The Supreme Court in Conchita Gloria and Maria Lourdes Gloria-Payduan v. Builders Savings and Loan Association, Inc., G.R. No. 202324, June 4, 2018, ruled that a mortgage based on forged documents is void, reaffirming the principle that no rights can arise from fraud. The Court emphasized the importance of due diligence on the part of lending institutions to verify the identities and signatures of mortgagors. This decision protects property owners from losing their land due to fraudulent schemes and highlights the responsibility of financial institutions in ensuring the legitimacy of loan transactions.

When a Loan Turns Foul: Can Forged Signatures Nullify a Mortgage?

This case revolves around a property dispute that began when Conchita Gloria and her daughter, Maria Lourdes Gloria-Payduan, discovered that their land in Quezon City had been fraudulently mortgaged. The petitioners claimed that Benildo Biag deceived them into surrendering their Transfer Certificate of Title (TCT) under the false pretense of verifying it. Instead, Biag used the title to secure a loan from Builders Savings, forging the signatures of both Conchita and her deceased husband, Juan, on the mortgage documents. The lower courts initially sided with the bank, but the Supreme Court ultimately reversed this decision, underscoring the principle that a mortgage based on forgery is invalid and unenforceable.

The heart of the Supreme Court’s decision rested on the principle that a forged document is a nullity and cannot serve as the basis for a valid mortgage. The Court cited Article 1346 of the Civil Code, which states that “An absolutely simulated or fictitious contract is void.” Furthermore, Article 1409 reinforces this, stating that contracts that are absolutely simulated or fictitious are inexistent and void from the beginning. In this case, the evidence clearly showed that Juan Gloria’s signature was forged, as he had already passed away before the mortgage was purportedly executed. Additionally, there was evidence suggesting that Conchita Gloria was deceived into signing the documents, believing they were related to the reconstitution of her title.

The Supreme Court emphasized the responsibility of Builders Savings to exercise due diligence in verifying the authenticity of the mortgage documents and the identities of the mortgagors. The court referenced the ruling in Gatioan vs. Gaffud (27 SCRA 706), stating that “before a bank grants a loan on the security of land, it must undertake a careful examination of the title of the applicant as well as a physical and on the spot investigation of the land offered as a security.” The Court found that Builders Savings failed to conduct a thorough investigation, which would have revealed the inconsistencies and irregularities in the loan application and mortgage documents. Had the bank exercised greater care, it would have discovered that Juan Gloria was deceased and that Conchita Gloria’s signature was obtained through fraudulent means.

The Court also addressed the issue of Maria Lourdes’ standing to sue, as the Court of Appeals questioned whether she was a real party in interest. The Supreme Court clarified that Maria Lourdes, as the daughter and heir of Juan Gloria, had a legitimate interest in the property and could bring an action to protect her inheritance. The Court cited Article 777 of the Civil Code, which provides that “the rights to the succession are transmitted from the moment of the death of the decedent.” This means that upon Juan’s death, his rights as a co-owner of the property passed to his heirs, including Maria Lourdes. Therefore, she had the right to challenge the validity of the mortgage that impaired her interest in the property.

The ruling in this case serves as a reminder to lending institutions to exercise caution and due diligence when processing loan applications and mortgage agreements. Banks and other financial institutions must thoroughly verify the identities of borrowers, examine the authenticity of documents, and conduct on-site inspections of properties offered as security. Failure to do so can result in the invalidation of the mortgage and the loss of the bank’s security interest. This is further supported by the ruling in Rural Bank of Caloocan City vs. CA (104 SCRA 151) which stated that, ‘A contract may be annulled on the ground of vitiated consent, if deceit by a third person, even without connivance or complicity with one of the contracting parties, resulted in mutual error on the part of the parties to the contract.’ The Court also stated that the personal circumstances of the parties involved, ignorance, lack of education and old age, should have placed the bank on prudent inquiry to protect its interest.

The Supreme Court’s decision also highlights the importance of protecting vulnerable individuals from fraudulent schemes. In this case, Conchita Gloria was an elderly and allegedly naïve woman who was easily deceived by Biag. The Court recognized that she was not acting freely and with full understanding when she signed the mortgage documents. This underscores the need for courts to be vigilant in protecting the rights of individuals who may be susceptible to fraud or undue influence.

In conclusion, the Supreme Court’s decision in Gloria v. Builders Savings reaffirms the fundamental principle that a mortgage based on forgery is void. It also emphasizes the importance of due diligence on the part of lending institutions and the protection of vulnerable individuals from fraudulent schemes. This ruling has significant implications for the real estate and banking industries, as it underscores the need for greater vigilance and scrutiny in loan transactions. The ruling also touched on the fact that the mortgagor should have the free disposal of the property mortgaged and in the absence thereof, he should be authorized for the purpose as provided in Art. 2085 of the Civil Code. The court also held that if a forger mortgages another’s property, the mortgage is void. (De Lara vs. Ayroso, 95 Phil. 185)

FAQs

What was the key issue in this case?	The key issue was whether a real estate mortgage based on forged signatures and fraudulent misrepresentation is valid and enforceable.
Who were the parties involved?	The petitioners were Conchita Gloria and Maria Lourdes Gloria-Payduan, and the respondent was Builders Savings and Loan Association, Inc.
What was the role of Benildo Biag?	Benildo Biag was the individual who fraudulently obtained the title from the petitioners and forged the signatures to secure the loan from Builders Savings.
What did the Court of Appeals initially decide?	The Court of Appeals reversed the trial court’s decision and dismissed the petitioners’ complaint, finding procedural infirmities and insufficient evidence of fraud.
What was the Supreme Court’s ruling?	The Supreme Court reversed the Court of Appeals’ decision and reinstated the trial court’s order, declaring the mortgage and promissory note null and void.
Why did the Supreme Court invalidate the mortgage?	The Supreme Court invalidated the mortgage because it was based on forged signatures and fraudulent misrepresentation, making it a simulated and void contract.
What is the significance of due diligence in this case?	The Court emphasized that Builders Savings failed to exercise due diligence in verifying the authenticity of the mortgage documents and the identities of the mortgagors.
What does this case mean for lending institutions?	This case serves as a reminder to lending institutions to exercise caution and due diligence when processing loan applications and mortgage agreements to prevent fraud.
How does this ruling protect property owners?	This ruling protects property owners from losing their land due to fraudulent schemes by ensuring that mortgages based on forgery are deemed invalid and unenforceable.

This case highlights the importance of vigilance in property transactions and the need for financial institutions to conduct thorough due diligence. The Supreme Court’s decision serves as a strong deterrent against fraudulent activities and reinforces the protection of property rights. This decision reinforces the principle that banks and financial institutions should conduct an in-depth investigation and confirm the authority of the mortgagor when the loan applicant is not the registered owner of the real property.

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Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Conchita Gloria and Maria Lourdes Gloria-Payduan, vs. Builders Savings and Loan Association, Inc., G.R. No. 202324, June 04, 2018