Tuason vs. Orozco

A debt incurred by an agent within the scope of his authority binds the principal directly, and the agent’s personal undertaking does not relieve the principal; a validly recorded mortgage directly subjects the encumbered property to the secured obligation, whoever its possessor may be. The defendant was not personally liable for the debt, which was incurred during marriage and should be satisfied from conjugal partnership property.

Juan de Vargas y Amaya, husband of Dolores Orozco, executed a power of attorney in favor of Enrique Grupe on November 19, 1888, authorizing him, among other things, to dispose of Vargas’s property and particularly a house and lot known as No. 24 Calle Nueva, Malate, Manila, and to mortgage the house to secure any amount advanced to his wife, Dolores Orozco de Rivero. Because the property had been acquired with funds belonging to the conjugal partnership, Dolores was a necessary party to its sale or incumbrance. The dispute concerns the effect of a loan and mortgage later executed under that authority and the liability of Vargas’s estate and the conjugal partnership.

On November 19, 1888, Juan de Vargas y Amaya, the husband of Dolores Orozco, executed a power of attorney to Enrique Grupe, authorizing him, among other things, to dispose of all his property, particularly a house and lot known as No. 24 Calle Nueva, Malate, in the city of Manila, for the price at which it was actually sold. Grupe was also authorized to mortgage the house for the purpose of securing the payment of any amount advanced to Vargas’s wife, Dolores Orozco de Rivero, who, because the property had been acquired with funds belonging to the conjugal partnership, was a necessary party to its sale or incumbrance.

On January 21, 1890, Enrique Grupe and Dolores Orozco de Rivero obtained a loan from Gonzalo Tuason secured by a mortgage on the property referred to in the power of attorney. In the instrument, Grupe and Dolores Orozco appeared as the parties of the first part and Tuason as the party of the second part; Grupe acted for himself and also in behalf of Juan Vargas by virtue of the power granted him by Vargas, and Dolores Orozco appeared merely for the purpose of complying with the requirement contained in the power of attorney. Grupe acknowledged receiving from Tuason as a loan, after deducting the agreed interest, the sum of 3,500 pesos in cash, which he promised to pay within one year from the date thereof. Grupe also declared that of the 3,500 pesos, he delivered to Dolores Orozco the sum of 2,200 pesos and retained the remaining 1,300 pesos for use in his business; that notwithstanding this distribution, he assumed liability for the whole sum of 3,500 pesos, promised to repay it in current gold or silver coin without discount, and to pay interest at 1 per cent per month from default until fully paid. Grupe pledged as special security 13 shares of stock in the “Compañia de los Tranvias de Filipinas,” which he delivered to his creditor duly indorsed. To secure payment of the 2,200 pesos delivered to Dolores Orozco, he specially mortgaged the house and lot No. 24, Calle Nueva, Malate, Manila. Dolores Orozco stated that, in accordance with the requirement contained in the power of attorney executed by Vargas to Grupe, she appeared for the purpose of confirming the mortgage created upon the property. Tuason accepted all rights and actions accruing to him under the contract.

The instrument was duly recorded in the Registry of Property. It appears therefrom that Enrique Grupe, as attorney in fact for Vargas, received from the plaintiff a loan of 2,200 pesos and delivered the same to the defendant; that to secure its payment he mortgaged the property of his principal with the defendant’s consent as required in the power of attorney. Grupe also received 1,300 pesos, which he borrowed for his own use; the recovery of this sum was not involved in the action. The complaint referred only to the 2,200 pesos delivered to the defendant under the terms of the agreement.

The defendant denied having received this sum, but her denial could not overcome the proof to the contrary contained in the agreement. She was one of the parties to that instrument and signed it, which necessarily implied an admission on her part that the statements relating to her were true. She also personally intervened in the execution of the mortgage and stated in the deed that the mortgage had been created with her knowledge and consent. The lien was created precisely upon the assumption that she had received that amount and for the purpose of securing its payment. In addition, the defendant wrote a letter on October 23, 1903, to the attorneys for the plaintiff promising to pay the debt on or before November 5 following. She admitted the authenticity of this letter, which was further evidence that she had received the amount in question. Thirteen years had elapsed since she signed the mortgage deed; during all this time she never denied having received the money, and on the contrary promised to settle within a short time. The fact that the defendant received the money from her husband’s agent and not from the creditor did not affect the validity of the mortgage in view of the conditions contained in the power of attorney, which did not provide that the money was to be delivered to her by the creditor himself and not through the agent or any other person; the important thing was that she should have received the money.

The complaint sought recovery only of the 2,200 pesos delivered to Dolores. Dolores denied receipt, but the record showed her signature on the agreement, her personal intervention in the mortgage, and her October 23, 1903 letter promising payment; thirteen years passed without denial. The court below admitted the January 21, 1890 instrument as evidence of the debt.

• Nature of the Debt: Petitioner Dolores Orozco, the defendant-appellant, claimed that the instrument was evidence of a debt personally incurred by Enrique Grupe for his own benefit, and not incurred for the benefit of his principal, Vargas, as alleged in the complaint.
• Pledged Shares: Petitioner alleged that Grupe pledged thirteen shares of stock in the “Compañia de los Tranvias de Filipinas” to secure the payment of the entire debt, and contended that it must be shown what had become of these shares, the value of which might be sufficient to pay the debt, before proceeding to foreclose the mortgage.
• Necessary Parties: Petitioner contended that in order to render judgment against the mortgaged property, it would be necessary that the minor children of Juan de Vargas be made parties defendant in the action, they having an interest in the property.

• Receipt of the Loan Proceeds: Whether Dolores Orozco received the 2,200 pesos delivered by Enrique Grupe, as stated in the January 21, 1890 instrument.
• Nature of the Debt: Whether the instrument evidenced a debt personally incurred by Enrique Grupe for his own benefit, rather than a debt incurred for the benefit of his principal, Juan de Vargas.
• Effect of Agent’s Personal Liability: Whether Grupe’s personal undertaking to pay the debt relieved Vargas, as principal, from liability.
• Validity and Effect of the Mortgage: Whether the mortgage validly subjected the encumbered property to the debt, whoever its possessor may be.
• Pledged Shares: Whether the creditor had to account for or exhaust the pledged shares before proceeding against the mortgaged property.
• Necessary Parties: Whether the minor children of Juan de Vargas were indispensable parties defendant in an action to render judgment against the mortgaged property.
• Personal Liability and Conjugal Property: Whether the defendant could be held personally liable for the debt, or whether the debt, incurred during marriage, should be paid from conjugal partnership property.

• Receipt of the Loan Proceeds: Yes. The signed agreement, Dolores Orozco’s participation in the mortgage, and her October 23, 1903 letter promising payment established that she received the 2,200 pesos; her denial did not overcome these admissions.
• Nature of the Debt: No. The agreement was signed by Grupe as attorney in fact for Vargas, and the proceeds were delivered to Vargas’s wife and secured by Vargas’s property pursuant to the power of attorney; a debt incurred by an agent within the scope of his authority binds the principal directly.
• Effect of Agent’s Personal Liability: No. Grupe’s personal undertaking did not relieve Vargas; it merely constituted additional security for the creditor.
• Validity and Effect of the Mortgage: Yes. The mortgage, duly recorded, directly subjected the encumbered property to the obligation, whoever its possessor may be, under Article 1876 of the Civil Code and Article 105 of the Mortgage Law.
• Pledged Shares: No. The mortgage directly subjected the property to the debt, and payment through the pledged shares was an affirmative defense that the appellant failed to prove.
• Necessary Parties: No. Under Articles 154, 155, and 159 of the Civil Code, Dolores Orozco had parental authority and legal representation of her minor children; moreover, the action was against her as administratrix of Vargas’s estate, which she did not deny.
• Personal Liability and Conjugal Property: No, as to personal liability. The debt was incurred during marriage and should be paid from conjugal partnership property, not from Dolores Orozco’s exclusive property; the lower court’s judgment was modified accordingly.

• Receipt of the Loan Proceeds: The defendant’s denial could not overcome the proof contained in the agreement she signed. Her signature necessarily implied an admission that the statements relating to her were true. Her personal intervention in the execution of the mortgage and her statement that the mortgage was created with her knowledge and consent corroborated delivery of the money to her. The lien was created precisely on the assumption that she had received the amount and to secure its payment. Her October 23, 1903 letter to the plaintiff’s attorneys promising to pay the debt on or before November 5 following further evidenced receipt. Thirteen years had elapsed since she signed the mortgage deed without any denial, and she instead promised to settle. The fact that she received the money from her husband’s agent rather than from the creditor did not affect the mortgage’s validity, because the power of attorney did not require delivery by the creditor personally; the important fact was that she received the money.
• Nature of the Debt: Although Grupe bound himself personally to pay the debt, the agreement, as to the 2,200 pesos, was signed by him as attorney in fact for Vargas. Pursuant to instructions in the power of attorney, the money was delivered to Vargas’s wife, the defendant, and Vargas’s property was mortgaged to secure payment. His wife took part in the execution of the mortgage as required in the power of attorney. Under Article 1727 of the Civil Code, a debt thus incurred by the agent is binding directly upon the principal, provided the agent acted within the scope of his authority, as Grupe did.
• Effect of Agent’s Personal Liability: The fact that the agent also bound himself to pay the debt did not relieve the principal for whose benefit the debt was incurred. The individual liability of the agent constituted further security in favor of the creditor and did not affect or preclude the liability of the principal. The principal’s liability was further guaranteed by a mortgage upon his property. Article 1725 of the Civil Code provides that an agent may bind himself personally to the fulfillment of an obligation incurred by him in the name and on behalf of his principal.
• Validity and Effect of the Mortgage: The mortgage was valid and duly recorded in the Register of Property. Under Article 1876 of the Civil Code and Article 105 of the Mortgage Law, a mortgage directly subjects the property encumbered, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created. Thus, even assuming that Vargas was not the principal debtor and that Grupe alone was personally liable, the right in rem arising from the mortgage would have justified the creditor in bringing his action directly against the encumbered property had he chosen to foreclose the mortgage rather than sue Grupe.
• Pledged Shares: The contention that the pledged shares had to be accounted for before proceeding against the mortgaged property could not be sustained in light of the rule that a mortgage directly subjects the encumbered property to the obligation. Moreover, it was incumbent upon the appellant to show that the debt had been paid with those shares. Payment is not presumed but must be proved; it is a defense that the defendant may interpose. The appellant failed to show payment affirmatively.
• Necessary Parties: Under Article 154 of the Civil Code, which was in force at the time of Vargas’s death, the defendant had parental authority over her children and consequently the legal representation of their persons and property under Articles 155 and 159. The minor children were therefore properly represented at the trial. Furthermore, the action was brought against the defendant in her capacity as administratrix of the estate of the deceased Vargas, and she did not deny in her answer that she was such administratrix.
• Personal Liability and Conjugal Property: Vargas incurred the debt during his marriage to the defendant. The debt should not be paid out of property belonging exclusively to the defendant but from property pertaining to the conjugal partnership. This fact was to be borne in mind in case the proceeds of the mortgaged property were insufficient to pay the debt and interest. The judgment of the court below was therefore modified insofar as it held the defendant personally liable for payment of the debt.

• Agency — Debt Incurred by Agent Within Scope of Authority — A debt incurred by an agent in the name and on behalf of his principal, within the scope of his authority, binds the principal directly. The agent’s personal undertaking does not relieve the principal; it constitutes additional security in favor of the creditor. In this case, Grupe acted as attorney in fact for Vargas under the power of attorney, the money was delivered to Vargas’s wife, and Vargas’s property was mortgaged to secure payment, so Vargas was bound directly.
• Mortgage — Right In Rem — A validly recorded mortgage directly subjects the encumbered property, whoever its possessor may be, to the fulfillment of the obligation secured. The Court applied this rule to hold that the creditor could proceed against the mortgaged Malate property even if Grupe was personally liable, and that the pledged shares did not have to be exhausted first.
• Payment — Burden of Proof — Payment is not presumed but must be proved by the defendant as an affirmative defense. The appellant’s failure to show that the debt had been paid with the pledged shares defeated her contention.
• Parental Authority — Legal Representation of Minor Children — Under the Civil Code then in force, the parent with parental authority has the legal representation of the persons and property of the children. Because Dolores Orozco had parental authority over her minor children, they were properly represented in the action.
• Conjugal Partnership Liability — A debt incurred during marriage should be paid from conjugal partnership property, not from the exclusive property of the spouse. The Court modified the lower court’s judgment insofar as it held the defendant personally liable, directing that the debt be satisfied from the conjugal partnership property.

• "A debt thus incurred by the agent is binding directly upon the principal, provided the former acted, as in the present case, within the scope of his authority. (Art. 1727 of the Civil Code.) The fact that the agent has also bound himself to pay the debt does not relieve from liability the principal for whose benefit the debt was incurred." — This passage states the ratio decidendi on agency: an authorized agent’s debt binds the principal, and the agent’s personal liability is only additional security.
• "The above mortgage being valid and having been duly recorded in the Register of Property, directly subjects the property thus encumbered, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created. (Art. 1876 of the Civil Code and art. 105 of the Mortgage Law.)" — This passage defines the in rem effect of a recorded mortgage and supports the ruling that the creditor could proceed against the encumbered property.
• "Payment is not presumed but must be proved. It is a defense which the defendant may interpose." — This passage places the burden of proving payment on the defendant and explains why the appellant’s claim regarding the pledged shares failed.
• "Vargas having incurred this debt during his marriage, the same should not be paid out of property belonging to the defendant exclusively but from that pertaining to the conjugal partnership." — This passage is the basis for modifying the lower court’s judgment on the defendant’s personal liability.

• Article 1727, Civil Code — A debt incurred by an agent within the scope of his authority binds the principal directly. Applied to hold that Vargas was bound by the loan obtained by Grupe as his attorney in fact.
• Article 1725, Civil Code — An agent may bind himself personally to the fulfillment of an obligation incurred in the name and on behalf of his principal. Applied to hold that Grupe’s personal undertaking did not relieve Vargas and was merely additional security.
• Article 1876, Civil Code — A mortgage directly subjects the encumbered property, whoever its possessor may be, to the fulfillment of the secured obligation. Applied to uphold the mortgage on the Malate property.
• Article 105, Mortgage Law — Cited together with Article 1876 of the Civil Code to support the direct in rem effect of the recorded mortgage.
• Article 154, Civil Code — The defendant had parental authority over her minor children at the time of Vargas’s death. Applied to hold that the children were properly represented.
• Articles 155 and 159, Civil Code — The parent with parental authority has the legal representation of the persons and property of the children. Applied to reject the contention that the minor children were indispensable parties defendant.

Arellano, C.J., Johnson, Carson, and Willard, JJ., concur.