BUSINESS ORGANIZATION I

LAWS OF PARTNERSHIP, AGENCY, AND TRUST

WRITTEN REPORT

GROUP 2

AFOS, Jan Aldrin

BERBA, Rosanna
MACATANGAY, Jamaica
PALLASIGUE, Jobeth
TORRES, Isabelle
CIVIL CODE PROVISIONS

Title X. – AGENCY
CHAPTER 4 > MODES OF EXTINGUISHMENT OF AGENCY
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)
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. 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 the revocation in a
newspaper of general circulation is a sufficient warning to third persons. (n)
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. 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)
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)
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 unjustifiable. (n)
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)
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 in his favor. (n)
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)
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)
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DISCUSSION:

Expiration of the period for which the agency was constituted

● When the agency was created for a specific period of time, and the period has expired, it is
automatically terminated.

● When an agency is created for a fixed period, the expiration of such period ends the agency, even
though the purpose for which the agency was created has not been accomplished.

● If there is a period stipulated in the agency contract, the principal may still revoke the agent’s
authority at will; but principal will be liable for damages. (Dialosa v CA)

2. Death, civil interdiction, insanity, insolvency

3. Withdrawal of the Agent

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. (Art. 1929,
CC). This is to prevent damage or prejudice to the principal.

4. Accomplishment of the object or purpose of the agency

5. Revocation

6. Dissolution of the firm or corporation which entrusted or accepted the agency

Dissolution of a corporation extinguishes its juridical existence.

The contract of agency may be extinguished by the following modes:

1. By revocation of the agency;
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; or
6. By the expiration of the period for which the agency was constituted.
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.

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

The contract of agency is primarily based on trust and confidence. Hence, the principal has generally
the right to revoke the agency at will. Revocation may be express or implied.
Ther are exceptions to the general rule above. The agency cannot be unilaterally revoked by the
principal when: (a) bilateral contracts depend upon it; (b) it is the means of fulfilling an obligation
already contracted; (c) a partner is appointed manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable.

Republic of the Philippines v. Hon. Victorino Evangelista

G.R. No. 156015, 11 August 2005
Plaintiff Dante Legaspi, through his Attorney-in-fact Paul Gutierrez, filed a complaint for damages,
with prayer for the issuance of a writ of preliminary injunction against Defendants then Lt. Gen. Jose
M. Calimlim et al.
Previous thereto, Legaspi as principal executed a Special Power of Attorney (SPA) in favor of his
nephew Gutierrez. Based on records, “Gutierrez was given by Legaspi, inter alia, the power to manage
the treasure hunting activities in the subject land; to file any case against anyone who enters the land
without authority from Legaspi; to engage the services of lawyers to carry out the agency; and, to dig
for any treasure within the land and enter into agreements relative thereto. It was likewise agreed upon
that Gutierrez shall be entitled to 40% of whatever treasure may be found in the land. Pursuant to this
authority and to protect Legaspi’s land from the alleged illegal entry of petitioners, agent Gutierrez
hired the services of Atty. Adaza to prosecute the case for damages and injunction against [defendants
who were allegedly treasure hunting on Legaspi’s land, with 80 miltary personnel detailed to guard and
intimidate Legaspi’s group from going near the area of operations]. As payment for legal services,
Gutierrez agreed to assign to Atty. Adaza 30% of Legaspi’s share in whatever treasure may be
recovered in the subject land.” (Emphasis omitted.)
On a motion to dismiss, defendants cited the nullity of the complaint which was filed by agent
Gutierrez after his principal Legaspi subsequently executed a Deed of Revocation, among others. The
trial court denied the motion.
HELD: The contract of agency between principal Legaspi and agent Gutierrez is not revocable at will.
“A contract of agency is generally revocable as it is a personal contract of representation based on trust
and confidence reposed by the principal on his agent. As the power of the agent to act depends on the
will and license of the principal he represents, the power of the agent ceases when the will or
permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the principal
at will.
“However, an exception to the revocability of a contract of agency is when it is coupled with interest,
i.e., if a bilateral contract depends 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 the agent and third persons which are affected…”

Here, the agency is coupled with interest as a bilateral contract depends on it. “It is clear that the
treasure that may be found in the land is the subject matter of the agency; that under the SPA, Gutierrez
can enter into contract for the legal services of Atty. Adaza; and, thus Gutierrez and Atty. Adaza have an
interest in the subject matter of the agency, i.e., in the treasures that may be found in the land. This
bilateral contract depends on the agency and thus renders it as one coupled with interest, irrevocable at
the sole will of the principal Legaspi. When an agency is constituted as a clause in a bilateral contract ,
that is, when the agency is inserted in another agreement, the agency ceases to be revocable at the
pleasure of the principal as the agency shal now follow the condition of the bilateral agreement.
Consequently, the Deed of Revocation executed by Legaspi has no effect. The authority of Gutierrez to
file and continue with the prosecution of the case at bar is unaffected.” (Citations omitted.)
When a contract of agency is at will, the principal may compel the agent to return the document
evidencing the agency at any time. If the 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.
Notice in these cases are crucial.
Best Legal Practices:
Send written notice of revocation to specific third parties – It is a good and sound practice to send
written notices of revocation of the agency to specific third parties. These will bar them from dealing
with the unauthorized agent and prevent them from claiming good faith.
Publish revocation whenever practicable – For added protection, the revocation of the ageny should be
published in newspaper of general circulation whenever practicable. Publication is notice to the whole
world.
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Industry Practices: In businesses where transactions and activities are heavily dependen on agents, it
is a recognized practice to publish in newspaper of general circulation the revocation of the authority or
power granted to an agent. This protects consumers from dealing with unauthorized persons.
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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. Consequently, notice of the revocation in a
newspaper of general circulation is a sufficient warning to third persons.
When 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.
In some instances, the principal directly manages the business entrusted to the agent and/or deals with
third persons. This results in the revocation of the agency.
For situations wherein two or more principals have granted a power of attorney for a common
transaction, either one of them may revoke the agency without the consent of the others.
Meanwhile, 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.
In any mode of revocation, it is a best practice to inform third parties of the termination of the authority
of the agent so as to avoid liabilities. To be clear, the revocation of the authority of the agent may bind
the latter but not necessarily third parties who were not properly informed as required by law.

By the withdrawal of the agent

As agency is a contract, the agent may choose to withdraw from his duties and responsibilities for valid
reasons. However, the law expressly requires that the agent should give due notice to the principal.
The agent may held liable for any damages suffered by the principal by reason of the withdrawal unless
it is on the ground of impossibility of continuing the performance of the agency without grave
detriment to himself.

Best Legal Practices:

Send written notice of withdrawal – While the law does not expressly state that the notice of
withdrawal should be in writing, the agent should send a written notice of withdrawal to the principal.
The agent should retain a receiving copy or any proof of service to serve as documentary evidence.
Reasonable time for notice – There is no expressly stated time as when the notice should be given. As
such, the notice should be given within a reasonable time prior to actual termination in order to give
the principal ample time to respond accordingly. The reasonable time may vary per industry and on a
case-to-case basis.
Exercise caution in withdrawing – Due to the potential liability, the agent should execise caution in
withdrawing. The agent should communicate first the intent to withdraw prior to the actual termination
date.
Document damages caused by agent’s withdrawal – On the other hand, the principal who suffers
damage due to the agent’s withdrawal should document them to serve as evidence later on.
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.

By the death, civil interdiction, insanity or insolvency of the principal or of the agent
As a general rule, the death of the principal extinguishes the agency. 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.
If the agent dies, his heirs are obligated to notify the principal. In the meantime, they are required to
adopt such measures as the circumstances may demand in the interest of the principal.
By the dissolution of the firm or corporation which entrusted or accepted the 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.

By the accomplishment of the object or purpose of the 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.

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