MANILA SURETY & FIDELITY CO., INC., PLAINTIFF AND APPELLEE, VS. JOSE M. LUNA, DEFENDANT AND APPELLANT.

The Manila Surety & Fidelity Co., Inc. brought this action
against Jose M. Luna before the Court of First Instance of Manila to
recover the sum of P3,506.90, with 12 per cent interest thereon from
January 2, 1947, and 15 per cent on the principal amount as attorneys’
fees.

Luna answered the complaint disclaiming responsibility for the
amount claimed therein but at the same time he impleaded as third party
defendants Jose Calderon, Precioso S. Peña and Jose B. Herrera alleging
connivance on their part in the commission of the forgery which
plaintiff company now wants to pin on him. In due time, the third party
defendants answered the complaint of Luna setting up certain specific
defenses.

The case having been submitted on a stipulation of facts, the court,
on April 26, 1956, rendered decision in favor of plaintiff and against
defendant Jose M. Luna, ordering the latter to pay plaintiff the sum of
P8,506.90, with 6 per cent interest thereon from January 4, 1947, and
the sum of P350.00 as attorneys’ fees, plus the costs of action. After
Luna had taken the case on appeal to the Court of Appeals, the case was
certified to us on the ground that only questions of law are involved.

The facts, as found by the trial court, are:

“From the pleadings and. the stipulation of facts
submitted by the parties, the following facts appear: Defendant Jose M.
Luna was the registered owner of a parcel of land and the improvements
thereon, located at No. 410 Peñarubia, Manila, and covered by Transfer
Certificate of Title No. 44225 of the Register of Deeds of Manila. The
said property was previously mortgaged to El Hogar Filipino but was,
sometime in 1946, redeemed by the defendant for the purpose of having
the same negotiated. He entrusted the same to Jose Calderon sometime in
the middle of 1946 in order that the latter may find and contact
someone who would be willing to extend a, loan of P5,000 or P6,000 on
the guaranty of the property. Somehow, or another, the said title with
other documents evidencing ownership of the property came into the
hands of another person who went to the Manila Surety and Fidelity Co.,
Inc., and representing himself to be Jose M. Luna solicited for a
credit accommodation of P5,000.00 to P6,000.00. That on September 4,
1946, the surety company agreed to accommodate the credit solicited and
accordingly signed a promissory note, as co-maker with the person who
represented himself as the defendant, in favor of the Philippine
National Bank for the sum of P3,500. This promissory note was taken by
that person to the Philippine National Bank and a cashier’s check for
P3,430.60 was issued by the bank. Said individual, continuing the
masquerade, signed the check as payee thereof and withdrew the face
value thereof. As security in favor of the surety company, this person
also executed as indemnity agreement in favor of said company and
delivered the title of the property and the other documents evidencing
title under a deed of mortgage. The promissory note in favor the
Philippine National Bank fell due and the surety company sent a letter
of notification to Jose M. Luna. This notice was received by the
defendant in this case sometime in December, 1946, and he went to the
company to inform them that he had not entered into the transaction
mentioned in the letter of notification. When’ the promissory note fell
due, the surety company had no choice but to pay the Philippine
National Bank and then instituted the present action to recover the
amount it had paid to the Bank,”

In reaching the conclusion that defendant Luna must bear the loss
occasioned by the forgery committed by the person who impersonated him
when he approached the officials of the plaintiff company seeking its
accommodation for a loan he wanted to obtain from the Philippine
National Bank, the trial court made the following observation:

“Defendant Jose M. Luna admits that sometime in the
middle part of 1946 he parted with his title to the property and other
documents evidencing ownership over the same. He claimed to have
delivered them to Jose Calderon whom he had authorized to look for a
person who would be willing to give a loan on the property in the sum
of P5,000 or P6,000.00. While there is nothing in the records to show
that Jose Calderon was the person who represented himself to the
plaintiff company as Jose M. Luna, nor to the effect that the person
who negotiated with the surety-company was a sub-agent or person
connected with Jose Calderon, yet, the act remains that the defendant
had clothed a third person with apparent, if not real authority, to
negotiate his property for a loan. The rule of equity and which is the
rule in our jurisdiction is—As between two innocent persons, one of
whom must suffer the consequence of a breach of trust, the one who made
it possible by his act of confidence must bear the loss. (Blondeau vs.
Nano, 61 Phil., 625.) Applying this principle on the case at bar, the
Court must necessarily arrive at the conclusion that the defendant must
bear the loss.”

This ruling is now assigned as error, appellant contending that he
cannot be made to answer for the loss because while he entrusted his
title and other pertinent papers to one Jose Calderon it was merely for
a specific purpose and not to authorize him to make use of them in any
transaction to his prejudice. We are inclined to uphold this contention.

To begin with, we are of the opinion that the ruling in the Blondeau
case cited by the trial court in support of its conclusion that
defendant Luna must bear the loss cannot be invoked in the instant case
considering that the facts obtaining in both cases are different. The
Blondeau case refers to the foreclosure of a mortgage on a land
belonging to one Jose Vallejo whose signature was forged by one Agustin
Nano even if the documents of title were entrusted by Vallejo to Nano
which made it possible for the latter to commit the fraud. The property
was covered by a Torrens title, and on the strength of that title
Angela Blondeau, the creditor, was inveigled into agreeing to grant the
loan only to find later that the signature of the owner has been
forged. In holding that between the owner and the mortgagee the latter
should be protected, this Court said: “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.” And in explaining the philosophy
behind this ruling, the Court made this significant pronouncement: “The
Torrens Act permits a forged transfer, when duly entered in the
registry, to become the root of a valid title in a bona fide
purchaser. The act erects a safeguard against a forged transfer being
registered, by the requirement that no transfer shall be registered
unless the owner’s certificate was produced along with the instrument
of transfer. An executed transfer of registered lands placed by the
registered owner thereof in the hands of another operates as a
representation to a third party that the holder of the transfer is
authorized to deal with the lands.”

The facts obtaining in the present case are different. While it is
true that defendant Luna entrusted to one Jose Calderon his owner’s
duplicate copy of Transfer Certificate of Title No. 4425 and other
pertinent papers in order to enable Calderon to contact the person whom
he assured was willing to extend a loan on the guarantee of the
property, and availing himself of said documents the impostor
approached plaintiff company and represented himself to be the person
mentioned in said documents, the company however limited itself to
agreeing to act as a co-signer of a promissory note and as a security
therefor it merely made the impostor execute an indemnity agreement in
its favor. In other words, the company did not obtain in its favor a
mortgage on the land belonging to Luna, but contented itself with
obtaining his personal guarantee. Such being the case, the company
cannot now shield itself behind the protective fold of the Land
Registration Act which protects one who deals in good faith with lands
covered by Torrens title by relying on what appears on the title
itself. We have here, therefore, a case where plaintiff merely relied
on the assurance given by the impostor himself rather than on the
intrinsic value of the title itself, or to be more specific, this case
resolves itself into a question of identification.

In dealing with the impostor, the company should have taken, the
necessary precaution to ascertain his identity, or that he is the real
person mentioned in the document, and having failed to do so, it
undertook the transaction at its own peril. Such failure is considered
more glaring considering that plaintiff is a business enterprise
dealing with the public and is assisted by a notary public whose duty
is to ascertain the identity of the person who appears before him. It
is not without a purpose that the law requires that a party who appears
before a notary public should exhibit his certificate of residence to
avoid any impersonation, and if this was made possible here, it must be
because1 the notary public failed to act with the diligence required by
the circumstances. To plaintiff, therefore, applies fittingly the
following admonition of this Court:

“* * * But, where the title was still in the name,
of the real owner when the land was mortgaged to the plaintiffs by the
impostor, although it was not incumbent upon them to inquire into, the
ownership of the property and so beyond what was stated on the face of
the certificate of title, it was their duty to ascertain the
identity of the man with whom they were dealing, as well as his legal
authority to convey. That duty devolves upon all persons buying
property of any land, and one who neglects it does so at his peril.” (De Lara, et al. vs. Ayroso, 96 Phil., 185, 50 Off. Gaz. No. 10, 4838; Italics supplied.)

Wherefore, the decision appealed from is reversed. The complaint is dismissed, with costs against appellee.

Paras, C.J., Bengzon, Montemayor, Labrador, Concepcion, Reyes, J. B. L., Endencia, and Gutierrez David, JJ., concur.
Barrera, J., concurs in the result.