Modes of Extinguishment of Agency

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What are the modes of extinguishing an agency – The contract of agency may be extinguished by the following modes: (a) by revocation of the agency; (b) by the withdrawal of the agent; (c) by the death, civil interdiction, insanity or insolvency of the principal or of the agent; (d) by the dissolution of the firm or corporation which entrusted or accepted the agency; (e) by the accomplishment of the object or purpose of the agency; or (f) by the expiration of the period for which the agency was constituted.[1]

Agent without knowledge of extinguishment of agency binds principal – The acts done for the principal by the agent who had no knowledge of the death of the principal or any other causes/ modes of extinguishing the agency is valid, binding, and fully effective with respect to third persons who may have contracted with him in good faith.[2]

Best Legal Practices

  • Promptly inform agent of extinguishment of agency – Given the strict consequences for failing to inform the agent of the extinguishment of the agency, the principal should promptly inform the agent of the termination of their contract.
  • Require agent to deliver authorization after extinguishment of agency – For good measure, the principal should require the principal agent to undertake to deliver the authorization documents after extinguishment of agency regardless of the mode of termination.

By revocation of the agency

Revocation generally at will by principal – As agency is based on trust and confidence,[3] it is generally the right of the principal to revoke the agency at wil.l[4] Thus, the principal may compel the agent to return the document evidencing the agency at any time.[5] The revocation may be express or implied.[6]

Contracts with specified persons requires notice for revocation to take effect – If agency was constituted in order to contract with specified persons, the revocation of the agency does not prejudice the latter if they were not given notice thereof.[7]

Agent with general powers; Third persons in good faith – If the agent had general powers, the revocation of the agency will not prejudice third persons who acted in good faith and without knowledge of the revocation.[8] Consequently, notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons.[9]

Appointment of new agent for same business or transaction revokes previous one – If the principal appoints a new agent for the same business or transaction, the previously appointed agent loses his authority and his agency is effectively revoked from the day on which notice thereof was given to him.[10]

Direct management of principal revokes agency – If the principal directly manages the business entrusted to the agent, dealing directly with third persons, the agency is revoked.[11]

Any one of several principals for a common transaction may revoke agency – If there are two or more principals who have granted a power of attorney for a common transaction, either one of them may revoke the agency without the consent of others.[12]

General power of attorney revoked to the extent of authority granted in a special power of attorney – The general power of attorney is revoked by a special power of attorney of another agent as regards only to the special matter involved in the latter authority.[13]

When revocation cannot be done – The agency cannot be unilaterally revoked by the principal: (a) if bilateral contracts depend upon it; (b) if it is the means of fulfilling an obligation already contracted; (c) if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable.[14]

By the withdrawal of the agent

How to properly withdraw from agency – The agent may withdraw from the agency by giving due notice to the principal.[15] In case the principal suffers any damage by reason of the agent’s withdrawal, the agent is required to pay indemnity to the principal, unless it is on the ground of impossibility of continuing the performance of the agency without grave detriment to himself.[16]

Agent to observe hold-over – Even if the agent withdrew for a valid reason, he must continue to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation.[17]

By the death, civil interdiction, insanity or insolvency of the principal or of the agent

When agency survives death of principal – As a general rule, the death of the principal extinguishes the agency.[18] However, the contract of agency may survive despite the death of the principal in these situations: (a) if the agency has been constituted in the common interest of the principal and the agent; (b) in the interest of a third person who has accepted the stipulation in his favor.[19]

When agent dies, obligations of heirs – If the agent dies, his heirs are obligated to notify the principal.[20] In the meantime, they are required to adopt such measures as the circumstances may demand in the interest of the principal.[21]

By the dissolution of the firm or corporation which entrusted or accepted the agency

Dissolution of the principal’s or agent’s firm or corporation terminates agency – As a necessary and logical consequences of the dissolution of the form or corporation which entrusted or accepted the agency, the contract of agency is terminated as either the principal or agent is no longer existing following the termination of their respective firm.[22]

By the accomplishment of the object or purpose of the agency

Accomplishment of the object or purpose of agency ends contract of agency – If the contract of agency specifically and expressly provides that the agency is created for a particular object or purpose and the same has been achieved, then the agency agreement automatically terminates.[23]

By the expiration of the period for which the agency was constituted

Expiration of period for which agency was constituted extinguishes agency – For contracts of agency which carry a period and the same has already lapsed, the agency agreements ipso facto terminates as the same has been agreed upon by the parties.[24]

Best Legal Practices

  • Expiration of power of attorney – The power of attorney should have an expiration which may be a date certain or the completion of a task or undertaking.

[1] CIVIL CODE. Article 1919.

[2] Ibid. Article 1918 (1).

[3] Severino v. Severino, G.R. No. L-18058, 16 January 1923.

[4] CIVIL CODE. Article 1920.

[5] Ibid.

[6] Ibid.

[7] CIVIL CODE. Article 1921.

[8] Ibid. Article 1922.

[9] Ibid.

[10] CIVIL CODE. Article 1923.

[11] Ibid. Article 1924.

[12] Ibid. Article 1925.

[13] Ibid. Article 1926.

[14] Ibid. Article 1927.

[15] Ibid. Article 1928.

[16] Ibid.

[17] Ibid. Article 1929.

[18] Ibid. Article 1919.

[19] Ibid. Article 1930.

[20] Ibid. Article 1932.

[21] Ibid.

[22] Id at 97.

[23] Ibid.

[24] Ibid.

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