Agency: Modes of Extinguishment of Agency (Arts. 1919

CHAPTER 4

Modes of Extinguishment of Agency

Article 1919.

Agency is extinguished:

(1) By its revocation;

(2) By the withdrawal of the agent;

(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;

(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;

(5) By the accomplishment of the object or purpose of the agency;

(6) By the expiration of the period for which the agency was constituted. (1732a)

Presumption of continuance of agency.

When once shown to have existed, an agency relation will be presumed to have continued, in the absence of anything to show its termination; and the burden of proving a revocation or other termination of an agency is on the party asserting it.

Modes of extinguishing an agency.

An agency does not last forever.
Like most consensual agreements, the relationship usually comes to an end at some point.
Termination can take place because of something done by the parties themselves or of something beyond their control, i.e., by operation of law.
Under the law, agency may be terminated:

by agreement (Nos. 5, 6.); or
by the subsequent acts of the parties which may be either:

by the act of both parties or by mutual consent; or
by the unilateral act of one of them (Nos. 1, 2.); or

by operation of law. (Nos. 3, 4.)

Presence, capacity, and solvency of parties essential for continuance of agency.

Agency requires the presence, capacity, and solvency of both the principal and agent.
Consequently, the death, civil interdiction, insanity, or insolvency of either party terminates the agency (see Arts. 39, 1327.) and this is true notwithstanding that the agency period has not yet expired.

Death

Whether the death of one of two or more principals or of one of two or more agents terminates the agency depends upon the intention of the parties.
Generally, the death of one of several principals does not revoke the agent’s authority nor does the death of one of several agents put an end to the agency of all, whether the responsibility of the several principals or agents is joint or solidary.
The intention of the parties controls except as otherwise provided by law.

Civil Interdiction

Civil interdiction 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.
A person under civil interdiction cannot validly give consent.

Insolvency

As by an act of insolvency the principal loses control of the subject matter of the agency, the authority of the agent to act for his principal generally ceases by operation of law upon an adjudication of the principal’s insolvency. The insolvency of the agent will also ordinarily put an end to the agency, at least if itis in any way connected with the agent’s business which has caused his failure. But the insolvency of the agent will not destroy any right he may have under a power coupled with interest.

Death of the principal or agent.

General rule.

By reason of the very nature of the relationship between the principal and agent, agency is extinguished ipso jure upon the death of either principal or agent.
Although a revocation of a power of attorney to be effective must be communicated by the parties concerned, yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as “by legal fiction the agent’s exercise of authority is regarded as an execution of the principal’s continuing will.”
With death, the principal’s will ceases or is terminated; the source of authority is extinguished.

Thus, the death of a client divests his lawyer of authority to represent him as counsel.
A dead client has no personality and cannot be represented by an attorney. (

On the other hand, if the agent dies, he can no longer act for the benefit and representation of the principal.

It is obvious that there can be no principal where there is no agent.

Exceptions.

The Civil Code expressly provides for two exceptions to the general rule that the death of the principal or the agent revokes or terminates ipso jure the agency, to wit:

That the agency is coupled with an interest (Art. 1930.); and
That the act of the agent was executed without knowledge of the death of the principal and the third person who contracted with the agent acted in good faith. (Art. 1931.)

Power to foreclose survives death of mortgagor.

Under Act No. 3135.

The power of sale in a deed of mortgage is not revoked by the death of the principal (mortgagor) as it is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter’s own protection.
It is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential and inseparable part of that bilateral agreement.
That power survives the death of the mortgagor.

Under the Rules of Court.

In fact, the right of the mortgagee to extrajudicially foreclose the mortgage after the death of the mortgagor does not depend on the authorization in the deed of mortgage executed by the latter.
The right exists independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit:

to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary action;
to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription without right to file a claim for any deficiency.

Dissolution of firm or corporation.

Dissolution of a firm or corporation which entrusted (as principal) or accepted (as agent) the agency, extinguishes its juridical existence as far as the right to go on doing ordinary business is concerned, except for the purpose of winding up its affairs.
It is equivalent to its death, being sometimes likened to the death of a natural person.
After winding up, the existence of the firm or corporation is terminated for all purposes.

Accomplishment of object or purpose.

Termination of agency ipso facto.

At least as between the parties, principal and agent, the fulfillment of the purpose for which the agency is created ipso facto terminates the agency, even though expressed to be irrevocable.

Accordingly, where the purpose of the agency was to effect a sale (or purchase), the agency terminated when the property was sold (or purchased);
Likewise, a power of attorney to convey land for the payment of a debt is extinguished by the payment of the debt.

Continued existence of authority illogical.

When the object or purpose of the agency is accomplished and nothing else remains to be done, there would be no sense in continuing the relationship beyond that point.
It is illogical to assume the continued existence of authority to do something which can no longer be done.
An agency relationship between the parties may also be terminated by the non-accomplishment of the object or purpose within a reasonable time.

Expiration of term.

Term specified.

Where an agency, by the terms of the original agreement, is created for a fixed period or is to end at a certain time, the expiration of such period or the arrival of that time, obviously results in the termination of the relationship, even though the purpose for which the agency was created has not been accomplished.

Term not specified.

If no time is specified, it terminates at the end of a reasonable period of time.
Either party can terminate the relationship at will by giving notice to the other.

Period implied.

The period may be implied from:

the terms of the agreement,
the purpose of the agency, and
the circumstances of the parties.

Thus:

An agreement that the agency shall continue for one year may be implied from a provision for payment of a salary in quarterly annual installments;
Where the principal agrees to furnish the agent as many machines as he may be able to sell prior to a certain date, an agreement that the agency is to continue until that date is implied; and
Where an agent has expended a substantial sum of money or has substantially rearranged his business preparatory to engaging upon the terms of an agreement for the benefit of the principal, he ought to have a reasonable time and notice of the cancellation of the contract in order that he might have a reasonable opportunity to put his house in order.
here an agent was employed to sell the principal’s car and after more than one (1) year the agent has not sold the car and there has been no communication between them, it is safe to assume that the agency has terminated;
Where the agent was appointed to manage the business affairs while the principal is abroad, the agency automatically terminates when the principal return.

Modes provided not exclusive.

Article 1919 gives only those causes of extinction which are peculiar to agency.
The list is not exclusive. Thus:

Generally.

An agency may also be extinguished by the modes of extinguishment of obligations in general when applicable, like loss of the thing and novation.
It is a basic rule of contract law that the parties can rescind or cancel their contract by mutual agreement.
It makes no difference that the principal and agent originally agreed that the agency was irrevocable.

War.

During the existence of a state of war, a contract of agency is inoperative if the agent or the principal is an enemy alien.
Since it is generally conceded that war suspends all commercial intercourse between the residents of two belligerent states, the general rule is that agency is terminated, as a matter of law, upon outbreak of war.

Legal impossibility.

Implied in every contract is the understanding that it shall be capable of being carried out legally at the time called for by the contract.

Thus, a lawyer who agreed to appear as counsel is released from his obligation if he is subsequently appointed a regional trial judge for under the law, judges are prohibited from engaging in the practice of law.

An agency terminates if a change in the law makes the purpose of the agency unlawful.

Termination of agent’s authority.

A position which flows from a trust relationship, whether directly or indirectly, terminates as a matter of law with the destruction or loss of the trust.
A sub-agent’s authority terminates with the termination of the agent’s authority.

Occurrence of a specified event.

If the principal and agent have originally agreed that the agency, or some particular aspect of it, will continue until a specified event occurs (e.g., authority of agent to continue until the principal returns from abroad), the happening of the event obviously terminates the agency.
The event is in the nature of a resolutory condition.

Loss or destruction of subject matter.

General rule.

In the absence of any agreement by the parties to the contrary, the loss or destruction of the subject matter of the agency or the termination of the principal’s interest therein terminates the agent’s authority to deal with reference to it.
Thus, the agency of a master of vessel terminates upon the absolute destruction of the vessel.

Exceptions.

The contract will not always be terminated in every case where the subject matter of the agency is lost or destroyed.
The agency may continue:

If it is possible to substitute other material for that which was destroyed without substantial detriment to either party or
If the destroyed subject matter was not in fact essential to the contract.

A partial loss or destruction of the subject matter does not always result in a complete termination of the agency, and under such circumstances, while the agency may be ended insofar as the destroyed property concerned, it may continue in existence as to other property not affected.

Thus, it has been held that the contract of one engaged to act as agent to secure freight for the defendant’s three boats cannot be cancelled merely because one boat was destroyed.

Liability of principal.

The termination of the agency does not necessarily free the principal from liability.

If the principal, for example, sells personal property in reference to the sale of which he has appointed an agent, the agency is, of course, terminated, but the principal is liable in damages for his wrongful terminating act.

On the other hand, should the subject matter be destroyed without the fault of the principal, no liability is assumed by him.
However, if a third party has given money or a thing of value for the subject matter, he may sue the principal to recover the same.

Change of conditions.

General rule.

Where there is a basic change in the circumstances surrounding the transaction, which was not contemplated by the parties and which would reasonably lead the agent to believe that the principal would not desire him to act, the authority of the agent is terminated.
Among those changes in the circumstances which will terminate the authority of the agent are changes in the value of the subject matter and changes in the general business climate which should indicate to him that the principal would not desire him to act.
The agent is under a duty to exercise due care in ascertaining the business conditions in the market in which he is to act.
If they are not conducive to his acting, his authority may be terminated.

Exceptions.

The above rule is subject to certain qualifications.

If the original circumstances are restored within a reasonable period of time, the agent’s authority may be revived.
Where the agent has reasonable doubts as to whether the principal would desire him to act, his authority will not be terminated if he acts reasonably.

Of course, when in doubt, the agent can always protect himself by contracting the principal for instructions if it is at all possible.

Where the principal and agent are in close daily contact, the agent’s authority to act will not terminate upon a change of circumstances if the agent knows the principal is aware of the change and does not give him new instructions.

Confidential information acquired by former agent in the course of his agency.

While the relation of principal and agent is confidential, not all knowledge acquired by the agent is of a confidential nature.
Some clearly is of so general a nature that equity ought not to attempt to restrict its subsequent use.
The court, therefore, must determine:

whether the knowledge or information, the use of which the complainant seeks to enjoin, is confidential; and
whether, if it be confidential, in whole or in part, its use ought to be prevented.

Just where to draw the line between usable and non-usable knowledge is a matter of difficulty.
There is always the question whether encouragement of individual initiative and competition should outweigh whatever unfairness seems to be involved in the use of the information.

Authorities generally agree that an employee lawfully entering upon a competing business may be enjoined from the use of trade secrets or processes, knowledge of the employer’s business surreptitiously obtained, or copied lists of customers or information about them.
If information be imparted privately, the character of the secret is immaterial, if it is one important to the business of the employer and one to which the employment relates.

For an employee to quit the employment and then use in the service of a rival information of a confidential nature gained in the prior employment, is contrary to good faith and fair dealing.

If one is employed to devise or perfect an instrument, or a means for accomplishing a prescribed result, he cannot, after successfully accomplishing the work for which he was employed, plead title thereto as against his employer.

That which he has been employed and paid to accomplish becomes, when accomplished, the property of his employer.

An employee, who learns in the course of or by reason of his employment that the premises where his employer’s business is conducted are of peculiar value to his employer has no right without his employer’s knowledge to take a lease of those premises and hold them as his own to the injury of his employer’s property.
The real principle upon which the agent is restrained from making use of confidential information which he has gained in the employment of the principal is that there is in the contract of service subsisting between the principal and agent an implied contract on the part of the agent that he will not, after the service is terminated, use information which he has gained while the service has been subsisting to the detriment of his former employer.

Article 1920.

The principal may revoke the agency at will,

and compel the agent to return

the document evidencing the agency.

Such revocation may be express or implied.

Revocation of agency by principal.

An agency may be terminated by the subsequent acts of the parties.

When done by the principal, it is called “revocation”
When done by the agent, it is usually spoken of as “withdrawal” or “renunciation.” (see Art. 1919[2].)

Wrongful termination can subject the terminating party to a suit for damages.

Agency generally revocable at will by principal.

Subject only to the exceptions provided in Article 1927, the principal may revoke the agency at will — at any time, at his mere option, with or without reason — since an agency relationship is voluntary.

This is true even though there was an agreement previous to the revocation that the agency should continue longer.
Even a statement in the agreement that the agency cannot be terminated cannot affect the principal’s ability or power to terminate it.

This is an exception to the rule that the validity or compliance of a contract cannot be left to the will of one of the parties. (Art. 1308.)

As the law makes no distinction, revocation at will is proper whether the agency is gratuitous or with compensation.

Reason for the rule.

The mere fact that the agency is to be irrevocable will not make it so; and the principal may still revoke the relationship at will. (Art. 1920.)
Since the authority of the agent emanates from or depends on the will of the principal, it is enough that the principal should wish to withdraw the authority or terminate the agency.
Moreover, confidence being the cardinal basis of the relation, it stands to reason that it should cease when such confidence disappears.

If this were not so, the contract would become unnatural, converting the representation into a real alienation of personality something repugnant to the principles of modern law.

The principal-agent relationship is consensual and personal in nature and no one can be forced to retain another as his agent against his will.

But a principal may not revoke an agent’s authority:

for acts or transactions the agent has already performed or entered into, or
an agency coupled with interest.

Liability of principal for damage caused by revocation.

While the principal may have absolute power to revoke the agency at any time, he must respond in damages for breach of contract where the termination is wrongful, although Article 1920 does not expressly so provide, in those cases wherein not having the legal right to do so, he should discharge the agent.
It must be emphasized, that we are speaking of a power and not a right.

As to whether the principal’s revocation of authority constitutes an exercise of a “right to revoke” or a “power to revoke” will, of course, depend upon the facts of the particular case.

Where agency constituted for a fixed period.

The principal shall be liable for damages occasioned by the wrongful discharge of the agent before the expiration of the period fixed.
In such case, however, the action for indemnity would be derived not from the law, but from the contract of the parties.

In a case where the exclusive authority given “to dispose of, sell, cede, transfer and convey x x x until all the subject property as subdivided is fully disposed of” was revoked by the subdivision owner before all the lots have been disposed of, the owner was held liable for damages for breach of contract on the ground that the agency agreement could not be terminated “until all the lots have been disposed of.”

But where the principal has the absolute right to revoke the agency, even if the period fixed in the contract of agency has not yet expired, the agent cannot object thereto; neither may he claim damages for such revocation, unless it is shown that such was done in order to evade the payment of the agent’s commission.

Where no time fixed for continuance of agency.

Where no time for the continuance of the agency is fixed by its terms, the principal is at liberty to terminate it at will subject only to the requirements of good faith.

In a case, no definite period was fixed by the principal within which the agent might effect the sale of the former’s factory. Nor was the agent given by the principal the exclusive agency of such sale. It was held that the agent cannot complain of the principal’s conduct in selling the property through another agent before the first agent’s efforts were crowned with success. “One who has employed a broker can himself sell the property to a purchaser whom he has procured, without any aid from the broker.”

But if the principal acted in bad faith, i.e., with the view of concluding the bargain without the aid of the broker and avoiding the payment of commission about to be earned, it might be well said that the due performance of his obligation by the broker was purposely prevented by the principal.
A principal is liable under Article 195 of the Civil Code in terminating an agency, at will — a legal act — when such termination would deprive the agent of his legitimate business.

He must give the agent at least sufficient notice to allow the agent to recoup his expenses and, in some cases, to make a normal profit.

Return of document evidencing agency.

If the authority of the agent is in writing, the principal can compel the agent to return the document evidencing the agency. (Art. 1920.)
The purpose is to prevent the agent from making use of the power of attorney and thus avoid liability to third persons who may subsequently deal with the agent on the faith of the instrument.

Kinds of revocation.

Article 1920 adds that the revocation may be express or implied.
An example of implied revocation is when:

the principal appoints a new agent for the same business or transaction (Art. 1923.) or
the principal directly manages the business entrusted to the agent. (Art. 1924.)

When the principal after granting a general power of attorney to an agent, grants a special one to another agent, there is implied revocation of the former as regards the special matter involved in the latter. (Art. 1926.)
The agent’s authority may also be revoked impliedly in the same manner as in the case of appointment of an agent. (see Art. 1869.)
While Article 1358 of the Civil Code requires that contracts involving real property must appear in a proper document, a revocation of a special power of attorney to mortgage a parcel of land, embodied in a private writing, is valid and binding between the parties, such requirement being only for the convenience of the parties and to make the contracts effective as against third persons.

Notice of revocation.

To agent.

As between the principal and the agent, express notice to the agent that the agency is revoked is not always necessary.
If the party to be notified actually knows, or has reason to know, facts indicating that his authority has been terminated or is suspended, there is sufficient notice.
A revocation without notice to the agent will not render invalid an act done in pursuance of the authority.

To third persons.

In this connection, it has been held that actual notice must be brought home to former customers, while notice by publication is sufficient as to other persons.
The general rule is that the acts of an agent within the apparent scope of his authority are binding on the principal as regards one who had formerly dealt with him through the agent and who has no notice of the revocation, because such a person is justified in assuming the continuance of the agency relationship.
In the absence of any notice of revocation, the principal may also be held liable even to third persons who never dealt with the agent previous to the revocation, if they, in common with the public at large, are justified in believing that such agency continues to exist.

This is especially so where, after the revocation, the agent is permitted to deal with the principal’s goods in his own name and in a manner indicating that he is the owner.

It is not always necessary that the notice of revocation be shown in a written oral communication from the principal or agent.

Whether a third person has received such notice depends upon the facts of the particular case.
One may be deemed to have knowledge or notice of the termination of the agency when, for example, he knows that the principal has ceased to do business, or is dealing with the subject matter of the agency, or the principal has appointed another agent for the purpose, etc.

Renunciation of agency by agent.

Agency terminable at will.

Just as the principal has the power to revoke the agency at will, so too, the agent has the power to renounce the agency relationship, subject only to the contractual obligations owing to the principal.
Thus, if there is no contract existing between the parties or if the contract is for no fixed or definite period of time, it is terminable by the agent at will.
Even in the face of an express contract, the agent has the power to renounce the agency, although under such circumstances, his breach may create a liability for wrongful termination.
An agent cannot legally terminate an agency in order to take advantage of the principal’s condition or to profit by information resulting from his agency.

Reason for the rule.

Where the agent terminates the agency in violation of a contract, the principal has no right to affirmative specific performance of the agency for the essence of the relationship is consensual — the willingness of the agent to act for the principal.
The same rule applies where the termination is done by the principal except where the agency is coupled with interest.
A statement in a contract that the authority cannot be terminated by either party for a specified time adds nothing to the contract; it is effective only to create liability for breach thereof.
The law will not compel the parties to continue an agency if they do not want to do so. Agency deals with personal services, and, therefore, specific performance is inappropriate.

Form of renunciation.

It is not always necessary for the agent to renounce the agency expressly, as for example, where he has conducted himself in a manner clearly incompatible with his duties as agent.
When an agent abandons the object of his agency and acts for himself in committing a fraud upon his principal, his capacity as agent ceases.
When an agent institutes an action against his principal for the recovery of the balance in his favor resulting from the liquidation of the accounts between them arising from the agency, and renders a final account of his operations, such actions are equivalent to an express renunciation of the agency, and terminates the juridical relation between them.

Although the agent has not expressly told his principal that he renounced the agency, yet neither dignity nor decorum permits one to continue representing a person who has adopted an antagonistic attitude towards him.
The act of filing a complaint against the principal is more expressive than words renouncing the agency.
On the other hand, the mere fact that the agent violates his instructions does not amount to a renunciation, and although he may thus render himself liable to the principal, he does not cease to be an agent.

Article 1921.

If the agency has been entrusted

for the purpose of contracting with specified persons,

its revocation shall not prejudice the latter

if they were not given notice thereof.

Article 1922.

If the agent had general powers,

revocation of the agency does not prejudice

third persons who acted in good faith

and without knowledge of the revocation.

Notice of the revocation

in a newspaper of general circulation

is a sufficient warning to third persons.

Effect of revocation in relation to third persons.

Agent authorized to contract with specified persons.

If the agency is created for the purpose of contracting with specific persons, its revocation will not prejudice such third persons until notice thereof is given them. (Art. 1921.)

Thus, where the Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, individual, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to the bank, in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of the principal, the bank cannot be prejudiced thereby.

The reason for the law is obvious. Since the third persons have been made to believe by the principal that the agent is authorized to deal with them, they have a right to presume that the representation continues to exist in the absence of notification by the principal.

Of course, notice is not required if the third persons already know of the revocation.

Example:

P authorized A to especially transact the purchase of a parcel of land belonging to B who was given a notice of the authorization given to A. Pending negotiations, P revoked the authority of A but P did not give notice of the revocation to B.
If the purchase is pushed through, P is still liable for the price assuming B acted in good faith and without knowledge of the revocation.

Agent authorized to contract with public in general.

In case the agent has general powers (as when the agent has been appointed to manage a business), innocent third persons dealing with the agent will not be prejudiced by the revocation before they had knowledge thereof.
In this case, however, the fact that the revocation was advertised in a newspaper of general circulation would be sufficient warning to third persons, for the publication constitutes notice upon everybody and this is true whether or not such third persons have read the newspaper concerned.

Under Article 1921, the notice of revocation must be personal;
under Article 1922, it may be personal. (see Art. 1873.)

Article 1923.

The appointment of 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 agent,

without prejudice to the provisions of the two preceding articles.

Revocation by appointment of new agent.

Implied revocation of previous agency.

There is implied revocation of the previous agency when the principal appoints a new agent for the same business or transaction provided there is incompatibility.
But the revocation does not become effective as between the principal and the agent until it is in some way communicated to the latter.
Again, the rights of third persons who acted in good faith and without knowledge of the revocation will not be prejudiced thereby.
There is no implied revocation where the appointment of another agent is not incompatible with the continuation of a like authority in the first agent, or the first agent is not given notice of the appointment of the new agent.
Example:

P authorized A to sell the former’s land. Subsequently, P also gave authority to B to sell the same land. There is no implied revocation of the previous agency. The intention of P may be to authorize both A and B for the same transaction.
If B was given an exclusive authority to sell, there is an implied revocation of the previous agency.
In either case, the knowledge by A (or B) of the sale or contract for sale of the land by B (or A), terminates the authority of A (or B).

Substitution of counsel of record.

No substitution of counsel of record is allowed unless the following essential requisites of a valid substitution of counsel concur:

There must be a written request for substitution;
It must be filed with the written consent of the client;
It must be with the written consent of the attorney to be substituted; and
In case, the consent of the attorney to be substituted cannot be obtained, there must be at least a proof of notice, that the motion for substitution was served on him in the manner prescribed by the Rules of Court.

In a case, the authority of the attorney-in-fact was revoked by the principal, the real party-in-interest in a pending litigation.

It was held that the revocation did not affect the authority of the counsel retained by said agent — he remained counsel of record of the principal absent a valid substitution of counsel.
The first counsel may not be presumed substituted by a new counsel merely from the filing of a formal appearance by the latter.

Article 1924.

The agency is revoked

if the principal directly manages

the business entrusted to the agent,

dealing directly with third persons.

Revocation by direct management of business by principal himself.

The above article provides for another case of implied revocation.

Unless the only desire of the principal is for him and the agent to manage the business together, the effect of the direct management of the business by the principal himself is to revoke the agency for there would no longer be any basis for the representation previously conferred.

If the purpose of the principal in dealing directly with the purchaser and himself effecting the sale of the principal’s property is to avoid payment of his agent’s commission, the implied revocation is deemed made in bad faith and cannot be sanctioned without according to the agent the commission which is due him.
Example:

P authorized A to manage the former’s printing press. Every now and then, P takes direct part in the management of the business. There is no implied revocation where the only purpose of P is to help A in the management of the business.
P authorized A to collect whatever amounts may be due P from T. Subsequently, P demanded payment from T, telling the latter to remit to him (P) the amount the collection of which he entrusted to A. The agency to A is revoked.
P appointed A as its agent for the sale of P’s logs to Japanese firms. During the existence of the contract of agency, P sold its logs directly to several Japanese firms. This act of P constituted an implied revocation of the contract of agency with A.
A, as agent P, principal-foreign employer, deployed T as a domestic helper to Taiwan under a 12-month contract. After the termination of the employment contract, P directly negotiated with T and entered into a new and separate employment contract in Taiwan. There is an implied revocation of A’s agency relationship with P.

Article 1924 should be distinguished from Article 1916 which governs the relations as between themselves of third persons who separately contract with the agent and the principal with regard to the same thing.

Article 1925.

When two 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.

Revocation by one of two or more principals.

As the appointment of an agent by two or more principals for a common transaction or undertaking makes them solidarily liable to the agent for all the consequences of the agency (Art. 1915.), any one of the principals is granted under this article the right to revoke the power of attorney without the consent of the others.
In a solidary obligation, the act of one is the act of all. (see Arts. 1212, 1214, 1221, 1222.)

Article 1926.

A general power of attorney is revoked

by a special one granted to another agent,

as regards the special matter involved in the latter.

Partial revocation of general power by a special power.

In this article (like Art. 1923.), two agents are involved:

one to whom a general power is previously granted and
the other, to whom a special power is given.

It may, however, also apply where the special power is subsequently granted to the same agent.
The general power is impliedly revoked as to matters covered by the special power.

A special power naturally prevails over a general power.
It is indispensable that notice of the revocation be communicated in some way to the agent.

Example:

P appoints A as manager of P’s business. The authority of A to manage P’s business includes the authority to enter into reasonable contracts of employment of such personnel as are usual and necessary in the conduct of the business.
If subsequently, P grants special power to B to hire personnel for his business, then as regards this matter of hiring employees, the general power granted to A is revoked. As to matters not covered by the special power, the general power remains valid.

Article 1927.

An agency cannot be revoked

if a bilateral contract depends upon it,

or if it is the means of fulfilling an obligation already contracted,

or if a partner is appointed manager of a partnership

in the contract of partnership

and his removal from the management is unjustifiable.

Agency coupled with an interest.

General rule: Principal may revoke an agency at will. (Art. 1920.)
Rationale: The essence of agency is the agent’s duty of obedience to the principal.
Exceptions:

When the agency is created not only for the interest of the principal but also for the interest of third persons; and
When the agency is created for the mutual interest of both the principal and the agent. (Art. 1930.)

In either case, the agency is deemed as one coupled with an interest.

It becomes part of another obligation or agreement.
It is evident that the agency cannot be revoked by the sole will of the principal as long as the interest of the agent or of a third person subsists because it is not solely the rights of the principal which are affected.

However, an irrevocable power of attorney is obligatory only on the principal who executed the agency.
It cannot affect one who is not a party thereto.
Article 1927 mentions three instances of irrevocability.

Examples:

P sold to B a factory for P1,000,000.00. B paid only P800,000.00. It was stipulated that the ownership in the factory would be transferred to B only after the payment of the balance of P200,000.00 to be made within six (6) months. It was further agreed that P would appoint A to manage the factory and that any profits would be used to pay off the balance of the purchase price. Here, P cannot revoke the agency at will for a bilateral contract depends upon it.
P borrowed from B P50,000.00. As security for the debt, P gives A a power of attorney to collect rents due from ten- ants of P and authorizes A to apply the same to the debt of P50,000.00. In this case, P cannot revoke the agency, without any justifiable cause, for it is a means of fulfilling his obligation to B.
A, B, and C are partners in business. By common agreement, A was appointed a manager in the articles of partnership (written document embodying the contract of partnership). The appointment of A is revocable only upon just and lawful cause and upon the vote of the partners representing the controlling interest. (Art. 1800.) The reason is that the appointment is in effect one of the conditions of the contract and it is only logical that such appointment should not be revoked without the consent of all the partners, including A.

Termination of the agency.

An agency coupled with an interest cannot be terminated by the sole will of the principal although it is so revocable after the interest ceases.

Interest in the subject matter of power conferred.

In order that an agency may be irrevocable because coupled with an interest, it is essential that the interest of the agent shall be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation therefor.
Thus, an agency is coupled with an interest:

where the agent has parted with value or incurred liability at the principal’s request, looking to the exercise of the power as the means of reimbursement or indemnity; or
where the interest in the thing concerning which the power is to be exercised arises from an assignment, pledge or lien created by the principal with the agent being given the power to deal with the thing in order to make the assignment, pledge or lien effectual.

The fiduciary relationship inherent in ordinary contracts of agency is replaced by material consideration in an agency coupled with an interest which bars the removal or dismissal of the agent as attorney-in-fact on the ground of loss of trust and confidence.

Sufficiency of interest.

As to what constitutes a sufficient interest to take the holder out of the agency relation, it is sometimes said it must be a present interest in the subject matter itself and that an interest in the proceeds of the power’s exercise as compensation is insufficient.
An agent is not considered to have an interest in the subject matter simply because he expects to make a commission or profit from his employment as agent.
An agent’s interest in earning his agreed compensation is an ordinary incident of agency, and neither a contract that the principal will not revoke nor a contract that the agent can protect his rights to earn commission in spite of the revocation will deprive the principal of control over acts to be done by the agent on his behalf.

It is a usual by-product of agency which does not affect the essential nature of the relationship.
The agent’s remedy is to sue for breach of contract if the principal terminates their contract.

Examples:

P owes B P10,000.00. At the request of P,A consented to be P’s surety but only after P delivered to A a certificate of stock as security with a power to transfer it in case A becomes liable to B. It is clear that P cannot revoke the agency unless he first pays B.
P borrows from A P10,000.00. P pledges or mortgages his property to A as security for the debt and gives A the power to dispose of it should P default. There is also an agency coupled with an interest which is irrevocable.
P appoints A as his agent to sell specific goods on commission and with power to retain such commission out of the proceeds of the sale. The power given to A is not given as security nor is it coupled with interest because his interest is merely in the commission which will arise from the exercise of the power. Hence, P can revoke the agency at will.
P (travel agency company) appoints A, travel agent, as its branch manager. A binds herself solidarily with P for the payment of monthly rentals agreed with the lessor. She gets 4% of the airline fares she brings in as commissions. The agency is one coupled with an interest, having been created for the mutual interest of P and A. She had acquired on interest in the business entrusted to her by assuming a personal obligation for the operation thereof. Her interest is not limited to the commissions she earns as a result of her business transactions but one that extends to the very subject matter of the power of management delegated to her.

The reason for the exception is that the agent is not really acting for the principal but also in his own behalf to assert a personal interest.

Terminology used by parties not controlling.

Whether an interest which will make an agency or power irrevocable exists in a particular case is to be determined from the entire agreement between the parties and from the facts and circumstances.
The terminology used by the parties is not controlling.

Even though an agency or power is made in terms irrevocable, that fact will not prevent its revocation by the principal where the agency or power is not, in fact, coupled with an interest.
Nor will the fact of a stipulation in the instrument that the intention of the grantor of the power is that it shall “be construed as a power of attorney coupled in the interest of the subject matter thereof” prevent its revocation.

Revocability of agency coupled with an interest.

Where there is no just cause.

A contract not to revoke an agency only abridges the right of the principal to revoke, and not his power to revoke. (see Art. 1920.)
However, where the authority given to the agent is supplemented with an interest in the subject matter of the agency itself, the rule is that both the right and the power to revoke the agency without the agent’s consent is taken away, and a purported revocation can have no effect unless by express provision the authority remains revocable.

Where there is a just cause.

A power of attorney can be made irrevocable by contract only in the sense that the principal may not recall it at his pleasure; but coupled with interest or not, the authority certainly can be revoked for a just cause, such as when the agent betrays the interest of the principal.
It is not open to serious doubt that the irrevocability of a power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent for that would amount to holding that a power coupled with an interest authorizes the agent to commit frauds against the principal.

Article 1800 of the Civil Code declares that the powers of a partner, appointed as manager, in the articles of partnership are “irrevocable without just or lawful cause.”

An agent with power coupled with an interest cannot stand on better grounds than such a partner insofar as irrevocability of the power is concerned.

Nature of agent’s interest in power given as security to him.

The agent’s power may be given:

as security without transferring to the agent any interest in the subject matter of the agency, or
in addition, an interest in the subject matter of the agency.

Revocable by death of principal when without interest in subject matter.

In the first case, there is a power or authority given as security, which, though irrevocable during the principal’s lifetime, is revoked by his death.
In the second case, there is a power or authority coupled with interest, which is irrevocable by the principal, whether by any act during his lifetime or by his death.
Example:

A borrows money from P. As security, P authorizes A, if P does not pay A, to take P’s horse and sell it and satisfy the debt out of the proceeds. Here, P gives no present estate or property in the horse but only an authority, for a valuable consideration, to take it and apply it to the payment of the debt.
Now, if P delivers the horse to A to keep as security and authorizes him, as before, if the debt is not paid, to sell the horse and reimburse himself out of the proceeds, A has a present property interest in the horse as well as authority over it. He is a pledgee with express authority to sell.
In neither case may P revoke the authority without paying the debt, but in the first case, if P should die before A had acted under the authority by taking possession of the horse, the authority would be terminated by P’s death, while in the second, A’s present property in the horse would not be destroyed by P’s death.

Contrary view.

This distinction is not followed by the Restatement of Agency (Secs. 138, 139.) which holds that neither type of power is revocable by the principal, whether during his lifetime or by his death.
The Restatement uses the term power given as a security “to cover both types of cases.”
The position taken by the Restatement would seem to be a commendable one, for the relation of trust and confidence which is supposed to stand in the way of absolute irrevocability of an agent’s appointment is affected adversely as much by one type of power as it is by the other. In both cases, the agent acts for himself (or for the benefit of a third person), and not on behalf of the principal.

“Agency” coupled with an interest not a true agency.

Persons with a proprietary interest in the subject matter of their “agency” are not true agents at all.

It is sometimes said that such an “agency” merely differs from other types in that it is irrevocable.
However, that very fact negates the possibility that it could be an agency relation at all.

This is the case, of course, since one of the hallmarks of the agency relation is that the principal must retain control over the agent concerning the object of his agency.

Plainly, if the principal cannot terminate the relation, he has surrendered that degree of control which an agency requires.
If the power holder holds an interest for the benefit of a person other than the creator of the power, he is not the creator’s agent.

Example:

Suppose A renders services to P and in return P authorizes A to sell P’s land and pay himself with or out of the proceeds. Or suppose that P borrows money from A and as security authorizes A to sell P’s land, if the loan is not repaid, and pay himself from the proceeds.
It is clear that in such a case there is no more reason why P should be allowed to revoke than if he had formally conveyed or mortgaged the land to A, and that it would be most unwarranted and unfair to A to allow P to revoke. It is also clear that the reason that the case is not properly governed by the considerations normally making an agency is that it is not in reality a case of agency at all. In a genuine agency case, the power is given to the agent to enable him to do something for the principal.

Article 1928.

The agent may withdraw from the agency

by giving due notice to the principal.

If the latter 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.

Right of agent to withdraw.

Just as the principal may revoke generally the agency at will (Art. 1920.), the agent may likewise renounce or withdraw from the agency at any time, without the consent of the principal, even in violation of the latter’s contractual rights; subject to liability for breach of contract or for tort.
This rule which applies whether the agency is gratuitous or for compensation is based on the constitutional prohibition against involuntary servitude. (Constitution, Art. III, Sec. 18[2].)
It is also consistent with the concept that agency is a voluntary relationship between the parties.

Without just cause.

The law imposes upon the agent the duty to give due notice to the principal and if the withdrawal is without just cause, to indemnify the principal should the latter suffer damage by reason of such withdrawal.
The reason for the indemnity imposed by law is that the agent fails in his obligation and as such, he answers for losses and damages occasioned by the non-fulfillment.

With just cause.

The agent cannot be held liable if the agent withdraws from the agency for a valid reason as when:

the withdrawal is based on the impossibility of continuing with the agency without grave detriment to himself, or
is due to a fortuitous event

While the agent is forbidden to prefer his interests to those of the principal, he is not required to sacrifice his own interests just to serve the principal.

Article 1929.

The agent,

even if he should withdraw from the agency

for a valid reason,

must continue to act until the principal

has had reasonable opportunity

to take the necessary steps to meet the situation.

Obligation of agent to continue to act after withdrawal.

Even when 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 like the appointment of a new agent to remedy the situation caused by the withdrawal.
The purpose of the law is to prevent damage or prejudice to the principal.

The law reconciles the interests of the agent with those of the principal, and if it permits the withdrawal of the agent, it is on the condition that no damage results to the principal, and if the agent desires to be relieved of the obligation of making reparation when he withdraws for a just cause, he must continue to act so that no injury may be caused to the principal.

The obligation imposed by Article 1929 is similar to that provided in Article 1885 in the case of a person who declines an agency.

Article 1930.

The agency shall remain

in full force and effect

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.

When death of principal does not terminate agency.

Agency is terminated instantly by the death of the principal. (Art. 1919[3].)

The reason is obvious. In agency, being based on representation, there is no one to be represented where the principal is already dead.

However, there are exceptions to this rule. In the following cases, the agency remains in full force and effect even after the death of the principal:

if the agency has been constituted in the common interest of the principal and the agent; and
if it has been constituted in the interest of a third person who has accepted the stipulation in his favor.

Examples:

A renders services to P who authorizes A to sell the latter’s land for not less than a certain price and pay himself out of the proceeds. Before the land is sold, P dies. It is clear that the agency to sell is one coupled with an interest (see Art. 1927.) and is not extinguished by the death of P.
P borrows from B P5,000.00 payable in one (1) year. Before the due date of the obligation, P sells his land to A and he authorizes A to pay P’s debt out of the purchase price. B accepts the agency of A. Here, the right of B to receive payment from A cannot be defeated by the death of P.

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 third persons

who may have contracted with him in good faith.

Nature of agent’s authority after death of principal.

Normally, the death of the principal will terminate the agency.

However, the agent is required to “finish the business already begun on the death of the principal should delay entail any danger.”

In the case where the principal’s affairs must be wound up, or even in rare cases, carried on for a time by the agent after the death of the principal, the agent acts because of a prior and not a presently existing relation with the creator of the authority; but the agent’s duty is no longer to the deceased but to a quasi-entity — the principal’s estate.

Hence, it is for the personal representative (executor or administrator) vested by law with the authority to administer the liquidation of the principal’s affairs to say what shall be done about the business originally delegated by the principal to the agent.
If the agent has to continue the business, it must be by the personal representative’s authority and as his agent.

Validity of acts of agent after termination of agency.

The death of the principal extinguishes the agency; but in the same way that revocation of the agency does not prejudice third persons who have dealt with the agent in good faith without notice of the revocation (Arts. 1921, 1922.), such third persons are protected where it is not shown that the agent had knowledge of the termination of the agency because of the death of the principal or of any other cause which extinguishes the agency.

“This rule, it is argued, will best subserve the condition and wants of the people and enable them to transact the business of expanding commercial life with a proper sense of safety and security.”

A contrary rule would operate very unjustly and produce very great hardships.

Thus: “A party dealing with an insolvent agent, upon the faith of his well-known authority from a wealthy and distant principal, is suddenly confronted with the fact that the authority had ceased by the death of the principal, a day or perhaps one hour before the transaction occurred.”

The common law doctrine is that the acts of agency done after the death of the principal are void, even though the death is unknown to the agent.

Many of the cases and text writers have regarded the doctrine as harsh and unjust, and in view of the apparent hardship, the rule has been modified by statute in some jurisdictions in conformity to the civil law rule.

Note that Article 1931 speaks of “knowledge of death of the principal or of any other cause” and requires not only the third persons to be in good faith but also the agent.
Example:

P authorized A to sell the former’s land. Subsequently, P died. Without the knowledge of P’s death, A sold the land to T. Can the heirs of P recover the land from T?
No, if both A and T acted in good faith.
Yes, if either Aor T acted in bad faith.

Article 1932.

If the agent dies,

his heirs must notify the principal thereof,

and in the meantime adopt such measures

as the circumstances may demand

in the interest of the latter.

Duty of agent’s heirs to protect interest of principal.

If the agent dies, the agency is also extinguished. (Art. 1919[3].)
In such case, the law imposes upon the heirs of the deceased agent not only the obligation to notify the principal to enable the latter reasonable opportunity to take such steps as may be necessary to meet the situation but also to adopt such measures as the circumstances may demand in the interest of the principal.
Article 1932 does not impose a duty on the heirs of the principal to notify the agent of the death of the principal.

Continuation by agent’s heirs of agency.

General rule.

An agency calls for personal services.

Ordinarily, therefore, the agent’s duties cannot be performed by his personal representatives, and in case of his death, the agency is generally thereby terminated.

Since the death of the agent ends his ability to perform the duties of the agency, the event of the agent’s death terminates the agency relationship at least in those instances where personal services and skill are required or cannot be performed by the agent’s representative and this is true, even though the agency is for a specified period which has not yet expired.
The rights and obligations of the agent arising from the contract are not transmissible to his heirs.

Exceptions.

There are cases when the authority conferred may pass to the agent’s heirs.
The heirs’ duty to continue the agency after the death of the agent arises from what may be termed as an agency by operation of law or a presumed or tacit agency.

Of course, the heirs can continue the agency only temporarily for, as we have seen, the essence of the contract is personal confidence.
The principal has a right to an agent of his choice.
There is nothing to suggest that he would or should expect the authority to pass to the agent’s heirs or personal representatives.

Where the agency is one coupled with an interest in the subject matter of the agency (like the power of sale in a mortgage), the death of the agent will not instantly end the relationship, and consequently, his heirs or representatives may subsequently exercise the power conferred at least insofar as may be necessary to protect the interests of the estate of the agent.

An agency coupled with an interest survives the death of the agent.
It is transmitted to his heirs or representatives.

Search This Blog

sic itur ad astra

Agency: Modes of Extinguishment of Agency (Arts. 1919 - 1932)

Popular posts from this blog

Equality and Human Rights: The United Nations and Human Rights System (September 16, 2023)

Election Laws: Requirements Before Election

Special Rules and Proceedings: Rule 75