Facts

• Respondent Ederlinda M. Gallardo (the principal) owned a parcel of land in Las Piñas. She executed a special power of attorney in favour of Rufino S. Aquino (the agent), authorising him to secure a loan from any bank or lending institution and, for that purpose, to mortgage the land.
• Aquino obtained loans from petitioner Rural Bank of Bombon (the third person) and executed a Deed of Real Estate Mortgage over Gallardo's property.
• The deed, however, was executed in Aquino's own name — describing him as the mortgagor — and secured his own personal indebtedness to the bank, incurred for his own account. (The power of attorney let him mortgage the land only to secure a loan for his principal; nothing on the face of the mortgage said he was signing for Gallardo, so the deed showed neither her name nor her debt.)
• When Gallardo learned of the transaction, she and her husband sued to annul the mortgage.
• The bank defended on the strength of the special power of attorney, arguing that Aquino was authorised to mortgage the property.
• Trial court — initially for the bank. The trial court initially upheld the bank's position.
• Court of Appeals — mortgage declared void. The Court of Appeals reversed and declared the mortgage void, holding that Aquino had acted in his own name and for his own benefit.

Issue

Ruling

Ratio

• Article 1868§ defines agency in terms of acting "in representation or on behalf of another," and Article 1883§ provides that when an agent acts in his own name, the principal has no right of action against the persons with whom the agent contracted, nor they against the principal.
• The two requirements are distinct.
• Aquino held authority to mortgage; what he did not do was exercise it as Gallardo's representative.
• The deed named him as mortgagor.
• Nothing in it disclosed that he was acting for Gallardo or that the property was being encumbered for her account.

• The defect went deeper than nomenclature.
• The obligations secured were Aquino's personal loans, not Gallardo's.
• The special power authorised him to obtain a loan for the principal and to mortgage her property as security for it.
• Using her land to underwrite his own borrowing was outside the authority given — an act neither in her name nor for her benefit.

• A person dealing with an agent is put on inquiry and must discover not merely the fact of the agency but the nature and extent of the authority.
• The bank had the special power of attorney before it.
• Reading it, it should have seen that the loan contemplated was the principal's, and that a mortgage securing the agent's own debts fell outside the grant.
• Having failed to make that elementary examination, the bank cannot claim the protection accorded to one who deals in good faith.

• The mortgage being void, the property could not be foreclosed for Aquino's debts.
• The bank's remedy lies against Aquino personally on the loans he in fact contracted.

Doctrine

• Two requisites for binding the principal. The agent must (a) act within his authority and (b) act in the principal's name. Failure in either respect leaves the principal unbound.
• Article 1883§. Where the agent contracts in his own name, the principal has no action against the third person and the third person none against the principal — the contract binds the agent alone.
• Scope of a special power to mortgage. Authority to mortgage the principal's property to secure the principal's loan does not authorise a mortgage securing the agent's own obligations.
• Duty of inquiry. Third persons — banks especially — must examine the special power of attorney§ and satisfy themselves that the act proposed falls within it.