Facts:

This case revolves around a dispute involving the petitioner, Bank of Commerce, and respondents, Spouses Prudencio San Pablo, Jr. and Natividad O. San Pablo. The series of events began on December 20, 1994, when Melencio Santos obtained a loan from Direct Funders Management and Consultancy Inc. amounting to P1,064,000.40. To secure the loan, Natividad San Pablo executed a Special Power of Attorney (SPA) allowing Santos to mortgage a property registered under her name, specifically covered by Transfer Certificate of Title (TCT) No. (26469)-7561. The spouses signed the Deed of Real Estate Mortgage as co-mortgagors, fully aware that the loan transaction was exclusively for Santos' benefit.

In June 1995, the spouses were informed by Direct Funders that Santos failed to meet his loan obligations. After Santos settled the debt, the spouses demanded the return of the TCT from him, which he refused. Upon investigation, they discovered that Santos had used the property as collateral

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Facts:

Background of the Original Loan Transaction

• On December 20, 1994, Santos obtained a loan of P1,064,000.40 from Direct Funders Management and Consultancy Inc.
• As security for this loan, Natividad executed a Special Power of Attorney (SPA) in favor of Santos, thereby authorizing him to mortgage her paraphernal real property registered under her name (subject property, covered by Transfer Certificate of Title No. (26469)-7561).

Subsequent Mortgage Transaction Involving the Bank of Commerce

• Following the settlement of the loan with Direct Funders in mid-1995, the spouses San Pablo (Prudencio and Natividad) requested Santos to turn over the TCT, which he repeatedly failed to do.
• The spouses later discovered that Santos had used the same subject property as collateral for a new loan with the Bank of Commerce, evidenced by an annotation on the title and a purported SPA dated March 29, 1995, allegedly signed by Natividad.
• There was also an allegation that the spouses’ signatures on the deed of real estate mortgage in favor of the Bank of Commerce were never actually executed by them.

Initiation of Legal Action by the Spouses San Pablo

• On December 22, 1995, the spouses San Pablo filed a complaint for quieting title and the nullification of the SPA and the deed of real estate mortgage, also seeking the cancellation of the foreclosure proceedings initiated by the Bank of Commerce.
• They alleged that while they had consented to the loan with Direct Funders, they never authorized Santos to mortgage their property for the subsequent loan with the Bank of Commerce, claiming that their signatures on the documents were forged.

Proceedings in the Lower Courts

• During trial before the Municipal Trial Court (MTC) of Mandaue City, Branch 2, evidence emerged including the testimony of bank personnel and the contrary findings of a handwriting expert and document examiner who attested to the forgery of the spouses’ signatures.
• On July 10, 2001, the MTC rendered a decision dismissing the complaint for lack of merit, noting that despite the forgery, the Bank of Commerce acted in good faith.
• The spouses San Pablo subsequently appealed to the Regional Trial Court (RTC) of Mandaue City, Branch 56, which affirmed the MTC’s unfavorable ruling.
• Persisting in their contention, the spouses elevated the case to the Court of Appeals by way of a Petition for Review under Rule 42, leading to a reversal of the lower courts’ decisions on September 10, 2004. The appellate court ruled that since it was proven that the signatures were forged, the documents could not be relied upon as a valid source of title, thereby voiding the SPA, the deed of mortgage, and the foreclosure proceedings.

Emergence of New Arguments by the Bank of Commerce

• In its petition for review on certiorari before the Supreme Court, the Bank of Commerce challenged the jurisdiction of the MTC, arguing that the subject matter’s value necessitated jurisdiction with the RTC.
• The bank also insisted that, aside from the jurisdictional issue, it acted in good faith and was entitled to the foreclosure rights, claiming it relied on the face of the documents.
• Additional issues raised pertained to the propriety of awarding moral damages, exemplary damages, attorney’s fees, and litigation expenses against it.

Factual Matrix Concerning the Forgery and Due Diligence

• It was firmly established by the MTC, RTC, and Court of Appeals that the signatures of the spouses San Pablo on both the SPA and the deed of mortgage were forged.
• Evidence showed that Santos did not hold valid authority over the property since he merely represented himself as the attorney‑in‑fact of the spouses.
• The case also delved into whether the Bank of Commerce, as a mortgagee-bank, had exercised the due diligence required to authenticate the documents and ascertain Santos’ authority.

Issue:

Jurisdiction of the Municipal Trial Court (MTC)

• Whether the MTC had proper jurisdiction over the complaint for quieting title and nullification in a case involving disputes over real property title, considering the arguments regarding pecuniary estimation.
• Whether the Bank of Commerce’s participation in the proceedings estopped it from later questioning the court’s jurisdiction.

Validity of the Forged Special Power of Attorney and Deed of Real Estate Mortgage

• Whether a SPA and deed of mortgage, tainted by forgery of the spouses’ signatures, could become a valid source of the Bank of Commerce’s right to foreclose the subject property.
• Whether Santos’ representation as attorney‑in‑fact, without actual authority as the registered owner, affected the validity of these documents.

Propriety of Awarding Damages and Expenses

• Whether the awards of moral damages, exemplary damages, attorney’s fees, and litigation expenses against the Bank of Commerce are justified.
• Whether such awards are warranted given the bank’s alleged lack of due diligence and failure to verify the authenticity of the documents from which it derived its rights.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)