Sunday, November 27, 2011

Far East Bank and Trust Company (Now Bank of the Philippine Islands) and Rolando Borja, Deputy Sherrif vs. Sps. Ernesto and Leonor C. Cayetano, G.R. No. 179909, January 25, 2010,

In Far East Bank and Trust Company (Now Bank of the Philippine Islands) and Rolando Borja, Deputy Sherrif vs. Sps. Ernesto and Leonor C. Cayetano, G.R. No. 179909, January 25, 2010, the principal executed a special power of attorney in favor of her daughter authorizing her to contract a loan from a bank and to mortgage the principal’s two lots. The principal also executed an affidavit of non-tenancy for the approval of the loan. The bank granted a loan secured by two promissory notes and a real estate mortgage over the principal’s two lots. The mortgage document was signed by the agent and her husband as mortgagors in their individual capacities, without stating that the agent was executing the mortgage contract for and in behalf of the principal. 

The bank foreclosed the mortgage due to non-payment of the loan. A notice of public auction sale was sent to principal. The latter’s lawyer responded with a letter to the bank requesting that the public auction be postponed. The letter went unheeded and the public auction was held as scheduled wherein the mortgaged properties were sold to the bank. Subsequently, the bank consolidated its title and obtained new titles in its name after the redemption period lapsed without the principal taking any action. 

Around five years later, the principal filed a complaint for annulment of mortgage and extrajudicial foreclosure of the properties with damages with the regional trial court (RTC) of Naga City. The principal sought nullification of the real estate mortgage and extrajudicial foreclosure sale, as well as the cancellation of the bank’s title over the properties. 

The RTC rendered judgment in favor of the principal, holding that the principal cannot be bound by the real estate mortgage executed by the agent unless it is shown that the same was made and signed in the name of the principal; hence, the mortgage will bind the agent only. 

The Court of Appeals (CA) affirmed the RTC’s ruling. It held that it must be shown that the real estate mortgage was executed by the agent on behalf of the principal, otherwise the agent may be deemed to have acted on his own and the mortgage is void. However, the CA further declared that the principal loan agreement was not affected, which had become an unsecured credit. 

The Supreme Court held that the principal is not bound by the real estate mortgage executed by the authorized agent in her own name without indicating the principal. It is not sufficient for the principal to have authorized the agent through a special power of attorney to execute the mortgage on behalf of the principal; the mortgage contract itself must clealy state that the agent was executing the mortgage contract for and on behalf of the principal. 


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