G.R. No. 150318 ; November 22, 2010
PHILIPPINE TRUST COMPANY (Philtrust Bank), Petitioner, vs. HON. COURT OF APPEALS and FORFOM DEVELOPMENT CORPORATION, Respondents.

FACTS

Forfom Development Corporation discovered in 1989 that its two parcels of land in Angeles City had been fraudulently transferred. Investigation revealed that a certain Honorata Dizon, using the fictitious names Ma. Teresa Limcauco and Ellenora Vda. De Limcauco, executed forged deeds of absolute sale over the properties. The forgeries included the signature of Forfom’s president, Felix H. Limcauco. Through petitions for the issuance of new owner’s duplicate certificates of title based on alleged loss, which involved a falsified court order and a falsified certification from a branch clerk of court, the fraudster obtained new titles.
Subsequently, the property originally under TCT No. 64884 was sold to Raul P. Claveria. Claveria and his spouse then mortgaged this property to Philippine Trust Company (Philtrust) to secure an ₱8,000,000.00 loan. Forfom filed an action for reconveyance and annulment of titles against the Limcaucos, the Claverias, Philtrust, and the Register of Deeds. The trial court ruled in favor of Forfom, declaring the deeds and subsequent titles void and ordering reconveyance. The Court of Appeals affirmed the decision.

ISSUE

Whether Philtrust Bank is a mortgagee in good faith, such that its mortgage lien over the property should be respected despite the fraudulent origin of the mortgagor’s title.

RULING

No, Philtrust is not a mortgagee in good faith. The Supreme Court affirmed the lower courts’ rulings. The legal logic rests on the principle that a mortgagee must exercise due diligence in verifying the mortgagor’s title. Philtrust failed this duty. The bank relied solely on the face of Claveria’s certificate of title (TCT No. 75533) and did not investigate beyond it. Crucially, the bank was aware of an existing adverse claim annotated on the title by Forfom at the time it conducted its ocular inspection and processed the loan. This adverse claim was a clear warning sign that put the bank on inquiry notice. A prudent mortgagee, upon seeing such an annotation, is duty-bound to investigate the nature of this adverse claim to ascertain the true state of ownership. By proceeding with the mortgage without resolving this cloud on the title, Philtrust cannot claim it acted in good faith. Consequently, its mortgage lien cannot be accorded protection. The mortgaged property, having been acquired through a void deed, must be reconveyed to its rightful owner, Forfom, unencumbered by Philtrust’s mortgage.