Extinguishment | Agency | SPECIAL CONTRACTS

Extinguishment of Agency Under Civil Law

In Philippine civil law, the extinguishment of an agency is governed by the provisions of the Civil Code of the Philippines, particularly under Articles 1919 to 1929. These articles enumerate the various causes by which an agency may be terminated, as well as the rights and obligations of the parties upon its extinguishment.

I. Causes of Extinguishment of Agency (Article 1919)

An agency is extinguished by any of the following causes:

  1. By revocation of the agency by the principal:

    • The principal has the right to revoke the agency at will unless it is irrevocable for a valid reason, such as the agency being coupled with an interest.
    • Revocation may be express or implied (e.g., appointing another agent for the same task or directly performing the acts within the scope of the agent's authority).

  2. By withdrawal of the agent:

    • The agent may renounce the agency at will, provided it does not cause prejudice to the principal. If the withdrawal is untimely or unjustified, the agent may be liable for damages.

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

    • Death: The agency generally terminates upon the death of either party. However, if the agency is coupled with an interest, it survives the death of the principal.
    • Civil Interdiction or Insanity: These conditions render the parties legally incapacitated to continue the agency relationship.
    • Insolvency: The financial incapacity of either party, especially if it affects the performance of obligations under the agency, may lead to extinguishment.

  4. By the dissolution of the firm or corporation which entrusted or accepted the agency:

    • If either the principal or agent is a juridical entity and it ceases to exist, the agency is terminated.

  5. By the accomplishment of the object or purpose of the agency:

    • The agency naturally ends when the task or transaction for which the agency was created is completed.

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

    • If the agency is for a fixed term, it ends when the term expires. For agencies without a fixed term, termination depends on the will of the parties or the occurrence of implied acts of revocation.

II. Legal Effects of Extinguishment

Upon the termination of the agency, the following legal consequences ensue:

  1. End of Authority:

    • The agent's authority to act on behalf of the principal ceases immediately. Any acts performed after termination are generally void or unenforceable against the principal, except where the agent or third parties acted in good faith and without knowledge of the termination.

  2. Duty to Render Account:

    • The agent must account for all transactions conducted under the agency and return all funds, property, or documents belonging to the principal.

  3. Notification to Third Parties:

    • It is the duty of the principal to notify third parties of the termination of the agency. If third parties are not notified, the principal may be bound by acts of the agent who continues to act within the scope of the former authority.

III. Revocation of Agency

While the principal generally has the power to revoke the agency, this is subject to several important considerations:

  1. Revocation is Irrevocable When Coupled with Interest:

    • If the agent has an interest in the subject matter of the agency (e.g., collateral for a debt), the principal cannot revoke the agency unilaterally without the agent’s consent.

  2. Express or Implied Revocation:

    • Express revocation requires clear communication, such as a letter or notice to the agent.
    • Implied revocation can occur through actions inconsistent with the continuation of the agency, such as appointing another agent for the same matter.

  3. Good Faith Requirement:

    • Revocation must not cause undue harm to the agent. A revocation made in bad faith can give rise to liability for damages.

IV. Renunciation by the Agent

  1. Voluntary Renunciation:

    • The agent may terminate the agency at will, provided sufficient notice is given to the principal to avoid unnecessary prejudice.

  2. Liability for Untimely or Unjustified Withdrawal:

    • If the agent withdraws in a manner that causes harm or loss to the principal, the agent may be held liable for damages unless there are valid reasons for the renunciation (e.g., moral or legal grounds).

V. Effects of Death, Civil Interdiction, or Insolvency

  1. Death:

    • Upon the death of either the principal or the agent, the agency generally terminates. Exceptions include:
      • Agencies coupled with interest.
      • Transactions already initiated by the agent where third parties are unaware of the principal’s death.

  2. Civil Interdiction or Insanity:

    • The legal incapacity of either party terminates the agency.

  3. Insolvency:

    • If insolvency affects the ability to perform obligations (e.g., the principal cannot pay or the agent cannot carry out the task), the agency is extinguished.

VI. Dissolution of Juridical Entities

  • If the principal or the agent is a corporation, partnership, or other juridical entity, the dissolution of the entity automatically ends the agency.

VII. Accomplishment of Purpose or Expiration of Term

  1. Completion of Purpose:

    • Once the specific task or objective is achieved, the agency ends by operation of law.

  2. Expiration of Term:

    • If the agency is constituted for a fixed period, it automatically ends when the period lapses.

VIII. Obligations of the Parties After Termination

  1. Principal's Obligations:

    • Compensate the agent for services rendered, if applicable.
    • Reimburse expenses properly incurred by the agent in the performance of duties.

  2. Agent's Obligations:

    • Deliver all property and funds belonging to the principal.
    • Render a full accounting of all transactions conducted on behalf of the principal.

  3. Third-Party Rights:

    • Acts of the agent that bind third parties may continue to bind the principal if third parties acted in good faith and had no notice of the termination.

IX. Special Rules for Agency Coupled with Interest

  1. Definition:

    • An agency coupled with interest is one where the agent has a vested interest in the subject matter, making the agency irrevocable without the agent’s consent.

  2. Survival of Agency:

    • This type of agency is not extinguished by the death, insanity, or incapacity of the principal.

  3. Examples:

    • A creditor acting as an agent to sell collateral securing a loan.

X. Jurisprudential Principles

Philippine jurisprudence has further refined these principles. The courts emphasize that:

  1. Good Faith and Equity:

    • The termination of agency must observe principles of good faith and fairness to protect both the principal and the agent from unnecessary harm.

  2. Irrevocability of Agency Coupled with Interest:

    • Courts have consistently upheld the principle that agency coupled with interest survives revocation or the death of the principal.

  3. Third-Party Protection:

    • If third parties deal with an agent in good faith, the principal may still be bound by the agent’s actions even after termination unless third parties had actual or constructive notice of the agency's termination.

This comprehensive framework ensures that agency relationships are terminated fairly and equitably, protecting the rights and obligations of all parties involved.

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