Bicol Savings and Loan Association v. Court of Appeals
REITERATIONFacts
The Antecedents: Juan de Jesus owned a parcel of land in Naga City. On March 31, 1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus, authorizing him to negotiate and mortgage the property for any agreed amount, preferably with Bicol Savings Bank. Jose de Jesus obtained a loan of P20,000.00 from Bicol Savings and Loan Association (the petitioner) on April 13, 1976, and executed a mortgage deed on the property. The mortgage contract included a stipulation allowing the mortgagee to extrajudicially foreclose the mortgage in case of default. Juan de Jesus died sometime thereafter. Due to non-payment of the loan, the petitioner bank extrajudicially foreclosed the mortgage on November 16, 1978, and purchased the property at the public auction as the highest bidder. Procedural History: The heirs of Juan de Jesus, including Jose de Jesus (the private respondents), failed to redeem the property within the one-year period following the registration of the Provisional Certificate of Sale on November 21, 1980. Consequently, a Definite Certificate of Sale was issued to the petitioner bank on September 7, 1982. Despite this, the private respondents attempted to negotiate for repurchase, but no agreement was reached. The bank then sold the property in installments to other parties and obtained a Writ of Possession from the Regional Trial Court. On January 31, 1983, the private respondents filed a Complaint with the Court of First Instance of Naga City seeking to annul the foreclosure sale or to repurchase the property. The trial court dismissed the case, ruling that the bank's title had become absolute and that the respondents were guilty of laches. The Court of Appeals reversed the trial court's decision, annulling the foreclosure sale and related deeds, based on the interpretation that the special power of attorney to mortgage did not include the power to sell or to agree to an extrajudicial foreclosure. The Petition: The Bicol Savings and Loan Association filed this Petition for Review on Certiorari with the Supreme Court, seeking to reverse the decision of the Court of Appeals. The petitioner argues that the Court of Appeals erred in applying Article 1879 of the Civil Code, contending that the stipulation for extrajudicial foreclosure in the mortgage deed was an ancillary part of the mortgage contract and not a voluntary sale excluded by the article. The petitioner asserts that the right to extrajudicial foreclosure is a statutory right conferred upon the mortgagee for its own protection, which exists independently of the specific stipulation and survives the death of the mortgagor, citing Section 7, Rule 86 of the Rules of Court and previous jurisprudence. The core of the petition is to validate the extrajudicial foreclosure sale, the subsequent deeds of sale, and the writ of possession.
Issue(s)
Whether the extrajudicial foreclosure sale of the mortgaged property was valid, considering the death of the mortgagor. Whether the agent-son exceeded the scope of his authority in agreeing to a stipulation for extrajudicial foreclosure in the mortgage deed, and the applicability of Article 1879 of the Civil Code.
Ruling
The Supreme Court set aside the decision of the Court of Appeals, declaring the extrajudicial foreclosure of the mortgaged property, the Deeds of Sale, the registration thereof, and the Writ of Possession in favor of the petitioner bank as valid and effective.
Ratio Decidendi
On the validity of the extrajudicial foreclosure sale: The Court held that the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor, acting through his attorney-in-fact, did not depend on the authorization in the deed of mortgage. This right existed independently of the stipulation and is recognized in Section 7, Rule 86 of the Rules of Court, which provides three alternative remedies for a mortgagee when the mortgagor dies. The petitioner bank availed itself of the right of extrajudicial foreclosure, which was expressly upheld in Perez v. Philippine National Bank. The petitioner bank, in effecting the extrajudicial foreclosure, merely availed of a right conferred by law, and the subsequent auction sale was a consequence thereof. On the scope of the agent's authority and Article 1879: The Court held that Article 1879 of the Civil Code, which states that a special power to mortgage does not include the power to sell, is inapplicable to the present case. The sale proscribed by Article 1879 is a voluntary and independent contract, not an auction sale resulting from extrajudicial foreclosure. Such a stipulation for extrajudicial foreclosure is an ancillary stipulation, supported by the same consideration as the mortgage, and is an essential or inseparable part of the bilateral agreement. The power to foreclose is not an ordinary agency but an authority conferred upon the mortgagee for its own protection. It matters not that the authority to extrajudicially foreclose was granted by an attorney-in-fact; the stipulation, though ancillary, forms an essential part of the mortgage contract and is inseparable therefrom, as no creditor would enter into a mortgage without such a protective stipulation.
Main Doctrine
A special power to mortgage does not include the power to sell, but this prohibition under Article 1879 of the Civil Code applies to voluntary sales and not to auction sales resulting from extrajudicial foreclosure, which is an ancillary stipulation for the mortgagee's protection and inseparable from the mortgage contract.