CLV on Obligations of a Principal and Extinguishment

7/28/2019 CLV on Obligations of a Principal and Extinguishment

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8 OBLIGATIONS OF THE PRINCIPAL

[Updated: 20 July 2009]

1. Binding Effect of the Terms of the Contract of Agency

Since a contract of agency is merely a preparatory contract, it is well within the legal capacity ofboth parties to enter into any stipulation, obligation and undertaking by which they can tailor-fit

the relationship to best achieve the purpose of the agency. Like any other contract governed by

the principles ofmutuality and obligatory force, the principal is bound by the terms agreed uponunder the contract of agency.

Thus, inDe Castro v. Court of Appeals, 384 SCRA 607 (2002), the Supreme Court held that Acontract of agency which is not contrary to law, public order, public policy, morals or good

custom is a valid contract, and constitutes the law between the parties. The contract of agencyentered into [by the principal and the agent] is the law between them and both are bound to

comply with its terms and conditions in good faith. (at p. 616)

Apart from the contractual obligations voluntarily assumed by the principal under the terms of

the particular contract of agency entered into, we discuss hereunder the common-law duties andobligations of the principal by the very fact that he has constituted another person, the agent, to

represent him in pursuing juridical acts and contracts.

2. Principal is Bound by the Contracts Made by the Agent in His Behalf

Art. 1910. The principal must comply with all the obligations which the agent may have

contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound

except when he ratifies it expressly or tacitly. (1727)

Art. 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. (1725)

The central principle in the Law on Agency is that all contracts and transactions entered into by

the agent on behalf of the principal within the scope of his authority are binding on the principal

as though he himself had entered into them directly. This tenet, referred to as the doctrine of

representation is repeatedly expressed in various provisions of the Law on Agency.

Article 1897 of the Civil Code provides that the agent who acts as such is not personally liable to

the party with whom he contracts when acting within the scope of his authority.

Article 1910 of the Civil Code provides that the principal must comply with all the obligationswhich the agent may have contracted within the scope of his authority.


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InFilipinas Life Assurance Company v. Pedroso, 543 SCRA 542 (2008), the Court foundoccasion to reiterate the facets of the doctrine, thus

By the contract of agency, a person binds himself to render some service or to do something inrepresentation or on behalf of another, with the consent or authority of the latter. The general rule

is that the principal is responsible for the acts of its agent done within the scope of its authority,and should bear the damage caused to third persons. When the agent exceeds his authority, the

agent becomes personally liable for the damage. But even when the agent exceeds his authority,the principal is still solidarily liable together with the agent if the principal allowed the agent to

act as though the agent had full powers. In other words, the acts of an agent beyond the scope of

his authority do not bind the principal, unless the principal ratifies them, expressly or implied.Ratification in agency is the adoption or confirmation by one person of an act performed on his

behalf by another without authority. (at p. 547)

InFilipinas Life, despite the allegation of the insurance company that it was only a lifeinsurance company and was not engaged in the business of collecting investment money,

nonetheless it was made liable to persons who invested money with its confirmed agent, when itwas shown that other officers of the company had confirmed the power of said agent, and the

investments were receipted in the official receipts of the company itself.

InAir France v. Court of Appeals, 126 SCRA 448 (1983), employing the principle thatknowledge of the agent is chargeable as knowledge of the principals, the Court held that an

airline company cannot be held liable for breach of contract when it dishonored the tickets given

to the spouses, who travel arrangement were handled by their travel agent, since the evidenceshowed that their travel agent was duly informed by the airline companys proper officers that

the tickets in question could not be extended beyond the period of their validity without paying

the fare differentials and additional travel taxes brought about by the increased fare rate and

travel taxes. The Court held that To all legal intents and purposes, Teresita was the agent of theGANAS and notice to her of the rejection of the request for extension of the validity of the

tickets was notice to the GANAS, her principals. (at p. 455).

InPleasantville Dev. v. Court of Appeals, 253 SCRA 10 (1996), on the basis of the generalprinciple that the principal is responsible for the acts of the agent, done within the scope of his

authority, and should bear the damage caused to third persons, the Court ruled that the principal

cannot absolve itself from the damages sustained by its buyer on the premise that the fault wasprimarily caused by its agent in pointing to the wrong lot, since the agent was acting within its

authority as the sole real estate representative [of the principal-seller] when it made the delivery

to the buyer, although [i]n acting within its scope of authority, [the agent] was, however,

negligent, (at p. 20) since it is negligence that is the basis of principals liability since underArticle 1909 and 1910 of the Civil Code, the liability of the principal for acts done by the agent

within the scope of his authority do not exclude those done negligently.

a. Principal Not Bound by Contracts Made by the Agent Without or Outside the Scope of

His Authority


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The corollary rule would then be that for any obligation wherein the agent has exceed his

power, or acts done by the agent outside of the scope of his authority, even when entered into in

the name of the principal, would not bind the principal, and would thus not be void, but merelyunenforceable (Art. 1403, Civil Code).

InPhilippine National Bank v. Bagamaspad, 89 Phil. 365 (1951), the Court held that when bankofficers, acting as agent, had not only gone against the instructions, rules and regulations of thebank in releasing loans to numerous borrowers who were qualified, then such bank officers areliable personally for the losses sustained by the bank. The fact that the bank had also filed suits

against the borrowers to recover the amounts given does not amount to ratification of the acts

done by the bank officers.

Lopez v. Alvendia, 120 Phil 142 (1964)

Wise and Co. v. Tanglao, 63 Phil 372 (1936)

Katigbak v. Tai Hing Co., 52 Phil 622 (1928)

Robinson, Fleming and Co. v. Cruz, 49 Phil 42 (1926)

Gonzales v. Haberer, 47 Phil 380 (1925)

Barton v. Leyte Asphalt, 46 Phi; 938 (1924)

Nantes v. Madriguera, 42 Phil 389 (1921)

Lim Chai Seng v. Trinidad, 41 Phil 544 (1921)

b. When Principal Is Bound By the Act of Agent Outside the Scope of Authority

Art. 1910. x x x As for any obligation wherein the agent has exceeded his power, the

principal is not bound except when he ratifies it expressly or tacitly. (1727)

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable

with the agent if the former allowed the latter to act as though he had full powers. (n)

In the following cases, in acts done by the agent in the name of the principal, but outside of the

scope of his authority, the principal would still be bound personally, thus:

(a) When the principal ratifies such contract, expressly or tacitly (Art. 1910, Civil Code);

(b) When the principal has allowed the purported agent to act as though he had full powers (Art.

1911, Civil Code); and

(c) When the principal has revoked the agency, but the third party have acted in good faith

without notice of such revocation.


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Under Article 1911 of the Civil Code, even when the agent has exceeded his authority, the

principal is solidarily liable with the agent if the former allowed the latter to act as though he had

full powers. This is termed as agency by estoppel. It is also referred to as the doctrine ofapparent authority in Corporate Law.

InManila Remnants v. Court of Appeals, 191 SCRA 622 (1990), the Court noted that Article1911 is intended to protect the rights of innocent persons. In such a situation, both the principaland the agent may be considered as jointfeasors whose liability is joint and solidary. (at p. 629).applied the provisions of Article 1911, when it ruled that

InManila Remnants, the principal real estate company had pleaded non-liability for the act of theagent in engaging in double sales of the properties. While noting initially that there was legalbasis in the position of the principal the agent had clearly overstepped the bounds of its

authority as agentand for that matter, even the lawwhen it undertook the double sale of the

disputed lots and that the principal would have been clear pursuant to Article 1897 of the Civil

Code (at p. 628)nonetheless, the Court found that the principal, but evidence proven, is guilty

of estoppel under Article 1911, because it had accepted the payments remitted by the agentwithout objection to the double sales effected by its agent.

Manila Remnants also ruled that a principal becomes liability for the acts and contracts done byits agent outside the scope of its authority, when it fails to take measures to protect the dealingpublic once it learns of the unlawful acts of its agent, including the need to publish in a

newspaper of general circulation the abrogation of the powers of the agent, and failing to take

steps to determine the tainted transactions of the agent before the termination of relations, thus:Even assuming that Manila Remnants was as much a victim as the other innocent buyers, it

cannot be gainsaid that it was precisely its negligence and laxity in the day to day operations of

the real estate business which made it possible for the agent to deceive unsuspecting vendees.

(at p. 630)

InBlondeau v. Nano, 61 Phil. 625 (1935), the registered owner who placed in the hands ofanother an executed document of transfer of the registered land, was held to have effectively

represented to a third party that the holder of such document is authorized to deal with theproperty. The principle was reiterated inDomingo v. Robles, 453 SCRA 812 (2005).

InRural Bank of Milaor v. Ocfemia, 325 SCRA 99 (2000), it was held that when a bank, by itsacts and failure to act, has clearly clothed its manager with apparent authority to sell an acquired

asset in the normal course of business, it is legally obliged to confirm the transaction by issuing aboard resolution to enable the buyers to register the property in their names. The Supreme Court

held that the bank manager had a duty to perform necessary and lawful acts to enable the other

parties to enjoy all benefits of the contract which it had authorized.

How does Ocfemia ruling jive with the other rulings of the Supreme Court that hold that even inthe case of a corporation, the sale through its agent of a piece of land requires that the authority

of the corporate officer to sell on behalf of the corporation must be in writing, otherwise the

resulting transaction is void pursuant to Article 1874? The Ocfemia ruling shows that the use ofthe term void under Article 1874, is relative, in that it is void only insofar as the principal is


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x x x authority to act for and bind a corporation may be presumed from acts of recognition in

other instances where the power was in fact exercised.

x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed inhis official capacity to manage its affairs, his authority to represent the corporation may be

implied from the manner in which he has been permitted by the directors to manage its business.

Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale,

petitioner has failed to file an answer to the Petition below within the reglamentary period, letalone present evidence controverting such authority. Indeed, when one of herein respondents,

Marife S. Nino, went to the bank to ask for the board resolution, she was merely told to bring the

receipts. The bank failed to categorically declare that Tena had no authority.

As to the merits of the case, it is a well-established rule that one who clothes another withapparent authority as his agent and holds him out to the public as such cannot be permitted to

deny the authority of such person to act as his agent, to the prejudice of innocent third parties

dealing with such person in good faith and in the honest belief that he is what he appears to be(Mack, et al. v. Camps, 7 Phil. 553 [1907]; Philippine National Bank v. Court of Appeals, 94

SCRA 357 [1979]). From the facts and the evidence on record, there is no doubt that this rule

obtains. The petition must therefore fail. (at pp. 107-109)

InBedia v. White, 204 SCRA 273 (1991), the Court held that when a third party admitted in herwritten correspondence that he had contracted with the principal through a duly authorized agent,

and then sues both the principal and the agent on an alleged breach of that contract, and in fact

later on dismisses the suit insofar as the principal is concerned, there can be no cause of actionagainst the agent. Since it is the principal who should be answerable for the obligation arising

from the agency, it is obvious that if a third person waives his claims against the principal, he

cannot assert them against the agent.

InDoles v. Angeles, 492 SCRA 607 (2006), it was held that since the basis of agency isrepresentation, then the question of whether an agency has been created is ordinarily a question

which may be established in the same way as any other fact, either by direct or circumstantial

evidence. It was held that though that fact or extent of authority of the agents may not, as a

general rules, be established from the declarations of the agents alone, if one professes to act asagent for another, she may be estopped to deny her agency both as against the asserted principal

and the third persons interested in the transaction in which he or he is engaged.

In Cuison v. Court of Appeals, 227 SCRA 391 (1993), the fact that the agent defrauded the

principal in not turning over the proceeds of the transactions to the latter cannot in any wayrelieve or exonerate such principal from liability to the third persons who relied on his agents

authority. It is an equitable maxim that as between two innocent parties, the one who made it

possible for the wrong to be done should be the one to bear the resulting loss.

In the same manner, in Commercial Bank & Trust Co. v. Republic Armored Car Services Corp. ,8 SCRA 425 (1963), the Court held that under the general rules and principles of law, the


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mismanagement of the business of a party by his agents does not relieve said party from the

responsibility that he had contracted with third persons.

InDy Peh v. Collector of Internal Revenue, 28 SCRA 216 (1969), where the principal issued thechecks in full payment of the taxes due, but his agents had misapplied the check proceeds, it was

held that the principal would still be liable, because when a contract of agency exists, the agentsacts bind his principal, without prejudice to the latter seeking recourse against the agent in an

appropriate civil or criminal action.

3. Liability of the Principal for the Torts of the Agent

The general rule is that the principal is liable to injured third parties for the torts committed by

the agent at the principals direction or in the course and within the scope of the agents

authority. It also goes without saying, that since the act of negligence was that of the agent, healso becomes civilly liable to the injured parties, even when he acts in representation of the

principal.

In Versoza v. Lim, 45 Phil. 416 (1923), it was held that when a collision with another vessel hasbeen caused by the negligence of the ship agent, both the owner of the vessel and the ship agentcan be sued together for the recovery of damages.

4. Obligations of the Principal to the Agent

a. Obligation of Principal to Pay Agents Compensation

In an onerous or compensated agency, the obligation of the principal to pay the agent shall be in

accordance with the terms agreed upon when the agency was constituted. If no particular formula

has been agreed upon on the agents compensation, then the following rules should apply:

(i) The principal shall pay the agents commission only on the legal basis that the agent has

complied with his obligations with the principal; and

(ii) The principal shall be liable to the agent for the reasonable value of the agents services.

It should be noted that under Article 1875 of the Civil Code, Agency is presumed to be for acompensation, unless there is proof to the contrary.

InDe Castro v. Court of Appeals, 384 SCRA 607 (2002), prescinding from the principle that the

terms of the contract of agency constituted the law between the principal and the agent, it wasruled by the Court that the mere fact that other agents intervened in the consummation of thesale and were paid their respective commissions could not vary the terms of the contract of

agency with the plaintiff of a 5 percent commission based on the selling price.

Parenthetically, the Court also noted inDe Castro that an action upon a written contract, such asa contract of agency, must be brought within ten years from the time the right of action accrues.


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Related Cases:

Inland Realty Investment Service, Inc. v. Court of Appeals, 273 SCRA 70 (1997).

Lim v. Saban, 447 SCRA 232 (2004).

Ramos v. Court of Appeals, 63 SCRA 331 (1975).

Collector of Internal Revenue v. Tan Eng Hong, 18 SCRA 531 (1966).

J.M. Tuazon & Co. v. Collector of Internal Revenue, 108 Phil. 700 (1960).

Infante v. Cunanan, 93 Phil. 693 (1953).

Fiege & Brown v. Smith, Bell & Co., 43 Phil. 118 (1922).

Daon v. Brimo & Co., 42 Phil. 133 (1921).

Reyes v. Mosqueda, 99 Phil. 241 (1956).

b. Obligation to Advance Sums Requested for Execution of Agency

Art. 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)

Under Article 1912 of the Civil Code, 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 the agent therefore, even if the business or undertaking wasnot successful, provided the agent is free from fault.

The reimbursement shall include interest on the sums advanced, from the day on which the

advance was made.

We should compare this to the provisions in Article 1886 where the agent is bound to advance

the sums necessary to carry out the agency, but only when he so consents or is stipulated in theagreement.

c. When Principal Not Liable for Agents Expenses


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Art. 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 principals instructions, unless the latter

should wish to avail himself of the benefit derived from the contract;

(2) When the expenses were due to the fault of the agent;

(3) When the agent incurred them with knowledge that an unfavorable result would

ensure, 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)

Under Article 1918 of the Civil Code, 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 principals 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;

(3) When the agent incurred them with knowledge that an unfavorable result would ensue, if the

principal was not aware thereof; or

(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.

InDominion Insurance v. Court of Appeals, 376 SCRA 239 (2002), it was held that when theauthority of the area manager to settling the claims is further limited by the written standard

authority to pay,which states that the payment shall come from his revolving fund or collection,the settlement beyond such fund was a clear deviation from the instructions of the principal.

Consequently, the expenses incurred by the area manager in the settlement of the claims of the

insured may not be reimbursed from the insurance company pursuant to the clear provision of

Article 1918(1) of the Civil Code.

However, it was ruled also inDominion Insurance that while the Law on Agency prohibits thearea manager from obtaining reimbursement, his right to recover may still be justified under the

general law on obligations and contracts, particularly Article 1236 of the Civil Code on paymentby a third party of the obligation of the debtor, allows recovery only insofar as the payment hasbeen beneficial to the debtor. Thus, to the extent that the obligation of the insurance company has

been extinguished, the area manager may demand for reimbursement from his principal; to rule

otherwise would result in unjust enrichment of petitioner.

d. Principal Liable to Indemnify Agent for the Damages Sustained


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Art. 1913. The principal must also indemnify the agent for all the damages which the

execution of the agency may have caused the latter, without fault or negligence on his part.

(1729)

Under Article 1913 of the Civil Code, the principal must indemnify the agent for all the damages

which the execution of the agency may have caused the agent, without fault or negligence onagents part.

Article 1913 is the counter-balance to the provision in Article 1884 that makes the agent liablefor damages sustained by the principal for agents refusal to perform his obligations under the

agency.

InAlbaladejo y Cia v. PRC, 45 Phil 556 (1923), the Court ruled that when the purchase by onecompany of the copra of another company is by way of contract of purchase rather than anagency to purchase, the former is not liable to reimburse the latter for expenses incurred by the

latter in maintaining it purchasing organization intact over a period during which the actual

buying of copra was suspended. The Court noted that the circumstances that the buying companyencouraged the selling company to keep its organization intact during such period of suspension

and suggested that when the company resumed buying the selling company would be

compensated for all loss which it had suffered meaning that the profits then to be made would

justify such expenses, did not render the buying company liable for such losses upon itssubsequent failure to resume the buying of copra: The inducements thus held out to the plaintiff

were not intended to lay the basis of any contractual liability, and the law will not infer the

existence of a contract contrary to the revealed intention of the parties. (at p. 571).

The clear implication inAlbaledejo & Cia. is that under a contract of sale, the relationshipbetween the buyer and the seller is strictly at arms length and unless expressly or implied

contracted, one cannot assume any liability arising beyond the terms of the meeting of the mindsof the party. On the other hand, if the relationship is one of principal and agent, then equitydemands, and Articles 1911 and 1913 of the Civil Code provides, that all expenses incurred and

any losses sustained, by the agent in pursuit of the business of the principal and those undertaken

upon instruction of the principal, should be reimbursed by the principal to the agent.

(1)Right of Agent to Retain Object of Agency in Pledge for Advances and Damages

Art. 1914. The agent may retain in pledge the things which are the object of the agency

until the principal effects the reimbursement and pays the indemnity set forth in the two

preceding articles. (1730).

Under Article 1914 of the Civil Code, the agent is granted the power to retain in pledge thethings which are the object of the agency until the principal effects the reimbursement and pays

the indemnity covering advances made and damages sustained.

This is an exception to the duty of the agent, expressed in Article 1891 of the Civil Code, to

deliver to the principal everything he received even if not due to the principal.


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5. Obligation of Two or More Principals to Agent Appointed for Common Transactions

Art. 1915. If two or more persons have appointed an agent for a common transaction or

undertaking, they shall be solidarily liable to the agent for all the consequences of the

agency. (1731)

Under Article 1915 of the Civil Code, if two or more persons have appointed an agent for a

common transaction or undertaking, they shall be solidarily liable to the agent for all the

consequences of the agency.

InDe Castro v. Court of Appeals, 384 SCRA 607 (2002), which involved the issue on whetherall the co-owners must be impleaded as indispensable parties to a suit brought by the agent

against one of the co-owners who executed a special power of attorney, the Court quotes from

Tolentino to explain the significance of Article 1915, thus:

The rule in this article applies even when the appointments were made by the principals in

separate acts, provided that they are for the same transaction. The solidarity arises from thecommon interest of the principals, and not from the act of constituting the agency. By virtue ofthis solidarity, the agent can recover from any principal the whole compensation and indemnityowing to him by the others. The parties, however, may, by express agreement, negate thissolidary responsibility. The solidarity does not disappear by the mere partition effected by the

principals after the accomplishment of the agency.

If the undertaking is one in which several are interested, but only some create the agency, onlythe latter are solidary liable, without prejudice to the effects ofnegotiorum gestio with respect tothe others. And if the power granted includes various transantions some of which are common

and others are not, nonly those interested in each transaction shall be liable for it. (at p. 615,

quoting from Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of thePhilippines, Vol. 5, pp. 428-429, 1992 ed.)

In summary, the Court ruled inDe Castro that When the law expressly provides for solidarityof the obligation, as in the liability of co-principals in a contract of agency, each obligor may becompelled to pay the entire obligation. The agent may recover the whole compensation from any

one of the co-principals, as in this case. (at p. 615).

6. Rights of Persons When Faced With Conflicting Contracts

Art. 1916. When two persons contract with regard to the same thing, one of them with the

agent and the other with the principal, and the two contracts are incompatible with eachother, that of prior date shall be preferred, without prejudice to the provisions of Article

1544. (n)

Art. 1916. In the case referred to in the preceding article, if the agent has acted in good

faith, the principal shall be liable in damages to the third person whose contract must be

rejected. If the agent acted in bad faith, he alone shall be responsible. (n)


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Under Article 1916 of the Civil Code, when two persons contract with regard to the same thing,

one of them with the agent and the other with the principal, and the two contracts are

incompatible with each other, that of prior date shall be preferred, without prejudice to theprovisions of Article 1544 of the Civil Code on the rules on double sales.

Article 1917 of the Civil Code provides that in such a case, if the agent had acted in good faith,the principal shall be liable in damages to the third person whose contract must be rejected. On

the other hand, if the agent acted in bad faith, the agent alone shall be responsible.

5 EXTINGUISHMENT OF AGENCY

[Updated: 22 July 2009]

1. How and When Agency Extinguished

Art. 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)

Article 1919 of the Civil Code enumerates the modes by which an agency contract is

extinguished, thus:

(a) By revocation;

(b) By the withdrawal of the agent;

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

(d) By the dissolution of the juridical entity which entrusted or accepted the agency;

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

(f) By the expiration of the period for which the agency was constituted.


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Other modes of extinguishment of an agency would be mutual withdrawal, by supervening event

that makes illegal or impossible the objective or purpose for which the agency is constituted, like

the destruction of the subject matter which is the object of the agency.

2. Principals Revocation of the Agency

Art. 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. (1733a)

Art. 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. (n)

The law recognizes the power to revoke an agency relation by principal, in keeping with the

truism that an agency is a highly personal relationship and one built upon trust and confidence.

Unlike the remedy of rescission which requires the existence of substantial breach of contract,

revocation is literally at the will of the principal.

Under Article 1925 of the Civil Code, 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. This rule is consistent with the rule under Article 1915 of the Civil Code that theobligation of two or more principals to a common agent is solidary, and consequently, the power

to revoke the agency can be made by the will of only one of the principals.

But the near absolute power of the principal to revoke the agency should not be confused with

the thought that there can be no breach of contract committed by a principal who revokes theagency which was constituted as irrevocable for a definite term or period. In such a case, the

agreement as to the term of the agency would not make the principal lose his power to revoke,

and when he does so revoke, the agency is terminated, but he would be liable to the agent for thedamages caused, including to the compensation due the agent when the revocation was done inbad faith, i.e., to avoid the payment of the commission earned by the agent.

Thus, Daon v. Brimo, 42 Phil 133 (1921), held that where no time for the continuance of theagency is fixed by the terms, the principal is at liberty to terminate it at will subject only to therequirements of good faith.

Likewise, the sole exception to the revocability rule of every agency relationship is when it

comes to agency coupled with interest.

a. Express Revocation

Art. 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.

(1734)

Art. 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


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the revocation in a newspaper of general circulation is a sufficient warning to third

persons. (n)

Under Article 1920 of the Civil Code, the principal may revoke the agency at will, express orimplied, and thereby compel the agent to return the document evidencing the agency. This would

ensure that the document, i.e., written power of attorney, would not fall into the hands of thirdparties who then act in good faith in entering into a contract in the name of the principal,believing there is still existing agency relation.

If the agent fails or refuses to return the power of attorney, it is incumbent upon the principal to

give proper notice to the members of the public who may be affected by the revocation. Under

Article 1921 of the Civil Code, if the agency has been entrusted for the purpose of contractingwith specified persons, its revocation shall not prejudice the latter if they were not given notice

thereof. Under Article 1922, if the agent had general powers (i.e., not directed towards specificpersons), notice of the revocation in a newspaper of general circulation is a sufficient warning to

third persons.

The rule is consistent with the one set in Article 1873 of the Civil Code, which provides that If a

person specially informs another or states by public advertisement that he has given a power of

attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case

with respect to the person who received the special information, and in the latter case with regardto any person. In addition, Article 1873 provides that The power shall continue to be in full

force until the notice is rescinded in the same manner in which it was given.

b. Implied Revocation

Art. 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. (1735a)

Art. 1924. The agency is revoked if the principal directly manages the business entrusted to

the agent, dealing directly with third persons. (n)

Art. 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. (n)

The following have been enumerated as to constitute implied revocation, thus:

(1) Appointment of New Agent for Same Business

Under Article 1923 of the Civil Code, the appointment of a new agent for the same business ortransaction revokes the previous agency from the day on which notice thereof was given to the

former agent. The effect of revocation is without prejudice to the rights of third parties who were

not aware of or notified of such situation.


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The critical time when the agency is revoked is from the day on which notice thereof was given

to the former agent. Thus, in Garcia v. De Manzano, 39 Phil 577 (1919), where the father firstgave a power of attorney over the business to his son, and subsequently to the mother, the Courtheld that without evidence showing that the son was informed of the issuance of the power of

attorney to the mother, the transaction effected by the son pursuant to his power of attorney, was

valid and binding, thus

There is no proof in the record that the first agent, the son, knew of the power-of-attorney to hismother.

It was necessary under the law for the defendants, in order to establish their counterclaim, to

prove that the son had notice of the second power-of-attorney. They have not done so, and itmust be considered that Angel L. Manzano was acting under a valid power-of-attorney from his

father which had not been legally revoked on the date of the sale of the half interest in the

steamer to the plaintiffs son, which half interest was legally inherited by the plaintiffs. (at p.

584)

(2) When Principal Directly Manages the Business

Under Article 1924 of the Civil Code, the agency is revoked when the principal directly manages

the business entrusted to the agent, dealing directly with third persons. The provision does not

state when the act of revocation takes place, and it can be presumed therefore that the momentthe principal directly manages the business by dealing directly with third persons, the agency is

revoked. But that would only mean that the revocation of the agency is only with respect to the

third persons with whom the principal deals directly; as to third parties who have previouslyknown of the power of attorney of the agent and who have not dealt with the principal, the

agency cannot be considered revoked. It is also apparent that unless the agent is aware or given

notice that the principal has directly managed the business which is covered by his power ofattorney, then insofar as the agent is concerned there is as yet no revocation of his powers.

It must be made clear that the continued involvement of the principal in the management of the

business or the property which is the object of a power of attorney given to an agent does not

necessarily mean there is intent to revoke. For indeed, agency arrangements are not meant to

curtail the power of the principal to execute acts of ownership and administration, but as a matterof business sense, to allow the principal, by legal fiction, to extend his personality through the

facility of the agent (Orient Air Service & Hotel Representatives v. Court of Appeals , 197 SCRA645 [1991]). In other words, the direct management of the business by the principal and directlydealing with third parties shall be deemed to produce the effect of revocation when such acts

would be inconsistent with the terms of the power of attorney previously given to the agent.

Such principle is best illustrated in CMS Logging v. Court of Appeals, 211 SCRA 374 (1992),where the principal appointed the agent as his sole and exclusive export sales agent with fullauthority . . .to sell and export under a firm sales contract . . . all logs produced by [the principal]

for a period of five (5) years commencing upon the execution of the agreement x x x [and for

which the agent] shall receive five (5%) per cent commission of the gross sales of logs of [theprincipal] based on F.O.B. invoice value which commission shall be deducted from the proceeds


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of any and/or all moneys received by [agent] for and in behalf and for the account of [the

principal]. During the five year-period, the principal sold logs directly to Japanese firms, and

for which the agent now seeks to recover the commission to which he was entitled to under theexclusive agency arrangement. In denying any right on the part of the agent to receive

commission from the principals direct sales of logs to its Japanese customers, the Court held

However, We find merit in [principals] contention that the appellate court erred in holding that[the agent] was entitled to its commission from the sales made by [the principal] to Japanese

firms.

The principal may revoke a contract of agency at will, and such revocation may be express, orimplied, and may be availed of even if the period fixed in the contract of agency as not yet

expired. As the principal has this absolute right to revoke the agency, the agent can not object

thereto; neither may he claim damages arising from such revocation, unless it is shown that such

was done in order to evade the payment of agents commission. (at pp. 381-382)

CMS Loggingconfirms the legal position that the indication of a period in the contract of agencydoes not mean that the contract was contractually deemed irrevocable within the period granted,

and to the effect revocation within the period would amount to breach of contract for which the

principal may be held liable for damages. In addition, the ruling also confirms the position thatthe grant to a person of an exclusive agency position does not mean that the agency is

irrevocable within the period provided in the contract of agency, but that merely it means that the

principal would not appoint another agent to handle the business covered.

In Guardez v. NLRC, 191 SCRA 487 (1990), where the principal had authorized the purportedagent to follow up principals previous offer to sell a firetruck to a company, the Court held

that when the agent dropped out of the scene and it was the principal that directly negotiated withthe company to oversee the perfection and consummation of the sale, no commission was due tothe agent because such agency would have been deemed revoked upon the resumption of direct

negotiations between the principal and the company.

InNew Manila Lumber Company, Inc. vs. Republic of the Philippines, 107 Phil 824 (1960), theCourt ruled that the act of a contractor, who, after executing powers of attorney in favor ofanother entity empowering the latter to collect whatever amounts may be due from the

Government, and thereafter demanded and collected from the Government the money the

collection of which he entrusted to his attorney-in-fact, constituted revocation of the agency.

InInfante v. Cunanan, 93 Phil 693 (1953), the Court ruled that if the purpose of the principal indealing directly with the purchaser and himself effecting the sale of the principals property is toavoid payment of his agents 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.

The rulings in the above-discussed cases indicate that the issue of implied revocation arising

when the principal directly manages the business or property covered by a power of attorney

really go into the issue of entitlement of the agent to the commission or remuneration agreed


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upon under the contract of agency. In other words, it seems that jurisprudence indicates that

agency being a contract of service, the agent must earn through his service or efforts the

commission or remuneration agreed upon with the principal; such that if it is the principalhimself, through his own efforts, who is able to effect the transaction contemplated by the

agency arrangement, then the agent would not be entitled to receive any commission.

(3)Special Power of Attorney Revokes a General Power of Attorney

Under Article 1926 of the Civil Code, A general power of attorney is revoked by a special onegranted to another agent, as regards the special matter involved in the general power of

attorney. It is unfortunate that Article 1926 fuses two distinct situations into one statutory rule.

For example, the implication from the language of Article 1926 is that a special power of

attorney granted to one person is not revoked by a general power of attorney subsequentlygranted in favor of another person as to the special matter involved in the special power of

attorney; for indeed the proposition is illogical. The use of the terms general power of

attorney and special power of attorney is completely misleading in Article 1926, for the ruleis properly embodied in Article 1923, in that 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.

Again, if we look at the language of Article 1926, it would mean that a general power ofattorney is not revoked by a special one granted to the same agent. The falsity of such animplication is best shown in the decision in Dy Buncio and Co. v. Ong Guan Can, 60 Phil 696(1934).

In that decision, the son executed on behalf of the father, the deed covering the sale of a rice-mill

and camarin, in favor of buyers who relied upon a 1928 power of attorney attached to the deed,but which turned out was not a general power of attorney but a limited one and [did] not give

the express power to alienate the properties in question. When the creditors of the principalsought to have the sale declared void, the buyers claimed that the defect in the sons authority to

sell on behalf of the father was cured by an earlier 1920 general power of attorney given to the

same agent [son] by the father. The Court nonetheless declared the sale void on the ground that

The making and accepting of a new power of attorney, whether it enlarges or decreases thepower of the agent under a prior power of attorney, must be held to supplant and revoke the latter

when the two are inconsistent. If the new appointment with limited powers does not revoke the

general power of attorney, the execution of the second power of attorney would be a mere futilegesture.

Related Cases:

Valenzuala v. Court of Appeals, 191 SCRA 1 (1990)

Florentino v. Sandiganbayan, 202 SCRA 309 (1993).

Dialosa v. Court of Appeals, 130 SCRA 350 (1984)


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Manila Trading v. Manila Trading Laborers Assn., 83 Phil 297 (1949)

Valera v. Velasco, 51 Phil 695 (1928)

Barretto v. Santa Marina, 26 Phil 440 (1913)

c. Effects of Revocation on Third Parties

(1) When It Affects Dealings with Specified Third Parties

Under Article 1921 of the Civil Code, if the agency has been entrusted for the purpose ofcontracting with specified persons, its revocation shall not prejudice the latter if they were not

given notice thereof. It seems clear, when compared with the situation in Article 1873, that

notice by public advertisement would not constitute sufficient notice to bind such specified thirdparties.

InRallos v. Yangco, 20 Phil 269 (1911), the former principal refused to be personally liable forany account handled by his agent (Collantes) for transactions that occurred after the principal hadterminated the agency relations, even to a long-standing customer who had done business withthe principal through the agent who was specially endorsed. In affirming the liability of the

principal, the Court held

It appears, however, that prior to the sending of said tobacco the defendant had severed his

relations with Collantes and that the latter was no longer acting as his factor.

This fact was not known to the plaintiffs; and it is conceded in the case that no notice of any kind

was given by the defendant to the plaintiffs of the termination of the relations between the

defendant and his agent. The defendant refused to pay the said sum upon demand of theplaintiffs, placing such refusal upon the ground that at the time the said tobacco was received and

sold by Collantes he was acting personally and not as agent of the defendant. This action was

brought to recover said sum.

As is seen, the only question for our decision is whether or not the plaintiffs, acting in good faithand without knowledge, having sent produce to sell on commission to the former agent of the

defendant, can recover of the defendant under the circumstances above set forth. We are of the

opinion that the defendant is liable. Having advertised the fact that Collantes was his agent and

having given special notice to the plaintiffs of that fact, and having given them a specialinvitation to deal with such agent, it was the duty of the defendant on the termination of the

relationship of principal and agent to give due and timely notice thereof to the plaintiffs. Failingto do so, he is responsible to them for whatever goods may have been in good faith and withoutnegligence sent to the agent without knowledge, actual or constructive, of the termination of such

relationship. (at pp. 272-273)

Lustan v. Court of Appeals, 266 SCRA 663 (1997), held that when the special power of attorneyduly authorized the agent to represent and act on behalf of the principal, the power grantedthereto can be relied upon by third parties for whom specifically the authority was issued, thus:


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As far as third persons are concerned, an act is deemed to have been performed within the scope

of the agents authority if such 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 the understanding between theprincipal and the agent. The Special Power of Attorney particularly provides that the same is

good not only for the principal loan but also for subsequent commercial, industrial, agricultural

loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorneyis revoked in a public instrument and a copy of which is furnished to PNB. Even when the agent

has exceeded his authority, the principal is solidarily liable with the agent if the former allowed

the latter to act as though he had full powers (Article 1911, Civil Code). The mortgage directlyand immediately subjects the property upon which it is imposed. The property of third persons

which has been expressly mortgaged to guarantee an obligation to which the said persons are

foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution

and sale for the purpose of paying the amount of the debt for which it is liable. However,petitioner has an unquestionable right to demand proportional indemnification from Parangan

with respect to the sum paid to PNB from the proceeds of the sale of her property in case the

same is sold to satisfy the unpaid debts. (at p. 676)

Lustan holds that where the special power of attorney provides that the same is good not only forthe 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 thatthe bank had knowledge that the last three loans were without the express authority of the

principal, the bank cannot be prejudice.

(2)Revocation of General Powers of Agency

Under Article 1922 of the Civil Code, if the agent had general powers, revocation of the agency

does not prejudice third persons who acted in good faith and without knowledge of therevocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning

to third persons.

InRammani v. Court of Appeals, 196 SCRA 731 (1991), the Court held that in a case covering apower of attorney to deal with the general public, the fact that the revocation was advertised in a

newspaper of general circulation would be sufficient warning to third persons.

(3)Revocation of Special Powers of Attorney

InPhilippine National Bank v. Intermediate Appellate Court, 189 SCRA 680 (1990), the Court

held that while Article 1358 of the Civil Code requires that the contracts involving real propertymust 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 of Article 1358 being only for the convenience of the parties and to make thecontract effective as against third persons.

Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).


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d. Cases of Irrevocable Agencies

Art. 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 unjustifieable. (n)

Under Article 1927 of the Civil Code, an agency cannot be revoked when:

a bilateral contract depends upon it;

it is the means of fulfilling an obligation already contract;

a partner is appointed manager of a partnership in the contract of partnership and the

removal from management is unjustifiable.

In Republic v. Evangelista, 466 SCRA 544 (2005), the Court noted that an exception to therevocability of a contract of agency is when it is coupled with interest, i.e., if a bilateral contractdepends upon the agency. The reason for its irrevocability is because the agency becomes part of

another obligation or agreement. It is not solely the rights of the principal but also that of theagent and third persons which are affected. Hence, the law provides that in such cases, the

agency cannot be revoked at the sole will of the principal. The ruling emphasizes the character of

contract of agency as being primarily a preparatory contract, in the sense that it is meant to themedium by which contracts and other juridical acts are entered into with third parties, and

consequently, principles that are inherently only for agency-consideration, such as its features

of being fiduciary and essentially revocable, cannot overcome more important consideration such

as preserving the contractual expectations of third parties who deal in good faith with theprincipal through the agent. In the case of agency coupled with interest, the revocable nature of

the agency relationship must give way to making effective, binding and enforceable any

bilateral contract [which] depends upon the existence of the agency for its enforcement andrealization.

In Sevilla v. Court of Appeals, 160 SCRA 171 (1968), the Court found that when the petitioner,Lina Sevilla, agreed to manage the respondent, Tourist World Service, Inc.s Ermita office, she

must have done so pursuant to a contract of agency. It is the essence of this contract that theagent renders services in representation or on behalf of another. The Court then held

. . . In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her

principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the

concept of commissions. And as we said, Sevilla herself, based on her letter of November 28,1961, presumed her principals authority as owner of the business undertaking. We are

convinced, considering the circumstances and from the respondent Courts recital of facts, that

the parties had contemplated a principal-agent relationship, rather than a joint management or apartnership.

But unlike simple grants of a power of attorney, the agency that we hereby declare to be

compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one

coupled with an interest, the agency having been created for the mutual interest of the agent and


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the principal. It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had

acquired an interest in the business entrusted to her. Moreover, she had assumed a personal

obligation for the operation thereof, holding herself solidarily liable for the payment of rentals.She continued the business, using her own name, after Tourist World had stopped further

operations. Her interest, obviously, is not limited to the commissions she earned as a result of her

business transactions, but one that extends to the very subject matter of the power ofmanagement delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure

of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina

Sevilla, to damages.

x x x.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevilla

for what it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary

norms of justice and fair play.

We rule, therefore, that for its unwarranted revocation of the contract of agency, the privaterespondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil

Code, moral damages may be awarded for breaches of contract where the defendant acted . . . in

bad faith. (at p. 184)

Related Cases:

National Sugar Trading v. PNB, 396 SCRA 528 (2003)

Bacaling v. Muya, 380 SCRA 714 (2002)

Perez v. PNB, 17 SCRA 833 (1966)

Coleongco v. Claparols, 10 SCRA 577 (1964)

Del Rosario v. Abad, 104 Phil 648 (1958)

3. Withdrawal of the Agent from the Agency

Art. 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. (1736a)

Art. 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. (1737a)

Under Article 1928 of the Civil Code, the agent may withdrawal from the agency by giving due

notice to the principal. If the principal should suffer any damage by reason of the withdrawal, the


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agent must indemnify him therefore, unless the agent should base his withdrawal upon the

impossibility of continuing the performance of the agency without grave detriment to himself.

Under Article 1929 of the Civil Code, even when the agent should withdraw for a valid reason,must continue to act until the principal has had reasonable opportunity to take the necessary steps

to meet the situation.

InDe la Pea v. Hidalgo, 16 Phil. 450 (1910), it was held that when the agent and administratorof property informs his principal by letter that for reasons of health and medical treatment he isabout to depart from the place where he is executing his trust and wherein the said property is

situated, and abandons the property, turns it over to a third party, renders accounts of its revenues

up to the date on which he ceases to hold his position and transmits to his principal a generalstatement which summarizes and embraces all the balances of his accounts since he began the

administration to the date of the termination of his trust, and, without stating when he may return

to take charge of the administration of the said property, asks his principal to execute a power of

attorney in due form in favor of and transmit the same to another person who took charge of the

administration of the said property, it is but reasonable and just to conclude that the said agenthad expressly and definitely renounced his agency and that such agency was duly terminated, in

accordance with the provisions of article 1732 (now Arts. 1919 and 1928) of the Civil Code.

Valera v. Velasco, 51 Phil 695 (1928)

4. Death, Incapacity or Insolvency of the Principal

Since agency is both a fiduciary and representative relationship, the death of the principal

automatically extinguishes the contract, for certainly even if the agent is willing to go on, he has

nobody to represent and bind in juridical relations. Thus, Rallos v. Felix Go Chan & sons Realty

Corp., 81 SCRA 251 (1978), the Court held

By reason of the very nature of the relationship between principal and agent, agency is

extinguished by the death of the principal or the agent. This is the law in this jurisdiction.

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for thelaw is found in the juridical basis of agency which is representation. There being an integration

of the personality of the principal into that of the agent it is not possible for the representation to

continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason

of the nature of agency, death is a necessary cause for its extinction. Laurent says that thejuridical tie between the principal and the agent is severed ipso jure upon the death of either

without necessity for the heirs of the principal to notify the agent of the fact of death of theformer.

The same rule prevails at common law the death of the principal effects instantaneous andabsolute revocation of the authority of the agent unless the power be coupled with an interest. 10

This is the prevalent rule in American Jurisprudence where it is well-settled that a power without

an interest conferred upon an agent is dissolved by the principals death, and any attempted


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execution of the power afterwards is not binding on the heirs or representatives of the deceased.

(at p. 260)

InLavina v. Court of Appeals, 171 SCRA 691 (1988), the Court held that the death of a clientdivests his lawyer of authority to represent him as counsel, since a dead client has no personality

and cannot be represented by an attorney.

Terrado v. Court of Appeals, 131 SCRA 373 (1984)

Hermosa v. Longara, 93 Phil 977 (1953)

Danon v. Brimo, 42 Phil 133 (1921)

Barretto v. Santa Marina, 26 Phil 440 (1913)

a. When the Agency Continues Despite Death of Principal

Art. 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 his favor. (n)

Under Article 1930 of the Civil Code, the agency shall remain in full force and effect even afterthe 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.

Earlier on inPasno v. Ravina,54 Phil 378 (1930), the Court recognized that the power of salegiven in a mortgage is a power coupled with an interest which survives the death of the grantor.

InPerez v. PNB, 17 SCRA 833 (1966), the Court noted that an example of an agency coupledwith interest is when a power of attorney is constituted in a contract of real estate mortgage

pursuant to the requirement of Act No. 3135, which would empower the mortgagee upon thedefault of the mortgagor to payment the principal obligation, to effect the sale of the mortgage

property through extrajudicial foreclosure. It has been held that the power of sale in the deed of

real estate mortgag4e is not revoked by the death of the principal-mortgagor, on the ground that

it is an ancillary stipulation supported by the same cause or consideration that supports themortgage and forms an essential inseparable part of that bilateral agreement. The power of

attorney therefore survives the death of the mortgagor, and allows the mortgagee to effect the

foreclosure of the real estate mortgage even after the death of the principal-mortgagor. The

principle was reiterated inDel Rosario v. Abad and Abad, 104 Phil. 648 (1958).

b. Effect of Acts Done by Agent Without Knowledge of Principals Death

Art. 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. (1738)


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Under Article 1931 of the Civil Code, 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. It isobvious, that third parties who deal with the agent in bad faith ( i.e., knowing that the principal isdead) would not be protected, and the contract would be void, not just unenforceable, for lack of

the essential element of consent.

InBuason v. Panuyas, 105 Phil 795 (1959), the Court applied the provisions of Article 1931 inupholding the validity of the sale of the land effected by the agent only after the death of the

principal, when no evidence was adduced to show that at the time of sale both the agent and the

buyers were unaware of the death of the principal. (Reiterated in Herrera v. Uy Kim Guan, 1SCRA 406 [1961]).

In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), the Court emphasizedthat lack of knowledge of the death of the principal must exist at the time of contract with both

the agent and the third parties for the provision of Article 1931 to apply, thus

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death

of his principal is valid and effective only under two conditions, viz: (1) that the agent acted

without knowledge of the death of the principal, and (2) that the third person who contracted

with the agent himself acted in good faith. Good faith here means that the third son was notaware of the death of the principal at the time he contracted with said agent. These two requisites

must concur: the absence of one will render the act of the agent invalid unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death ofhis principal at the time he sold the latters share in Lot No. 5983 to respondent corporation. The

knowledge of the death is clearly to be inferred from the pleadings filed by Simeon Rallos before

the trial court. That Simeon Rallos knew of the death of his sister Concepcion is also a finding offact of the court a quo and of respondent appellate court when the latter stated that SimeonRallos must have known of the death of his sister, and yet he proceeded with the sale of the lot

in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the

realty corporation) of the death of the former.

On the basis of the established knowledge of Simeon Rallos concerning the death of hisprincipal, Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly

requires for its application lack of knowledge on the part of the agent of the death of his

principal; it is not enough that the third person acted in good faith. (at p. 262)

The Court further held inRallos:Another argument advanced by respondent court is that the vendee acting in good faith relied on

the power of attorney which was duly registered on the original certificate of title recorded in the

Register of Deeds of the Province of Cebu, that no notice of the death was ever annotated on saidcertificate of title by the heirs of the principal and accordingly they must suffer the consequences

of such omission.


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To support such argument reference is made to a portion in Manresas Commentaries which we

quote:

If the agency has been granted for the purpose of contracting with certain persons, the revocationmust be made known to them. But if the agency is general in nature, without reference to

particular person with whom the agent is to contract, it is sufficient that the principal exercisedue diligence to make the revocation of the agency publicly known.

In case of a general power which does not specify the persons to whom representation should bemade, it is the general opinion that all acts executed with third persons who contracted in good

faith, without knowledge of the revocation, are valid. In such case, the principal may exercise his

right against the agent, who, knowing of the revocation, continued to assume a personality whichhe no longer had. (Manresa, Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse, however, treats of revocation by an act of the principal as a mode of

terminating an agency which is to be distinguished from revocation by operation of law such as

death of the principal which obtains in this case. On page six of this Opinion We stressed that byreason of the very nature of the relationship between principal and agent, agency is extinguished

ipso jure upon the death of either principal or agent. Although a revocation of a power ofattorney to be effective must be communicated to the parties concerned, yet a revocation by

operation of law, such as by death of the principal is, as a rule, instantaneously effectiveinasmuch as by legal fiction the agents exercise of authority is regarded as an execution of the

principals continuing will. With death, the principals will ceases or is terminated; the source

of authority is extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the

principal. What the Code provides in Article 1932 is that, if the agent dies, his heirs must notify

the principal thereof, and in the meantime adopt such measures as the circumstances maydemand in the interest of the latter. Hence, the fact that no notice of the death of the principalwas registered on the certificate of title of the property in the Office of the Register of Deeds, is

not fatal to the cause of the estate of the principal. (at p. 264)

5. Death, Incapacity or Insolvency of the Agent

Art. 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. (1739).

Article 1919(3) provides that the death, civil interdiction, insanity or insolvency of the agent

extinguishes the agency. In Terrado v. Court of Appeals, 131 SCRA 371 (1984), the Court heldthat contract of agency establishes a purely personal relationship between the principal and theagent, such that the agency is extinguished by the death of the agent, and his rights and

obligations arising from the contract of agency are not transmittable to his heirs.

However, under Article 1932 of the Civil Code, if the agent dies during the term of the agency,

his heirs must notify the principal thereof, and in the meantime must adopt such measures as thecircumstances may demand in the interest of the principal. The provision establishes a rare


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situation where an obligation is imposed by law upon persons who are not parties to a contractual

relationship, and that in fact of one that has already been extinguished by the death of the agent.

a. In case of Multiple Agents

Generally, without showing an intention to the contrary, in case of an agency where there areseveral agents constituted for the same business or property, the death of one or more, but not all

of them would not extinguish the agency, with respect to those who remain living. The same rule

would apply in case of civil interdiction, insanity or insolvency of any but not all of the commonagents.

On the other hand, when it is clear at the constitution of the agency that the common agents were

intended to be considered as having capacity as a group and not individually (such as by the use

of the term and in defining their powers), then the death, legal incapacity, or insolvency of onewould legally terminate the agency.

6. Dissolution of a Corporation

The dissolution of a corporation extinguishes its juridical personality for every purpose that

seeks to pursue new business (Alhambra Cigar v. SEC, 24 SCRA 269 [1968]) or that of agoing concern (PNB v. Court of First Instance of Rizal, Pasig, Br. XXI, 209 SCRA 294 [1992]).Consequently, upon the dissolution of a corporation, its Board of Directors and corporate officers

lose every legal right to enter into an contract or transaction to pursue new business or done in

the ordinary course of business, and any of such contract entered into would be void, even asagainst third parties who act in good faith, for at the point of dissolution, existing creditors of the

corporations must be protected under the trust fund doctrine.

However, the corporation after dissolution, and within three years therefrom continues to havejuridical personality for only for purposes of liquidation. Consequently, the Board of Directorsand corporate officers continue to have agency powers to represent the corporation for any and

all purpose that seek the liquidation of its assets and the payment of all its liabilities.

7. Obligations of the Agent Even When the Agency is Extinguished

The fiduciary nature of the contract of agency requires that even when the agency relation isterminated, the agent is bound to keep confidential such matters and information which he

learned in the course of the agency when the nature of such matter or information is confidential,

such as business secrets.

Just as the principal cannot legally revoke an agency in order to evade the payment ofcompensation due to the agent, then in the same manner an agent cannot legally terminate an

agency in order to take advantage of the principals condition or to profit by information

resulting from his agency, for such would be in breach of his duty of loyalty.

oOo

Documents

CLV on Obligations of a Principal and Extinguishment