G.R. No. 179909, January 25, 2010
Far East Bank and Trust Company (Now Bank of the Philippine Islands) and Rolando Borja, Deputy Sheriff, Petitioners, vs. Sps. Ernesto and Leonor C. Cayetano, Respondents.

FACTS

Respondent Leonor C. Cayetano executed a special power of attorney authorizing her daughter, Teresita C. Tabing, to contract a loan from petitioner Far East Bank and Trust Company (FEBTC) for an amount not exceeding ₱300,000.00 and to mortgage Cayetano’s two lots as security. Cayetano also executed an affidavit of non-tenancy. FEBTC loaned Tabing ₱100,000.00, secured by two promissory notes and a real estate mortgage over Cayetano’s properties. The mortgage document was signed by Tabing and her husband as mortgagors in their individual capacities, without stating that Tabing was acting for and on behalf of Cayetano. Upon failure to pay the loan, FEBTC extrajudicially foreclosed the mortgage. A notice of public auction was sent to respondents, who requested a postponement through counsel, but the auction proceeded as scheduled, and the properties were sold to FEBTC. After the redemption period lapsed, FEBTC consolidated its title. More than five years later, Tabing, on behalf of Cayetano, offered to repurchase the properties, but FEBTC refused. Respondents then filed a complaint for annulment of mortgage and extrajudicial foreclosure with damages. The Regional Trial Court ruled in favor of respondents, declaring the real estate mortgage void and unenforceable against Cayetano, but upholding the validity of the loan against the spouses Tabing. The Court of Appeals affirmed the RTC’s ruling. FEBTC elevated the case to the Supreme Court via a petition for review.

ISSUE

Whether or not the principal (Leonor C. Cayetano) is bound by the real estate mortgage executed by the authorized agent (Teresita C. Tabing) in her own name without indicating the principal.

RULING

No. The Supreme Court, applying the doctrine in Philippine Sugar Estates Development Co., Ltd., Inc. v. Poizat and Rural Bank of Bombon (Camarines Sur), Inc. v. Court of Appeals, held that for an agent to validly bind the principal by a mortgage on real property, the mortgage must upon its face purport to be made, signed, and sealed in the name of the principal. It is not enough that the agent was authorized if the agent did not act in the name of the principal. Here, Tabing signed the mortgage contract in her own name without indicating she was acting as attorney-in-fact for Cayetano. Therefore, the mortgage bound only Tabing and her husband in their personal capacities and was void as to Cayetano. However, the Court applied the principle of laches, finding that respondents’ delay of over five years in asserting their right to annul the mortgage, while FEBTC consolidated its title and they attempted to repurchase the properties, prejudiced the bank. Laches barred respondents from seeking the annulment of the mortgage and foreclosure sale. The loan obligation of the spouses Tabing remained valid and enforceable against them.