Mortgagee in Bad Faith When Reliance on Forged SPA Nullifies Real Estate Mortgage

The Supreme Court, in Dadis v. Spouses De Guzman (G.R. No. 206008, June 7, 2017), ruled that a mortgagee who relies on a forged Special Power of Attorney (SPA) without verifying the mortgagor's authority cannot claim the protection of a mortgagee in good faith. The decision clarifies the duty of lenders to exercise greater care when dealing with a person who is not the registered owner of the property.

The Facts

Delfin Dadis and his wife Corazon were the registered owners of a parcel of land in Nueva Ecija. In December 1996, their daughter Marissa mortgaged the property to Spouses De Guzman to secure a P210,000 loan. Marissa presented an SPA dated December 10, 1996, purportedly authorizing her to mortgage the property.

Delfin, however, was in the United States at the time and had not signed the SPA. The document was forged. The mortgage was later foreclosed, and the property was consolidated in the names of the Spouses De Guzman. Delfin filed a complaint for reconveyance and damages.

The Issue

The central issue was whether Spouses De Guzman were mortgagees in good faith when they accepted the mortgage based on the forged SPA. Both the trial court and the Court of Appeals agreed the SPA was forged, but they disagreed on whether the mortgagee acted in good faith.

The Ruling

The Supreme Court reversed the Court of Appeals and reinstated the trial court's decision declaring the mortgage void. The Court held that Spouses De Guzman were not mortgagees in good faith.

Greater Care Required When Dealing with Non-Owners

The Court emphasized that the doctrine of mortgagee in good faith protects those who rely on what appears on the face of a Torrens title. However, this protection does not extend to mortgagees of properties not registered under the mortgagor's name. When a mortgagee does not directly deal with the registered owner but with an attorney-in-fact, the mortgagee must exercise greater care and a higher degree of prudence.

Actual Notice of Facts Requiring Inquiry

The Court found that Magtanggol De Guzman had actual notice of facts that should have prompted deeper inquiry. He admitted that he required the SPA because he knew Delfin was absent. He knew Corazon could not mortgage the property alone. Despite this knowledge, he did not question the due execution of the SPA.

The Notarization Was Irregular

While a notarized document enjoys a presumption of regularity, this presumption was rebutted by clear and convincing evidence. Delfin's passport showed he was abroad, and a tenant corroborated his absence. The Court noted that when notarization is defective, the document loses its public character and becomes a private document requiring proof of due execution. The mortgagee failed to present such proof.

A Void Contract Cannot Be Ratified

The Court also ruled that the encumbrance of conjugal property without the consent of both spouses is void under Article 124 of the Family Code. A void contract cannot be validated by ratification or prescription. Since the SPA was forged, the mortgage and the subsequent foreclosure were void ab initio.

Practical Takeaways

• Verify authority, not just the title. When the mortgagor is not the registered owner, the mortgagee must look beyond the certificate of title and examine the authority of the person executing the mortgage.
• A notarized SPA is not conclusive. The presumption of regularity of a notarized document can be overcome by clear and convincing evidence of forgery, such as proof that the owner was abroad at the time of execution.
• Do not ignore red flags. If the mortgagee knows the owner is absent or that the spouse cannot act alone, the mortgagee must make further inquiries. Deliberate ignorance of suspicious circumstances constitutes bad faith.
• Acting in haste is risky. Entering into a mortgage the day after an SPA is executed, without verifying its authenticity, may indicate negligence that defeats the claim of good faith.
• Void transactions cannot be cured. A mortgage of conjugal property without the written consent of both spouses is void and cannot be ratified, even if the mortgagee later informs the owner of the transaction.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.