GR 167848; (April, 2007) (Digest)
G.R. No. 167848 ; April 27, 2007
BANK OF COMMERCE, Petitioner, vs. SPS. PRUDENCIO SAN PABLO, JR., and NATIVIDAD O. SAN PABLO, Respondents.
FACTS
Respondent Natividad San Pablo executed a Special Power of Attorney (SPA) in favor of Melencio Santos, authorizing him to mortgage her paraphernal property to secure his loan from Direct Funders. The spouses San Pablo signed the corresponding mortgage deed as co-mortgagors. After Santos settled that loan, the spouses demanded the return of the title but discovered Santos had used the same property to secure a new loan from petitioner Bank of Commerce. This was evidenced by a second SPA and a Deed of Real Estate Mortgage, both purportedly signed by the spouses in favor of the Bank. The spouses filed a complaint for quieting of title, claiming their signatures on the documents for the Bank of Commerce loan were forged and that they never consented to this second transaction. During the case, the Bank foreclosed the mortgage.
ISSUE
Whether the Special Power of Attorney and the subsequent Real Estate Mortgage in favor of Bank of Commerce are valid and binding upon the respondent spouses.
RULING
The Supreme Court affirmed the Court of Appeals’ decision declaring the SPA, the mortgage, and the foreclosure proceedings null and void. The legal logic rests on the principle that a mortgage contract is an accessory contract that derives its existence from a valid principal obligation. The Court found that the principal loan obligation between Santos and the Bank of Commerce was solely for Santos’s benefit, with no consent or participation from the San Pablo spouses. The purported SPA authorizing the mortgage was established to be a forgery. Consequently, there was no valid principal obligation to which the mortgage could attach as far as the spouses were concerned. A mortgage must secure an actual, valid debt; it cannot exist independently. Since the spouses did not receive any loan proceeds and did not consent to the transaction, the mortgage contract was void for lack of a valid principal obligation. The Bank, as a mortgagee, was required to exercise due diligence in verifying the authority of the agent and the genuineness of the signatures, which it failed to do. Therefore, the foreclosure based on a void mortgage was likewise invalid. The Bank was held liable for damages.