revocation - 1919, 1920-1927
F. D - Dissolution of firm - 1919
G. Cases:
 Dela Peña vs. Hidalgo, G.R. 5486, August 17,
1910;
 Valera vs. Velasco, G.R. 28050, March 13,
1928;
 Coleongco vs. Claparols, G.R. L-18616, March
31, 1964;
 Diolosa vs. CA, G.R. L-36585, July 16, 1984;
 Siasat vs. IAC, G.R. L-67889, October 10,
1985;
 CMS Logging vs. CA, G.R. 41420, July 10,
1992;
 Inland Realty vs. CA, G.R. 76969, June 9,
1997.
 Republic vs. Evangelista, G.R. No. 156015,
August 11, 2005.
 Rallos v Felix Go Chan & Sons Realty Corp, 81
SCRA 251
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Atty. Ira Paulo Pozon, MBA, JD, LLM, MCIArb 11

OUTLINE IN TRUST LAW*

[Civil Code, Book IV, Title V]
A. Definition - 1440
1. Trustor
2. Trustee
3. Beneficiary
B. Essential elements
C. Compare to -
1. Bailment (see De Leon, p. 659)
2. Donation (see De Leon, p. 659)
D. Express trusts – 1441
1. Living trusts or inter vivos trusts
2. Testamentary trusts
3. Charitable trusts
4. Spendthrift trusts
5. Totten trusts

B. Implied trusts - These come into being by operation of law.

1. Constructive trusts - 1450, 1454, 1455, and 1456
2. Resulting trusts - 1448, 1449, 1451, 1452, and 1453
C. Trustee powers and duties

D. Trust termination

E. Real Estate Investment Trusts (REITs)

F. Cases
 Salao v Salao, 70 SCRA 65
 Roa, Jr. v CA, 123 SCRA 3
 Cuaycong v Cuaycong, 21 SCRA 1192
 Sinaon v Sorongon, 136 SCRA 407
 Chaio Liong Tan v CA, 228 SCRA 75
 Heirs of Candelaria v Romero, 109 Phil 500

*
Except as otherwise indicated, the discussion in this outline has been sourced (with some slight editorial changes) from
West’s Business Law, 7th ed., 1998, West Educational Publishing, pp. 957-960, 962. All rights reserved.
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 Carantes v CA, 76 SCRA 514

 Caragay-Lagno v CA, 133 SCRA 718
 Sps. Gomez, et al. vs. Duyan, et al., G.R. No. 144148, March 18, 2005;
 Aznar Brothers Realty Company vs. Aying, G.R. No. 144773, May 16,
2005;
 Vda. de Rigonan, et al. vs. Derecho, et al., G.R. No. 159571, July 15,
2005;
 Spouses Bejoc vs. Prima Calderon Cabreros, et al., G.R. No. 145849, July
22, 2005;
 Spouses Oco vs. Limbaring, G.R. No. 161298, January 31, 2006;
 Comilang vs. Burcena, et al., G.R. No. 146853, February 13, 2006;
 Estate of Edward Miller Grimm vs. Estate of Charles Parsons, et al. , G.R.
No. 159810, October 9, 2006.

G. Additional source: Wills, Trusts, and Estates by Jesse Dukeminier and Stanley
M. Johanson, Little, 4th ed., Brown and Company, 1990
- End -