PHILIPPINE NATIONAL BANK, PETITIONER, VS. HON. COURT OF APPEALS (FIFTH DIVISION) & CHU KIM KIT REP­RESENTED BY CHU TONG U, RESPONDENTS.

This is a petition for review of the decision dated February 27,
1976 of the Court of Appeals, affirming the decision of the then Court of First
Instance of Leyte, dated February 27, 1970 which
declared as null and void Transfer Certificate of Title No. T-1439 in the name
of Felisa Boyano, ordered
its cancellation and the reinstatement of Transfer Certificate of Title No. T-1412 of the private respondent, Chu Kim
Kit.

On September 6, 1968,
Chu Kim Kit, represented by his uncle, Chu Tong U, filed in
the Court of First Instance of Leyte against Felisa Boyano an action for
cancellation of the latter’s Certificate of Title No. T-­1439.  The complaint alleged that Chu Kim Kit, a Chinese national and son of defendant Boyano, is the absolute owner of a commercial lot and
building on Rizal Avenue,
Tacloban City,
registered in his name under TCT No. T­-1412 of the
Registry of Deeds of Tacloban City; that in 1945, Chu Kim Kit went to mainland China; that he was prevented
from returning to the Philippines when the Communists took over mainland China;
that through letters, he requested Chu Tong U to take
care of his aforementioned property; that although defendant Boyano was aware that her son was still alive, she executed
an affidavit on May 21, 1963, alleging that he had died and adjudicating to
herself, as his sole heir, the above-described property:  that by means of said affidavit of
adjudication, she was able to obtain Transfer Certificate of Title No. T-1439
in her name; that she thereafter mortgaged the property to the Philippine
National Bank, Tacloban Branch, to secure a loan of
P25,000; and that she is about to dispose of the property.

On October 11, 1968,
the defendant filed her answer, admitting that Chu
Kim Kit was still alive but she alleged that she signed the affidavit of
adjudication without having read its contents, the same being written in
English which she does not understand. 
As affirmative defense, she alleged that plaintiff Chu
Tong U is not the real party in interest, being only an uncle of Chu Kim Kit and co-heir to his estate.

Lucy Perez and the Philippine National Bank, as mortgagees, were
allowed by the trial court to intervene in the action.

On February 27, 1970,
the trial court rendered a decision in favor of the plaintiff, the dispositive portion of which reads:

“WHEREFORE, judgment is rendered:

“(1)    Declaring
Transfer Certificate of Title No. T-1439 null and void and the Philippine
National Bank, Tacloban Branch, now in possession of
said title is required to surrender the same to the Register of Deeds for the
Province of Leyte, and the said Register of Deeds is
ordered to cancel the same.

“(2) 
After the cancellation of Transfer Certificate of Title No.
T-1439, the Register of Deeds of Leyte is ordered to
restore and/or reinstate Transfer Certificate of Title No. T-1412 in form and
substance as it was before its cancellation, without encumbrance annotated
therein except those that were appearing if any there was before the same was
cancelled.

“(3)    That the
mortgages of the property described in said title in favor of the Philippine
National Bank and Lucy Perez are declared null and void insofar as the property
described in the reinstated Transfer Certificate of Title No. T­-1412 is concerned, however, said mortgages are valid evidence of the
existence of the debts of Felisa Boyano
to the mortgagee, Philippine National Bank and Lucy Perez.  Felisa Boyano remains liable to the Philippine National Bank and
Lucy Perez for whatever indebtedness Felisa Boyano obtained from either creditor, Philippine National
Bank and Lucy Perez.

“(4)    Defendant Felisa Boyano is ordered to pay
the costs.” (pp. 33-34, Rollo.)

Both intervenors, Philippine National
Bank and Lucy Perez, appealed the decision to the Court of Appeals.

On February 27, 1976,
the Court of Appeals rendered judgment affirming the trial court’s
decision.  It ruled that:

“The plaintiff is Chu Kim Kit, the
real party in interest.

“There is no question that Chu Kim
Kit is an innocent party.  He has not
committed any act to cause any damage to the intervenors.

“Granting, arguendo, that the
intervenors are mortgagees in good faith, as between
them and the innocent owner, the latter is entitled to
first consideration (Mejia vs. Lazatin, et al., 6
Court of Appeals Reports, 266).

“The intervenors have a remedy.  They can proceed against the defendant in a
personal action for the recovery of the loans extended to her.

“The sum of P10,000.00 paid by the intervenor Lucy Perez to the intervenor
Philippine National Bank is a personal obligation of the defendant and cannot
be considered as a lien on the land in question which admittedly belongs to Chu Kim Kit.” (pp. 36-37, Rollo.)

The PNB is now before us seeking a review of the Court of
Appeals’ decision on the grounds that it –

1.       does
not conform with the evidence; and

2.       it
is contrary to the applicable law and jurisprudence on the matter.

The petition is impressed with merit.  Although the Supreme Court is not a trier of facts, it has the authority to review and reverse
the factual findings of the lower courts if it finds that they do not conform
to the evidence in the record (Ongsiako vs.
Intermediate Appellate Court, 152 SCRA 627).

The records show that Chu Kim Kit
entrusted his Transfer Certificate of Title No. T-1412 to his mother, Felisa Boyano, before he left for
mainland China and allowed his mother to administer the property, and to enjoy
its fruits in his absence.  Those acts of
his enabled Felisa Boyano
to cause the cancellation of TCT No. T-1412 and to obtain TCT
No. T-1439 in her name.  That Felisa Boyano was administering his property may also have created
the impression in the mind of third persons that she was the owner of the
property and could dispose of it.  It is
plain to see that by his own acts of confidence in Felisa
Boyano, the private respondent was partly to blame
for the commission of the fraud against himself by his mother.  As between him and the petitioner which was
totally innocent and free from negligence or wrongdoing in the transaction, the
latter is entitled to the protection of the law.

There is no question that the petitioner PNB is a mortgagee in
good faith and for value.  At the time
the mortgage was constituted on the property on October 30, 1963, it was covered by TCT No. T-1439 in the name of Felisa Boyano.  The
title carried no annotation, defect or flaw that would have aroused suspicion as to its authenticity. “The
certificate of title was in the name of the mortgagor when the land was
mortgaged to the PNB.  Such being the
case, petitioner PNB had the right to rely on what appeared on the certificate
of title, and in the absence of anything to excite suspicion, it was under no
obligation to look beyond the certificate and investigate the title of the
mortgagor appearing on the face of the certificate.” (Gonzales vs.
Intermediate Appellate Court, 157 SCRA 587; Phil. Coop. Bank vs. Carangdang, 139 SCRA 570; Penullar
vs. PNB, 120 SCRA 171; Blanco vs. Esquierdo, 110
Phil. 494.)

The ruling of the trial court and the Court of Appeals that as
the cancellation of TCT No. T-1412 was unauthorized and illegal, the issuance
of TCT No. T-1439 in the name of Felisa Boyano was null and void and the mortgage in favor of the
PNB was likewise null and void, contravenes existing jurisprudence on the
matter.  We agree with the petitioner’s
argument in its brief that:

“In accordance with the provisions and the underlying policies
and intentions of the Land Registration Law, a Transfer Certificate of Title
appearing in the name of Felisa Boyano
although defeasible in the hands of Felisa Boyano is conclusive and
indefeasible in the hands of the petitioner which is an innocent mortgagee for
value.  Thus, it has been held that:

‘Although generally a forged or fraudulent deed is a nullity and
conveys no title, however there are instances when such a fraudulent document
may become the root of a valid title. 
One such instance is where the certificate of title was already
transferred from the name of the true
owner to the forger, and while
it remained that way, the land was subsequently sold to an innocent
purchaser.  For then, the vendee had the
right to rely upon what appeared in the certificate.

“‘Where there was nothing in the certificate of title to
indicate any cloud or vice in the ownership of the property, or any encumbrance
thereon, the purchaser is not required to explore further than what the Torrens
Title upon its face indicates in quest for any hidden defect or inchoate right
that may subsequently defeat his right thereto. 
If the rule were otherwise, the efficacy and conclusiveness of the
certificate of title which the Torrens System seeks to insure would entirely be
futile and nugatory.’ (Fule vs. Legare,
7 SCRA 351).” (pp. 18-19, Petitioner’s Brief, p. 87, Rollo.)

The following rulings of this Court are additionally persuasive:

“x x
x where innocent third persons relying on the
correctness of the certificate of title issued, acquire rights over the
property, the court cannot disregard such rights and order the total
cancellation of the certificate for that would impair public confidence in the
certificate of title; otherwise everyone dealing with property registered under
the torrens system would have to inquire in every
instance as to whether the title had been regularly or irregularly issued by
the court.  Indeed, this is contrary to
the evident purpose of the law.  Every
person dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will
in no way oblige him to go behind the certificate to determine the condition of
the property.  Stated differently, an
innocent purchaser for value relying on a torrens
title issued is protected.  A mortgagee
has the right to rely on what appears in the certificate of title and, in the
absence of anything to excite suspicion, he is under no obligation to look
beyond the certificate and investigate the title of the mortgagor appearing on
the face of said certificate.” (Duran vs. IAC, 138 SCRA
489; Seno v. Mangubat, 156 SCRA 113.)

“x x
x In the case at bar, private respondents, in
good faith relied on the certificate of title in the name of Fe S. Duran and as
aptly stated by respondent appellate court ‘(even on the supposition that the
sale was void, the general rule that the direct result of a previous illegal
contract cannot be valid on the theory that the spring cannot rise higher than
its source) cannot apply here for we are confronted with the functionings of the Torrens System of Registration.  The doctrine to follow is simple enough:  a fraudulent or forged document of sale may
become the ROOT of a valid title if the certificate of title has already been
transferred from the name of the true owner to the name of the forger or the
name indicated by the forger.’ ” (Duran vs. IAC, supra.)

“It is very clear from section 55 of the Land Registration Act
that although an original owner of a registered land may seek the annulment of
a transfer thereof on the ground of fraud, such a remedy, however, is ‘without
prejudice to the rights of any innocent holder for value’ of the certificate of
title.” (Medina v. Chanco, 117 SCRA 201.)

“x x
x When a mortgagee relies upon a Torrens title and loans money in all good faith on the
basis of the title standing in the name of the mortgagor, only thereafter to
discover one defendant to be an alleged forger and the other defendant to have
by his negligence or acquiescence made it possible for the fraud to transpire,
as between two innocent persons, the mortgagee and one of the mortgagors, the
latter who made the fraud possible by his act of confidence must bear the
loss.” (Blondeau, et al. vs. Nano, et al., 61 SCRA 625.)

“x x x We
are convinced that the issue alone that petitioners herein are purchasers in
good faith and for value sufficiently constitutes a bar to the complaint of
private respondents and there being enough proof to that effect, respondent
Judge should have dismissed the complaint of private respondents.  What is more, We have read both the original
and the amended complaints of the private respondents and We cannot discern in
any of them any specific act indicating any participation of the petitioners in
whatever fraud might have attended the original transaction between the parents
of private respondents and J.Q. Wagner. 
(Medina vs. Chanco, 117 SCRA 201.)

“The right or lien of an innocent mortgagee for value upon
the land mortgaged must be respected and protected, even if the mortgagor
obtained his title through fraud.  The
remedy of the persons prejudiced is to bring an action for damages against
those who caused the fraud, and if the latter are insolvent, an action against
the Treasurer of the Philippines
may be filed for recovery of damages against the Assurance Fund” (Blanco,
et al. vs. Esquierdo, 110- Phil. 494).

WHEREFORE, the appealed decision is reversed and set
aside.  The complaint is dismissed.  The real estate mortgages in favor of the
Philippine National Bank and Lucy Perez are declared valid, legal and
enforceable, without prejudice to the right of the property owner, Chu Kim Kit to exercise the mortgagor’s right of redemption
and to claim reimbursement with damages from the mortgagor, Felisa
Boyano.  Costs against the private respondent.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Medialdea, JJ., concur.