FELICITO TAN AND THE PHILIPPINE NATIONAL BANK, ROMBLON AGENCY, REPRESENTED BY FELICIDARIO D. CABRAL AND TELESFORO MADRONA, PETITIONERS, VS. HON. INTERMEDIATE APPELLATE COURT (TH…

Tan versus Philippine National Bank

The Case

This is a petition for review on certiorari brought by Felicito Tan and the Philippine National Bank, Romblon Agency, against the surviving children of the late Pedro Martos and Dalmacia Madali. The private respondents sued to recover a parcel of coconut land, to rescind and annul the contracts burdening it, and to collect damages, after the property was mortgaged to the bank and later sold at an extrajudicial foreclosure. The case matters because it tests how far the courts will go in protecting illiterate parties against a bank and a municipal official, and it draws a firm line: a registered mortgage stands against those who signed and benefited from the loan, but it cannot bind an heir who never knew of it and never shared in its proceeds.

Procedural History

The private respondents filed their complaint for recovery of real property with rescission and annulment of contract with damages before the Court of First Instance of Romblon. Rodrigo Roy was dropped from the complaint at the pre-trial, and an amended complaint was filed to include Victoria Martos as a co-plaintiff. After trial on the merits, the trial court rendered judgment in favor of the plaintiffs, declaring the deed between Policarpio and Lourdes Martos and Felicito Tan an equitable mortgage, voiding the bank's foreclosure documents and the transfer certificate issued to the bank, ordering the Register of Deeds to issue a new title in favor of the plaintiffs, and awarding damages against Tan. The Intermediate Appellate Court affirmed that judgment in full, and denied the motion for reconsideration. The petitioners then came to the Supreme Court by petition for review, which the Court gave due course.

Facts

Policarpio Martos, Lourdes Martos, and Victoria Martos de Aquino are the surviving children of Pedro Martos and Dalmacia Madali, and Berlina Rodeo is the wife of Policarpio. The four children co-owned a hilly coconut land of more than five hectares in Calatrava, Romblon, covered by a certificate of title issued in the name of the Heirs of Pedro Martos. On January 28, 1968, Policarpio and Lourdes encumbered the property to Felicito Tan for 150 pesos by a public document entitled Deed of Sale with Right to Repurchase.

On February 8, 1968, four documents were executed in favor of the Philippine National Bank, Romblon Agency: an application for loan, a real estate mortgage contract, a promissory note, and a supplement to the real estate mortgage, all for a loan of 2,400 pesos. The documents bore the signature of Berlina Rodeo and the thumbmarks of Policarpio and Lourdes. The mortgage was registered and annotated on the title. When the loan was not paid, a certificate of sale was issued by the deputy sheriff in October 1972, and because the property was not redeemed within the reglementary period, a transfer certificate of title was issued in favor of the bank.

The plaintiffs insisted they never obtained any loan from the bank and denied receiving the proceeds. Victoria learned of the mortgage only in 1975, when Policarpio and Lourdes told her about it. The bank's evidence, however, showed that the documents were signed and thumbmarked before the municipal treasurer, that the notary public verified the signatures and thumbmarks of all three signers, and that Berlina herself presented the loan papers, guided the bank's inspection of the property, and personally cashed the check for the 2,400 pesos.

Issues

• Whether or not the questioned loan documents are binding and enforceable against the private respondents Policarpio Martos, Berlina Rodeo Martos, and Lourdes Martos.
• Whether or not the registered real estate mortgage is valid and binding against the share of Victoria Martos, who had no knowledge of it and received no benefit from the loan.
• Whether or not Felicito Tan may be held liable for damages on the theory that he masterminded the fraudulent transactions.

Applicable Provisions

Article 24 of the Civil Code, invoked by the appellate court to protect the illiterate respondents, provides:

In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.

The Court acknowledged this protective mandate but held that it cannot override clear and convincing evidence that the disadvantaged parties in fact executed the documents and received the loan proceeds.

Ruling

On the first issue, the Court ruled that the loan documents are valid and binding against Policarpio, Berlina, and Lourdes. The Court found that both lower courts had overlooked circumstances that would have altered the result. Berlina admitted signing all four documents, and her claim that she signed by mistake was rejected, because she could read and write, having reached the third grade, and it was improbable that she missed the bold heading of the Philippine National Bank and the title Application for Loan. Lourdes did not deny her thumbmarks. The thumbmarks of Policarpio were identified by the bank's sub-agent as affixed in his presence, corroborated by the land tax clerk who prepared the documents and by the notary public who verified them. The Court held that a notarized instrument is admissible without further proof of due execution and is conclusive as to the truthfulness of its contents absent clear and convincing evidence to the contrary. It also stressed that the mortgage was registered, so its validity cannot be questioned, and that the loan contract having been fully performed, its binding effect can no longer be disputed.

On the second issue, the Court ruled that the mortgage is not valid and binding against the share of Victoria Martos, since she never benefited from it and had no knowledge of it. The registered owners were the Heirs of Pedro Martos, and the bank failed to ascertain who those heirs were, thereby abetting the mortgage without Victoria's knowledge. She cannot be bound by the ensuing transactions.

On the third issue, the Court found no sufficient evidence that Felicito Tan masterminded any fraudulent transaction, and exempted him from liability for damages. Instead, it held Berlina Rodeo Martos liable to the bank for 5,000 pesos as actual, moral, and exemplary damages, plus costs and attorney's fees, since she received and cashed the loan proceeds.

Doctrine

First, the protective mandate of Article 24 of the Civil Code does not relieve a party of the consequences of a contract he or she knowingly executed; it yields to clear and convincing evidence of due execution and receipt of benefits. Second, a notarized instrument is conclusive as to the truthfulness of its contents absent clear and convincing evidence to the contrary. Third, a registered mortgage is valid and cannot be questioned by the parties who constituted it. Fourth, a mortgage executed by some co-heirs does not bind a co-heir who neither knew of nor benefited from the loan, and a bank that fails to ascertain the true owners of registered property acts at its peril as to the non-consenting heir's share.

Disposition

The Court reversed the judgment insofar as the Philippine National Bank, Romblon Agency, is concerned, declared the questioned documents valid and binding against Policarpio, Berlina, and Lourdes but not against the share of Victoria Martos, ordered the cancellation of the bank's title and the issuance of separate titles for the shares of Policarpio and Lourdes in favor of the bank and for the share of Victoria in her favor, exempted Felicito Tan from damages, and held Berlina Rodeo Martos liable to the bank for 5,000 pesos in damages, costs, and attorney's fees.

Remember This

The one line to memorize: the protective vigilance of Article 24 cannot shield a party who knowingly signed, thumbmarked, and benefited from a registered loan and mortgage, but it does shield a co-heir who never knew of nor shared in the proceeds. Examiners use this case to test the limits of the protection of the disadvantaged under Article 24, the conclusiveness of notarized and registered instruments, and the rule that a mortgage binds only the shares of those who consented to it.