BICOL SAVINGS AND LOAN ASSOCIATION, PETITIONER, VS. HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE DE JESUS, AND PABLO DE JESUS, RESPONDENTS.

This Petition for Review
on Certiorari was filed by Bicol Savings and Loan Association, seeking
the reversal of the Decision* of the respondent Court of Appeals in
CA-G.R. CV NO. 02213, dated 11 August 1988, which ruled adversely against
it. The pleadings disclose the
following factual milieu:

Juan de Jesus was the
owner of a parcel of land, containing an area of 6,870 sq. ms., more or less,
situated in Naga City. On 31 March
1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus,
“To negotiate, mortgage my real property in any bank either private or
public entity preferably in the Bicol Savings Bank, Naga City, in any amount
that may be agreed upon between the bank and my attorney-in-fact.” (CA
Decision, p. 44, Rollo)

By virtue thereof, Jose de Jesus obtained a loan of twenty
thousand pesos (P20,000.00) from petitioner bank on 13 April 1976. To secure payment, Jose de Jesus executed a
deed of mortgage on the real property referred to in the Special Power of
Attorney, which mortgage contract carried, inter alia, the
following stipulation:

“b) If at any
time the Mortgagor shall refuse to pay the obligations herein secured, or any
of the amortizations of such indebtedness when due, or to comply with any of
the conditions and stipulations herein agreed……, then all the obligations of
the Mortgagor secured by this Mortgage, all the amortizations thereof shall
immediately become due, payable and defaulted and the Mortgagee may immediately
foreclose this mortgage in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended, or Act No.
1508. For the purpose of extrajudicial
foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact
to sell the property mortgaged……” (CA Decision, pp. 47-48, Rollo)

Juan de Jesus died in the meantime on a date that does not appear
of record.

By reason of his failure to pay the loan obligation even during
his lifetime, petitioner bank caused the mortgage to be extrajudicially
foreclosed on 16 November 1978. In the subsequent public auction, the
mortgaged property was sold to the bank as the highest bidder to whom a
Provisional Certificate of Sale was issued.

Private respondents herein, including Jose de Jesus, who are all
the heirs of the late Juan de Jesus, failed
to redeem the property within one year from the date of the registration
of the Provisional Certificate of Sale
on 21 November 1980. Hence, a
Definite Certificate of Sale was issued in favor of the bank on 7 September 1982.

Notwithstanding, private respondents still negotiated with the
bank for the repurchase of the property. Offers and counter-offers were made, but no agreement was reached, as a
consequence of which, the bank sold the property instead to other parties in
installments. Conditional deeds of sale
were executed between the bank and these parties. A Writ of Possession prayed for by the bank was granted by the
Regional Trial Court.

On 31 January 1983 private respondents herein filed a Complaint
with the then Court of First Instance of Naga City for the annulment of the
foreclosure sale or for the repurchase by them of the property. That Court, noting that the action was
principally for the annulment of the Definite Deed of Sale issued to petitioner
bank, dismissed the case, ruling that the title of the bank over the mortgaged
property had become absolute upon the issuance and registration of the said
deed in its favor in September 1982. The Trial Court also held that herein private respondents were already
guilty of laches by failing to act until
31 January 1983 when they filed the instant Complaint.

On appeal, the Trial
Court was reversed by respondent Court of Appeals. In so ruling, the Appellate Court applied Article 1879 of the
Civil Code and stated that since the special power to mortgage granted to Jose
de Jesus did not include the power to sell, it was error for the lower Court
not to have declared the foreclosure proceedings and auction sale held in 1978
null and void because the Special Power of Attorney given by Juan de Jesus to
Jose de Jesus was merely to mortgage his property, and not to extrajudicially
foreclose the mortgage and sell the mortgaged property in the said
extrajudicial foreclosure. The
Appellate Court was also of the opinion that petitioner bank should have
resorted to judicial foreclosure. A Decision was thus handed down annulling
the extrajudicial foreclosure sale, the Provisional and Definite Deeds
of Sale, the registration thereof, and the Writ of Possession issued to
petitioner bank.

From this ruling, the
bank filed this petition to which the Court gave due course.

The pivotal issue is the validity of the extrajudicial
foreclosure sale of the
mortgaged property instituted by petitioner bank which, in turn, hinges on whether or not the agent-son exceeded
the scope of his authority in
agreeing to a stipulation in the
mortgage deed that petitioner
bank could extrajudicially foreclose the
mortgaged property.

Article 1879 of the Civil
Code, relied on by the Appellate Court in ruling against the validity of the extrajudicial foreclosure
sale, reads:

“Art. 1879. A special
power to sell excludes the power to mortgage; and a special power to mortgage does not include the
power to sell.”

We find the foregoing
provision inapplicable herein.

The sale proscribed by a
special power to mortgage under Article 1879 is a voluntary and
independent contract, and not an auction sale resulting from extrajudicial
foreclosure, which is precipitated by the default of a mortgagor. Absent that default,
no foreclosure results. The stipulation
granting an authority to extrajudicially foreclose a mortgage is an ancillary
stipulation supported by the same cause or consideration for the mortgage and
forms an essential or inseparable part of that bilateral agreement (Perez v.
Philippine National Bank, No. L-21813, July 30, 1966, 17 SCRA 833, 839).

The power to foreclose is
not an ordinary agency that contemplates exclusively the representation of the
principal by the agent but is primarily an authority conferred upon the
mortgagee for the latter’s own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the right of the mortgagee bank to extrajudicially
foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting
through his attorney-in-fact, Jose de Jesus, did not depend on the authorization in the
deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly
recognized in Section 7, Rule 86 of the Rules of Court, which grants to a
mortgagee three remedies that can be alternatively pursued in case the
mortgagor dies, to wit: (1) to waive
the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim; (2) to foreclose the mortgage judicially and prove any
deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively,
foreclosing the same at any time before it is barred by prescription, without
right to file a claim for any deficiency. It is this right of extrajudicial foreclosure that petitioner bank had
availed of, a right that was expressly upheld in the same case of Perez v.
Philippine National Bank (supra), which explicitly reversed the decision
in Pasno v. Ravina (54 Phil. 382) requiring a judicial foreclosure in the same
factual situation. The Court in the
aforesaid PNB case pointed out that the ruling in the Pasno case
virtually wiped out the third alternative, which precisely includes
extrajudicial foreclosure, a result not warranted by the text of the Rule.

It matters not that the authority to extrajudicially foreclose
was granted by an attorney-in-fact and not by the mortgagor personally. The stipulation in that regard, although
ancillary, forms an essential part of
the mortgage contract and is
inseparable therefrom. No creditor will
agree to enter into a mortgage contract without
that stipulation intended for its protection.

Petitioner bank,    therefore, in effecting the extrajudicial
foreclosure of the mortgaged property, merely availed of a right conferred by law. The auction sale that followed in the wake
of that foreclosure was but a consequence thereof.

WHEREFORE, the Decision of
respondent Court of Appeals in CA-G.R. CV No. 02213 is SET ASIDE, and the extrajudicial
foreclosure of the subject mortgaged property, as well as the Deeds of Sale,
the registration thereof, and the Writ of Possession in petitioner bank’s
favor, are hereby declared VALID and EFFECTIVE.

SO ORDERED.

Paras, Padilla, Sarmiento, and
Regalado, JJ., concur

* Penned by Justice Celso L. Magsino
and concurred in by Presiding Justice Oscar R. Victoriano and Justice Luis L.
Victor.