G.R. No. 228919, August 23, 2023
LUZVIMINDA PALO, PETITIONER, VS. SPOUSES REY C. BAQUIRQUIR AND FLEURDELINE B. BAQUIRQUIR, TAKESHI NAKAMURA, ATTY. ORPHA T. CASUL-ARENDAIN, RESPONDENTS.

FACTS

Petitioner Luzviminda Palo and her husband obtained a loan of ₱407,000.00 from respondent Takeshi Nakamura, secured by a real estate mortgage over a parcel of land registered in Palo’s name. Due to alleged non-payment, respondent Atty. Orpha T. Casul-Arendain executed a Notice of Notarial Foreclosure. The property was sold at public auction, with respondent Rey C. Baquirquir as the highest bidder. After Palo failed to redeem the property, her title was cancelled and a new one issued to Rey. Palo filed a complaint to annul the foreclosure and sale, arguing that Nakamura had no authority under the mortgage to extrajudicially foreclose, as no special power of attorney (SPA) was executed. She also claimed Rey was a dummy and the sale was simulated. Respondents maintained the validity of the loan, mortgage, and foreclosure, asserting the mortgage contract contained a provision authorizing extrajudicial foreclosure. The Regional Trial Court (RTC) rendered judgment on the pleadings dismissing Palo’s complaint, ruling the foreclosure provision gave sufficient authority. The Court of Appeals (CA) affirmed. The Supreme Court initially denied Palo’s petition. Palo filed a Motion for Reconsideration, arguing the foreclosure provision did not name an authorized person as required by Act No. 3135, rendering the foreclosure void.

ISSUE

Whether the foreclosure provision in the mortgage contract between the spouses Palo and Nakamura constitutes sufficient authority to validly effect an extrajudicial foreclosure under Act No. 3135, as amended, absent a specifically named person authorized to foreclose.

RULING

The Supreme Court granted the Motion for Reconsideration, reversing the prior resolutions. The Court held that the foreclosure provision in the mortgage contract, stating “this mortgage shall be foreclosed either judicially or extra-judicially in accordance with law,” did not comply with the express requirement of Section 1 of Act No. 3135, as amended. The law requires that the power to sell the mortgaged property under an extrajudicial foreclosure must be specifically conferred in a “special power inserted in or annexed to” the deed of mortgage or other document. The provision in question failed to name the mortgagee, Nakamura, or any other person as the attorney-in-fact specifically empowered to carry out the foreclosure sale. The omission of Nakamura’s name was material. The power to extrajudicially foreclose and sell is not an ordinary agency inherent in the mortgagee’s right to foreclose; it is a special power that must be expressly granted. Consequently, the extrajudicial foreclosure conducted by Atty. Casul-Arendain on behalf of Nakamura was void for lack of the requisite authority.