GR L 43972; (July, 1990) (Digest)
G.R. No. L-43972 July 24, 1990
PHILIPPINE NATIONAL BANK, petitioner, vs. HON. COURT OF APPEALS (Fifth Division) & CHU KIM KIT represented by CHU TONG U, respondents.
FACTS
Chu Kim Kit, a Chinese national, owned a property in Tacloban City registered under TCT No. T-1412. He went to mainland China in 1945 and was unable to return. Before leaving, he entrusted the title to his mother, Felisa Boyano, and authorized her to administer the property. In 1963, Boyano executed an affidavit falsely alleging her son’s death and adjudicating the property to herself as sole heir. Using this affidavit, she obtained TCT No. T-1439 in her name. She then mortgaged the property to the Philippine National Bank (PNB) to secure a loan. Chu Kim Kit, through his uncle, filed an action to cancel Boyano’s title and reinstate his own. The trial court declared Boyano’s title null and void, ordered its cancellation, and reinstated Chu Kim Kit’s original title, declaring the mortgages to PNB and another party void as liens on the property. The Court of Appeals affirmed this decision.
ISSUE
Whether the Philippine National Bank, as a mortgagee in good faith, acquires a valid lien over the property despite the mortgagor’s title being derived from a fraudulent affidavit of adjudication.
RULING
The Supreme Court reversed the Court of Appeals and upheld the validity of the mortgage in favor of PNB. The legal logic centers on the protection afforded to innocent purchasers or mortgagees in good faith under the Torrens system. The Court found that PNB was a mortgagee in good faith and for value. When the mortgage was constituted, the property was covered by TCT No. T-1439 in Felisa Boyano’s name, which carried no annotation or flaw to arouse suspicion. A mortgagee has the right to rely on what appears on the certificate of title and is not obligated to look beyond it to investigate the history of the mortgagor’s title.
Crucially, the Court ruled that as between two innocent parties—the negligent owner and the innocent mortgagee—the one whose act made the fraud possible must bear the loss. Chu Kim Kit, by entrusting his title to his mother and allowing her to administer the property, enabled her to commit the fraud. His confidence in her created an impression of ownership to third parties. Therefore, he cannot prejudice the rights of PNB, which acted without negligence. The mortgage lien remains valid and enforceable against the property. Chu Kim Kit’s remedy is to seek reimbursement and damages from Felisa Boyano, or potentially from the Assurance Fund. The decision underscores the principle that in the Torrens system, a fraudulent document can become the root of a valid title in the hands of an innocent holder for value, and the rights of such an innocent party are paramount.