Vicente was the
owner of a real property in Davao City. He executed a Special Power of
Attorney (SPA) in favor of his sister Nanette. Using the
authorization given to her, Nanette applied for a loan with BAP and used Vicente's
property as collateral. The loan was for the improvement of the facilities
of her business, the Holy Infant Medical Clinic.
Upon approval of
the loan, the amount of P900,000.00, representing the loan proceeds, was
ordered to be released to the clinic through Security Bank. When the loan
obligation became due, BAP sent demand letters. In a letter, Nanette and
Eleanor's brother Jesus Luntao wrote BAP, asking for additional time to settle
his sisters’ accounts.
However, Nanette's
loan was still left unpaid. As a result, BAP applied for Extra-Judicial
Foreclosure of Vicente's property. The Regional Trial Court (RTC) issued a Notice
of Foreclosure and a Notice of Extrajudicial Sale.
Subsequently,
Vicente and Nanette filed a Complaint for Declaration of Nullity of Real Estate
Mortgage with a prayer for the issuance of a Temporary Restraining Order and
Writ of Preliminary Injunction against BAP. Nanette alleged that the documents
brought to her were all blank forms and that she signed the forms on the
understanding that it was part of the bank's standard operating procedure. Vicente
and Nanette claimed that Eleanor's alleged debt with BAP was separate from
Nanette's debt and was not secured by Vicente's property, which should not be
foreclosed if Eleanor failed to pay her alleged debt.
RTC dismissed the
complaint for lack of merit. It found that Nanette and Eleanor filed a loan application
with BAP on behalf of the clinic. The trial court gave weight to Jesus' letter.
It held that Jesus admitted the existence of the debt, that the loan was
obtained in behalf of the clinic, and that the money was used according to its
intended purpose. The statements of Jesus were not rebutted by Vicente or
Eleanor.
Finally, the trial
court held that there was no evidence presented to support the allegation that
the mortgage was void. Vicente and Nanette elevated the case to the Court
of Appeals (CA). CA rendered a Decision denying the appeal and affirming
the decision of RTC.
Q: Is the Court of Appeals’ correct in affirming
the RTC’s Decision? Should the Real Estate Mortgage executed by Vicente L.
Luntao and Nanette L. Luntao not be nullified?
Yes, the Court of
Appeals is correct in affirming the RTC’s Decision. The Real Mortgage executed
by Vicente L. Luntao and Nanette L. Luntao should not be nullified.
As an accessory
contract, a mortgage contract's validity depends on the loan contract's
validity. It is, thus, imperative to determine if the contract of loan
between petitioners and private respondent is valid. In Pentacapital
Investment Corporation v. Mahinay, it was held that "like
any other contract, a contract of loan is subject to the rules governing the
requisites and validity of contracts in general."
The elements of a valid contract are
enumerated in Article 1318 of the Civil Code:
ARTICLE 1318. There is no contract
unless the following requisites concur:
(1) Consent of the
contracting parties;
(2) Object certain
which is the subject matter of the contract;
(3) Cause of the
obligation which is established.
In this case, all
of the above elements are present in a contract, hence, it was perfected. Petitioners
insisted that the contract was not consummated since they did not receive the
loan proceeds, which is the object of the loan contract, and therefore, null
and void. The principal contact being void, the accessory contract of mortgage
was also null and void. However, petitioners received the proceeds
of the loan through the account under the name of Holy Infant Medical Clinic/Nanette
Luntao/Eleanor Luntao as presented with evidences. Petitioners failed to
present rebuttal evidence as their presentation were mere denials.
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