Decision: Bicol Savings and Loan Association v. Court of Appeals, G.R. No. 85302, March 31, 1989

 The pivotal issue is the validity of the extrajudicial foreclosure sale of the mortgaged property instituted by petitioner bank which, in turn hinges on 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.


Article 1879 of the Civil Code, relied on by the Appellate Court in ruling against the validity of the extrajudicial foreclosure sale, reads:


Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell.


We find the foregoing provision inapplicable herein.


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. Absent that default, no foreclosure results. 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 (Perez v. Philippine National Bank, No. L-21813, July 30, 1966, 17 SCRA 833, 839).


The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on the authorization in the deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: 

  1. to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; 

  2. to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and 

  3. to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency. 


It is this right of extrajudicial foreclosure that petitioner bank had availed of, a right that was expressly upheld in the same case of Perez v. Philippine National Bank (supra), which explicitly reversed the decision in Pasno v. Ravina (54 Phil. 382) requiring a judicial foreclosure in the same factual situation. The Court in the aforesaid PNB case pointed out that the ruling in the Pasno case virtually wiped out the third alternative, which precisely includes extrajudicial foreclosure, a result not warranted by the text of the Rule.


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.


Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property, merely availed of a right conferred by law. The auction sale that followed in the wake of that foreclosure was but a consequence thereof.


WHEREFORE, the Decision of respondent Court of Appeals in CA-G.R. CV No. 02213 is SET ASIDE, and the extrajudicial foreclosure of the subject mortgaged property, as well as the Deeds of Sale, the registration thereof, and the Writ of Possession in petitioner bank's favor, are hereby declared VALID and EFFECTIVE.


SO ORDERED.

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