Case Summary (G.R. No. 95703)
Factual Background
On January 12, 1981, Ederlinda Gallardo executed a special power of attorney (SPA) in favor of Rufino Aquino authorizing him to secure a loan from any bank and to mortgage the property covered by TCT No. S-79238 (described as her paraphernal property), to sign and execute mortgages and related documents, and to receive and endorse loan proceeds. Gallardo delivered the SPA and her owner’s copy of the title to Aquino. On August 26, 1981, Aquino executed a Deed of Real Estate Mortgage in favor of the Rural Bank over three parcels covered by TCT No. S-79238, stating it secured “certain loans, advances, or other accommodations” totaling P350,000 with interest. Promissory notes evidencing the loans were dated after the mortgage (August 31, September 23 and October 26, 1981). The mortgage instrument identified Aquino as mortgagor and included his wife’s marital consent; the mortgage also appointed the bank as attorney-in-fact and receiver for purposes of foreclosure and contained a stipulation that loan proceeds would be applied to fishpond (bangus and sugpo) production.
Procedural History
Gallardo and her husband filed an action (annulment of mortgage and related claims) alleging that Aquino mortgaged her property for his personal loans and benefit, that correspondence was sent to Aquino’s address rather than Gallardo’s, and that Aquino waived rights and proper venue without Gallardo’s authority. The trial court issued a temporary restraining order and preliminary injunction enjoining foreclosure. The Rural Bank filed counterclaims and a foreclosure action which was consolidated with the annulment suit. The trial court granted summary judgment dismissing Gallardo’s annulment complaint and lifting the injunction; the bank was declared entitled to damages to be determined. The Court of Appeals reversed the trial court, declared the mortgage unauthorized, void and unenforceable against Gallardo, reinstated and made permanent the injunction, and ordered the bank to pay costs. The Supreme Court affirmed the Court of Appeals’ decision.
Central Legal Issue
Whether the Deed of Real Estate Mortgage executed by Rufino Aquino, purportedly as attorney-in-fact for Ederlinda Gallardo, is valid and enforceable against Gallardo.
Petitioner’s Argument
The Rural Bank contended the mortgage was valid because (1) Gallardo expressly authorized Aquino under the registered SPA; (2) the SPA was annotated on the title; (3) the SPA did not specify that any loan must be for Gallardo’s direct benefit, permitting that the loan could benefit Aquino; and (4) Article 1883 of the Civil Code supports that if an agent acts in his own name, the agent is bound and the contract is his, implying enforceability against the named mortgagor.
Court of Appeals’ Findings (as affirmed)
The Court of Appeals found that, despite the SPA, Aquino executed the mortgage and promissory notes in his personal capacity as mortgagor: his signature and the signatures on the promissory notes were presented as those of the mortgagor and of his spouse, with no indication that execution was expressly for and on behalf of Gallardo. The mortgage was executed before the loans were actually made and expressly contemplated that proceeds would be used for Aquino’s fishpond operations. The bank did not refute allegations that the loans were for Aquino’s personal use nor did it make adequate inquiry into whether the loans would benefit the principal rather than the agent. Given these facts, the court concluded that the mortgage effectively made Gallardo a surety for Aquino’s personal loans without the special power of attorney required under Article 1878 of the Civil Code to bind a principal as surety. The Court therefore declared the mortgage unauthorized, void and unenforceable against Gallardo, reinstated and made permanent the injunction, and taxed costs against the bank.
Legal Reasoning and Governing Principle
The decision applied the long-established rule in agency law (cited in the record from Philippine Sugar Estates Development Co. v. Poizat) that to bind a principal by a mortgage on real property, the agent must execute the instrument in the name of the principal; if the instrument, on its face, is executed in the agent’s own name, it binds the agent only
...continue readingCase Syllabus (G.R. No. 95703)
Citation, Panel and Dates
- Reported at 287 Phil. 26, First Division; G.R. No. 95703.
- Decision date of the Supreme Court: August 03, 1992.
- Opinion authored by Justice Grino-Aquino.
- Concurrence noted: Cruz (Chairman), Medialdea, and Bellosillo, JJ., concur.
Core Issue Presented
- Whether the Deed of Real Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino as purported attorney-in-fact of Ederlinda M. Gallardo in favor of Rural Bank of Bombon (Camarines Sur), Inc., is valid, binding and enforceable against Gallardo.
Relevant Parties and Roles
- Petitioner: Rural Bank of Bombon (Camarines Sur), Inc. (the Bank).
- Private respondents (plaintiffs in annulment suit): Ederlinda M. Gallardo and her husband Daniel Manzo.
- Defendant/cross-defendant: Rufino S. Aquino (purported attorney-in-fact for Gallardo).
- Court of Appeals as appellee in the petition context.
Material Facts — Power of Attorney and Title Delivery
- On January 12, 1981, Ederlinda M. Gallardo executed a Special Power of Attorney in favor of Rufino S. Aquino.
- The Special Power of Attorney authorized Aquino "1. To secure a loan from any bank or lending institution for any amount or otherwise mortgage the property covered by Transfer Certificate of Title No. S-79238 situated at Las Pinas, Rizal, the same being my paraphernal property, and in that connection, to sign, or execute any deed of mortgage and sign other document requisite and necessary in securing said loan and to receive the proceeds thereof in cash or in check and to sign the receipt therefor and thereafter endorse the check representing the proceeds of loan." (p. 10, Rollo.)
- Gallardo delivered to Aquino both the Special Power of Attorney and her owner’s copy of Transfer Certificate of Title No. S-79238 (19963-A).
Material Facts — Deed of Mortgage, Amount, and Purpose
- On August 26, 1981, Rufino S. Aquino executed a Deed of Real Estate Mortgage in favor of the Rural Bank of Bombon over the three parcels covered by TCT No. S-79238.
- The deed recited the mortgage was given as security for "certain loans, advances, or other accommodations obtained by the mortgagor from the mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the rate of fourteen (14%) per annum" (p. 11, Rollo).
- The deed expressly stipulated that the amounts obtained from the loans would be used or applied only for fishpond (bangus and sugpo) production.
- Promissory notes relating to the indebtedness were dated August 31, 1981; September 23, 1981; and October 26, 1981—each executed after the Deed of Real Estate Mortgage.
Plaintiffs’ (Gallardo and Manzo) Allegations and Relief Sought
- On January 6, 1984, Ederlinda Gallardo and Daniel Manzo filed an action against Rufino Aquino and the Bank, alleging among other things:
- Aquino left his residence in Bulacan and moved to Bicol, subsequently residing in Sta. Isabel and San Vicente, Calabanga, Camarines Sur.
- The plaintiffs were surprised to discover that the property had been mortgaged to pay personal loans obtained by Aquino solely for his personal use and benefit.
- The mortgagor named in the deed was defendant Aquino rather than plaintiff Gallardo, whose address on title remained Manuyo, Las Piñas, M.M.
- Correspondence relating to the mortgage was addressed to Aquino in Calabanga, Camarines Sur, and not to Gallardo’s postal address in Las Piñas.
- Aquino appointed the Bank as attorney-in-fact and receiver in case of judicial foreclosure, and Aquino purported to waive rights of Gallardo under Section 12, Rule 39 of the Rules of Court and the proper venue of foreclosure, all allegedly without Gallardo’s express authority.
- Plaintiffs sought annulment of the mortgage (i.e., declaration of its invalidity/unenforceability against Gallardo) and injunctive relief to restrain foreclosure.
Defenses and Counterclaims
- Rufino S. Aquino’s answer:
- Asserted that Gallardo authorized him to mortgage her property to a bank so he could use the proceeds to liquidate her obligation of P350,000 to him.
- Alleged that the obligation to pay the Rural Bank devolved on Gallardo; she later asked him to pay but disagreed to his terms.
- Requested moral damages of P50,000 and attorney’s fees of P35,000 from Gallardo.
- The Rural Bank’s pleadings:
- Moved to dismiss the annulment complaint.
- Filed counterclaims for litigation expenses, exemplary damages, and attorney’s fees.
- Filed a cross-claim against Aquino for P350,000 with interest, other bank charges, and damages if the mortgage were declared unauthorized.
- Subsequently filed a foreclosure complaint against Gallardo and Aquino (Civil Case No. 8330, Branch 141, RTC Makati) on August 30, 1984.
Interim Relief and Case Consolidation; Trial Court Rulings
- On January 23, 1984, the trial court (Hon. Fernando P. Agdamag) temporarily restrained the Bank from enforcing the mortgage and from foreclosing, either judicially or extrajudicially, until further orders (p. 36, Rollo).
- The foreclosure case (Civil Case No. 8330) and the annulment case (Civil Case No. 6062) were consolidated on motion of the plaintiff.
- On January 16, 1986, the trial court rendered summary judgment in Civil Case No. 6062:
- Dismissed the complaint for annulment of mortgage.
- Declared the Rural Bank entitled to damages the amount of which would be determined in appropriate proceedings.
- Lifted the writ of preliminary injunction previously issued.
- On April 23, 1986, in Civil Case No. 8330, the trial court ordered suspension of foreclosure proceedings until after the decision in the annulment case had become final and executory.
Court of Appeals Decision (Reversal of Trial Court)
- The Court of Appeals, in a decision dated September 18, 1990, reversed the trial court’s summary judgment.
- Dispositive portion as quoted:
- The CA declared the Deed of Real Estate Mortgage dated August 26, 1981, unauthorized, void and unenforceable against plaintiff Ederlinda Gallardo.
- Ordered reinstatement of the preliminary injunction issued at th