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 of both 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 of mutuality and obligatory force, the principal is bound by the terms agreed upon under the contract of agency. Thus, in De Castro v. Court of Appeals, 384 SCRA 607 (2002), the Supreme Court held that A contract 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 agency entered 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 and obligations 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 obligations which the agent may have contracted within the scope of his authority.

In Filipinas Life Assurance Company v. Pedroso, 543 SCRA 542 (2008), the Court found occasion 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 in representation 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) In Filipinas Life, despite the allegation of the insurance company that it was only a life insurance 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 it was 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. In Air France v. Court of Appeals, 126 SCRA 448 (1983), employing the principle that knowledge 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 evidence showed 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 the GANAS 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). In Pleasantville Dev. v. Court of Appeals, 253 SCRA 10 (1996), on the basis of the general principle 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 was primarily 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 under Article 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

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 merely unenforceable (Art. 1403, Civil Code). In Philippine National Bank v. Bagamaspad, 89 Phil. 365 (1951), the Court held that when bank officers, acting as agent, had not only gone against the instructions, rules and regulations of the bank in releasing loans to numerous borrowers who were qualified, then such bank officers are liable 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.

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 of apparent authority in Corporate Law. In Manila Remnants v. Court of Appeals, 191 SCRA 622 (1990), the Court noted that Article 1911 is intended to protect the rights of innocent persons. In such a situation, both the principal and 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 In Manila Remnants, the principal real estate company had pleaded non-liability for the act of the agent in engaging in double sales of the properties. While noting initially that there was legal basis 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 agent without objection to the double sales effected by its agent. Manila Remnants also ruled that a principal becomes liability for the acts and contracts done by its agent outside the scope of its authority, when it fails to take measures to protect the dealing public 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) In Blondeau v. Nano, 61 Phil. 625 (1935), the registered owner who placed in the hands of another 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 the property. The principle was reiterated in Domingo v. Robles, 453 SCRA 812 (2005). In Rural Bank of Milaor v. Ocfemia, 325 SCRA 99 (2000), it was held that when a bank, by its acts 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 a board 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 in the 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 of the term void under Article 1874, is relative, in that it is void only insofar as the principal is

concerned; and that any attempt to enforce the purchase by a third party is void when the principal refuses to accept the sale of a piece of land effected by an agent in his name without written power of attorney. In other words, if the principal, after the fact of sale, accepts the contract, does not oppose the validity of the sale, or in other words, ratifies the sale, it would then be valid and binding on the principal. In Ocfemia, when an action was brought by the buyer against the bank to enforce the sale, it failed to contest the genuineness and due execution of the deed of absolute sale executed by its general manager. The Court held Respondents based their action before the trial court on the Deed of Sale, the substance of which was alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S. Tena as the representative of the bank. Petitioner, however, failed to specifically deny under oath the allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in default. x x x. In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the due execution of the said contract. Such admission means that it acknowledged that Tena was authorized to sign the Deed of Sale on its behalf.13 [Imperial Textile Mills, Inc. v. C.A., 183 SCRA 1, March 22, 1990.] Thus, defenses that are inconsistent with the due execution and the genuineness of the written instrument are cut off by an admission implied from a failure to make a verified specific denial. x x x. In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the properties in dispute and paid the real estate taxes due thereon. If the bank management believed that it had title to the property, it should have taken some measures to prevent the infringement or invasion of its title thereto and possession thereof. Likewise, Tena had previously transacted business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent like Manager Tena, even though such agent is abusing her authority.14 [First Philippine International Bank v. CA, infra, note 17.] Clearly, persons dealing with her could not be blamed for believing that she was authorized to transact business for and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v. Kalaw:15 [20 SCRA 987, 1005, August 14, 1967, per Sanchez, J.] Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. So also,

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 in his 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, let alone 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 with apparent 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) In Bedia v. White, 204 SCRA 273 (1991), the Court held that when a third party admitted in her written 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 action against 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. In Doles v. Angeles, 492 SCRA 607 (2006), it was held that since the basis of agency is representation, 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 as agent 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 way relieve 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

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. In Dy Peh v. Collector of Internal Revenue, 28 SCRA 216 (1969), where the principal issued the checks 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 agents acts 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, he also 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 has been caused by the negligence of the ship agent, both the owner of the vessel and the ship agent can 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 a compensation, unless there is proof to the contrary. In De 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 was ruled by the Court that the mere fact that other agents intervened in the consummation of the sale 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 in De Castro that an action upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues.

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 was not 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 the agreement. c. When Principal Not Liable for Agents Expenses

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. In Dominion Insurance v. Court of Appeals, 376 SCRA 239 (2002), it was held that when the authority 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 in Dominion Insurance that while the Law on Agency prohibits the area 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 payment by a third party of the obligation of the debtor, allows recovery only insofar as the payment has been 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

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 on agents part. Article 1913 is the counter-balance to the provision in Article 1884 that makes the agent liable for damages sustained by the principal for agents refusal to perform his obligations under the agency. In Albaladejo y Cia v. PRC, 45 Phil 556 (1923), the Court ruled that when the purchase by one company of the copra of another company is by way of contract of purchase rather than an agency 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 company encouraged 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 its subsequent 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 in Albaledejo & Cia. is that under a contract of sale, the relationship between 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 minds of the party. On the other hand, if the relationship is one of principal and agent, then equity demands, 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 the things 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.

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. In De Castro v. Court of Appeals, 384 SCRA 607 (2002), which involved the issue on whether all 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 the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary 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, only the latter are solidary liable, without prejudice to the effects of negotiorum gestio with respect to the 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 the Philippines, Vol. 5, pp. 428-429, 1992 ed.) In summary, the Court ruled in De Castro that When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency, each obligor may be compelled 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 each other, 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)

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 the provisions 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.

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 the obligation 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 the agency 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 the damages caused, including to the compensation due the agent when the revocation was done in bad 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 the agency is fixed by the terms, the principal is at liberty to terminate it at will subject only to the requirements 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

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 or implied, 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 third parties 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 contracting with 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 specific persons), 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 regard to 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 or transaction 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.

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 first gave a power of attorney over the business to his son, and subsequently to the mother, the Court held 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 his mother. 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 it must 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 moment the 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 previously known 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 of attorney, 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 matter of 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 SCRA 645 [1991]). In other words, the direct management of the business by the principal and directly dealing 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 full authority . . .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 [the principal] based on F.O.B. invoice value which commission shall be deducted from the proceeds

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 the exclusive 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, or implied, 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 Logging confirms the legal position that the indication of a period in the contract of agency does 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 that the 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 purported agent 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 with the company to oversee the perfection and consummation of the sale, no commission was due to the agent because such agency would have been deemed revoked upon the resumption of direct negotiations between the principal and the company. In New Manila Lumber Company, Inc. vs. Republic of the Philippines , 107 Phil 824 (1960), the Court ruled that the act of a contractor, who, after executing powers of attorney in favor of another 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. In Infante v. Cunanan, 93 Phil 693 (1953), the Court ruled that if the purpose of the principal in dealing directly with the purchaser and himself effecting the sale of the principals property is to avoid 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

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 principal himself, 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 one granted 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 subsequently granted 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 rule is 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 of attorney is not revoked by a special one granted to the same agent. The falsity of such an implication 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 principal sought 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 the power 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 futile gesture. 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)

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 of contracting 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 third parties. In Rallos v. Yangco, 20 Phil 269 (1911), the former principal refused to be personally liable for any account handled by his agent (Collantes) for transactions that occurred after the principal had terminated the agency relations, even to a long-standing customer who had done business with the 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 the plaintiffs, 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 faith and 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 special invitation 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. Failing to do so, he is responsible to them for whatever goods may have been in good faith and without negligence 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 attorney duly authorized the agent to represent and act on behalf of the principal, the power granted thereto can be relied upon by third parties for whom specifically the authority was issued, thus:

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 the principal 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 attorney is 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 directly and 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 for the principal loan but also for subsequent commercial, individual, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to the bank, in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of the principal, the bank cannot be 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 the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons. In Rammani v. Court of Appeals, 196 SCRA 731 (1991), the Court held that in a case covering a power 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 In Philippine 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 property must appear in a proper document, a revocation of a special power of attorney to mortgage a parcel of land, embodied in a private writing, is valid and binding between the parties, such requirement of Article 1358 being only for the convenience of the parties and to make the contract effective as against third persons. Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).

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 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. 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 the medium 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 the principal 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 and realization. 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 the agent 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 a partnership. 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

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 of management 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 private respondent, 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

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. In De la Pea v. Hidalgo, 16 Phil. 450 (1910), it was held that when the agent and administrator of property informs his principal by letter that for reasons of health and medical treatment he is about 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 general statement 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 agent had 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 the law 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 the juridical 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 the former. The same rule prevails at common law the death of the principal effects instantaneous and absolute 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

execution of the power afterwards is not binding on the heirs or representatives of the deceased. (at p. 260) In Lavina v. Court of Appeals, 171 SCRA 691 (1988), the Court held that the death of a client divests 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 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. Earlier on in Pasno v. Ravina, 54 Phil 378 (1930), the Court recognized that the power of sale given in a mortgage is a power coupled with an interest which survives the death of the grantor. In Perez v. PNB, 17 SCRA 833 (1966), the Court noted that an example of an agency coupled with 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 the default 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 the mortgage 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 in Del 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)

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 is obvious, that third parties who deal with the agent in bad faith ( i.e., knowing that the principal is dead) would not be protected, and the contract would be void, not just unenforceable, for lack of the essential element of consent. In Buason v. Panuyas, 105 Phil 795 (1959), the Court applied the provisions of Article 1931 in upholding 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, 1 SCRA 406 [1961]). In Rallos v. Felix Go Chan & Sons Realty Corp. , 81 SCRA 251 (1978), the Court emphasized that 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 not aware 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 of his 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 of fact of the court a quo and of respondent appellate court when the latter stated that Simeon Rallos 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 his principal, 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 in Rallos: 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 said certificate of title by the heirs of the principal and accordingly they must suffer the consequences of such omission.

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 revocation must 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 exercise due 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 be made, 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 which he 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 by reason 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 of attorney 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 effective inasmuch 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 may demand in the interest of the latter. Hence, the fact that no notice of the death of the principal was 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 held that contract of agency establishes a purely personal relationship between the principal and the agent, 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 the circumstances may demand in the interest of the principal. The provision establishes a rare

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 are several 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 common agents. 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 one would 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 a going 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 as against 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 have juridical personality for only for purposes of liquidation. Consequently, the Board of Directors and 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 is terminated, 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 of compensation 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