Legal but inequitable

Sometimes, courts will not recognize a legal right or apply the law because it results in a clearly inequitable situation. In such cases, they apply the equity principle of laches which is the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. This is the principle applied in the case of the spouses Lorna and her husband Nestor.

Lorna executed a special power of attorney in favor of her daughter Tita authorizing the latter to contract a loan from a bank (BPI) in an amount of not more than P300,000 and to mortgage her two lots covered by TCT Nos. 12304 and 11621. For approval of the loan, Lorna also executed an affidavit of non-tenancy.

So the bank loaned Tita P100,000 covered by two promissory notes secured by a real estate mortgage over Lorna’s two properties. The mortgage was signed by Tita and her husband as mortgagors in their individual capacities without stating that Tita was executing it for and in behalf of Lorna.

For failure to pay the loan, the bank foreclosed the mortgage in an auction sale conducted on September 18, 1991, notice of which was sent to Lorna and her husband Nestor. The latter’s lawyer wrote back requesting the bank to postpone the scheduled auction sale. But the bank ignored said request and proceeded with the auction wherein it was the highest bidder for P160,000. Subsequently the bank consolidated its titles and obtained new ones in its name after the redemption period lapsed without any action from Lorna and Nestor.

More than 5 years later or on September 10, 1996 Tita wrote the bank in behalf of Lorna expressing intent to repurchase the properties for P250,000 and proposed terms of payment. The bank refused the offer and asked for P500,000 as purchase price payable in cash not on terms. But it nevertheless gave Lorna and Nestor the chance to buy back the properties by joining a bidding to be set on some further date.

Instead however, Lorna and Nestor filed a complaint for annulment of mortgage and extrajudicial foreclosure with damages before the Regional Trial Court. They contended that they could not be bound by the real estate mortgage executed by Tita unless it is shown that the same was made and signed for and in their names as principal, otherwise the Tita may be deemed to have acted on her own and the mortgage is void. Were they correct?

Yes. but their action should nevertheless be dismissed. It is really a general rule in the law of agency that 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 merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal.

But notwithstanding the nullity of the real estate mortgage executed by Tita and her husband, the equity principle of laches is applicable in this case. Its essential elements are: (1) conduct on the part of the defendant (the bank in this case) giving rise to the situation complained of; (2) delay in asserting complainant’s (Lorna and Nestor in this case) right after they had knowledge of defendant’s conduct and after they had an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant.

In this case Lorna and Nestor could have filed to annul the mortgage on these properties but for unexplained reasons, they failed to do so. They only questioned the loan and mortgage transaction in December 1996 or after the lapse of more than 5 years from foreclosure sale. The real estate mortgage was registered and annotated in their titles and they were even informed of the extrajudicial foreclosure and the scheduled auction. Instead of impugning the mortgage and opposing the scheduled auction, their lawyer wrote the bank asking for the postponement of the scheduled auction. Even after 5 years, they still failed to oppose the foreclosure and subsequent transfer of titles to the bank when their agent Tita in behalf of Lorna wrote the bank proposing to buy back the properties. It was only when the negotiations failed that Lorna and Nestor filed the instant case. Clearly they slept on their rights (Far East Bank (BPI) vs. Spouses Cayetano, G.R. No. 179909, Jan. 25, 2010.

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Note: Books containing compilation of my articles on Labor Law and Criminal Law (Vols. I and II) are now available. Call Tel. 7249445.

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