RURAL BANK OF BOMBON (CAMARINES SUR), INC., PETITIONER, VS. HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO AND RUFINO S. AQUINO, RESPONDENTS.

This petition for review seeks reversal of the decision dated
September 18,1990 of the Court of Appeals, reversing the decision of the
Regional Trial Court of Makati, Branch 150, which dismissed the private
respondents’ complaint and awarded damages to the petitioner, Rural Bank of
Bombon.

On January 12, 1981, Ederlinda M. Gallardo, married to Daniel
Manzo, executed a special power of attorney in favor of Rufino S. Aquino
authorizing him:

“1. To secure a loan from any bank or lending institution for
any amount or otherwise mortgage the property covered by Transfer Certificate
of Title No. S-79238 situated at Las Piñas, Rizal, the same being my
paraphernal property, and in that connection, to sign, or execute any deed of
mortgage and sign other document requisite and necessary in securing said loan
and to receive the proceeds thereof in cash or in check and to sign the receipt
therefor and thereafter endorse the check representing the proceeds of
loan.” (p. 10, Rollo.)

Thereupon, Gallardo delivered to Aquino both the special power of
attorney and her owner’s copy of Transfer Certificate of Title No. S-79238
(19963-A).

On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of the Rural Bank of Bombon
(Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the three parcels
of land covered by TCT No. S-79238. The
deed stated that the property was being given as security for the payment of
“certain loans, advances, or other accommodations obtained by the
mortgagor from the mortgagee in the
total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus
interest at the rate of fourteen (14%) per annum x x x” (p. 11, Rollo).

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel
Manzo filed an action against Rufino
Aquino and the Bank because Aquino allegedly left his residence at San Pascual,
Hagonoy, Bulacan, and transferred to an unknown place in Bicol. She discovered that Aquino first resided at
Sta. Isabel, Calabanga, Camarines Sur, and then later, at San Vicente, Calabanga, Camarines Sur, and that
they (plaintiffs) were allegedly surprised to discover that the property was
mortgaged to pay personal loans obtained by Aquino from the Bank solely for
personal use and benefit of Aquino; that the mortgagor in the deed was
defendant Aquino instead of plaintiff Gallardo whose address up to now is
Manuyo, Las Piñas, M. M. per the title (TCT No. S-79238) and in the deed
vesting power of attorney to Aquino; that correspondence relative to the
mortgage was sent to Aquino’s address at “Sta. lsabel, Calabanga,
Camarines Sur” instead of Gallardo’s postal address at Las Piñas, Metro
Manila; and that defendant Aquino, in the real estate mortgage, appointed
defendant Rural Bank as attorney in fact, and in case of judicial foreclosure
as receiver with corresponding power to sell and that although without any
express authority from Gallardo, defendant Aquino waived Gallardo’s rights
under Section 12, Rule 39, of the Rules of Court and the proper venue of the
foreclosure suit.

On January 23, 1984, the trial court, thru the Honorable Fernando
P. Agdamag, temporarily restrained the Rural Bank “from enforcing the real
estate mortgage and from foreclosing it either judicially or extrajudically until further orders
from the court” (p.36, Rollo).

Rufino S. Aquino in his answer said that the plaintiff authorized
him to mortgage her property to a bank so that he could use the proceeds to
liquidate her obligation of P350,000 to him. The obligation to pay the Rural Bank devolved on Gallardo. Of late, however, she asked him to pay the
Bank but defendant Aquino set terms and conditions which plaintiff did not
agree to Aquino asked for payment to him of moral damages in the sum of P50,000
and lawyer’s fees of P35,000.

The Bank moved to dismiss the complaint and filed counterclaims
for litigation expenses, exemplary damages, and attorney’s fees. It also filed a crossclaim against Aquino
for P350,000 with interest, other bank charges and damages if the mortgage be
declared unauthorized.

Meanwhile, on August 30, 1984, the Bank filed a complaint against
Ederlinda Gallardo and Rufino Aquino for “Foreclosure of Mortgage”
docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On motion of the plaintiff, the foreclosure
case and the annulment case (Civil Case No. 6062) were consolidated.

On January 16, 1986, the trial court rendered a summary judgment
in Civil Case No. 6062, dismissing the complaint for annulment of mortgage and
declaring the Rural Bank entitled to damages the amount of which will be
determined in appropriate proceedings. The court lifted the writ of preliminary injunction it previously
issued.

On April 23, 1986, the trial court, in Civil Case No. 8330,
issued an order suspending the foreclosure proceedings until after the decision
in the annulment case (Civil Case No. 6062) shall have become final and
executory.

The plaintiff in Civil Case No. 6062 appealed to the Court of
Appeals, which on September 18, 1990, reversed the trial court. The dispositive portion of the decision reads:

“UPON ALL THESE, the summary judgment entered by the lower
court is hereby REVERSED and in lieu thereof, judgment is hereby RENDERED,
declaring the deed of real estate mortgage dated August 26, 1981, executed
between Rufino S. Aquino with the marital consent of his wife, Bibiana Aquino
with the appellee Rural Bank of Bombon, Camarines Sur, unauthorized, void and
unenforceable against plaintiff Ederlinda Gallardo; ordering the reinstatement
of the preliminary injunction issued at the onset of the case and at the same
time, ordering said injunction made permanent.

“Appellee Rural Bank to pay the costs.” (p. 46, Rollo.)

Hence, this petition for review by the Rural Bank of Bombon,
Camarines Sur, alleging that the Court of Appeals erred:

1. in declaring that the Deed of Real Estate Mortgage was
unauthorized, void, and unenforceable against the private respondent Ederlinda
Gallardo; and

2. in not upholding the validity of the Real Estate Mortgage
executed by Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the
Rural Bank of Bombon, (Cam. Sur), Inc.

Both assignments of error boil down to the lone issue of the
validity of the Deed of Real Estate Mortgage dated August 26, 1981, executed by
Rufino S. Aquino, as attorney-in-fact of Ederlinda Gallardo, in favor of the
Rural Bank of Bombon (Cam. Sur), Inc.

The Rural Bank contends that the real estate mortgage executed by
respondent Aquino is valid
because he was expressly authorized by Gallardo to mortgage her property under
the special power of attorney she made in his favor which was duly registered
and annotated on Gallardo’s title. Since the Special Power of Attorney did not specify or indicate that the
loan would be for Gallardo’s benefit, then it could be for the use and benefit
of the attorney-in-fact, Aquino.

However, the Court of Appeals ruled otherwise. It held:

“The Special Power of Attorney above quoted shows the extent
of authority given by the plaintiff to defendant Aquino. But defendant Aquino in executing the deed
of Real Estate Mortgage in favor of the rural bank over the three parcels of
land covered by Gallardo’s title named himself as the mortgagor without stating
that his signature on the deed was for and in behalf of Ederlinda Gallardo in
his capacity as her attorney-in-fact.

“At the beginning of the deed mention was made of
attorney-in-fact of Ederlinda H. Gallardo, thus: ‘(T)his MORTGAGE executed by Rufino S. Aquino attorney in fact of
Ederlinda H. Gallardo, of legal age, filipino, married to Bibiana Panganiban
with postal address at Sta. Isabel x x x,’ but which of itself, was merely
descriptive of the person of Defendant Aquino. Defendant Aquino even signed it plainly as mortgagor with the marital
consent yet of his wife Bibiana P. Aquino who signed the deed as ‘wife of mortgagor.’

“xxx                           xxx                               xxx.

“The three (3) promissory notes respectively dated August 31,
1981, September 23, 1981 and October 26, 1981, were each signed by Rufino
Aquino on top of a line beneath which is written ‘signature of mortgagor’ and
by Bibiana P. Aquino on top of a line under which is written ‘signature
of spouse,’ without any mention that execution thereof was for and in behalf of
the plaintiff as mortgagor. It results,
borne out from what were written on the deed, that the amounts were the personal
loans of defendant Aquino. As pointed
out by the appellant, Aquino’s wife has not been appointed co-agent of
defendant Aquino and her signature on the deed and on the promissory notes can
only mean that the obligation was personally incurred by them and for their own
personal account.

“The deed of mortgage stipulated that the amount obtained from
the loans shall be used or applied only for ‘fishpond (bangus and sugpo
production).’ As pointed out by the plaintiff, the defendant Rural Bank in its
Answer, had not categorically denied the allegation in the complaint that
defendant Aquino in the deed of mortgage was the intended user and beneficiary
of the loans and not the plaintiff. And
the special power of attorney could not be stretched to include the authority
to obtain a loan in said defendant Aquino’s own benefit.” (pp. 40-41, Rollo.)

The decision of the Court of Appeals is correct. This case is governed by the general rule in
the law of agency which this Court applied in “Philippine Sugar
Estates Development Co. vs. Poizat,” 48 Phil. 536, 538:

“It is a general rule in the law of agency 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 will bind the agent only. It is not enough merely that the agent was
in fact authorized to make the mortgage, if he has not acted in
the name of the principal. Neither is
it ordinarily sufficient that in the mortgage the agent describes himself as
acting by virtue of a power of attorney, if in fact the agent has acted in his
own name and has set his own hand and seal to the mortgage. This is especially true where the agent
himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it
shall be the act of the principal, yet, unless in fact it is executed by the
agent for and on behalf of his principal and as the act and deed of the
principal, it is not valid as to the principal.”

In view of this rule, Aquino’s act of signing the Deed of Real
Estate Mortgage in his name alone as mortgagor, without any indication that he
was signing for and in behalf of the property owner, Ederlinda Gallardo, bound
himself alone in his personal capacity as a debtor of the petitioner Bank and
not as the agent or attorney-in-fact of Gallardo. The Court of Appeals further observed:

“It will also be observed that the deed of mortgage was
executed on August 26, 1981 therein clearly stipulating that it was being
executed ‘as security for the payment of certain loans, advances or other
accommodation obtained by the Mortgagor from the Mortgagee in the total sum of
Three Hundred Fifty Thousand Pesos only (P350.000.00)’ although at the time no
such loan or advance had been obtained. The promissory notes were dated August 31, September 23 and October
26,1981 which were subsequent to the execution of the deed of mortgage. The appellant is correct in claiming that
the defendant Rural Bank should not have agreed to extend or constitute the
mortgage on the properties of Gallardo
who had no existing indebtedness with it at the time.

“Under the facts the defendant Rural Bank appeared to have
ignored the representative capacity of Aquino and dealt with him and his wife in their personal capacities. Said appellee Rural Bank also did not
conduct an inquiry on whether the subject loans were to benefit the interest of
the principal (plaintiff Gallardo) rather than that of the agent although the
deed of mortgage was explicit that the loan was for purpose of the bangus and
sugpo production of defendant Aquino.

“In effect, with the execution of the        mortgage under the circumstances and assuming it to be valid
but because the loan taken was to be used exclusively for Aquino’s business in
the ‘bangus’ and ‘sugpo’ production, Gallardo in effect becomes a surety who is
made primarily answerable for loans taken by Aquino in his personal capacity in the event Aquino defaults in such
payment. Under Art. 1878 of the Civil
Code, to obligate the principal as a guarantor or surety, a special power of
attorney is required. No such special
power of attorney for Gallardo to be a surety of Aquino had been
executed.” (pp. 42-43, Rollo.)

Petitioner claims that the Deed of Real Estate Mortgage is enforceable
against Gallardo since it was executed in accordance with Article 1883 which
provides:

“Art. 1883. If an agent acts in his own name, the principal
has no right of action against the persons with whom the agent has contracted;
neither have such persons against the principal.

“In such case the agent is the one directly bound in favor of
the person with whom he has contracted, as if the transaction were his own,
except when the contract involves things belonging to the principal.”

The above provision of the Civil Code relied upon by the
petitioner Bank, is not applicable to the Case at bar. Herein respondent Aquino acted purportedly
as an agent of Gallardo, but actually acted in his personal capacity. Involved herein are properties titled in the
name of respondent Gallardo against which the Bank proposes to foreclose the
mortgage constituted by an agent (Aquino) acting in his personal capacity. Under these circumstances, we hold, as we
did in Philippine Sugar Estates Development Co. vs. Poizat, supra, that
Gallardo’s property is not liable on the real estate mortgage:

“There is no principle of law by which a person can
become liable on a real mortgage which she never executed either in person or
by attorney in fact. It should be noted
that this is a mortgage upon real property, the title to which cannot be
divested except by sale on execution or the formalities of a will or deed. For such reasons, the law requires that a
power of attorney to mortgage or sell real property should be executed with all of the formalities required in a
deed. For the same reason that the
personal signature of Poizat, standing alone, would not convey the title of his
wife in her own real property, such a signature would not bind her as a
mortgagor in real property, the title to which was in her name.” (p. 548.)

WHEREFORE, finding no reversible error in the decision of
the Court of Appeals, we AFFIRM it in toto. Costs against the petitioner.

SO ORDERED.

Cruz, (Chairman), Medialdea, and
Bellosillo, JJ., concur.