740 PHIL.

145

THIRD DIVISION
[ G.R. No. 196118, July 30, 2014 ]
LEONARDO C. CASTILLO, REPRESENTED BY
LENNARD V. CASTILLO, PETITIONER, VS. SECURITY
BANK CORPORATION, JRC POULTRY FARMS OR
SPOUSES LEON C. CASTILLO, JR., AND TERESITA
FLORES-CASTILLO, RESPONDENTS.
DECISION

PERALTA, J.:

This is a Petition for Review questioning the Decision[1] of the Court of

Appeals (CA) dated November 26, 2010, as well as its Resolution[2] dated
March 17, 2011 in CA-G.R. CV No. 88914. The CA reversed and set aside
the Decision[3] of the Regional Trial Court (RTC) of San Pablo City, Laguna,
Branch 32, dated October 16, 2006 in Civil Case No. SP-5882 (02), and
consequently, upheld the validity of the real estate mortgage entered into by
respondents spouses Leon C. Castillo, Jr. and Teresita Flores-Castillo, and
Security Bank Corporation (SBC).

The facts, as culled from the records, are as follows:

Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are

siblings. Leon and Teresita Flores-Castillo (the Spouses Castillo) were doing
business under the name of JRC Poultry Farms. Sometime in 1994, the
Spouses Castillo obtained a loan from respondent SBC in the amount of
P45,000,000.00. To secure said loan, they executed a real estate mortgage on
August 5, 1994 over eleven (11) parcels of land belonging to different
members of the Castillo family and which are all located in San Pablo City.[4]
They also procured a second loan[5] amounting to P2,500,000.00, which was
covered by a mortgage on a land in Pasay City. Subsequently, the Spouses
Castillo failed to settle the loan, prompting SBC to proceed with the
foreclosure of the properties. SBC was then adjudged as the winning bidder in
the foreclosure sale held on July 29, 1999. Thereafter, they were able to
redeem the foreclosed properties, with the exception of the lots covered by
Torrens Certificate of Title (TCT) Nos. 28302 and 28297.

On January 30, 2002, Leonardo filed a complaint for the partial annulment of
the real estate mortgage. He alleged that he owns the property covered by
TCT No. 28297 and that the Spouses Castillo used it as one of the collaterals
for a loan without his consent. He contested his supposed Special Power of
Attorney (SPA) in Leon’s favor, claiming that it is falsified. According to him,
the date of issuance of his Community Tax Certificate (CTC) as indicated on
the notarization of said SPA is January 11, 1993, when he only secured the
same on May 17, 1993. He also assailed the foreclosure of the lots under TCT
Nos. 20030 and 10073 which were still registered in the name of their
deceased father. Lastly, Leonardo attacked SBC’s imposition of penalty and
interest on the loans as being arbitrary and unconscionable.

On the other hand, the Spouses Castillo insisted on the validity of Leonardo’s
SPA. They alleged that they incurred the loan not only for themselves, but
also for the other members of the Castillo family who needed money at that
time. Upon receipt of the proceeds of the loan, they distributed the same to
their family members, as agreed upon. However, when the loan became due,
their relatives failed to pay their respective shares such that Leon was forced to
use his own money until SBC had to finally foreclose the mortgage over the
lots.[6]

In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in
Leonardo’s favor, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the

plaintiff Leonardo C. Castillo and against the defendants
SECURITY BANK CORPORATION, and JRC POULTRY
FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA
FLORES-CASTILLO declaring as null and void the Real Estate
Mortgage dated August 5, 1994, the Memorandum of Agreement
dated October 28, 1997 and the Certificate of Sale dated August 27,
1999 insofar as plaintiff’s property with Transfer Certificate of
Title No. T-28297 is concerned. The Security Bank Corporation is
 likewise ordered to return the ownership of the Transfer Certificate
of Title No. T-28297 to plaintiff Leonardo Castillo. Likewise,
defendants spouses Leon C. Castillo, Jr. and Teresita Flores-
Castillo are hereby ordered to pay plaintiff moral damages in the
total amount of P500,000.00 and exemplary damages of
P20,000.00. All other claims for damages and attorney’s fees are
DENIED for insufficiency of evidence.

SO ORDERED.[7]

Both parties elevated the case to the CA. On November 26, 2010, the CA
denied Leonardo’s appeal and granted that of the Spouses Castillo and SBC. It
reversed and set aside the RTC Decision, essentially ruling that the August 5,
1994 real estate mortgage is valid. Leonardo filed a Motion for
Reconsideration, but the same was denied for lack of merit.

Hence, Leonardo brought the case to the Court and filed the instant Petition for
Review. The main issue sought to be resolved here is whether or not the real
estate mortgage constituted over the property under TCT No. T-28297 is valid
and binding.

The Court finds the petition to be without merit.

As a rule, the jurisdiction of the Court over appealed cases from the CA is
limited to the review and revision of errors of law it allegedly committed, as its
findings of fact are deemed conclusive. Thus, the Court is not duty-bound to
evaluate and weigh the evidence all over again which were already considered
in the proceedings below, except when, as in this case, the findings of fact of
the CA are contrary to the findings and conclusions of the trial court.[8]

The following are the legal requisites for a mortgage to be valid:

(1) It must be constituted to secure the fulfillment of a principal

obligation;

(2) The mortgagor must be the absolute owner of the thing

mortgaged;
 (3) The persons constituting the mortgage must have the free
disposal of their property, and in the absence thereof, they should
be legally authorized for the purpose.[9]

Leonardo asserts that his signature in the SPA authorizing his brother, Leon, to
mortgage his property covered by TCT No. T-28297 was falsified. He claims
that he was in America at the time of its execution. As proof of the forgery, he
focuses on his alleged CTC used for the notarization[10] of the SPA on May 5,
1993 and points out that it appears to have been issued on January 11, 1993
when, in fact, he only obtained it on May 17, 1993. But it is a settled rule that
allegations of forgery, like all other allegations, must be proved by clear,
positive, and convincing evidence by the party alleging it. It should not be
presumed, but must be established by comparing the alleged forged signature
with the genuine signatures.[11] Here, Leonardo simply relied on his self-
serving declarations and refused to present further corroborative evidence,
saying that the falsified document itself is the best evidence.[12] He did not
even bother comparing the alleged forged signature on the SPA with samples
of his real and actual signature. What he consistently utilized as lone support
for his allegation was the supposed discrepancy on the date of issuance of his
CTC as reflected on the subject SPA’s notarial acknowledgment. On the
contrary, in view of the great ease with which CTCs are obtained these days,
[13] there is reasonable ground to believe that, as the CA correctly observed,
the CTC could have been issued with the space for the date left blank and
Leonardo merely filled it up to accommodate his assertions. Also, upon
careful examination, the handwriting appearing on the space for the date of
issuance is different from that on the computation of fees, which in turn was
consistent with the rest of the writings on the document.[14] He did not
likewise attempt to show any evidence that would back up his claim that at the
time of the execution of the SPA on May 5, 1993, he was actually in America
and therefore could not have possibly appeared and signed the document
before the notary.

And even if the Court were to assume, simply for the sake of argument, that
Leonardo indeed secured his CTC only on May 17, 1993, this does not
automatically render the SPA invalid. The appellate court aptly held that
defective notarization will simply strip the document of its public character
and reduce it to a private instrument, but nonetheless, binding, provided its
validity is established by preponderance of evidence.[15] Article 1358 of the
Civil Code requires that the form of a contract that transmits or extinguishes
real rights over immovable property should be in a public document, yet the
failure to observe the proper form does not render the transaction invalid.[16]
The necessity of a public document for said contracts is only for convenience;
it is not essential for validity or enforceability.[17] Even a sale of real property,
though not contained in a public instrument or formal writing, is nevertheless
valid and binding, for even a verbal contract of sale or real estate produces
legal effects between the parties.[18] Consequently, when there is a defect in
the notarization of a document, the clear and convincing evidentiary standard
originally attached to a duly-notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of evidence.
[19]

Here, the preponderance of evidence indubitably tilts in favor of the

respondents, still making the SPA binding between the parties even with the
aforementioned assumed irregularity. There are several telling circumstances
that would clearly demonstrate that Leonardo was aware of the mortgage and
he indeed executed the SPA to entrust Leon with the mortgage of his property.
Leon had in his possession all the titles covering the eleven (11) properties
mortgaged, including that of Leonardo.[20] Leonardo and the rest of their
relatives could not have just blindly ceded their respective TCTs to Leon.[21]
It is likewise ridiculous how Leonardo seemed to have been totally oblivious
to the status of his property for eight (8) long years, and would only find out
about the mortgage and foreclosure from a nephew who himself had consented
to the mortgage of his own lot.[22] Considering the lapse of time from the
alleged forgery on May 5, 1993 and the mortgage on August 5, 1994, to the
foreclosure on July 29, 1999, and to the supposed discovery in 2001, it appears
that the suit is a mere afterthought or a last-ditch effort on Leonardo’s part to
extend his hold over his property and to prevent SBC from consolidating
ownership over the same. More importantly, Leonardo himself admitted on
cross-examination that he granted Leon authority to mortgage, only that,
according to him, he thought it was going to be with China Bank, and not
SBC.[23] But as the CA noted, there is no mention of a certain bank in the
subject SPA with which Leon must specifically deal. Leon, therefore, was
simply acting within the bounds of the SPA’s authority when he mortgaged the
lot to SBC.
True, banks and other financing institutions, in entering into mortgage
contracts, are expected to exercise due diligence.[24] The ascertainment of the
status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of its operations.[25] In this case, however, no
evidence was presented to show that SBC was remiss in the exercise of the
standard care and prudence required of it or that it was negligent in accepting
the mortgage.[26] SBC could not likewise be faulted for relying on the
presumption of regularity of the notarized SPA when it entered into the subject
mortgage agreement.

Finally, the Court finds that the interest and penalty charges imposed by SBC
are just, and not excessive or unconscionable.

Section 47 of The General Banking Law of 2000[27] thus provides:

Section 47. Foreclosure of Real Estate Mortgage. - In the event of

foreclosure, whether judicially or extra-judicially, of any mortgage
on real estate which is security for any loan or other credit
accommodation granted, the mortgagor or debtor whose real
property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the
real estate, to redeem the property by paying the amount due
under the mortgage deed, with interest thereon at the rate
specified in the mortgage, and all the costs and expenses
incurred by the bank or institution from the sale and custody of
said property less the income derived therefrom. However, the
purchaser at the auction sale concerned whether in a judicial or
extra-judicial foreclosure shall have the right to enter upon and take
possession of such property immediately after the date of the
confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the
conduct of foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the filing by the
petitioner of a bond in an amount fixed by the court conditioned
that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is

 being sold pursuant to an extrajudicial foreclosure, shall have the
right to redeem the property in accordance with this provision until,
but not after, the registration of the certificate of foreclosure sale
with the applicable Register of Deeds which in no case shall be
more than three (3) months after foreclosure, whichever is earlier.
Owners of property that has been sold in a foreclosure sale prior to
the effectivity of this Act shall retain their redemption rights until
their expiration.[28]

Verily, the redemption price comprises not only the total amount due under the
mortgage deed, but also with interest at the rate specified in the mortgage, and
all the foreclosure expenses incurred by the mortgagee bank. To sustain
Leonardo’s claim that their payment of P45,000,000.00 had already
extinguished their entire obligation with SBC would mean that no interest ever
accrued from 1994, when the loan was availed, up to the time the payment of
P45,000,000.00 was made in 2000-2001.

SBC’s 16% rate of interest is not computed per month, but rather per annum or
only 1.33% per month. In Spouses Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch,[29] the Court held that the interest rate
of 24% per annum on a loan of P244,000.00 is not considered as
unconscionable and excessive. As such, the Court ruled that the debtors
cannot renege on their obligation to comply with what is incumbent upon them
under the contract of loan as they are bound by its stipulations. Also, the 24%
per annum rate or 2% per month for the penalty charges imposed on account of
default, cannot be considered as skyrocketing. The enforcement of penalty can
be demanded by the creditor in case of non-performance due to the debtor’s
fault or fraud. The non-performance gives rise to the presumption of fault and
in order to avoid the penalty, the debtor has the burden of proving that the
failure of the performance was due to either force majeure or the creditor’s
own acts.[30] In the instant case, petitioner failed to discharge said burden and
thus cannot avoid the payment of the penalty charge agreed upon.

WHEREFORE, premises considered, the petition is DENIED. The Decision

of the Court of Appeals, dated November 26, 2010, as well as its Resolution
dated March 17, 2011 in CA-G.R. CV No. 88914, are hereby AFFIRMED.

SO ORDERED.
Velasco, Jr., (Chairperson), Villarama, Jr.,* Mendoza, and Leonen, JJ., concur.

August 12, 2014

N O T I C E OF J U D G M E N T

Sirs/Mesdames:

Please take notice that on ___July 30, 2014___ a Decision, copy attached
herewith, was rendered by the Supreme Court in the above-entitled case, the
original of which was received by this Office on August 12, 2014 at 1:50 p.m.

Very truly yours,

(SGD)
WILFREDO V. LAPITAN
Division Clerk of Court

* Designated Acting Member, per Special Order No. 1691 dated May 22,
2014, in view of the vacancy in the Third Division.

[1] Penned by Associate Justice Franchito N. Diamante, with Associate

Justices Josefina Guevara-Salonga and Mariflor P. Punzalan Castillo,
concurring; rollo, pp. 42-63.

[2] Id. at 65-67.

[3] CA rollo, pp. 118-145.

[4] Rollo, p. 15.

[5] Id. at 16.

[6] Id. at 48.

[7] Id. at 43.

[8] Meneses v. Venturozo, G.R. No. 172196, October 19, 2011, 659 SCRA 577,
585.

[9] CIVIL CODE OF THE PHILIPPINES, Art. 2085.

[10] CA rollo p. 151.

[11]Francisco Lim v. Equitable PCI Bank (now known as Banco de Oro

Unibank, Inc.), G.R. No. 183918, January 15, 2014.

[12] Rollo, p. 23.

[13] Baylon v. Atty. Almo, 578 Phil. 238, 242 (2008).

[14] CA rollo, p. 176.

[15] The Heirs of Victorino Sarili v. Pedro F. Lagrosa, represented in this act by
his attorney-in-fact, Lourdes Labios Mojica, G.R. No. 193517, January 15,
2014.

[16] Tigno v. Spouses Aquino, 486 Phil. 254, 268 (2004).

[17] Meneses v. Venturozo, supra note 8, at 585-586.

[18] Tigno v. Spouses Aquino, supra note 16, at 268.

[19] Meneses v. Venturozo, supra note 8, at 586.

[20] CA rollo, p. 189.

[21] Id. at 190.

[22] Id. at 193.

[23] Id. at 200.

[24]Francisco Lim v. Equitable PCI Bank, (now known as Banco de Oro

Unibank, Inc.), supra note 11.

[25] PNB v. Jumamoy, G.R. No. 169901, August 3, 2011, 655 SCRA 55, 63.

[26]Francisco Lim v. Equitable PCI Bank (now known as Banco de Oro

Unibank, Inc.), supra note 11.

[27]Republic Act No. 8791, AN ACT PROVIDING FOR THE

REGULATION OF THE ORGANIZATION AND OPERATIONS OF
BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER
PURPOSES

[28] Emphasis ours.

[29] 544 Phil. 18, 27 (2007).

[30] Development Bank of the Philippines v. Family Foods Manufacturing Co.

Ltd., 611 Phil. 843, 855 (2009).

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