Facts

• C.N. Hodges sold two lots of the Cadastral Survey of Talisay, Negros Occidental, to Vicente M. Layson for ₱43,000, payable in instalments.
• As of January 15, 1954, Layson's outstanding balance stood at ₱15,516.
• Layson wished to use the lots as collateral for a bank loan and persuaded Hodges to execute a deed of absolute sale in his favour, on the understanding that he would furnish a surety bond guaranteeing payment of the remaining balance.
• The bond was issued by petitioner Central Surety & Insurance Company (the principal) through its branch agent, Mrs. Rosita Mesa (the agent), in favour of C.N. Hodges (the third person who relied on the bond).
• Unknown to Hodges, Central Surety had revoked Mrs. Mesa's authority to issue bonds years earlier.
• The revocation was never published or otherwise made known to the public, and Mrs. Mesa continued to hold herself out — and to be permitted to appear — as the company's agent. (The company thus left the appearance of authority standing after withdrawing the authority itself — and a third person had no way of learning of the withdrawal.)
• Layson defaulted. Hodges sued Central Surety on the bond.
• Central Surety disclaimed liability, contending that Mrs. Mesa had no authority to bind it, and alternatively that her authority in any event never exceeded ₱8,000 without the approval of its main office.
• Court of Appeals — the surety is liable on the bond. The Court of Appeals held Central Surety liable on the bond.

Issue

1. Whether Central Surety is bound by a bond issued by an agent whose authority it had revoked without notice to the public.
2. What the extent of that liability is.

Ruling

1. Yes. The revocation, never having been published or communicated, cannot prejudice Hodges, who dealt with Mrs. Mesa in good faith.
2. Liability was limited to ₱8,000, the evidence at trial having established that the agent's authority to bind the company without main-office approval did not exceed that amount, and Hodges not having properly controverted that proof.

Ratio

• Article 1922§ provides:

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.

• The rule protects the security of transactions.
• The public deals with an agent on the faith of the authority the principal has held him out as having.
• If the principal withdraws that authority§ privately, he must make the withdrawal known — by direct notice to persons previously dealt with, and by publication or its equivalent as to the world at large.
• Central Surety did neither.
• Having kept its revocation to itself, it cannot invoke it against Hodges.

• The Court noted that Mrs. Mesa continued to act as the company's agent and that the company tolerated the situation.
• A principal who permits a former agent to continue appearing as such is estopped from denying the authority as against a third person who relies on it in good faith.

• Hodges had no reason to suspect any defect.
• He accepted the bond in the ordinary course, in exchange for parting with title to his lots.
• His good faith was not disputed.

• On the extent of liability, the record showed that Mrs. Mesa's authority to bind the company without the approval of the main office was capped at ₱8,000.
• That evidence was introduced at trial and was not properly objected to or contradicted.
• The Court therefore reduced the judgment to that sum, holding Hodges bound by the state of the record he allowed to be made.

Doctrine

• Article 1922§ — notice of revocation. Revocation of an agency does not prejudice third persons in good faith and without knowledge of it. Publication in a newspaper of general circulation suffices as to the public; persons previously dealt with require direct notice.
• Estoppel by tolerating the appearance of agency. A principal who allows a former agent to continue holding himself out as such is bound as to those who deal with him in good faith.
• Limits still matter where proved. Apparent authority protects the third person only up to the authority shown; where the evidence establishes a ceiling on the agent's power and it stands uncontroverted, liability is measured by it.