G.R. No. L-55144 November 11, 1985
PHILIPPINE NATIONAL COOPERATIVE BANK (Dagupan Branch), petitioner, vs. HON. FELICIDAD CARANDANG-VILLALON, District Judge, Court of First Instance of Pangasinan, Branch III, Dagupan City; ARTURO BENGZON and DR. VICENTE V. JIMENEZ, as Executor-Administrators of the Estate of Dionisio Galvan and Carmen Cabrera; and the HEIRS OF DIONISIO GALVAN and CARMEN CABRERA, respondents.

FACTS

Faustino Galvan owned a parcel of land in Dagupan City. On February 4, 1964, he donated the property to his daughter, Aida Galvan, and Transfer Certificate of Title (TCT) No. 17418 was issued in her name. Faustino was a lessee of spouses Dionisio Galvan and Carmen Cabrera, who sued him for unpaid rentals and obtained a money judgment in 1965. After the spouses died, administrators for their estates were appointed. In 1966, Aida and her husband obtained a loan from petitioner Philippine National Cooperative Bank (the Bank), secured by a real estate mortgage on the property, which was duly annotated on Aida’s TCT on July 8, 1966.
The administrators of the spouses’ estates later filed an action to annul the donation from Faustino to Aida on the ground of fraud against creditors. The Court of Appeals eventually annulled the donation, and this decision was inscribed on the title on August 23, 1973. Subsequently, the property was levied upon and sold at public auction to the administrators in 1977 to satisfy the rental judgment. In 1977, the Bank extrajudicially foreclosed its mortgage, but the Register of Deeds refused to register the certificate of sale, asserting Aida was no longer the owner. The Bank then filed an action for quieting of title.

ISSUE

Whether the Bank’s mortgage rights, acquired in good faith based on Aida’s Torrens title, are protected despite the subsequent annulment of the donation that vested title in her.

RULING

Yes. The Supreme Court reversed the amended decision of the trial court and upheld the Bank’s mortgage rights. The Court applied the settled principle that an innocent mortgagee for value is entitled to protection under the Torrens system. The Bank, when it accepted the mortgage on July 8, 1966, relied on Aida’s TCT No. 17418, which was regular on its face. There was nothing on the certificate of title at that time to excite suspicion or obligate the Bank to look beyond it and investigate the validity of Aida’s title. The subsequent annulment of the donation, which retroacted to its date in 1964, did not invalidate the mortgage because the Bank was not a party to the fraud and acted in good faith.
Citing Blanco v. Esquierdo and Penullar v. Philippine National Bank, the Court emphasized that a mortgagee has the right to rely on the face of a Torrens certificate of title. The Bank was under no duty to investigate the title’s history, such as the potential invalidity of the antecedent donation. The claim that the Bank should have investigated is as unreasonable as expecting the spouses’ administrators to have filed the annulment case with a notice of lis pendens before the mortgage was constituted. Consequently, the Bank’s lien must be respected and protected. The Register of Deeds was ordered to cancel the adverse annotations on the title and to allow registration of the Bank’s foreclosure sale, without prejudice to the heirs’ right of redemption.