G.R. No. 96357 ; May 29, 1991
Planters Development Bank, petitioner, vs. Hon. Court of Appeals, Spouses Domingo P. Uy and Sy Siu Ken, respondents.

FACTS

Spouses Domingo Uy and Manuel Uy were registered co-owners of two parcels of land. While Domingo Uy was abroad, his brother Manuel, along with his spouse Mely Tan, falsified a deed of absolute sale purportedly conveying Domingo’s share to them. Using this falsified document, they obtained new transfer certificates of title solely in their names. Manuel Uy then applied for and was granted a P5 Million loan from Planters Development Bank, offering the properties as collateral through a real estate mortgage. The bank, seeing the clean titles in Manuel’s name, approved the loan.
Upon Domingo Uy’s return and discovery of the fraud, he and his spouse filed a complaint for annulment of the deed of sale and the mortgage against Manuel Uy, Mely Tan, and the bank. The Regional Trial Court declared the sale and the mortgage, insofar as it pertained to Domingo’s half-share, null and void. The Court of Appeals affirmed this decision, ruling that the bank was not a mortgagee in good faith, prompting the bank’s appeal to the Supreme Court.

ISSUE

Whether Planters Development Bank was a mortgagee in good faith, such that the real estate mortgage over the properties should be upheld.

RULING

Yes, the Supreme Court reversed the appellate court and held that Planters Development Bank was a mortgagee in good faith. The legal logic centers on the bank’s justified reliance on the face of the clean certificates of title presented by the mortgagors. The Court emphasized that a mortgagee-bank is not required to investigate beyond the title presented as security when there is no visible defect or cause for suspicion. While the bank initially knew the properties were co-owned, it had no knowledge that the subsequent consolidation of title in Manuel Uy’s name was founded on a forgery. The bank received the titles in good faith, with no notice of any flaw.
The Court found the appellate court’s requirement for the bank to inquire into the circumstances of the transfer to be untenable, as there was no reason to suspect fraud. Furthermore, the Court noted that only the bank appealed the lower court’s decision; the mortgagor-spouses did not. This, coupled with evidence showing the loan proceeds partially settled a prior joint obligation of the Uy brothers, suggested possible collusion at the bank’s expense. Therefore, as an innocent mortgagee for value, the bank’s rights must be protected, and the complaint was ordered dismissed.