G.R. No. 215999, August 16, 2017
SPS. FELIX A. CHUA and CARMEN L. CHUA, et al., Petitioners, vs. UNITED COCONUT PLANTERS BANK, ASSET POOL A (SPVAMC), REVERE REALTY AND DEVELOPMENT CORPORATION, JOSE C. GO and the REGISTRAR OF DEEDS OF LUCENA CITY, Respondents.

FACTS

Petitioners, represented by Spouses Chua, entered into a Joint Venture Agreement (JVA) with Gotesco Properties, Inc., represented by respondent Jose Go, for land development. The project failed. Pursuant to the JVA, petitioners executed deeds of absolute sale over 12 parcels of land in favor of Revere Realty, a corporation controlled by Go, and two deeds of trust confirming petitioners’ absolute ownership and that Revere held the properties in trust without monetary consideration. Separately, petitioners and Jose Go had loans with respondent United Coconut Planters Bank (UCPB). To consolidate obligations, a Memorandum of Agreement (MOA) was executed, involving a debt-for-land swap and equity conversion.
To implement the MOA, petitioners signed a real estate mortgage (REM) drafted by UCPB. Unknown to petitioners, Jose Go, acting for Revere, executed a separate REM (Revere REM) with UCPB, mortgaging the trust properties to secure not only petitioners’ debts but also the personal obligations of Jose Go. UCPB foreclosed both mortgages. Petitioners demanded an accounting and the return of excess properties, claiming their obligations were fully satisfied and the Revere REM was unauthorized. UCPB refused, prompting petitioners to file a complaint.

ISSUE

Whether the foreclosure of the properties held in trust by Revere, via the Revere REM, was valid, and whether UCPB was a mortgagee in good faith.

RULING

The Supreme Court ruled in favor of petitioners, affirming the Regional Trial Court and reversing the Court of Appeals. The Revere REM was declared null and void. The legal logic centered on the nature of the trust and UCPB’s lack of good faith. The deeds of trust explicitly confirmed petitioners as the absolute owners and Revere as a mere trustee with no beneficial interest. A trustee cannot mortgage trust properties for its own or a third party’s benefit without the beneficiary’s consent. Jose Go and Revere, therefore, had no authority to mortgage the properties to secure Go’s personal debts.
Crucially, UCPB could not be considered a mortgagee in good faith. The bank was intimately aware of the underlying transactions and the trust arrangement. The MOA and the petitioners’ REM, which UCPB itself drafted, specifically pertained to petitioners’ consolidated obligations and the identified properties. UCPB’s knowledge of the trust and its subsequent acceptance of the Revere REM, which expanded the security to cover Jose Go’s separate liabilities, constituted gross negligence and bad faith. A mortgagee is expected to exercise due diligence; UCPB’s failure to verify Revere’s authority, especially given its prior knowledge, precluded any claim of being an innocent mortgagee. Consequently, the foreclosure based on the void mortgage was invalid. The Court ordered the reconveyance of the trust properties to petitioners and held UCPB, Jose Go, and Revere solidarily liable for damages.