G.R. No. 171464 & G.R. No. 199341. November 27, 2013.
Spouses Eliseo R. Bautista and Empera Triz C. Bautista, Petitioners, vs. Spouses Mila Jalandoni and Antonio Jalandoni and Manila Credit Corporation, Respondents. / Manila Credit Corporation, Petitioner, vs. Spouses Mila and Antonio Jalandoni, and Spouses Eliseo and Emperatriz C. Bautista, Respondents.

FACTS

Spouses Jalandoni were the registered owners of two parcels of land in Muntinlupa. In 1997, they discovered their titles had been cancelled and new ones issued to Spouses Bautista based on forged deeds of absolute sale dated 1996. The Jalandonis denied executing any sale, asserting their signatures were forged, they never met the Bautistas, and they retained possession of the owner’s duplicate certificates of title. They filed a complaint for cancellation of titles and damages.
Spouses Bautista claimed they purchased the lots through a certain Teresita Nasino, who presented herself as negotiating for the Jalandonis. They gave Nasino the purchase price and received the new titles. Subsequently, they mortgaged one lot to Spouses Tongco (later paid) and the other to Manila Credit Corporation (MCC). MCC asserted it was a mortgagee in good faith, having found no defect in the Bautistas’ titles.

ISSUE

The primary issues were: (1) Whether the forged deeds of sale and the subsequent titles issued to the Bautistas were valid; and (2) Whether MCC was a mortgagee in good faith whose lien should be upheld.

RULING

The Supreme Court affirmed the Court of Appeals’ decision declaring the sale void but upheld MCC’s mortgage lien. A forged deed conveys no title. The Bautistas were not innocent purchasers for value. They failed to exercise due diligence by dealing solely with Nasino, a stranger, without verifying her authority directly with the registered owners, the Jalandonis, or inspecting the original titles. Their negligence precludes a finding of good faith.
However, MCC was correctly declared a mortgagee in good faith. The law imposes a stricter standard of diligence on the mortgagee of registered land than on a subsequent purchaser. MCC was not required to investigate beyond the face of the title. The Bautistas’ certificates of title were clean and free from any lien or encumbrance. MCC had no actual knowledge of the forgery, and its reliance on the Torrens titles was justified. Consequently, while the sale was void, MCC’s mortgage lien, created in good faith and for value upon reliance on the Torrens certificates, remained valid and enforceable against the properties. The Bautistas were held liable to the Jalandonis for damages.