G.R. No. 243470 - Spouses Yabut vs. Nachbaur

Case Summary (G.R. No. 243470)

Factual Background

The property in dispute was a parcel at 1150 Lardizabal St., Sampaloc, Manila covered by Transfer Certificate of Title No. 196082 and alleged to be owned by Jose So and Antonio So. On July 2, 2007, the brothers So purportedly sold the property to petitioners for P3,300,000.00. Petitioners, through Manuel, took possession and received the original owner’s duplicate copy of TCT No. 196082 from Antonio after payment. Manuel engaged one Fe Manubay to effect registration of the sale and surrendered the title and BIR documents to Fe and paid Fe P20,000.00. Fe later delivered a purported new title, TCT No. 271840, registered in Manuel’s name, which the Register of Deeds later declared fake. In November 2007 an annotation appeared on TCT No. 196082 reflecting a Special Power of Attorney purportedly executed in favor of Anita Ignacio and a Deed of Real Estate Mortgage and promissory note dated December 6, 2007, securing a loan of P800,000.00 from respondent; respondent gave P760,000.00 after deduction of interest. Manuel discovered the mortgage only when persons conducted an ocular inspection and presented an Owner’s Duplicate Certificate annotated with the SPA and REM. Manuel later filed criminal complaints against Fe for estafa and falsification and annotated an Adverse Claim on the title. Manuel then filed a complaint for annulment of the SPA and REM and for surrender of the withheld original owner’s duplicate copy of TCT No. 196082.

Trial Court Proceedings

The Regional Trial Court, in a decision dated June 27, 2016, dismissed the complaint. The RTC found that petitioners failed to prove forgery by clear and convincing evidence. The RTC further held that respondent was a mortgagee in good faith because the Torrens title is incontrovertible and indefeasible and respondent had no notice of any lien or encumbrance appearing on the title. The RTC reasoned that, absent circumstances that would arouse suspicion, respondent was entitled to rely on the certificate of title and that the unregistered deed of sale in favor of petitioners did not bind respondent. The RTC granted respondent’s counterclaim for attorney’s fees in the amount of P50,000.00.

Ruling of the Court of Appeals

The Court of Appeals, in a Decision dated July 20, 2018, affirmed the RTC. The CA held that because the sale in favor of petitioners was not registered, it could not affect third persons. The CA reiterated that registration is the operative act that conveys or affects land as to third parties and that respondent, as mortgagee, need not look beyond the certificate of title for hidden defects or encumbrances in the absence of suspicion. Accordingly, the CA found respondent to be a mortgagee in good faith.

Issues Presented

The central issue was whether respondent was a mortgagee in good faith such that the Deed of Real Estate Mortgage dated December 6, 2007 is superior to the unregistered deed of sale in favor of petitioners.

Parties' Contentions

Petitioners argued that the SPA, REM, and promissory note were forged and that the brothers So and Anita categorically denied executing those documents; petitioners presented the Deed of Absolute Sale and the affidavits and testimony of the registered owners to show glaring disparity between genuine signatures and the questioned instruments. Petitioners further contended that respondent failed to exercise due diligence and should have made inquiries given that Anita acted as an agent. Respondent countered that forgery was not proved by clear and convincing evidence because there was no comparative presentation of genuine signatures and that she was a mortgagee in good faith entitled to rely on the certificate of title without looking beyond it.

Ruling of the Supreme Court

The Supreme Court granted the petition, reversed and set aside the CA Decision, and annulled the Special Power of Attorney dated November 15, 2007, the Deed of Real Estate Mortgage dated December 6, 2007, and the Promissory Note dated December 6, 2007 for being spurious. The Court directed the Register of Deeds of Manila to cancel the annotations in the title pertaining to those instruments. The Court ordered respondent to surrender to petitioners, through their attorney-in-fact Manuel Yabut, the Original Owner’s Duplicate Copy of TCT No. 196082, and, if respondent could not surrender it, directed the Register of Deeds to issue a new Original Owner’s Duplicate Copy of TCT No. 196082 free from encumbrances relating to the SPA, REM, and promissory note.

Legal Basis and Reasoning

The Court recognized the general limitation on review of factual findings under Rule 45, Rules of Court but explained the exception permitting examination when findings are based on misapprehension of facts or are contradicted by the evidence. The Court found that petitioners sufficiently proved forgery by comparing the signatures on the questioned instruments with the genuine signatures on the Deed of Absolute Sale and the affidavits of Antonio, Jose, and Anita. The Court reiterated that forgery must be proved by clear, positive, and convincing evidence and that presentation of handwriting experts is not required when the dissimilarity is apparent to the naked eye. Citing decisions such as Philippine Trust Company v. Gabinete and Mendoza v. Fermin, the Court found the signatures on the SPA, REM, and promissory note to be visibly dissimilar from the genuine signatures and declared those instruments spurious. The Court then addressed the mortgagee in good faith doctrine. While acknowledging that persons dealing with Torrens titles ordinarily may rely on the certificate of title, the Court emphasized that the doctrine does not apply where the mortgagee does not directly deal with the registered owner. Citing authorities including Philippine Banking Corporation v. Dy, Andres v. Philippine National Bank, Dadis v. Sps. De Guzman, and Arguelles v. Malarayat Rural Bank, Inc., the Court held that a mortgagee transacting wit

Case Syllabus (G.R. No. 243470)

Parties and Procedural Posture

SPOUSES DANILO I. YABUT AND NELDA YABUT, REPRESENTED BY THEIR ATTORNEY-IN-FACT, MANUEL C. YABUT, PETITIONERS filed a Petition for Review on Certiorari under Rule 45, Rules of Court challenging the cancellation and annulment of instruments and the surrender of an original owner's duplicate title.
MICHELLE C. NACHBAUR, RESPONDENT was the mortgagee against whom the complaint for annulment of the Special Power of Attorney, Deed of Real Estate Mortgage, and Promissory Note was filed in the Regional Trial Court of Manila, Branch 55, Civil Case No. 08-119524.
The Regional Trial Court rendered a Decision dated June 27, 2016 dismissing petitioners' complaint and awarding respondent attorney's fees of P50,000.
The Court of Appeals affirmed the RTC in a Decision dated July 20, 2018 in CA-G.R. CV No. 109165, prompting the present petition to the Supreme Court.
The Supreme Court, through the ponencia of Carandang, J., granted the petition and reversed the CA decision on the grounds stated below.

Key Facts

Petitioners alleged that brothers Jose So and Antonio So sold the subject property located at 1150 Lardizabal St., Sampaloc, Manila to the spouses Yabut on July 2, 2007 for P3,300,000.00 and that Manuel took possession pursuant to a lease since 2001.
Petitioners alleged that after payment Antonio gave Manuel the original owner's duplicate copy of TCT No. 196082 and that Manuel entrusted the title to one Fe Manubay to effect transfer for a fee of P20,000.00.
Fe purportedly delivered to Manuel a TCT No. 271840 in Manuel's name which the Register of Deeds later declared a fake instrument.
Annotations on the original owner's duplicate of TCT No. 196082 reflected a Special Power of Attorney dated November 15, 2007 and a Deed of Real Estate Mortgage with a Promissory Note dated December 6, 2007 securing a loan of P800,000.00 allegedly in favor of Respondent.
Respondent testified that she was introduced to Anita through intermediaries, that Anita presented identification, surrendered the original title and tax declaration, and received P760,000.00 after a five percent deduction, and that postdated checks were issued but bounced.
Petitioners annotated an Adverse Claim and Manuel filed criminal complaints against Fe for estafa and falsification and later filed the instant complaint for annulment and surrender of the withheld original title.

Trial Court Ruling

The RTC found that petitioners failed to prove forgery by clear and convincing evidence and therefore dismissed the complaint for annulment of the SPA and REM.
The RTC ruled that Respondent was a mortgagee in good faith because the torrens title did not show any annotation of the deed of sale to petitioners and the purchaser's unregistered interest did not bind third persons.
The RTC granted respondent's counterclaim and imposed attorney's fees of P50,000.00 on petitioners.

Court of Appeals Ruling

The CA affirmed the RTC on the ground that an unregistered sale cannot affect third persons and that the act of registration is the operative act to convey or affect land.
The CA held that Respondent was justified in relying on the certificate of title and had no obligation to look beyond the title for hidden defects or encumbrances.

Issue

Whether Respondent is a mortgagee in good faith such that the Deed of Real Estate Mortgage is superior to the unregistered Deed of Sale in favor of petitioners.

Petitioners' Contentions

Petitioners contended that the signatures on the SPA, REM, and Promissory Note were forged and that the brothers So and Anita categorically denied those signatures in testimony and affidavits.
Petitioners contended that the presentation of the Deed of Absolute Sale and the joint affidavits constituted comparative genuine signatures sufficient to prove forgery by clear, positive, and convincing evidence.
Petitioners contended that Respondent fai