DIONISIA CADAMPOG, PLAINTIFF-APPELLEE, VS. ALEXANDER PAEZ, DEFENDANT-APPELLEE,

Cadampog versus Paez

The Case

This is a lecture on Cadampog versus Paez, a decision of the Supreme Court on agency, mortgage, and damages. Dionisia Cadampog, the registered owner of a parcel of land in Cebu City, discovered that her property had been mortgaged to Ciriaca Barnacha by Alexander Paez, who claimed to act under a special power of attorney supposedly signed by her. She sued to nullify the special power of attorney and to cancel the mortgage. The case matters because it gathers in one place the rules a bar candidate must know: the elements of agency, the burden of proof when the existence of a special power of attorney is denied, the higher degree of prudence demanded of a mortgagee who does not deal directly with the registered owner, and the rule that registration is notice but does not cure an invalid mortgage.

Procedural History

Dionisia Cadampog filed a verified complaint for nullification of the special power of attorney and cancellation of the real estate mortgage before the Regional Trial Court of Cebu City, Branch 16. Alexander Paez failed to answer within the reglementary period and was declared in default. On August 22, 2008, the trial court rendered judgment in favor of the plaintiff, declaring the special power of attorney and the deed of real estate mortgage null and void, ordering the Register of Deeds to cancel the entry and issue a new owner's duplicate copy of the title, and ordering the defendants to pay moral damages, exemplary damages, attorney's fees, and litigation expenses. Only Ciriaca Barnacha appealed. The appeal was taken to the Supreme Court under Rule 41 of the Rules of Court, as amended, and the Court resolved it in a decision penned by Justice Lagura-Yap. The Court noted at the outset that the plaintiff's brief had been expunged from the record for failure of her counsel to secure a mandatory continuing legal education certificate of compliance or exemption.

Facts

Dionisia Cadampog owned a parcel of land in Nasipit, Talamban, Cebu City, covered by a certificate of title, and she had been in continuous, peaceful, and exclusive possession of it, her house standing on the lot. She asked her daughter to secure a true copy of the title from the Register of Deeds, and to their dismay they found an entry annotated on the title: a deed of real estate mortgage dated December 23, 1989, purportedly executed in her behalf by Alexander Paez as her attorney-in-fact, in favor of Ciriaca Barnacha.

In July 2006, the plaintiff's counsel wrote Barnacha, informing her that the plaintiff had never executed a special power of attorney in favor of Paez, and asking her to cancel the entry and return the owner's copy of the title. Barnacha met the plaintiff and her daughter at the office of their lawyer and confirmed that Paez had mortgaged the land to her. She admitted she never saw the property and never exercised her rights as mortgagee because she doubted the authenticity of the special power of attorney. She had even instructed her lawyer to file a complaint for estafa against Paez, who could no longer be found. She initially agreed to execute an affidavit supporting the cancellation, but later refused and instead demanded reimbursement of thirty thousand pesos with penalty and interest.

For her part, Barnacha claimed that in December 1989 Paez borrowed thirty thousand pesos from her, bringing a special power of attorney allegedly executed by the plaintiff and the owner's copy of the title as collateral. Paez executed a promissory note and the real estate mortgage, which was notarized later. The mortgage was annotated on the title in June 1990, and the special power of attorney in July 1990. Barnacha could not produce the special power of attorney in court, claiming it was burned in a fire at the Carbon Market where she had a stall.

Issues

• Whether or not a contract of agency existed between Dionisia Cadampog and Alexander Paez authorizing the mortgage of her property.
• Whether or not the deed of real estate mortgage annotated on the title is valid.
• Whether or not Barnacha, as mortgagee, acted in good faith.
• Whether or not the plaintiff is entitled to moral damages, exemplary damages, and attorney's fees.

Applicable Provisions

Article 1868 of the Civil Code defines the contract of agency:

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representative or on behalf of another, with the consent or authority of the latter.

This is the provision against which the Court measured whether Paez could bind the plaintiff, and it supplied the element of consent that the Court found missing.

Section 1, Rule 131 of the Rules of Court, cited by the Court through the Vitarich case, fixes the burden of proof:

Section 1. Burden of proof. Burden of proof is the duty of a party to prove the truth of his claim or defense, or any fact in issue by the amount of evidence required by law.

This governs who must prove the existence of the special power of attorney once the plaintiff denied executing it.

Ruling

On the first issue, the Court held that no contract of agency was established. The elements of agency are consent, express or implied, of the parties; an object which is the execution of a juridical act in relation to a third person; the agent acting as a representative and not for himself; and the agent acting within the scope of his authority. The records were bereft of any showing that the plaintiff authorized Paez to represent her or to borrow money from Barnacha, and there was no ratification, express or implied. The element of consent was lacking.

On the second issue, the Court held that the mortgage was invalid. As between the denial of the plaintiff and the affirmative defense of Barnacha, the latter bore the burden of proving the existence of the special power of attorney, and she failed to discharge it, having failed to present the document. The Court stressed that the requirement of a special power of attorney refers to the nature of the authorization and not to its form, and that in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed, and sealed in the name of the principal; otherwise it binds the agent only.

On the third issue, the Court held that Barnacha was a mortgagee in bad faith. Where the mortgagee does not directly deal with the registered owner, the law requires a higher degree of prudence. Barnacha failed to make the necessary inquiries into the true identity of the alleged mortgagor; confirmation by her husband that the documents were legitimate did not suffice, and her testimony was marked by inconsistencies, saying at one point that she tried to look for the plaintiff and later that she never visited the land because she was not interested. The Court also held that registration only operates as notice of the mortgage to others, but it neither adds to its validity nor converts an invalid mortgage into a valid one between the parties.

On the fourth issue, the Court upheld the award of damages. The plaintiff was unjustly deprived of her property when it was mortgaged without her knowledge, and it would be unconscionable for her to pay a loan she did not incur. She was also entitled to attorney's fees because she was forced to litigate, and Barnacha could still pursue Paez to collect the money she loaned.

Doctrine

First, agency requires consent, express or implied, of the parties; the principal must have an actual intention to appoint, or an intention naturally inferable from words or actions, and without that consent no agency arises under Article 1868.

Second, the requirement of a special power of attorney refers to the nature of the authorization, not its form; if it is not written, it must be duly established by evidence, and the party asserting it bears the burden of proof under Section 1, Rule 131.

Third, to bind the principal by a mortgage on real property executed by an agent, the instrument must upon its face purport to be made, signed, and sealed in the name of the principal; otherwise it binds the agent only.

Fourth, a mortgagee who does not deal directly with the registered owner must exercise a higher degree of prudence and examine not only the certificate of title but all factual circumstances necessary to determine any flaw in the transferor's title or capacity to transfer.

Fifth, registration operates only as notice of the mortgage to others; it neither adds to its validity nor converts an invalid mortgage into a valid one between the parties.

Disposition

The Supreme Court denied the appeal and affirmed the decision of the trial court, with the correction that the correct entry number of the deed of real estate mortgage is Entry Number 145633.

Remember This

Memorize this line: registration is notice, not validation, and a mortgagee who does not deal with the registered owner must exercise a higher degree of prudence. Examiners use this case for the elements of agency, the burden of proving a special power of attorney, and the good faith of a mortgagee.