HEIRS OF CECILIO C. DALOMIAS, SR., NAMELY, LOURDES DE GUIA WALLACE AND CECILIO O. DALOMIAS, JR., AS REPRESENTED BY LOURDES DE GUIA WALLACE, PLAINTIFFS-APPELLEES, VS. SPS. JULIE …

Heirs of Dalomias versus Spouses Escandor

The Case

This is a case about a family home that was taken out of the hands of its true owners by a forged deed of donation, mortgaged to a bank, and later sold at a foreclosure sale. The heirs of Cecilio Dalomias, Senior, namely Lourdes de Guia Wallace and her brother Cecilio Dalomias, Junior, sued the Spouses Julie and Ernie Escandor, the Register of Deeds of Quezon City, and the Bank of Philippine Islands Family Savings Bank for annulment of the deed of donation, the transfer certificate of title, the deed of real estate mortgage, the certificate of sale, and for damages. The case matters because it tests the limits of the doctrine of the mortgagee in good faith, and it reminds every reviewee that a bank is not an ordinary mortgagee: it is held to a higher standard of diligence before it accepts a Torrens title as security.

Procedural History

The heirs filed their complaint before the Regional Trial Court of Quezon City, Branch 91, and later filed an amended complaint alleging that the deed of donation was falsified and forged. The Spouses Escandor failed to file an answer and were declared in default. The bank answered, claiming it was a mortgagee in good faith. After pre-trial, the trial court rendered its decision on January 18, 2012, declaring the deed of donation, the transfer certificate of title, and the mortgage loan agreement null and void, and ordering the Register of Deeds to reinstate the original title in the names of the Dalomias spouses. The bank filed a notice of appeal. The Court of Appeals is not discussed in the decision text. The appeal reached the Supreme Court, which decided the case through the decision reproduced here, denying the appeal and affirming the trial court.

Facts

The Spouses Cecilio Dalomias, Senior, and Soledad Dalomias owned a four hundred square meter property in Diliman, Quezon City, covered by a transfer certificate of title issued in their names, and they built their family home there. Cecilio, Senior, died on November 8, 2002, and Soledad died on January 29, 2004. They were survived by their son Cecilio Dalomias, Junior, who is mentally disabled and diagnosed with schizophrenia, and by Lourdes de Guia Wallace, the recognized illegitimate daughter of Cecilio, Senior. Lourdes was later appointed judicial guardian of Cecilio, Junior.

Julie Escandor is the niece of Cecilio, Senior, by his youngest sister. She was raised by the Dalomias spouses and had lived in their home since 1968. In 2005, the heirs discovered that by virtue of a notarized deed of donation dated August 30, 2004, purportedly executed by the Dalomias spouses in favor of the Spouses Escandor, the title was cancelled and a new title was issued in the names of the Spouses Escandor on August 31, 2004. The deed of donation could not have been genuine, because both donors were already dead on that date.

The Spouses Escandor then obtained a loan of three million three hundred thousand pesos from the bank on July 15, 2005, using the property as security, and the mortgage was annotated on the title. When they failed to pay, the bank foreclosed the mortgage extrajudicially and emerged as the highest bidder, and the certificate of sale was annotated on the title. The heirs then sued to annul the donation, the title, the mortgage, and the sale.

Issues

• Whether or not the deed of donation dated August 30, 2004 was validly executed by the Spouses Dalomias.
• Whether or not the transfer certificate of title issued in the name of the Spouses Escandor has legal effect.
• Whether or not the deed of mortgage and the certificate of sale in favor of the bank are valid.
• Whether or not the bank was a mortgagee in good faith entitled to protection under the law.

Applicable Provisions

The decision does not quote a specific statutory article; it applies the settled doctrine of the mortgagee in good faith, which the Court restates in these words:

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by the Torrens Certificates of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.

This doctrine is the very rule the bank invoked, and the Court measured the bank's conduct against it.

Ruling

On the first issue, the Court found no reason to reverse the trial court. Although the deed of donation was notarized and carries the presumption of regularity, that presumption is not absolute and may be rebutted by clear and convincing evidence. The Court held that the Dalomias spouses could not have signed the deed on August 30, 2004, because Cecilio, Senior, had died on November 8, 2002, and Soledad had died on January 29, 2004. Their signatures were therefore forgeries.

On the second issue, the Court affirmed that the new title in the name of the Spouses Escandor was void, because the cancellation of the original title was effected by means of a spurious and forged deed, and all derivative titles emanating from it are likewise void. A forged or fraudulent deed is a nullity and conveys no title.

On the third and fourth issues, the Court rejected the bank's claim of good faith. A mortgagee may generally rely on what appears on the face of the title, but this doctrine presupposes that the mortgagor had already obtained a valid Torrens title in his own name. The Court stressed that the bank is not an ordinary mortgagee but a mortgagee bank, and banks are expected to be more cautious than ordinary individuals, since banking is imbued with public interest. The bank hastily approved the loan without verifying the authenticity of the borrowers' income tax returns, which the Bureau of Internal Revenue certified had no record for the years 2002, 2003, and 2004. It also failed to note the highly suspicious one-day interval between the execution of the deed of donation and the issuance of the new title. The Court held that anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered an innocent mortgagee for value. The mortgage and the foreclosure sale were therefore void.

Doctrine

A mortgagee in good faith may rely on the face of a Torrens title, but only where the mortgagor had already obtained a valid title in his own name. A bank is not an ordinary mortgagee; it is bound to exercise a higher degree of diligence, and the ascertainment of the status of the property offered as security is a standard and indispensable part of its operations. A forged or fraudulent deed is a nullity and conveys no title, and every title derived from it is likewise void. The presumption of regularity of a notarized document is not absolute and yields to clear and convincing evidence of forgery.

Disposition

The Supreme Court denied the bank's appeal and affirmed the trial court's decision declaring the deed of donation, the transfer certificate of title, and the mortgage loan agreement null and void, and ordering the reinstatement of the original title in the names of the Dalomias spouses.

Remember This

The single line to memorize: a bank is not an ordinary mortgagee, and it cannot close its eyes to facts that would arouse suspicion in a prudent person. Examiners use this case to test the mortgagee in good faith doctrine and the higher diligence required of banks in taking Torrens titles as security.