Luntao vs. BAP Credit Guaranty Corporation

A real estate mortgage, being an accessory contract, is valid if the principal loan contract is valid; and in a Rule 45 petition, the factual finding that the loan proceeds were received is generally binding on the Supreme Court and cannot be reviewed absent a demonstrated exception.

Vicente L. Luntao owned a real property covered by Transfer Certificate of Title No. T-111128 in Davao City. He executed a Special Power of Attorney in favor of his sister Nanette L. Luntao, authorizing her to mortgage the property, apply for a commercial loan with any bank or agency, receive the loan proceeds for improvements of her business, and sign the necessary documents. Nanette’s business was the Holy Infant Medical Clinic, and BAP Credit Guaranty Corporation was the lending institution. Efren M. Pineda was later impleaded as Sheriff IV of the Regional Trial Court of Davao City.

Vicente L. Luntao owned a real property covered by Transfer Certificate of Title No. T-111128 in Davao City. He executed a Special Power of Attorney in favor of his sister Nanette L. Luntao, authorizing her to mortgage the property, apply for any commercial loan with any bank or agency, receive the loan proceeds to be used in improvements of her business, and sign, execute, and deliver any documents to effect those purposes. Using that authority, Nanette applied for a loan with BAP Credit Guaranty Corporation and used Vicente’s property as collateral. The loan was for the improvement of the facilities of her business, the Holy Infant Medical Clinic. According to Nanette, she was introduced to the lending institution by her sister Eleanor Luntao, who allegedly had a personal loan with BAP and whose office was located in the same building as BAP’s office.

Upon approval of the loan, the amount of P900,000.00, representing the loan proceeds, was ordered released to the clinic through Security Bank. When the loan obligation became due, BAP sent demand letters. In a letter dated October 14, 1997, Nanette and Eleanor’s brother Jesus Luntao wrote BAP asking for additional time to settle his sisters’ accounts, citing cash leakages and pending accreditation with life insurers as reasons for the clinic’s substantial losses. Nanette’s loan remained unpaid. As a result, BAP applied for extrajudicial foreclosure of Vicente’s property, and on November 27, 1997, the Regional Trial Court issued a Notice of Foreclosure and a Notice of Extrajudicial Sale.

Vicente and Nanette then filed a Complaint for Declaration of Nullity of Real Estate Mortgage with a prayer for a Temporary Restraining Order and Writ of Preliminary Injunction, damages, and attorney’s fees. Nanette narrated that upon filing her loan application, BAP appraised the collateral and told her she could borrow P900,000.00. Thereafter, a BAP personnel visited her to get her signature on the real estate mortgage, promissory note, and disclosure statement. The documents brought to her were all blank forms, and she signed them on the understanding that this was part of the bank’s standard operating procedure. She was surprised to receive the notice of foreclosure since she did not receive the proceeds of the loan. She also noticed that the documents attached to the notice of foreclosure were the blank documents she signed earlier. Upon checking, she was shocked to see that Eleanor’s name was included in the loan documents. It was Nanette’s position that she was to obtain the principal loan as stated in the Special Power of Attorney, as she was the only person authorized to mortgage Vicente’s property. She stated that before she received the notice of foreclosure, she had received four letters from BAP, all addressed to Eleanor, which she gave to Eleanor since they concerned Eleanor’s alleged loan and the post-dated checks she issued to secure it. Petitioners claimed that Eleanor’s alleged debt with BAP was separate from Nanette’s debt and was not secured by Vicente’s property.

BAP presented BAP employees Raymond Bato and Veronica Aguilo, and Security Bank employees Benjie Dimaunahan and Belinda Yap. Bato, an account assistant of BAP, testified that upon approval by the BAP Credit Committee of the Loan Release Ticket and the Promissory Note, Security Bank released the loan proceeds and credited them to the clinic’s account; Security Bank also debited the amount released from BAP’s account. When he tried to collect from Nanette, no payment was given, so he sent the account to their Legal Department, which foreclosed the mortgage. Bato also stated that there was no document showing that the money was received by either Nanette or Vicente, that the borrowers in the promissory notes were Nanette and Eleanor, not Holy Infant Medical Clinic, but the borrower in the mortgage contract was the clinic, and that Eleanor did not sign the real estate mortgage. Aguilo, BAP’s assistant manager, testified that Nanette and Eleanor met with her to borrow money from BAP; she presented the promissory notes that they all had signed. She also stated that Nanette was the only attorney-in-fact of Vicente as indicated in the Special Power of Attorney and that Nanette did not authorize anyone to credit the loan to the account of Nanette Luntao under Holy Infant Medical Clinic. Aguilo likewise stated that it was Eleanor, not Nanette, who issued several checks. Dimaunahan testified that the bank’s Credit Memos and ledger showed that the account was under the name of the clinic with Nanette and Eleanor as its signatories. Yap testified that the bank credited a sum of money to the clinic’s account and debited it from BAP’s account.

The trial court found that Nanette and Eleanor filed a loan application with BAP on behalf of the clinic. The sisters also signed three promissory notes showing that the money would be used to acquire assets and as additional working capital. The promissory notes were secured by a mortgage contract executed by Nanette as Vicente’s attorney-in-fact. Upon approval of the loan, the proceeds were given to the clinic through Security Bank, and BAP’s account was also debited. The trial court gave weight to Jesus’ October 14, 1997 letter, holding that Jesus admitted the existence of the debt, that the loan was obtained in behalf of the clinic, and that the money was used according to its intended purpose; these statements were not rebutted by Vicente or Eleanor. The trial court also found that Vicente and Nanette failed to present evidence that Eleanor used the loan proceeds for her personal use or that the foreclosure was because of Eleanor’s non-payment of her separate debt, and that the alleged blank forms were not presented in court. The Court of Appeals likewise found that the records showed Loan Release Tickets and Debit Memos, with Security Bank crediting the clinic’s account and debiting BAP’s account, and that Jesus’ letter disclosed that Nanette and Eleanor received the loan proceeds.

• Absence of Consideration: Petitioners argued that they did not receive the loan proceeds, so the principal loan contract lacked consideration and was void; because the real estate mortgage is merely an accessory contract, the void loan necessarily rendered the mortgage null and void.
• Unauthorized Release and Fraud: Petitioners alleged that BAP defrauded Nanette by inserting Eleanor’s name on the blank forms she signed earlier, and that BAP’s negligence caused the release of the loan proceeds to a person not authorized by petitioners.
• Lack of Authority to Receive Proceeds: Petitioners maintained that neither of them authorized BAP to release the loan proceeds through Security Bank, and that no evidence showed the power and authority to receive the proceeds under the Special Power of Attorney was delegated to Eleanor.
• Unconsummated Contract: Petitioners contended that the contract was not consummated since they did not receive the loan proceeds.
• Unverified Jesus Letter: Petitioners argued that Jesus Luntao’s October 14, 1997 letter “has not been authenticated.”
• Pactum Commissorium: Petitioners added that the mortgage contract contained a pactum commissorium provision stating that any sale would be free from any right of redemption on the part of the mortgagor, with the right of redemption under Section 8 of Act No. 3135 expressly waived.
• Denial of Authorization to Jesus: In their Reply, petitioners argued that BAP opened the Security Bank account under the name of Holy Infant Medical Clinic, failed to present a witness to testify on who withdrew the loan proceeds, and Nanette denied authorizing Jesus to represent her.

• Receipt and Credit of Proceeds: BAP countered that the loan proceeds “were duly received, credited and transferred to the Holy Infant Medical Clinic/Nanette L. Luntao/Eleonor L. Luntao under Security Bank and Trust Company Account No. 10048,” presenting Credit Memos and the Computerized Bank Account Ledger as proof.
• No Separate Eleanor Loan: BAP maintained that Eleanor had no separate personal loan with it.
• Jesus Letter Admission: BAP emphasized Jesus Luntao’s October 14, 1997 letter admitting the loans of his sisters.
• Nanette’s Promise to Pay: BAP reiterated Bato’s testimony that Nanette promised to pay her account when he tried to collect the loan payment from her.
• Pactum Commissorium Not Present: BAP contended that the assailed mortgage provision is not pactum commissorium since it does not automatically allow the mortgagee to appropriate or own the mortgaged property without the need of foreclosure proceedings.
• Solidary Liability: In its Memorandum, BAP added that Nanette and Eleanor’s obligations are “joint and several or solidary” under the promissory notes they executed.

• Validity of the Real Estate Mortgage: Whether the Real Estate Mortgage executed by Vicente L. Luntao and Nanette L. Luntao should be nullified.

• Validity of the Real Estate Mortgage: No. The Real Estate Mortgage should not be nullified. The principal loan contract was not shown void, and the lower courts’ finding that the loan proceeds were received is a factual finding that is binding in a Rule 45 petition.

• Validity of the Real Estate Mortgage: A real estate mortgage is an accessory contract; its validity depends on the validity of the principal loan. The loan contract is governed by Article 1318, which requires consent, object certain, and cause. Petitioners’ claim that the loan was void rested on the assertion that they did not receive the proceeds, a matter that required review of facts. Rule 45 permits only questions of law; the test is whether the issue can be resolved without evaluating evidence. Both the trial court and the Court of Appeals found that petitioners received the proceeds through the account under the name of Holy Infant Medical Clinic/Nanette Luntao/Eleanor Luntao, supported by evidence. Both courts gave weight to Jesus Luntao’s October 14, 1997 letter, which admitted the loans of his sisters under the clinic and explained business reverses and losses. Petitioners failed to present rebuttal evidence or evidence that Eleanor received the proceeds or that her non-payment of a separate personal loan caused the foreclosure; they offered mere denials. Although exceptions to the Rule 45 limitation exist, petitioners failed to convince the Court to re-examine the facts. The loan contract therefore was not shown void, and the accessory mortgage was not nullified.

• Accessory Contract Follows the Principal — A real estate mortgage is an accessory contract, and its validity depends on the validity of the principal loan contract. In this case, because the loan contract was not shown to be void, the real estate mortgage constituted to secure it was not nullified.
• Requisites of a Valid Contract — Article 1318 of the Civil Code provides that there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. All elements must be present; otherwise, the contract cannot be perfected. The Court applied this provision to the loan contract and found no showing that any requisite was absent.
• Rule 45 Limits Review to Questions of Law — A petition for review on certiorari under Rule 45 may raise only questions of law. A question of law arises when there is doubt as to what the law is on a certain state of facts, while a question of fact arises when the doubt concerns the truth or falsity of alleged facts. The Court applied this rule to decline review of the finding that petitioners received the loan proceeds.
• Binding Effect of Lower Court Factual Findings — Factual findings of the trial court, especially when affirmed by the Court of Appeals, are generally binding on the Supreme Court. The Court applied this principle because both lower courts found that the loan proceeds were received through the account of Holy Infant Medical Clinic/Nanette Luntao/Eleanor Luntao.
• Exceptions to the Rule 45 Limitation — The general rule that Rule 45 petitions are limited to questions of law admits of exceptions, but petitioners failed to convince the Court to re-examine the facts already considered by both the trial court and the Court of Appeals.

• “The validity of accessory contracts mainly flows from the validity of the principal contracts. A real estate mortgage is in the nature of an accessory contract. Thus, the validity of a mortgage contract that was constituted to secure a loan obligation is affected by the validity of the loan contract.” — This opening passage states the ratio decidendi on the derivative validity of a real estate mortgage.
• “Clearly, in a Rule 45 petition, this Court may only entertain cases involving questions of law.” — This passage anchors the Court’s refusal to review the factual finding on receipt of loan proceeds.
• “Here, both the trial court and the Court of Appeals found that petitioners received the proceeds of the loan through the account under the name of Holy Infant Medical Clinic/Nanette Luntao/Eleanor Luntao. This finding was supported by evidence presented by the parties.” — This passage identifies the factual finding that defeated petitioners’ claim that the loan lacked consideration.
• “Despite having the opportunity to prove that the admission of Jesus is false, petitioners failed to present rebuttal evidence. They also failed to present evidence to support their allegation that Eleanor received the loan proceeds or that Eleanor’s non-payment of her alleged personal loan with BAP caused the foreclosure of the mortgage. What petitioners presented were mere denials.” — This passage explains why the Court did not disturb the lower courts’ factual findings and why the mortgage was not nullified.

• Pentacapital Investment Corporation vs. Mahinay, 637 Phil. 283 (2010) — Cited for the rule that a contract of loan is subject to the rules governing the requisites and validity of contracts in general; the Court used it to apply Article 1318 to the loan contract.
• Century Iron Works, Inc., et al. vs. Bañas, 711 Phil. 576 (2013) — Cited for the test distinguishing a question of law from a question of fact; applied to classify the receipt of loan proceeds as a factual issue.
• Naguiat vs. Court of Appeals, 459 Phil. 237 (2003) — Cited for the rule that Rule 45 permits only questions of law, that the Supreme Court is not a trier of facts, and that lower courts’ factual findings are generally binding.
• Limso vs. Philippine National Bank, G.R. No. 158622, January 27, 2016, 782 SCRA 137 — Cited for the principle that determination of facts is not proper in a Rule 45 petition and for the exceptions to that rule.
• Benito vs. People, 753 Phil. 616 (2015) — Cited in the footnote enumerating the exceptions to the rule limiting Rule 45 petitions to questions of law.

• Article 1318, Civil Code — Enumerates the requisites of a valid contract: consent of the contracting parties, object certain which is the subject matter, and cause of the obligation. Applied: the Court assessed the loan contract under this provision and found no showing that it lacked any requisite.
• Rule 45, Section 1, 1997 Rules of Civil Procedure — Provides that a petition for review on certiorari to the Supreme Court shall raise only questions of law. Applied: the Court refused to review the lower courts’ factual finding that petitioners received the loan proceeds.

Velasco, Jr. (Chairperson), Bersamin, Martires, and Gesmundo, JJ., concur.