CORAZON A. MATIC, PLAINTIFF-APPELLEES, VS. WILLIAM ONG GENATO, DEFENDANT-APPELLANT,

Matic versus Genato

The Case

This is a case about a Memorandum of Agreement dated May 8, 1998, under which Corazon Matic supposedly bound her farmland in Bataan as security for the purchase on credit of two buses and two taxicabs from William Ong Genato, and issued twenty-four postdated checks for the monthly amortization. Corazon sued to annul the agreement, claiming her signature was forged and that the transaction was never consummated, and she asked the court to stop Genato from extrajudicially foreclosing her land. The case matters because it gathers in one decision three rules a reviewee must hold: the requisites of a valid real estate mortgage and the effect of non-registration, the requirement of a special power to sell before extrajudicial foreclosure may proceed, and the weight to be given to the opinion of a handwriting expert on an allegation of forgery.

Procedural History

Corazon filed a complaint for Annulment of Agreement, Injunction and Damages before the Regional Trial Court of Balanga City, Branch 2. The trial court issued a temporary restraining order and, after hearing, a writ of preliminary injunction stopping the scheduled public auction. On September 8, 2010, the trial court rendered judgment declaring the Memorandum of Agreement null and void and without any binding effect, making the preliminary injunction final and permanent, and ordering Genato to pay attorney's fees of 40,000 pesos and litigation expenses of 10,000 pesos, with no pronouncement as to costs and damages. Genato appealed directly to the Supreme Court, assigning as errors the declaration of nullity, the failure to find a valid real estate mortgage, the failure to order payment of the loan within ninety days with foreclosure under Rule 68, and the claim that the decision was incomplete and therefore a nullity.

Facts

Sometime in April 1998, Ernesto Bulos and Teofilo Manandeg asked Corazon to help them purchase on credit two taxicabs and two buses from Genato. Corazon prepared twenty-four postdated checks at 94,658.33 pesos each in favor of Genato for the monthly amortization, and delivered them with the owner's duplicate copy of the transfer certificate of title covering her farmland in Bataan. The understanding was that the checks would be deposited and the real estate mortgage executed only once the vehicles became operational and were delivered to her.

The vehicles were not delivered as agreed. One taxicab was returned to Genato, and Corazon stopped funding her checks and closed her checking account. Genato nonetheless encashed the checks, which were all dishonored, and he filed a complaint for violation of the Bouncing Checks Law against Corazon, which was later dismissed. On June 25, 2000, Genato filed a petition for sale with the Office of the Clerk of Court of the Regional Trial Court of Bataan to foreclose the property under Act 3135, based on the Memorandum of Agreement, and a notice of sheriff's sale set the auction for August 28, 2000.

To stop the auction, Corazon filed the present case on August 25, 2000. She claimed her signature on the Memorandum of Agreement was forged and presented a Questioned Document Report from the National Bureau of Investigation concluding that the questioned and standard signatures were not written by one and the same person. Genato and Teofilo testified that the agreement was signed at Genato's office, that Corazon offered her land and the checks as security, and that the vehicles were released to her. The trial court declared the agreement void, not on forgery but because the agreement was never consummated, and Genato appealed.

Issues

• Whether or not the trial court was correct in declaring the Memorandum of Agreement null and void.
• Whether or not, granting that the Memorandum of Agreement is valid and enforceable, the subject property may be extrajudicially foreclosed.
• Whether or not the assailed decision completely disposed of all the issues raised for its resolution.

Applicable Provisions

Section 1 of Act Number 3135, as amended by Act Number 4118, governs extrajudicial foreclosure and provides:

Section 1. When a sale is made under a special power inserted in or attached to any real-estate mortgage hereafter made as security for the payment of money or the fulfillment of any other obligation, the provisions of the following sections shall govern as to the manner in which the sale and redemption shall be effected, whether or not provision for the same is made in the power.

This is the provision the Court uses to hold that extrajudicial foreclosure requires a special power to sell inserted in or attached to the mortgage.

Article 2125 of the Civil Code provides:

Art.2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.

This is the provision the Court uses to hold that non-registration does not invalidate the mortgage as between the contracting parties.

Section 22 of Rule 132 of the Rules of Court provides:

Sec. 22. How genuineness of handwriting proved. The handwriting of a person may be proved by any witness who believes it to be the handwriting of such person because he has seen the person write, or has seen writing purporting to be his upon which the witness has acted or been charged, or has thus acquired knowledge of the handwriting of such person. Evidence respecting the handwriting may also be given by a comparison, made by the witness or the court, with writings admitted or treated as genuine by the party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge.

This is the provision the Court uses in weighing the testimony of the handwriting expert against the claim of forgery.

Section 49 of Rule 130 of the Revised Rules of Court provides:

Sec. 49. Opinion of expert witnesses – The opinion of a witness on a matter requiring special knowledge, skill, experience or training which he is shown to possess, may be received in evidence.

This is the provision the Court uses to hold that expert opinion is permissive and not conclusive.

Ruling

On the first issue, the Court held that the trial court erred in declaring the Memorandum of Agreement void. The trial court had voided it because the agreement was never consummated, but the Court found that a contract of mortgage is distinct from the principal obligation it secures, and that the agreement itself was duly executed. On the forgery claim, the Court agreed with the trial court that Corazon failed to establish forgery by clear and convincing evidence. The Court stressed that the opinion of a handwriting expert is merely advisory, and that the expert here failed to explain what distinguishes a natural variation from a variation produced by imitation, especially since the twenty-four checks used as standards were written on one occasion and would naturally show variations.

On the second issue, the Court held that the property could not be extrajudicially foreclosed. The Memorandum of Agreement contained no special power authorizing Genato to sell the property, and Clause 5 of the agreement instead contemplated a court action to foreclose. The Court also rejected the trial court's reasoning that no valid mortgage existed because it was not recorded, holding that under Article 2125 non-registration does not affect validity as between the parties, and that as between them the absence of recording is no bar to foreclosure.

On the third issue, the Court found that a partial grant of the appeal was warranted, modifying the decision rather than reversing it entirely, and deleting the monetary award against Genato.

Doctrine

A real estate mortgage is validly constituted between the parties even if the instrument is not recorded in the Registry of Property; non-registration affects only the rights of third persons, not the binding force of the mortgage between the contracting parties. Extrajudicial foreclosure under Act 3135 is proper only when a special power to sell is inserted in or attached to the mortgage; absent that power, the mortgagee must foreclose judicially. Allegations of forgery must be proved by clear, positive, and convincing evidence, and the opinion of a handwriting expert is permissive and advisory, never conclusive, because the court must exercise independent judgment on the genuineness of a signature.

Disposition

The appeal was partially granted: the Memorandum of Agreement was declared valid and binding, the real estate mortgage was declared validly constituted subject to Article 2125 of the Civil Code, and the monetary award against Genato was deleted, with the rest of the trial court's disposition upheld.

Remember This

Memorize this line: non-registration does not invalidate a mortgage between the parties, but no special power to sell means no extrajudicial foreclosure. Examiners use this case to test Article 2125 of the Civil Code, the special power requirement under Act 3135, and the weight of expert handwriting evidence in forgery cases.