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FIRST DIVISION

FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS) AND ROLANDO BORJA, DEPUTY SHERIFF,

Petitioners,

- versus -

SPS. ERNESTO AND LEONOR C. CAYETANO,

Respondents.

G.R. No. 179909

Present:

PUNO, C.J., Chairperson,

CARPIO MORALES,

LEONARDO-DE CASTRO,

BERSAMIN, and

VILLARAMA, JR., JJ.

Promulgated:

January 25, 2010

x----------------------------------------------------x

DECISION

VILLARAMA, JR., J.:

This is a petition for review[1] under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the December 8, 2006 Decision[2] of the Court of Appeals in CA-G.R. CV No. 76382 which affirmed the May 24, 2002 Decision[3] of the Regional Trial Court (RTC) of Naga City, Branch 61 and dismissed petitioner Far East Bank and Trust Company’s appeal. The appellate court likewise denied its motion for reconsideration in a Resolution[4] dated September 6, 2007.

The undisputed facts of the case are summarized as follows:

Respondent Leonor C. Cayetano (Cayetano) executed a special power of attorney in favor of her daughter Teresita C. Tabing (Tabing) authorizing her to contract a loan from petitioner in an amount not more than three hundred thousand pesos (P300,000.00) and to mortgage her two (2) lots located in Barangay Carolina, Naga City with Transfer Certificate of Title Nos. 12304 and 11621.[5] For the approval of the loan, Cayetano also executed an affidavit of non-tenancy.[6] Petitioner loaned Tabing one hundred thousand pesos (P100,000.00) secured by two (2) promissory notes and a real estate mortgage over Cayetano’s two (2) properties.[7] The mortgage document was signed by Tabing and her husband as mortgagors in their individual capacities, without stating that Tabing was executing the mortgage contract for and in behalf of the owner (Cayetano).[8]

Petitioner foreclosed the mortgage for failure of the respondents and the spouses Tabing to pay the loan. A notice of public auction sale, to be conducted on September 18, 1991,[9] was sent to respondents.   The latter’s lawyer responded with a letter[10] to petitioner requesting that the public auction be postponed. Respondents’ letter went unheeded and the public auction was held as scheduled wherein the subject properties were sold to petitioner for one hundred sixty thousand pesos (P160,000.00).[11] Subsequently, petitioner consolidated its title and obtained new titles in its name after the redemption period lapsed without respondents taking any action.

More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter dated September 10, 1996 to petitioner expressing the intent to repurchase the properties for two hundred fifty thousand pesos (P250,000.00) with proposed terms of payment.[12] Petitioner refused the offer stating that the minimum asking price for the properties was five hundred thousand pesos (P500,000.00) and it was not amenable to the proposed terms of payment. Petitioner nevertheless gave respondents the chance to buy back the properties by joining a bidding to be set in some future date.[13] However, respondents filed on December 18, 1996 a complaint for annulment of mortgage and extrajudicial foreclosure of the properties with damages in the RTC of Naga City.  Respondents sought nullification of the real estate mortgage and extrajudicial foreclosure sale, as well as the cancellation of petitioner’s title over the properties.[14]

After trial, the RTC rendered judgment in favor of the respondents, holding that the principal (Cayetano) cannot be bound by the real estate mortgage executed by the agent (Tabing) 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 trial court also found that there was no compliance with the requirement of publication of the foreclosure sale in a newspaper of general circulation as provided in Act No. 3135, as amended. Such requisite must be strictly complied with as any slight deviation therefrom will render the sale voidable.[15]

The Court of Appeals 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 appellate court further declared that the principal loan agreement was not affected, which had become an unsecured credit. The Court of Appeals denied petitioner’s motion for reconsideration.[16]

Hence, the present petition.

The only issue before us is whether or not the principal is bound by the real estate mortgage executed by the authorized agent in her own name without indicating the principal.

The issue is not novel. The RTC and the Court of Appeals are both correct in holding that our decision in The Philippine Sugar Estates Development Co., Ltd., Inc. v. Poizat, et al.[17] (Poizat Case), as reiterated in the case of Rural Bank of Bombon (Camarines Sur), Inc.  v. Court of Appeals[18] (Bombon Case), finds application in the instant case. The factual circumstances of said cases are similar to the case at bar, where an authorized agent executed a real estate mortgage on the principal’s property in her own name without indicating that she was acting on behalf of the principal.

In the Poizat Case, Gabriela Andrea de Coster (Coster) executed a general power of attorney authorizing her husband, Juan Poizat (Poizat), to obtain a loan and to secure the same with mortgage, pledge or personal securities. Poizat obtained a credit of ten thousand (10,000) Pounds Sterling from petitioner therein, and executed a mortgage upon the real property of his wife. Although the provisions of the real estate mortgage mentioned that it was entered also in Poizat’s capacity as attorney-in-fact of Coster, Poizat signed the contract in his own name without any indication that he also signed it as the attorney-in-fact of his wife. For failure to pay the loan, the petitioner foreclosed on the mortgage but this was opposed by Coster. The Court ruled on the legal force and effect of the real estate mortgage in question, by whom and for whom it was executed, and whether or not it was void as to Coster, in this wise:

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal. [EMPHASIS SUPPLIED]

Thus, while Poizat may have had the authority to borrow money and mortgage the real property of his wife, the law specifies how and in what manner it must be done, and the stubborn fact remains that, as to the transaction in question, that power was never exercised. The mortgage in question was executed by him and him only, and for such reason, it is not binding upon the wife, and as to her, it is null and void.

In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S. Aquino (Aquino) to contract a loan from any bank and secure it with mortgage on her property. Gallardo also delivered her owner’s copy of Transfer Certificate of Title to Aquino. Aquino obtained a loan from petitioner bank and executed a deed of real estate mortgage without indicating that he was acting in behalf of Gallardo. At the beginning of the mortgage deed, it was mentioned that the mortgage was executed by Aquino, attorney-in-fact of Gallardo, together with a description of his legal capacity to contract. Gallardo and her husband filed a complaint for annulment of mortgage against the petitioner and Aquino and one (1) of the grounds raised was that the mortgagor in the deed was Aquino instead of Gallardo. The trial court ordered the suspension of the foreclosure of the real estate mortgage until after the decision in the annulment case shall have become final and executory. The dismissal of the complaint for annulment of mortgage was appealed to the Court of Appeals which reversed the trial court and declared the mortgage contract void and unenforceable against Gallardo. Upon elevation to this Court, we held that “Aquino’s act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, without any indication that he was signing for and in behalf of the property owner, Ederlinda M. Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo.”[19]

In the fairly recent case of Gozun v. Mercado,[20] respondent Mercado denied having authorized his sister-in-law (Lilian) to borrow money from petitioner who gave her “cash advance” of P253,000.00 allegedly for allowances of poll watchers.  Petitioner sued respondent to collect on various sums due from the latter including the “cash advance” obtained by Lilian.  The trial court found for the petitioner and ordered the respondent to pay all amounts being claimed by the petitioner.  The Court of Appeals reversed the trial court’s decision and dismissed the complaint for lack of cause of action.  When the case reached this Court, petitioner argued that respondent had informed him that he had authorized Lilian to obtain the loan and hence, following Macke v. Camps which held that one who clothes another with apparent authority as his agent, and holds him out to the public as such, respondent cannot be permitted to deny the authority.  We sustained the Court of Appeals’ ruling on the matter and held that respondent was not liable for the “cash advance” given by petitioner to Lilian who signed the receipt in her name alone, without indicating therein that she was acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or anyone for that matter.[21]

Notwithstanding the nullity of the real estate mortgage executed by Tabing and her husband, we find that the equity principle of laches is applicable in the instant case. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.[22] Its essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant’s right after he had knowledge of the defendant’s conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant.[23]

There is no absolute rule on what constitutes laches. It is a creation of equity and applied not really to penalize neglect or sleeping upon one’s rights but rather to avoid recognizing a right when to do so would result in a clearly inequitable situation. The question of laches, we said, is addressed to the sound discretion of the court and each case must be decided according to its particular circumstances.[24] Verily, in a number of cases, it had been held that laches, the essence of which is the neglect to assert a right over a long period of time, may prevent recovery of a titled property.[25]

In the present case, records clearly show that respondents could have filed an action to annul the mortgage on their properties, but for unexplained reasons, they failed to do so.  They only questioned the loan and mortgage transactions in December 1996, or after the lapse of more than five (5) years from the date of the foreclosure sale.  It bears noting that the real estate mortgage was registered and annotated on the titles of respondents, and the latter were even informed of the extrajudicial foreclosure and the scheduled auction. Instead of impugning the real estate mortgage and opposing the scheduled public auction, respondents’ lawyer wrote a letter to petitioner and merely asked that the scheduled auction be postponed to a later date. Even after five (5) years, respondents still failed to oppose the foreclosure and the subsequent transfer of titles to petitioner when their agent, Tabing, acting in behalf of Cayetano, sent a letter proposing to buy back the properties. It was only when the negotiations failed that respondents filed the instant case. Clearly, respondents slept on their rights.[26]

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2006 and the Resolution dated September 6, 2007 of the Court of Appeals in CA-G.R. CV No. 76382, as well as the Decision dated May 24, 2002 in Civil Case No. 96-3684 of the Regional Trial Court, Branch 61, Naga City, are hereby SET ASIDE.

The complaint for annulment of mortgage and extrajudicial foreclosure with damages and cancellation of titles filed by respondents is hereby DISMISSED.

No costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

REYNATO S. PUNO

Chief Justice

Chairperson

CONCHITA CARPIO MORALES

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

LUCAS P. BERSAMIN

Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Chief Justice



[1] Rollo, pp. 10-26.

[2] Id., pp. 30-37. Penned by Associate Justice Mario L. Guari?a III and concurred in by Associate Justices Roberto A. Barrios and Lucenito N. Tagle. The dispositive portion of the Decision reads as follows:

“IN VIEW OF THE FOREGOING, the decision appealed from is MODIFIED in that the interest rate shall be the stipulated 23 percent per annum instead of 12 percent. All other aspects of the decision are AFFIRMED.

SO ORDERED.”

[3] Id. at 88-95. Penned by Executive Judge Corazon A. Tordilla. The dispositive portion of the Decision reads as follows:

“WHEREFORE, the real estate mortgage executed in favor of the defendant Bank is hereby declared void and unenforceable against plaintiffs. Consequently, the Transfer Certificates of Title Nos. 24272 and 24273 are hereby ordered annulled.

“The loan however, of the spouses Tabing in the amount of Php. 100.000.00 shall remain valid and enforceable against them solodarily, as stated in the two promissory notes they executed (Exhs. A& B).

“Applying the ruling of the Supreme Court in the case of Medel vs. Court of Appeals, G.R. No. 131622, November 27, 1998, the spouses Tabing are to pay to the Far East Bank & Trust Company the amount of Php. 100,000.00 from July 13, 1989 with interest thereon of 12% per annum until the amount due is fully paid. They are also to pay attorney’s fees equivalent to 25% of the amount due.

“For insufficiency of evidence, the complaint against Sheriff Rolando Borja is hereby dismissed.

“SO ORDERED.”

[4] Id., p. 49.

[5] Id., pp. 145-146.

[6] Id., p. 160.

[7] Id., pp. 147-151.

[8] Id., pp. 149-151.

[9] Id., pp. 152 and 161.

[10] Id., p. 153.

[11] Id., pp. 154-155.

[12] Id., pp. 156-157.

[13] Id., p. 158.

[14] Id., pp. 50-55.

[15] Id., pp. 92-94.

[16] Id., pp. 34-36.

[17] 48 Phil. 536 (1925).

[18] G.R. No. 95703, August 3, 1992, 212 SCRA 25.

[19] Id., p. 30.

[20] G.R. No. 167812, December 19, 2006, 511 SCRA 305.

[21] Id., pp. 314-316, citing  Rural Bank of Bombon v. Court of Appeals (supra), Philippine Sugar Estates Development Co. v. Poizat, (supra) and Aguenza v. Metropolitan Bank and Trust Co., 337 Phil. 448, 457 (1997).

[22] Republic v. Sandiganbayan, G.R. Nos. 112708-09, March 29, 1996, 255 SCRA 438, 451.

[23] Catholic Bishop of Balanga v. Court of Appeals, G.R. No. 112519, November 14, 1996, 264 SCRA 181, 194.

[24] Chavez v. Bonto-Perez, G.R. No. 109808, March 1, 1995, 242 SCRA 73, 80.

[25] Ignacio v. Basilio, G.R. No. 122824, September 26, 2001, 366 SCRA 15; Po Lam v. Court of Appeals, G.R. No. 116220, December 6, 2000, 347 SCRA 86; and Declaro v. Court of Appeals, G.R. No. 119747, November 27, 2000, 346 SCRA 57.

[26] Vide: Carpo v. Chua, G.R. Nos. 150773 & 153599, September 30, 2005, 471 SCRA 471, 483; Landrito, Jr. v. Court of Appeals, G.R. No. 133079, August 9, 2005, 466 SCRA 107, 115; and Navarro v. Metropolitan Bank and Trust Company, G.R. No. 165697, August 4, 2009.