Mercado v. Allied Banking Corporation
REITERATIONFacts
The Antecedents: Perla N. Mercado (Perla) executed a Special Power of Attorney (SPA) in favor of her husband, Julian D. Mercado (Julian), authorizing him to deal with several of her properties. On the strength of this SPA, Julian obtained loans from Allied Banking Corporation (Respondent), securing them with real estate mortgages constituted on a property owned by Perla, covered by TCT No. RT-18206 (106338). Petitioners, heirs of Perla, alleged that the subject property was not included in the SPA and that the SPA had been revoked by Perla on March 10, 1993, with notice sent to the Registry of Deeds of Quezon City. Procedural History: The Regional Trial Court (RTC) declared the real estate mortgages (REM) and the subsequent foreclosure proceedings null and void, finding that Julian lacked the authority under the SPA to mortgage the subject property. The Court of Appeals (CA) reversed the RTC decision, upholding the validity of the REM, stating that Perla intended to include the subject property in the SPA and that her revocation was not binding on third parties as it was not in a public instrument. The Petition: Petitioners sought review of the CA decision, arguing that the mortgage was invalid, the SPA was validly revoked, and the respondent was not a mortgagee-in-good-faith.
Issue(s)
Whether or not there was a valid mortgage constituted over the subject property. Whether or not there was a valid revocation of the SPA. Whether or not the respondent was a mortgagee-in-good-faith.
Ruling
The petition is GRANTED. The Decision of the Court of Appeals is REVERSED. The Decision of the Regional Trial Court is REINSTATED and AFFIRMED with the modification that the real estate mortgages constituted over TCT No. RT – 18206 (106338) are not null and void but UNENFORCEABLE. The foreclosure proceedings and auction sale are declared null and void.
Ratio Decidendi
On the validity of the mortgage: The Court held that for a mortgage to be valid, essential requisites under Article 2085 of the Civil Code must be met. While Julian was authorized by the SPA to mortgage properties, the subject property covered by TCT No. RT-18206 (106338) was not explicitly enumerated in the SPA. The Court strictly construed the SPA, emphasizing that an agent's authority must be specified and cannot be extended beyond what is expressly granted. The respondent's claim that the property in the SPA (TCT No. RT-106338, Registry of Deeds of Pasig) was the same as the subject property (TCT No. RT-18206 (106338), Registry of Deeds of Quezon City) lacked sufficient proof, such as certifications from the Registry of Deeds or a comparison of technical descriptions. Therefore, Julian acted without authority in mortgaging the subject property, rendering the REM unenforceable. On the validity of the revocation of the SPA: The Court affirmed the RTC's finding that the SPA was validly revoked by Perla through a public instrument on March 10, 1993. Perla also notified the Registry of Deeds of Quezon City of this revocation. The Court held that actual notice of the revocation to the Registry of Deeds, which was not denied by the respondent bank, is superior to constructive notice. This notice effectively informed third parties, including the respondent, that Julian no longer had the authority to mortgage the property as of February 7, 1996, when the letter was received by the Registry of Deeds. The non-annotation of the revocation on the TCT was deemed of no consequence given the actual notice received by the Registry. On whether the respondent was a mortgagee-in-good-faith: The Court found the respondent bank was not a mortgagee-in-good-faith. The palpable difference between the TCT numbers and the registries of deeds mentioned in the REM and the SPA should have alerted the respondent. The bank's claim of diligence was debunked by its overlooking of these inconsistent details. Applying the principle that a mortgagee cannot close its eyes to facts that should put a reasonable person on guard, the Court noted that banks, as institutions impressed with public interest, are expected to exercise a higher degree of diligence. Had the respondent exercised the required prudence, it could have discovered Perla's revocation of the SPA through the notice filed with the Registry of Deeds of Quezon City. The failure to investigate these apparent defects negated its claim of good faith.
Main Doctrine
A Special Power of Attorney must be strictly construed and pursued; the agent may neither go beyond nor deviate from the power of attorney. A mortgage constituted by an agent without the authority granted in the SPA is unenforceable. A banking institution is expected to exercise greater care and prudence in its dealings, and failure to discover patent defects in the mortgagor's authority may negate its claim of being a mortgagee-in-good-faith.