G.R. No. 204412 , September 20, 2017
VICENTE L. LUNTAO AND NANETTE L. LUNTAO, PETITIONERS, V. BAP CREDIT GUARANTY CORPORATION AND EFREN M. PINEDA, RESPONDENTS.

FACTS

Petitioner Vicente Luntao executed a Special Power of Attorney (SPA) authorizing his sister, co-petitioner Nanette Luntao, to mortgage his property to secure a loan for her business, the Holy Infant Medical Clinic. Acting under the SPA, Nanette applied for and was granted a loan of P900,000 from respondent BAP Credit Guaranty Corporation, with Vicente’s property as collateral. The loan proceeds were credited to the clinic’s bank account. When the loan became due and unpaid, BAP initiated extrajudicial foreclosure proceedings.
Petitioners Vicente and Nanette filed a complaint to nullify the real estate mortgage. They alleged that the loan documents Nanette signed were blank forms and that she never received the loan proceeds. They further contended that the mortgage was invalid because the promissory notes included the signature of another sister, Eleanor Luntao, who was not authorized by the SPA to be a co-borrower or to bind the mortgaged property. The Regional Trial Court dismissed the complaint, a decision affirmed by the Court of Appeals.

ISSUE

Whether the real estate mortgage contract executed by Nanette Luntao in favor of BAP is null and void.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ decisions, upholding the validity of the mortgage. The Court explained that a real estate mortgage is an accessory contract, the validity of which is dependent on the validity of the principal loan obligation. The core legal issue was whether the principal loan contract was void. The Court found it was not. The evidence established that Nanette, as the authorized attorney-in-fact, validly contracted the loan for her clinic’s benefit. The crediting of the proceeds to the clinic’s account constituted constructive delivery and fulfillment of BAP’s obligation as lender.
The inclusion of Eleanor Luntao’s name in some documents did not invalidate the principal contract or the accessory mortgage. The SPA granted Nanette broad authority to mortgage the property for a commercial loan under terms she deemed proper. The loan was ultimately for the clinic’s benefit, which was within the SPA’s purpose. Eleanor’s involvement did not alter the fact that Nanette, the sole authorized agent, was the primary party who obtained the loan and executed the mortgage. Since the principal loan obligation was valid and existing, the mortgage securing it was likewise valid. The accessory contract of mortgage cannot be declared null independently of the principal obligation it secures.