China Banking Corp. v. Lagon
REITERATIONFacts
The Antecedents: Representatives of Maria Lagon (Lagons) filed two complaints against Jao Bio Tong, China Banking Corporation (CBC), and the Acting Provincial Sheriff of Nueva Vizcaya, questioning the authenticity of a Special Power of Attorney (SPA) dated May 13, 1983, purportedly executed by Maria Lagon in favor of Jao, and the validity of the real estate mortgage executed by Jao on behalf of Maria to secure loans from CBC. Jao had previously obtained credit accommodations from CBC, initially secured by a parcel of land owned by Maria under TCT No. T-30817, with Jao presenting an SPA. Subsequently, Jao obtained further loans under a P1,000,000 credit line, with the proceeds applied to obligations of Maria and Jao with other banks. The property under TCT No. T-30817 was later substituted with three parcels of land owned by Maria, covered by TCT Nos. T-56875, T-11593, and OCT No. P-1228, with Jao presenting two SPAs to mortgage these properties. Maria Lagon and Jao Bio Tong subsequently died during the pendency of the cases. Procedural History: The Regional Trial Court (RTC) of Bayombong, Nueva Vizcaya, Branch 27, dismissed the Lagons' complaints, finding sufficient evidence of the authenticity of the signatures and ordering Maria to pay CBC the total outstanding loan obligations, with a provision for the foreclosure of the mortgaged properties if payment was not made. On appeal, the Court of Appeals (CA) reversed the RTC decision, declaring the SPAs and real estate mortgages null and void. The CA found that Jao admitted the SPAs were notarized without Maria's personal appearance, and gave credence to the testimony of respondent's expert witness over petitioner's expert witness. The CA denied CBC's motion for reconsideration. The Petition: CBC filed a petition for review, assailing the CA's decision and resolution, primarily questioning the CA's assessment of the credibility of the handwriting experts and arguing that Maria Lagon was estopped from contesting the validity of the SPA and mortgages due to apparent authority and the use of loan proceeds to pay her obligations.
Issue(s)
Whether the Special Powers of Attorney (SPAs) are spurious, given the allegation of forgery. Whether the real estate mortgages executed by Jao Bio Tong are valid. Whether Maria Lagon is estopped from contesting the validity of the SPAs and mortgages.
Ruling
The petition is DENIED. The Decision dated August 21, 2003, and the Resolution dated November 14, 2003, of the Court of Appeals in CA-G.R. CV No. 60853 are AFFIRMED.
Ratio Decidendi
On the validity of the Special Powers of Attorney (SPAs) and the authenticity of the signatures: The Court affirmed the Court of Appeals' finding that the SPAs were spurious. While a notarized instrument carries the presumption of regularity, this presumption is not absolute and can be rebutted by clear and convincing evidence. In this case, Jao admitted that the SPAs were not signed in the presence of the notary public, and Maria Lagon did not personally appear before the notary public to acknowledge the instrument as her own free and voluntary act. These irregularities in notarization rendered the SPAs invalid and devoid of probative value. Consequently, the burden shifted to petitioner CBC to prove the authenticity and genuineness of the SPAs, a burden it failed to discharge. The conflicting testimonies of the handwriting experts were rendered moot by the admitted failure to comply with notarial requisites. On the validity of the real estate mortgages: Since the SPAs were found to be spurious and unauthorized, the real estate mortgages executed by Jao Bio Tong based on these SPAs were consequently declared null and void. Jao did not possess the valid authority to mortgage Maria Lagon's properties. The Court emphasized that the validity of the mortgages hinges on the validity of the SPAs, which were demonstrably irregular and lacked proper acknowledgment. Therefore, the mortgages could not bind Maria Lagon or her estate. On whether Maria Lagon is estopped from contesting the validity of the SPAs and mortgages: The Court rejected the argument that Maria Lagon was estopped from contesting the validity of the SPAs and mortgages. While it is true that a party who clothes another with apparent authority may be estopped from denying that authority, this principle does not apply when the third party (CBC) had knowledge of facts that should have put them on guard. The Court found that CBC could not be considered a mortgagee in good faith because it had knowledge that Maria Lagon was in the United States at the time the SPAs were allegedly executed, yet it failed to question their due execution. Banks are expected to exercise a higher degree of diligence than private individuals in their dealings, and CBC's failure to exercise due diligence in verifying the authenticity of the SPAs precluded it from claiming estoppel. Furthermore, the Court noted that even if some loan proceeds were used to pay Maria's obligations, this did not validate the spurious SPAs and unauthorized mortgages.
Main Doctrine
A notarized instrument is presumed valid, but this presumption can be rebutted by clear and convincing evidence, especially when the notarization itself is irregular due to the non-appearance of the signatory before the notary public. Banks are held to a higher standard of diligence and cannot claim to be mortgagees in good faith if they fail to exercise due diligence in verifying the authenticity of documents presented to them, particularly when the signatory is known to be abroad.