G.R. No. 132115 ; January 4, 2002
TEOFILO C. VILLARICO, petitioner, vs. COURT OF APPEALS, DIOSDADO AZARRAGA and LOLITA ACEBO AZARRAGA, respondents.

FACTS

Private respondent spouses Diosdado and Lolita Azarraga owned a house and lot. In August 1985, Lolita obtained a loan from petitioner Teofilo Villarico and mortgaged the property as security. Lolita failed to pay, leading Villarico to extrajudicially foreclose the mortgage. He emerged as the highest bidder, and the title was transferred to his name after the redemption period lapsed. Villarico then filed an ex-parte petition for a writ of possession.
Diosdado Azarraga instituted an action to nullify the real estate mortgage, alleging it was simulated as he did not sign it, being in Malaysia on its execution date, and citing irregularities in the foreclosure. Villarico insisted a man claiming to be Diosdado signed the deed. Lolita, in her answer, admitted receiving only ₱80,000 as a loan and claimed she only signed a blank paper, giving the title as a pledge.

ISSUE

The primary issues are: (1) whether the real estate mortgage is valid, making Villarico a mortgagee-purchaser in good faith; (2) whether the trial court erred in denying the writ of possession; and (3) whether Villarico is liable for attorney’s fees.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The real estate mortgage was declared null and void. For a mortgage to be validly constituted, the consent of the registered owner is indispensable. The evidence conclusively established that Diosdado Azarraga did not sign the mortgage deed. His signature was forged, and he was abroad during its execution. A forged signature renders the entire mortgage contract void ab initio; it produces no legal effect. Consequently, all subsequent proceedings stemming from the void mortgage, including the extrajudicial foreclosure and the certificate of sale, are also void.
Petitioner cannot be considered a mortgagee in good faith. The rule that a mortgagee need not look beyond the certificate of title presupposes a valid transaction. Here, the transaction itself was void due to forgery. Petitioner’s reliance on the title and the representation of the person presented as Diosdado does not constitute good faith when the consent of the true owner was absolutely absent. The writ of possession was correctly denied as it is a mere consequence of a valid foreclosure sale, which did not exist. The award of attorney’s fees was upheld as Diosdado was compelled to litigate to protect his property rights. The Court ordered Lolita to reimburse Villarico for the loan amount received, but the nullity of the mortgage stands, and the property’s title is to be reinstated in Diosdado’s name.