G.R. NO. 167848 - BANK OF COMMERCE, VS. SPS. PRUDENCIO SAN PABLO, JR., AND NATIVIDAD O. SAN PABLO.D E C I S I O N - Supreme Court E-Library

Ruling

WHEREFORE, the Petition for review is GRANTED and the assailed Decision and Order of the Regional Trial Court, Branch 56, Mandaue City, Cebu, in Civil Case 4135-A must be as they are hereby, SET ASIDE. We therefore declare the so-called Special Power of Attorney, the Deed of Real Estate Mortgage and the Foreclosure proceedings to be NULL and VOID ab initio. And, in the meantime, if the subject Lot No. 1882-C-1-A covered by Transfer Certificate of Title No. (26469)-7561 has been sold and a new transfer certificate of title had been issued, let the Registry of deeds of Mandaue City cancel the new title and issue a new one in favor of Natividad O. San Pablo, unless the new title holder is a purchaser in good faith and for value. In the latter case, respondent Bank of Commerce and respondent Melencio G. Santos are hereby held jointly and severally liable to petitioners for the fair market value of the property as of the date of finality of this decision. Moreover, private respondents are likewise held jointly and severally liable to petitioners P50,000.00 as moral damages, P25,000.00 as exemplary damages, P25,000.00 plus P1,000.00 per count appearance as attorney's fees and P10,000.00 as litigation expenses. No costs. The antecedent factual and procedural facts of this case are as follows: On 20 December 1994, Santos obtained a loan from Direct Funders Management and Consultancy Inc., (Direct Funders) in the amount of P1,064,000.40. [5] As a security for the loan obligation, Natividad executed a SPA [6] in favor of Santos, authorizing the latter to mortgage to Direct Funders a paraphernal real property registered under her name and covered by Transfer Certificate of Title (TCT) No. (26469)-7561 [7] (subject property). In the Deed of Real Estate Mortgage [8] executed in favor of Direct Funders, Natividad and her husband, Prudencio, signed as the co-mortgagors of Santos. It was, however, clear between the parties that the loan obligation was for the sole benefit of Santos and the spouses San Pablo merely signed the deed in order to accommodate the former. The aforesaid accommodation transaction was made possible because Prudencio and Santos were close friends and business associates. Indeed, Prudencio was an incorporator and a member of the Board of Directors of Intergems Fashion Jewelries Corporation (Intergems), a domestic corporation in which Santos acted as the President. Sometime in June 1995, the spouses San Pablo received a letter from Direct Funders informing them that Santos failed to pay his loan obligation with the latter. When confronted with the matter, Santos promised to promptly settle his obligation with Direct Funders, which he actually did the following month. Upon learning that Santos' debt with Direct Funders had been fully settled, the spouses San Pablo then demanded from Santos to turn over to them the TCT of the subject property but the latter failed to do so despite repeated demands. Such refusal prompted the spouses San Pablo t