Mercado v. Allied Banking Corporation
REITERATIONFacts
The Antecedents: Perla N. Mercado, the deceased mother of the petitioners, owned several properties. Her husband, Julian D. Mercado, acting under a Special Power of Attorney (SPA) executed by Perla, obtained two loans from Allied Banking Corporation totaling P8,000,000.00. These loans were secured by a real estate mortgage constituted on a property registered under TCT No. RT-18206 (106338), which was registered with the Registry of Deeds of Quezon City. Julian later defaulted on these loan obligations. Procedural History: Following Julian's default, Allied Banking Corporation initiated extra-judicial foreclosure proceedings on the mortgaged property, eventually becoming the highest bidder at the public auction. The petitioners, heirs of Perla, filed a complaint with the Regional Trial Court (RTC) seeking the annulment of the real estate mortgage, the foreclosure proceedings, and the auction sale. The RTC ruled in favor of the petitioners, declaring the mortgages null and void. The respondent bank appealed this decision to the Court of Appeals, which reversed the RTC's ruling, upholding the validity of the mortgage. The petitioners then filed a Petition for Review on Certiorari with the Supreme Court. The Petition: The petitioners seek to reverse the Court of Appeals' decision, arguing that the real estate mortgage constituted by Julian over the subject property was invalid. They contend that the SPA did not explicitly include the property in question, as the title number and registry of deeds mentioned in the SPA differed from the property's actual title and registration. Furthermore, they assert that the SPA had been revoked by Perla prior to the mortgage, and that the bank, as a mortgagee-bank, failed to exercise the required diligence to discover this revocation and the discrepancies in the property's title. The petition raises issues concerning the validity of the mortgage, the validity of the SPA's revocation, and the respondent's status as 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 Supreme Court granted the petition, reversed the Court of Appeals' decision, and reinstated the RTC's decision with modification. It declared the real estate mortgages constituted over TCT No. RT – 18206 (106338) as unenforceable, and consequently, the foreclosure proceedings and auction sale were null and void. The Court clarified that the mortgages were not null and void but unenforceable.
Ratio Decidendi
On Issue 1 (Validity of Mortgage): The Court found that the subject property, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City, was not among the properties explicitly enumerated in the Special Power of Attorney (SPA) executed by Perla in favor of Julian. The SPA listed a property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig (now Makati). The Court emphasized that a power of attorney must be strictly construed and pursued, granting only those powers expressly specified. Without clear evidence that the property in Quezon City was intended to be included, Julian's act of mortgaging it was beyond the authority granted by the SPA, rendering the mortgage unenforceable under Article 1403(1) of the Civil Code. On Issue 2 (Validity of Revocation of SPA): The Court affirmed the RTC's finding that the SPA was validly revoked by Perla through a public instrument dated March 10, 1993. Furthermore, Perla's letter dated January 23, 1996, notifying the Registry of Deeds of Quezon City of the revocation and requiring her consent for any transaction, served as actual notice to third parties. The Court held that even if the revocation was not annotated on the title, actual notice is superior to constructive notice, and the respondent bank, by failing to deny receipt of this notice, was deemed to have been constructively notified. This notice effectively rendered Julian without authority to mortgage the property as of February 7, 1996, when the Registry of Deeds received the letter. On Issue 3 (Respondent as Mortgagee-in-Good-Faith): The Court ruled that the respondent bank was not a mortgagee-in-good-faith. The palpable difference between the TCT numbers (RT-18206 vs. RT-106338) and the different registries of deeds (Quezon City vs. Pasig/Makati) mentioned in the mortgage documents and the SPA should have alerted the bank. As a banking institution, it is expected to exercise a higher degree of diligence and prudence than an ordinary prudent man. The bank's claim of verifying Julian's authority was debunked by its failure to notice these inconsistencies, which would have led to the discovery of the defect in Julian's authority and the revocation of the SPA. By overlooking these patent defects, the bank failed to discharge the required degree of diligence, thus losing its status as an innocent mortgagee.
Main Doctrine
The Supreme Court reiterated that a Special Power of Attorney (SPA) must be strictly construed, and an agent can only perform acts expressly specified therein. Consequently, any mortgage constituted by an agent beyond the scope of the SPA is unenforceable against the principal. Furthermore, banking institutions, as mortgagees, are expected to exercise a higher degree of diligence and cannot claim to be mortgagees-in-good-faith if they overlook patent discrepancies in the documents presented, such as inconsistencies in title numbers and the registries where they are registered, which would have alerted a prudent person to potential defects in the agent's authority or the property's title.