G.R. No. 129919. February 6, 2002.
* "On August 8, 1991, defendant filed a third-party complaint against Fernando
DOMINION INSURANCE CORPORATION, petitioner, vs.COURT OF
APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA,
respondents.
Civil Law; Contracts; Agency; The basis for agency is representation; There
must be an actual intention by the principal to appoint and on the part of the agent
an intention to accept the appointment and act on it, otherwise there is generally no
agency.—By the contract of agency, a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter. The basis for agency is representation. On the part of the
principal, there must be an actual intention to appoint or an intention naturally
inferrable from his words or actions; and on the part of the agent, there must be an
intention to accept the appointment and act on it, and in the absence of such intent,
there is generally no agency.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Romeo G. Maglalang for private respondent R.S. Guevarra.
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of Appeals2 affirming
the decision3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga,
which ordered petitioner Dominion Insurance Corporation (Dominion) to pay
Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total
amount advanced by Guevarra in the payment of the claims of Dominion’s clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855
for sum of money against defendant Dominion Insurance Corporation. Plaintiff
sought to recover thereunder the sum of P156,473.90 which he claimed to have
advanced in his capacity as manager of defendant to satisfy certain claims filed by
defendant’s clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim
for P249,672.53, representing premiums that plaintiff allegedly failed to remit.
Austria, who, at the time relevant to the case, was its Regional Manager for Central
Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October 18,
1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992,
January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of
which dates no pre-trial conference was held. The record shows that except for the
settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were
cancelled at the instance of defendant, third-party defendant and plaintiff,
respectively, the rest were postponed upon joint request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff
and counsel were present. Despite due notice, defendant and counsel did not appear,
although a messenger, Roy Gamboa, submitted to the trial court a handwritten note
sent to him by defendant’s counsel which instructed him to request for
postponement. Plaintiff’s counsel objected to the desired postponement and moved
to have defendant declared as in default. This was granted by the trial court in the
following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and his counsel
Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992
addressed to a certain Roy who was requested to ask for postponement, Atty.
Maglalang vigorously objected to any postponement on the ground that the note is
but a mere scrap of paper and moved that the defendant corporation be declared as in
default for its failure to appear in court despite due notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering
that the pre-trial conference has been repeatedly postponed on motion of the
defendant Corporation, the defendant Dominion Insurance Corporation is hereby
declared (as) in default and plaintiff is allowed to present his evidence on June 16,
1992 at 9:00 o’clock in the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed by a written
offer of documentary exhibits on July 8 and a supplemental offer of additional
1
exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated
July 17, 1992.
"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF
DEFAULT.’ It alleged therein that the failure of counsel to attend the pre-trial
conference was ‘due to an unavoidable circumstance’ and that counsel had sent his
representative on that date to inform the trial court of his inability to appear. The
Motion was vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant’s motion for reasons, among
others, that it was neither verified nor supported by an affidavit of merit and that it
further failed to allege or specify the facts constituting his meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the aforesaid order.
For the first time counsel revealed to the trial court that the reason for his
nonappearance at the pre-trial conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President purporting to explain its meritorious
defense was attached to the said Motion. Just the same, in an Order dated November
13, 1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:
"WHEREFORE, premises considered, judgment is hereby rendered ordering:
"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum
of P156,473.90 representing the total amount advanced by plaintiff in the
payment of the claims of defendant’s clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s
fees;
"3. The dismissal of the counter-claim of the defendant and the third-party
complaint;
"4. The defendant to pay the costs of suit."4  "1. To conduct, sign, manager (sic), carry on and transact Bonding and
On December 14, 1992, Dominion appealed the decision to the Court of Appeals.5  MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the
trial court.6 On September 3, 1996, Dominion filed with the Court of Appeals a
motion for reconsideration.7 On July 16, 1997, the Court of Appeals denied the
motion.8 
Hence, this appeal.9 
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as
agent for petitioner, and (2) whether respondent Guevarra is entitled to
reimbursement of amounts he paid out of his personal money in settling the claims of
several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter.10 The basis for agency is representation.11 On the part of the principal, there
must be an actual intention to appoint12 or an intention naturally inferrable from his
words or actions;13 and on the part of the agent, there must be an intention to accept
the appointment and act on it,14 and in the absence of such intent, there is generally
no agency.15 
A perusal of the Special Power of Attorney16 would show that petitioner (represented
by third-party defendant Austria) and respondent Guevarra intended to enter into a
principal-agent relationship. Despite the word "special" in the title of the document,
the contents reveal that what was constituted was actually a general agency. The
terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a
corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, xxx represented by the undersigned as Regional
Manager, xxx do hereby appoint RSG Guevarra Insurance Services represented by
Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place
and stead, to do and perform the following acts and things:
Insurance business as usually pertain to a Agency Office, or FIRE,
the right, upon our prior written consent, to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of
Insurance and Bonds for and on our behalf.
2
 "3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and
transfer for and receive and give effectual receipts and discharge for all
money to which the FIRST CONTINENTAL ASSURANCE COMPANY,
INC.,18 may hereafter become due, owing payable or transferable to said
Corporation by reason of or in connection with the above-mentioned
appointment.
"4. To receive notices, summons, and legal processes for and in behalf of
the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in
connection with actions and all legal proceedings against the said
Corporation."19 [Emphasis supplied]
The agency comprises all the business of the principal,20 but, couched in general
terms, it is limited only to acts of administration.21  "This is to authorize you to withdraw from your revolving fund/collection the amount
A general power permits the agent to do all acts for which the law does not require a
special power.22 Thus, the acts enumerated in or similar to those enumerated in the
Special Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power of attorney
is required. The pertinent portion that applies to this case provides that:
"Article 1878. Special powers of attorney are necessary in the following cases:
"(1) To make such payments as are not usually considered as acts of administration;
"x x x           x x x          x x x
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement of claims is not
included among the acts enumerated in the Special Power of Attorney, neither is it of
a character similar to the acts enumerated therein. A special power of attorney is
required before respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of
Management Agreement23 dated February 18, 1987 which enumerates the scope of
respondent Guevarra’s duties and responsibilities as agency manager for San
Fernando, Pampanga, as follows:
"x x x           x x x          x x x
"1. You are hereby given authority to settle and dispose of all motor car
claims in the amount of P5,000.00 with prior approval of the Regional
Office.
"2. Full authority is given you on TPPI claims settlement.
" x x x           x x x          x x x "24 
In settling the claims mentioned above, respondent Guevarra’s authority is further
limited by the written standard authority to pay,25 which states that the payment shall
come from respondent Guevarra’s revolving fund or collection. The authority to pay
is worded as follows:
of PESOS __________________ (P ) representing the payment on the
_________________ claim of assured _______________ under Policy No. ______
in that accident of ___________ at ____________.
"It is further expected, release papers will be signed and authorized by the concerned
and attached to the corresponding claim folder after effecting payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26 
[Emphasis supplied]
The instruction of petitioner as the principal could not be any
clearer.1âwphi1 Respondent Guevarra was authorized to pay the claim of the
insured, but the payment shall come from the revolving fund or collection in his
possession.
Having deviated from the instructions of the principal, the expenses that respondent
Guevarra incurred in the settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is in accord with Article
1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent in the following
cases:
"(1) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of the benefits
derived from the contract;
3
 " x x x           x x x          x x x "
However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor."
In this case, when the risk insured against occurred, petitioner’s liability as insurer
arose.1âwphi1 This obligation was extinguished when respondent Guevarra paid the
claims and obtained Release of Claim Loss and Subrogation Receipts from the
insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule
otherwise would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance
claims could best be proven by the Release of Claim Loss and Subrogation
Receipts27 which were attached to the original complaint as Annexes C-2, D-1, E-1,
F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession
of respondent Guevarra as reflected in the statement of account dated July 11, 1990
would be deducted from the above amount.
The outstanding balance and the production/remittance for the period corresponding
to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11.
This is the amount that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision
of the Court of Appeals28 and that of the Regional Trial Court, Branch 44, San
Fernando, Pampanga,29 in that petitioner is ordered to pay respondent Guevarra the
amount of P112,672.11 representing the total amount advanced by the latter in the
payment of the claims of petitioner’s clients.
No costs in this instance.
SO ORDERED.
G.R. No. 159271. July 13, 2015.*
 
SPOUSES BENITO BAYSA and VICTORIA BAYSA,
petitioners, vs. SPOUSES FIDEL PLANTILLA and SUSAN PLANTILLA,
REGISTER OF DEEDS OF QUEZON CITY, and THE SHERIFF OF
QUEZON CITY, respondents.
Remedial Law; Special Civil Actions; Foreclosure of Mortgage; Extrajudicial
Foreclosure of Mortgage; Special Power to Sell; In the extrajudicial foreclosure of
property subject of a real estate mortgage (REM), Act No. 3135 (An Act to Regulate
the Sale of Property Under Special Powers Inserted in or Annexed to Real Estate
Mortgages) is quite explicit and definite about the special power to sell the property
being required to be either inserted in or attached to the deed of mortgage.—In the
extrajudicial foreclosure of property subject of a real estate mortgage, Act No. 3135
(An Act to Regulate the Sale of Prop-
_______________
*  FIRST DIVISION.
434
434 SUPREME COURT REPORTS ANNOTATED
Baysa vs. Plantilla
erty Under Special Powers Inserted in or Annexed to Real Estate Mortgages)
is quite explicit and definite about the special power to sell the property being
required to be either inserted in or attached to the deed of mortgage. Section 1 of Act
No. 3135 provides: Section 1. When a sale is made under a special power inserted
in or attached to any real estate mortgage hereafter made as security for the
payment of money or the fulfillment of any other obligation, the provisions of the
following section shall govern as to the manner in which the sale and redemption
shall be effected, whether or not provision for the same is made in the power.
Accordingly, to enable the extrajudicial foreclosure of the REM of the petitioners,
the special power to sell should have been either inserted in the REM itself or
embodied in a separate instrument attached to the REM. But it is not disputed that no
special power to sell was either inserted in the REM or attached to the REM. Hence,
the respondent spouses as the foreclosing mortgagees could not initiate the
extrajudicial foreclosure, but must resort to judicial foreclosure pursuant to the
procedure set forth in Rule 68 of the Rules of Court. The omission of the special
power to sell the property subject of the mortgage was fatal to the validity and
efficacy of the extrajudicial foreclosure, and warranted the invalidation of the entire
proceedings conducted by the sheriff.
Same; Same; Same; Same; Same; Considering that, pursuant to Article
1878(5), of the Civil Code, a special power of attorney (SPA) was necessary for
entering “into any contract by which the ownership of an immovable is transmitted
or acquired either gratuitously or for a valuable consideration,” the written
4
authority must be an SPA to sell.—The requirement for the special power or
authority to sell finds support in the civil law. To begin with, because the sale of the
property by virtue of the extrajudicial foreclosure would be made through the sheriff
by the respondent spouses as the mortgagees acting as the agents of the petitioners as
the mortgagors-owners, there must be a written authority from the latter in favor of
the former as their agents; otherwise, the sale would be void. And secondly,
considering that, pursuant to Article 1878(5), of the Civil Code, a special power of
attorney was necessary for entering “into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration,” the written authority must be a special power of attorney to sell.
Contrary to the CA’s opinion, therefore, the power or authority to sell by virtue of
the
435
VOL. 762, JULY 13, 2015 435
Baysa vs. Plantilla
extrajudicial foreclosure of the REM could not be necessarily implied from the
text of paragraph 13, supra, expressing the petitioners’ agreement to the extrajudicial
foreclosure.
Same; Same; Same; Redemption; There is no right of redemption to speak of if
the foreclosure was void.—Having found and declared the extrajudicial foreclosure
of the REM and the foreclosure sale of the mortgaged property of the petitioner void
for want of the special power to sell, we deem it unnecessary to consider and
determine the final issue on whether or not the petitioners had lost their right to
redeem. In other words, there is no right of redemption to speak of if the foreclosure
was void.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
  Cecilio V. Suarez, Jr. and Martinez, Caparroso & Villasis Law Office for
petitioners.
  The Law Firm of Nidea, Bantog, Soliman for respondents.
BERSAMIN, J.:
 
The petitioners seek the reversal and setting aside of the decision promulgated on
December 20, 2002,1 whereby the Court of Appeals (CA) declared the extrajudicial
foreclosure of their mortgaged property valid.2
 
Antecedents 
The case involves a real estate mortgage (REM) entered into by the petitioners
involving their parcel of land in Cubao,
_______________
1  Rollo, pp. 37-44; penned by Associate Justice Romeo A. Brawner (later
Presiding Justice), with Associate Justices Bienvenido L. Reyes (now a member of
this Court) and Danilo B. Pine (retired), concurring.
2  Id., at p. 43.
436
436 SUPREME COURT REPORTS ANNOTATED
Baysa vs. Plantilla
Quezon City covered by their Transfer Certificate of Title No. 260376 of the
Register of Deeds of Quezon City to secure the payment of their obligation
amounting to P2.3 Million in favor of the respondent spouses. Based on the terms of
the REM, the petitioners agreed to pay interest on the principal amount at the rate of
2.5%/month, or P57,500.00/month. Upon the default of the petitioners, the
respondent spouses commenced the extrajudicial foreclosure of the REM to recover
from the petitioners the total liability of P3,579,100.00 (inclusive of the principal and
the unpaid interest).
The petitioners sued the respondent spouses in the Regional Trial Court (RTC) in
Quezon City to annul the extrajudicial foreclosure of the REM and the public auction
conducted pursuant to the extrajudicial foreclosure. They alleged that all the
proceedings relevant to the extrajudicial foreclosure were null and void, pointing out
that there had been no power or authority to sell inserted in the REM or attached
thereto as required by Section 1, Act No. 3135; and that the interest rate of 8% was
unconscionable and violative of the Anti-Usury Law.
The pertinent details as summarized by the RTC and adopted by the CA are the
following:
On August 4, 1992, plaintiffs-spouses (Benito and Victoria Baysa) executed a
real estate mortgage in favor of the defendants-spouses Fidel R. Plantilla and Susan
Plantilla whereby plaintiffs-spouses mortgaged their parcel of land in Cubao, Quezon
City x x x to secure the payment of their indebtedness in the principal sum of
P2,300,000.00 and accruing interest at the legal rate thereon and payable according
to the terms of the Mortgage Note x x x. The Mortgage Note signed by both parties
containing the terms of payment and interest rate was also executed on August 4,
1992 x x x. It was expressly agreed upon by both parties in the mortgage note that
the interest on the loan of P2,300,000.00 was 2.5% per month (P57,500.00) or a
monthly rate equal to 7 percentage points above the prime rate of the Standard
437
VOL. 762, JULY 13, 2015 437
Baysa vs. Plantilla
Chartered Bank of Makati on the fifth working day before the interest is due. The
improvements existing on the land in question are a house, shop and warehouse. This
parcel of land including the improvements is worth P15 million. The interest at the
rate of P57,500.00 from September 1992 up to May 1993 were regularly paid. They
suffered business reverses and difficulty in collection so they became irregular in the
monthly payment of the agreed interest and for late payment they were charged 8%
interest per month, the same is reflected in the statement of account dated March 31,
5
1994 for P3,053,772.00 x x x in the statement of account as of May 6, 1994 x x x and
in the statement of overdue account dated April 21, 1994 x x x. When 8% interest
surcharge was imposed, they stopped paying the monthly interest because of some
difficulty in their business and high interest rate which overburdened them. Then the
defendants filed an extrajudicial foreclosure. A certain Mrs. de la Cruz approaching
them as representative of the defendants collecting the unpaid balance of
P3,123,830.00 as reflected in the statement of account as of May 6, 1994 x x x and
they told her that they were willing to pay what ever be the balance but the interest
has to be recomputed not on the basis of 8% interest per month. They received a
notice of sheriff’s sale that the property will be foreclosed x x x, the amount of
mortgage indebtedness was P3,579,100.00. Their principal loan was P2,300,000.00
and they have paid P1,032,599.88 for interest of the loan x x x. When he received the
notice of sheriff’s sale he was surprised because they have an agreement with the
representative that they were asking for a period of six (6) months to pay after
knowing the correct amount of their balance x x x.
The defendants’ evidence x x x shows that x x x no payment was made by the
plaintiffs on the principal loan of P2,300,000.00. Only the monthly interest of 2.5%
of the principal or P57,500.00 were paid by the plaintiffs regularly from August 1992
until June 1993. The interest paid for the months of July, August, September and
October, 1993 were paid late and after that no payments were made on the monthly
interest from November 1993
438
438 SUPREME COURT REPORTS ANNOTATED
Baysa vs. Plantilla
until the property was foreclosed. When plaintiffs defaulted in the payment of the
monthly interest, Emilia de la Cruz, certified public accountant, was consulted by the
mother of the defendants who advised the latter to hire the services of counsel to file
a petition for foreclosure of the mortgage. x x x (they) sent a letter of demand x x x
addressed to plaintiffs-spouses Baysa to pay the principal loan and interest due x x x.
Despite the receipt of the said letter of demand, plaintiffs did not pay their
indebtedness to the defendants, hence, x x x a petition for foreclosure was filed with
the Office of the Sheriff of the Quezon City Regional Trial Court which prayed that
in view of the nonpayment of the indebtedness of the plaintiffs in the amount of
P3,579,100.00 (principal and unpaid interest) that the mortgaged property x x x be
foreclosed at a public auction x x x.3
Decision of the RTC  3. Whether or not the 8% compounded monthly interest is legal.8
 
After trial, the RTC rendered its decision dated December 27, 1996,4 disposing
thusly:
WHEREFORE, a decision is hereby rendered in this case dismissing the instant
complaint for lack of cause of action.
Ordering the plaintiffs to pay the defendants on the counterclaim the amount of
P50,000.00 for moral damages, P50,000.00 for exemplary damages and P50,000.00
for attorney’s fees, and to pay the costs of the suit.
SO ORDERED.5
 
In support of the dismissal of the petitioners’ complaint, and in upholding the
validity of the extrajudicial foreclosure, the RTC explained:
_______________
3  Id., at pp. 38-39.
4  Id., at pp. 85-91.
5  Id., at p. 91.
439
VOL. 762, JULY 13, 2015 439
Baysa vs. Plantilla
x x x x The deed of real estate mortgage (Exh. A) in paragraph 13 thereof
expressly states the consent of the mortgagors to the extrajudicial foreclosure of the
mortgaged property in the event of nonpayment, to wit:
Paragraph 13. x x x;—In the event of nonpayment of the entire principal and
accrued interest due under the conditions described in this paragraph, the mortgagors
expressly and specifically agree to the extrajudicial foreclosure of the mortgaged
property.6
 
Furthermore, the RTC allowed the additional interest of 8%, observing that:
x x x x The defendants did not increase the agreed interest of 2.5% per month.
The 8% additional interest on accrued interest is allowed because accrued interest
earns legal rate of interest which is now 12% per annum as per under Central Bank
Circular No. 416 which applies to loans and forbearance of money.7 x x x x
 
Judgment of the CA 
 
Aggrieved, the petitioners appealed, submitting the following issues for the
resolution of the CA, namely:
1. Whether or not the extrajudicial foreclosure is valid despite the lack of
provision in the mortgage deed granting special power to sell to the mortgagee;
2. If valid, whether the procedure taken thereon complies with the provisions of
Act No. 3135, as amended; and
_______________
6  Id., at p. 89.
7  Id., at p. 90.
8  Id., at p. 41.
440
6
440 SUPREME COURT REPORTS ANNOTATED
Baysa vs. Plantilla
On December 20, 2002, the CA promulgated the assailed judgment, 9 affirming
the validity of the foreclosure proceedings but invalidating the imposition of the 8%
additional interest for lack of legal basis considering that the REM did not contain a
stipulation to that effect. Its pertinent ratiocination and disposition stated:
We agree with the lower court that the extrajudicial foreclosure was not visited
with vice for failure of the mortgagor in the mortgage deed to grant special power to
sell the property in favor of the mortgagee. It suffices that the mortgagee document
empowers the mortgagee to extrajudicially foreclose the property. Such authority to
extrajudicially foreclose by necessary implication carries with it the grant of power
to sell the property at a public auction. It is only when the deed is silent as to the
grant of authority to extrajudicially foreclose on the mortgage that a mortgagee is
prevented from availing of such remedy.
In Centeno v. Court of Appeals, the Supreme Court, when confronted with the
same issue, chose to uphold the validity of the extrajudicial foreclosure.
x x x x
But all is not lost with the appellants. We agree that the 8% monthly interest on
the unpaid interest is not warranted by the mortgage deed, for there is nothing in it
that provides for the imposition of such exorbitant interest on the unpaid interest.
Article 1958 of the New Civil Code is clear on the matter: “(I)nterest due and unpaid
shall not earn interest.” And while the parties may stipulate to capitalize the interest
due and unpaid, the same shall not be valid unless it be in writing, pursuant to Article
1956 of the Civil Code.
x x x x
WHEREFORE, the Decision of the lower court is hereby SET ASIDE. The
extrajudicial foreclosure is hereby declared to be VALID, but a recomputation of the
_______________
9  Id.
441
VOL. 762, JULY 13, 2015 441
Baysa vs. Plantilla
 
amount of mortgage indebtedness is ordered by removing the 8% interest
imposed by the mortgagee on the unpaid interest. The award of moral and exemplary
damages and attorney’s fees are hereby DELETED.
SO ORDERED.10
 
Upon denial of the petitioners’ motion for reconsideration, as well as of the
respondent spouses’ partial motion for reconsideration through the resolution
promulgated on July 24, 2003,11 the petitioner has come to the Court for a further
review.
Issues 
The issues raised by the petitioners can be narrowed down to:
1.) Whether or not the Court of Appeals erred when it declared that the
extrajudicial foreclosure was valid despite the lack of provision in the mortgage deed
granting special power to sell to the mortgagee;
2.) Whether or not the Court of Appeals erred when it concluded that consenting
to the extrajudicial foreclosure of the property, by necessary implication, carries with
it the grant of power to sell the property at public action;
3.) Whether or not the Court of Appeals erred in not declaring the 2.5% monthly
interest illegal and usurious, considering that the 8% interest was already declared as
invalid and unwarranted; and
4.) Whether or not the Court of Appeals erred in ruling that petitioners have lost
their right to redeem the property.12
_______________
10  Id., at pp. 41-43.
11  Id., at pp. 46-48.
12  Id., at p. 14.
442
442 SUPREME COURT REPORTS ANNOTATED
Baysa vs. Plantilla
Ruling of the Court 
 
The appeal is meritorious.
 
I 
 
On the first and second issues, we hold the CA in error for affirming the RTC’s
declaration of the extrajudicial foreclosure as valid.
In the extrajudicial foreclosure of property subject of a real estate mortgage, Act
No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted in
or Annexed to Real Estate Mortgages) is quite explicit and definite about the special
power to sell the property being required to be either inserted in or attached to the
deed of mortgage. Section 1 of Act No. 3135 provides:
Section 1. When a sale is made under a special power inserted in or
attached to any real estate mortgage hereafter made as security for the payment of
money or the fulfillment of any other obligation, the provisions of the following
section shall govern as to the manner in which the sale and redemption shall be
effected, whether or not provision for the same is made in the power.
 
Accordingly, to enable the extrajudicial foreclosure of the REM of the
petitioners, the special power to sell should have been either inserted in the REM
itself or embodied in a separate instrument attached to the REM. But it is not
7
disputed that no special power to sell was either inserted in the REM or attached to
the REM. Hence, the respondent spouses as the foreclosing mortgagees could not
initiate the extrajudicial foreclosure, but must resort to judicial foreclosure pursuant
to the procedure set forth in Rule 68 of the Rules of Court. The omission of the
special power to sell the property subject of the mortgage was fatal to the validity
and efficacy of the extrajudicial foreclosure, and warranted the invalidation of the
entire proceedings conducted by the sheriff.
443
VOL. 762, JULY 13, 2015 443
Baysa vs. Plantilla
The CA opined that the extrajudicial foreclosure was nonetheless valid despite
the omission of the special power to sell. It upheld the ruling of the RTC by citing
paragraph 13 of the REM, which stated:
In the event of nonpayment of the entire principal and accrued interest due under
the conditions described in this paragraph, the mortgagors expressly and specifically
agree to the extrajudicial foreclosure of the mortgaged property.13
 
It held to be enough that the REM thereby empowered the respondent spouses as
the mortgagees to extrajudicially foreclose the property inasmuch as such agreement
by the petitioners (as the mortgagors) carried with it by necessary implication the
grant of the power to sell the property at the public auction. It relied on the ruling
in Centeno v. Court of Appeals.14 
We cannot subscribe to the opinion of the CA.
Based on the text of paragraph 13, supra, the petitioners evidently agreed only to
the holding of the extrajudicial foreclosure should they default in their obligations.
Their agreement was a mere expression of their amenability to extrajudicial
foreclosure as the means of foreclosing the mortgage, and did not constitute the
special power or authority to sell the mortgaged property to enable the mortgagees to
recover the unpaid obligations. What was necessary was the special power or
authority to sell — whether inserted in the REM itself, or annexed thereto — that
authorized the respondent spouses to sell in the public auction their mortgaged
property.
The requirement for the special power or authority to sell finds support in the
civil law. To begin with, because the sale of the property by virtue of the
extrajudicial foreclosure would be made through the sheriff by the respondent
spouses as the mortgagees acting as the agents of the petitioners as the
_______________
13  Id., at p. 89.
14  No. L-40105, November 11, 1985, 139 SCRA 545.
444
444 SUPREME COURT REPORTS ANNOTATED
Baysa vs. Plantilla
mortgagors-owners, there must be a written authority from the latter in favor of
the former as their agents; otherwise, the sale would be void.15 And secondly,
considering that, pursuant to Article 1878(5), of the Civil Code, a special power of
attorney was necessary for entering “into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration,” the written authority must be a special power of attorney to
sell.16 Contrary to the CA’s opinion, therefore, the power or authority to sell by virtue
of the extrajudicial foreclosure of the REM could not be necessarily implied from the
text of paragraph 13, supra, expressing the petitioners’ agreement to the extrajudicial
foreclosure.
The reliance on the ruling in Centeno v. Court of Appealswas inadequate, if not
also misplaced. Although the Centeno Court was confronted with several issues,
including whether or not the extrajudicial foreclosure of the mortgage was a total
nullity because the deed of mortgage did not contain a special power of attorney to
sell in favor of the mortgagees, a meticulous reading of Centeno reveals that the
Court did not expressly deal with and resolve such issue, because the Court limited
itself to the effects of the failure of the petitioners thereat to annotate on the Torrens
title the sale in their favor of the property. In other words, the Court was silent on the
issue of validity of the foreclosure sale despite the lack of the special power of
attorney to sell being inserted in or annexed to the deed of mortgage. Under the
circumstances, Centeno has no precedential value in this case.
_______________
15  Article 1874 of the Civil Code provides:
Article  1874. When a sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void. (n)
16  Article 1879 of the Civil Code states:
Article  1879. A special power to sell excludes the power to mortgage; and a
special power to mortgage does not include the power to sell. (n)
445
VOL. 762, JULY 13, 2015 445
Baysa vs. Plantilla
II 
 
Anent the third issue, the petitioners contend that after declaring the 8%
compounded interest invalid and unwarranted, the CA should have further declared
the interest of 2.5%/month illegal and usurious; that with nullity of the stipulation of
interest, the result should be as if the loan agreement contained no stipulation on
interest; and that, consequently, the P1,032,599.88 paid as interest should be
deducted from the principal loan of P2.3 Million for being illegal and usurious.
The contention of the petitioners is bereft of merit.
To start with, the petitioners are now estopped from assailing the validity of the
monthly interest payments made. They expressly consented to be liable to pay
8
2.5%/month on the principal loan of P2.3 Million, and actually made several  
payments of interest at that rate. Secondly, they did not assail the rate of 2.5%/month ——o0o——
as interest in the lower courts, doing so only in this appeal. Hence, they cannot be
permitted to bring the issue for the first time in this Court, for that would be unfair
not only to the adverse parties but also to the lower courts by depriving the latter of
the opportunity to pass upon the issue. And thirdly, the invalidation by the CA of the
8% compounded interest does not justify deleting the stipulation on the 2.5%/month
interest that was really separate and distinct from the former.
 
III 
 
Having found and declared the extrajudicial foreclosure of the REM and the
foreclosure sale of the mortgaged property of the petitioner void for want of the
special power to sell, we deem it unnecessary to consider and determine the final
issue on whether or not the petitioners had lost their right to redeem. In other words,
there is no right of redemption to speak of if the foreclosure was void.
446
446 SUPREME COURT REPORTS ANNOTATED
Baysa vs. Plantilla
WHEREFORE, the Court GRANTS the petition for review
on certiorari; REVERSES and SETS ASIDE the judgment of the Court of Appeals
promulgated on December 20, 2002; DECLARES the extrajudicial foreclosure and
the certificate of sale NULL and VOID; CANCELS Transfer Certificate of Title
No. N-141864 registered in the names of respondents SPOUSES FIDELR.
PLANTILLA and SUSAN PLANTILLA; DIRECTSthe Register of Deeds of
Quezon City to RESTORE and REINSTATE Transfer Certificate of Title No.
260376 in the names of petitioners SPOUSES BENITO A.
BAYSAand VICTORIA C. BAYSA; REMANDS this case to the court of origin
for the recomputation and accounting of the mortgage indebtedness without the 8%
interest imposed by the respondents on the unpaid interest;
and ORDERSrespondents SPOUSES FIDEL R. PLANTILLA and SUSAN
PLANTILLA to pay the costs of suit.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro, Perezand Perlas-Bernabe,
JJ., concur.
Petition granted, judgment reversed and set aside.
Notes.—The foreclosure of a mortgage is but the necessary consequence of the
nonpayment of an obligation secured by the mortgage. (Sebastian vs. BPI Family G.R. No. 179625. February 24, 2014.*
Bank, Inc., 739 SCRA 9 [2014]) NICANORA G. BUCTON (deceased), substituted by REQUILDA B. YRAY,
The equity of redemption is the right of the defendant mortgagor to extinguish petitioner, vs. RURAL BANK OF EL SALVADOR, INC., MISAMIS
the mortgage and retain ownership of the property by paying the secured debt within ORIENTAL, and REYNALDO CUYONG, respondents, vs. ERLINDA
the ninety (90)-day period after the judgment becomes final, or even after the CONCEPCION AND HER HUSBAND AND AGNES BUCTON LUGOD, third
foreclosure sale but prior to the confirmation of the sale. (Robles vs. Yapcinco, 739 party defendants. 
SCRA 75 [2014])

9
 Civil Law; Agency; In order to bind the principal by a deed executed by an
agent, the deed must upon its face purport to be made, signed and sealed in the name
of the principal.—As early as the case of Philippine Sugar Estates Development Co.
v. Poizat, 48 Phil. 536 (1925), we already ruled that “in order to bind the principal by
a deed executed by an agent, the deed must upon its face purport to be made, signed
and sealed in the name of the principal.” In other words, the mere fact that the agent
was authorized to mortgage the property is not sufficient to bind the principal, unless
the deed was executed and signed by the agent for and on behalf of his principal.
This ruling was adhered to and reiterated with consistency in the cases of Rural Bank
of Bombon (Camarines Sur), Inc. v. Court of Appeals, 212 SCRA 25 (1992), Gozun
v. Mercado, 511 SCRA 305 (2006), and Far East Bank and Trust Company (Now
Bank of the Philippine Island) v. Cayetano, 611 SCRA 96 (2010).
Same; Same; We need not belabor that the words “as attorney-in-fact of,” “as
agent of,” or “for and on behalf of,” are vital in order for the principal to be bound
by the acts of his agent.—At this point, we find it significant to mention that
respondent bank has no one to blame but itself. Not only did it act with undue haste
when it granted and released the loan in less than three days, it also acted negligently
in preparing the Real Estate Mortgage as it failed to indicate that Concepcion was
signing it for and on behalf of petitioner. We need not belabor that the words “as
attorney-in-fact of,” “as agent of,” or “for and on behalf of,” are vital in order for the
principal to be bound by the acts of his agent. Without these words, any mortgage,
although signed by the agent, cannot bind the principal as
_______________
* SECOND DIVISION.
279it is considered to have been signed by the agent in his personal capacity.
Same; Same; Attorney’s Fees; Considering that petitioner was compelled to
litigate or to incur expenses to protect her interest, the Regional Trial Court (RTC)
was right when it ruled that respondent bank is liable to pay petitioner attorney’s
fees in the amount of P20,000.00.—Considering that petitioner was compelled to
litigate or to incur expenses to protect her interest, the RTC was right when it ruled
that respondent bank is liable to pay petitioner attorney’s fees in the amount of
P20,000.00. However, we are not convinced that petitioner is entitled to an award of
moral damages as it was not satisfactorily shown that respondent bank acted in bad
faith or with malice. Neither was it proven that respondent bank’s acts were the
proximate cause of petitioner’s wounded feelings. On the contrary, we note that
petitioner is not entirely free of blame considering her negligence in entrusting her
title to Concepcion. In any case, the RTC did not fully explain why petitioner is
entitled to such award.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
  Erlington E. Pimentel for petitioner.
  Isidro Q. Lico for respondent.
 
DEL CASTILLO, J.:
A mortgage executed by an authorized agent who signed in his own name
without indicating that he acted for and on behalf of his principal binds only the
agent and not the principal.
This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court
assails the August 17, 2005 Decision[2] and the
_______________
[1] Rollo, pp. 9-28.
[2] CA Rollo, pp. 116-133; penned by Associate Justice Normandie B. Pizarro
and concurred in by Associate Justices Arturo G. Tayag and Rodrigo F. Lim, Jr. 
280June 7, 2007 Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No.
60841.
 
Factual Antecedents 
On April 29, 1988, petitioner Nicanora G. Bucton filed with the Regional Trial
Court (RTC) of Cagayan de Oro a case[4] for Annulment of Mortgage, Foreclosure,
and Special Power of Attorney (SPA) against Erlinda Concepcion (Concepcion) and
respondents Rural Bank of El Salvador, Misamis Oriental, and Sheriff Reynaldo
Cuyong.[5]
Petitioner alleged that she is the owner of a parcel of land, covered by Transfer
Certificate of Title (TCT) No. T-3838, located in Cagayan de Oro City;[6] that on
June 6, 1982, Concepcion borrowed the title on the pretext that she was going to
show it to an interested buyer;[7] that Concepcion obtained a loan in the amount of
P30,000.00 from respondent bank;[8] that as security for the loan, Concepcion
mortgaged petitioner’s house and lot to respondent bank using a SPA[9] allegedly
executed by petitioner in favor of Concepcion;[10] that Concepcion failed to pay the
loan;[11] that petitioner’s house and lot were foreclosed by respondent sheriff
without a Notice of Extra-Judicial Foreclosure or Notice of Auction Sale;[12] and
that
_______________
 [3] Id., at pp. 186-187; penned by Associate Justice Rodrigo F. Lim, Jr. and
concurred in by Associate Justices Teresita Dy-Liacco Flores and Jane Aurora C.
Lantion.
 [4] The complaint, docketed as Civil Case No. 88-113 and raffled to Branch 19,
was amended twice by petitioner.
 [5] Records, Vol. I, pp. 1-5, 7-12 (Amended Complaint), and 87-91 (Second
Amended Complaint).
 [6] Id., at pp. 87-88.
 [7] Id., at p. 88.
 [8] Id.
 [9] Rollo, p. 90.
[10] Records, Vol. I, p. 88.
[11] Id.
10
 [12] Id., at pp. 88-89.  TCT No. 3838, is a vacant lot and that the house, which was mortgaged and
281petitioner’s house and lot were sold in an auction sale in favor of respondent foreclosed, is covered by a different title, TCT No. 3839.[32]
bank.[13] To support her claim of forgery, petitioner presented Emma Nagac who testified
Respondent bank filed an Answer[14] interposing lack of cause of action as a that when she was at Concepcion’s boutique, she was asked by the latter to sign as a
defense.[15] It denied the allegation of petitioner that the SPA was forged[16] and witness to the SPA;[33] that when she signed the SPA, the signatures of peti-
averred that on June 22, 1987, petitioner went to the bank and promised to settle the _______________
loan of Concepcion before September 30, 1987.[17]As to the alleged irregularities in [24] Id., at pp. 187-188.
the foreclosure proceedings, respondent bank asserted that it complied with the [25] Id., at p. 262.
requirements of the law in foreclosing the house and lot.[18] By way of cross-claim, [26] Id., Vol. 2, p. 576.
respondent bank prayed that in the event of an adverse judgment against it, [27] Id.
Concepcion, its co-defendant, be ordered to indemnify it for all damages.[19] [28] Id.
However, since summons could not be served upon Concepcion, petitioner [29] Id., at pp. 576-577.
moved to drop her as a defendant,[20] which the RTC granted in its Order dated [30] Id., at p. 577.
October 19, 1990.[21] [31] Id.
This prompted respondent bank to file a Third-Party Complaint[22] against [32] Id., at p. 578.
spouses Concepcion and Agnes Bucton Lugod (Lugod), the daughter of petitioner. [33] Id., at p. 577.
Respondent bank claimed that it would not have granted the loan and accepted the 283tioner and her husband had already been affixed;[34] and that Lugod instructed
mortgage were it not for the assurance of Concepcion and Lugod that the SPA was her not to tell petitioner about the SPA.[35]
valid.[23] Thus, respondent bank Respondent bank, on the other hand, presented the testimonies of its
_______________ employees[36] and respondent sheriff. Based on their testimonies, it appears that on
[13] Id., at p. 88. June 8, 1982, Concepcion applied for a loan for her coconut production
[14] Id., at pp. 23-25 and pp. 99-103 (Answer to Second Amended Complaint). business[37] in the amount of P40,000.00 but only the amount of P30,000.00 was
[15] Id., at p. 100. approved;[38] that she offered as collateral petitioner’s house and lot using the SPA;
[16] Id. [39] and that the proceeds of the loan were released to Concepcion and Lugod on
[17] Id. June 11, 1982.[40]
[18] Id., at pp. 99-100.  Edwin Igloria, the bank appraiser, further testified that Concepcion executed a
[19] Id., at p. 101. Real Estate Mortgage[41] over two properties, one registered in the name of
[20] Id., at pp. 157-158. petitioner and the other under the name of a certain Milagros Flores.[42] He said that
[21] Id., at p. 171. he inspected petitioner’s property;[43] that there were several houses in the
[22] Id., at pp. 184-189. compound;[44] and although he was certain that the house offered as collateral was
[23] Id., at p. 185.  located on the property covered by TCT No. 3838, he could not explain why the
282prayed that in case it be adjudged liable, it should be reimbursed by third-party house that was foreclosed is located on a lot covered by another title, not included in
defendants.[24] the Real Estate Mortgage.[45]
On January 30, 1992, spouses Concepcion were declared in default for failing to _______________
file a responsive pleading.[25] [34] Id.
During the trial, petitioner testified that a representative of respondent bank went [35] Id., at pp. 577-578.
to her house to inform her that the loan secured by her house and lot was long [36] Edwin Igloria (Bank Appraiser), Marina Salvan (Bank President), and
overdue.[26] Since she did not mortgage any of her properties nor did she obtain a Fautino U. Batutay (Bank Manager).
loan from respondent bank, she decided to go to respondent bank on June 22, 1987 to [37] Rollo, p. 92.
inquire about the matter.[27] It was only then that she discovered that her house and [38] Records, Vol. 2, p. 578.
lot was mortgaged by virtue of a forged SPA.[28] She insisted that her signature and [39] Id.
her husband’s signature on the SPA were forged[29] and that ever since she got [40] Id., at p. 579.
married, she no longer used her maiden name, Nicanora Gabar, in signing [41] Rollo, p. 96.
documents.[30] Petitioner also denied appearing before the notary public, who [42] TSN, January 30, 1992, p. 37.
notarized the SPA.[31] She also testified that the property referred to in the SPA, [43] Records, Vol. II, p. 578.

11
 [44] Id. On August 17, 2005, the CA reversed the findings of the RTC. The CA found no
[45] TSN, January 30, 1992, pp. 26-28.  cogent reason to invalidate the SPA, the Real Estate Mortgage, and Foreclosure Sale
284 as it was not convinced that the SPA was forged. The CA declared that although the
Ruling of the Regional Trial Court  Promissory Note and the Real Estate Mortgage
On February 23, 1998, the RTC issued a Decision[46]sustaining the claim of _______________
petitioner that the SPA was forged as the signatures appearing on the SPA are [50] Id., at pp. 584-596.
different from the genuine signatures presented by petitioner.[47] The RTC opined [51] Id., at pp. 681-682.
that the respondent bank should have conducted a thorough inquiry on the [52] Id., at p. 682.
authenticity of the SPA considering that petitioner’s residence certificate was not [53] CA Rollo, pp. 59-65.
indicated in the acknowledgement of the SPA.[48] Thus, the RTC decreed:  [54] Id.
WHEREFORE, the court hereby declares null and void or annuls the following: [55] Id., at pp. 104-108.
1. The special power of attorney which was purportedly executed by [petitioner] [56] Rollo, p. 98.
x x x; [57] CA Rollo, pp. 108-111. 
2.   The real estate mortgage x x x 286did not indicate that Concepcion was signing for and on behalf of her principal,
3.  The sheriff’s sale of Lot No. 2078-B-1-E, and the certificate of title issued in petitioner is estopped from denying liability since it was her negligence in handing
favor of the Rural Bank of El Salavador [by] virtue thereof, as well as the over her title to Concepcion that caused the loss.[58] The CA emphasized that under
sheriff’s sale of the two[-]story house described in the real estate mortgage. the Principle of Equitable Estoppel, where one or two innocent persons must suffer a
4.  The certificate of title in the name of the Rural Bank of El Salvador if any, loss, he who by his conduct made the loss possible must bear it.[59]Thus: 
issued [by] virtue of the sheriff’s sale. WHEREFORE, the above premises considered, the Decision and the Resolution
The court hereby also orders [respondent] bank to pay [petitioner] attorney’s fees of the Regional Trial Court (RTC), 10th Judicial Region, Br. 19 of Cagayan de Oro
of P20,000 and moral damages of P20,000 as well as the costs of the case. City in Civil Case No. 88-113 is hereby REVERSED and SET ASIDE. The Second
SO ORDERED.[49] Amended Complaint of Nicanora Bucton is DISMISSED. Accordingly, the
_______________ following are declared VALID:
[46] Records, Vol. 2, pp. 573-583; penned by Judge Anthony E. Santos. 1. The Special Power of Attorney of Nicanora Gabar in favor of Erlinda
[47] Id., at pp. 579-581. Concepcion, dated June 7, 1982;
[48] Id., at p. 582. 2. The Real Estate Mortgage, the foreclosure of the same, and the foreclosure sale
[49] Id., at pp. 582-583.  to the Rural Bank of El Salvador, Misamis Oriental; and
285 3. The certificate of title issued to the Rural Bank of El Salavador, Misamis
On reconsideration,[50] the RTC in its May 8, 1998 Resolution[51] rendered Oriental as a consequence of the foreclosure sale.
judgment on the Third-Party Complaint filed by respondent bank, the dispositive Costs against [petitioner].
portion of which reads:  SO ORDERED.[60]
WHEREFORE, judgment is hereby rendered under the third-party complaint and  
against third-party defendants Erlinda Concepcion and her husband: Petitioner moved for reconsideration[61] but the same was denied by the CA in
To indemnify or reimburse [respondent bank] all sums of money plus interests its June 7, 2007 Resolution.[62] 
thereon or damages that [respondent bank] has in this case been forced to pay, _______________
disburse or deliver to [petitioner] including the costs. [58] Id., at pp. 128-130.
SO ORDERED.[52] [59] Id., at p. 130.
  [60] Id., at pp. 131-132.
Ruling of the Court of Appeals  [61] Id., at pp. 137-154.
Dissatisfied, respondent bank elevated the case to the CA arguing that the SPA [62] Id., at pp. 186-187. 
was not forged[53] and that being a notarized document, it enjoys the presumption of 287
regularity.[54] Petitioner, on the other hand, maintained that the signatures were Issues 
forged[55] and that she cannot be made liable as both the Promissory Note[56] and Hence, this recourse by petitioner raising the following issues: 
the Real Estate Mortgage, which were dated June 11, 1982, were signed by FIRST
Concepcion in her own personal capacity.[57]

12
X X X WHETHER X X X THE [CA] WAS RIGHT IN DECLARING THE Petitioner maintains that the signatures in the SPA were forged[64] and that she
PETITIONER LIABLE ON THE LITIGATED LOAN/MORTGAGE WHEN could not be held liable for the loan as it was obtained by Concepcion in her own
(i) SHE DID NOT EXECUTE EITHER IN PERSON OR BY ATTORNEY-IN- personal capacity, not as an attorney-in-fact of petitioner.[65] She likewise denies
FACT SUBJECT MORTGAGE; (ii) IT WAS EXECUTED BY CONCEPCION IN that she was negligent and that her negligence caused the damage.[66] Instead, she
HER PERSONAL CAPACITY AS MORTGAGOR, AND (iii) THE LOAN puts the blame on respondent bank as it failed to carefully examine the title and
SECURED BY THE MORTGAGE WAS CONCEPCION’S EXCLUSIVE LOAN thoroughly inspect
FOR HER OWN COCONUT PRODUCTION _______________
SECOND [63] Rollo, pp. 190-191.
X X X WHETHER X X X UNDER ARTICLE 1878 (NEW CIVIL CODE) THE [64] Id., at pp. 203-207.
[CA] WAS RIGHT IN MAKING PETITIONER A SURETY PRIMARILY [65] Id., at pp. 192-198.
ANSWERABLE FOR CONCEPCION’S PERSONAL LOAN, IN THE ABSENCE [66] Id., at p. 197. 
OF THE REQUIRED [SPA] 289the property.[67] Had it done so, it would have discovered that the house and lot
THIRD mortgaged by Concepcion are covered by two separate titles.[68] Petitioner further
WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED THAT claims that respondent sheriff failed to show that he complied with the requirements
PETITIONER’S DECLARATIONS ARE SELF-SERVING TO JUSTIFY ITS of notice and publication in foreclosing her house and lot.[69]
REVERSAL OF THE TRIAL COURT’S JUDGMENT, IN THE FACE OF THE  
RESPONDENTS’ DOCUMENTARY EVIDENCES X X X, WHICH Respondent bank’s Arguments 
INCONTROVERTIBLY PROVED THAT PETITIONER HAS ABSOLUTELY NO Respondent bank, on the other hand, relies on the presumption of regularity of
PARTICIPATION OR LIABILITY ON THE LITIGATED LOAN/MORTGAGE the notarized SPA.[70] It insists that it was not negligent as it inspected the property
FOURTH before it approved the loan,[71] unlike petitioner who was negligent in entrusting her
WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND THAT IT WAS title to Concepcion.[72] As to the foreclosure proceedings, respondent bank contends
PETITIONER’S NEGLIGENCE WHICH MADE THE LOSS POSSIBLE, that under the Rural Bank Act, all loans whose principal is below P100,000.00 are
DESPITE [THE FACT] THAT SHE HAS NO PART IN [THE] SUBJECT exempt from publication.[73] Hence, the posting of the Notice of Foreclosure in the
LOAN/MORTGAGE, THE BANK’S [FAILURE] TO CONDUCT CAREFUL places defined by the rules was sufficient.[74] Besides, respondent sheriff is
EXAMINATION OF APPLICANT’S TI- presumed to have regularly performed his work.[75]
288TLE AS WELL AS PHYSICAL INVESTIGATION OF THE LAND OFFERED  
AS SECURITY, AND TO INQUIRE AND DISCOVER UPON ITS OWN PERIL Our Ruling 
THE AGENT’S AUTHORITY, ALSO ITS INORDINATE HASTE IN THE The Petition is meritorious.
PROCESSING, EVALUATION AND APPROVAL OF THE LOAN. _______________
FIFTH [67] Id., at pp. 198-203.
WHETHER X X X THE [CA] WAS RIGHT WHEN IT DISREGARDED THE [68] Id.
FALSE TESTIMONY OF THE [RESPONDENT] BANK’S EMPLOYEE, [WHEN [69] Id., at p. 207.
HE DECLARED] THAT HE CONDUCTED ACTUAL INSPECTION OF THE [70] Id., at pp. 216-222.
MORTGAGED PROPERTY AND INVESTIGATION WHERE HE ALLEGEDLY [71] Id., at pp. 218-219.
VERIFIED THE QUESTIONED SPA. [72] Id., at p. 223.
SIXTH [73] Id., at p. 223.
WHETHER THE [CA] WAS RIGHT WHEN IT DISREGARDED ESTABLISHED [74] Id.
FACTS AND CIRCUMSTANCES PROVING THAT THE [SPA] IS A FORGED [75] Id.
DOCUMENT AND/OR INFECTED BY INFIRMITIES DIVESTING IT OF THE 290
PRESUMPTION OF REGULARITY CONFERRED BY LAW ON NOTARIZED  
DEEDS, AND EVEN IF VALID, THE POWER WAS NOT EXERCISED BY The Real Estate Mortgage was 
CONCEPCION.[63] entered into by Concepcion in 
  her own personal capacity.
Petitioner’s Arguments  As early as the case of Philippine Sugar Estates Development Co. v. Poizat,
[76] we already ruled that “in order to bind the principal by a deed executed by an

13
agent, the deed must upon its face purport to be made, signed and sealed in the name loan in less than three days, it also acted negligently in preparing the Real Estate
of the principal.”[77] In other words, the mere fact that the agent was authorized to Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of
mortgage the property is not sufficient to bind the principal, unless the deed was petitioner. We need not belabor that the words “as attorney-in-fact of,” “as agent of,”
executed and signed by the agent for and on behalf of his principal. This ruling was or “for and on behalf of,” are vital in order for the principal to be bound by the acts
adhered to and reiterated with consistency in the cases of Rural Bank of Bombon of his agent. Without these words, any mortgage, although signed by the agent,
(Camarines Sur), Inc. v. Court of Appeals,[78]Gozun v. Mercado,[79] and Far East cannot bind the prin-
Bank and Trust Company (Now Bank of the Philippine Island) v. Cayetano.[80] 292cipal as it is considered to have been signed by the agent in his personal capacity.
In Philippine Sugar Estates Development Co., the wife authorized her husband  
to obtain a loan and to secure it with mortgage on her property. Unfortunately, Respondent bank is liable
although the real estate mortgage stated that it was executed by the husband in his to pay petitioner attorney’s fees, 
capacity as attorney-in-fact of his wife, the husband signed the contract in his own and the costs of the suit.
name without indicating that he also signed it as the attorney-in-fact of his wife. Considering that petitioner was compelled to litigate or to incur expenses to
In Rural Bank of Bombon, the agent contracted a loan from the bank and protect her interest,[81] the RTC was right when it ruled that respondent bank is
executed a real estate mortgage. However, he did not indicate that he was acting on liable to pay petitioner attorney’s fees in the amount of P20,000.00. However, we are
behalf of his principal. not convinced that petitioner is entitled to an award of moral damages as it was not
In Gozun, the agent obtained a cash advance but signed the receipt in her name satisfactorily shown that respondent bank acted in bad faith or with malice. Neither
alone, without any indication that she was acting for and on behalf of her principal. was it proven that respondent bank’s acts were the proximate cause of petitioner’s
_______________ wounded feelings. On the contrary, we note that petitioner is not entirely free of
[76] 48 Phil. 536 (1925). blame considering her negligence in entrusting her title to Concepcion. In any case,
[77] Id., at p. 549. the RTC did not fully explain why petitioner is entitled to such award.
[78] G.R. No. 95703, August 3, 1992, 212 SCRA 25.  
[79] 540 Phil. 323; 511 SCRA 305 (2006). Concepcion is liable to pay 
[80] G.R. No. 179909, January 25, 2010, 611 SCRA 96.  respondent bank her unpaid 
291 obligation and reimburse it 
In Far East Bank and Trust Company, the mother executed an SPA authorizing for all damages, attorney’s 
her daughter to contract a loan from the bank and to mortgage her properties. The fees and costs of suit.
mortgage, however, was signed by the daughter and her husband as mortgagors in Concepcion, on the other hand, is liable to pay respondent bank her unpaid
their individual capacities, without stating that the daughter was executing the obligation under the Promissory Note dated
mortgage for and on behalf of her mother. _______________
Similarly, in this case, the authorized agent failed to indicate in the mortgage that [81] Civil Code, Art. 2208 provides:
she was acting for and on behalf of her principal. The Real Estate Mortgage, In the absence of stipulation, attorney’s fees and expenses of litigation,
explicitly shows on its face, that it was signed by Concepcion in her own name and other than judicial costs, cannot be recovered, except:
in her own personal capacity. In fact, there is nothing in the document to show that x x x x
she was acting or signing as an agent of petitioner. Thus, consistent with the law on (2)  When the defendant’s act or omission has compelled the plaintiff to
agency and established jurisprudence, petitioner cannot be bound by the acts of litigate with third persons or to incur expenses to protect his interest; 
Concepcion. 293June 11, 1982, with interest. As we have said, Concepcion signed the Promissory
In light of the foregoing, there is no need to delve on the issues of forgery of the Note in her own personal capacity; thus, she cannot escape liability. She is also liable
SPA and the nullity of the foreclosure sale. For even if the SPA was valid, the Real to reimburse respondent bank for all damages, attorneys’ fees, and costs the latter is
Estate Mortgage would still not bind petitioner as it was signed by Concepcion in her adjudged to pay petitioner in this case.
personal capacity and not as an agent of petitioner. Simply put, the Real Estate WHEREFORE, the Petition is hereby GRANTED. The assailed August 17,
Mortgage is void and unenforceable against petitioner. 2005 Decision and the June 7, 2007 Resolution of the Court of Appeals in CA-G.R.
  CV No. 60841 are hereby REVERSED and SET ASIDE.
Respondent bank was negligent. The February 23, 1998 Decision of the Regional Trial Court of Cagayan de Oro,
At this point, we find it significant to mention that respondent bank has no one to Branch 19, in Civil Case No. 88-113 is hereby REINSTATED, insofar as it (a)
blame but itself. Not only did it act with undue haste when it granted and released the annuls the Real Estate Mortgage dated June 11, 1982, the Sheriff’s Sale of petitioner

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Nicanora Bucton’s house and lot and the Transfer Certificate of Title issued in the
name of respondent Rural Bank of El Salvador, Misamis Oriental; and (b) orders
respondent bank to pay petitioner attorney’s fees in the amount of P20,000.00 and
costs of suit with MODIFICATION that the award of moral damages in the amount
of P20,000.00 is deleted for lack of basis.
Likewise, the May 8, 1998 Resolution of the Regional Trial Court of Cagayan de
Oro, Branch 19, in Civil Case No. 88-113 ordering the Third-Party Defendants,
Erlinda Concepcion and her husband, to indemnify or reimburse respondent bank
damages, attorneys’ fees, and costs the latter is adjudged to pay petitioner, is
hereby REINSTATED.
Finally, Third-Party Defendants, Erlinda Concepcion and her husband, are
hereby ordered to pay respondent bank the unpaid obligation under the Promissory
Note dated June 11, 1982 with interest.
SO ORDERED.
Carpio (Chairperson), Brion, Perez and Perlas-Bernabe, JJ., concur.
294
Petition granted, judgment and resolution reversed and set aside. 
Notes.—An agent is not personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits of his authority without
giving such party sufficient notice of his powers. (Ace Navigation Co., Inc. vs. FGU
Insurance Corporation, 674 SCRA 348 [2012])
Persons dealing with an assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature
and extent of authority. (Umipig vs. People, 677 SCRA 53 [2012])
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