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LILLIAN N. MERCADO v. ALLIED BANKING CORPORATION

FACTS:

The petitioners in this case are heirs of Perla N. Mercado, who owned several properties in different provinces. Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian Mercado, authorizing him to sell, mortgage, and deal with her properties. Julian obtained a loan from the respondent, a banking institution, secured by a real estate mortgage on a specific parcel of land. The petitioners later filed a case to annul the mortgage, arguing that the property was not covered by the SPA and that the SPA had been revoked by Perla. The respondent argued that the property was included in the SPA, and any discrepancy in the designation of the Registry of Deeds was an error.

In another case, the petitioners filed a complaint to annul real estate mortgages and foreclosure proceedings against the respondent. The subject property was owned by Perla Perez, who was married to Julian Perez. Julian obtained loan obligations from the respondent and secured them with a mortgage on the subject property. The petitioners argued that Julian did not have the authority to mortgage the property under the SPA executed by Perla. The trial court declared the mortgage null and void, but the Court of Appeals reversed the decision, upholding the validity of the mortgage based on Perla's intention to include the property in the SPA. The petitioners appealed to the Supreme Court, raising issues regarding the validity of the mortgage and the revocation of the SPA.

The case revolves around the validity of a mortgage made by the defendant, Julian, on a property covered by TCT No. RT 18206 (106338) registered with the Registry of Deeds of Quezon City. The plaintiff, Perla, argues that the property was not included in the SPA granted to Julian. The defendant contends that the property was reconstituted under TCT No. RT-18206 (106338) and is located in Quezon City, not Pasig. The defendant argues that Perla's intention was to include the Quezon City property in the SPA, and any inconsistency in the SPA's details should not defeat her intention.

ISSUES:

  1. Whether the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City is included in the Special Power of Attorney (SPA) executed by Perla.

  2. Whether the failure to reflect the recent TCT number or the exact designation of the Registry of Deeds defeats Perla's clear intention to include the subject property in the SPA.

  3. Whether the real estate mortgages executed by Julian are enforceable.

  4. Whether the revocation of the Special Power of Attorney is enforceable against the third party.

  5. Whether the respondent bank can be considered an innocent mortgagee despite having knowledge of the defects in the title of the property.

  6. Whether the real estate mortgages constituted over the subject property are enforceable.

  7. Whether or not the real estate mortgages constituted over TCT No. RT 18206 (106338) are null and void.

  8. Whether or not the real estate mortgages constituted over TCT No. RT 18206 (106338) are enforceable.

RULING:

  1. The subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City is not included in the SPA executed by Perla.

  2. The failure to reflect the recent TCT number or the exact designation of the Registry of Deeds defeats Perla's clear intention to include the subject property in the SPA.

  3. The real estate mortgages executed by Julian are unenforceable because he did not have the authority conferred by Perla to mortgage the subject property under the terms of the Special Power of Attorney (SPA).

  4. The revocation of the Special Power of Attorney is enforceable against the third party. The revocation was expressed in a public instrument executed by Perla, and the Registry of Deeds was notified of the revocation. Actual notice of the revocation is superior to constructive notice, and as such, the non-annotation of the revocation on the Transfer Certificate of Title (TCT) is not of consequence. Third parties are constructively notified of the revocation and that Julian no longer had any authority to mortgage the subject property.

  5. The respondent bank cannot be considered an innocent mortgagee. Although a person dealing with registered lands need not go beyond the certificate of title, a purchaser or mortgagee cannot close his eyes to facts that should put a reasonable person on guard. The respondent bank's refusal to acknowledge the defects in the title of the property, despite having notice of such defects, prevents it from claiming to be an innocent mortgagee.

  6. The real estate mortgages constituted over the subject property are unenforceable. These mortgages were entered into by the agent without the authority of the principal and, therefore, do not comply with the requirements set forth in Article 1403(1) of the Civil Code. As such, the mortgages cannot be enforced against the principal or her successors in interest.

  7. The real estate mortgages constituted over TCT No. RT 18206 (106338) are not null and void but unenforceable.

PRINCIPLES:

  • In cases where the terms of the contract are clear and leave no room for interpretation, resort to circumstantial evidence to ascertain the true intent of the parties is not allowed.

  • A power of attorney must be strictly construed and pursued. The powers granted in the instrument are limited to those specified therein, and the agent may not go beyond or deviate from the power of attorney.

  • The clear terms of a contract should not be subject to interpretation. The contracting parties are presumed to know the scope and effects of the contract.

  • A strict and limited construction of the terms of a power of attorney is supported by legal principles. Excessive authority must be set down in formal and explicit terms, and if not done, the law presumes that the principal did not mean to confer it.

  • Assertions made without supporting proof cannot be given evidentiary weight. Parties must present proper certifications or documents to support their claims.

  • A principal may revoke an agency at will and compel the agent to return the document evidencing the agency. (Article 1999, New Civil Code of the Philippines)

  • A revocation of an agency may be express or implied. (Article 1920, New Civil Code of the Philippines)

  • Actual notice is superior to constructive notice. (Section 52, Property Registration Decree)

  • A purchaser or mortgagee cannot claim to be an innocent purchaser for value if he had notice of defects in the title of the property. The purchaser or mortgagee cannot close his eyes to facts that should put a reasonable person on guard.

  • A bank or banking institution is expected to exercise greater care and prudence in its dealings, especially when dealing with registered lands. The bank must exercise due diligence in verifying the status and condition of properties offered as collateral and must scrutinize the scope of authority of the agents involved.

  • Contracts entered into without or in excess of authority are unenforceable, unless ratified by the person in whose behalf the contract was executed. An unenforceable contract may be ratified expressly or impliedly.

  • Real estate mortgages may be unenforceable if there is a defect or irregularity in their execution or if they lack essential requisites.

  • The distinction between null and void and merely unenforceable real estate mortgages lies in the effect that each would produce. A null and void mortgage is inexistent from the beginning and cannot be ratified or validated, whereas an unenforceable mortgage can still be enforced if the defect or irregularity is cured.