Chapter 3 Obligations of the Principal Article 1910 Obligation of the principal to comply with all obligations which the

e agent may have contracted within the scope of his authority. General Rule: The principal must comply with all obligations which the agent may have contracted within the scope of his authority. The principal is not bound when the agent has exceeded his authority. Cases: Panlilio v. Citibank, N.A., 539 SCRA 69 (2007) Manila Memorial Park Cemetery, Inc. v. Linsangan, 443 SCRA 377, 394 (2004) Exceptions: (a) Even if the agent exceeded his power, if the principal ratifies, expressly or tacitly principal shall be bound by the obligation (Art. 1910, 2nd par.) Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can ratify the unauthorized acts, which the principal must have knowledge of. Expounding on the concept and doctrine of ratification in agency, this Court said: Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom the question of ratification may arise. Nevertheless, this principle does not apply if the principals ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the facts. (Country Bankers Insurance Corporation v. Keppel Cebu Shipyard, et. al. G.R. No. 166044, June 18, 2012)

Cases: Air France v. Court of Appeals, 126 SCRA 448 (1983) Cuison v. Court of Appeals, 227 SCRA 391 (1993) Pleasantville Dev. v. Court of Appeals, 253 SCRA 10 (1996) Rural Bank of Milaor v. Ocfemia, 325 SCRA 99 (2000) Filipinas Life Assurance Co. v. Pedroso, 543 SCRA 542 (2008) Manila Memorial Park Cemetery, Inc. v. Linsangan, 443 SCRA 377, 394 (2004) (b) Even if the agent exceeded his authority, if the principal allowed the agent to act as though he had full powers principal shall be solidarily liable with the agent (Art. 1911) This is one of the exceptions to the rule that obligations are presumed to be joint. Doctrine of apparent authority Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal. The principals liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority is determined only by the acts of the principal and not by the acts of the agent. There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third partys detriment. (Banate, et. al. v. Philippine Countryside Rural Bank, Inc., et al., G.R. No. 163825, July 13, 2010) Cases: Professional Services, Inc. v. Court of Appeals, 544 SCRA 170 (2008) (Decision) Professional Services, Inc. v. Court of Appeals, 611 SCRA 282 (2010) (Resolution) Banate v. Philippine Countryside Rural Bank, 625 SCRA 21 (2010) Sargasso Construction & Dev. Corp. v. PPA, 623 SCRA 260 (2010)

Agency by estoppel Article 1911, on the other hand, is based on the principle of

estoppel, which is necessary for the protection of third persons. It states that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to act as though he had full powers. However, for an agency by estoppel to exist, the following must be established: 1. The principal manifested a representation of the agents authority or knowingly allowed the agent to assume such authority; 2. The third person, in good faith, relied upon such representation; and 3. Relying upon such representation, such third person has changed his position to his detriment. In Litonjua, Jr. v. Eternit Corp., this Court said that [a]n agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance. (Country Bankers Insurance Corporation v. Keppel Cebu Shipyard, et. al., G.R. No. 166044, June 18, 2012) Cases: Manila Remnants v. Court of Appeals, 191 SCRA 622 (1990 Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006) Filipinas Life Assurance Co. v. Pedroso, 543 SCRA 542 (2008) Yun Kwan Byung v. PAGCOR, 608 SCRA 107 (2009) Article 1911 Article 1875 - In relation to: Obligation to Pay Agents Commission Cases: Manotok Bros. Inc. v. C, 221 SCRA 224 (1993) Medrano v. Court of Appeals, 452 SCRA 77 (2005) Phil. Health-care Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008) Article 1912 Obligation of the Principal to Advance the Sums Necessary for the Execution of the Agency Compare: Agent is bound to advance sums as stipulated (Art. 1886) Principal has the obligation to reimburse even if the business or undertaking was not successful provided that the agent is free from all fault ! Reimbursement shall include interest on sums advances, from the day the advance was made EXCEPTIONS: Principal is not liable to agent for expenses incurred (Art. 1918)

1. When agent acted in contravention of the principals instructions unless principal wishes to avail the benefits derived from the contract 2. When expenses is due to the fault of the agent 3. When agent incurred expenses with knowledge that an unfavorable result would ensue, 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 was allowed only a certain sum Article 1913 Obligation of the Principal to indemnify the Agent for All Damages Compare: Agent is bound by his acceptance to carry out the agency and is liable for damages which through his non-performance the principal may suffer (Art. 1884) But it is quite obvious that there is nothing in these letters on which to hold the defendant liable for the expenses incurred by the plaintiff in keeping its organization intact during the period now under consideration. xxx [P]erusal of the contract is, however, convincing to the effect that the relation between the parties was not that of principal and agent in so far as relates to the purchase of copra by the plaintiff. It is true that the Visayan Refining Co. made the plaintiff one of its instruments for the collection of copra; but it is clear that in making its purchases from the producers the plaintiff was buying upon its own account and that when it turned over the copra to the Visayan Refining Co., pursuant to that agreement, a second sale was effected. (Albaladejo y Cia v. PRC, 45 Phil 556, 1923) Article 1914 Agent right to retain in Pledge (as security) the Object of the Agency until the Principal effects (a) reimbursement of advances (with interest, if any), and (b) pays indemnity Compare: Agent is bound to deliver to the principal everything he received even if not due the principal (Art. 1891) The thing pledged may only be sold after demand of amount due - Public auction to take place within one (1) month after demand. If, without just grounds, the creditor does not cause the public sale within such period, the debtor may demand the return of the thing within such period. (Art. 2122) Obligation Two (or Several) Principals with Common Agent is Solidary Compare with: obligation of two agents or more agents is not solidary (Art. 1894). The obligation of the principals is solidary because of their common interest Case: De Castro v. Court of Appeals, 384 SCRA 607 (2002) Article 1916 Each principal has the right to revoke authority of the common agent without the consent of the other (Art. 1925).

Article 1915

Right of Persons who Contracted for the Same Thing, One with the Principal and the other with the Agent If the two contracts are incompatible, the following rules shall be observed: ! That of prior date is preferred

If a double sale situation takes place Article 1544 governs Art. 1544.If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

Article 1917 Article 1918

If the agent acted in good faith - the principal shall be liable in damages to the third. (Art. 1917) If the agent acted in bad faith - agent alone shall be liable. (Art. 1917)

Liability of the Principal to Third Persons Whose Contract Must be Rejected Principal is not liable to agent for expenses incurred (Art. 1918) 1. When agent acted in contravention of the principals instructions unless principal wishes to avail the benefits derived from the contract 2. When expenses is due to the fault of the agent 3. When agent incurred expenses with knowledge that an unfavorable result would ensue, 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 was allowed only a certain sum Cases: Hahn v. Court of Appeals, 266 SCRA 537 (1997) Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002) ****

Liability of Principal to Third Persons for Acts of the Agents Employees An examination of this Courts pronouncements in China Air Lines will reveal that an airline company is not completely exonerated from any liability for the tort committed by its agents employees. A prior determination of the nature of the passengers cause of action is necessary. If the passengers cause of action against the airline company is premised on culpa aquilianaor quasi-delict for a tort committed by the employee of the airline companys agent, there must be an independent showing that the airline company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline companys agent has committed a tort is not sufficient to hold the airline company liable. There is no vinculum juris between the airline company and its agents employees and the contractual relationship

between the airline company and its agent does not operate to create a juridical tie between the airline company and its agents employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its agents employees and the principal-agency relationship per se does not make the principal a party to such tort; hence, the need to prove the principals own fault or negligence. On the other hand, if the passengers cause of action for damages against the airline company is based on contractual breach or culpa contractual, it is not necessary that there be evidence of the airline companys fault or negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs. Gillego, in an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier. (Spouses Viloria v. Continental Airlines, Inc.,G.R. No. 188288, 16 January 2012) Thus, with regard to the delivery of the petroleum, Villaruz was acting as the agent of petitioner Petron. For a fee, he delivered the petroleum products on its behalf. Notably, petitioner even imposed a penalty clause in instances when there was a violation of the hauling contract, wherein it may impose a penalty ranging from a written warning to the termination of the contract. Therefore, as far as the dealer was concerned with regard to the terms of the dealership contract, acts of Villaruz and his employees are also acts of petitioner.(PetronCorp. v. Spouses Cesar Jovero& Erma F. Cudilla, G.R. No. 151038, 18 January 2012)

Chapter 4 Modes of Extinguishment of Agency Article 1919 How and When Agency Extinguished 1. By principals revocation of agency (express or implied) 2. By agents withdrawal from agency 3. By death, civil interdiction, insanity or insolvency of the principal or the agent 4. By the dissolution of the juridical entity which entrusted or accepted the agency 5. By the accomplishment of the object or purpose of agency 6. By the expiration of the period for which agency was constituted

Express Revocation Article 1920 The Principal may Revoke an Agency at Will In which case, the principal may compel the agent to return the document evidencing the agency 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. (Daon v. Brimo, 42 Phil 133, 1921) Article 1925 Each Principal has the Right to Revoke Authority of the Common Agent Obligation of several principals to a common agent is solidary. (Art. 1915) Each principal has the right to revoke authority of the common agent without the consent of the other

Implied Revocation Article 1923 The Appointment of a New Agent for the Same Business or Transaction In litigation, the fact that a second attorney enters his appearance for the same party does not necessarily raise the presumption that the authority of the first attorney has been withdrawn. (Elbina v. Ceniza, G.R. No. 154019 August 10, 2006) 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. (Garcia v. De Manzano, 39 Phil 577, 1919) Case: Elbina v. Ceniza, G.R. No. 154019 August 10, 2006

Agency is revoked from the day on which notice thereof is given to the former agent, without prejudice to Art. 1921 and Art. 1922 ! Impliedly revoked as to the agent only ! As to third persons, notice to them is necessary:

Article 1924

Revocation of agency entrusted for purpose of contracting with specified persons specified persons shall not be prejudiced if they were not given notice (Art. 1921) Revocation of agent who had general power of attorney third persons who acted in good faith and without knowledge shall not be prejudiced NOTE: notice in newspaper of general circulation is sufficient warning Special notification or public advertisement of power of attorney revoked in the same manner (Art. 1873)

The Principal Directly Manages the Business Entrusted to the Agent by Dealing Directly with Third Persons Case: CMS Logging v. Court of Appeals, 211 SCRA 374 (1992)

Article 1926

A General Power of Attorney is Revoked by a Special Power of Attorney Granted to Another Agent, as Regards the Special Matter Involved in the Latter (Art. 1926) Case: DyBuncio and Co. v. Ong Guan Can, 60 Phil 696 (1934) Valenzuela v. Court of Appeals, 191 SCRA 1 (1990)

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. (DyBuncio and Co. v. Ong Guan Can, 60 Phil 696, 1934) It is well settled that an employer or principal may discharge or dismiss his employee or agent for just cause or for malfeasance or misfeasance in the performance of his duties. (Manila Trading v. Manila Trading Laborers Assn., 83 Phil 297, 1949) Under the contract, herein petitioners allowed the private respondent "to dispose of, sell, cede, transfer and convey ... until out the subject property as subdivided is fully disposed of." The authority to sell is not extinguished until all the lots have been disposed of. When, therefore, the petitioners revoked the contract with private respondent in a letter, xxx they become liable to the private respondent for damages for breach of contract. And, it may be added that since the agency agreement xxx is a valid contract, the same may be rescinded only on grounds specified in Articles 1381 and 1382 of the Civil Code, as follows: Art. 1381. The following contracts are rescissible: (1) Those which are entered in to by guardians whenever the wards whom they represent suffer lesion by more than onefourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the

latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other name collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. In the case at bar, not one of the grounds mentioned above is present which may be the subject of an action of rescission, much less can petitioners say that the private respondent violated the terms of their agreement-such as failure to deliver to them (Subdivision owners) the proceeds of the purchase price of the lots. (Dialosa v. Court of Appeals, 130 SCRA 350, 1984) The pivotal factor rendering Philamgen and the other private respondents liable in damages is that the termination by them of the General Agency Agreement was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he is liable in damages. This is in accordance with the precepts in Human Relations enshrined in our Civil Code that "every person must in the exercise of his rights and in the performance of his duties act with justice, give every one his due, and observe honesty and good faith (Art. 19, Civil Code), and every person who, contrary to law, wilfully or negligently causes damages to another, shall indemnify the latter for the same (Art. 20). Any person who wilfully causes loss or injury to another in a manner contrary to morals, good customs and public policy shall compensate the latter for the damages (Art. 21)(Valenzuela v. Court of Appeals, 191 SCRA 1, 1990) Irrevocable Agency (Agency Coupled with Interest) Article 1927 The Principal may not Revoke an Agency at Will, if: 1. A bilateral contract depends upon it Case: Republic v. Evangelista, 466 SCRA 544 (2005)

Agency is extinguished by the death of the principal. The only exception where the agency shall remain in full force and effect even after the death of the principal is when 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. (Sasaba v. Vda. De Te, 594 SCRA 410, 2009) 2. It is the means of fulfilling an obligation already contracted 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 LinaSevilla 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 cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner.(Sevilla v. Court of Appeals,160 SCRA 171, 1988) In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation and persuasion of the prospective clients to buy insurance policies. Normally, agents would encounter much embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement of the insurance policies. To sell policies, an agent exerts great effort, patience, perseverance, ingenuity, tact, imagination, time and money xxxTherefore, the respondents cannot state that the agency relationship between Valenzuela and Philamgen is not coupled with interest. There may be cases in which an agent has been induced to assume a responsibility or incur a liability, in reliance upon the continuance of the authority under such circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or liability xxx Furthermore, there is an exception to the principle that an agency is revocable at will and that is when the agency has been given not only for the interest of the principal but for the interest of third persons or for the mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases to be freely revocable by the sole will of the principal. (Valenzuela v. Court of Appeals, 191 SCRA 1, 1990) Cases: National Sugar Trading v. Philippine National Bank, 396 SCRA 528 (2003). Bacaling v. Muya, 380 SCRA 714 (2002)

3. If a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable Revocation needs the vote of controlling partners (Art. 1800) Case: Coleongco v. Claparols, 10 SCRA 577, 581-582 (1964) Philex Mining Corp. v. Commissioner of Internal Revenue, 551 SCRA 428 (2008).

A power of attorney can be made irrevocable by contract only in the sense that the principal may not recall it at his pleasure; but coupled with interest or not, the authority certainly can be revoked for a just cause, such as when the attorney-in-fact betrays the interest of the principal, as happened in this case. It is not open to serious doubt that the irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent for that would amount to

holding that a power coupled with an interest authorizes the agent to commit frauds against the principal.(Coleongco v. Claparols, 10 SCRA 577, 581582, 1964) In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it, or the mutual interest of both principal and agent. In this case, the non-revocation or non-withdrawal under [the Power of Attorney] applies to the advances made by petitioner [agent] who is supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that the parties relation under the agreement is one of agency coupled with an interest and not a partnership. (Philex Mining Corp. v. Commissioner of Internal Revenue, 551 SCRA 428, 2008) Effect of Revocation on Third Parties Article 1921 When It Affects Dealing with Specified Third Parties Art. 1921 refers to an agency created by principal to deal with specified third persons Revocation of agency entrusted for purpose of contracting with specified persons specified persons shall not be prejudiced if they were not given notice Case: Article 1922 Rallos v. Yangco, 20 Phil 269 (1911) Lustan v. CA, 266 SCRA 663 (1997)

When Revocation of Agents General Powers Effective Against Third Persons Refers to agency created to deal with the general public Revocation of agent who had general power of attorney third persons who acted in good faith and without knowledge shall not be prejudiced However, notice in newspaper of general circulation is sufficient warning 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. (Rammani v. Court of Appeals, 196 SCRA 731, 1991) Where a principal has been engaged, through his agent, in a series of purchase and sell transactions with a merchant, and purported suspended the agent without informing the merchant, the suspension of the agent could not work to the detriment of the merchant, thus: There is no convincing proof in the record that the orders given by the plaintiff to its agent (Gutierrez) had ever been communicated to the defendant. The defendant had a perfect right to believe, until otherwise informed, that the agent of the plaintiff, in his purchase of abaca and other effects, was still representing the plaintiff in said transactions. The Court also found anomalous the position taken by the principal whereby he was willing to ratify the acts of the agent in selling goods to the merchant, but unwilling to ratify the agents acts in purchasing

goods from the same merchant. (Compania Gen. De Tobacos v. Diaba, 20 Phil 321, 1911) While Art. 1358 of 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. (PNB v. IAC, 189 SCRA 680, 1990) * Compare Art. 1921 and Art.1922 with Art. 1873 Special notification or public advertisement of power of attorney revoked in the same manner Agents Withdrawal (Resignation) from Agency Article 1928 Right of Agent to Withdraw (Resign) from Agency By giving due notice to principal Agent to indemnify principal should be suffer any damage unless withdrawal is due to impossibility of continuing agency without grave detriment to agent From the procedure followed by the agent, Federico Hidalgo, it is logically inferred that he had definitely renounced his agency was duly terminated, according to the provisions of article 1732 of the Civil Code, because, although in the said letter the word "renounce" was not employed in connection with the agency or power of attorney executed in his favor, yet when the agent informs his principal that for reasons of health and by medical advice he is about to depart from the place where he is exercising his trust and where the property subject to his administration is situated, abandons the property, turns it over a third party, without stating when he may return to take charge of the administration, renders accounts of its revenues up to a certain date and transmits to his principal a general statement which summarizes and embraces all the balances of his accounts since he began to exercise his agency to the date when he ceased to hold his trust, and asks that a power of attorney in due form in due form be executed and transmitted to another person who substituted him and took charge of the administration of the principal's property, it is then reasonable and just to conclude that the said agent expressly and definitely renounced his agency, and it may not be alleged that the designation of Antonio Hidalgo to take charge of the said administration was that of a mere proceed lasted for more than fifteen years, for such an allegation would be in conflict with the nature of the agency. This renouncement was confirmed by the subsequent procedure, as well as of the agent as of the principal, until the latter died since the principal Pea did not disapprove the designation of Antonio Hidalgo, nor did he appoint another, nor send a new power of attorney to the same, as he was requested to by the previous administrator who abandoned his charge (Dela Pena v. Hidalgo, 16 Phil 450, 1910) The conclusion is reached that the disagreements between an agent and his

principal with respect to the agency, and the filing of a civil action by the former against the latter for the collection of the balance in favor of the agent, resulting from a liquidation of the agency accounts, are facts showing a rupture of relations, and the complaint is equivalent to an express renunciation of the agency, and is more expressive than if the agent had merely said, I renounce the agency.(Valera v. Velasco, 51 Phil 695, 1928) Article 1929 Obligation of Agent to Continue to Act Even After Withdrawing From Agency Even if the agent withdraws from the agency for a valid reason, he must continue to act until the principal has had reasonable opportunity to take necessary steps to meet situation Compare: Obligation of the agent in a situation when the agent declines the agency (Art. 1885)

Death of the Principal Case: Article 1930 Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978) Lavina v. Court of Appeals, 171 SCRA 691 (1988)

Agency Continues Despite the Death of the Principal 1. If it was constituted for common interest of the principal and the agent; or 2. If it was constituted in favor of third person who accepted stipulation in his favor Case: Perez v. PNB, 17 SCRA 833 (1966)

The argument that foreclosure by the Bank under its power of sale is barred upon death of the debtor, because agency is extinguished by the death of the principal, under Article 1732 of the Civil Code of 1889 and Article 1919 of the Civil Code of the Philippines, neglects to take into account that the power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. It is, in fact, an ancillary stipulation supported by the same causa or consideration for the mortgage and forms an essential and inseparable part of that bilateral agreement. As can be seen in the preceding quotations from Pasno vs. Ravina, 54 Phil. 382, both the majority and the dissenting opinions conceded that the power to foreclose extrajudicially survived the death of the mortgagor, even under the law prior to the Civil Code of the Philippines now in force. (Perez v. PNB, 17 SCRA 833, 1966; Superseded Pasno v. Ravina, 54 Phil. 382, 1930 and Del Rosario v. Abad, 104 Phil. 648, 1958) Article 1931 Effect of Acts Done by Agent Without Knowledge of Principals Death Acts are valid provided that: 1. The agent does not know of the death or other cause of extinguishment of agency; 2. The third person dealing with the agent must be in good faith (not aware of death or other cause) The death of the principal does not render the act of an agent unenforceable,

where the latter had no knowledge of such extinguishment the agency. Herrera v. Uy Kim Guan, 1 SCRA 406 (1961). As to the appellants' contention that, as the death of the principal on 14 March 1934 ended the authority of the agent,2 the sale of 8 hectares of the parcel of land by the agent to the appellee Mariano Panuyas and his wife Sotera B. Cruz was null and void, suffice it to state that is has not been shown that the agent knew of his principal's demise, and for that reason article 1738, old Civil code or 1931, new Civil Code, which provides: 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 is the law applicable to the point raised by the appellants.Buason v. Panuyas, 105 Phil 795 (1959) Death of the Agent The 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. (Terrado v. Court of Appeals, 131 SCRA 373, 1984) Article 1932 Obligation of Agents Heirs in Case of Agents Death Notify the principal of the death of the agent Adopt measure as the circumstances may demand in the interest of the latter We have noted earlier the death of Lacuesta in Our Resolution of July 2, 1984. His death is an irreversible fact that throws an entirely new bearing on the legal controversy at hand. For essentially, the contract of management and administration between the Municipality and Lacuesta is one of agency whereby 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. (Article 1868, New Civil Code). Here in the case at bar, Lacuesta bound himself as Manager-Administrator of the Bayambang Fishing & Hunting Park and Municipal Watershed to render service or perform duties and responsibilities in representation or on behalf of the Municipality of Bayambang, with the consent or authority of the latter pursuant to Ordinance No. 8. Under Article 1919, New Civil Code, agency is extinguished by the death of the agent. His rights and obligations arising from the contract are not transmittable to his heirs. (Art. 1311 , New Civil Code).(Terrado v. Court of Appeals, 131 SCRA 373, 1984) NOTE: If principal dies, the law is silent on whether his heirs have any obligation to notify the agent