III7 BANK OF COMMERCE v.

SAN PABLO

FACTS
Santos obtained a loan from Direct Funders in the amount
of P1,064,000. As a security for the loan, Natividad
executed a SPA in favor of Santos, authorizing the latter
to mortgage to Direct Funders a paraphernal real property
registered under her name.
In the Deed of REM, Sps San Pablo signed as comortgagors of Santos. It is clear between the parties that
loan obligation was for the sole benefit of Santos and the
deed was merely to accommodate the latter.
Prudencio (hubby)& Santos were close friends &business
associates. Prudencio was an incorporator & member of
BOD of Intergems where Santos acted as Pres.
Sps San Pablo received letter from Direct Funders
informing that Santos failed to pay his loan obligation.
Santos settled obligation the ff month.
Upon learning of Santos settlement of its obligation, Sps
San Pablo demanded from Santos to turn over to them
the TCT of the subject property but Santos failed to do so
despite repeated demands. Such refusal prompted Sps to
inquire the status of TCT w/ Register of Deeds of
Mandaue City and they discovered that property was
again used by Santos as collateral for another loan
obligation from Bank of Commerce.
In the annotation stamped at the back of title, Sps
purportedly authorized Santos to mortgage the subj
property to Bank of Commerce as evidenced by SPA
allegedly signed by Natividad (wife). Further shown that
Sps San Pablo signed a Deed of REM over subj property
in favor of Bank of Commerce which they never did.
Sps filed a Complaint seeking for the Quieting of Title and
Nullification of SPA and Deed of REM w/ prayer for
damages against Santos and Bank of Commerce before
MTC Mandaue.
-claimed that their signatures on SPA and Deed of
REM were forged.
-while the loan w/ Direct Funders was obtained
with their consent and direct participation, they never
authorized subsequent loan w/ Bank of Commerce.
During the pendency of the case, Bank of Commerce
initiated the foreclosure proceedings for non-payment of
loan. It emerged as the highest bidder and cert of sale was
issued to them.
Sps amended their complaint to include prayer for
annulment of the foreclosure sale.
Santos: loan w/ Bank of Commerce was deliberately
resorted to w/ consent, knowledge and direct
participation of sps in order to pay off obligation w/
Direct Funders. And it was Prudencio who caused
preparation of SPA, together w/ Santos, went to Bank of

Commerce in Cebu to apply for the loan; that sps were

receiving consideration from Intergems for extending
accommodation transactions.
Bank of Commerce: Sps, represented by atty-in-fact,
Santos, together with Intergem obtained a loan. It denied
allegation that SPA and Deed of REM were spurious.
During the trial, Barbarona, Jr., Manager of BOC testified
that sps personally signed Deed of REM in his presence.
But expert witness attested that signatures of sps were
forged.
MTC: dismissed complaint; signatures were forged, BOC
was nevertheless in good faith.
RTC: affirmed MTC; MFR of sps, DENIED.
CA: granted pet of sps and reversed MTC & RTC.
-since signatures were forged, documents never
become a valid source of title. Mortgage contract
executed by Santos in favor of BOC w/o authority of sps,
was unenforceable unless ratified.
Hence this pet by BOC.
ISSUE
Whether Bank of Commerce is a mortgagee in good faith.
HELD
NO. In cases where the mortgagee does not directly deal
with registered owner of real property, law requires that a
higher degree of prudence be exercised by mortgagee.
Bank of Commerce failed to observe the required caution
in ascertaining the genuineness and extent of the authority
of Santos to mortgage the subj property. It should not have
simply relied on the face of 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 real prop being mortgaged should have already
raised a red flag and which should have induced BOC to
make inquiries into and confirm Santos authority to
mortgage sps property.
BOC is not entitled to the protection of its rights to the subj
property since it is not a mortgagee in good faith.
Petition DENIED.
**Other facts/ruling
1. Jurisdiction BOC raised for the first time in more than
10 years the issue of jurisdiction. Subj matter is incapable
of pecuniary estimation, complaint for quieting of title and
annulment of SPA, Deed of REM and foreclosure should
have been filed w/ RTC not MTC. Court ruled that case
filed by sps before MTC is actually for quieting of title, a

real action, jurisdiction over which is determined by

assessed value of property (4,900); falls under MTC.

BOC is estopped from repudiating the authority of the court

after having actively participated in the proceedings before.

2. Estoppel by laches is failure or neglect for

unreasonable length and unexplained length of time to do,
by exercising due diligence, ought to have done earlier,
warranting the presumption that the party entitled to assert
it has either abandoned it or has acquiesced to the
correctness or fairness of its resolution.

3. Forged SPA or Deed of REM void ab initio. Foreclosure

proceedings is likewise void.
4. It was proper in awarding of moral, exemplary damages,
attys fees.