G.R. No. 179625 February 24, 2014
NICANORA G. BUCTON (deceased), substituted by REQUILDA B. YRAY, Petitioner, vs. RURAL BANK OF EL SALVADOR, INC., MISAMIS ORIENTAL, and REYNALDO CUYONG, Respondents, vs. ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON LUGOD, Third Party Defendants.

FACTS

Petitioner Nicanora G. Bucton filed a case for Annulment of Mortgage, Foreclosure, and Special Power of Attorney (SPA) against respondents. She alleged she was the owner of a parcel of land covered by TCT No. T-3838. On June 6, 1982, Erlinda Concepcion borrowed the title on the pretext of showing it to a buyer. Concepcion then obtained a loan of ₱30,000.00 from respondent Rural Bank of El Salvador, Inc., using petitioner’s property as security via an SPA allegedly executed by petitioner in favor of Concepcion. Upon Concepcion’s failure to pay, the property was foreclosed and sold at auction to the bank. Petitioner claimed the SPA was forged, she did not mortgage her property, and the foreclosure was conducted without proper notice. The Regional Trial Court (RTC) annulled the SPA, the real estate mortgage, and the foreclosure sale, finding the SPA forged and the bank negligent for not verifying its authenticity. The Court of Appeals (CA) reversed the RTC, holding the SPA valid and ruling petitioner was estopped from denying liability due to her negligence in handing over her title to Concepcion. The CA applied the principle of equitable estoppel, stating that where one of two innocent persons must suffer a loss, he who by his conduct made the loss possible must bear it.

ISSUE

The core issue is whether petitioner is liable for the loan and mortgage executed by Concepcion, which hinges on the validity of the SPA and the application of the principle of equitable estoppel.

RULING

The Supreme Court REVERSED the Court of Appeals and REINSTATED the Regional Trial Court’s Decision with MODIFICATION. The Court held that the mortgage executed by Concepcion, who signed the promissory note and real estate mortgage in her own name without indicating she was acting as an agent, bound only Concepcion and not the principal (petitioner). The Court found that the SPA was indeed forged, as supported by the testimony of witness Emma Nagac and the discrepancy in the property described (the mortgage covered a house on a lot with a different title than the one specified in the SPA). The Court ruled that the bank was negligent in processing the loan and mortgage without verifying the SPA’s authenticity and the agent’s authority. The principle of equitable estoppel does not apply because petitioner’s act of lending her title document was not the proximate cause of the bank’s loss; the bank’s own negligence was. The Court declared the SPA, real estate mortgage, and foreclosure sale null and void. However, the award of moral damages and attorney’s fees was deleted for lack of basis. The bank’s third-party complaint against Concepcion for indemnity was upheld.