G.R. No. 86597 & 86614; January 23, 1991
SPOUSES BONIFACIO CO and LIU HUN KUN, and SPOUSES DAVID LIO and VICTORIA ONG LIO, petitioners, vs. COURT OF APPEALS and SPOUSES RUFINO CO LING and NGO ENG, respondents.

FACTS

Private respondents, spouses Rufino Co Ling and Ngo Eng, filed a complaint against petitioners, spouses Bonifacio Co and Liu Hun Kun and spouses David Lio and Victoria Ong Lio, seeking the cancellation of TCT No. C-14429 in the Lios’ name covering Lot No. 3208, recovery of the property, and damages. Co Ling alleged that he and his wife signed a deed of real estate mortgage over nine co-owned parcels, including Lot 3208, in blank, based on Bonifacio Co’s assurance that only Co’s one-half share would be mortgaged to secure a corporate loan. However, the mortgage ultimately covered the entire property. After foreclosure and a compromise agreement between Co and the mortgagee bank, Co assigned his right to repurchase Lot 3208 to David Lio, who obtained a new title.
The trial court dismissed the complaint, crediting the testimony of an NBI document examiner that the mortgage deed was fully typed before the signatures of Co Ling and Ngo Eng were affixed. The Court of Appeals reversed this decision, finding the mortgage was indeed signed in blank through fraud, and ordered the cancellation of the Lios’ title, reconveyance of Co Ling’s share, and the payment of damages.

ISSUE

The primary issues were: (1) whether the deed of real estate mortgage was signed in blank by Co Ling and his wife; (2) whether petitioners David Lio and Victoria Ong Lio were purchasers in good faith; and (3) whether the mortgagee bank was an indispensable party to the suit.

RULING

The Supreme Court denied the petitions and affirmed the Court of Appeals. On the first issue, the Court upheld the appellate court’s factual finding that the mortgage was signed in blank. It deferred to the CA’s assessment, which found Co Ling’s version more credible than the expert testimony, noting the expert’s failure to examine the original document and the inherent improbability of Co Ling willingly mortgaging his property for another corporation’s debt without personal benefit. This constituted fraud vitiating consent.
On the second issue, the Court ruled the Lios were not purchasers in good faith. The transaction was not an ordinary sale but an assignment of a right to repurchase arising from a compromised foreclosure case, of which the Lios were aware. Their knowledge of the pending litigation and the questionable origin of the title precluded a claim of good faith. Finally, the mortgagee bank was not an indispensable party. Since Co Ling’s half-share was fraudulently included in the mortgage, the bank acquired no rightful interest in it. The core controversy involved fraud between the co-owners and the Lios, in which the bank had no remaining legal interest to protect.