ONOFRE ANDRES vs. PHILIPPINE NATIONAL BANK G.R. No. 173548 October 15, 2014

The Spouses Victor and Filomena Andres acquired during their marriage a 4,634-square-meter parcel of land in Sto. Domingo, Nueva Ecija. After Victor’s death, his widow, Filomena, and six of their children (Onofre, Roman, Juana, Guillermo, Felisa, and Maxima) agreed in an extrajudicial partition with sale to adjudicate one half of the land to each of them pro indiviso. This document also provides that for 1,000.00, they all sold, transferred, and conveyed to Roman Andres their respective rights and participation to the one-half portion of the property. This was annotated on the title.

Consequently, land title of said land was cancelled, and a new title was issued in the name of Roman Andres and his wife, Lydia Echaus-Andres, under TCT No. NT-57731. Spouses Roman and Lydia Andres mortgaged the property to PNB for 3,000.00. No objection was made, even after the mortgage had been cancelled.

Later, Nueva Ecija Regional Trial Court (RTC) cancelled the guardianship issued in favor of the Security Bank and Trust Company and transferred ownership of the properties of the deceased, Spouses Roman and Lydia Andres, to their only living heir, Reynaldo Andres. TCT No. NT-57731 was consequently cancelled, and title was transferred to the Spouses Reynaldo Andres and Janette de Leon, under TCT No. (NT-239548) NT-7725.

The Spouses Reynaldo Andres and Janette de Leon used this title and mortgaged the property to PNB for a 1.2 million loan. This was without the consent of Onofre Andres.

PNB later foreclosed the property and consolidated title in its name. Petitioner Onofre Andres, the uncle of mortgagors, filed a complaint for cancellation of title and reconveyance of the property alleging that title in mortgagor's name was based on a falsified document denominated as "Self-Adjudication of Sole Heir." PNB denied the material allegations in the complaint. It argued that it conducted an investigation on the property and the title presented to PNB by Reynaldo Andres and his wife was clear and free from adverse claims.

The Regional Trial Court ruled in favor of Onofre Andres by voiding all derivative titles from TCT No. NT-7267. The Court of Appeals modified this decision by declaring as valid and existing TCT No. N-24660 in PNB’s name. CA found that PNB followed the standard practice of banks before approving a loan by sending representatives to inspect the property offered as collateral.

Q: Is PNB an innocent mortgagee for value and in good faith, thus, its right on the property is protected even if the mortgagor obtained title through fraud?

Yes, PNB is an innocent mortgagee for value and in good faith, thus, its right on the property is protected even if the mortgagor obtained title through fraud.

In Cabuhat v. Court of Appeals, it dictates that "when a mortgagee relies upon what appears on the face of a Torrens title and loans money in all good faith on the basis of the title in the name of the mortgagor, only thereafter to learn that the latter’s title was defective, being thus an innocent mortgagee for value, his or her right or lien upon the land mortgaged must be respected and protected, even if the mortgagor obtained her title thereto through fraud."

Further, good faith doctrine applies to innocent mortgagees for value in the 2012 case of Philippine Banking Corporation v. Dy which states that while it is settled that a simulated deed of sale is null and void and therefore, does not convey any right that could ripen into a valid title, it has been equally ruled that, for reasons of public policy, the subsequent nullification of title to a property is not a ground to annul the contractual right which may have been derived by a purchaser, mortgagee or other transferee who acted in good faith.

Furthermore, Section 39 of Act No. 496 provides that every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser (or mortgagee) of registered land who takes a certificate of title for value in good faith, shall hold the same free of all encumbrance except those noted on said certificate.

 

It is a rule that banks, as businesses impressed with public interest, must exercise greater care, prudence, and due diligence in all their property dealings. In this case, PNB complied with the standard operating practice of banks, which met the requisite level of diligence, when it sent its personnel to conduct an ocular inspection of the property and verify the status of its ownership and title. Therefore, PNB is a mortgagee in good faith. The title resulting from the foreclosure sale, therefore, is to be protected. The bank is an innocent purchaser for value.

VICENTE L. LUNTAO AND NANETTE L. LUNTAO v. BAP CREDIT GUARANTY CORPORATION AND EFREN M. PINEDA G.R. No. 204412 September 20, 2017

 

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.