SUPREME COURT REPORTS ANNOTATED VOLUME 528 07/09/2020, 5)39 PM SUPREME COURT REPORTS ANNOTATED VOLUME 528 07/09/2020,

/2020, 5)39 PM SUPREME COURT REPORTS ANNOTATED VOLUME 528 07/09/2020, 5)39 PM

challenged by petitioners.
Same; Same; Same; Same; In cases where the terms of the
contract are clear as to leave no room for interpretation, resort to
circumstantial evidence to ascertain the true intent of the parties, is
not countenanced.·In cases where the terms of the contract are
clear as
444 SUPREME COURT REPORTS ANNOTATED
Mercado vs. Allied Banking Corporation _______________

* * THIRD DIVISION.
G.R. No. 171460. July 27 2007.

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and 445

JULIAN MERCADO, JR., represented by their Attorney-
In-Fact, ALFREDO M. PEREZ, petitioners, vs. ALLIED
BANKING CORPORATION, respondent.
VOL. 528, JULY 27, 2007 445

Civil Law; Property; Contracts; Mortgages; Essential Requisites Mercado vs. Allied Banking Corporation
for the Validity of a Mortgage.·Article 2085 of the Civil Code
enumerates the following essential requisites: Art. 2085. The to leave no room for interpretation, resort to circumstantial
following requisites are essential to the contracts of pledge and evidence to ascertain the true intent of the parties, is not
mortgage: (1) That they be constituted to secure the fulfillment of a countenanced. As aptly stated in the case of JMA House,
principal obligation; (2) That the pledgor or mortgagor be the Incorporated v. Sta. Monica Industrial and Development
absolute owner of the thing pledged or mortgaged; (3) That the Corporation, 500 SCRA 526 (2006), thus: [T]he law is that if the
persons constituting the pledge or mortgage have the free disposal terms of a contract are clear and leave no doubt upon the intention
of their property, and in the absence thereof, that they be legally of the contracting parties, the literal meaning of its stipulation shall
authorized for the purpose. Third persons who are not parties to the control. When the language of the contract is explicit, leaving no
principal obligation may secure the latter by pledging or doubt as to the intention of the drafters, the courts may not read
mortgaging their own property. into it [in] any other intention that would contradict its main
Same; Same; Same; Same; A special power of attorney is import. The clear terms of the contract should never be the subject
necessary in cases where real rights over immovable property are matter of interpretation. Neither abstract justice nor the rule on
created or conveyed.·Under Article 1878 of the Civil Code, a special liberal interpretation justifies the creation of a contract for the
power of attorney is necessary in cases where real rights over parties which they did not make themselves or the imposition upon
immovable property are created or conveyed. In the SPA executed one party to a contract or obligation not assumed simply or merely
by Perla in favor of Julian on 28 May 1992, the latter was conferred to avoid seeming hardships. The true meaning must be enforced, as
with the authority to „sell, alienate, mortgage, lease and deal it is to be presumed that the contracting parties know their scope
otherwise‰ the different pieces of real and personal property and effects.
registered in PerlaÊs name. The SPA likewise authorized Julian „[t]o Same; Same; Same; Same; Where powers and duties are
exercise any or all acts of strict dominion or ownership‰ over specified and defined in an instrument, all such powers and duties
the identified properties, and rights and interest therein. The are limited and are confined to those which are specified and
existence and due execution of this SPA by Perla was not denied or defined, and all other powers and duties are excluded.·Equally

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relevant is the rule that a power of attorney must be strictly Finance Corporation, 379 SCRA 490 (2002), we ruled: Respondent,
construed and pursued. The instrument will be held to grant only however, is not an ordinary mortgagee; it is a mortgagee-bank. As
those powers which are specified therein, and the agent may such, unlike private individuals, it is expected to exercise greater
neither go beyond nor deviate from the power of attorney. Where care and prudence in its dealings, including those involving
powers and duties are specified and defined in an instrument, all registered lands. A banking institution is expected to exercise due
such powers and duties are limited and are confined to those which diligence before entering into a mortgage contract. The
are specified and defined, and all other powers and duties are ascertainment of the status or condition of a property offered to it as
excluded. This is but in accord with the disinclination of courts to security for a loan must be a standard and indispensable part of its
enlarge the authority granted beyond the powers expressly given operations.
and those which incidentally flow or derive therefrom as being
usual and reasonably necessary and proper for the performance of PETITION for review on certiorari of the decision and
such express powers. resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Same; Same; Same; Same; Where the mortgagee does not
Quasha, Ancheta, Peña and Nolasco for petitioners.
directly deal with the registered owner of real property, the law
Francisco Gerardo C. Llamas and Paul A. Bernardino
requires that a higher degree of prudence be exercised by the
for respondent.
mortgagee.·In the case of Abad v. Guimba, 465 SCRA 356 (2005),
we laid down the principle that where the mortgagee does not CHICO-NAZARIO, J.:
directly deal with the registered owner of real property, the law
requires that a higher degree of prudence be exercised by the Before this Court is a Petition for Review on Certiorari
mortgagee, thus: While [the] under Rule 45 of the Revised Rules of Court, filed by
petitioners Lillian N. Mercado, Cynthia M. Fekaris and
446 Julian Mercado, Jr., represented by their Attorney-In-Fact,
Alfredo M. Perez,

447
446 SUPREME COURT REPORTS ANNOTATED

Mercado vs. Allied Banking Corporation VOL. 528, JULY 27, 2007 447
Mercado vs. Allied Banking Corporation
one who buys from the registered owner does not need to look
1
behind the certificate of title, one who buys from [the] one who is seeking to reverse and set aside the Decision of the2 Court
not [the] registered owner is expected to examine not only the of Appeals dated 12 October 2005, and its Resolution dated
certificate of title but all factual circumstances necessary for [one] 15 February 2006 in CA-G.R. CV No. 82636. The Court of
to determine if there are any flaws in the title of the transferor, or Appeals, in its assailed Decision and Resolution, reversed
3
in [the] capacity to transfer the land. Although the instant case does the Decision of the Regional Trial Court (RTC) of Quezon
not involve a sale but only a mortgage, the same rule applies City, Branch 220 dated 23 September 2003, declaring the
inasmuch as the law itself includes a mortgagee in the term deeds of real estate mortgage constituted on TCT No. RT-
„purchaser.‰ 18206 (106338) null and void. The dispositive portion of the
Same; Same; Same; Same; Principle is applied more assailed Court of Appeals Decision thus reads:
strenuously when the mortgagee is a bank or a banking institution.
„WHEREFORE, the appealed decision is REVERSED and SET
·This principle is applied more strenuously when the mortgagee is
ASIDE, and a new judgment is hereby entered dismissing the
a bank or a banking institution. Thus, in the case of Cruz v. Bancom 4
[petitioners] complaint.‰

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Petitioners are heirs of Perla N. Mercado (Perla). Perla, c) Personal property – 1983 Car with Vehicle
during her lifetime, owned several pieces of real property Registration No. R-16381; Model 1983; Make –
situated in different provinces of the Philippines. Toyota; Engine No. T- 2464‰
Respondent, on the other hand, is a banking institution
duly authorized as such under the Philippine laws. 2. To sign for and in my behalf any act of strict
On 28 May 1992, Perla executed a Special Power of dominion or ownership any sale, disposition,
Attorney (SPA) in favor of her husband, Julian D. Mercado mortgage, lease or any other transactions including
(Julian) over several pieces of real property registered quit-claims, waiver and relinquishment of rights in
under her name, authorizing the latter to perform the and over the parcels of land situated in General
following acts: Trias, Cavite, covered by Transfer Certificates of
Title Nos. T-112254 and T-112255 of the Registry of
„1. To act in my behalf, to sell, alienate, mortgage, Deeds of Cavite, in conjunction with his co-owner
lease and deal otherwise over the different parcels and in the person ATTY. AUGUSTO F. DEL
of land described hereinafter, to wit: ROSARIO;
3. To exercise any or all acts of strict dominion or
a) Calapan, Oriental Mindoro Properties covered by ownership over the above-mentioned properties,
Transfer Certificates of Title Nos. T-53618–3,522 rights and interest therein.‰ (Emphasis supplied.)
Square Meters, T-46810–3,953 Square Meters, T-
53140–177 Square On the strength of the aforesaid SPA, Julian, on 12
December 1996, obtained a loan from the respondent in the
_______________ amount of P3,000,000.00, secured by real estate mortgage
constituted on TCT No. RT-18206 (106338) which covers a
1 Penned by Associate Justice Delilah Vidallon-Magtolis with
parcel of land with an area of 805 square meters, registered
Associate Justices Josefina Guevara-Salonga and Fernanda
with the 5 Registry of Deeds of Quezon City (subject
LampasPeralta, concurring. Rollo, pp. 44-59.
property).
2 Id., at pp. 61-64.
Still using the subject property as security, Julian
3 Id., at pp. 71-84.
obtained an additional loan from the respondent in the 6sum
4 Id., at p. 59.
of P5,000,000.00, evidenced by a Promissory Note he
448
executed on 5 February 1997 as another real estate
mortgage (REM).
It appears, however, that there was no property
448 SUPREME COURT REPORTS ANNOTATED identified in the SPA as TCT No. RT – 18206 (106338)
Mercado vs. Allied Banking Corporation and registered with the Registry of Deeds of Quezon
City. What was
Meters, T-21403–263 Square Meters, T- 46807–39
Square Meters of the Registry of Deeds of Oriental _______________
Mindoro; 5 Susana Heights, Muntinlupa covered by Transfer Certificates of Title
b) Susana Heights, Muntinlupa covered by Transfer Nos. T-108954–690 square meters; and RT-106338–805 square meters of
Certificates of Title Nos. T-108954–600 Square the Registry of Deeds of Pasig (now Makati);
Meters and RT-106338–805 Square Meters of the 6 Id., at pp. 106-109.
Registry of Deeds of Pasig (now Makati);
449

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8 Id., at p. 74.
9 Id., at pp. 74-75.
VOL. 528, JULY 27, 2007 449
10 Id., at pp. 96-103.
Mercado vs. Allied Banking Corporation
450

identified in the SPA instead was the property covered by

TCT No. RT-106338 registered with the Registry of 450 SUPREME COURT REPORTS ANNOTATED
Deeds of Pasig.
Mercado vs. Allied Banking Corporation
Subsequently, Julian defaulted on the payment of his
loan obligations. Thus, respondent initiated extrajudicial
foreclosure proceedings over the subject property which of the titles specified in paragraph 1(b) thereof, TCT No.
was subsequently sold at public auction wherein the RT106338 registered with the Registry of Deeds of
respondent was declared as the highest bidder as shown in Pasig (now Makati). The subject property was
7
the Sheriff Ês Certificate of Sale dated 15 January 1998. purportedly registered previously under TCT No. T-
On 23 March 1999, petitioners initiated with the RTC 106338, and was only subsequently reconstituted as TCT
an action for the annulment of REM constituted over the RT-18206 (106338). Moreover, TCT No. T-106338 was
subject property on the ground that the same was not actually registered with the Registry of Deeds of
covered by the SPA and that the said SPA, at the time the Quezon City and not before the Registry of Deeds of
loan obligations were contracted, no longer had force and Pasig (now Makati). Respondent explained that the
effect since it was previously revoked by Perla on 10 March discrepancy in the designation of the Registry of Deeds in
1993, 8as evidenced by the Revocation of SPA signed by the the SPA was merely an error that must not prevail over the
latter. clear intention of Perla to include the subject property in
Petitioners likewise alleged that together with the copy the said SPA. In sum, the property referred to in the SPA
of the Revocation of SPA, Perla, in a Letter dated 23 Perla executed in favor of Julian as covered by TCT No.
January 1996, notified the Registry of Deeds of Quezon 106338 of the Registry of Deeds of Pasig (now Makati)
City that any attempt to mortgage or sell the subject and the subject property in the case at bar, covered by RT –
property must be with her full consent documented in the 18206 (106338) of the Registry of Deeds of Quezon
form of an SPA duly authenticated before the Philippine City, are one and the same.
9
Consulate General in New York. On 23 September 2003, the RTC rendered a Decision
In the absence of authority to do so, the REM declaring the REM constituted over the subject property
constituted by Julian over the subject property was null null and void, for Julian was not authorized by the terms of
and void; thus, petitioners likewise prayed that the the SPA to mortgage the same. The court a quo likewise
subsequent extra-judicial foreclosure proceedings and the ordered that the foreclosure proceedings and the auction
auction sale of the subject property be also nullified. sale conducted pursuant to the void REM, be nullified. The
10
In its Answer with Compulsory Counterclaim, dispositive portion of the Decision reads:
respondent averred that, contrary to petitionerÊs
„WHEREFORE, premises considered, judgment is hereby rendered
allegations, the SPA in favor of Julian included the subject
in favor of the [herein petitioners] and against the [herein
property, covered by one
respondent] Bank:

_______________ 1. Declaring the Real Estate Mortgages constituted and

registered under Entry Nos. PE-4543/RT-18206 and
7 Id., at p. 73 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of

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the Registry of Deeds of Quezon City as NULL and VOID; Petitioners are now before us assailing the Decision and
2. Declaring the Sheriff Ês Sale and Certificate of Sale under Resolution rendered by the Court of Appeals raising
FRE No. 2217 dated January 15, 1998 over the property several issues, which are summarized as follows:
covered by TCT No. RT-18206 (106338) of the Registry of
Deeds of Quezon City as NULL and VOID;
I WHETHER OR NOT THERE WAS A VALID
MORTGAGE CONSTITUTED OVER SUBJECT
451 PROPERTY.
II WHETHER OR NOT THERE WAS A VALID
REVOCATION OF THE SPA.
VOL. 528, JULY 27, 2007 451
Mercado vs. Allied Banking Corporation
_______________

3. Ordering the defendant Registry of Deeds of Quezon City to 11 Id., at p. 84.

cancel the annotation of Real Estate Mortgages appearing
452
on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on
TCT No. RT18206 (106338) of the Registry of Deeds of
Quezon City; 452 SUPREME COURT REPORTS ANNOTATED
4. Ordering the [respondent] Bank to deliver/return to the Mercado vs. Allied Banking Corporation
[petitioners] represented by their attorney-in-fact Alfredo
M. Perez, the original OwnerÊs Duplicate Copy of TCT No.
III WHETHER OR NOT THE RESPONDENT WAS A
RT-18206 (106338) free from the encumbrances referred to
MORTGAGEE-IN-GOOD FAITH.
above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the
For a mortgage to be valid, Article 2085 of the Civil Code
amount of P100,000.00 as for attorneyÊs fees plus cost of the
enumerates the following essential requisites:
suit.
„Art. 2085. The following requisites are essential to the contracts of
The other claim for damages and counterclaim are hereby DENIED pledge and mortgage:
11
for lack of merit.‰
(1) That they be constituted to secure the fulfillment of a
Aggrieved, respondent appealed the adverse Decision principal obligation;
before the Court of Appeals. (2) That the pledgor or mortgagor be the absolute owner of the
In a Decision dated 12 October 2005, the Court of thing pledged or mortgaged;
Appeals reversed the RTC Decision and upheld the validity
(3) That the persons constituting the pledge or mortgage have
of the REM constituted over the subject property on the
the free disposal of their property, and in the absence
strength of the SPA. The appellate court declared that
thereof, that they be legally authorized for the purpose.
Perla intended the subject property to be included in the
SPA she executed in favor of Julian, and that her Third persons who are not parties to the principal obligation may
subsequent revocation of the said SPA, not being contained secure the latter by pledging or mortgaging their own property.‰
in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the In the case at bar, it was Julian who obtained the loan
petitioners was denied by the Court of Appeals in its obligations from respondent which he secured with the
Resolution dated 15 February 2006. mortgage of the subject property. The property mortgaged

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was owned by his wife, Perla, considered a third party to Calapan, Oriental Mindoro, and registered with the
the loan obligations between Julian and respondent. It was, Registry of Deeds of Oriental Mindoro; (2) TCT No. T-
thus, a situation recognized by the last paragraph of Article 46810, with an area of 3,953 square meters, located at
2085 of the Civil Code afore-quoted. However, since it was Calapan, Oriental Mindoro, and registered with the
not Perla who personally mortgaged her own property to Registry of Deeds of Oriental Mindoro; (3) TCT No. T-
secure JulianÊs loan obligations with respondent, we 53140, with an area of 177 square meters, located at
proceed to determining if she duly authorized Julian to do Calapan, Oriental Mindoro, and registered with the
so on her behalf. Registry of Deeds of Oriental Mindoro; (4) TCT No. T-
Under Article 1878 of the Civil Code, a special power of 21403, with an area of 263 square meters, located at
attorney is necessary in cases where real12 rights over Calapan, Oriental Mindoro, and registered with the
immovable property are created or conveyed. In the SPA Registry of Deeds of Oriental Mindoro; (5) TCT No. T-
executed by Perla in favor of Julian on 28 May 1992, the 46807, with an area of 39 square meters, located at
latter was conferred with the authority to „sell, alienate, Calapan, Oriental Mindoro, and registered with the
mortgage, lease and deal otherwise‰ the different pieces of Registry of Deeds of Oriental Mindoro; (6) TCT No. T-
real and personal property registered in PerlaÊs name. The 108954, with an area of 690 square meters and located at
SPA likewise author- Susana Heights, Muntinlupa; (7) RT-106338 – 805 Square
Meters registered with the Registry of Deeds of Pasig
_______________ (now Makati); and (8) Personal Property consisting of a
1983 Car with Vehicle Registration No. R-16381, Model –
12 Paragraph 12 of Article 1878, Civil Code of the Philippines. 1983, Make – Toyota, and Engine No. T- 2464. Nowhere is
it stated in the SPA that JulianÊs authority extends to the
453
subject property covered by TCT No. RT – 18206 (106338)
registered with the Registry of Deeds of Quezon City.
VOL. 528, JULY 27, 2007 453 Consequently, the act of Julian of constituting a mortgage
over the
Mercado vs. Allied Banking Corporation
454
ized Julian „[t]o exercise any or all acts of strict
dominion or ownership‰ over the identified properties,
454 SUPREME COURT REPORTS ANNOTATED
and rights and interest therein. The existence and due
execution of this SPA by Perla was not denied or challenged Mercado vs. Allied Banking Corporation
by petitioners.
There is no question therefore that Julian was vested subject property is unenforceable for having been done
with the power to mortgage the pieces of property without authority.
identified in the SPA. However, as to whether the subject Respondent, on the other hand, mainly hinges its
property was among those identified in the SPA, so as to argument on the declarations made by the Court of
render JulianÊs mortgage of the same valid, is a question Appeals that there was no property covered by TCT No.
we still must resolve. 106338 registered with the Registry of Deeds of Pasig
Petitioners insist that the subject property was not (now Makati); but there exists a property, the subject
included in the SPA, considering that it contained an property herein, covered by TCT No. RT-18206 (106338)
exclusive enumeration of the pieces of property over which registered with the Registry of Deeds of Quezon City.
Julian had authority, and these include only: (1) TCT No. T- Further verification would reveal that TCT No. RT-18206
53618, with an area of 3,522 square meters, located at is merely a reconstitution of TCT No. 106338, and the

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property covered by both certificates of title is actually Neither abstract justice nor the rule on liberal interpretation
situated in Quezon City and not Pasig. From the foregoing justifies the creation of a contract for the parties which they did not
circumstances, respondent argues that Perla intended to make themselves or the imposition upon one party to a contract or
include the subject property in the SPA, and the failure of obligation not assumed simply or merely to avoid seeming
the instrument to reflect the recent TCT Number or the hardships. The true meaning must be enforced, as it is to be
exact designation of the Registry of Deeds, should not presumed that the contracting parties know their scope and
14
defeat PerlaÊs clear intention. effects.‰
After an examination of the literal terms of the SPA, we
find that the subject property was not among those Equally relevant is the rule that a power of attorney must
enumerated therein. There is no obvious reference to the be strictly construed and pursued. The instrument will be
subject property covered by TCT No. RT-18206 (106338) held to grant only those powers which are specified therein,
registered with the Registry of Deeds of Quezon City. and the agent may15 neither go beyond nor deviate from the
There was also nothing in the language of the SPA from power of attorney. Where powers and duties are specified
which we could deduce the intention of Perla to include the and defined in an instrument, all such powers and duties
subject property therein. We cannot attribute such alleged are limited and are confined to those which are specified 16

intention to Perla who executed the SPA when the and defined, and all other powers and duties are excluded.
language of the instrument is bare of any indication This is but in accord with the disinclination of courts to
suggestive of such intention. Contrariwise, to adopt the enlarge the authority granted beyond the powers expressly
intent theory advanced by the respondent, in the absence of given and those which incidentally flow or derive therefrom
clear and convincing evidence to that effect, would run as being usual and reasonably necessary
17
and proper for the
afoul of the express tenor of the SPA and thus defeat performance of such express powers.
PerlaÊs true intention.
In cases where the terms of the contract are clear as to _______________
leave no room for interpretation, resort to circumstantial
13 G.R. No. 154156, 31 August 2006, 500 SCRA 526.
evidence to ascertain the true intent of the parties, is not
14 Id., at pp. 545-546.
countenanced. As aptly stated in the case of JMA House,
15 Angeles v. Philippine National Railways (PNR), G.R. No. 150128, 31
455 August 2006, 500 SCRA 444, 453.
16 Bank of the Philippine Islands v. De Coster, 49 Phil. 574, 589 (1926)
as cited in Philippine National Bank v. Sta. Maria, 139 Phil. 781, 786; 29
VOL. 528, JULY 27, 2007 455
SCRA 303, 308 (1969).
Mercado vs. Allied Banking Corporation 17 Philippine National Bank v. Sta. Maria, id.

456
Incorporated13v. Sta. Monica Industrial and Development
Corporation, thus:
456 SUPREME COURT REPORTS ANNOTATED
„[T]he law is that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal Mercado vs. Allied Banking Corporation
meaning of its stipulation shall control. When the language of the 18
contract is explicit, leaving no doubt as to the intention of the Even the commentaries of renowned Civilist Manresa
drafters, the courts may not read into it [in] any other intention supports a strict and limited construction of the terms of a
that would contradict its main import. The clear terms of the power of attorney:
contract should never be the subject matter of interpretation.

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„The law, which must look after the interests of all, cannot permit a Assuming arguendo that the subject property was indeed
man to express himself in a vague and general way with reference included in the SPA executed by Perla in favor of Julian,
to the right he confers upon another for the purpose of alienation or the said SPA was revoked by virtue of a public instrument
hypothecation, whereby he might be despoiled of all he possessed executed by Perla on 10 March 1993. To address
and be brought to ruin, such excessive authority must be set down respondentÊs assertion that the said revocation was
in the most formal and explicit terms, and when this is not done, unenforceable against it as a third party to the SPA and as
the law reasonably presumes that the principal did not mean to one who relied on the same in good faith, we quote with
confer it.‰ approval the following ruling of the RTC on this matter:

In this case, we are not convinced that the property covered „Moreover, an agency is extinguished, among others, by its
by TCT No. 106338 registered with the Registry of Deeds revocation (Article 1999, New Civil Code of the Philippines). The
of Pasig (now Makati) is the same as the subject property principal may revoke the agency at will, and compel the agent to
covered by TCT No. RT-18206 (106338) registered with return the document evidencing the agency. Such revocation may be
the Registry of Deeds of Quezon City. The records of the express or implied (Article 1920, supra).
case are stripped of supporting proofs to verify the In this case, the revocation of the agency or Special Power of
respondentÊs claim that the two titles cover the same Attorney is expressed and by a public document executed on March
property. It failed to present any certification from the 10, 1993.
Registries of Deeds concerned to support its assertion. The Register of Deeds of Quezon City was even notified that any
Neither did respondent take the effort of submitting and attempt to mortgage or sell the property covered by TCT No. [RT-
making part of the records of this case copies of TCTs No. 18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon
RT-106338 of the Registry of Deeds of Pasig (now Makati) City must have the full consent documented in the form of a special
and RT-18206 (106338) of the Registry of Deeds of Quezon power of attorney duly authenticated at the Philippine Consulate
City, and closely comparing the technical descriptions of General, New York City, N.Y., U.S.A.
the properties covered by the said TCTs. The bare and The non-annotation of the revocation of the Special Power of
sweeping statement of respondent that the properties Attorney on TCT No. RT-18206 is of no consequence as far as the
covered by the two certificates of title are one and the same revocationÊs existence and legal effect is concerned since actual
contains nothing but empty imputation of a fact that could notice is always superior to constructive notice. The actual notice of
hardly be given any evidentiary weight by this Court. the revocation relayed to defendant Registry of Deeds of Quezon
Having arrived at the conclusion that Julian was not City is not denied by either the Registry of Deeds of Quezon City or
conferred by Perla with the authority to mortgage the the defendant Bank. In which case, there appears no reason why
subject property under the terms of the SPA, the real estate Section 52 of the Property Registration Decree (P.D. No. 1529)
mortgages Julian executed over the said property are should not apply to the situation. Said Section 52 of P.D. No. 1529
therefore unenforceable. provides:

„Section 52. Constructive notice upon registration.·Every conveyance,

_______________
mortgage, lease, lien, attachment, order, judgment, instrument or entry
18 Vol. II, p. 60. affecting registered land shall, if registered, filed or entered in the
Office of the Register of Deeds for the province or city where the land to
457 which it relates lies, be constructive notice to all persons from the

458
VOL. 528, JULY 27, 2007 457
Mercado vs. Allied Banking Corporation 458 SUPREME COURT REPORTS ANNOTATED

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Mercado vs. Allied Banking Corporation 19 Rollo, pp. 80-81.

time of such registering, filing or entering. (Pres. Decree No. 1529, 459
Section 53) (emphasis ours)
VOL. 528, JULY 27, 2007 459
It thus developed that at the time the first loan transaction with
defendant Bank was effected on December 12, 1996, there was on Mercado vs. Allied Banking Corporation
record at the Office of the Register of Deeds of Quezon City that the
special power of attorney granted Julian, Sr. by Perla had been ered by TCT No. 106338, registered with the Registry of
revoked. That notice, works as constructive notice to third parties of Deeds of Pasig (now Makati) referred to in the SPA, and
its being filed, effectively rendering Julian, Sr. without authority to the subject property, covered by TCT No. 18206 (106338)
act for and in behalf of Perla as of the date the revocation letter was registered with the Registry of Deeds of Quezon City, are
received by the Register of Deeds of Quezon City on February 7, one and the same property. From the foregoing, respondent
19
1996.‰ concluded that Julian was indeed authorized to constitute a
mortgage over the subject property.
Given that Perla revoked the SPA as early as 10 March
We are unconvinced. The property listed in the real
1993, and that she informed the Registry of Deeds of
estate mortgages Julian executed in favor of PNB is the
Quezon City of such revocation in a letter dated 23 January
one covered by „TCT#RT-18206(106338).‰ On the other
1996 and received by the latter on 7 February 1996, then
hand, the Special Power of Attorney referred to TCT No.
third parties to the SPA are constructively notified that the
„RT-106338–805 Square Meters of the Registry of Deeds of
same had been revoked and Julian no longer had any
Pasig now Makati.‰ The palpable difference between the
authority to mortgage the subject property. Although the
TCT numbers referred to in the real estate mortgages and
revocation may not be annotated on TCT No. RT-18206
JulianÊs SPA, coupled with the fact that the said TCTs are
(106338), as the RTC pointed out, neither the Registry of
registered in the Registries of Deeds of different cities,
Deeds of Quezon City nor respondent denied that PerlaÊs 23
should have put respondent on guard. RespondentÊs claim
January 1996 letter was received by and filed with the
of prudence is debunked by the fact that it had
Registry of Deeds of Quezon City. Respondent would have
conveniently or otherwise overlooked the inconsistent
undoubtedly come across said letter if it indeed diligently
details appearing on the face of the documents, which it
investigated the subject property and the circumstances
was relying on for its rights as mortgagee, and which
surrounding its mortgage.
significantly affected the identification of the property
The final issue to be threshed out by this Court is 20
being mortgaged. In Arrofo v. Quiño, we have elucidated
whether the respondent is a mortgagee-in-good faith.
that:
Respondent fervently asserts that it exercised reasonable
diligence required of a prudent man in dealing with the „[Settled is the rule that] a person dealing with registered lands [is
subject property. not required] to inquire further than what the Torrens title on its
Elaborating, respondent claims to have carefully verified face indicates. This rule, however, is not absolute but admits of
JulianÊs authority over the subject property which was exceptions. Thus, while it is true, x x x that a person dealing
validly contained in the SPA. It stresses that the SPA was with registered lands need not go beyond the certificate of
annotated at the back of the TCT of the subject property. title, it is likewise a well-settled rule that a purchaser or
Finally, after conducting an investigation, it found that the mortgagee cannot close his eyes to facts which should put a
property cov- reasonable man on his guard, and then claim that he acted
in good faith under the belief that there was no defect in the
_______________ title of the vendor or mortgagor. His mere refusal to face up the

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fact that such defect exists, or his willful closing of his eyes to the mortgagee-bank. As such, unlike private individuals, it is expected
possibility of the existence of a defect in the vendorÊs or mortgagorÊs to exercise greater care and prudence in its dealings, including
title, will not make him an innocent purchaser for value, if it after- those involving registered lands. A banking institution is expected
to exercise due diligence before entering into a mortgage contract.
_______________ The ascertainment of the status or condition of a property offered to
it as
20 G.R. No. 145794, 26 January 2005, 449 SCRA 284.

_______________
460
21 G.R. No. 157002, 29 July 2005, 465 SCRA 356.
460 SUPREME COURT REPORTS ANNOTATED 22 Id., at pp. 368-369.
23 429 Phil. 225; 379 SCRA 490 (2002).
Mercado vs. Allied Banking Corporation
461
wards develops that the title was in fact defective, and it appears
that he had such notice of the defect as would have led to its
discovery had he acted with the measure of precaution which may VOL. 528, JULY 27, 2007 461
be required of a prudent man in a like situation.‰ Mercado vs. Allied Banking Corporation

By putting blinders on its eyes, and by refusing to see the security for a loan must be a standard and indispensable part of its
24
patent defect in the scope of JulianÊs authority, easily operations.‰
discernable from the plain terms of the SPA, respondent
cannot now claim to be an innocent mortgagee.
21
Hence, considering that the property being mortgaged by
Further, in the case of Abad v. Guimba, we laid down Julian was not his, and there are additional doubts or
the principle that where the mortgagee does not directly suspicions as to the real identity of the same, the
deal with the registered owner of real property, the law respondent bank should have proceeded with its
requires that a higher degree of prudence be exercised by transactions with Julian only with utmost caution. As a
the mortgagee, thus: bank, respondent must subject all its transactions to the
most rigid scrutiny, since its business is impressed with
„While [the] one who buys from the registered owner does not need public interest and its fiduciary character requires high
25
to look behind the certificate of title, one who buys from [the] one standards of integrity and performance. Where
who is not [the] registered owner is expected to examine not only respondent acted in undue haste in granting the mortgage
the certificate of title but all factual circumstances necessary for loans in favor of Julian and disregarding the apparent
[one] to determine if there are any flaws in the title of the defects in the latterÊs authority as agent, it failed to
transferor, or in [the] capacity to transfer the land. Although the discharge the degree of diligence required of it as a banking
instant case does not involve a sale but only a mortgage, the same corporation.
rule applies inasmuch as the law itself includes a mortgagee in the Thus, even granting for the sake of argument that the
22
term „purchaser.‰ subject property and the one identified in the SPA are one
and the same, it would not elevate respondentÊs status to
This principle is applied more strenuously when the
that of an innocent mortgagee. As a banking institution,
mortgagee is a bank or a banking institution. Thus, in the
23 jurisprudence stringently requires that respondent should
case of Cruz v. Bancom Finance Corporation, we ruled:
take more precautions than an ordinary prudent man
„Respondent, however, is not an ordinary mortgagee; it is a should, to ascertain the status and condition of the
properties offered as collateral and to verify the scope of
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the authority of the agents dealing with these. Had Consequently, the foreclosure proceedings and the auction
respondent acted with the required degree of diligence, it sale of the subject property conducted in pursuance of these
could have acquired knowledge of the letter dated 23 unenforceable contracts are null and void. This, however, is
January 1996 sent by Perla to the Registry of Deeds of without prejudice to the right of the respondent to proceed
Quezon City which recorded the same. The failure of the against Julian, in his personal capacity, for the amount of
respondent to investigate into the circumstances the loans.
surrounding the mortgage of the subject property belies its WHEREFORE, IN VIEW OF THE FOREGOING, the
contention of good faith. instant petition is GRANTED. The Decision dated 12
On a last note, we find that the real estate mortgages October 2005 and its Resolution dated 15 February 2006
constituted over the subject property are unenforceable and rendered by the Court of Appeals in CA-G.R. CV No. 82636,
not null and void, as ruled by the RTC. It is best to are hereby REVERSED. The Decision dated 23 September
reiterate that the said mortgage was entered into by Julian 2003 of the Regional Trial Court of Quezon City, Branch
on behalf of 220, in Civil Case No. Q-99-37145, is hereby REINSTATED
and AFFIRMED with modification that the real estate
_______________ mortgages constituted over TCT No. RT – 18206 (106338)
are not null and void but UNENFORCEABLE. No costs.
24 Id., at p. 239; p. 505.
25 THE GENERAL BANKING LAW OF 2000, Section 2.
_______________

462 26 Article 1403, Civil Code of the Philippines.

27 Article 1317, Civil Code of the Philippines.
462 SUPREME COURT REPORTS ANNOTATED
463
Mercado vs. Allied Banking Corporation
VOL. 528, JULY 27, 2007 463
Perla without the latterÊs authority and consequently,
unenforceable under Article 1403(1) of the Civil Code. Agfha, Incorporated vs. Court of Tax Appeals
Unenforceable contracts are those which cannot be
enforced by a proper action in court, unless they are SO ORDERED.
ratified, because either they are entered into without or in
excess of authority or they do not comply with the statute Ynares-Santiago (Chairperson), Austria-Martinez
of frauds or both of the contracting parties do not possess and Nachura, JJ., concur.
26
the required legal capacity. An unenforceable contract
Petition granted, judgment and resolution reversed. That
may be ratified, expressly or impliedly, by the person in
of trial court reinstated and affirmed with modification.
whose behalf it has been executed,
27
before it is revoked by
the other contracting party. Without PerlaÊs ratification of Note.·Unlike private individuals a mortgagee-bank is
the same, the real estate mortgages constituted by Julian expected to exercise greater care and prudence in its
over the subject property cannot be enforced by any action dealings including those involving registered lands. (Cruz
in court against Perla and/or her successors in interest. vs. Bancom Finance Corporation, 379 SCRA 490 [2002])
In sum, we rule that the contracts of real estate
mortgage constituted over the subject property covered by ··o0o··
TCT No. RT – 18206 (106338) registered with the
Registry of Deeds of Quezon City are unenforceable.

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