Extinguishment

Nature and Effect of Extinguishment

Extinguishment of agency is the termination of the representative authority by which the agent may affect the juridical relations of the principal with third persons. It ends the agent's power to bind the principal for future acts, but it does not erase rights, liabilities, accounts, reimbursements, indemnities, or obligations already produced by acts validly done before termination.

Agency is founded on consent, confidence, representation, and the agent's duty to act for another. Because the authority is personal and fiduciary, the law allows either the principal or the agent to end the relation in many situations and also treats certain changes in capacity, status, or object as automatic causes of termination.

The Civil Code enumeration on extinguishment should be read with the rules on notice, good faith of third persons, agency coupled with interest, and the agent's post-termination duties. The fact that agency has ended internally between principal and agent does not always mean that the termination may be set up against third persons who dealt in good faith without notice.

Modes of Extinguishment

Article 1919 of the Civil Code states the principal special modes by which agency is extinguished: revocation, withdrawal, death, civil interdiction, insanity, insolvency, dissolution of the juridical person that gave or accepted the agency, accomplishment of the object or purpose, and expiration of the period for which the agency was constituted.

These modes are not isolated from general contract principles. If the object of the agency becomes impossible, unlawful, or incapable of performance, the agency necessarily loses the purpose for which authority was conferred. If the agency is conditioned on the occurrence or non-occurrence of an event, the relevant condition may determine whether authority begins, continues, or ends.

Revocation by the Principal

The principal may generally revoke the agency at will because the agent's authority originates from the principal's consent and confidence. This power to revoke is distinct from the principal's possible liability for damages when the revocation violates a separate undertaking, defeats a protected interest, or is made in a manner contrary to good faith.

Revocation may be total or partial. It is total when the whole agency is withdrawn. It is partial when only a portion of the authority, a particular transaction, a class of acts, or a branch of the business is removed while the rest of the agency remains.

Revocation may also be express or implied. Express revocation is made by a direct manifestation that the authority is withdrawn. Implied revocation results from acts of the principal that are incompatible with the continuance of the prior authority.

After revocation, the principal may compel the agent to return the document evidencing the agency, such as a written power of attorney. The practical reason is that the continued possession of the instrument may enable the agent to create an appearance of authority and may mislead third persons.

Implied Revocation

The Civil Code gives specific examples of implied revocation. These rules are important because the principal may terminate authority without using the word revocation, provided the later act is legally inconsistent with the former agency.

• The appointment of a new agent for the same business or transaction revokes the previous agency from the day notice is given to the former agent, subject to the protection of third persons who have not been duly notified.
• The principal's direct management of the business entrusted to the agent revokes the agency as to that business, because the principal's assumption of control is inconsistent with continued representation by the agent.
• A special power of attorney revokes a prior general power of attorney as to the special matter involved, because the later specific authority shows the principal's intention to deal separately with that transaction.

There is no implied revocation where the later authority can reasonably coexist with the former authority. If the agents are assigned different matters, different territories, or complementary functions, the prior agency is not terminated merely because another agent was appointed.

Notice of Revocation to Third Persons

Revocation is fully effective between principal and agent once the agent is properly informed, but its effect against third persons depends on notice and good faith. The law prevents the principal from secretly terminating authority and then using that private termination against persons who reasonably dealt with the agent without knowledge of the change.

If the agency was created for the purpose of contracting with specified persons, the revocation does not prejudice those persons unless they were given notice. The identity of the intended third persons makes direct notice necessary because the principal knows whom the agency was designed to reach.

If the agent had general powers, revocation does not prejudice third persons who acted in good faith and without knowledge of the revocation. Public notice, such as publication in a newspaper, may be sufficient warning to persons who deal with an agent under a general authority, although actual knowledge from any reliable source will also defeat good faith.

A third person who knows of the revocation cannot rely on apparent authority. Good faith requires absence of knowledge of facts that should reasonably put the third person on inquiry regarding the agent's continuing authority.

Agency Coupled with Interest

An agency is generally revocable even if the instrument describes it as irrevocable. A mere stipulation of irrevocability does not by itself destroy the principal's legal power to withdraw authority; at most, it may create liability if the withdrawal breaches an enforceable obligation.

The agency cannot be revoked in the situations identified by the Civil Code where a bilateral contract depends upon it, where the agency is the means of fulfilling an obligation already contracted, or where a partner appointed as manager in the partnership contract is removed without justification. In these situations, the agency is not a mere facility of the principal's will; it is connected with an existing obligation or protected interest.

The interest that supports irrevocability must be more than the agent's interest in earning commissions or fees. It must be an interest in the subject matter of the agency, in the performance secured by the agency, or in the transaction that the authority is meant to carry out. The law protects the agency because revocation would impair a right that is independent of the bare authority to represent.

Irrevocability is limited by its reason. Once the obligation has been fulfilled, the protected interest has ceased, or the bilateral arrangement no longer requires the agency, the ordinary rules on termination again apply.

Withdrawal by the Agent

The agent may withdraw from the agency by giving due notice to the principal. The agent is not ordinarily compelled to continue a fiduciary service against his will, but withdrawal must respect the principal's interest and the circumstances under which the agency is being performed.

If the principal suffers damage because of the withdrawal, the agent must indemnify the principal unless the withdrawal is based on the impossibility of continuing the agency without grave detriment to the agent. The law balances the agent's freedom to resign with the principal's right not to be abandoned in a manner that causes avoidable loss.

Even when the agent withdraws for a valid reason, he must continue to act until the principal has had a reasonable opportunity to take the necessary steps to meet the situation. This temporary duty is not a continuation of the agency for the agent's convenience; it is a protective obligation imposed to prevent sudden prejudice to the principal.

Due notice depends on the nature of the agency. A single, simple mandate may require only prompt communication, while a continuing business agency may require enough time for the principal to appoint another representative, secure documents, notify customers, preserve property, or prevent interruption of pending transactions.

Death, Incapacity, and Insolvency

Death of either principal or agent generally extinguishes the agency because representation is personal and authority cannot ordinarily survive the person from whom it emanates or the person selected to exercise it. After the principal's death, the agent no longer represents the principal unless a legal exception applies. After the agent's death, the authority cannot be performed by the agent's heirs as if agency were an inheritable office.

There are two important protections against harsh results. First, acts done by the agent without knowledge of the principal's death or of any other cause extinguishing the agency are valid and fully effective with respect to third persons who contracted with the agent in good faith. Second, an agency remains effective after the principal's death if it was constituted in the common interest of the principal and the agent, or in the interest of a third person who accepted the stipulation.

The survival of an agency after death is exceptional. It exists because the authority is tied to an interest that the law protects, not because parties can generally authorize ordinary representation beyond death. The exception is commonly associated with agency coupled with interest or with authority created to secure or implement an existing right.

When the agent dies, his heirs must notify the principal and, in the meantime, adopt the measures required by the circumstances in the interest of the principal. The heirs do not become agents by succession, but they must prevent avoidable loss when property, documents, money, or pending matters of the principal are in the deceased agent's hands.

Civil interdiction, insanity, or insolvency of the principal or agent also extinguishes the agency because these conditions affect legal capacity, control over property, or the confidence required for representation. The agent's authority cannot continue in the ordinary way when the principal can no longer validly manage the juridical consequences of the agency, or when the agent's condition destroys the basis on which the principal selected him.

Insolvency is especially relevant where the agency involves money, property, or commercial dealings. The insolvency of the principal may place his assets under legal administration, while the insolvency of the agent may impair the principal's confidence that the agent can properly safeguard funds or property entrusted to him.

Dissolution of a Firm or Corporation

Agency is extinguished by the dissolution of the firm or corporation that entrusted or accepted the agency. A juridical person acts through representatives, but the continuation of a specific agency presupposes that the juridical person still has the legal personality or business capacity on which the agency rests.

If the dissolved entity was the principal, the agent's authority to bind it in ordinary transactions ends because the entity's affairs pass into the legally recognized process of winding up or liquidation. If the dissolved entity was the agent, the principal loses the representative selected to perform the agency.

Dissolution should be distinguished from a mere change in officers, directors, shareholders, or internal management. A change in the persons who control a juridical entity does not automatically extinguish an agency granted to or by the entity, unless the authority was personal to a particular officer or the governing act validly withdraws it.

Accomplishment of Purpose and Expiration of Period

When the object or purpose of the agency has been accomplished, the agency ends by fulfillment. A broker authorized to find a buyer, an agent appointed to purchase a specified property, or a representative empowered to execute a particular document exhausts the authority once the authorized objective has been achieved.

An agency for a fixed period ends upon expiration of the period. No express revocation is necessary because the parties themselves limited the duration of the authority. Acts performed after the period generally do not bind the principal unless protected by rules on good faith, apparent authority, or ratification.

If the agency is created for a continuing business, the purpose is not accomplished by one act unless the terms or circumstances show that only one transaction was intended. Conversely, if the agency is specific and transaction-based, the agent cannot treat successful completion as authority to undertake related but unauthorized acts.

The agency also ends when the object becomes legally or physically impossible. If the property to be sold is destroyed, the transaction becomes unlawful, the required license can no longer be obtained, or the contemplated act becomes incapable of performance, the representative authority loses its object.

Effects After Extinguishment

After extinguishment, the agent generally has no authority to create new obligations for the principal. A person who continues to act as agent after knowing that the agency has ended may be personally liable to the principal or to third persons, especially when he represents that authority still exists.

Extinguishment does not invalidate acts already performed within the scope of authority while the agency was in force. Contracts validly entered into by the agent before termination remain binding on the principal, and the agent remains accountable for money, property, documents, and benefits received by reason of the agency.

The principal remains bound to reimburse proper advances, indemnify the agent for damages suffered without the agent's fault in the execution of the agency, and pay agreed compensation for services already earned, subject to defenses arising from the agent's breach of duty. Termination is not a device to avoid obligations that matured while the agency existed.

The agent must render an account, deliver what he received by virtue of the agency, return unused funds or documents, and refrain from using confidential information or property of the principal after the authority ends. These duties arise from the fiduciary character of the relation and may survive the termination of authority.

Subagency generally falls with the main agency because the subagent's authority is derivative. If the principal-agent relation has ended, the subagent cannot have greater authority than the agent from whom the appointment came, subject again to the protection of third persons who acted in good faith under legally sufficient appearances of authority.

Internal Termination and External Reliance

The central distinction in extinguishment is between termination as an internal fact and termination as a fact enforceable against third persons. As between principal and agent, the agency may end by revocation, withdrawal, death, incapacity, dissolution, completion, or lapse of period. As to third persons, however, the law may preserve the effects of acts done without notice and in good faith.

The policy is practical and equitable. The principal controls the creation and withdrawal of authority, while third persons may have relied on the appearance of authority that the principal allowed to exist. The law therefore requires proper notice in appropriate cases and protects good-faith reliance without allowing an agent who knows the agency has ended to manufacture liability for the principal.