San Miguel Corporation vs. Vda. de Trinidad

A special power of attorney authorizing an agent to "offer as collateral" specific immovable properties to a named creditor, coupled with the principal's delivery of the owner's duplicate certificates of title, constitutes sufficient authority to execute real estate mortgages over those properties, binding the principals under the literal terms of the SPA and, alternatively, under the doctrine of apparent authority, notwithstanding any private understanding between principal and agent limiting the agent's authority.

Respondents Leonara Francisco Vda. De Trinidad, Teodorico F. Trinidad, Gemma Trinidad-Gandionco, Manuel F. Trinidad, and Grace F. Trinidad are the registered co-owners of parcels of land in Pamplona, Las Piñas City, covered by TCT Nos. T-6346 and T-6347; Gemma Trinidad-Gandionco is the registered owner of two additional parcels covered by TCT Nos. T-5433 and T-52796. Gemma's brother-in-law, respondent Roberto N. Gandionco, operated a beer dealership with petitioner San Miguel Corporation (SMC) for Masbate City, which required the submission of sufficient collateral — in money or valuable property — to secure beer stocks drawn from SMC. Roberto secured the collateral requirement by borrowing TCTs from Gemma and Trinidad, et al., on four separate occasions between 2005 and 2007, each time executing a similarly-worded special power of attorney in his favor.

Respondents Leonara Francisco Vda. De Trinidad, Teodorico F. Trinidad, Gemma Trinidad-Gandionco, Manuel F. Trinidad, and Grace F. Trinidad (collectively, Trinidad, et al.) are the registered co-owners of two parcels of land in Pamplona, Las Piñas City, covered by TCT Nos. T-6346 and T-6347. Respondent Gemma Trinidad-Gandionco (Gemma) is the registered owner of two other parcels in the same locality, covered by TCT Nos. T-5433 and T-52796. Gemma's brother-in-law, respondent Roberto N. Gandionco (Roberto), opened a beer dealership for Masbate City with petitioner San Miguel Corporation (SMC). SMC's standard dealership requirements included the submission of sufficient collateral — in money or other valuable properties — to secure the beer stocks to be drawn out.

To meet this requirement, Roberto approached Gemma and asked for help. Gemma lent TCT No. T-52796 and allowed Roberto to offer it as collateral. After three months, Roberto returned asking for additional collateral, as the value of the first property was insufficient; Gemma acceded and lent TCT No. T-5433. In 2005, Roberto again requested another property to obtain additional stocks, and after obtaining the consent of Trinidad, et al., was lent TCT No. T-6347. For the fourth time, in 2007, Roberto asked for yet another property, and again after obtaining the consent of Trinidad, et al., was lent TCT No. T-6346. On each of these four occasions, Gemma and Trinidad, et al. executed a similarly-worded special power of attorney (SPA) in favor of Roberto, authorizing him "to offer as collateral, security or property bond with [SMC] a parcel of land located at Las Piñas City" covered by a specified TCT, and granting him "full power and authority whatsoever requisite necessary to be done in and about the premises." When asked about the status of the certificates of title, Roberto would explain that the titles were still in SMC's possession, which had yet to decide which title to accept as collateral. It was the understanding of Gemma and Trinidad, et al. that should SMC accept their certificates of title as collateral, Roberto would bring the necessary documents from SMC which they would then sign.

Using the SPAs, Roberto executed real estate mortgages (REMs) over the properties covered by TCT Nos. T-6347 and T-5433, both in favor of SMC, and these mortgages were annotated on the titles. Roberto availed of beer stocks from SMC which he regularly paid until August 2007, when eighteen successive post-dated checks he issued were dishonored, leaving unpaid obligations amounting to approximately ₱7,000,000.00. When collection efforts failed, SMC extrajudicially foreclosed the REMs and emerged as the highest bidder at the foreclosure sale.

In 2008, Gemma and Trinidad, et al. learned that Roberto's business had closed down and that he had surreptitiously mortgaged two of their properties. They executed four revocations of the SPAs, cancelling all SPAs issued in favor of Roberto, and wrote a letter to SMC informing it of the revocations. SMC did not reply until Gemma and Trinidad, et al. learned of the foreclosure proceedings. Aggrieved, they filed a complaint for annulment of mortgage and foreclosure sale and for recovery of their titles. SMC argued in its Answer that the revocations were belatedly made since the REMs had already been constituted, that the SPAs were still valid at the time the REMs were executed, that it had no knowledge of Roberto's limited authority, and that Gemma and Trinidad, et al. were guilty of laches. Roberto did not file an answer and was declared in default.

The RTC voided the REMs and the foreclosure, finding that Roberto's authority was limited to offering the properties as collateral, and that SMC should have been placed on guard by the fact that the SPAs were executed long before the REMs were entered into. The RTC ordered SMC to return the owner's duplicate copies of the four TCTs and to pay moral damages, attorney's fees, and costs of suit, and dismissed SMC's cross-claim against Roberto for failure to present evidence of his liability. The CA affirmed, holding that the SPAs must be strictly construed and that "to offer" did not include the power to mortgage, though it deleted the awards for moral damages and attorney's fees for lack of proof of bad faith.

• Scope of SPA Authority: SMC argued that the CA erred in affirming the trial court's ruling that the SPAs did not include the authority to mortgage the property, given the attendant circumstances — specifically, that the SPAs expressly authorized Roberto to "offer as collateral" the properties and granted him "full power and authority whatsoever requisite necessary to be done in and about the premises."
• Cross-Claim Against Roberto: SMC argued that the CA erred in denying its cross-claim against Roberto, who was declared in default, invoking Section 3 of Rule 9 of the Rules of Court, under which a party declared in default is deemed to have admitted the material allegations of the claim.
• Damages: SMC sought moral damages (₱500,000.00), exemplary damages (₱100,000.00), and attorney's fees and litigation expenses (₱600,000.00).
• Laches and Good Faith: SMC denied knowledge of Roberto's limited authority and contended that the REMs were not entered into surreptitiously, and that Gemma and Trinidad, et al. were guilty of laches for questioning the validity of the REMs only when there was a threat of actual foreclosure.

• Strict Construction of SPA: Respondents maintained that the SPAs merely authorized Roberto to offer the properties as collateral and did not confer the power to mortgage, and that interpreting the SPAs as granting such power would unduly enlarge the term "to offer."
• Private Understanding: Respondents asserted that it was their understanding that Roberto would only bring documents from SMC for them to sign should SMC accept their titles as collateral, and that Roberto exceeded his authority by executing the REMs without their knowledge.
• Surreptitious Mortgage: Respondents alleged that Roberto mortgaged their properties surreptitiously and that SMC should have been placed on guard by the fact that the SPAs were executed long before the REMs were constituted.

• Authority to Mortgage: Whether the CA erred in affirming the trial court's ruling that the SPAs did not include the authority to mortgage the property, despite the attendant circumstances in the case.
• Cross-Claim Against Defaulted Party: Whether the CA erred in denying SMC's cross-claim against Roberto, considering that Roberto was declared in default, applying Section 3 of Rule 9 of the Rules of Court.

• Authority to Mortgage: Yes. The SPAs, which expressly authorized Roberto to "offer as collateral" the properties to SMC and granted him "full power and authority whatsoever requisite necessary to be done in and about the premises," constituted sufficient authority to execute the REMs, both under the plain meaning rule and the doctrine of apparent authority.
• Cross-Claim Against Defaulted Party: Partly granted. While Roberto's indebtedness to SMC is undisputed, the records are insufficient to determine whether Roberto still has outstanding liability after applying the foreclosure sale proceeds; the case was remanded to the RTC solely for this purpose.

• Authority to Mortgage: The essential requisites of a valid mortgage under Article 2085 of the Civil Code include that the persons constituting the mortgage have the free disposal of their property or are legally authorized for the purpose. Third persons not parties to the principal obligation may secure such obligation by mortgaging their own property. Since Gemma and Trinidad, et al. did not personally mortgage their properties, the question was whether Roberto was legally authorized to do so. Article 1878(12) of the Civil Code requires a special power of attorney to create or convey real rights over immovable property. The SPAs expressly authorized Roberto to "offer as collateral, security or property bond with [SMC]" the subject properties and granted him "full power and authority whatsoever requisite necessary to be done in and about the premises." Under Article 1370 of the Civil Code, where the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations controls. The phrase "to offer" the properties "as collateral, security or property bond," coupled with the grant of full power to do all that is necessary, is a specific and express authority to mortgage, because the presentation of the TCTs was for the purpose of complying with the collateral requirement for the dealership, and executing and registering the REMs are well within the scope of that authority. The registered owners' private understanding that Roberto would bring documents for them to sign is of no moment as against third persons: Article 1900 provides that so far as third persons are concerned, an act is deemed within the scope of the agent's authority if it is within the terms of the power of attorney as written, even if the agent exceeded his authority according to a private understanding; Article 1902 likewise provides that private or secret orders and instructions of the principal do not prejudice third persons who relied upon the power of attorney. Even assuming Roberto exceeded his authority, the principals are bound under the doctrine of apparent authority, as established in Woodchild Holdings, Inc. vs. Roxas Electric and Construction Co., Inc.: apparent authority arises when the principal knowingly permits the agent to hold himself out as having such authority, or clothes the agent with indicia of authority leading a reasonably prudent person to believe he has such authority. By executing the SPAs and delivering the original owner's duplicate TCTs to Roberto on four separate occasions, Gemma and Trinidad, et al. made it appear to SMC that Roberto had the requisite authority. Their failure to exercise even the slightest diligence to ascertain the whereabouts of their titles further binds them, for as between two innocent persons, the one who made the breach of trust possible by his act of confidence must bear the loss.

• Cross-Claim Against Defaulted Party: Roberto's indebtedness to SMC is undisputed, but it arose from the dealership he entered into in his personal capacity, not on behalf of Gemma and Trinidad, et al. The latter are only third-party or accommodation mortgagors, liable only to the extent of the amount secured by the mortgages over their properties; any deficiency must be recovered from the principal debtor. However, the records are insufficient to determine whether Roberto still has outstanding liability after applying the foreclosure sale proceeds, as the amount secured by the mortgages and SMC's bid at the foreclosure sale are not specified in the pleadings or attachments. The case was therefore remanded to the RTC solely to determine the amount of Roberto's outstanding liability, if any, after applying the proceeds of foreclosure.

• Plain Meaning Rule (Article 1370, Civil Code) — If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Applied to hold that the SPA's language authorizing Roberto to "offer as collateral" the properties, coupled with the grant of "full power and authority whatsoever requisite necessary," was clear and unambiguous, and its literal meaning included the authority to execute the REMs.
• Doctrine of Apparent Authority — Apparent authority is based on estoppel and arises when (a) the principal knowingly permits the agent to hold himself out as having such authority, or (b) the principal clothes the agent with indicia of authority leading a reasonably prudent person to believe the agent actually has such authority. Requisites for its application: (a) acts of the principal justifying belief in the agency; (b) knowledge thereof by the principal sought to be held; and (c) reliance thereon by the third person consistent with ordinary care and prudence, producing a change of position to its detriment. Applied because Gemma and Trinidad, et al. executed the SPAs and delivered the original owner's duplicate TCTs to Roberto on four separate occasions, clothing him with indicia of authority upon which SMC reasonably relied.
• Third-Party Accommodation Mortgagor's Liability — A third person who secures the fulfillment of another's obligation by mortgaging his own property is not solidarily bound with the principal obligor; the signatory to the principal contract remains primarily bound, and the creditor's recourse against the third-party mortgagor is limited to foreclosing the mortgaged property. Any deficiency must be recovered from the principal debtor.
• As Between Two Innocent Persons — Where one of two innocent persons must suffer the consequences of a breach of trust, the one who made it possible by his act of confidence must bear the loss. Applied to hold that Gemma and Trinidad, et al., having entrusted their TCTs to Roberto without exercising diligence, must bear the consequences of his unauthorized acts.

• "Contrary to the CA's ruling, the phrase 'to offer' the subject properties 'as collateral, security or property bond with SMC,' coupled with the 'full power and authority' to do all that is necessary for all intents and purposes of the contract, is a specific and express authority to mortgage the subject properties in favor of SMC." — This passage states the ratio decidendi on the primary issue: the plain meaning of the SPA's language was sufficient to confer authority to mortgage.
• "Article 1900 of the Civil Code expressly states that '[s]o far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.'" — This quotation articulates the principle that private understandings between principal and agent cannot prejudice third persons relying on the written power of attorney.
• "as between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it possible by his act of confidence must bear the loss." — This formulation of the estoppel-based principle was applied to bind the principals who delivered their TCTs to the agent without diligence.

• Woodchild Holdings, Inc. vs. Roxas Electric and Construction Co., Inc., 479 Phil. 896 (2004) — Followed. Cited for the doctrine of apparent authority and its requisites; the Court applied its formulation to hold that the principals' delivery of SPAs and original TCTs clothed Roberto with indicia of authority upon which SMC reasonably relied.
• Domingo vs. Robles, G.R. No. 153743, March 18, 2005, 453 SCRA 812 — Applied by analogy. Involving a sale made with the aid of an agent who possessed the original owner's duplicate TCT; the Court held that the registered owner who places in the hands of another an executed document of transfer effectively represents to a third party that the holder is authorized to deal with the property. Applied by analogy to Roberto's possession of the SPAs and owner's duplicate TCTs.
• Tenio-Obsequio vs. Court of Appeals, G.R. No. 107967, March 1, 1994, 230 SCRA 550 — Followed. Cited for the principle that as between two innocent persons, the one who made a breach of trust possible by an act of confidence must bear the loss.
• Land Bank of the Philippines vs. Belle Corporation, 768 Phil. 368 (2015) — Followed. Cited for the rule that a third-party mortgagor is not solidarily bound with the principal obligor and that the creditor's recourse is limited to foreclosing the mortgaged property, with any deficiency recoverable from the principal debtor.
• Norton Resources and Development Corporation vs. All Asia Bank Corporation, 620 Phil. 381 (2009) — Cited for the "plain meaning rule" in contract interpretation, itself citing Benguet Corporation vs. Cabildo, 585 Phil. 23 (2008).

• Article 2085, Civil Code — Sets the essential requisites of a valid mortgage: (1) the mortgage secures the fulfillment of a principal obligation; (2) the mortgagor is the absolute owner of the thing mortgaged; and (3) the persons constituting the mortgage have free disposal of their property or are legally authorized for the purpose. Applied to determine whether Roberto was "legally authorized" to mortgage the properties.
• Article 1878(12), Civil Code — Requires a special power of attorney to create or convey real rights over immovable property. Applied to confirm that an SPA was necessary for Roberto to execute the REMs, and to examine whether the SPAs satisfied this requirement.
• Article 1370, Civil Code — Provides that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Applied to interpret the SPA's language as clear and unambiguous.
• Article 1900, Civil Code — Provides that so far as third persons are concerned, an act is deemed within the scope of the agent's authority if it is within the terms of the power of attorney as written, even if the agent exceeded his authority according to a private understanding with the principal. Applied to disregard the principals' private understanding with Roberto.
• Article 1902, Civil Code — Provides that private or secret orders and instructions of the principal do not prejudice third persons who relied upon the power of attorney or instructions shown to them. Applied to protect SMC's reliance on the written SPAs.
• Section 3, Rule 9, Rules of Court — Provides that a party declared in default is deemed to have admitted the material allegations of the claim. Invoked by SMC in support of its cross-claim against Roberto, though the Court found the records insufficient to determine the exact amount of liability and remanded for that purpose.

Peralta, C.J. (Chairperson), Caguioa, Lazaro-Javier, and Lopez, JJ., concurred. Justice Caguioa filed a concurring opinion, the text of which is not included in the provided source.