Presumption of Consideration: Bank's Good Faith Upholds Mortgage Despite Forged Deed Claim

The Supreme Court recently reaffirmed a critical protection for banks and lenders in the Philippines: a mortgagee-bank that conducts proper due diligence can keep its mortgage and foreclosed property even if the borrower's title traces back to an allegedly forged deed. The case of Heirs of Paz Macalalad v. Rural Bank of Pola, Inc. (G.R. No. 200899, June 20, 2018) clarifies how the Torrens system's reliability, combined with a bank's duty to inspect, determines who bears the loss when fraud taints a property's chain of title.

The Facts of the Case

Leopoldo Constantino, Jr. owned a 42,383-square-meter parcel of land in Naujan, Oriental Mindoro, registered under TCT No. RT-124 (T-45233). He died intestate on November 13, 1995, leaving his sister Paz Macalalad as his sole surviving heir.

Three years after Leopoldo's death, on July 14, 1998, a Deed of Sale purportedly bearing his signature transferred the property to Spouses Remigio and Josephine Pimentel. A new title (TCT No. T-96953) was issued in their names. The Pimentels then obtained a loan from the Rural Bank of Pola, Inc., using the property as collateral.

When the Pimentels defaulted, the bank foreclosed and emerged as the highest bidder. A new title (TCT No. T-117484) was issued in the bank's name.

Paz filed a complaint seeking to nullify the bank's title, arguing the deed of sale was a forgery because Leopoldo had died before it was executed. She claimed the bank acted in bad faith by accepting the property as collateral without properly verifying ownership.

The Issue

The central question was whether the Rural Bank of Pola was a mortgagee in good faith despite the alleged forgery of the deed from Leopoldo to the Pimentels.

The Ruling

The Supreme Court denied the petition and affirmed the rulings of both the Regional Trial Court and the Court of Appeals, holding that the bank was indeed a mortgagee and purchaser in good faith.

The Nemo Dat Rule and Its Exception

The Court reiterated the principle nemo dat quod non habet—no one can give what one does not have. If the deed was forged, the Pimentels never acquired ownership and could not validly mortgage the property.

However, the Court recognized a crucial exception: a forged deed can legally be the root of a valid title when an innocent purchaser for value intervenes. Under Section 32 of Presidential Decree No. 1529, this protection extends to innocent mortgagees and other encumbrancers for value.

Banks Have a Higher Duty of Care

The Court emphasized that a bank is not an ordinary mortgagee. Because banking is impressed with public interest, a bank cannot rely merely on the certificate of title. It must:

• Conduct an ocular inspection of the property
• Verify the genuineness of the title
• Determine the real owners before approving a loan

In this case, the bank sent a representative/appraiser who inspected the property and prepared a Report of Inspection and Credit Investigation. The bank also verified with the Register of Deeds that the title was indeed in the Pimentels' name. This satisfied the bank's duty of due diligence.

Burden of Proof on the Claimant

The Court noted that the burden of proving good faith lies on the party asserting it, and this cannot be discharged by merely invoking the legal presumption of good faith. Here, the bank successfully discharged this burden through its documented inspection and verification procedures.

Practical Takeaways

• Torrens titles carry strong presumptions. A person dealing with registered land may rely on the correctness of the certificate of title and is generally not obliged to look beyond it—unless circumstances put him on inquiry.
• Banks face stricter standards. Unlike private individuals, banks must conduct ocular inspections and verify titles before accepting property as collateral. Failure to do so can expose them to liability.
• Document everything. The bank's victory hinged on its documented inspection report and credit investigation. Lenders should maintain complete records of their due diligence.
• Forged deeds are not automatically fatal. An innocent purchaser for value can acquire valid title even from a forged deed, but the burden of proving that status is on the party claiming it.
• Indispensable parties matter. The Court noted that the Pimentels were indispensable parties to the claim for reissuance of title, and their absence from the case affected the petitioners' ability to pursue that remedy.

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