BICOL SAVINGS AND LOAN vs CA

 FACTS:

Juan de Jesus was the owner of a parcel of land situated in Naga City. He executed a Special Power of Attorney in favor of his son, Jose de Jesus, to negotiate, mortgage his real property in any bank either private or public entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and the attorney-in-fact. By virtue thereof, Jose de Jesus obtained a loan of P20,000 from petitioner bank and executed a deed of mortgage on the real property. Juan de Jesus died at an unknown date. By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed. In the subsequent public auction, the mortgaged property was sold to the bank as the highest bidder. Private respondents herein, including Jose de Jesus, who are all the heirs of the late Juan de Jesus, failed to redeem the property within one year from the date of the registration of the Provisional Certificate of Sale. Nonetheless, the private respondents still negotiated for the repurchase of the property but were unsuccessful despite offers and counter-offers.

Private respondents filed a complaint with the trial court, praying for the annulment of the deed of sale but the complaint was dismissed by the trial court ruling that the deed became absolute. Upon appeal, the CA reversed the ruling o the trial court, ruling that Article 1879 of the Civil Code and stated that since the special power to mortgage granted to Jose de Jesus did not include the power to sell, it was error for the lower Court not to have declared the foreclosure proceedings, and the auction sale held in null and void because the Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely to mortgage his property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the said extrajudicial foreclosure.

ISSUE:

Whether or not the agent-son exceeded the scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could extrajudicially foreclose the mortgaged property.

HELD: 

The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is precipitated by the default of a mortgagor. The stipulation granting an authority to extrajudicially foreclose a mortgage is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential or inseparable part of that bilateral agreement.

It matters not that the authority to extrajudicially foreclose was granted by an attorney-in-fact and not by the mortgagor personally. The stipulation in that regard, although ancillary, forms an essential part of the mortgage contract and is inseparable therefrom. No creditor will agree to enter into a mortgage contract without that stipulation intended for its protection.