UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW Agency

Dizon (E2024) Professor San Juan

Rural Bank of Bombon v. CA
G.R. No. 95703 – August 3, 1992
First division | Griño-Aquino, J.
Topic: Agency; Obligations of the Agent; Obligations of Agents to Third Parties

Article/s Invoked:
Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom
the agent has contracted; neither have such persons against the principal.

In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the
transaction were his own, except when the contract involves things belonging to the principal.

The provisions of this article shall be understood to be without prejudice to the actions between the principal
and agent.

Parties: Rural Bank of Bombon (Camarines Sur), Inc., petitioner

CA, Ederlinda M. Gallardo, Daniel Manzo and Rufino S. Aquino, respondents

Case Summary:
Aquino was appointed Gallardo’s agent in obtaining a loan from the Bank. Aquino did acquire a deed of real
estate mortgage for P350,000, which he used for his own benefit. The Bank said Gallardo is bound by the
SPA that gave Aquino the authority to mortgage the property. The SC agreed with the CA in ruling that
Aquino obtained the loan in his own personal capacity, and Gallardo cannot be bound by it.

Doctrine:
It is a general rule in agency that, in order to bind the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it
will bind the agent only.

However clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet,
unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the
principal, it is not valid as to the principal.”

FACTS OF THE CASE

Gallardo and Manzo, a married couple, executed a SPA in favor of Aquino authorizing him to secure a loan
from any bank or lending institution for any amount or otherwise mortgage their property in Las Piñas, Rizal.
A Deed of Real Estate Mortgage was executed by Aquino in favor of the Rural Bank of Bombon over the
three parcels of land covered by the TCT; the deed stated that the property was being given as security for the
payment of “certain loans, advances, or other accommodations…in the total sum of P350,000 only,” plus at
the interest rate of 14% per annum.

The spouses filed an action against Aquino and the Bank because Aquino allegedly left his residence in
Bulacan and transferred to an unknown place in Bicol. The spouses were allegedly surprised to discover that
the property was mortgaged to pay personal loans obtained by Aquino from the Bank solely for his personal
use and benefit; and that the mortgagor in the deed was Aquino instead of Gallardo, as well as in the deed
vesting power of attorney to Aquino; that Aquino appointed the Bank as attorney in fact in the real estate
mortgage, and as receiver with power to sell in case of judicial foreclosure; and without any express authority
from Gallardo, Aquino waived Gallardo’s rights under Sec. 12, Rule 39 of the ROC and the proper venue of
the foreclosure suit.

The trial court temporarily restrained the Bank from enforcing the real estate mortgage and from foreclosing
it judicially or extrajudicially.
 UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW Agency
Dizon (E2024) Professor San Juan

In response, Aquino stated that the spouses authorized him to mortgage the property to a bank so that he could
use the proceeds to liquidate Gallardo’s obligation of P350,00 to him, so the obligation to pay the Bank
devolved on Gallardo. However, she asked him to pay the Bank but Aquino set terms and conditions which
she did not agree to. Aquino asked for the payment of moral damages and lawyer’s fees. The Bank moved to
dismiss the complaint and filed counterclaim for litigation expenses, exemplary damages and attorney’s fees.
It also filed a cross claim against Aquino for P350,000 with interest, other bank charges and damages if the
mortgage be declared unauthorized.

The Bank also filed a complaint against the spouses for foreclosure of mortgage, which was consolidated with
the annulment case. The trial court, rendering summary judgment, dismissed the annulment/mortgage
complaint and declared the Bank entitled to damages. The court also lifted the writ of preliminary injunction
it previously issued. In the foreclosure case, the trial court suspended the proceedings until after the decision
in the annulment case became final and executory.

In the annulment case, on appeal, the CA rendered a decision in favor of the spouses, declaring the deed of
real estate mortgage between Aquino and the Bank unauthorized, void, and unenforceable against the spouses.
The Bank filed a petition for review with the SC.

ISSUE/S & RATIO/S

W/N the deed of real estate mortgage executed by Aquino is valid—NO.
• The Bank contends that the deed is valid because he was expressly authorized by Gallardo to mortgage
her property under the SPA, which did not specify whether the loan would be for Gallardo’s benefit.
Since it was not specified, it could be for the use and benefit of her attorney-in-fact, Aquino.
o The CA ruled that Aquino’s actions of naming himself as the mortgagor without stating that
his signature on the deed was for and in behalf of Gallardo in his capacity as her attorney-in-
fact, as well as signing the promissory notes (along with his wife signing both as wife of
mortgagor) can only mean that the obligation was personally incurred by them and for their
own personal account. (wife was not appointed co-agent of Aquino)
o The Bank did not categorically deny the allegation that Aquino in the deed of mortgage was
the intended user and beneficiary of the loans and not the plaintiff. The SPA cannot be
stretched to include the authority to obtain a loan in Aquino’s own benefit.
• The CA’s decision is correct. This case is governed by the general rule in the law of agency which the
Court applied in Philippine Sugar Estates Development Co. v. Poizat:
“It is a general rule in agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name
of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal.
Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by
virtue of a power of 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 especially true where the agent himself is a party to the
instrument. However clearly the body of the mortgage may show and intend that it shall
be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf
of his principal and as the act and deed of the principal, it is not valid as to the principal.”
• In view of this rule, Aquino’s act of signing the Deed of Real Estate Mortgage in his name alone as
mortgagor, without any indication that e was signing for and in behalf of the property owner, bound
himself alone in his personal capacity as a debtor of the Bank, and not as the agent of Gallardo.
o CA: The Bank should not have agreed to extend or constitute the mortgage on Gallardo’s
properties who had no existing indebtedness with it at the time. The Bank appears to have
ignored the representative capacity of Aquino and dealt with him and his wife in their personal
capacities. The Bank also did not make any inquiries on whether the subject loans were to
benefit Gallardo rather than that of the agent, although the deed of mortgage was explicit that
the loan was for purpose of the bangus and sugpo production of Aquino.
 UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW Agency
Dizon (E2024) Professor San Juan
• The Bank claims the deed is enforceable against Gallardo since it was executed in accordance with
Art. 1883:
"Art. 1883. If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted: neither have such persons against the principal.

"In such case the agent is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal."
o This is not applicable to the case at bar. Aquino acted purportedly as Gallardo’s agent, but
actually acted in his personal capacity. Under these circumstances, Gallardo’s property is not
liable on the real estate mortgage (as held again in Philippine Sugar Estates Development
Co.). In said case, The Court said that “there is no principle of law by which a person can
become liable on a real mortgage which she never executed either in person or by attorney in
fact…” In a mortgage of real property, title cannot be divested except by sale on execution or
the formalities of a will or deed. This is why the law requires a power of attorney to mortgage
or sell real property be executed with all of the formalities required in a deed.

RULING
CA ruling affirmed.

NOTES