SECOND DIVISION

[G.R. No. 179625. February 24, 2014.]

NICANORA G. BUCTON (deceased), substituted by REQUILDA B.

YRAY , petitioner, vs . RURAL BANK OF EL SALVADOR, INC., MISAMIS
ORIENTAL, and REYNALDO CUYONG , respondents.

ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON

LUGOD , third party defendants.

DECISION

DEL CASTILLO , J : p

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 June 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 led 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 ETHSAI

Petitioner alleged that she is the owner of a parcel of land, covered by Transfer
Certi cate 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; 1 0 that Concepcion failed to pay the loan; 1 1 that petitioner's house and lot
were foreclosed by respondent sheriff without a Notice of Extra-Judicial Foreclosure or
Notice of Auction Sale; 1 2 and that petitioner's house and lot were sold in an auction sale in
favor of respondent bank. 1 3
Respondent bank led an Answer 1 4 interposing lack of cause of action as a
defense. 1 5 It denied the allegation of petitioner that the SPA was forged 1 6 and averred
that on June 22, 1987, petitioner went to the bank and promised to settle the loan of
Concepcion before September 30, 1987. 1 7 As to the alleged irregularities in the
foreclosure proceedings, respondent bank asserted that it complied with the requirements
of the law in foreclosing the house and lot. 1 8 By way of cross-claim, respondent bank
prayed that in the event of an adverse judgment against it, Concepcion, its co-defendant,
be ordered to indemnify it for all damages. 1 9
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 However, since summons could not be served upon Concepcion, petitioner moved
to drop her as a defendant, 2 0 which the RTC granted in its Order dated October 19, 1990.
21 ScAIaT

This prompted respondent bank to le a Third-Party Complaint 2 2 against spouses

Concepcion and Agnes Bucton Lugod (Lugod), the daughter of petitioner. Respondent
bank claimed that it would not have granted the loan and accepted the mortgage were it
not for the assurance of Concepcion and Lugod that the SPA was valid. 2 3 Thus,
respondent bank prayed that in case it be adjudged liable, it should be reimbursed by third-
party defendants. 2 4
On January 30, 1992, spouses Concepcion were declared in default for failing to le
a responsive pleading. 2 5 ICAcTa

During the trial, petitioner testi ed that a representative of respondent bank went to
her house to inform her that the loan secured by her house and lot was long overdue. 2 6
Since she did not mortgage any of her properties nor did she obtain a loan from
respondent bank, she decided to go to respondent bank on June 22, 1987 to inquire about
the matter. 2 7 It was only then that she discovered that her house and lot was mortgaged
by virtue of a forged SPA. 2 8 She insisted that her signature and her husband's signature on
the SPA were forged 2 9 and that ever since she got married, she no longer used her maiden
name, Nicanora Gabar, in signing documents. 3 0 Petitioner also denied appearing before
the notary public, who notarized the SPA. 3 1 She also testi ed that the property referred to
in the SPA, TCT No. 3838, is a vacant lot and that the house, which was mortgaged and
foreclosed, is covered by a different title, TCT No. 3839. 3 2
To support her claim of forgery, petitioner presented Emma Nagac who testi ed
that when she was at Concepcion's boutique, she was asked by the latter to sign as a
witness to the SPA; 3 3 that when she signed the SPA, the signatures of petitioner and her
husband had already been a xed; 3 4 and that Lugod instructed her not to tell petitioner
about the SPA. 3 5
Respondent bank, on the other hand, presented the testimonies of its employees 3 6
and respondent sheriff. Based on their testimonies, it appears that on June 8, 1982,
Concepcion applied for a loan for her coconut production business 3 7 in the amount of
P40,000.00 but only the amount of P30,000.00 was approved; 3 8 that she offered as
collateral petitioner's house and lot using the SPA; 3 9 and that the proceeds of the loan
were released to Concepcion and Lugod on June 11, 1982. 4 0
Edwin Igloria, the bank appraiser, further testi ed that Concepcion executed a Real
Estate Mortgage 4 1 over two properties, one registered in the name of petitioner and the
other under the name of a certain Milagros Flores. 4 2 He said that he inspected petitioner's
property; 4 3 that there were several houses in the compound; 4 4 and although he was
certain that the house offered as collateral was located on the property covered by TCT
No. 3838, he could not explain why the house that was foreclosed is located on a lot
covered by another title, not included in the Real Estate Mortgage. 4 5
IDAEHT

Ruling of the Regional Trial Court

On February 23, 1998, the RTC issued a Decision 4 6 sustaining the claim of petitioner
that the SPA was forged as the signatures appearing on the SPA are different from the
genuine signatures presented by petitioner. 4 7 The RTC opined that the respondent bank
should have conducted a thorough inquiry on the authenticity of the SPA considering that
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 petitioner's residence certi cate was not indicated in the acknowledgement of the SPA. 48
Thus, the RTC decreed:
WHEREFORE, the court hereby declares null and void or annuls the
following:
1. The special power of attorney which was purportedly executed by
[petitioner] . . .;
2. The real estate mortgage . . .
3. The sheriff's sale of Lot No. 2078-B-1-E, and the certificate of title
issued in favor of the Rural Bank of El Salvador [by] virtue thereof,
as well as the sheriff's sale of the two[-]story house described in the
real estate mortgage. HCDAcE

4. The certificate of title in the name of the Rural Bank of El Salvador if

any, issued [by] virtue of the sheriff's sale.

The court hereby also orders [respondent] bank to pay [petitioner]

attorney's fees of P20,000 and moral damages of P20,000 as well as the costs of
the case.

SO ORDERED. 4 9

On reconsideration, 5 0 the RTC in its May 8, 1998 Resolution 5 1 rendered judgment

on the Third-Party Complaint led by respondent bank, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered under the third-party complaint
and against third-party defendants Erlinda Concepcion and her husband:
To indemnify or reimburse [respondent bank] all sums of money plus
interests thereon or damages that [respondent bank] has in this case been forced
to pay, disburse or deliver to [petitioner] including the costs.
SO ORDERED. 5 2

Ruling of the Court of Appeals

Dissatis ed, respondent bank elevated the case to the CA arguing that the SPA was
not forged 5 3 and that being a notarized document, it enjoys the presumption of regularity.
5 4 Petitioner, on the other hand, maintained that the signatures were forged 5 5 and that she
cannot be made liable as both the Promissory Note 5 6 and the Real Estate Mortgage,
which were dated June 11, 1982, were signed by Concepcion in her own personal capacity.
57 acTDCI

On August 17, 2005, the CA reversed the ndings of the RTC. The CA found no
cogent reason to invalidate the SPA, the Real Estate Mortgage, and Foreclosure Sale as it
was not convinced that the SPA was forged. The CA declared that although the
Promissory Note and the Real Estate Mortgage did not indicate that Concepcion was
signing for and on behalf of her principal, petitioner is estopped from denying liability since
it was her negligence in handing over her title to Concepcion that caused the loss. 5 8 The
CA emphasized that under the Principle of Equitable Estoppel, where one or two innocent
persons must suffer a loss, he who by his conduct made the loss possible must bear it. 5 9
Thus:
WHEREFORE, the above premises considered, the Decision and the
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 Resolution of the Regional Trial Court (RTC), 10th Judicial Region, Br. 19 of
Cagayan de Oro City in Civil Case No. 88-113 is hereby REVERSED and SET
ASIDE. The Second Amended Complaint of Nicanora Bucton is DISMISSED.
Accordingly, the following are declared VALID:

1. The Special Power of Attorney of Nicanora Gabar in favor of Erlinda

Concepcion, dated June 7, 1982;
2. The Real Estate Mortgage, the foreclosure of the same, and the
foreclosure sale to the Rural Bank of El Salvador, Misamis Oriental;
and
3. The certificate of title issued to the Rural Bank of El Salvador,
Misamis Oriental as a consequence of the foreclosure sale.
Costs against [petitioner]. SCcHIE

SO ORDERED. 6 0

Petitioner moved for reconsideration 6 1 but the same was denied by the CA in its
June 7, 2007 Resolution. 6 2
Issues
Hence, this recourse by petitioner raising the following issues: CaAIES

FIRST
. . . WHETHER . . . THE [CA] WAS RIGHT IN DECLARING THE PETITIONER
LIABLE ON THE LITIGATED LOAN/MORTGAGE WHEN (i) SHE DID NOT
EXECUTE EITHER IN PERSON OR BY ATTORNEY-IN-FACT SUBJECT
MORTGAGE; (ii) IT WAS EXECUTED BY CONCEPCION IN HER PERSONAL
CAPACITY AS MORTGAGOR, AND (iii) THE LOAN SECURED BY THE
MORTGAGE WAS CONCEPCION'S EXCLUSIVE LOAN FOR HER OWN COCONUT
PRODUCTION.
SECOND

. . . WHETHER . . . UNDER ARTICLE 1878 (NEW CIVIL CODE) THE [CA] WAS
RIGHT IN MAKING PETITIONER A SURETY PRIMARILY ANSWERABLE FOR
CONCEPCION'S PERSONAL LOAN, IN THE ABSENCE OF THE REQUIRED [SPA].
THIRD

WHETHER . . . THE [CA] WAS RIGHT WHEN IT RULED THAT PETITIONER'S

DECLARATIONS ARE SELF-SERVING TO JUSTIFY ITS REVERSAL OF THE TRIAL
COURT'S JUDGMENT, IN THE FACE OF THE RESPONDENTS' DOCUMENTARY
EVIDENCES . . ., WHICH INCONTROVERTIBLY PROVED THAT PETITIONER HAS
ABSOLUTELY NO PARTICIPATION OR LIABILITY ON THE LITIGATED
LOAN/MORTGAGE. IaEASH

FOURTH

WHETHER . . . THE [CA] WAS RIGHT WHEN IT FOUND THAT IT WAS

PETITIONER'S NEGLIGENCE WHICH MADE THE LOSS POSSIBLE, DESPITE [THE
FACT] THAT SHE HAS NO PART IN [THE] SUBJECT LOAN/MORTGAGE, THE
BANK'S [FAILURE] TO CONDUCT CAREFUL EXAMINATION OF APPLICANT'S
TITLE AS WELL AS PHYSICAL INVESTIGATION OF THE LAND OFFERED AS
SECURITY, AND TO INQUIRE AND DISCOVER UPON ITS OWN PERIL THE
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 AGENT'S AUTHORITY, ALSO ITS INORDINATE HASTE IN THE PROCESSING,
EVALUATION AND APPROVAL OF THE LOAN.
FIFTH

WHETHER . . . THE [CA] WAS RIGHT WHEN IT DISREGARDED THE FALSE

TESTIMONY OF THE [RESPONDENT] BANK'S EMPLOYEE, [WHEN HE
DECLARED] THAT HE CONDUCTED ACTUAL INSPECTION OF THE
MORTGAGED PROPERTY AND INVESTIGATION WHERE HE ALLEGEDLY
VERIFIED THE QUESTIONED SPA.
SIXTH
WHETHER THE [CA] WAS RIGHT WHEN IT DISREGARDED ESTABLISHED
FACTS AND CIRCUMSTANCES PROVING THAT THE [SPA] IS A FORGED
DOCUMENT AND/OR INFECTED BY INFIRMITIES DIVESTING IT OF THE
PRESUMPTION OF REGULARITY CONFERRED BY LAW ON NOTARIZED DEEDS,
AND EVEN IF VALID, THE POWER WAS NOT EXERCISED BY CONCEPCION. 6 3
EcDATH

Petitioner's Arguments
Petitioner maintains that the signatures in the SPA were forged 6 4 and that she
could not be held liable for the loan as it was obtained by Concepcion in her own personal
capacity, not as an attorney-in-fact of petitioner. 6 5 She likewise denies that she was
negligent and that her negligence caused the damage. 6 6 Instead, she puts the blame on
respondent bank as it failed to carefully examine the title and thoroughly inspect the
property. 6 7 Had it done so, it would have discovered that the house and lot mortgaged by
Concepcion are covered by two separate titles. 6 8 Petitioner further claims that
respondent sheriff failed to show that he complied with the requirements of notice and
publication in foreclosing her house and lot. 6 9
Respondent bank's Arguments
Respondent bank, on the other hand, relies on the presumption of regularity of the
notarized SPA. 7 0 It insists that it was not negligent as it inspected the property before it
approved the loan, 7 1 unlike petitioner who was negligent in entrusting her title to
Concepcion. 7 2 As to the foreclosure proceedings, respondent bank contends that under
the Rural Bank Act, all loans whose principal is below P100,000.00 are exempt from
publication. 7 3 Hence, the posting of the Notice of Foreclosure in the places de ned by the
rules was su cient. 7 4 Besides, respondent sheriff is presumed to have regularly
performed his work. 7 5
Our Ruling
The Petition is meritorious. DTEHIA

The Real Estate Mortgage was entered

into by Concepcion in her own personal
capacity.
As early as the case of Philippine Sugar Estates Development Co. v. Poizat , 7 6 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." 7 7
In other words, the mere fact that the agent was authorized to mortgage the property is
not su cient to bind the principal, unless the deed was executed and signed by the agent
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 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, 7 8 Gozun v. Mercado , 7 9 and Far East Bank and Trust Company (Now Bank of the
Philippine Island) v. Cayetano. 8 0
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, although the
real estate mortgage stated that it was executed by the husband in his capacity as
attorney-in-fact of his wife, the husband signed the contract in his own name without
indicating that he also signed it as the attorney-in-fact of his wife.
IcHSCT

In Rural Bank of Bombon, the agent contracted a loan from the bank and executed a
real estate mortgage. However, he did not indicate that he was acting on behalf of his
principal.
I n Gozun, the agent obtained a cash advance but signed the receipt in her name
alone, without any indication that she was acting for and on behalf of her principal.
In Far East Bank and Trust Company , the mother executed an SPA authorizing her
daughter to contract a loan from the bank and to mortgage her properties. The mortgage,
however, was signed by the daughter and her husband as mortgagors in their individual
capacities, without stating that the daughter was executing the mortgage for and on behalf
of her mother. IASCTD

Similarly, in this case, the authorized agent failed to indicate in the mortgage that
she was acting for and on behalf of her principal. The Real Estate Mortgage, explicitly
shows on its face, that it was signed by Concepcion in her own name and in her own
personal capacity. In fact, there is nothing in the document to show that she was acting or
signing as an agent of petitioner. Thus, consistent with the law on agency and established
jurisprudence, petitioner cannot be bound by the acts of Concepcion.
In light of the foregoing, there is no need to delve on the issues of forgery of the SPA
and the nullity of the foreclosure sale. For even if the SPA was valid, the Real Estate
Mortgage would still not bind petitioner as it was signed by Concepcion in her personal
capacity and not as an agent of petitioner. Simply put, the Real Estate Mortgage is void
and unenforceable against petitioner.
Respondent bank was negligent.
At this point, we nd it signi cant 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 it is
considered to have been signed by the agent in his personal capacity.
Respondent bank is liable to pay
petitioner attorney's fees, and the costs
of the suit.
Considering that petitioner was compelled to litigate or to incur expenses to protect
her interest, 8 1 the RTC was right when it ruled that respondent bank is liable to pay
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 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. CHDaAE

Concepcion is liable to pay respondent

bank her unpaid obligation and
reimburse it for all damages, attorney's
fees and costs of suit.
Concepcion, on the other hand, is liable to pay respondent bank her unpaid
obligation under the Promissory Note dated June 11, 1982, with interest. As we have said,
Concepcion signed the Promissory Note in her own personal capacity; thus, she cannot
escape liability. She is also liable to reimburse respondent bank for all damages, attorneys'
fees, and costs the latter is adjudged to pay petitioner in this case.
WHEREFORE , the Petition is hereby GRANTED . The assailed August 17, 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 .
The February 23, 1998 Decision of the Regional Trial Court of Cagayan de Oro,
Branch 19, in Civil Case No. 88-113 is hereby REINSTATED , insofar as it (a) annuls the
Real Estate Mortgage dated June 11, 1982, the Sheriff's Sale of petitioner Nicanora
Bucton's house and lot and the Transfer Certi cate 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 .
TcHCDE

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, Brion, Perez and Perlas-Bernabe, JJ., concur.

Footnotes

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.
3.Id. at 186-187; penned by Associate Justice Rodrigo F. Lim, Jr. and concurred in by Associate
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 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 87-88.
7.Id. at 88.
8.Id.
9.Rollo, p. 90.
10.Records, Vol. I, p. 88.

11.Id.
12.Id. at 88-89.
13.Id. at 88.
14.Id. at 23-25 and 99-103 (Answer to Second Amended Complaint).
15.Id. at 100.

16.Id.
17.Id.
18.Id. at 99-100.
19.Id. at 101.

20.Id. at 157-158.
21.Id. at 171.
22.Id. at 184-189.
23.Id. at 185.
24.Id. at 187-188.

25.Id. at 262.
26.Id., Vol. 2, p. 576.
27.Id.
28.Id.
29.Id. at 576-577.

30.Id. at 577.
31.Id.
32.Id. at 578.
33.Id. at 577.

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 34.Id.
35.Id. at 577-578.
36.Edwin Igloria (Bank Appraiser), Marina Salvan (Bank President), and Fautino U. Batutay
(Bank Manager).
37.Rollo, p. 92.

38.Records, Vol. 2, p. 578.

39.Id.
40.Id. at 579.
41.Rollo, p. 96.
42.TSN, January 30, 1992, p. 37.

43.Records, Vol. II, p. 578.

44.Id.
45.TSN, January 30, 1992, pp. 26-28.
46.Records, Vol. 2, pp. 573-583; penned by Judge Anthony E. Santos.
47.Id. at 579-581.

48.Id. at 582.
49.Id. at 582-583.
50.Id. at 584-596.
51.Id. at 681-682.

52.Id. at 682.
53.CA rollo, pp. 59-65.
54.Id.
55.Id. at 104-108.
56.Rollo, p. 98.

57.CA rollo, pp. 108-111.

58.Id. at 128-130.
59.Id. at 130.
60.Id. at 131-132.
61.Id. at 137-154.

62.Id. at 186-187.
63.Rollo, pp. 190-191.
64.Id. at 203-207.

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 65.Id. at 192-198.
66.Id. at 197.
67.Id. at 198-203.
68.Id.

69.Id. at 207.
70.Id. at 216-222.
71.Id. at 218-219.
72.Id. at 223.
73.Id. at 223.

74.Id.
75.Id.
76.48 Phil. 536 (1925).
77.Id. at 549.

78.G.R. No. 95703, August 3, 1992, 212 SCRA 25.

79.540 Phil. 323 (2006).
80.G.R. No. 179909, January 25, 2010, 611 SCRA 96.
81.CIVIL CODE, Art. 2208 provides:
In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
xxx xxx xxx

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

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