Case Summary (G.R. No. 179909)
Factual Background
Respondent Leonor C. Cayetano executed a special power of attorney in favor of her daughter Teresita C. Tabing authorizing Tabing to contract a loan not exceeding PHP 300,000 and to mortgage two lots in Barangay Carolina, Naga City bearing Transfer Certificate of Title Nos. 12304 and 11621. Cayetano also executed an affidavit of non-tenancy for the loan approval. Tabing obtained a loan of PHP 100,000 from petitioner bank, secured by two promissory notes and a real estate mortgage over Cayetano's properties. The mortgage was executed by Tabing and her husband in their individual names; the instrument did not state that Tabing was acting for or in the name of Cayetano.
Foreclosure, Sale and Subsequent Acts
Petitioner foreclosed the mortgage for nonpayment and sent a notice of public auction scheduled for September 18, 1991. Respondents' counsel requested postponement of the auction by letter, but the auction proceeded and the properties were sold to petitioner for PHP 160,000. Petitioner consolidated title after the redemption period lapsed and obtained new titles in its name. On September 10, 1996, Tabing, purporting to act on behalf of Cayetano, offered to repurchase the properties for PHP 250,000 with proposed payment terms; petitioner declined, insisting on a minimum price of PHP 500,000 but invited respondents to participate in future bidding. When negotiations failed, respondents instituted an action on December 18, 1996 in the RTC seeking annulment of the mortgage and extrajudicial foreclosure, damages, and cancellation of petitioner's titles.
Trial Court Proceedings and Decision
The RTC, after trial, declared the real estate mortgage void and unenforceable against plaintiffs Sps. Ernesto and Leonor C. Cayetano. The trial court reasoned that an agent's execution of a mortgage will not bind the principal unless the instrument on its face purports to be made, signed and sealed in the name of the principal; because Tabing signed in her own name without indicating agency on the face of the instrument, the mortgage bound only Tabing and her husband. The trial court also found noncompliance with the publication requirement of Act No. 3135 for extrajudicial foreclosure, and held that any deviation therefrom rendered the sale voidable. The RTC ordered annulment of Transfer Certificates of Title Nos. 24272 and 24273 as to petitioner's title, but treated the spouses Tabing's obligation on the promissory notes as valid and enforceable against them.
Court of Appeals Ruling
The Court of Appeals affirmed the RTC's ruling that the mortgage was void as to Cayetano because Tabing executed the mortgage in her own name and not expressly as attorney-in-fact for the principal. The appellate court nevertheless declared that the principal loan agreement was not affected by that defect and had become an unsecured credit against the spouses Tabing. The Court of Appeals denied the bank's motion for reconsideration, prompting the present petition.
Issue Presented
The sole issue before the Supreme Court was whether a principal is bound by a real estate mortgage executed by an authorized agent in the agent's own name without indicating in the instrument that the agent acted for the principal.
Governing Doctrine on Agency and Mortgages
The Court reaffirmed settled doctrine that to bind a principal by a mortgage executed by an agent, the instrument must on its face purport to be made, signed and sealed in the name of the principal; otherwise the mortgage binds the agent only. The Court relied on its earlier decisions including The Philippine Sugar Estates Development Co., Ltd., Inc. v. Poizat, et al. and Rural Bank of Bombon (Camarines Sur), Inc. v. Court of Appeals, which held that an agent who signs a mortgage in his or her own name without indicating that the act is for the principal binds only himself or herself. The Court likewise noted analogous treatment in Gozun v. Mercado where a cash advance given to a person who signed in her own name was held to bind that person alone.
Application of the Doctrine to the Present Case
Applying the doctrine, the Court agreed that the real estate mortgage executed by Tabing and her husband did not bind Cayetano because the mortgage was executed in the identities of Tabing and her husband without indication that they signed as attorney-in-fact for Cayetano; thus the mortgage was void as to the principal. The Court acknowledged that this doctrinal rule rendered the mortgage ineffective to encumber Cayetano's title.
Equity, Laches and Denial of Relief
Notwithstanding the mortgage's nullity as to the principal, the Court invoked the equitable doctrine of laches. It stated that laches requires conduct on the part of the defendant giving rise to the situation complained of, delay in asserting the complainant's right after knowledge and opportunity to sue, lack of notice to the defendant that the complainant would assert the right, and injury or prejudice to the defendant if relief is granted. The Court observed that respondents had knowledge of the mortgage, its registration and annotation on their titles, and notice of the extrajudicial foreclosure and scheduled auction; t
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Case Syllabus (G.R. No. 179909)
Parties and Procedural Posture
- Petitioners Far East Bank and Trust Company and Rolando Borja, Deputy Sheriff filed a petition for review under Rule 45, 1997 Rules of Civil Procedure seeking reversal of adverse rulings below.
- Respondents Spouses Ernesto and Leonor C. Cayetano sued for annulment of mortgage, annulment of extrajudicial foreclosure sale, cancellation of titles, and damages in the Regional Trial Court of Naga City, Branch 61.
- The RTC entered judgment declaring the real estate mortgage void and ordering annulment of Transfer Certificates of Title Nos. 24272 and 24273 while holding the loan valid against the spouses Tabing.
- The Court of Appeals affirmed the RTC decision with modification as to interest and denied petitioners' motion for reconsideration.
- Petitioners invoked this Court's review of the Court of Appeals' December 8, 2006 Decision by a Rule 45 petition.
Key Factual Allegations
- Respondent Leonor C. Cayetano executed a special power of attorney in favor of her daughter Teresita C. Tabing authorizing a loan not exceeding PHP 300,000 and the mortgage of two lots with Transfer Certificate of Title Nos. 12304 and 11621.
- Teresita C. Tabing obtained a loan of PHP 100,000 from petitioner bank and executed two promissory notes and a real estate mortgage on Cayetano's properties.
- The deed of mortgage was signed by Tabing and her husband in their individual capacities without stating that Tabing signed for and on behalf of Cayetano.
- Petitioner bank proceeded with extrajudicial foreclosure, published a notice, and conducted a public auction on September 18, 1991 where the properties were sold to petitioner for PHP 160,000.
- Petitioner consolidated title after the redemption period lapsed and obtained new titles in its name.
- On September 10, 1996, Tabing wrote to petitioner on behalf of Cayetano proposing to repurchase the properties for PHP 250,000, which petitioner rejected and offered participation in a future bidding.
- Respondents filed their complaint on December 18, 1996, more than five years after the foreclosure sale.
Issue Presented
- The sole legal issue was whether the principal is bound by a real estate mortgage executed by an authorized agent in the agent's own name without indicating that the agent acted for and on behalf of the principal.
Contentions of the Parties
- Petitioners contended that the foreclosure and acquisition of title were valid and that the Court of Appeals erred in affirming annulment of the mortgage and cancellation of titles.
- Respondents contended that the mortgage was void as to Cayetano because the mortgage was executed in the agent's name and therefore did not bind the principal.
- Respondents sought annulment of the mortgage, annulment of the extrajudi