Delfin and his deceased wife, Cora were the registered owners of a parcel of land. Their daughter, Mari, entered into a contract of real estate mortgage over the subject property in favor of Magi to secure a loan obligation using a forged Special Power of Attorney (SPA). In the said SPA, it was made to appear that Delfin and Cora authorized Mari to mortgage their conjugal property when in truth they did not.
Delfin found out of the anomalous transaction when, after the death of Cora, Magi, the mortgagee, informed him about it.
Magi and his wife claimed that they are mortgagees in good faith. They asserted that they have no knowledge as regards the supposed falsity of the SPA presented by Mari. They further said that Delfin’s deceased wife knew about it as the latter pleaded to accommodate them into entering a mortgage contract. Magi and his wife further claimed that they have no knowledge that Delfin was not in the Philippines at the time of the execution of the SPA, which, as a duly-notarized document, was presumed to have been done regularly. Since Delfin and his wife defaulted in paying the obligation despite several repeated demand, they had no choice but to foreclosed the property.
Q: Has the doctrine of mortgagee in good faith been allowed as an acceptable defense?
A: Yes. 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 the 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 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.
The doctrine of mortgagee in good faith presupposes that the mortgagor, who is not the rightful owner of the property, has already succeeded in obtaining a Torrens title over the property in his or her name and that, after obtaining the said title, he or she succeeds in mortgaging the property to another who relies on what appears on the said title.
Q: Is the doctrine applicable in this case?
A: No. Mari is undoubtedly not the registered owner of the subject lot; and the certificate of title was in the name of her parents at the time of the mortgage transaction. She merely acted as the attorney-in-fact of Cora and Del by virtue of the falsified SPA. The protection accorded by law to mortgagees in good faith cannot be extended to mortgagees of properties that are not yet registered with the RD or registered but not under the mortgagor’s name.
Q: What is the degree of care required when a mortgagee deals with a person who is not the registered owner of the property?
A: When the mortgagee does not directly deal with the registered owner of the real property, like an attorney-in-fact of the owner, it is incumbent upon the mortgagee to exercise greater care and a higher degree of prudence in dealing with such mortgagor.
A person who deals with registered land through someone who is not the registered owner is expected to look behind the certificate of title and examine all factual circumstances, in order to determine if the mortgagor/vendee has the capacity to transfer any interest in the land. One has the duty to ascertain the identity of the person with whom one is dealing, as well as the latter’s legal authority to convey.
Thus, the law “requires a higher degree of prudence from one who buys from a person who is not the registered owner, although the land object of the transaction is registered. While one who buys from the registered owner does not need to look behind the certificate of title, one who buys from one who is not the registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for [one] to determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land.” Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term “purchaser.”
Q: May Magi merely rely on the duly notarized SPA?
A: No. Not all types of public documents are deemed prima facie evidence of the facts therein stated. Although classified as a public document, a notarized document is merely evidence of the fact which gave rise to their execution and of the date of the latter. When the notarization is defective, the public character of the document is stripped off and it is reduced to a mere private document that should be examined under the parameters of the law, providing that “[b]efore any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either (a) [b ]y anyone who saw the document executed or written, or (b) [b]y evidence of the genuineness of the signature or handwriting of the maker.
Q: As to what extent an inquiry into a notarized SPA should go in order for one to qualify as a buyer for value in good faith?
A: No automatic correlation exists between the state of forgery of a document and the bad faith of the buyer who relies on it. A test has to be done whether the buyer had a choice between knowing the forgery and finding it out, or he had no such choice at all.
When the document under scrutiny is a special power of attorney that is duly notarized, we know it to be a public document where the notarial acknowledgment is prima facie evidence of the fact of its due execution. A buyer presented with such a document would have no choice between knowing and finding out whether a forger lurks beneath the signature on it. The notarial acknowledgment has removed that choice from him and replaced it with a presumption sanctioned by law that the affiant appeared before the notary public and acknowledged that he executed the document, understood its import and signed it. In reality, he is deprived of such choice not because he is incapable of knowing and finding out but because, under our notarial system, he has been given the luxury of merely relying on the presumption of regularity of a duly notarized SPA. And he cannot be faulted for that because it is precisely that fiction of regularity which holds together commercial transactions across borders and time.
In sum, all things being equal, a person dealing with a seller who has possession and title to the property but whose capacity to sell is restricted, qualifies as a buyer in good faith if he proves that he inquired into the title of the seller as well as into the latter’s capacity to sell; and that in his inquiry, he relied on the notarial acknowledgment found in the sellers duly notarized special power of attorney. He need not prove anything more for it is already the function of the notarial acknowledgment to establish the appearance of the parties to the document, its due execution and authenticity.
Q: Is there a legal presumption that a mortgagee is in good faith?
A: Similar to a buyer, the status of a mortgagee in good faith is never presumed but must be proven by the person invoking it. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. “Good faith, or the lack of it, is a question of intention. In ascertaining intention, courts are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined.”
Source: Dadis vs. Spouses De Guzman, G.R. No. 206008, June 7, 2017
Ma. Soledad Deriquito-Mawis is Dean, Lyceum of the Philippines University; Chairman, Philippine Association of Law Schools; founder, Mawis Law Office