BANK OF COMMERCE, Petitioner,vs. SPS. PRUDENCIO SAN PABLO, JR., and NATIVIDAD O. SAN PABLO, Respondents. /G.R. No. 167848 /April 27, 2007
FACTS:
In this case, Santos obtained a loan from Direct Funders Management and Consultancy Inc., (Direct Funders) in the amount of ₱1,064,000.40.5 on Dec 20,1994.
As a security for the loan obligation, Natividad executed a SPA in favor of Santos, authorizing the latter to mortgage to Direct Funders a paraphernal real property registered under her name and covered by Transfer Certificate of Title. It executed in favor of Direct Funders, Natividad and her husband, Prudencio, signed as the co-mortgagors of Santos. It was clear between the parties that the loan obligation was for the sole benefit of Santos and the spouses San Pablo merely signed the deed in order to accommodate the former. This accommodation transaction was made possible because Prudencio and Santos were close friends and business associates.
Later on, the spouses San Pablo received a letter from Direct Funders informing them that Santos failed to pay his loan obligation with the latter. When confronted with the matter, Santos promised to promptly settle his obligation with Direct Funders. The spouses San Pablo demanded from Santos to turn over the TCT upon learning that the debt of Santos with Direct Funders had been fully settled. But the latter failed to do so despite repeated demands. Hence, the refusal prompted the spouses San Pablo to inquire as to the status of the TCT of the subject property with the Register of Deeds.
Upon inquiring, they discovered that the property was again used by Santos as collateral for another loan obligation he secured from the Bank of Commerce. At the back of the title, there was an annotation that the spouses San Pablo signed a Deed of Real Estate Mortgage over the subject property in favor of Bank of Commerce, and purportedly authorized Santos to mortgage the subject property to the Bank of Commerce which they never did.
In order to free the subject property from unauthorized encumbrances, the spouses filed a complaint seeking for the Quieting of Title and Nullification of the SPA and the deed of real estate mortgage with the prayer for damages against Santos and the Bank of Commerce before the MTC.
In their complaint, the spouses San Pablo claimed that their signatures on the SPA and the Deed of Real Estate Mortgage allegedly executed to secure a loan with the Bank of Commerce were forged. They claimed that while the loan with the Direct Funders was obtained with their consent and direct participation, they never authorized the subsequent loan obligation with the Bank of Commerce.
During the pendency of the case, the Bank of Commerce, for non-payment of the loan, initiated the foreclosure proceedings on the strength of the contested Deed of Real Estate Mortgage. Santos countered that the loan with the Bank of Commerce was deliberately resorted to with the consent, knowledge and direct participation of the spouses San Pablo in order to pay off the obligation with Direct Funders.
The Bank of Commerce filed an Answer with Compulsory Counterclaim denied the allegation advanced by the spouses San Pablo that the SPA and the Deed of Real Estate Mortgage were spurious. Since the loan already became due and demandable, the Bank of Commerce sought the foreclosure of the subject property. During the trial, Anastacio Barbarona, Jr., the Manager of the Bank of Commerce, Cebu City Branch, testified that the spouses San Pablo personally signed the Deed of Real Estate Mortgage in his presence.
The testimony of a document examiner and a handwriting expert, however, belied this claim. The expert witness, after carefully examining the loan documents with the Bank of Commerce, attested that the signatures of the spouses San Pablo on the SPA and the Deed of Real Estate Mortgage were forged.
The MTC rendered a Decision,dismissing the complaint for lack of merit. The MTC declared that while it was proven that the signatures of the spouses San Pablo on the loan documents were forged, the Bank of Commerce was nevertheless in good faith. There was motion for Reconsideration filed by the spouses San Pablo which was denied by the RTC for lack of merit.
The appellate court granted the petition filed by the spouses San Pablo and reversed the decisions. The Court of Appeals ruled that since it was duly proven that the signatures of the spouses San Pablo on the loan documents were forged, then such spurious documents could never become a valid source of title. The mortgage contract executed by Santos over the subject property in favor of Bank of Commerce, without the authority of the spouses San Pablo, was therefore unenforceable, unless ratified.
Issue:
Whether or not the forged SPA and Special Power of Attorney could become a valid source of a right to foreclose a property
Ruling:
"ART. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet the title, An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein."
However, the Supreme Court ruled that Bank of Commerce is estopped from repudiating the authority of the court to try and decide the case after having actively participated in the proceedings before it and... invoking its jurisdiction by seeking an affirmative relief therefrom. The annotation on the Spouses San Pablo’s TCT, constitutes a cloud on their title to the subject property, which may, at first, appear valid and effective, but is allegedly invalid or voidable for having been made without their knowledge and authority as registered owners.
Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security, and in the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake further investigation. This doctrine... pre-supposes, however, that the mortgagor, who is not the rightful owner of the property, has already succeeded in obtaining Torrens title over the property in his name and that, after obtaining the said title, he succeeds in mortgaging the property to another who relies on what... appears on the title. This is not the situation in the case at bar since Santos was not the registered owner for he merely represented himself to be the attorney-in-fact of the spouses San Pablo. In cases where the mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee.
This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the country's economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of... every civilized nation... the highest degree of diligence is expected, and high standards of integrity and performance are even required, of it.
The Bank of Commerce clearly failed to observe the required degree of caution in ascertaining the genuineness and extent of the authority of Santos to mortgage the subject property. It should not have simply relied on the face of the documents submitted by Santos, as its... undertaking to lend a considerable amount of money required of it a greater degree of diligence That the person applying for the loan is other than the registered owner of the real property being mortgaged should have already raised a red flag and which should have induced the Bank of Commerce to make inquiries into and confirm Santos' authority to mortgage the Spouses San Pablo's property A person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable person is not an innocent purchaser for... value.
Thus, it ruled that the forged SPA and Deed of Real Estate Mortgage is void ab initio. Consequently, the foreclosure proceedings conducted on the strength of the said SPA and Deed of Real Estate Mortgage, is likewise void ab initio. Since... the Bank of Commerce is not a mortgagee in good faith or an innocent purchaser for value on the auction sale, it is not entitled to the protection of its rights to the subject property. Hence, the instant petition is denied.
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