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Perez v. Philippine National Bank

c. Death of the principal or the agent (Arts. 1929-1932)
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Title

Perez v. Philippine National Bank

Case Decision Date

G.R. No. L-21813 July 30, 1966

A mortgagor died and his estate was under settlement; the bank filed no claim and instead extrajudicially foreclosed under the power of sale in the mortgage. The Court sustained the foreclosure — the power of sale is coupled with an interest and survives the mortgagor's death.

Core Doctrine

The special power to sell inserted in a real estate mortgage is not an ordinary agency but one coupled with an interest, being an integral and inseparable part of the security given for the same consideration as the loan. It therefore survives the mortgagor's death under Article 1930, and the mortgagee may extrajudicially foreclose without filing a claim in the estate proceedings.

Case Digest (G.R. No. L-21813)

Case DigestWeek 6 - Extinguishment of Agency

Perez v. Philippine National Bank

G.R. No. L-21813 · July 30, 1966 · Supreme Court

c. Death of the principal or the agent (Arts. 1929-1932)

Petitioner: Amparo G. Perez, et al.Respondent: Philippine National Bank, Binalbagan Branch, et al.
Gist

A mortgagor died and his estate was under settlement; the bank filed no claim and instead extrajudicially foreclosed under the power of sale in the mortgage. The Court sustained the foreclosure — the power of sale is coupled with an interest and survives the mortgagor's death.

Core Doctrine

The special power to sell inserted in a real estate mortgage is not an ordinary agency but one coupled with an interest, being an integral and inseparable part of the security given for the same consideration as the loan. It therefore survives the mortgagor's death under Article 1930, and the mortgagee may extrajudicially foreclose without filing a claim in the estate proceedings.

Facts

  • Vicente Perez (the mortgagor, and the principal under the power of sale) mortgaged a lot to respondent Philippine National Bank (PNB) (the mortgagee, and its attorney-in-fact for that purpose), Binalbagan Branch, to secure a loan of ₱2,500 plus interest, payable in instalments.
  • The mortgage deed contained the customary special power authorising the Bank to sell the property extrajudicially upon default. (The power was written into the security itself, for the creditor's own benefit — not a bare agency conferred for the principal's convenience, which is the distinction the heirs' argument had to get past.)
  • Perez died intestate, leaving an outstanding indebtedness of about ₱1,917.
  • His widow instituted special proceedings in the Court of First Instance of Occidental Negros for the settlement of his estate, was appointed Administratrix, and notice to creditors was duly published. (Publication put every creditor, the Bank included, on notice to come in and prove its claim.)
  • PNB did not file a claim in the estate proceedings.
  • Instead, invoking the authority granted in the mortgage deed, it caused the mortgaged property to be extrajudicially foreclosed, and purchased it at the resulting auction.
  • The widow and heirs were not notified.
  • The heirs sued to annul the foreclosure, contending that the Bank's remedy was to file a money claim against the estate and that the power of attorney contained in the mortgage had been extinguished by the mortgagor's death.
  • Trial court — foreclosure declared null and void. The trial court ruled for the heirs, declaring the foreclosure sale null and void and awarding damages and attorney's fees against PNB.
  • The bank appeals. The Bank appealed.

Issue

Whether the special power to sell contained in the real estate mortgage was extinguished by the death of the mortgagor, so as to invalidate the extrajudicial foreclosure conducted after his death.

Ruling

No. The Supreme Court held that the power of sale survived the mortgagor's death, and sustained the validity of the extrajudicial foreclosure.

Ratio

1. The General Rule and Its Exception
  • Article 1919 (3)§ extinguishes an agency upon the death of the principal, because the ordinary agency rests on the personal confidence the principal reposes in the agent.
  • But Article 1930§ provides that 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 principal and the agent, or in the interest of a third person who has accepted the stipulation in his favour.
2. The Power of Sale Is Coupled with an Interest
  • The Court held that the special power inserted in a mortgage is of this exceptional character.
  • It is not a separate or gratuitous grant but an ancillary stipulation supported by the same cause or consideration as the mortgage and the loan it secures.
  • It exists for the mortgagee's protection — to enable it to realise on its security promptly and without the expense of judicial foreclosure — and thus serves the interest of both parties: the creditor obtains a swift remedy, and the debtor obtains credit on that footing.
  • Being inseparable from the mortgage and constituted in the common interest of both, the power falls within Article 1930§ and is not revoked by the mortgagor's death.
3. No Need to File a Claim in the Estate Proceedings
  • A mortgage creditor holds alternative remedies: it may abandon the security and prove its claim in the estate proceedings, or it may rely on the mortgage alone and foreclose.
  • Having elected to foreclose, PNB was not obliged to file a claim, and its failure to do so did not bar the remedy it chose.
  • Extrajudicial foreclosure under Act No. 3135 is an action in rem against the property, not a personal claim against the estate.
4. Consequence
  • The trial court's judgment was accordingly reversed insofar as it annulled the sale and awarded damages against the Bank.

Doctrine

  • Article 1930§ — survival of the agency. An agency constituted in the common interest of principal and agent, or in the interest of a third person who accepted the stipulation, is not extinguished by the principal's death.
  • The mortgagee's power of sale. The special power to sell in a real estate mortgage is coupled with an interest: it is an inseparable part of the security, supported by the same consideration as the principal obligation, and therefore survives the mortgagor's death.
  • Alternative remedies of a secured creditor. A mortgagee may either file its claim in the estate proceedings or foreclose the mortgage; electing the latter, it need not present a claim, extrajudicial foreclosure being a proceeding against the property itself.

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Civil Code

Article 1930, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 4 (Modes of Extinguishment of Agency)

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. (n)

Why it is cited here

The article that saves the foreclosure, and the case is its most important application.

"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."

The special power to sell inserted in a real estate mortgage fits the first branch exactly. It is not an ordinary agency the mortgagor happened to grant; it is an integral and inseparable part of the security, given for the same consideration as the loan. The mortgagee's interest in it is its own, not merely a derived authority to serve the mortgagor.

So the power survives the mortgagor's death, and the mortgagee may proceed to extrajudicial foreclosure without going through the estate. Note how much turns on characterisation: the same words in a standalone power of attorney would die with the principal.

Civil Code

Article 1919, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 4 (Modes of Extinguishment of Agency)

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)

Why it is cited here

The general rule the case is an exception to. Paragraph (3) extinguishes agency "[b]y the death, civil interdiction, insanity or insolvency of the principal or of the agent."

Ordinarily this is automatic and complete — the agency ends ipso jure at the instant of death, and acts afterwards are void as to the deceased's interest, as Rallos shows.

The reason the rule is so strict is the reason Article 1930 can depart from it. Agency ends at death because representation presupposes someone to represent. Where the agent holds an interest of his own, the authority is not purely representative, so the premise fails and the exception is principled rather than merely convenient.

Civil Code

Article 1929, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 4 (Modes of Extinguishment of Agency)

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)

Why it is cited here

Included for the contrast it draws with an interest-coupled authority. Even an agent who withdraws for a valid reason "must continue to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation."

The article shows how the Code treats an ordinary agency as something the agent holds for the principal's benefit — so much so that he cannot simply lay it down when it suits him. An agency coupled with an interest sits at the opposite end of the same spectrum: there the authority exists partly for the agent's own protection, which is precisely why the principal's death does not end it.

Study digest — refer to the full text of the decision for accuracy. https://lawphil.net/judjuris/juri1966/jul1966/gr_l-21813_1966.html

Cited laws & provisions

Article 1930, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 4 (Modes of Extinguishment of Agency)

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. (n)

Why it is cited here

The article that saves the foreclosure, and the case is its most important application.

"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."

The special power to sell inserted in a real estate mortgage fits the first branch exactly. It is not an ordinary agency the mortgagor happened to grant; it is an integral and inseparable part of the security, given for the same consideration as the loan. The mortgagee's interest in it is its own, not merely a derived authority to serve the mortgagor.

So the power survives the mortgagor's death, and the mortgagee may proceed to extrajudicial foreclosure without going through the estate. Note how much turns on characterisation: the same words in a standalone power of attorney would die with the principal.

Full entry below ↓

Article 1919, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 4 (Modes of Extinguishment of Agency)

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)

Why it is cited here

The general rule the case is an exception to. Paragraph (3) extinguishes agency "[b]y the death, civil interdiction, insanity or insolvency of the principal or of the agent."

Ordinarily this is automatic and complete — the agency ends ipso jure at the instant of death, and acts afterwards are void as to the deceased's interest, as Rallos shows.

The reason the rule is so strict is the reason Article 1930 can depart from it. Agency ends at death because representation presupposes someone to represent. Where the agent holds an interest of his own, the authority is not purely representative, so the premise fails and the exception is principled rather than merely convenient.

Full entry below ↓

Article 1929, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 4 (Modes of Extinguishment of Agency)

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)

Why it is cited here

Included for the contrast it draws with an interest-coupled authority. Even an agent who withdraws for a valid reason "must continue to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation."

The article shows how the Code treats an ordinary agency as something the agent holds for the principal's benefit — so much so that he cannot simply lay it down when it suits him. An agency coupled with an interest sits at the opposite end of the same spectrum: there the authority exists partly for the agent's own protection, which is precisely why the principal's death does not end it.

Full entry below ↓