G.R. No. 178451 July 30, 2014
RURAL BANK OF CABADBARAN, INC., Petitioner, vs. JORGITA A. MELECIO-YAP, LILIA MELECIO PACIFICO (deceased, substituted by her only child ERILL* ISAAC M. PACIFICO, JR.), REYNALDO A. MELECIO DELOSO, and SARAH MELECIO PALMA-GIL, Respondents.

FACTS

The respondents, along with their sister Erna Melecio-Mantala, are the heirs of the late spouses Isaac and Trinidad Melecio and co-own a residential lot with structures (subject properties). Erna, who resided in the ancestral home, administered the properties. On August 24, 1990, a notarized Special Power of Attorney (SPA) was purportedly executed by the Melecio Heirs, authorizing Erna to apply for a loan and mortgage the subject properties with petitioner Rural Bank of Cabadbaran, Inc. (RBCI). Relying on the SPA, RBCI granted Erna a loan secured by a Real Estate Mortgage over the properties. Erna defaulted, leading RBCI to extrajudicially foreclose the mortgage. RBCI emerged as the highest bidder at the auction sale, and after the redemption period lapsed, new tax declarations were issued in its name. A writ of possession was subsequently issued and enforced. Respondents claimed they only learned of the mortgage and foreclosure later and asserted that the SPA was a forgery, as they did not authorize the transaction. They filed a complaint for declaration of nullity of documents, recovery of possession and ownership, and damages. During trial, RBCI also presented notarized Extra-Judicial Adjudication Documents allegedly executed by respondents. Respondents denied executing these documents, claiming their signatures were also falsified. The Regional Trial Court (RTC) ruled in favor of RBCI, upholding the mortgage and foreclosure, and found respondents guilty of acquiescence and estoppel for not acting sooner. The Court of Appeals (CA) reversed the RTC, declaring the SPA and Extra-Judicial Adjudication Documents forgeries and null and void, and consequently nullifying the foreclosure sale and related proceedings as against the respondents. The CA remanded the case for further proceedings. RBCI filed a petition for review.

ISSUE

The essential issues are: (a) whether the presumption of regularity accorded to the notarized SPA and Extra-Judicial Adjudication Documents was rebutted by clear and convincing evidence; (b) whether respondents are guilty of laches and estopped from questioning the validity of the real estate mortgage and subsequent foreclosure proceedings.

RULING

The Supreme Court denied the petition and affirmed the CA Decision with modification. The Court held that respondents successfully rebutted the presumption of regularity of the notarized documents with clear and convincing evidence of forgery. The respondents’ testimonies, coupled with expert findings and inconsistencies in the documents, established that their signatures were forged and they did not appear before the notary public. The Court also ruled that respondents were not guilty of laches or estoppel. Laches did not apply because the action was filed within the four-year prescriptive period for an action upon a forgery (quasi-delict). Estoppel did not apply because respondents had no knowledge of the fraudulent transaction and did not perform any act that misled RBCI; their inaction was due to ignorance, not an intention to ratify. Consequently, the real estate mortgage and the extrajudicial foreclosure sale were declared null and void as to the shares of the respondents. However, the Court upheld the validity of the mortgage and foreclosure with respect to Erna’s own 1/6 share in the co-owned property. The case was remanded to the RTC to determine the exact shares of the parties, effect partition, and re-compute the loan obligation of Erna and her spouse. The awards of moral and exemplary damages, attorney’s fees, and litigation expenses were deleted for lack of basis.