FIRST DIVISION

[G.R. No. 172227. June 29, 2011.]

SPOUSES WILFREDO PALADA and BRIGIDA PALADA, * petitioners, vs .

SOLIDBANK CORPORATION and SHERIFF MAYO DELA CRUZ ,
respondents.

DECISION

DEL CASTILLO , J : p

Allegations of bad faith and fraud must be proved by clear and convincing
evidence. 1
This Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court assails
the January 11, 2006 Decision 3 of the Court of Appeals (CA) in CA-G.R. CV No. 84236
which dismissed the complaint led by the petitioners against the respondents and
declared as valid the real estate mortgage and certi cate of sale. Also assailed is the
April 12, 2006 Resolution 4 which denied the motion for reconsideration thereto.
Factual Antecedents
In February or March 1997, petitioners, spouses Wilfredo and Brigida Palada,
applied for a P3 million loan broken down as follows: P1 million as additional working
capital under the bills discounting line; P500,000.00 under the bills purchase line; and
P1.5 million under the time loan from respondent Solidbank Corporation (bank). 5
On March 17, 1997, petitioners received from the bank the amount of P1 million
as additional working capital evidenced by a promissory note 6 and secured by a real
estate mortgage 7 in favor of the bank covering several real properties situated in
Santiago City. 8
Due to the failure of petitioners to pay the obligation, the bank foreclosed the
mortgage and sold the properties at public auction. 9
On August 19, 1999, petitioners led a Complaint 1 0 for nullity of real estate
mortgage and sheriff's certi cate of sale 1 1 with prayer for damages, docketed as Civil
Case No. 35-2779, against the bank and respondent Sheriff Mayo dela Cruz (sheriff)
before the Regional Trial Court (RTC) of Santiago City, Branch 35. 1 2 Petitioners alleged
that the bank, without their knowledge and consent, included their properties covered
by Transfer Certi cate of Title (TCT) Nos. T-225131 and T-225132, 1 3 among the list of
properties mortgaged; that it was only when they received the notice of sale from the
sheriff in August 1998 that they found out about the inclusion of the said properties;
that despite their objection, the sheriff proceeded with the auction sale; and that the
auction sale was done in Santiago City in violation of the stipulation on venue in the real
estate mortgage. 1 4 SCaTAc

The bank, in its Answer, 1 5 denied the material allegations of the Complaint and
averred that since petitioners were collaterally de cient, they offered TCT Nos. T-
237695, T-237696, T-225131 and T-225132 as additional collateral; 1 6 that although
the said properties were at that time mortgaged to the Philippine National Bank (PNB),
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 the bank accepted the offer and caused the annotation of the mortgage in the original
copies with the Register of Deeds with the knowledge and consent of petitioners; 1 7
and that when petitioners' obligation to PNB was extinguished, they delivered the titles
of the four properties to the bank. 1 8
Ruling of the Regional Trial Court
On October 21, 2004, the RTC rendered a Decision 1 9 declaring the real estate
mortgage void for lack of su cient consideration. According to the RTC, the real estate
mortgage lacks consideration because the loan contract was not perfected due to the
failure of the bank to deliver the full P3 million to petitioners. 2 0 The RTC also found the
bank guilty of fraud and bad faith, thereby ordering it to pay petitioners moral and
exemplary damages, and attorney's fees. The RTC ruled:
Furthermore, it appears that the defendant unilaterally changed the term
and condition of their loan contract by releasing only P1M of the P3M approved
loan. The defendant, in so doing, violated their principal contract of loan in bad
faith, and should be held liable therefor.

Likewise, the defendant bank acted in bad faith when it made it appear
that the mortgage was executed by the plaintiffs on June 16, 1997, when the
document was acknowledged before Atty. German Balot, more so, when it made it
appear that the mortgage was registered with the Register of Deeds allegedly on
the same date, when in truth and in fact, the plaintiffs executed said mortgage
sometime [in] March, 1997, obviously much earlier than June 16, 1997; for, if
indeed the mortgage was executed on said date, June 16, 1997, it should have
been written on the mortgage contract itself. On the contrary, the date and place
of execution [were left blank]. Amazingly, defendant claims that it was the
plaintiffs who [had the] mortgage notarized by Atty. Balot; such claim however is
contrary or against its own interest, because, the defendant should be the most
interested party in the genuineness and due execution of material important
papers and documents such as the mortgage executed in its favor to ensure the
protection of its interest embodied in said documents, and the act of leaving the
notarization of such a very important document as a mortgage executed in its
favor is contrary to human nature and experience, more so against its interest;
hence, the claim is untrue.

Moreover, the defendant also appears to have been motivated by bad faith
amounting to fraud when it was able to register the mortgage with the Register of
Deeds at the time when the collateral certi cates of titles were still in the custody
and possession of another mortgagee bank (PNB) due also to an
existing/subsisting mortgage covering the same. De nitely, the defendant
resorted to some machinations or fraudulent means in registering the contract of
mortgage with the Register of Deeds. This should not be countenanced. cTESIa

Thus, on account of defendant's bad faith, plaintiffs suffered mental

anguish, serious anxiety, besmirched reputation, wounded feelings, moral shock
and social humiliation, which entitle them to the award of moral damages, more
so, that it was shown that defendants' bad faith was the proximate cause of
these damages plaintiffs suffered.
xxx xxx xxx

WHEREFORE, with all the foregoing considerations, judgment is hereby

rendered in favor of the plaintiffs and against the defendant as follows:

CD Technologies Asia, Inc. © 2018 cdasiaonline.com

 1. DECLARING as null and void the undated real estate mortgage
between the plaintiffs and the defendant, appearing as Doc. No. 553; Page No. 29;
Book No. 28; Series of 1997; (Exhibits "B" for the plaintiffs, Exhibit "1" for the
defendant);

2. Likewise DECLARING as null and void the Sheriff's Foreclosure and

the Certificate of Sale, dated October 7, 1998 (Exhibits "F" to "F-3");

3. ORDERING the defendant to pay the plaintiffs the following

damages:

a) Php1,000,000.00, moral damages;

b) Php500,000.00, exemplary damages; and

c) Php50,000.00, Attorney's fee; and

4. ORDERING the defendant to pay the cost of litigation, including

plaintiffs' counsel's court appearance at Php1,500.00 each.

SO ORDERED. 2 1

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA said that based on the
promissory note and the real estate mortgage contract, the properties covered by TCT
Nos. T-225131 and T-225132 were mortgaged to secure the loan in the amount of P1
million, and not the P3 million loan applied by petitioners. 2 2 As to the venue of the
auction sale, the CA declared that since the properties subject of the case are in
Santiago City, the holding of the auction sale in Santiago City was proper 2 3 pursuant to
Sections 1 2 4 and 2 2 5 of Act No. 3135. 2 6 The CA likewise found no fraud or bad faith
on the part of the bank to warrant the award of damages by the RTC, thus: AICHaS

The List of Properties Mortgaged printed at the dorsal side of the real
estate mortgage contract particularly includes the subject parcels of land covered
by TCT No. T-225132 and TCT No. T-225131. Below the enumeration, the
signatures of [petitioners] clearly appear. The document was notarized before
Notary Public German M. Balot. We therefore nd no cogent reason why the
validity of the real estate mortgage covering the two subject properties should not
be sustained.

Settled is the rule in our jurisdiction that a notarized document has in its
favor the presumption of regularity, and to overcome the same, there must be
evidence that is clear, convincing and more than merely preponderant; otherwise
the document should be upheld. Clearly, the positive presumption of the due
execution of the subject real estate mortgage outweighs [petitioners'] bare and
unsubstantiated denial that the parcels of land covered by TCT Nos. T-225132
and T-225131 were among those intended to secure the loan of One Million
Pesos. Their imputation of fraud among the o cials of [the bank] is weak and
unpersuasive. . . .

xxx xxx xxx

We also note why despite the alleged non-approval of [petitioners']
application for additional loan, the owner's copy of TCT Nos. T-225131 and T-
225132 remained in the possession of [the bank]. [Petitioners'] claim that they
were still hoping to obtain an additional loan in the future appears to this court as
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 a weak explanation. The continued possession by the bank of the certi cates of
title merely supports the bank's position that the parcels of land covered by these
titles were actually mortgaged to secure the payment of the One Million Peso
loan.

xxx xxx xxx

WHER EF O R E, in view of the foregoing, the assailed decision of the
Regional Trial Court, Branch 35 of Santiago City in Civil Case No. 35-2779 is
hereby ANNULLED and SET ASIDE and a new one entered:
(1) D IS M IS S ING the complaint led by the plaintiffs-appellees
against the defendants-appellants; and
(2) Declaring VALID the questioned real estate mortgage and
certificate of sale.
SO ORDERED. 27

On February 1, 2006, petitioners moved for reconsideration but the CA denied the
same in its Resolution dated April 12, 2006. 2 8
Issues
Hence, the present recourse, where petitioners allege that:
(A)
THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN
ANNULLING OR REVERSING THE FINDINGS OF BRANCH 35, REGIONAL TRIAL
COURT OF SANTIAGO CITY THEREBY IN EFFECT DISMISSING THE COMPLAINT
FILED BY THE PETITIONERS AGAINST RESPONDENTS SOLIDBANK
CORPORATION AND SHERIFF MAYO DELA CRUZ.
(B)

THE COURT OF APPEALS ERRED IN DECLARING VALID THE REAL ESTATE

MORTGAGE EXECUTED BETWEEN THE PETITIONERS AND RESPONDENT
SOLIDBANK CORPORATION AND IN SUSTAINING THE VALIDITY OF THE
CERTIFICATE OF SALE ISSUED BY RESPONDENT SHERIFF MAYO DELA CRUZ.
(C)

THE COURT OF APPEALS ERRED IN MISAPPRECIATING THE FINDINGS OF

FACTS OF BRANCH 35, REGIONAL TRIAL COURT OF SANTIAGO CITY. 2 9

Simply put, the core issue in this case is the validity of the real estate mortgage and
the auction sale.
Petitioners' Arguments
Petitioners echo the ruling of the RTC that the real estate mortgage and
certi cate of sale are void because the bank failed to deliver the full amount of the loan.
They likewise impute bad faith and fraud on the part of the bank in including TCT Nos.
T-225131 and T-225132 in the list of properties mortgaged. They insist that they did
not sign the dorsal portion of the real estate mortgage contract, which contains the list
of properties mortgaged, because at that time the dorsal portion was still blank; 3 0 and
that TCT Nos. T-225131 and T-225132 were not intended to be included in the list of
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 mortgaged properties because these titles were still mortgaged with the PNB at the
time the real estate mortgage subject of this case was executed. 3 1 Moreover, they
claim that they delivered the titles of these properties to the bank as additional
collateral for their additional loans, and not for the P1 million loan. 3 2
Respondent bank's Arguments
The bank denies petitioners' allegations of fraud and bad faith and argues that
the real estate mortgage which was properly notarized enjoys the presumption of
regularity. 3 3 It maintains that TCT Nos. T-225131 and T-225132 were mortgaged as
additional collateral for the P1 million loan. 3 4
Our Ruling
The petition is bereft of merit.
The loan contract was perfected.
Under Article 1934 3 5 of the Civil Code, a loan contract is perfected only upon the
delivery of the object of the contract.
In this case, although petitioners applied for a P3 million loan, only the amount of
P1 million was approved by the bank because petitioners became collaterally de cient
when they failed to purchase TCT No. T-227331 which had an appraised value of
P1,944,000.00. 3 6 Hence, on March 17, 1997, only the amount of P1 million was
released by the bank to petitioners. 3 7
Upon receipt of the approved loan on March 17, 1997, petitioners executed a
promissory note for the amount of P1 million. 3 8 As security for the P1 million loan,
petitioners on the same day executed in favor of the bank a real estate mortgage over
the properties covered by TCT Nos. T-237695, T-237696, T-237698, T-143683, T-
143729, T-225131 and T-225132. Clearly, contrary to the ndings of the RTC, the loan
contract was perfected on March 17, 1997 when petitioners received the P1 million
loan, which was the object of both the promissory note and the real estate mortgage
executed by petitioners in favor of the bank. IcHDCS

Claims of fraud and bad faith are

unsubstantiated.
Petitioners claim that there was fraud and bad faith on the part of the bank in the
execution and notarization of the real estate mortgage contract.
We do not agree.
There is nothing on the face of the real estate mortgage contract to arouse any
suspicion of insertion or forgery. Below the list of properties mortgaged are the
signatures of petitioners. 3 9 Except for the bare denials of petitioner, no other evidence
was presented to show that the signatures appearing on the dorsal portion of the real
estate mortgage contract are forgeries.
Likewise awed is petitioners' reasoning that TCT Nos. T-225131 and T-225132
could not have been included in the list of properties mortgaged as these were still
mortgaged with the PNB at that time. Under our laws, a mortgagor is allowed to take a
second or subsequent mortgage on a property already mortgaged, subject to the prior
rights of the previous mortgages. 4 0
As to the RTC's nding that "the . . . bank acted in bad faith when it made it
appear that the mortgage was executed by the [petitioners] on June 16, 1997, when the
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 document was acknowledged before Atty. German, . . . when in truth and in fact, the
[petitioners] executed said mortgage sometime in March, 1997 . . .," we nd the same
without basis. A careful perusal of the real estate mortgage contract would show that
the bank did not make it appear that the real estate mortgage was executed on June
16, 1997, the same day that it was notarized, as the date of execution of the real estate
mortgage contract was left blank. 4 1 And the mere fact that the date of execution was
left blank does not prove bad faith. Besides, any irregularity in the notarization or even
the lack of notarization does not affect the validity of the document. Absent any clear
and convincing proof to the contrary, a notarized document enjoys the presumption of
regularity and is conclusive as to the truthfulness of its contents. 4 2
All told, we nd no error on the part of the CA in sustaining the validity of the real
estate mortgage as well as the certificate of sale.
WHE RE FO RE , the petition is hereby DE NI E D. The assailed January 11, 2006
Decision of the Court of Appeals and its April 12, 2006 Resolution in CA-G.R. CV No.
84236 are hereby AFFIRMED.
SO ORDERED. cETCID

Corona, C.J., Leonardo-de Castro, Bersamin and Villarama, Jr., JJ., concur.

Footnotes
*In view of the demise of petitioner Brigada Palada, the title of the instant case should have
been "Wilfredo Palada and Heirs of Brigada Palada" (See Transcript of Stenographic
Notes [TSN] dated September 9, 2003, pp. 2-3).
1.Cathay Pacific Airways, Ltd. v. Sps. Vazquez, 447 Phil. 306, 321 (2003).

2.Rollo, pp. 9-21.

3.Id. at 23-33; penned by Associate Justice Rodrigo V. Cosico and concurred in by Associate
Justices Regalado E. Maambong and Lucenito N. Tagle.
4.CA rollo, 84-85.
5.Rollo, p. 40.
6.Records, p. 7. Although the promissory note is dated June 16, 1997, both parties admit that
the promissory note was executed on March 17, 1997 (Complaint, id. at 2 and Answer, id.
at 23).
7.Id. at 8.
8.Rollo, pp. 23-24; TSN dated July 17, 2000, pp. 6-9, Direct Examination of Wilfredo Palada.
9.Id. at 24.

10.Records, pp. 1-6.

11.Id. at 11-14.
12.Rollo, p. 34.
13.Indicated as T-225152 and T-221512 in the Complaint; see records, p. 2.
14.Id. at 3-4.
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 15.Id. at 23-26.

16.Id. at 24.
17.Id.
18.Id.
19.Rollo, pp. 34-46; penned by Judge Efren M. Cacatian.
20.Id. at 43.

21.Id. at 44-46.
22.Id. at 29-30.
23.Id. at 31.
24.SECTION 1. When a sale is made under a special power inserted in or attached to any real-
estate mortgage hereafter made as security for the payment of money or the fulfillment
of any other obligation, the provisions of the following sections shall govern as to the
manner in which the sale and redemption shall be effected, whether or not provision for
the same is made in the power.
25.SECTION 2. Said sale cannot be made legally outside of the province in which the property
sold is situated; and in case the place within said province in which the sale is to be
made is the subject of stipulation, such sale shall be made in said place or in the
municipal building of the municipality in which the property or part thereof is situated.
26.AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN
OR ANNEXED TO REAL-ESTATE MORTGAGES.

27.Rollo, pp. 30-32.

28.Id. at 10-11.
29.Id. at 14-15.
30.Id. at 110.

31.Id.
32.Id. at 114.
33.Id. at unpaged-129 and 131-132.
34.Id. at 127.
35.Art. 1934. An accepted promise to deliver something by way of commodatum or simple loan
is binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract.
36.TSN, dated July 17, 2000, pp. 21-22, Direct Examination of Wilfredo Palada; TSN, dated July
31, 2000, pp. 7 and 25-26, Cross-examination and Re-direct examination of Wilfredo
Palada; TSN, dated August 25, 2003, p. 22, Direct Examination of Julieta Ayala.
37.TSN, dated July 17, 2000, p. 5; Direct Examination of Wilfredo Palada.
38.Id. at 5-7.
39.Rollo, p. 30.
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 40.Cinco v. Court of Appeals, G.R. No. 151903, October 9, 2009, 603 SCRA 108, 118.
41.Records, p. 8.

42.Ocampo v. Land Bank of the Philippines, G.R. No. 164968, July 3, 2009, 591 SCRA 562, 571-
572.

CD Technologies Asia, Inc. © 2018 cdasiaonline.com