Agency and Mortgage Law: When an Agent’s Signature Does Not Bind the Principal

In a significant ruling on agency and mortgage law, the Supreme Court clarified when a principal is bound by a real estate mortgage executed by an authorized agent. The case of Far East Bank and Trust Company v. Spouses Cayetano (G.R. No. 179909, January 25, 2010) reaffirms a long-standing rule: an agent’s signature on a mortgage deed binds the agent personally, not the principal, unless the agent clearly signs for and on behalf of the principal. The case also demonstrates how the equitable doctrine of laches can bar a property owner from challenging a foreclosure after an unreasonable delay.

The Facts of the Case

Leonor Cayetano executed a special power of attorney authorizing her daughter, Teresita Tabing, to obtain a loan of not more than P300,000 and to mortgage two of Cayetano’s lots in Naga City as security. The bank approved a loan of P100,000, secured by promissory notes and a real estate mortgage over the two properties.

The mortgage document, however, was signed by Tabing and her husband as mortgagors in their individual capacities, without stating that Tabing was acting for and on behalf of Cayetano. When the loan was not paid, the bank foreclosed the mortgage. The properties were sold at public auction to the bank for P160,000. The bank consolidated its title after the redemption period lapsed.

More than five years later, Tabing—acting on behalf of Cayetano—wrote to the bank offering to repurchase the properties for P250,000. The bank refused, demanding P500,000. Only after negotiations failed did the Cayetanos file a complaint in December 1996 to annul the mortgage and the foreclosure sale.

The Issue

The central question was whether the principal, Cayetano, was bound by the real estate mortgage executed by her authorized agent, Tabing, who signed the deed in her own name without indicating that she was acting on behalf of the principal.

The Ruling: Signature in Own Name Binds Only the Agent

The Supreme Court affirmed the rule first laid down in Philippine Sugar Estates Development Co., Ltd., Inc. v. Poizat (48 Phil. 536 [1925]) and reiterated in Rural Bank of Bombon v. Court of Appeals (G.R. No. 95703, August 3, 1992). The rule is clear:

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 that the agent was in fact authorized to make the mortgage. Neither is it sufficient that the mortgage describes the agent as acting by virtue of a power of attorney. If the agent set her own hand to the instrument without indicating that she signed for and on behalf of the principal, the mortgage is not valid as to the principal. The agent binds herself alone, in her personal capacity.

Applying this rule, the Court held that Tabing’s mortgage was void as to Cayetano. The mortgage bound only Tabing and her husband. The principal’s property could not be validly mortgaged through the agent’s signature alone.

The Role of Laches

Despite the nullity of the mortgage, the Court ruled in favor of the bank on equitable grounds. The Court found that the Cayetanos were barred by laches—the failure to assert a right within a reasonable time, warranting a presumption that the right has been abandoned.

The elements of laches are: (1) conduct on the part of the defendant giving rise to the situation complained of; (2) delay in asserting the complainant’s right after knowledge of the defendant’s conduct and an opportunity to sue; (3) lack of knowledge or notice on the defendant’s part that the complainant would assert the right; and (4) injury or prejudice to the defendant if relief is granted.

Here, the Cayetanos knew of the mortgage—it was registered and annotated on their titles. They were informed of the foreclosure and the scheduled auction. Their lawyer merely asked for a postponement, not an annulment. They did nothing for more than five years, even after the bank consolidated title. Only when repurchase negotiations failed did they sue. The Court found this delay unreasonable and inequitable, and dismissed the complaint.

Practical Takeaways

• An agent must sign in the principal’s name. To bind the principal in a real estate mortgage, the deed must show on its face that it is made, signed, and sealed in the name of the principal. A signature in the agent’s own name binds only the agent.
• Actual authority is not enough. Even if the agent was fully authorized by a special power of attorney, the mortgage will not bind the principal if the agent failed to act in the principal’s name.
• The loan may survive even if the mortgage fails. In this case, the loan remained valid and enforceable against the agent, but the security over the principal’s property was void.
• Act promptly to protect property rights. Property owners who know of a defective mortgage or foreclosure must assert their rights within a reasonable time. Laches can bar relief even where the mortgage itself is void.
• Check the mortgage deed carefully. Before accepting a mortgage, lenders and borrowers alike should verify that the executing party clearly signs for and on behalf of the registered owner.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.