Mortgage valid through succession

Mortgage valid through succession | Daily Tribune

Remember my article last week, where I wrote that a special power of attorney, as a general rule, expires upon the death of either principal or agent? In that particular case, the principal died even before the mortgage was contracted by the agent. Accordingly, the Supreme Court declared that the mortgage was void, as she had no authority anymore to hand over the principal’s property as collateral. However, the Highest Court qualified that the agent-mortgagor was still liable, not under the principle of agency but of succession.

Here is how it discussed the issue:

“It is worth noting that Jessica executed the real estate mortgage to secure a credit line that was her personal liability to SMFI. The Court finds that the real estate mortgage and foreclosure sale are not entirely void; they remain valid with respect to Jessica’s undivided share in the subject property as a legal heir of Meliton. Under Article 2085 of the Civil Code, the essential requisites of a contract of mortgage are: (a) that it be constituted to secure the fulfillment of a principal obligation; (b) that the mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons constituting the mortgage have the free disposal of their property, and in its absence, that they be legally authorized for the purpose.

“In this regard, it bears emphasis that at the time Jessica executed the real estate mortgage, Meliton was already deceased. By reason of his death, Jessica had automatically become a co-owner of the property she mortgaged. As a co-owner, Jessica had full ownership of her share or interest in the property, including the authority to mortgage it, as affirmed by Article 493 of the Civil Code, which states: Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it and even substitute another person in its enjoyment, except when personal rights are involved.

“But the effect of the alienation or mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. Hence, when Jessica executed the real estate mortgage over the property in her personal capacity, she effectively encumbered her undivided share to secure her obligation to SMFI. Consequently, the mortgage and the foreclosure sale in favor of SMFI are valid, but only to the extent of Jessica’s share in the property.

“In connection with this, the Court notes that the RTC held that Felicidad, Decelyn, and Jessica are each entitled to inherit one-third (1/3) of Meliton’s one-half (1/2) share in the property. The RTC appears to have assumed that Felicidad, Decelyn, and Jessica are the only heirs of Meliton and that the latter died intestate. Hence, the case should be remanded to the RTC to determine Jessica’s share in the property and to annotate Meliton’s TCT with the respective shares of his heirs, as well as the share of SMFI which acquired Jessica’s interest.”

I also hasten to add that the moment a person dies, ownership of his properties is automatically conferred upon his heirs. There is neither a judicial nor an administrative process necessary for the latter to own them. So the agent-mortgagor in the case above became the absolute owner of the portion of the property she inherited from her father upon the latter’s death. Verily, she had the right and power to mortgage the property, but only her portion of it.

Interesting, is it not? Here you have a situation which started out as a mortgage through a special power of attorney, but ended with a valid collateral through succession.

The facts and redacted portion of the decision are from G.R. No. 260071 (7 May 2025).