The Supreme Court held that a real estate mortgage executed based on a forged Special Power of Attorney (SPA) is invalid, but only concerning the shares of co-owners who did not consent to the mortgage. This means a co-owner cannot mortgage the entire property without the express consent of all other co-owners; without it, the mortgage is only valid for the portion belonging to the mortgaging co-owner. The ruling underscores the importance of verifying the authenticity of documents, especially SPAs, in real estate transactions and protects the rights of property owners against unauthorized encumbrances.

Unraveling Authority: Can a Forged Signature Sink a Real Estate Mortgage?

The case of Rural Bank of Cabadbaran, Inc. v. Melecio-Yap revolves around a parcel of land inherited by the Melecio Heirs. Erna Melecio-Mantala, one of the heirs, obtained a loan from Rural Bank of Cabadbaran, Inc. (RBCI) and mortgaged the inherited property, presenting a Special Power of Attorney (SPA) purportedly signed by her siblings authorizing her to do so. When Erna defaulted on the loan, RBCI foreclosed the mortgage. Erna’s siblings contested the foreclosure, claiming the SPA was a forgery, and they had never authorized Erna to mortgage their shares of the property.

The central legal question before the Supreme Court was whether the SPA was indeed a forgery. The court had to determine whether the real estate mortgage, foreclosure, and subsequent proceedings were valid against the siblings who claimed their signatures on the SPA were forged. This involved examining the evidentiary weight of notarized documents and determining the responsibilities of banking institutions in verifying the authenticity of documents presented to them.

The Supreme Court, in its analysis, highlighted the general rule that a notarized document carries significant evidentiary weight regarding its due execution.

“Generally, a notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and documents acknowledged before a notary public have in their favor the presumption of regularity which may only be rebutted by clear and convincing evidence.”

However, this presumption of regularity can be challenged with clear and convincing evidence of irregularity. The Court emphasized that the presumption holds only if the notarization process itself is beyond dispute. In this case, the notarization was called into question.

The respondents presented evidence that the witnesses to the SPA denied appearing before the notary public to witness the signing of the document. Furthermore, the bank failed to present the notary public to authenticate the SPA, weakening the presumption of regularity. Because of the irregularity, the Court applied the preponderance of evidence standard to determine the SPA’s validity, shifting the burden to RBCI to prove the document’s authenticity.

Given the lack of evidence supporting the SPA’s authenticity and the evidence suggesting forgery, the Court sided with the respondents. The Court concluded that the SPA was indeed a forgery, rendering the real estate mortgage invalid to the extent it encumbered the shares of Erna’s siblings. This decision hinged on the principle that a person must be legally authorized to mortgage a property, and a forged SPA does not provide such authorization for co-owners of a property.

The Court clarified that while Erna, as a co-owner, had the right to mortgage her undivided interest in the property, she could not mortgage the entire property without the consent of her co-owners. Article 493 of the Civil Code supports this principle.

“Art. 493. Each co-owner shall have the full ownership of his part of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.”

This means that while Erna’s mortgage was valid for her share, it was not valid for the shares of her siblings who had not consented to it.

The Court also addressed the issue of whether RBCI could be considered a mortgagee in good faith. The Court determined that the principle of mortgagee in good faith typically applies to lands registered under the Torrens system, not unregistered lands like the property in this case. Moreover, the Court stated that banking institutions are expected to exercise greater care and prudence before entering into a mortgage contract. This requires banks to thoroughly investigate the status of properties offered as security for loans.

In this case, RBCI failed to exercise the required caution, considering that Erna only owned a portion of the property. It should not have relied solely on the face of the documents submitted but should have conducted a more thorough investigation to ascertain the genuineness of the SPA. The Court also dismissed RBCI’s argument that the respondents were guilty of laches, an unreasonable delay in asserting a right, and were thus barred from claiming the property. The Court emphasized that the respondents filed their complaint within the prescriptive period provided by law.

Therefore, the Supreme Court ruled that the real estate mortgage and subsequent foreclosure proceedings were valid only to the extent of Erna’s share in the property. The case was remanded to the lower court to determine the exact shares of the respondents and RBCI. The writ of possession issued in favor of RBCI was also set aside pending the determination of the parties’ respective rights.

FAQs

What was the key issue in this case?	The key issue was whether a forged Special Power of Attorney (SPA) could validate a real estate mortgage on a property co-owned by multiple individuals, without the consent of all co-owners.
What did the Court decide regarding the SPA?	The Court found the SPA to be a forgery, based on testimonial evidence and the bank’s failure to prove its authenticity. This invalidated the mortgage to the extent it affected the shares of the co-owners who did not consent.
Was the mortgage entirely invalid?	No, the mortgage was only partially invalid. It remained valid to the extent of the share belonging to Erna, the co-owner who executed the mortgage based on the forged SPA.
What is a mortgagee in good faith?	A mortgagee in good faith is one who conducts due diligence in verifying the validity of a mortgage. However, the Court ruled that RBCI could not claim this status due to its failure to properly investigate the SPA’s authenticity.
What does the principle of co-ownership entail?	Co-ownership means that multiple individuals own undivided shares in a property. One co-owner cannot mortgage the entire property without the express consent of all other co-owners.
What is the significance of Article 493 of the Civil Code in this case?	Article 493 allows a co-owner to mortgage their undivided interest in a property but limits the effect of such mortgage to the portion that may be allotted to them upon the termination of the co-ownership.
What does ‘laches’ mean, and how did it apply to this case?	Laches refers to an unreasonable delay in asserting a legal right, which can bar relief. The Court found that the respondents were not guilty of laches as they filed their complaint within the prescriptive period.
What was the outcome of the case?	The Supreme Court affirmed the CA’s decision with modifications, declaring the mortgage partially invalid and ordering the case to be remanded to the lower court to determine the specific shares of the parties.

This case serves as a crucial reminder of the importance of verifying the authenticity of documents in real estate transactions. It highlights the need for banks and lending institutions to exercise a high degree of diligence in assessing the validity of mortgages, particularly when dealing with co-owned properties. Protecting the rights of property owners against unauthorized encumbrances requires vigilance and adherence to legal requirements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

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: Rural Bank of Cabadbaran, Inc. v. Melecio-Yap, G.R. No. 178451, July 30, 2014