G.R. No. L-63046 June 21, 1990
MARIANO TORRES Y CHAVARRIA, petitioner, vs. THE HONORABLE COURT OF APPEALS, FRANCISCO E. FERNANDEZ and FE FERNANDEZ, ROSARIO MOTA CUE, ERNESTO MEDINA CUE and the NATIONAL TREASURER, as Custodian of the Assurance Fund, respondents.

FACTS

Petitioner Mariano Torres was the registered owner of a parcel of land and building in Manila, evidenced by TCT No. 53628. He remained in possession, held his owner’s duplicate certificate, paid taxes, and collected rentals. In 1966, his brother-in-law, respondent Francisco Fernandez, fraudulently obtained a court order for a new copy of Torres’ title by misrepresenting himself as Torres’ attorney-in-fact and falsely alleging the loss of the duplicate. Using this new copy, Fernandez forged a deed of sale in his favor, leading to the cancellation of Torres’ title and the issuance of TCT No. 86018 in Fernandez’s name.
Fernandez then mortgaged the properties to respondents Rosario Mota Cue and Angela Fermin (who later assigned her credit to the Cues). Upon discovering the fraud, Torres annotated an adverse claim and filed an action to annul Fernandez’s title. The trial court later declared the proceedings that produced Fernandez’s title void and reinstated Torres’s original title, a decision affirmed by the Court of Appeals. Meanwhile, due to Fernandez’s loan default, the Cues foreclosed on the mortgage, purchased the properties at auction, and obtained TCT No. 105953 in Rosario Mota’s name. Torres then filed an action to declare this new title void.

ISSUE

Whether respondent Rosario Mota Cue, as mortgagee and subsequent purchaser at the foreclosure sale, is an innocent mortgagee for value whose rights prevail over those of the defrauded registered owner, Mariano Torres.

RULING

The Supreme Court ruled in favor of petitioner Torres, reversing the Court of Appeals. The legal logic is that while the principle of indefeasibility of a Torrens title protects innocent purchasers for value, this protection is not absolute. A mortgagee is required to exercise due diligence in examining the title and the condition of the property. The Court found that the Cues were not innocent mortgagees in good faith.
The circumstances should have prompted a prudent mortgagee to investigate beyond the certificate of title presented by Fernandez. The property was extremely valuable, generating substantial rentals, yet the Cues never inquired as to who was actually collecting these rents—which was Torres. Furthermore, the physical building (“M. Torres Building”) obviously extended beyond the lot described in Fernandez’s TCT No. 86018, resting also on adjacent lots owned or leased by Torres. This visible fact alone should have alerted the Cues to a potential problem with the title being offered as collateral. Their failure to conduct this basic verification constituted negligence, disqualifying them from the status of innocent purchasers or mortgagees for value. Consequently, the foreclosure sale and the derivative title issued to Rosario Mota Cue were void as against the true owner, Mariano Torres. The trial court’s decision reinstating Torres’s ownership was upheld.