Philippine National Bank vs. Sta. Maria

A special power of attorney to mortgage real estate is limited to such authority to mortgage and does not bind the grantor personally to other obligations contracted by the grantee, in the absence of any ratification or other similar act that would estop the grantor from questioning or disowning such other obligations. The authority to mortgage does not carry with it the authority to contract an obligation; the grantor's liability is confined to the property authorized to be mortgaged, not personal liability for the loan.

The defendants-appellants, Valeriana, Emeteria, Teofilo, Quintin, Rosario, and Leonila, all surnamed Sta. Maria, were the sole heirs of their deceased parents Candido Sta. Maria and Francisca de los Reyes, and jointly owned a 16.7249-hectare parcel of land in Barrio Pinulot, Dinalupihan, Bataan, covered by Transfer Certificate of Title No. T-2785. They executed a special power of attorney in favor of their brother, Dr. Maximo Sta. Maria, authorizing him to mortgage or convey as security their undivided shares over the property. Valeriana Sta. Maria additionally executed a separate special power of attorney authorizing Maximo to borrow money and mortgage any real estate owned by her.

The plaintiff bank filed an action on February 10, 1961 against Maximo Sta. Maria and his six brothers and sisters — Valeriana, Emeteria, Teofilo, Quintin, Rosario, and Leonila, all surnamed Sta. Maria — and the Associated Insurance & Surety Co., Inc. as surety, for the collection of unpaid balances on two agricultural sugar crop loans. The loans were obtained by Maximo Sta. Maria under a special power of attorney executed in his favor by his six brothers and sisters, authorizing him to mortgage a 16-odd hectare parcel of land jointly owned by all of them. The pertinent portion of the power of attorney stated that the grantors appointed Maximo "to mortgage, or convey as security to any bank, company or to any natural or juridical person, our undivided shares over a certain parcel of land together the improvements thereon."

In addition, Valeriana Sta. Maria alone executed a separate special power of attorney in favor of Maximo, authorizing him "to borrow money and mortgage any real estate owned by her," granting him authority "to borrow money and make, execute, sign and deliver mortgages of real estate now owned by me standing in my name and to make, execute, sign and deliver any and all promissory notes necessary in the premises."

By virtue of these two powers, Maximo applied for two separate crop loans for the 1952-1953 and 1953-1954 crop years. For the first loan, only P13,216.11 of the P15,000.00 authorized amount was actually extended; for the second, only P12,427.57 of the P23,000.00 authorized amount was extended. As security, Maximo executed in his own name two chattel mortgages on the standing crops, guaranteed by surety bonds executed by the Associated Insurance & Surety Co., Inc. as surety with Maximo as principal. The crop loan application records disclosed that among the securities given by Maximo were a "2nd mortgage on 25.3023 Has. of sugarland, including sugar quota rights therein," including the parcel jointly owned by Maximo and his siblings, and a 3rd mortgage on the same properties for the 1953-1954 crop loan.

The trial court rendered judgment in favor of the plaintiff, condemning Maximo and his co-defendants jointly and severally to pay the plaintiff the sum of P8,500.72 with daily interest on the first cause of action, P14,299.79 with daily interest on the second cause of action, plus 10% attorney's fees and costs. Maximo and the surety company did not appeal. The six brothers and sisters appealed, reiterating their main contention that under the special power of attorney they had not given Maximo authority to borrow money but only to mortgage the real estate jointly owned by them, and that if liable at all, their liability should not go beyond the value of the property they had authorized to be given as security. In their answer, they had further contended that they did not benefit whatsoever from the loans and that the bank's only recourse against them was to foreclose on the property.

Defendant-appellant Quintin Sta. Maria testified that he and his co-defendants executed the authority to mortgage "to accommodate (my) brother Dr. Maximo Sta. Maria... and because he is my brother, I signed it to accommodate him as security for whatever he may apply as loan. Only for that land, we gave him as security" and that "we brothers did not receive any centavo as benefit." The plaintiff bank itself admitted during trial that the defendants-appellants "did not profit from the loan" and that they "did not receive any money (the loan proceeds) from (Maximo)."

• Limited Authority to Mortgage: The defendants-appellants argued that under the special power of attorney, they had not given their brother Maximo the authority to borrow money but only to mortgage the real estate jointly owned by them.
• Liability Limited to Property: The defendants-appellants contended that if liable at all, their liability should not go beyond the value of the property which they had authorized to be given as security for the loans obtained by Maximo.
• No Benefit Received: The defendants-appellants argued that they did not benefit whatsoever from the loans, and that the plaintiff bank's only recourse against them was to foreclose on the property which they had authorized Maximo to mortgage.

• Mortgage as Accessory Contract: The plaintiff bank argued that "a mortgage is simply an accessory contract, and that to effect the mortgage, a loan has to be secured."
• Joint and Several Liability: The plaintiff bank sought to hold all defendants-appellants jointly and severally liable for the unpaid loan balances, including the award of 10% attorney's fees.

• Scope of Special Power of Attorney: Whether a special power of attorney to mortgage real estate authorizes the grantee to contract loans binding the grantors personally.
• Valeriana's Liability: Whether Valeriana Sta. Maria, who executed an additional special power of attorney expressly authorizing Maximo to borrow money, is liable jointly and severally or only jointly for the loans.
• Attorney's Fees: Whether the award of 10% attorney's fees was proper under the circumstances.

• Scope of Special Power of Attorney: No. A special power of attorney to mortgage real estate is limited to such authority to mortgage and does not bind the grantor personally to other obligations contracted by the grantee, in the absence of any ratification or other similar act that would estop the grantor. The defendants-appellants' only liability is that the real estate authorized to be mortgaged would be subject to foreclosure and sale to respond for the obligations contracted by Maximo.
• Valeriana's Liability: Joint only. Valeriana's liability for the loans secured by Maximo is not joint and several or solidary as adjudged by the trial court, but only joint, pursuant to Article 1207 of the Civil Code, since she did not grant Maximo the authority to bind her solidarity with him on any loans he might secure thereunder.
• Attorney's Fees: Reduced. Considering the resources of the plaintiff bank and the fact that the principal debtor had not contested the suit, an award of 5% of the balance due on the principal, exclusive of interests, should be sufficient.

• Scope of Special Power of Attorney: The Court cited the fundamental construction rule from Bank of P.I. vs. De Coster that "where in an instrument powers and duties are specified and defined, that all of such powers and duties are limited and confined to those which are specified and defined, and all other powers and duties are excluded." This is in accord with the disinclination of courts to enlarge an authority granted beyond the powers expressly given and those which incidentally flow or derive therefrom as being usual or reasonably necessary and proper for the performance of such express powers. The Court also relied on De Villa vs. Fabricante, which held that "there is a difference between authority to mortgage and authority to contract obligation." The authority granted by the defendants-appellants was merely to mortgage the property jointly owned by them; they did not grant Maximo any authority to contract for any loans in their names and behalf. The fact that Maximo presented Valeriana's additional special power of attorney expressly authorizing him to borrow money lends support to the view that the bank was not satisfied with the authority to mortgage alone; otherwise, such authority to borrow would have been deemed unnecessary and a surplusage. The Court noted that it is not unusual in family and business circles that one would allow his property to be mortgaged by another as security, but the grant of such authority does not extend to assuming personal liability, much less solidary liability, for any loan secured by the grantee in the absence of express authority so given by the grantor. The outcome might have been different if there had been an express ratification of the loans or if it had been shown that the defendants-appellants had been benefited by the crop loans so as to put them in estoppel, but the burden of establishing such ratification or estoppel falls squarely upon the plaintiff bank, which failed to discharge this burden.

• Valeriana's Liability: Valeriana stands liable not merely on the mortgage of her share in the property, but also for the loans which Maximo had obtained from the plaintiff bank, since she had expressly granted Maximo the authority to incur such loans. However, her liability is only joint, not solidary, pursuant to Article 1207 of the Civil Code, which provides that "the concurrence... of two or more debtors in one and the same obligation does not imply that... each one of the (debtors) is bound to render entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." In the additional special power of attorney executed by Valeriana, she did not grant Maximo the authority to bind her solidarity with him on any loans he might secure thereunder.

• Attorney's Fees: The Court believed that considering the resources of the plaintiff bank and the fact that the principal debtor, Maximo Sta. Maria, had not contested the suit, an award of 5% of the balance due on the principal, exclusive of interests, should be sufficient.

• Limited Construction of Special Powers of Attorney — Where in an instrument powers and duties are specified and defined, all such powers and duties are limited and confined to those which are specified and defined, and all other powers and duties are excluded. Courts are disinclined to enlarge an authority granted beyond the powers expressly given and those which incidentally flow or derive therefrom as being usual or reasonably necessary and proper for the performance of such express powers. The Court applied this rule to hold that a special power of attorney to mortgage does not authorize the grantee to contract loans binding the grantor personally.

• Authority to Mortgage vs. Authority to Contract Obligation — There is a difference between authority to mortgage and authority to contract obligation. The authority to mortgage real estate does not carry with it the authority to contract an obligation binding the grantor personally. The grantor's liability is confined to the property authorized to be mortgaged, which would be subject to foreclosure and sale to respond for the obligations contracted by the grantee.

• Solidary Liability Requires Express Stipulation — Under Article 1207 of the Civil Code, the concurrence of two or more debtors in one and the same obligation does not imply that each one is bound to render entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. The Court applied this to hold that Valeriana's liability was only joint, not solidary, since she did not grant Maximo the authority to bind her solidarity with him.

• "We hold that a special power of attorney to mortgage real estate is limited to such authority to mortgage and does not bind the grantor personally to other obligations contracted by the grantee, in the absence of any ratification or other similar act that would estop the grantor from questioning or disowning such other obligations contracted by the grantee." — This is the Court's statement of the ratio decidendi, defining the scope of a special power of attorney to mortgage.

• "There is a difference between authority to mortgage and authority to contract obligation." — This quotation from De Villa vs. Fabricante, adopted by the Court, articulates the controlling distinction that limits the grantor's liability to the property mortgaged.

• "It is not unusual in family and business circles that one would allow his property or an undivided share in real estate to be mortgaged by another as security, either as an accommodation or for valuable consideration, but the grant of such authority does not extend to assuming personal liability, much less solidary liability, for any loan secured by the grantee in the absence of express authority so given by the grantor." — This passage explains the Court's reasoning that accommodation mortgages do not carry personal liability.

• "There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." — This quotation from Article 1207 of the Civil Code, applied by the Court, establishes the rule that solidary liability cannot be presumed.

• Bank of P.I. vs. De Coster, 49 Phil. 574 (1926) — Controlling precedent cited for the fundamental construction rule that where powers and duties are specified and defined in an instrument, all other powers and duties are excluded. The Court applied this rule to limit the scope of the special power of attorney.

• De Villa vs. Fabricante, 105 Phil. 672 (1959) — Controlling precedent followed, holding that where the power of attorney given to the husband by the wife was limited to a grant of authority to mortgage a parcel of land, the wife may not be held liable for the payment of the mortgage debt contracted by the husband, as the authority to mortgage does not carry with it the authority to contract obligation.

• Article 1207, Civil Code — Provides that the concurrence of two or more debtors in one and the same obligation does not imply that each one is bound to render entire compliance with the prestation; there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. The Court applied this provision to hold that Valeriana's liability was only joint, not solidary.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano, and Barredo, JJ., concurred. Reyes, J.B.L., J., was on official leave.