Topic: Agency in General the real estate mortgage, appointed defendant Rural Bank as

attorney in fact, and in case of judicial foreclosure as receiver with

Case Title: RURAL BANK OF BOMBON (CAMARINES SUR), corresponding power to sell and that although without any express
INC. v. HON. COURT OF APPEALS, EDERLINDA M. authority from Gallardo, defendant Aquino waived Gallardo's
GALLARDO, DANIEL MANZO and RUFINO S. AQUINO rights under Section 12, Rule 39, of the Rules of Court and the
proper venue of the foreclosure suit.
Date: August 3, 1992
Rufino S. Aquino in his answer said that the plaintiff authorized
Ponente: GRIO-AQUINO, J.
him to mortgage her property to a bank so that he could use the
Legal Doctrine: Agents act of signing mortgage deed in his own proceeds to liquidate her obligation of P350,000 to him. The
name bound himself in his personal capacity as debtor. obligation to pay the Rural Bank devolved on Gallardo. Of late,
however, she asked him to pay the Bank but defendant Aquino set
Facts: On January 12, 1981, Ederlinda M. Gallardo, married to terms and conditions which plaintiff did not agree to. Aquino
Daniel Manzo, executed a special power of attorney in favor of asked for payment to him of moral damages in the sum of P50,000
Rufina S. Aquino authorizing him: and lawyer's fees of P35,000.

To secure a loan from any bank or lending institution for any The Bank moved to dismiss the complaint and filed counter-claims
amount or otherwise mortgage the property covered by Transfer for litigation expenses, exemplary damages, and attorney's fees. It
Certificate of Title No. S-79238 situated at Las Pias, Rizal, the also filed a crossclaim against Aquino for P350,000 with interest,
same being my paraphernal property, and in that connection, to other bank charges and damages if the mortgage be declared
sign, or execute any deed of mortgage and sign other document unauthorized.
requisite and necessary in securing said loan and to receive the
proceeds thereof in cash or in check and to sign the receipt therefor Meanwhile, on August 30, 1984, the Bank filed a complaint
and thereafter endorse the check representing the proceeds of against Ederlinda Gallardo and Rufino Aquino for "Foreclosure of
loan. Mortgage" docketed as Civil Case No. 8330 in Branch 141, RTC
Makati. On motion of the plaintiff, the foreclosure case and the
Thereupon, Gallardo delivered to Aquino both the special power of annulment case (Civil Case No. 6062) were consolidated.
attorney and her owner's copy of Transfer Certificate of Title.
On January 16, 1986, the trial court rendered a summary judgment
On August 26, 1981, a Deed of Real Estate Mortgage was in Civil Case No. 6062, dismissing the complaint for annulment of
executed by Rufino S. Aquino in favor of the Rural Bank of mortgage and declaring the Rural Bank entitled to damages the
Bombon over the three parcels of land covered by TCT No. S- amount of which will be determined in appropriate proceedings.
79238. The deed stated that the property was being given as The court lifted the writ of preliminary injunction it previously
security for the payment of "certain loans, advances, or other issued.
accommodations obtained by the mortgagor from the mortgagee in
the total sum of Three Hundred Fifty Thousand Pesos only On April 23, 1986, the trial court issued an order suspending the
(P350,000.00), plus interest at the rate of fourteen (14%) per foreclosure proceedings until after the decision in the annulment
annum . . ." case shall have become final and executory.

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel The plaintiff appealed to the Court of Appeals, which on
Manzo filed an action against Rufino Aquino and the Bank September 18, 1990, reversed the trial court. The dispositive
because Aquino allegedly left his residence at San Pascual, portion of the decision reads:
Hagonoy, Bulacan, and transferred to an unknown place in Bicol.
UPON ALL THESE, the summary judgment entered by the lower
She discovered that Aquino first resided at Sta. Isabel, Calabanga,
court is hereby REVERSED and in lieu thereof, judgment is
Camarines Sur, and then later, at San Vicente, Calabanga,
hereby RENDERED, declaring the deed of real estate mortgage
Camarines Sur, and that they (plaintiffs) were allegedly surprised
dated August 26, 1981, executed between Rufino S. Aquino with
to discover that the property was mortgaged to pay personal loans
the marital consent of his wife Bibiana Aquino with the appellee
obtained by Aquino from the Bank solely for personal use and
Rural Bank of Bombon, Camarines Sur, unauthorized, void and
benefit of Aquino; that the mortgagor in the deed was defendant
unenforceable against plaintiff Ederlinda Gallardo; ordering the
Aquino instead of plaintiff Gallardo whose address up to now is
reinstatement of the preliminary injunction issued at the onset of
Manuyo, Las Pias, M.M., per the title (TCT No. S-79238) and in
the case and at the same time, ordering said injunction made
the deed vesting power of attorney to Aquino; that correspondence
permanent.
relative to the mortgage was sent to Aquino's address at "Sta.
Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal Issue(s):
address at Las Pias, Metro Manila; and that defendant Aquino, in
 1. Whether the mortgage by Aquino was executed as an Under the facts the defendant Rural Bank appeared to
agent or in his personal capacity. have ignored the representative capacity of Aquino and
dealt with him and his wife in their personal capacities.
Held: Personal Capacity. SC Ruling: WHEREFORE, finding no Said appellee Rural Bank also did not conduct an inquiry
reversible error in the decision of the Court of Appeals, we on whether the subject loans were to benefit the interest of
AFFIRM it in toto. Costs against the petitioner. the principal (plaintiff Gallardo) rather than that of the
agent although the deed of mortgage was explicit that the
Ratio:
loan was for purpose of the bangus and sugpo production
1. The decision of the Court of Appeals is correct. This case of defendant Aquino.
is governed by the general rule in the law of agency
which this Court, applied in "Philippine Sugar Estates In effect, with the execution of the mortgage under the
Development Co. vs. Poizat," 48 Phil. 536, 538: circumstances and assuming it to be valid but because the
loan taken was to be used exclusively for Aquino's
It is a general rule in the law of agency that, in order to business in the "bangus" and "sugpo" production,
bind the principal by a mortgage on real property Gallardo in effect becomes a surety who is made
executed by an agent, it must upon its face purport to be primarily answerable for loans taken by Aquino in his
made, signed and sealed in the name of the principal, personal capacity in the event Aquino defaults in such
otherwise, it will bind the agent only. It is not enough payment. Under Art. 1878 of the Civil Code, to obligate
merely that the agent was in fact authorized to make the the principal as a guarantor or surety, a special power of
mortgage, if he has not acted in the name of the principal. attorney is required. No such special power of attorney for
Neither is it ordinarily sufficient that in the mortgage the Gallardo to be a surety of Aquino had been executed. (pp.
agent describes himself as acting by virtue of a power of 42-43, Rollo.)
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 Petitioner claims that the Deed of Real Estate Mortgage is
especially true where the agent himself is a party to the enforceable against Gallardo since it was executed in
instrument. However clearly the body of the mortgage accordance with Article 1883.
may show and intend that it shall be the act of the
principal, yet, unless in fact it is executed by the agent for The above provision of the Civil Code relied upon by the
and on behalf of his principal and as the act and deed of petitioner Bank, is not applicable to the case at bar.
the principal, it is not valid as to the principal. Herein respondent Aquino acted purportedly as an agent
of Gallardo, but actually acted in his personal capacity.
In view of this rule, Aquino's act of signing the Deed of Involved herein are properties titled in the name of
Real Estate Mortgage in his name alone as mortgagor, respondent Gallardo against which the Bank proposes to
without any indication that he was signing for and in foreclose the mortgage constituted by an agent (Aquino)
behalf of the property owner, Ederlinda Gallardo, bound acting in his personal capacity. Under these
himself alone in his personal capacity as a debtor of the circumstances, we hold, as we did in Philippine Sugar
petitioner Bank and not as the agent or attorney-in-fact of Estates Development Co. vs. Poizat, supra, that Gallardo's
Gallardo. The Court of Appeals further observed: property is not liable on the real estate mortgage:

It will also be observed that the deed of mortgage was There is no principle of law by which a person can
executed on August 26, 1981 therein clearly stipulating become liable on a real mortgage which she never
that it was being executed "as security for the payment of executed either in person or by attorney in fact. It should
certain loans, advances or other accommodation obtained be noted that this is a mortgage upon real property, the
by the Mortgagor from the Mortgagee in the total sum of title to which cannot be divested except by sale on
Three Hundred Fifty Thousand Pesos only execution or the formalities of a will or deed. For such
(P350,000.00)" although at the time no such loan or reasons, the law requires that a power of attorney to
advance had been obtained. The promissory notes were mortgage or sell real property should be executed with all
dated August 31, September 23 and October 26, 1981 of the formalities required in a deed. For the same reason
which were subsequent to the execution of the deed of that the personal signature of Poizat, standing alone,
mortgage. The appellant is correct in claiming that the would not convey the title of his wife in her own real
defendant Rural Bank should not have agreed to extend or property, such a signature would not bind her as a
constitute the mortgage on the properties of Gallardo who mortgagor in real property, the title to which was in her
had no existing indebtedness with it at the time. name. (p. 548.)