Introduction
Through an agency agreement, the agent commits to carry out on behalf of the principal the acts entrusted by the latter. [1]
The agency may be irrevocable, if it is granted as a condition in a bilateral agreement or as a mean to comply with an agreed obligation. [2]
In accordance with the court decision III. 1o. C. 335 C, an example of an irrevocable agency is when the seller of a company grants an irrevocable agency or power of attorney to the purchaser so that the latter requests and processes the change of the holder of a given permit. [3]
Another example of the granting of an irrevocable agency is when an entity interchanges goods subject to a credit. The entity commits that once it releases the goods (once the credit is paid), it will deliver them to the purchaser.
Typically, irrevocable powers of attorney are also granted in credits secured with pledges, where the debtor grants the creditor an irrevocable power of attorney so the latter may exercise certain rights that originally corresponded to be exerted by the debtor.
For instance, a pledge on shares of stock that is granted by the debtor to secure a credit agreement. The debtor (shareholder) grants an irrevocable power of attorney to the creditor, so that upon failing the debtor to pay the credit, the creditor may exert the voting rights that originally corresponded to the debtor.
If the power of attorney was not irrevocable, the debtor might cancel it at any moment, affecting the creditor’s rights.
In any event, an irrevocable power of attorney or agency agreement may be granted within a broad scope of possibilities, if it meets the above requirements.
In the matter at hand, a Federal Court decided a case on an agency agreement, in which the court determined the authority that survives after the principal’s death, irrespective of the power of attorney being granted as irrevocable.
Facts
In a constitutional trial, the agent, and a purchaser (the “Petitioners”) opposed to the judgement that declared null and void a sale agreement executed between them, after the principal’s death.
The Petitioners argued that the sale agreement was valid because the agency agreement was granted as irrevocable.
Court’s rationale
The Third Collegiate Tribunal in Civil Matters of the First Circuit (the “Court”) decided that irrespective of whether an agency agreement was granted as irrevocable, when the principal has passed away, the agent will be authorized only to carry out the necessary acts of administration and conservation of goods. This will be valid until the heirs appear to take charge of business; but the agent is not allowed to exert acts of ownership (such as selling a property). [4] The above because the Civil Code for Mexico City (the “Law”) [5] establishes that an agency agreement is irrevocable when this is granted:
a) As a condition of a contract, or
b) To comply with an agreed obligation.
In such a way that, the irrevocability ends when the purposes for which it was granted are achieved. Furthermore, the agency agreements ends when either the principal or the agent die.
However, when the principal passes away, the agency agreement continues partially and provisionally, because the agent shall perform the acts of administration related to the goods subject to the agency agreement. This is with the aim to avoid the heirs from being affected by, while they take charge of business.
Nonetheless, the agent will not be allowed to exert acts of ownership, because if done, those acts will be inexistent due to the lack of the principal’s authorization.
Final remarks
Even though the legal provisions mentioned by the Court do not distinguish whether they apply to irrevocable agency agreements, according to the Court the agency ends until the principal’s heirs can take charge of business. While this happens, the agent will not be allowed to exert acts of ownership on the principal’s estate.
According to what the Law establishes, we can conclude that it seeks to protect the principal’s estate. On the other hand, the agent may request the court to shorten the term for the heirs to appear at the court to claim they will take control of business. [6]
However, as to agency agreements and powers of attorney granted by entities, the Court’s decision would not apply. Because the decision only applies to individuals.
We strongly advise that before accepting the grant of an irrevocable power of attorney, or, granting one, the legal consequences that it may produce be thoroughly analyzed.
Not in all cases an irrevocable agency agreement should be granted. In many cases, creditors impose debtors the duty to grant such an agency agreement without any justification.
However, upon accepting such a power of attorney or agency agreement, the grantor may resent the consequences of an agent’s malpractice, which might be very difficult to manage. Because it won’t be possible to have the agency agreement revoked until the principal authorizes so. On the other hand, the risks of bad management of agents may be mitigated by limiting the scope of the agency agreement or power of attorney, as well as by establishing the cases where the agency agreement may be terminated.
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[1] Article 2546 of the Federal Civil Code.
[2] Article 2596 of the Federal Civil Code.
[3] https://sjf2.scjn.gob.mx/detalle/tesis/209776
[4] https://sjfsemanal.scjn.gob.mx/detalle/tesis/2026464
[5] Articles 2595, paragraph III, 2596, 2600 and 2601.
[6] Article 2601 of the Civil Code for Mexico City.
