Far East Bank and Trust Company vs. Sps. Ernesto and Leonor C. Cayetano

A real estate mortgage executed by an authorized agent in the agent's own name, without indicating that the agent is acting for and in behalf of the principal, binds only the agent and is void as to the principal. However, the action to annul such a mortgage and the foreclosure sale may be barred by laches where the principal, with knowledge of the mortgage and foreclosure, fails to assert her rights within a reasonable time, warranting the presumption that she has abandoned or declined to assert them.

Respondent Leonor C. Cayetano executed a special power of attorney in favor of her daughter, Teresita C. Tabing, authorizing her to contract a loan from petitioner Far East Bank and Trust Company in an amount not exceeding ₱300,000.00 and to mortgage two lots owned by Cayetano. Cayetano also executed an affidavit of non-tenancy for the approval of the loan. The relationship between the parties was thus one of principal and agent, with the agent authorized to secure a loan using the principal's real properties as collateral.

Respondent Leonor C. Cayetano executed a special power of attorney in favor of her daughter, Teresita C. Tabing, authorizing her to contract a loan from petitioner Far East Bank and Trust Company in an amount not more than ₱300,000.00 and to mortgage Cayetano's two lots located in Barangay Carolina, Naga City, covered by Transfer Certificate of Title Nos. 12304 and 11621. Cayetano also executed an affidavit of non-tenancy for the approval of the loan. Petitioner loaned Tabing ₱100,000.00, secured by two promissory notes and a real estate mortgage over Cayetano's two properties. 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.

Petitioner foreclosed the mortgage for failure of the respondents and the spouses Tabing to pay the loan. A notice of public auction sale, scheduled for September 18, 1991, was sent to respondents. Respondents' lawyer responded with a letter requesting that the public auction be postponed, but the letter went unheeded and the auction was held as scheduled, wherein the subject properties were sold to petitioner for ₱160,000.00. 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 years later, Tabing, on behalf of Cayetano, sent a letter dated September 10, 1996 to petitioner expressing the intent to repurchase the properties for ₱250,000.00 with proposed terms of payment. Petitioner refused the offer, stating that the minimum asking price was ₱500,000.00 and that it was not amenable to the proposed terms of payment, but gave respondents the chance to buy back the properties by joining a future bidding. 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, seeking nullification of the real estate mortgage and extrajudicial foreclosure sale, as well as the cancellation of petitioner's title over the properties.

The RTC rendered judgment in favor of respondents, holding that the principal cannot be bound by the real estate mortgage executed by the agent unless it is shown that the same was made and signed in the name of the principal, and that there was no compliance with the publication requirement under Act No. 3135, as amended. The Court of Appeals affirmed, holding 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, but declared the principal loan agreement unaffected and an unsecured credit.

• Binding Effect of the Mortgage: Petitioner argued that the principal is bound by the real estate mortgage executed by the authorized agent, notwithstanding that the agent signed in her own name without indicating that she was acting on behalf of the principal.
• Laches: Petitioner maintained that respondents' action was barred by laches, as they failed to assert their rights for more than five years after the foreclosure sale despite having knowledge of the mortgage and the scheduled auction.

• Void Mortgage: Respondents argued that the real estate mortgage executed by Tabing in her own name, without indicating that she was acting for and in behalf of Cayetano, was void and unenforceable against the principal, following the Poizat doctrine.
• Non-Compliance with Publication Requirement: Respondents contended 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, which must be strictly complied with.

• Validity of the Mortgage: Whether the principal is bound by the real estate mortgage executed by the authorized agent in her own name without indicating the principal.
• Laches: Whether respondents' action to annul the mortgage and foreclosure sale is barred by laches.

• Validity of the Mortgage: No. The real estate mortgage executed by Tabing in her own name, without indicating that she was acting for and in behalf of Cayetano, is void and unenforceable against the principal, following the Poizat doctrine as reiterated in the Bombon case. The mortgage binds only the agent.
• Laches: Yes. Respondents' action is barred by laches, as they slept on their rights for more than five years from the date of the foreclosure sale before questioning the loan and mortgage transactions, despite having knowledge of the mortgage and the scheduled auction.

• Validity of the Mortgage: The Court applied the 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. The Court cited The Philippine Sugar Estates Development Co., Ltd., Inc. vs. Poizat, where the mortgage was executed by the agent in his own name and was held not binding upon the wife-principal, and Rural Bank of Bombon (Camarines Sur), Inc. vs. Court of Appeals, where the agent's act of signing the deed of real estate mortgage in his name alone, without any indication that he was signing for and in behalf of the property owner, bound himself alone in his personal capacity. The Court also cited Gozun vs. Mercado, where the agent who signed the receipt in her name alone, without indicating that she was acting for and in behalf of the respondent, bound herself in her personal capacity and not as an agent.
• Laches: The Court held that notwithstanding the nullity of the real estate mortgage, the equity principle of laches is applicable. 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. 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. The Court found 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 years from the date of the foreclosure sale. 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 merely asked that the auction be postponed. Even after five years, respondents still failed to oppose the foreclosure and the subsequent transfer of titles to petitioner. Clearly, respondents slept on their rights.

• Agency — Execution of Contracts by Agents — 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. The Court applied this doctrine in finding that the mortgage executed by Tabing in her own name was void as to the principal, Cayetano.
• Laches — 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. 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. 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 Court applied this doctrine to bar respondents' action, as they slept on their rights for more than five years.

• "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." — This passage from the Poizat case, quoted by the Court, states the controlling doctrine on when a principal is bound by a mortgage executed by an agent, and is the ratio decidendi for the first issue.
• "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." — This passage defines the doctrine of laches, which the Court applied to bar respondents' action despite the nullity of the mortgage.
• "Clearly, respondents slept on their rights." — This passage summarizes the Court's application of laches to the facts, finding that respondents' unexplained delay of more than five years in questioning the loan and mortgage transactions warranted dismissal of their complaint.

• The Philippine Sugar Estates Development Co., Ltd., Inc. vs. Poizat, 48 Phil. 536 (1925) — Controlling precedent establishing the rule that a mortgage executed by an agent in his own name, without indicating that he acts for and in behalf of the principal, binds only the agent and is void as to the principal.
• Rural Bank of Bombon (Camarines Sur), Inc. vs. Court of Appeals, G.R. No. 95703, August 3, 1992, 212 SCRA 25 — Followed, reiterating the Poizat doctrine; the agent's act of signing the deed of real estate mortgage in his name alone, without any indication that he was signing for and in behalf of the property owner, bound himself alone in his personal capacity.
• Gozun vs. Mercado, G.R. No. 167812, December 19, 2006, 511 SCRA 305 — Followed, applying the same rule where the agent signed the receipt in her name alone, without indicating that she was acting for and in behalf of the respondent, thus binding herself in her personal capacity.
• Republic vs. Sandiganbayan, G.R. Nos. 112708-09, March 29, 1996, 255 SCRA 438 — Cited for the definition of laches.
• Catholic Bishop of Balanga vs. Court of Appeals, G.R. No. 112519, November 14, 1996, 264 SCRA 181 — Cited for the essential elements of laches.
• Chavez vs. Bonto-Perez, G.R. No. 109808, March 1, 1995, 242 SCRA 73 — Cited for the principle that the question of laches is addressed to the sound discretion of the court and each case must be decided according to its particular circumstances.
• Ignacio vs. Basilio, G.R. No. 122824, September 26, 2001, 366 SCRA 15; Po Lam vs. Court of Appeals, G.R. No. 116220, December 6, 2000, 347 SCRA 86; Declaro vs. Court of Appeals, G.R. No. 119747, November 27, 2000, 346 SCRA 57 — Cited for the principle that laches may prevent recovery of a titled property.

• Act No. 3135, as amended — The statute governing extrajudicial foreclosure of real estate mortgages, including the requirement of publication of the foreclosure sale in a newspaper of general circulation. The RTC found non-compliance with this requirement, but the Supreme Court did not reach this issue because the action was barred by laches.
• Rule 45, 1997 Rules of Civil Procedure, as amended — The procedural rule under which the petition for review on certiorari was filed.

Puno, C.J. (Chairperson), Carpio Morales, J., Leonardo-De Castro, J., and Bersamin, J., concurred in the decision.