Gloria vs. Builders Savings and Loan Association, Inc.

A compulsory heir is a real party in interest to nullify a mortgage affecting the decedent's property without need of prior judicial declaration of heirship or settlement of the estate, since successional rights transmit from the moment of death under Article 777 of the Civil Code; and absolutely simulated or forged real estate mortgages are void ab initio, conveying no title even if registered, where the mortgagor is not the absolute owner or where consent was obtained through fraud.

Spouses Juan and Conchita Gloria owned a parcel of land in Kamuning, Quezon City covered by Transfer Certificate of Title No. 35814. Following Juan's death in 1987, Conchita remained as registered owner while their daughter Maria Lourdes Gloria-Payduan succeeded to Juan's share as compulsory heir. In 1988, Benildo Biag obtained possession of the certificate of title from Conchita under the representation that he would facilitate reconstitution of the title allegedly damaged by a fire at the Registry of Deeds. Instead, Biag caused the execution of a real estate mortgage and promissory note in 1991 in favor of Builders Savings and Loan Association, Inc., using the subject property as security for a loan. The documents bore the signature of Conchita, who claimed she was deceived into believing she was signing reconstitution papers, and the forged signature of Juan, who had been deceased for four years. The mortgage was subsequently foreclosed and the property sold at auction to Builders Savings.

• The Property and Parties: Spouses Juan and Conchita Gloria were registered owners of a parcel of land in Kamuning, Quezon City under Transfer Certificate of Title No. 35814. Maria Lourdes Gloria-Payduan is their daughter and compulsory heir. Juan died on August 14, 1987.
• The Entrustment of Title: In June 1988, Benildo Biag approached the family claiming that the Quezon City Registry of Deeds had burned and that the title might need reconstitution. Biag persuaded Conchita to surrender the original certificate of title to him for verification and reconstitution purposes. Conchita, then already sickly and senile, entrusted the title to Biag at her residence.
• The Fraudulent Mortgage: Instead of reconstituting the title, Biag caused the execution of a real estate mortgage dated June 26, 1991 and a promissory note dated June 28, 1991, securing a loan from Builders Savings and Loan Association, Inc. The mortgage documents contained Conchita's signature, which she claimed was obtained through fraud and misrepresentation—she believed she was signing papers for reconstitution, not a loan. The documents also bore the signature of Juan Gloria as co-maker and mortgagor, despite his having died in 1987. The mortgage was notarized, but petitioners claimed the notarization was defective.
• Foreclosure and Auction: Due to default on the loan, the property was foreclosed and sold at auction to Builders Savings.
• The Complaint: On December 7, 1993, Conchita and Lourdes filed a Second Amended Complaint seeking to declare the mortgage and promissory note null and void, cancel the annotations on TCT 35814, and recover damages. They alleged that Biag and Builders Savings conspired to defraud them, that Conchita's consent was vitiated by fraud and undue influence, and that Juan's signature was forged.
• RTC Proceedings: The RTC initially dismissed the complaint on September 26, 2003. However, upon reconsideration, the RTC set aside the dismissal on March 12, 2004, finding that Conchita's consent was vitiated by fraud, that Builders Savings failed to exercise the required diligence in approving the loan (noting the impossibility of Juan's signature since he was deceased), and that the mortgage was void under Article 2085 of the Civil Code because the mortgagor must be the absolute owner.
• CA Proceedings: Builders Savings appealed. The CA reversed the RTC, dismissing the complaint on procedural grounds: first, that Maria Lourdes was not a real party in interest because she had not been judicially declared an heir; and second, that Conchita's failure to sign the verification and certification against forum shopping attached to the Second Amended Complaint was fatal and warranted her dismissal from the case.

• Real Party in Interest: Petitioners maintained that Maria Lourdes, as the daughter and compulsory heir of Juan Gloria, acquired a vested interest in the subject property upon Juan's death pursuant to Article 777 of the Civil Code. As co-owner, she possessed the requisite interest to institute the action for nullity of mortgage without prior judicial declaration of heirship or settlement of the estate.
• Substantial Compliance: Petitioners argued that even if Conchita failed to sign the verification and certification against forum shopping, substantial compliance was achieved because co-owners with common interests in the subject property are not required to individually sign such certifications; the signature of one co-owner suffices.
• Nullity of Mortgage: Petitioners contended that the mortgage and promissory note were absolutely simulated and void ab initio under Articles 1346 and 1409 of the Civil Code. They argued that the documents were executed through fraud—Conchita was deceived into signing documents she believed were for reconstitution, while Juan's signature was forged four years after his death, rendering the mortgage a nullity.

• Lack of Legal Standing: Respondent Builders Savings argued that Maria Lourdes lacked capacity to sue because she was merely an "ampon" or "palaki" (foster child) and not legally adopted, and thus could not claim rights as heir. Respondent also contended that Conchita voluntarily executed the mortgage, submitting floor plans and tax declarations as supporting documents, and that as a retired public school teacher, she could not be easily deceived.
• Procedural Defects: Respondent claimed that Conchita never signed the verification attached to the complaint nor executed a special power of attorney authorizing Lourdes to pursue the case, and that Conchita never appeared in court to testify.
• Hearsay Evidence: Respondent argued that Lourdes' testimony regarding fraud was hearsay because it was based merely on statements made by Conchita, and thus could not be used as evidence to nullify the contract.

• Real Party in Interest: Whether Maria Lourdes Gloria-Payduan, as alleged co-owner and compulsory heir, is a real party in interest to nullify the real estate mortgage without prior judicial declaration of heirship.
• Procedural Dismissal: Whether the Court of Appeals properly dismissed the complaint based on alleged defects in the verification and certification against forum shopping when such issues were not raised by respondent in its assignment of errors.
• Validity of Mortgage: Whether the subject real estate mortgage and promissory note are null and void for being absolutely simulated and containing forged signatures.

• Real Party in Interest: Maria Lourdes is a real party in interest. Successional rights are transmitted from the moment of death under Article 777 of the Civil Code; therefore, heirs acquire immediate vested rights in the decedent's property without need of prior judicial declaration of heirship or settlement of the estate. As compulsory heir of Juan Gloria, Lourdes became a co-owner of the conjugal property upon his death in 1987, giving her the requisite interest to maintain an action affecting the property.
• Substantial Compliance: The defect in verification and certification against forum shopping is not fatal where co-owners sue on a common interest in the subject property. The Court applied the rule of substantial compliance, holding that when heirs or co-owners sue to protect undivided property in which they share a common interest, the signature of one or some constitutes sufficient compliance with Sections 4 and 5, Rule 7 of the 1997 Rules of Civil Procedure.
• Nullity of Mortgage: The mortgage and promissory note are null and void ab initio. The evidence established that the documents were absolutely simulated—petitioners merely entrusted the title for reconstitution, not for mortgage. The inclusion of Juan Gloria's signature four years after his death constitutes forgery rendering the instrument void. Under Article 2085 of the Civil Code, a mortgagor must be the absolute owner of the property; a forger or impostor cannot validly mortgage another's property. Registration of a forged deed conveys no title, and a mortgagee who fails to exercise due diligence in verifying the mortgagor's authority and the authenticity of signatures cannot claim protection as an innocent purchaser for value.

• Transmission of Successional Rights (Article 777, Civil Code) — Rights to the succession of a person are transmitted from the moment of his death. Heirs acquire immediate vested rights in the decedent's property upon death, and no judicial declaration of heirship is necessary before they can assert rights pertaining to the deceased, including the right to bring actions for annulment of contracts affecting the estate.
• Substantial Compliance with Verification and Certification Requirements — In actions involving property owned in common by heirs or co-owners, the failure of all co-plaintiffs to sign the verification and certification against forum shopping is not fatal. The signature of one or some co-owners constitutes substantial compliance where they share a common interest in the subject matter, as the suit is deemed instituted for the benefit of all.
• Absolutely Simulated Contracts (Articles 1346 and 1409, Civil Code) — An absolutely simulated or fictitious contract is void from the beginning and produces no legal effects. Where parties do not intend to be bound by the contract, or where consent is obtained through fraud as to the nature of the instrument, the contract is inexistent.
• Requirements for Valid Mortgage (Article 2085, Civil Code) — In a real estate mortgage, the mortgagor must be the absolute owner of the property mortgaged, or duly authorized by the owner. A mortgage executed by a person who is not the owner, or by an impostor using forged documents, is void and conveys no title even if registered.
• Duty of Mortgagees — Banks and financing institutions are required to exercise more than ordinary diligence in investigating the titles and identities of mortgagors. The presentation of a certificate of title by a person other than the registered owner should raise a red flag and prompt inquiry into the person's authority. Failure to exercise such diligence precludes the mortgagee from claiming protection as an innocent purchaser for value.

• "[N]o judicial declaration of heirship is necessary in order that an heir may assert his or her right to the property of the deceased." — The Court reiterated that under Article 777, transmission of rights occurs at death, and heirs may sue to protect estate property without prior settlement proceedings.
• "The general rule is that the certification must be signed by all plaintiffs in a case and the signature of only one of them is insufficient. However, the Court has also stressed in a number of cases that the rules on forum shopping were designed to promote and facilitate the orderly administration of justice and thus should not be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective." — The Court explained the rationale for applying substantial compliance in cases involving co-owners with common interests.
• "In a real estate mortgage contract, it is essential that the mortgagor be the absolute owner of the property to be mortgaged; otherwise, the mortgage is void." — The Court emphasized the fundamental requirement for valid mortgage under Article 2085.
• "When the instrument presented for registration is forged, even if accompanied by the owner's duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the mortgagee acquire any right or title to the property." — The Court affirmed the rule that registration of forged instruments conveys no title.

• Quison v. Salud, 12 Phil. 109 (1908) — Cited for the principle that title to property of an intestate decedent passes immediately to heirs at death, and they may maintain actions pertaining to the deceased without prior settlement of the estate.
• Heirs of Ignacio Conti v. Court of Appeals, 360 Phil. 526 (1998) — Applied to confirm that heirs succeed to the rights of the decedent as co-owners and may demand partition without prior settlement.
• Iglesia Ni Cristo v. Judge Ponferrada, 536 Phil. 705 (2006) — Cited for the doctrine that substantial compliance with verification requirements exists where one of several heirs signs, provided they have sufficient knowledge and belief to swear to the allegations.
• Spouses Solivel v. Judge Francisco, 252 Phil. 223 (1989) — Referenced for the rule that mortgages executed by impostors or forgers are void and registration does not validate them.
• Land Bank of the Philippines v. Poblete, 704 Phil. 610 (2013) — Cited for the principle that a mortgagor must be the absolute owner, and forged mortgages convey no title.
• Bank of Commerce v. Spouses San Pablo, Sr., 550 Phil. 805 (2007) — Applied to emphasize that mortgagees must be alerted to red flags when the loan applicant is not the registered owner.

• Article 777, Civil Code — Governs the transmission of successional rights from the moment of death; basis for the rule that heirs need not await judicial declaration of heirship to assert property rights.
• Article 494, Civil Code — Provides that no co-owner shall be obliged to remain in co-ownership; each may demand partition at any time; basis for co-owners' standing to sue.
• Article 1346, Civil Code — Declares that absolutely simulated or fictitious contracts are void.
• Article 1409(2), Civil Code — Lists absolutely simulated or fictitious contracts as inexistent and void from the beginning.
• Article 2085, Civil Code — Specifies requirements for valid mortgage, including that the mortgagor must be the absolute owner or duly authorized.
• Section 55, Land Registration Act (Act No. 496) — Provides that registration procured by presentation of a forged deed is null and void.
• Sections 4 and 5, Rule 7, 1997 Rules of Civil Procedure — Govern verification and certification against forum shopping requirements; interpreted to allow substantial compliance for co-owners with common interests.

Teresita J. Leonardo-De Castro (Acting Chairperson), Francis H. Jardeleza (On official leave), Noel Gimenez Tijam, Alexander G. Gesmundo