Dear PAO,

My sister forged the signature of my deceased parents to make it appear that a certain land was donated to her. She was able to register the lot in her name. I also found out that the property was mortgaged to a certain businessman because of the annotation at the back of the title. I informed the businessman about the forgery but he claimed that he is a mortgagee in good faith. Please enlighten me what he meant by being a mortgagee in good faith.

Hernie

Dear Hernie,

The general rule is a party may rely on the certificate of title involving a registered land. “[A] person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense with the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of said certificate.” (Locsin v. Hizon, et. al., G.R. No. 204369, September 17, 2014, penned by Honorable Former Associate Justice Presbitero J. Velasco, Jr.)

The same doctrine also applies to a mortgagee. The latter is considered in good faith if he had relied on the correctness of the title of the mortgagor. The requirements for a mortgagee in good faith are fully explained in the case of Jimenez vs. Jimenez, Jr. et al., G.R. No. 228011, February 10, 2021, where the Supreme Court through Honorable Associate Justice Mario V. Lopez stated that:

“There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of “the mortgagee in good faith” based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. (Emphasis supplied.)

“The doctrine applies when the following requisites concur, namely: (a) the mortgagor is not the rightful owner of, or does not have valid title to, the property; (b) the mortgagor succeeded in obtaining a Torrens title over the property; (c) the mortgagor succeeded in mortgaging the property to another person; (d) the mortgagee relied on what appears on the title and there exists no facts and circumstances that would compel a reasonably cautious man to inquire into the status of the property; and (e) the mortgage contract was registered. xxx”

Applying the above-quoted decision in your situation, the businessman or mortgagee was correct in his claim that he was a mortgagee in good faith if he simply relies on the certificate of title covering the property furnished as mortgage. He need not go beyond what appears on the face of the title. The requisites of a mortgagee in good faith were all present in the transaction of your sister: (a) your sister was not the rightful owner of the property since her title was derived from a forged deed of donation; (b) she succeeded in transferring the property in her name; (c) she mortgaged the property to the businessman; (d) the businessman relied on the title of your sister and there exists no facts or circumstances which compel a reasonable cautious man to inquire into the status of the property; and (e) the mortgage contract was registered as the same was annotated at the back of the title.

We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.