Case Summary (G.R. No. 85302)
Petitioner’s Loan and Security Instruments
On 31 March 1976 Juan de Jesus executed a Special Power of Attorney in favor of his son Jose authorizing negotiation and mortgage of his real property, preferably with Bicol Savings Bank. Pursuant thereto, on 13 April 1976 Jose obtained a P20,000 loan from the petitioner and executed a deed of mortgage on the described parcel. The mortgage contained a clause authorizing the mortgagee to declare acceleration upon default and to foreclose either judicially or extrajudicially (in accordance with Act No. 3135, as amended, or Act No. 1508), and it appointed the mortgagee as attorney-in-fact for purposes of extrajudicial sale.
Extrajudicial Foreclosure, Auction, and Subsequent Transactions
Juan de Jesus died at an unspecified date. Because of nonpayment, the bank initiated extrajudicial foreclosure on 16 November 1978 and purchased the property as highest bidder at public auction, receiving a Provisional Certificate of Sale. After the heirs failed to redeem within one year from registration of the Provisional Certificate on 21 November 1980, a Definite Certificate of Sale issued to the bank on 7 September 1982. The heirs continued negotiations unsuccessfully; the bank then sold the property in instalments to third parties under conditional deeds of sale and obtained a Writ of Possession.
Trial Court Proceedings and Ruling
On 31 January 1983 the heirs filed a complaint in the Court of First Instance of Naga City seeking annulment of the foreclosure sale or repurchase. The trial court dismissed the complaint, finding that the bank’s title had become absolute upon issuance and registration of the Definite Deed of Sale in September 1982 and that the heirs’ delay in filing rendered them guilty of laches.
Court of Appeals Decision and Rationale
On appeal the Court of Appeals reversed the trial court. It applied Article 1879 of the Civil Code, reasoning that a special power to mortgage does not include the power to sell — thus the special power of attorney granted by Juan to Jose (to mortgage) did not authorize Jose to agree to or effect an extrajudicial foreclosure sale. The appellate court concluded the attorney-in-fact exceeded his authority and that the bank should have pursued judicial foreclosure; it annulled the extrajudicial foreclosure, the Provisional and Definite Certificates/Deeds of Sale, their registration, and the Writ of Possession.
Issue Presented to the Supreme Court
Whether the extrajudicial foreclosure sale effected by the bank was valid and effective; specifically, whether the agent-son exceeded the scope of his authority by consenting to or executing a mortgage clause that allowed extrajudicial foreclosure and sale, thereby invalidating the foreclosure and subsequent titles.
Legal Provisions and Precedents Relied Upon
Controlling provisions and authorities in the decision include Article 1879 of the Civil Code (“A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell”), Section 7, Rule 86 of the Rules of Court (providing three alternative remedies for a mortgagee when the mortgagor dies), the extrajudicial foreclosure statutes (Act No. 3135, as amended; Act No. 1508), and judicial precedents notably Perez v. Philippine National Bank (17 SCRA 833) and Pasno v. Ravina (54 Phil. 382) as discussed in the opinion.
Supreme Court Analysis on Article 1879 and Scope of the Power
The Supreme Court found Article 1879 inapplicable to the present situation because that provision addresses a voluntary, independent sale by an agent rather than an auction sale that results from extrajudicial foreclosure precipitated by the mortgagor’s default. The Court treated the power to extrajudicially foreclose as an ancillary but inseparable stipulation forming part of the mortgage contract, supported by the same consideration as the mortgage and intended for the mortgagee’s protection. The Court emphasized that the power to foreclose is not a mere ordinary agency of representation but a substantive right of the mortgagee that survives the mortgagor’s death.
Reliance on Rules of Court and Precedent for Mortgagee’s Remedy
The Court invoked Section 7, Rule 86 of the Rules of Court to show that a mortgagee has three alternative remedies when the mortgagor dies: (1) waive the mortgage and claim the debt as an ordinary claim against the estate; (2) foreclose judicially and claim any deficiency; or (3) rely exclusively on the mortgage, foreclosing it at any time before prescription and foregoing any deficiency claim. The Court cited Perez v. Philippine National Bank as expressly upholding extrajudicial foreclosure as a valid exercise of the mortgagee’s third remedy and rejecting a contrary reading in Pasno v. Ravina that would effectively eliminate that option.
Treatment of Authority Conferred by Attorney-in-Fact
The Court held that it is immaterial that the foreclosure authority
...continue readingCase Syllabus (G.R. No. 85302)
Citation and Court
- Reported at 253 Phil. 620.
- SECOND DIVISION, G.R. No. 85302, March 31, 1989.
- Decision designated in the body as MELENCIO-HERRERA, J.
- Footnote in source: Penned by Justice Celso L. Magsino and concurred in by Presiding Justice Oscar R. Victoriano and Justice Luis L. Victor.
Nature of the Petition
- Petition for Review on Certiorari filed by Bicol Savings and Loan Association seeking reversal of the Decision of the Court of Appeals in CA-G.R. CV NO. 02213 dated 11 August 1988.
- The Court of Appeals had ruled adversely to the petitioner; the petitioner bank sought to set aside that ruling.
Facts
- Owner: Juan de Jesus owned a parcel of land containing an area of 6,870 sq. ms., more or less, situated in Naga City.
- Special Power of Attorney: On 31 March 1976, Juan executed a Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)
- Loan and Mortgage: By virtue of that power, Jose obtained a loan of twenty thousand pesos (P20,000.00) from petitioner bank on 13 April 1976 and executed a deed of mortgage to secure payment.
- Mortgage stipulation: The mortgage contract contained, inter alia, the stipulation:
- "b) If at any time the Mortgagor shall refuse to pay the obligations herein secured, or any of the amortizations of such indebtedness when due, or to comply with any of the conditions and stipulations herein agreed......, then all the obligations of the Mortgagor secured by this Mortgage, all the amortizations thereof shall immediately become due, payable and defaulted and the Mortgagee may immediately foreclose this mortgage in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended, or Act No. 1508. For the purpose of extrajudicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to sell the property mortgaged......" (CA Decision, pp. 47-48, Rollo)
- Death of mortgagor: Juan de Jesus died on a date not appearing of record.
- Default and Foreclosure: Because of failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed on 16 November 1978.
- Auction and Certificates:
- At the public auction the mortgaged property was sold to the bank as the highest bidder; a Provisional Certificate of Sale was issued.
- Private respondents, heirs of Juan (including Jose), failed to redeem the property within one year from registration of the Provisional Certificate of Sale on 21 November 1980.
- A Definite Certificate of Sale was issued in favor of the bank on 7 September 1982.
- Subsequent negotiations and disposition:
- Private respondents negotiated with the bank for repurchase; offers and counter-offers were made but no agreement was reached.
- The bank sold the property to other parties in installments; conditional deeds of sale were executed between the bank and those parties.
- A Writ of Possession prayed for by the bank was granted by the Regional Trial Court.
- Complaint by heirs: On 31 January 1983, private respondents filed a Complaint with the then Court of First Instance of Naga City for annulment of the foreclosure sale or for the repurchase of the property.
- Trial Court ruling: The Court dismissed the case, ruling:
- That the action was principally for annulment of the Definite Deed of Sale issued to the bank.
- That the title of the bank over the mortgaged property had become absolute upon issuance and registration of the deed in September 1982.
- That private respondents were guilty of laches for failing to act until 31 January 1983.
- Court of Appeals ruling: On appeal, the Court of Appeals reversed the Trial Court, applying Article 1879 of the Civil Code and holding:
- The special power to mortgage granted to Jose did not include the power to sell.
- It was error for the lower court not to declare the foreclosure proceedings and auction sale held in 1978 null and void because the Special Power of Attorney given by Juan to Jose was merely to mortgage the property, and not to extrajudicially foreclose the mortgage and sell the property.
- The Appellate Court opined that the bank should have resorted to judicial foreclosure.
- The Court of Appeals annulled the extrajudicial foreclosure sale, the Provisional and Definite Deeds of Sale, their registration, and the Writ of Possession issued to the bank.
- Supreme Court petition: The bank filed the present petition seeking review; the Supreme Court gave due course.
Procedural Posture
- Facts and foreclosure: extrajudicial foreclosure conducted by bank on 16 November 1978; Provisional Certificate registered 21 November 1980; Definite Certificate issued 7 September 1982.
- Litigation timeline:
- Complaint filed by heirs: 31 January 1983 (Court of First Instance, Naga City).
- Trial Court dismissed complaint for annulment/repurchase.
- Court of Appeals reversed Trial Court on 11 August 1988 (CA-G.R. CV NO. 02213).
- Supreme Court decision rendered 31 March 1989 in G.R. No. 85302.
Issues Presented
- Whether the extrajudicial foreclosure sale of the mortgaged property instituted by petitioner bank was valid.
- Whether the agent-son (Jose de Jesus) exceeded the scope of his authority under the Special Power of Attorney