General Obligations of Agent to Principal
1. Act with utmost good faith and loyalty for the furtherance
and advancement of the interests of the principal.
2. 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 acted in good faith.
 He is not liable if he violates the principal’s instructions
for a good reason
3. Exercise reasonable care
 By accepting employment, the agent impliedly
undertakes that he will exercise reasonable care, skill,
and diligence.
 Failure to do so constitutes a breach of his duty.
Specific Obligations of Agent to Principal
Article 1884
1. To carry out agency
 Once he accepts the agency, he is bound to carry it out
in accordance with its terms in good faith and following
the instructions of the principal.
2. To answer for damages
 [GR in contracts] any person guilty of fraud,
negligence, or delay in the fulfillment of his obligations
shall be liable for damages.
 The damages to which the principal is entitled are
those which result from the agent’s non-performance.
3. To finish the business already begun on the death of the
principal, should delay detail any danger
 Exception to the rule that death extinguishes agency.
Article 1885
4. When a person 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, until an agent is
appointed.
Article 1886
5. The contract of agency may stipulate that the agent shall
advance the necessary funds and he is bound to furnish
such funds EXCEPT when the principal is insolvent.
Article 1887
6. The agent shall act in accordance with the instructions of
principal. In default, he shall do all that a good father of a
family would as required by the nature of the business.
 If the agent exceeds, violates or fails to act upon such
instructions, he will be liable to the principal for any
loss or damages.
 The agent may disobey the principal’s instruction (a) if
it is for illegal acts or (b) where he is privileged to do to
protect his security interest.
Authority Instructions
Extent or the limitation of Private directions w/c the
the agent’s power to principal may give.
represent the principal.
Third persons are bound Third persons need not
to investigate the agent’s verify or investigate the
authority. instructions of the principal
to agent.
Article 1888
7. An agent must not carry out the agency if its execution
would manifestly result in loss or damage to the principal.
 Because according to 1884, 1887 (par. 2), an agent
must exercise due diligence in carrying out the agency.
Article 1889
8. Answer for damages if there being a conflict between his
and principal’s interest, he prefers his own.
 Basis of the rule: to shut the door against temptation
on his part and to ensure that he places the rights and
welfare of his principal above his own.
Article 1890
9. If the agent has been authorized to lend money at interest,
he cannot be the borrower without the consent of the
principal.
 There is here a possible conflict of interest. The
transaction may thus be prejudicial to the principal.
 If an agent has been expressly empowered to borrow
money, he may himself be the lender at the current
rate of interest.
Article 1891
10. Render an account of his transactions and deliver to the
principal whatever he may be received by the virtue of the
agency, demand is no longer necessary.
 If the agent fails to deliver and instead converts or
appropriates for his own use the money or property
belonging to the principal, the agent is liable for
ESTAFA.
 Every stipulation exempting the agent from the
obligation to render an account shall be VOID, because
it is contrary to public interest as it would encourage
fraud.
Article 1892
11. Unless prohibited by the principal, the agent may appoint
a subagent or substitute.
 Effects of substitution:
a. All acts of the substitute appointed against the
prohibition of the principal shall be VOID.
b. When he was given such power, but without
designating the person, and the person appointed
was notoriously incompetent or insolvent.
c. Substitution not authorized, but not prohibited,
the law recognizes the validity of the substitution
if the same is beneficial to the principal. If the
substitution has occasioned damage to principal,
the agent shall be primarily responsible for the
acts of the substitute. But the principal has also a
right of action against the substitute. (Art. 1893)
 Subagent – a person to whom the agent delegates as
his agent.
Article 1896
12. To pay interest on funds he has applied to his own use.
 The agent who converted to his personal use the funds
of principal is liable for interest as compensation or
indemnity from the day on which he did so.
 The agent who is found to owe the principal sums after
the extinguishment of the agency is liable for interest
from the date the agency is extinguished.
Article 1904
13. The commission agent who handles goods of the same kind
and mark, which belong to different owners, shall
distinguish them by countermarks, and designate the
merchandise respectively belonging to each principal.
 The evident purpose is to prevent any possible
confusion or fraud.
Article 1906
14. An authorized sale on credit shall deemed to have been on
a cash basis insofar as the principal is concerned, upon
failure of the agent to inform the principal of such sale on
credit with a statement of the name of the buyers.
Article 1907
15. In addition to the ordinary commission, another called a
guarantee commission, the commission agent receive on a
sale 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.
 Purpose: to compensate the agent for the risk he will
have to bear in the collection of the credit due the
principal.
Article 1908
16. 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.
 This article does not apply to a case where there is a
guarantee commission.
Article 1909
17. 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 compensation.
 [GR] The principal is not responsible if the agent’s tort
was intentional rather than a merely negligent.
 The principal is solidarily liable if the tort was
committed by the agent while performing his duties in
furtherance of the principal’s business.
 Quasi-delict – or tort may be committed by act or
omission.
Liability of 2 or more Agents appointed Simultaneously
Article 1894 & 1895
o [GR] Liable jointly.
o [Exception] Solidarity has been expressly stipulated; each
of the agents becomes solidarily liable for
a. Non-fulfillment of the agency
b. The fault or negligence of his fellow agent provided the
latter acted within the scope of their authority.
o [Exception to the exception] When one of the other agent/s
acts beyond the scope of their authority – innocent agent
is not liable.
When Agent may Incur Personal Liability
Article 1897
o An agent who acts as such within the scope of his authority
is not personally liable to the party with whom he contracts
UNLESS he expressly binds himself or he exceeds the limit
of his authority without giving such party sufficient notice
of his powers.
Effect Where Third Person Aware of Limits of Agent’s Powers
Article 1898
o 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 (third person) is aware of the
limits of the powers granted by the principal.
a. If the agent undertook to secure the principal’s
ratification and failed, he is personally liable.
b. If the ratification is obtained, then the principal
becomes liable.
Effect of Ignorance Agent
Article 1899
o If the principal appoints an agent who is ignorant, the fault
is his alone and he must suffer the consequences of his acts.
o Justice demands that the principal should be made
responsible.
Scope of Agent’s Authority as to Third Person
Article 1900
1. Where authority not in writing – 3rd person is under
obligation to make an inquiry not only as to existence of the
agency but also as to the nature and extent of authority of
the agent, if the 3rd person would hold the principal liable.
2. Where authority in writing – as far as the 3rd persons are
concerned, an act of the agent deemed to have been
performed within the terms of the power of attorney, even
if the agent has in fact exceeded the limits of his authority
according to the secret understanding between him and
principal.
When agent’s lack of authority not Available as a Defense
Article 1901
o The 3rd person cannot set up the fact that the agent
exceeded his authority to disaffirm his contract not only
after the principal has ratified the agent’s acts but even
before such ratification where he has signified willingness
to ratify.
o The principal may ratify the contract, giving it the same
effect as if he had originally authorized it.
Liability of Commission Agent as to Goods Received
Article 1903
o The commission agent shall be responsible for the goods
received by him *in the terms and conditions and as
describe in the consignment.
*refers to the quantity, quality and physical conditions
of the goods.
o To avoid liability, the commission agent should make a
written statement of the damage or deterioration if the
goods received by him do not agree with the description in
the consignment.
o Factor or commission agent – one whose business is to  the reimbursement shall include interest on the sums
receive and sell goods for a commission and who is advanced, from the day on which the advance was made.
entrusted by the principal with the possession of goods to
be sold. 3. Article 1913
 The principal must also indemnify the agent for all the
Right of Principal where Sale on Credit made Without damages which the execution of the agent may have
Authority caused the latter, without fault or negligence on his part.
Article 1905  The liability of the principal for damages is limited only to
o Without the express or implied consent of the principal, the that which the execution of the agency has caused the
commission agent cannot sell on credit. agent.
o The principal has two alternatives if such sale is made  To pay the agent the compensation agreed upon, or if no
without authority: compensation was specified, the reasonable value of the
1. He may require payment in cash, in which case, any agent’s services.
interest or benefit from the sale shall belong to the
agent. Agency by Estoppel (Implied Appointment)
2. He may ratify the sale on credit in which case it will Article 1911
have all the risks and advantages to him.  Even when the agent has exceeded his authority, the
principal is solidarily liable with agent if the former allowed
Presentation of Power of Attorney or Instructions as Regard later to act as though he had full powers.
Agency  This means the third person may demand from either the
Article 1902 principal, agent or both, the payment of damages suffered
o The 3rd person may require a presentation of the power of by him.
attorney or the instructions as regards the agency.  Nevertheless, the agent should be exempt from liability if
o However, the 3rd person is not bound and cannot be he acted in good faith.
affected by the private or secret orders and instructions of Apparent Authority Authority by Estoppel
the principal in the same way that he cannot be prejudiced Though not actually Arises by the principal
by any understanding between the principal and the agent. granted, the principal culpable negligence
knowingly permits the permits his agent to
agent to exercise or holds exercise powers not
him out as possessing. granted to him.

General and Specific Obligations of Principal to Agent Implied Agency Agency by Estoppel
1. Article 1910 There is an Authority of the agent is not real but
 [GO] The principal must comply with all obligations which actual agency. only apparent:
the agent may have contracted within the scope of his The principal the estoppel is caused by the principal,
authority and must act in a representative capacity (in the alone is liable he is liable to any third person.
name of the principal) the estoppel is caused by the agent,
 The principal may be justified in refusing to perform his part then only the agent is liable.
of the contract when the agent has already violated the
contract, except when the former ratifies it expressly or Right of agent to retain object of agency in pledge
tacitly. Article 1914
 If the principal fails to reimburse or indemnity the agent
Ratification - when the principal ratifies (approves and (1912, 1913), the agent has right to retain in pledge (legal
adopts) an act which has been already been done in his pledge) the things which are the object of the agency.
name and on his behalf by the agent who in fact, had no  The agent is not entitled to the excess in case the things are
actual authority to act on his behalf when the act was done. sold to satisfy his claim and the proceeds thereof are more
Acts that may/may not be ratified than the amount due.
May May Not
Valid Acts Void Acts When principals solidarily liable to agency
Voidable Acts Article 1915
Unrevoked Acts ??  The liability of the principals is solidary for all the
consequences of the agency.
2. Article 1912  Requisites:
 The principal must advance to the agent upon the latter’s a. 2 or more principals
request the sums necessary for the execution of the b. Principals have all concurred in the appointment of the
agency. same agent
 the said advances must be reimbursed by the principal c. The agent is appointed for a common transaction or
even if the business or undertaking was not successful, undertaking
provided the agent is free from fault.
Rule where two persons contract separately with agent and
principal
Article 1916
 If the two contracts are incompatible with each other, the
one of prior date shall be preferred.
Movable Immovable
First to a. First to register in good faith
possess in b. No inscription, first to possess in good
good faith faith
c. No inscription, no first to possess –
Person who presents the oldest title in
good faith
rd
Liability to 3 person of agent/principal who contracts
separately
Article 1917
 If the agent has acted in good faith and within the scope of
his authority, the principal shall be liable in damages to 3 rd
person whose contract was rejected.
 If the agent has acted in bad faith, he alone shall be
responsible.
Principal not liable for expenses
Article 1918
1. 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 agent.
3. When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was not
aware thereof. (the agent is guilty of bad faith and lack of
diligence)
4. When it was stipulated that the expenses be borne by the
agent, or that the latter would be allowed only a certain
sum. (express stipulation which is not contrary to law,
morals, etc.)
Modes of Extinguishment of Agency
Article 1919
 Agency is extinguished: (the list is not exclusive)
1. Revocation
2. Withdrawal of the agent or renunciation
3. Death, civil interdiction, insanity or insolvency of the
principal or the agent
4. Dissolution of the firm or corporation which entrusted
or accepted the agency
5. Accomplishment of the object or purpose of the
agency
6. Expiration of the period for which the agency was
constituted
 Under the law, the agency may be terminated
1. By agreement – nos. 5 and 6
2. By the subsequent acts of the parties – (a) act of both
parties or by mutual consent; (b) unilateral act, nos. 1
and 2
3. By operation of law – nos. 3 and 4
1. REVOCATION
Agency generally revocable at will
Article 1920
 The principal may revoke (express or implied) at will
whether the agency is gratuitous or with compensation.
 The principal is liable in damages occasioned by the
wrongful discharge of the agent before the expiration of
the period fixed.
 If the authority of the agent is in writing, the principal can
compel the agent to return the document evidencing the
agency.
Effect of revocation in relation to 3rd persons
Article 1921, 1922
 If the agency is created for the purpose of contracting with
specific persons, its revocation will not prejudice such 3 rd
person until notice is given them. The notice of revocation
must be personal.
 In case the agent has general powers, innocent 3rd persons
dealing with the agent will not be prejudiced by the
revocation before they had knowledge thereof. Notice of
the revocation in a newspaper of general circulation is a
sufficient warning to 3rd persons (may be personal).
Implied Revocation by appointment of new agent
Article 1923
 When the principal appoints a new agent for the same
business or transaction revokes the previous agency from
the day on which notice thereof was given to the former
agency, without prejudiced to the provisions of 1921, 1922.
Implied Revocation by direct management of business by
principal himself
Article 1924
 The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third
person.
Revocation by one of two or more principals
Article 1915
 When 2 or more principals have granted a power of
attorney for a common transaction, any one of them may
revoke the same without the consent of the others.
 Relates to Article 1915, appointment of an agent by 2 or
more principals for a common transaction or undertaking
makes them solidarily liable to the agent.
Partial revocation of general power
Article 1926
 2 agents are involved: one to whom a general power, and
the other to whom a special power.
 A general power of attorney is revoked by a special one
granted to another agent, as regards the special matter
involved in the latter.
 A specific power naturally prevails over a general power.
When agency irrevocable
Article 1927
 [provision] An agency cannot be revoked if (a) the bilateral
contract depends upon it, or if (b) it is the means of fulfilling
an obligation already contracted, or if (c) a partner is
appointed manager of a partnership in the contract of
partnership and his removal from the management is
unjustifiable.
 [GR] the principal may revoke an agency at will, Article
1920.
 [Exceptions]
1. When the agency is created not only for the interest of
the principal but also for the interest of 3rd persons.
2. When the agency is created for the mutual interest of
both principal and the agent, Article 1930.
3. An agency coupled with an interest cannot be
terminated by the sole will of the principal although it
is revocable after the interest ceases.
2. RENUNCIATION
Right of agent to withdraw
Article 1928
 If the principal should suffer any damage by reason of the
withdrawal, the agent must indemnify him therefor, unless
the agent should base his withdrawal upon the
impossibility of continuing the performance of the agency
without grave detriment to himself.
1. Without just cause – the law imposes upon the agent
to give due notice to the principal to indemnify the
suffered damages by principal because of withdrawal.
2. With just cause – withdrawal is valid if it is based: (a)
on the impossibility of continuing with agency without
grave detriment to himself, or (b) due to a fortuitous
event, or (c) the agent is forbidden to prefer his
interests to those of the principal.
Validity of acts of agent after death of principal
Article 1931
 Anything done by the agent, without knowledge of the
death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective
with respect to 3rd persons who acted with him in good
faith.
3B. CIVIL INTERDICTION
 A disqualification which deprives the offender during the
period of his sentence of the right to manage his property
and dispose of such property by any act or any conveyance
inter vivos.
3C. INSANITY
 Principal – cannot give consent
 Agent – cannot be expected to carry out the agency
3D. INSOLVENCY
 Principal – limits his capacity to act
 Agent – not be able to effectively carry out agency
4. DISSOLUTION OF A FIRM OR A CORPORATION
 Extinguishes its juridical existence.
Duty of agent’s heir to protect interest of principal
Article 1932
 If the agent dies, his heirs (a) must notify the principal
thereof, and (b) in the meantime adopt such measures as
the circumstances may demand in the interest of the
principal.
 The heirs can continue the agency the agency only
temporarily for the essence of the contract of agency is
personal confidence.

Obligation of agent to continue to act after withdrawal

Article 1929
 Even if the agent withdraws from the agency for a valid
reason, he must continue to act until the principal has had
reasonable opportunity to take the necessary steps to meet
the situation.
 The purpose of the law is to prevent damages to the
principal.

3A. DEATH
When death of principal does not terminate agency
Article 1930
 [GR] Agency is terminated by the death of the principal.
 [Exceptions]
1. The agency has been constituted in the common
interest of the principal and the agent
2. Has been constituted in the interest of a third person
who has accepted the stipulation in his favor.