Bucton vs. Rural Bank of El Salvador, Inc.

A mortgage executed by an authorized agent who signed in his or her own name without indicating that he or she acted for and on behalf of the principal binds only the agent and not the principal. The mere fact that the agent was authorized to mortgage the property is not sufficient to bind the principal unless the deed was executed and signed by the agent for and on behalf of the principal.

Petitioner Nicanora G. Bucton owned a parcel of land covered by Transfer Certificate of Title (TCT) No. T-3838, located in Cagayan de Oro City. Erlinda Concepcion obtained a loan from respondent Rural Bank of El Salvador, Misamis Oriental, and mortgaged petitioner's house and lot as security, using a Special Power of Attorney allegedly executed by petitioner in favor of Concepcion. The case involves the application of the law on agency, specifically the requirement that an agent must indicate that he or she is acting for and on behalf of the principal in order to bind the principal.

Petitioner Nicanora G. Bucton owned a parcel of land covered by Transfer Certificate of Title (TCT) No. T-3838, located in Cagayan de Oro City. On June 6, 1982, Erlinda Concepcion borrowed the title on the pretext that she was going to show it to an interested buyer. Concepcion then obtained a loan in the amount of ₱30,000.00 from respondent Rural Bank of El Salvador, Misamis Oriental, and as security for the loan, mortgaged petitioner's house and lot to respondent bank using a Special Power of Attorney allegedly executed by petitioner in favor of Concepcion. Concepcion failed to pay the loan, and petitioner's house and lot were foreclosed by respondent sheriff without a Notice of Extra-Judicial Foreclosure or Notice of Auction Sale, and were sold in an auction sale in favor of respondent bank.

Petitioner filed a case for Annulment of Mortgage, Foreclosure, and Special Power of Attorney, alleging that the SPA was forged. She testified that a representative of respondent bank went to her house to inform her that the loan secured by her house and lot was long overdue, and it was only then that she discovered that her house and lot was mortgaged by virtue of a forged SPA. She insisted that her signature and her husband's signature on the SPA were forged, and that ever since she got married, she no longer used her maiden name, Nicanora Gabar, in signing documents. She also denied appearing before the notary public who notarized the SPA, and testified that the property referred to in the SPA, TCT No. 3838, is a vacant lot, while the house that was mortgaged and foreclosed is covered by a different title, TCT No. 3839. To support her claim of forgery, petitioner presented Emma Nagac, who testified that when she was at Concepcion's boutique, she was asked by the latter to sign as a witness to the SPA, and that when she signed the SPA, the signatures of petitioner and her husband had already been affixed, and that Lugod instructed her not to tell petitioner about the SPA.

Respondent bank, on the other hand, presented the testimonies of its employees and respondent sheriff. Based on their testimonies, on June 8, 1982, Concepcion applied for a loan for her coconut production business in the amount of ₱40,000.00 but only the amount of ₱30,000.00 was approved. She offered as collateral petitioner's house and lot using the SPA, and the proceeds of the loan were released to Concepcion and Lugod on June 11, 1982. Edwin Igloria, the bank appraiser, testified that Concepcion executed a Real Estate Mortgage over two properties, one registered in the name of petitioner and the other under the name of a certain Milagros Flores. He said that he inspected petitioner's property, that there were several houses in the compound, and although he was certain that the house offered as collateral was located on the property covered by TCT No. 3838, he could not explain why the house that was foreclosed is located on a lot covered by another title, not included in the Real Estate Mortgage.

The RTC sustained petitioner's claim that the SPA was forged, as the signatures appearing on the SPA are different from the genuine signatures presented by petitioner. The RTC opined that respondent bank should have conducted a thorough inquiry on the authenticity of the SPA considering that petitioner's residence certificate was not indicated in the acknowledgement of the SPA. The CA reversed, finding no cogent reason to invalidate the SPA, the Real Estate Mortgage, and Foreclosure Sale, and declaring that although the Promissory Note and the Real Estate Mortgage did not indicate that Concepcion was signing for and on behalf of her principal, petitioner is estopped from denying liability since it was her negligence in handing over her title to Concepcion that caused the loss.

• Forgery of the SPA: Petitioner maintained that the signatures in the SPA were forged and that she could not be held liable for the loan as it was obtained by Concepcion in her own personal capacity, not as an attorney-in-fact of petitioner.
• Negligence of the Bank: Petitioner denied that she was negligent and that her negligence caused the damage, instead putting the blame on respondent bank as it failed to carefully examine the title and thoroughly inspect the property, which would have led it to discover that the house and lot mortgaged by Concepcion are covered by two separate titles.
• Irregular Foreclosure: Petitioner claimed that respondent sheriff failed to show that he complied with the requirements of notice and publication in foreclosing her house and lot.

• Presumption of Regularity: Respondent bank relied on the presumption of regularity of the notarized SPA.
• Due Diligence: Respondent bank insisted that it was not negligent as it inspected the property before it approved the loan, unlike petitioner who was negligent in entrusting her title to Concepcion.
• Exemption from Publication: Respondent bank contended that under the Rural Bank Act, all loans whose principal is below ₱100,000.00 are exempt from publication, and hence, the posting of the Notice of Foreclosure in the places defined by the rules was sufficient, and respondent sheriff is presumed to have regularly performed his work.

• Binding Effect of the Mortgage: Whether the Court of Appeals was right in declaring petitioner liable on the litigated loan/mortgage when she did not execute the subject mortgage either in person or by attorney-in-fact, and when the loan secured by the mortgage was Concepcion's exclusive loan for her own coconut production.
• Application of Article 1878: Whether under Article 1878 of the New Civil Code, the Court of Appeals was right in making petitioner a surety primarily answerable for Concepcion's personal loan, in the absence of the required Special Power of Attorney.
• Self-Serving Declarations: Whether the Court of Appeals was right when it ruled that petitioner's declarations are self-serving to justify its reversal of the trial court's judgment, in the face of respondents' documentary evidence.
• Negligence of Petitioner: Whether the Court of Appeals was right when it found that it was petitioner's negligence which made the loss possible, despite the bank's failure to conduct careful examination of the applicant's title as well as physical investigation of the land offered as security.
• False Testimony of Bank Employee: Whether the Court of Appeals was right when it disregarded the false testimony of the respondent bank's employee who declared that he conducted actual inspection of the mortgaged property and investigation where he allegedly verified the questioned SPA.
• Validity of the SPA: Whether the Court of Appeals was right when it disregarded established facts and circumstances proving that the SPA is a forged document and/or infected by infirmities divesting it of the presumption of regularity conferred by law on notarized deeds.

• Binding Effect of the Mortgage: No. The Real Estate Mortgage was entered into by Concepcion in her own personal capacity, and there is nothing in the document to show that she was acting or signing as an agent of petitioner. Consistent with the law on agency and established jurisprudence, petitioner cannot be bound by the acts of Concepcion.
• Application of Article 1878: No. The Court did not need to reach the issue of whether petitioner could be made a surety under Article 1878, because the Real Estate Mortgage is void and unenforceable against petitioner as it was signed by Concepcion in her personal capacity and not as an agent of petitioner.
• Self-Serving Declarations: No. The Court found no need to delve on the issues of forgery of the SPA and the nullity of the foreclosure sale, for even if the SPA was valid, the Real Estate Mortgage would still not bind petitioner as it was signed by Concepcion in her personal capacity.
• Negligence of Petitioner: No. Respondent bank has no one to blame but itself, as it acted with undue haste when it granted and released the loan in less than three days, and it acted negligently in preparing the Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of petitioner.
• False Testimony of Bank Employee: No. The Court did not address this issue directly, as the resolution of the case turned on the fact that the Real Estate Mortgage was signed by Concepcion in her personal capacity.
• Validity of the SPA: No. The Court did not need to resolve the issue of forgery of the SPA, for even if the SPA was valid, the Real Estate Mortgage would still not bind petitioner as it was signed by Concepcion in her personal capacity and not as an agent of petitioner.

• Binding Effect of the Mortgage: The Court relied on the early case of Philippine Sugar Estates Development Co. vs. Poizat, which ruled that "in order to bind the principal by a deed executed by an agent, the deed must upon its face purport to be made, signed and sealed in the name of the principal." The mere fact that the agent was authorized to mortgage the property is not sufficient to bind the principal, unless the deed was executed and signed by the agent for and on behalf of his principal. This ruling was adhered to and reiterated with consistency in the cases of Rural Bank of Bombon (Camarines Sur), Inc. vs. Court of Appeals, Gozun vs. Mercado, and Far East Bank and Trust Company (Now Bank of the Philippine Island) vs. Cayetano. In this case, the Real Estate Mortgage explicitly shows on its face that it was signed by Concepcion in her own name and in her own personal capacity, and there is nothing in the document to show that she was acting or signing as an agent of petitioner. Thus, consistent with the law on agency and established jurisprudence, petitioner cannot be bound by the acts of Concepcion.
• Application of Article 1878: The Court found no need to delve on the issues of forgery of the SPA and the nullity of the foreclosure sale, for even if the SPA was valid, the Real Estate Mortgage would still not bind petitioner as it was signed by Concepcion in her personal capacity and not as an agent of petitioner. Simply put, the Real Estate Mortgage is void and unenforceable against petitioner.
• Self-Serving Declarations: The Court did not address this issue directly, as the resolution of the case turned on the fact that the Real Estate Mortgage was signed by Concepcion in her personal capacity.
• Negligence of Petitioner: The Court found that respondent bank has no one to blame but itself. Not only did it act with undue haste when it granted and released the loan in less than three days, it also acted negligently in preparing the Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of petitioner. The words "as attorney-in-fact of," "as agent of," or "for and on behalf of," are vital in order for the principal to be bound by the acts of his agent. Without these words, any mortgage, although signed by the agent, cannot bind the principal as it is considered to have been signed by the agent in his personal capacity.
• False Testimony of Bank Employee: The Court did not address this issue directly, as the resolution of the case turned on the fact that the Real Estate Mortgage was signed by Concepcion in her personal capacity.
• Validity of the SPA: The Court found no need to delve on the issues of forgery of the SPA and the nullity of the foreclosure sale, for even if the SPA was valid, the Real Estate Mortgage would still not bind petitioner as it was signed by Concepcion in her personal capacity and not as an agent of petitioner.

• Doctrine of Agency — Binding the Principal — In order to bind the principal by a deed executed by an agent, the deed must upon its face purport to be made, signed and sealed in the name of the principal. The mere fact that the agent was authorized to mortgage the property is not sufficient to bind the principal, unless the deed was executed and signed by the agent for and on behalf of his principal. The words "as attorney-in-fact of," "as agent of," or "for and on behalf of," are vital in order for the principal to be bound by the acts of his agent. Without these words, any mortgage, although signed by the agent, cannot bind the principal as it is considered to have been signed by the agent in his personal capacity.

• "A mortgage executed by an authorized agent who signed in his own name without indicating that he acted for and on behalf of his principal binds only the agent and not the principal." — This is the opening statement of the decision and states the core ratio decidendi of the case.
• "In order to bind the principal by a deed executed by an agent, the deed must upon its face purport to be made, signed and sealed in the name of the principal." — This quotation from Philippine Sugar Estates Development Co. vs. Poizat is the canonical formulation of the rule on agency that the Court applied in this case.
• "We need not belabor that the words 'as attorney-in-fact of,' 'as agent of,' or 'for and on behalf of,' are vital in order for the principal to be bound by the acts of his agent. Without these words, any mortgage, although signed by the agent, cannot bind the principal as it is considered to have been signed by the agent in his personal capacity." — This passage explains the rationale for the Court's ruling and emphasizes the importance of the agent indicating his or her representative capacity in the document.

• Philippine Sugar Estates Development Co. vs. Poizat, 48 Phil. 536 (1925) — Controlling precedent that established the rule that in order to bind the principal by a deed executed by an agent, the deed must upon its face purport to be made, signed and sealed in the name of the principal.
• Rural Bank of Bombon (Camarines Sur), Inc. vs. Court of Appeals, G.R. No. 95703, August 3, 1992, 212 SCRA 25 — Followed; reiterated the rule that an agent who contracts a loan and executes a real estate mortgage without indicating that he was acting on behalf of his principal does not bind the principal.
• Gozun vs. Mercado, 540 Phil. 323 (2006) — Followed; reiterated the rule that an agent who obtains a cash advance but signs the receipt in her name alone, without any indication that she was acting for and on behalf of her principal, does not bind the principal.
• Far East Bank and Trust Company (Now Bank of the Philippine Island) vs. Cayetano, G.R. No. 179909, January 25, 2010, 611 SCRA 96 — Followed; reiterated the rule that a mortgage signed by the agent and her husband as mortgagors in their individual capacities, without stating that the agent was executing the mortgage for and on behalf of her principal, does not bind the principal.

• Article 1878, New Civil Code — Cited in petitioner's arguments regarding the requirement of a Special Power of Attorney for an agent to bind the principal. The Court's ruling effectively applied this provision by holding that the absence of an indication that Concepcion was acting as an agent meant the mortgage did not bind petitioner.
• Article 2208, New Civil Code — Cited by the Court to support the award of attorney's fees, specifically paragraph (2) which allows recovery of attorney's fees when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest.

• Carpio, J. (Chairperson)
• Brion, J.
• Perez, J.
• Perlas-Bernabe, J.