GR 171373; (June, 2008) (Digest)
G.R. No. 171373; June 18, 2008
LLOYD’S ENTERPRISES and CREDIT CORPORATION, petitioner, vs. SPS. FERDINAND and PERSEVERANDA DOLLETON, respondents.
FACTS
Respondents, the registered owners of a property in Muntinlupa, mortgaged it to Joseph Patrick Santos. After paying the loan, they discovered their title had been cancelled and a new one issued to Blesilda Gagan based on a forged Deed of Absolute Sale. Respondents alleged they had only negotiated an installment sale with Gagan, entrusting their title copy to her for mortgage cancellation. Gagan then used the fraudulently obtained title to secure two loans from petitioner Lloyd’s Enterprises, which constituted mortgages on the property. Upon Gagan’s default on the second loan, petitioner foreclosed the property, acquired title, and notified the tenants.
Respondents filed a complaint to annul the sale, mortgages, and foreclosure. The trial court found the deed of sale spurious and declared the subsequent transactions void. It ruled petitioner was not a mortgagee in good faith, emphasizing its failure to exercise due diligence. The Court of Appeals affirmed but modified the damages awarded. Petitioner appealed, arguing it was a mortgagee in good faith who relied on a clean certificate of title.
ISSUE
Whether petitioner Lloyd’s Enterprises was a mortgagee in good faith, thereby validating the real estate mortgage and the subsequent foreclosure.
RULING
No, petitioner was not a mortgagee in good faith. The Supreme Court affirmed the lower courts’ decisions, holding that the forged deed of sale was void and conveyed no title to Gagan. Consequently, Gagan had no ownership rights to mortgage. The legal logic centers on the principle that a mortgagee must exercise due diligence in verifying the mortgagor’s title. Petitioner failed this duty. The circumstances were suspicious: the loan was applied for and granted immediately after the new title was issued to Gagan, and the mortgage was annotated on the same day the previous mortgage cancellation was recorded. A prudent lender should have investigated these irregularities, especially given the minimal time between the purported sale and the loan application. Since the mortgage was based on a void title, the foreclosure and all derivative titles were also declared void. The Court reinstated the trial court’s award of damages and upheld the order for Gagan and her partner to reimburse petitioner for the foreclosure amount, recognizing petitioner’s recourse against the fraudulent parties.