Facts:
Domingo Lao and Estrella Lao, during their marriage, acquired a real property worth 1.5M including improvements. The property was mortgaged with Metrobank at the time they separated. After full payment of the mortgage, Estrella was able to obtain her own copy of the property title. The property was leased by Domingo to Filmart and learned that the title to the property was already cancelled and a new one was issued in the name of Villena spouses when the Villena came to visit the property and informed the tenants that they are the new property owners. Estrella was at that time in dire need of money and the Malanas spouses approached her and introduced themselves as agents of Carlos Villena who is willing to grant her a loan. Carlos Villenas required Estrella to obtain a Special Power of Attorney from Domingo and his son Ernesto who are also named in the title as owners of the property. Estrella admitted it would be difficult to obtain the SPA because she and her husband are not on good and speaking terms. The Malana spouses however assured her that they could help her obtain the SPA. 3 days after they returned to Villena with the SPA and was able to secure the loan. Upon failure of Estrella to pay, Carlos Villena effected an extrajudicial foreclosure of the property and a new certificate of title was issued in favor of the Villena spouses. Domingo filed a complaint for the annulment of the SPA, mortgage and extrajudicial foreclosure, cancellation of the TCT and reconveyance of title.
The lower court ruled in favor of Domingo and ordered spouses Villena and Malanas together with Estrella to jointly and severally pay for damages and litigation costs to Domingo while Villena can recover the indebtedness of Estrella through an ordinary suit. In its modified judgment the court further ordered the Villenas to vacate the premises and a new Cert. of title to be issued to Domingo and Estrella Lao with 20% share to Ernesto Lao.
On appeal, the CA reversed the decision declaring the mortgage and foreclosure sale valid and ordered the transfer of the title to the Villena spouses. It held that the respondents are mortgagees in good faith and not privy to the forgery of the SPA and the petitioner was negligent to entrust the title to Estrella.
Issue: Whether or not the Villena spouses are mortgagees in good faith?
Ruling:
The court ruled that it was established that the Malana spouses are the agent brokers of Villena and not of Estrella. The court believes that the Malanas and Villena are business partners in credit financing. They were the ones who approached Estrella and offered the loan to be financed by Villena. Estrella informed Carlos Villena about the difficulty of securing the signature of Domingo yet they pursue the offer of loan with the Malanas helping to secure the SPA. Estrella was just asked to sign a black SPA with her signature affixed on the portion stating “with my marital consent.” She did not read and understand the document. They took advantage of her dire need for money at that time. The participation of the Malanas extends beyond as mere witness to the mortgage while Villena was aware of the situation. Estrella as a co-owner is entitled to obtain her own copy of the title of the property thus she can’t be denied to secure her own title. The court has reason to believe that Villena feign his innocence on the flawed character of the SPA contending that as a legitimate businessman he should exercise due diligence to consider the fact dealing with a conjugal property of an estranged wife. The NBI also confirmed that the signatures of Domingo and Ernesto are forged. Therefore the mortgage contract is deemed to be invalid and likewise the foreclosure is also invalid. A holder in bad faith of a certificate of title is not entitled to the protection of the law, for the law can not be used as a shield for fraud. The court revived and affirmed the lower court decision.
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